Scott Burns on "retirement income realities"

[Nords]

Thanks to "Ted" over at FundAlarm.

http://assetbuilder.com/?p=1394#more-1394

"Retirees discovered their post retirement spending compared favorably with their pre-retirement spending. While 20 percent of workers expected and 20 percent of retirees experienced large declines in spending, 55 percent of retirees spent the same, or more."

I wish there was a way for researchers to sort out the chicken-egg questions. Do elderly retirees spend less because they're afraid that they're running out of money, or do they spend less because they're shifting from "go-go" to "no-go"?

He also says "It’s simply a reminder that retirement income is primarily a political and social contract event." That may be true for those in their 50s & older but I'm not so sure about younger generations...

[haha]

Excellent article. Burns doesn't seem to have an agenda; he apparently tries to tell it like it is. Mon Dieu!

As far as expenses in retirement, it has to be more expensive to play golf 4 days a week then to go to work. One of the cheapest possible ways to live is to be so busy at work that you don't have the time or energy for doing anything else. Or maybe be a contract worker on a pipeline someplace where you will either get your ass frozen or shot off if you leave the company compound.

That said, I imagine a relatively small number of retires can afford a lot of golf, or world travel. We on this board have likely been more exposed to that kind of life than most, so we may overweight it in our minds.

Ha

[2B]

Originally Posted by Nords

I wish there was a way for researchers to sort out the chicken-egg questions. Do elderly retirees spend less because they're afraid that they're running out of money, or do they spend less because they're shifting from "go-go" to "no-go"?

That's the Bernicke research. He supposedly only used affluent individuals whereas the data Burns used was everyone. From what I've seen with my parents and in-laws, Bernicke is right on.

I agree that the typical retiree will see a large drop in spending when they retire.

Little Savings + No Pension + SS = Very Little Retirement Income

[Jarhead*]

Originally Posted by HaHa

As far as expenses in retirement, it has to be more expensive to play golf 4 days a week then to go to work. One of the cheapest possible ways to live is to be so busy at work that you don't have the time or energy for doing anything else. Or maybe be a contract worker on a pipeline someplace where you will either get your ass frozen or shot off if you leave the company compound.

Ha: No argument from me on this point. Add another 3 days to your golf schedule, and add tournament fees, and you've really got a good argument.

There are, of course other arguments that come into play. No longer being financially responsible for parents, children pretty much doing o.k., etc. etc.

With the exception of golf, our spending has definantly went down over the last 20 years. (I am not nearly as restless as I used to be).

However, I totally agree with you on your point about spending less when you are busy working.

But then again, why in the hell would you retire if you can't do the things that make your life worthwhile.?

[Sam]

Social Security is very important for all but the rich. When you examine the sources of cash income those 65 and older have, income from assets is a much smaller percentage than readers of financial publications would expect. Even for those in the second highest income quintile (incomes higher than 60 percent of all households but lower than 20 percent of all households), Social Security was usually the largest single source of income. In 48 percent of those households, it accounted for 50 percent, or more, of all income.

SS will account for 50% of my income at 62. That would put me in the 2nd highest income quintile. But I bet that most members of this board belong to the top quintile.

[Eagle43]

After retirement, I found that my income dropped, but that's offset by a reduction of medical insurance, social security and 401k deductions and the income tax bite. So my take-home pay seems at least as good, if not better than when I was working. Social Security income and military pension income both have small cola increases annually. Combine that with my eventual withdrawals from the IRA investments (income from assets), and my income should increase for quite awhile.

[mickeyd]

So my take-home pay seems at least as good, if not better than when I was working. Social Security income and military pension income both have small cola increases annually. Combine that with my eventual withdrawals from the IRA investments (income from assets), and my income should increase for quite awhile.

What a sweet ride!

As Mr. Bogle has indicated, the "relentless rules of humble arithmetic" prevail once again!!!

[Dawg54]

Originally Posted by Jarhead*

Ha: No argument from me on this point. Add another 3 days to your golf schedule, and add tournament fees, and you've really got a good argument.

There are, of course other arguments that come into play. No longer being financially responsible for parents, children pretty much doing o.k., etc. etc.

With the exception of golf, our spending has definantly went down over the last 20 years. (I am not nearly as restless as I used to be).

However, I totally agree with you on your point about spending less when you are busy working.

But then again, why in the hell would you retire if you can't do the things that make your life worthwhile.?

Actually in my case, I'm getting more bang for my bucks with respect to golf. Pre-retirement I belonged to a club and played maybe 2-3 times a week. Post retirement I still pay the same dues but play 5-6 times a week. Much more economical per round for me. Retirement is good.

[youbet]

We're defininitely spending more post retirement.

Example: just got back from a three day weekend with college chums and their wives. Accomodations, dinners out, etc., cost a few hundred bux, but well worth it! We had a ball!

When working, this would have been just another weekend of mowing the grass, doing other household chores and doing spreadsheets proving to myself that we're LBYM.

One of the discussions topics at dinner Saturday night was the possibility of having the annual reunion in Hawaii next year. Sounds great! And why not? These are the types of activities we planned for RE and are currently enjoying.

You CAN live on less when retired, but do you WANT to? For us, more time = more fun! But, everyone do things the way they are comfortable.

