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Will ER expenses trend up, down or stay flat?
Old 01-25-2013, 03:53 PM   #1
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Will ER expenses trend up, down or stay flat?

I have linked to articles (thanks to the Oblivious Investor for the initial links) that discuss if our expenses in retirement will stay flat (inflation adjusted), rise or fall with time.

Will Your Income Needs Trend Down as You Age?

How Do Spending Needs Evolve During Retirement?

For those familiar with Bernicke (highly recommend reading his paper), the argument for trending down of expenses will be familiar.

James Shambo argues that expenses might very well go up to keep up with the increasing standard of living. He introduces a Hedonic Pleasure Index which is quite interesting. I got the original from my library online research page, but couldn't find it on the web.

Hedonic Pleasure Index: Going beyond the CPI - MarketWatch

I think it is worthwhile to follow these developments & understand them, but ymmv. Also, people on this forum are very conscious of their spending, so we may be very different from the average.
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Old 01-25-2013, 04:42 PM   #2
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The articles were interesting. The stuff about the Hedonic Pleasure Index is interesting.

My own observation among people that I know, my family, and my husband's family is that later in age, overall spending does decline and not because of lack of money. Some is due to overall health and slowing down. My mother in her late 80s doesn't go on many trips or out to eat a lot -- even if someone else is paying for it -- because it is tiring to her.

All of that said, while I agree about people perhaps being willing to spend more for quality improvements, new and cool things, my own experience is that this is less of an issue as people age. I see a couple of reasons for it.

One - by the time of typical retirement age a lot of people have by then bought what they want and tried what they wanted and don't want to do it again even for something that might be better. I was a spender when younger and I tried a lot of luxury goods, took expensive trips, etc. Now - I don't have much desire to do it because I've done it. I might be able to stay at an even nicer hotel now or travel in an even more luxurious manner - but basically I satisfied my need to travel to X 20 years ago. Or, I bought the expensive piece of jewelry then and don't have the need to buy more now.

Two - As people age and new products come out or new improvements, many people don't want to even try something new. My mother's basic expenses are lower in part because she doesn't have internet access or a computer. These things came out after she retired and so she doesn't see them as a need and she has no interest in learning about them. She is not tempted to buy them even though they might be seen as an improvement in standard of living. I know some people who find it not at all compelling to buy a vehicle with many of the newer safety features feeling they've driven for 30 or 40 years without them so they aren't necessary. And so on.

Obviously a lot of this depends on the individual.
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Old 01-25-2013, 04:51 PM   #3
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Quote:
Originally Posted by walkinwood View Post
I have linked to articles (thanks to the Oblivious Investor for the initial links) that discuss if our expenses in retirement will stay flat (inflation adjusted), rise or fall with time.

Will Your Income Needs Trend Down as You Age?

How Do Spending Needs Evolve During Retirement?

For those familiar with Bernicke (highly recommend reading his paper), the argument for trending down of expenses will be familiar.

James Shambo argues that expenses might very well go up to keep up with the increasing standard of living. He introduces a Hedonic Pleasure Index which is quite interesting. I got the original from my library online research page, but couldn't find it on the web.

Hedonic Pleasure Index: Going beyond the CPI - MarketWatch

I think it is worthwhile to follow these developments & understand them, but ymmv. Also, people on this forum are very conscious of their spending, so we may be very different from the average.
I am very conscious of my spending, but I am (intentionally) spending more in retirement than I did before. As I enter the 4th year of my retirement, and find that despite my spending my nest egg is STILL THERE and doing fine (will wonders never cease?), well, that is very encouraging. Perhaps this is another factor adding to the Hedonic Pleasure Index factor.... maybe I could call it the No-Longer-Quite-So-Doggone-Timid factor.
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Old 01-25-2013, 05:25 PM   #4
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Hate to be a downer, but medical expenses will likely trend upward.

Estimating Retirement Medical Expenses - Planning to Retire (usnews.com)
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Old 01-25-2013, 05:45 PM   #5
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Hate to be a downer, but medical expenses will likely trend upward.

Estimating Retirement Medical Expenses - Planning to Retire (usnews.com)
I was thinking the exact same but did not have a link with stats to back up the anecdotal evidence of this I have seen with my family (mother, aunts, uncles, etc.): In every case, increasing medical costs more than exceed savings from expense reduction in travel, dining, clothes, etc.

I find this both sad and frightening.
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Old 01-25-2013, 06:13 PM   #6
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Hate to be a downer, but medical expenses will likely trend upward.

Estimating Retirement Medical Expenses - Planning to Retire (usnews.com)
Following the laws of supply and demand, I also expect that assisted living and nursing home costs will trend upwards much faster than inflation, as the aging baby boomers create more demand for these services.
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Old 01-25-2013, 06:21 PM   #7
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Following the laws of supply and demand, I also expect that assisted living and nursing home costs will trend upwards much faster than inflation, as the aging baby boomers create more demand for these services.
I think medical advances will decrease morbidity or at least compress it. This will lead to higher medical expenses but individuals will spend less time in nursing homes.

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Old 01-25-2013, 06:39 PM   #8
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I think medical advances will decrease morbidity or at least compress it. This will lead to higher medical expenses but individuals will spend less time in nursing homes.

NMF
That would be so cool! I hope you are right.
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Old 01-26-2013, 01:15 AM   #9
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This is my feeling also. One of the reasons why I bought LTCI in 2012.

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Following the laws of supply and demand, I also expect that assisted living and nursing home costs will trend upwards much faster than inflation, as the aging baby boomers create more demand for these services.
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Old 01-26-2013, 01:19 AM   #10
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To answer the OP's question, have you seen this article about spending patterns in retirement ?

Surveys of retirement spending - Bogleheads
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Old 01-26-2013, 08:25 AM   #11
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Following the laws of supply and demand, I also expect that assisted living and nursing home costs will trend upwards much faster than inflation, as the aging baby boomers create more demand for these services.
By the time DW and I are of LTC age, there will probably be inexpensive home health care assistance robots sold thru Amazon and Best Buy, so start thinking about names for yours. And your Smartphone will monitor your health proactively (there was a segment on that technology this morning on CBS, so how far off will it be).

If all goes well, technology will revolutionize health care and education in the decades ahead. Whatever else, the HC status quo can't continue as is.

It could happen...
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Old 01-26-2013, 09:39 AM   #12
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Thank you for your amazing insight. I would not change a word in your post, to differ from our own feelings and situation.
.................................................. .......................................

On the matter of "Expenses" per se. There is a difference between items of expense, and expenses that increase as a result of the inflation that will be inevitable. Using inflation as a measure would make the subject of the discussion meaningless.

Quote:
Originally Posted by Katsmeow View Post
The articles were interesting. The stuff about the Hedonic Pleasure Index is interesting.

My own observation among people that I know, my family, and my husband's family is that later in age, overall spending does decline and not because of lack of money. Some is due to overall health and slowing down. My mother in her late 80s doesn't go on many trips or out to eat a lot -- even if someone else is paying for it -- because it is tiring to her.

All of that said, while I agree about people perhaps being willing to spend more for quality improvements, new and cool things, my own experience is that this is less of an issue as people age. I see a couple of reasons for it.

One - by the time of typical retirement age a lot of people have by then bought what they want and tried what they wanted and don't want to do it again even for something that might be better. I was a spender when younger and I tried a lot of luxury goods, took expensive trips, etc. Now - I don't have much desire to do it because I've done it. I might be able to stay at an even nicer hotel now or travel in an even more luxurious manner - but basically I satisfied my need to travel to X 20 years ago. Or, I bought the expensive piece of jewelry then and don't have the need to buy more now.

Two - As people age and new products come out or new improvements, many people don't want to even try something new. My mother's basic expenses are lower in part because she doesn't have internet access or a computer. These things came out after she retired and so she doesn't see them as a need and she has no interest in learning about them. She is not tempted to buy them even though they might be seen as an improvement in standard of living. I know some people who find it not at all compelling to buy a vehicle with many of the newer safety features feeling they've driven for 30 or 40 years without them so they aren't necessary. And so on.