[OKLibrarian]

We're going on the assumption that we'll be spending "about as much" in retirement as we do now, because we have some larger recurring expenses that we expect to go away (mortgage paid, downsize to 1 car, drive a lot fewer miles on that car). That said, we've got a ways to go yet and will probably revisit this to see if we would enjoy the higher lifestyle that an extra year or two in the workforce could buy us.

[gandalf42]

What I don't understand from the article is the table showing those with retirement income of $100K+ dropping from 28.6% of the population in the 55-61 age group to 9.7% of the population in the 70-74 age group. Either those with higher income are dieing off first or they are overdrawing their assets.

[REWahoo]

Originally Posted by Jarhead*

...No argument from me on this point. Add another 3 days to your golf schedule, and add tournament fees, and you've really got a good argument.

Originally Posted by DOG52

Actually in my case, I'm getting more bang for my bucks with respect to golf. Pre-retirement I belonged to a club and played maybe 2-3 times a week. Post retirement I still pay the same dues but play 5-6 times a week. Much more economical per round for me. Retirement is good.

Jarhead, Dog,

You to guys came to mind this weekend while attending a wedding in the garden of a home located on a golf course. As the bride & groom were repeating their vows on the gazebo, my eyes wandered to two old veteran golfers on the fairway behind them. They stopped their cart and stepped out, one wearing a pair of knickers, the other in a kilt.

My first though was "Is that Jarhead and Dog52? Naah, no way they'd be caught playing golf on a Saturday!"

[Sandy]

Mt questions are along the same line as gandalf42

Any ideas as to why income drops wtih age? Spending I understand, but income? Especially since so much of the income in the older goups is driven by SS and pensions.

Have they depleted savings and now only have SS and pensions to rely on?

For their own savings/pensions not so they not adequately figure inflation so their "income" didn't keep pace?

Is the income less, but exactly what they had planned for and merely differs with age-based expectations?

Are they just taking less withdrawals from own savings because they are spending less and don't need it?

And with lower income, are they struggling and worrying they will run out of $$ before they run out of life?

Since it is so hard predict, it would be helpful to know what factors drive this age-associated reduction in income so those of us with 40+ year horizons don't make the mistakes (if they are mistakes).

[Jarhead*]

ReWahoo: Actually, most of the "tournament golf" I play is on week-ends, but the course is closed for all but tournament players, so crowding isn't really an issue. (Wearing a Kilt or Knickers, would result in more "Teasing" than I could handle.)

Dog52: I also belong to a "Club", and you're right on regarding the cost of playing per round. My main expense is playing "Tournament Golf", and at my age, it is up for grabs as to how long I'll continue that.

Sandy: My income really hasn't went down, but my "Druthers" has.

I'd much Druther play golf and fly-fish, than go on a cruise, or travel.

My wife feels the same way.

[walkinwood]

I think they're counting income as reported in tax returns which would be dividends/cap-gains on taxable accounts & withrawals on tax-deferrred accounts.

As you draw down your taxable portfolio - ie. withraw principle - , there will be less cap-gains / dividends on the remaining amount.

Could that be the reason?
ww.

[2B]

Originally Posted by Walkinwood

I think they're counting income as reported in tax returns which would be dividends/cap-gains on taxable accounts & withrawals on tax-deferrred accounts.

As you draw down your taxable portfolio - ie. withraw principle - , there will be less cap-gains / dividends on the remaining amount.

Could that be the reason?
ww.

I would think the biggest reason for "affluent" retirees' income to go down is a reduction in IRA withdrawls. If you need less, you'll take out less and then it appears that your income drops.

Another option is that the older retirees have much smaller IRAs than the younger retirees. Hence, their money is already taxed and sitting in their accounts. Less desire for money turns into less liquidation resulting in capital gains. They are literally living on their interest and dividends. My FIL retired in the early 80's and he didn't have time to build much of an IRA. His withdrawls are at the required minimum.

[Bikerdude]

"For a variety of reasons, these figures understate actual living standards in retirement. Taxes tend to take a smaller bite in retirement. Also, many seniors have no payment obligations and own their homes mortgage-free. And retirees are likely to spend down their principal as well as the income from their savings as they get older."


Seniors have a lot of "imputed income' that tends to reduce their taxable income but not their standard of living. SS also reduces taxable income. Things are probably not as bad as the stats indicate.

[SteveR]

I am wondering if the drop in income is more an artifact of generational income differences than a true reduction in income over time; which is what many folks are reading into the table. A retired couple age 80+ are going to be from the late Great Depression era and will have had (relative) lower incomes than those who have recently stopped working at age 50ish.

My parents retired at 65 and lived on a small pension and SS. Their income before retirement was twice that of their retirement income but was never over $40k (combined) up to their retirement. My brother and his wife and me and my wife had combined incomes more than twice my parents combinded pre-retirement income.

I don't doubt the reduction in expenses over time as I have seen it first hand with my mother and my long term projections on expenses also reduce in steps over the next 30+years. Our income will adjust to meet our expenses so our income will also reduce as we age. Health issues might adjust this higher but with medical insurance the out of pocket expenses would still not create a large income need to fund the expense.

My $0.02