Obviously a lot of this depends on the individual.
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Old 01-26-2013, 03:09 PM   #13
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I think people get more frugal as they age. A friend of mine says the only thing that comes down is rain. He is talking about prices for everything. For the most part I think he is right.
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Old 01-26-2013, 04:10 PM   #14
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Following the laws of supply and demand, I also expect that assisted living and nursing home costs will trend upwards much faster than inflation, as the aging baby boomers create more demand for these services.
I was kind of hoping for another law ("economy of scale"), with a little tech help, to lower costs.
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Old 01-26-2013, 05:08 PM   #15
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Originally Posted by obgyn65 View Post
To answer the OP's question, have you seen this article about spending patterns in retirement ?

Surveys of retirement spending - Bogleheads
Thank you - I hadn't see this. Very interesting, but it will take me a while to get through it all.

Their takeaways if you want a summary.
Quote:
Retirement spending trends observed for the average U.S. retiree include the following:
  • Spending drops modestly (14%) immediately after retirement, partly due to the cessation of work-related expenses (e.g. special clothing and transportation) and changes in food expenditures.
  • Inflation-adjusted spending continues dropping slowly afterwards as retirees age into their late 70's.
  • Housing + Related is by far the largest spending category for all age groups.
  • Health Care expenses rise with age, but remain substantially lower than housing expenses.
  • Increases in health care spending are not sufficient to change the downward trend in total inflation-adjusted spending, at least not until late in retirement.
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Old 01-26-2013, 05:15 PM   #16
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Originally Posted by Katsmeow View Post
The articles were interesting. The stuff about the Hedonic Pleasure Index is interesting.

My own observation among people that I know, my family, and my husband's family is that later in age, overall spending does decline and not because of lack of money.
.....

All of that said, while I agree about people perhaps being willing to spend more for quality improvements, new and cool things, my own experience is that this is less of an issue as people age. I see a couple of reasons for it.

....

Obviously a lot of this depends on the individual.
Good post. I saw the same thing with my folks - they defined "reasonable" levels of quality based on what they had while they were working. In fact, they did not ramp up spending in later working years because they didn't see the need.

Of course, some people define themselves as "early adopters". Their self image includes trying out the cool, new stuff because that's what makes life fun. My folks weren't like that, I don't think I am, either. As I get older, I'm getting more comfortable being what marketers call a "late majority" or even "laggard" buyer. I'll guess that lots of LBYM types are.
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Old 01-26-2013, 05:16 PM   #17
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Originally Posted by walkinwood View Post
I have linked to articles (thanks to the Oblivious Investor for the initial links) that discuss if our expenses in retirement will stay flat (inflation adjusted), rise or fall with time.
...

I think it is worthwhile to follow these developments & understand them, but ymmv. Also, people on this forum are very conscious of their spending, so we may be very different from the average.
That's a nice collection of links, thanks.
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Old 01-26-2013, 05:19 PM   #18
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By the time DW and I are of LTC age, there will probably be inexpensive home health care assistance robots sold thru Amazon and Best Buy, so start thinking about names for yours. And your Smartphone will monitor your health proactively (there was a segment on that technology this morning on CBS, so how far off will it be).

If all goes well, technology will revolutionize health care and education in the decades ahead. Whatever else, the HC status quo can't continue as is.

It could happen...
I agree. And that Smartphone can probably make your ER/doctors appt for you too!

Gall Bladder working? check
Heart? Check
Liver? Check
Kidneys...ummm high levels.....
Full CBC from a drop of blood.?......some irregularities...check appointment times...etc.

What a great way to revolutionize one and possibly 2 layers of health care. If cholesterol is high, the robots have authorization to write a prescription too!
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Old 01-26-2013, 05:34 PM   #19
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Thank you - I hadn't see this. Very interesting, but it will take me a while to get through it all.

Their takeaways if you want a summary.
[/LIST]
[I]Spending drops modestly (14%) immediately after retirement, partly due to the cessation of work-related expenses (e.g. special clothing and transportation) and changes in food expenditures.[/I]

I'd add this takeaway : For higher income retirees, spending drops less (by only ~7%)
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