Ty Bernicke...Retirement Spending

[RockOn]

FPA Journal - Reality Retirement Planning: A New Paradigm for an Old Science

From Firecalc, is this model believable? I looked for previous threads on this, but didn't find very much discussion on it.

Is Ty saying that spending will go down around 50% from age 55 to 80 or is he saying that spending will go down about as much as inflation will rise? (Assuming 3% inflation)

 

[REWahoo]

RockOn, this has been discussed many times on the forum. You might want to do another search.

 

[RockOn]

RockOn, this has been discussed many times on the forum. You might want to do another search.

FIRECalc even includes the option to use Bernicke's model for your spending plan. See the "Spending Model" tab.

I would have thought so, I must not of used the right search words. All I found was brief comments about it. I'll try again, Thanks

 

[REWahoo]

Try this thread: http://www.early-retirement.org/forums/f28/scott-burns-you-re-saving-too-much-retire-17317.html

 

[RockOn]

Try this thread: http://www.early-retirement.org/forums/f28/scott-burns-you-re-saving-too-much-retire-17317.html

I went through that thread. It started to get a little off track, firearms, LTC, and all. Tell me if you would, in your opinion is there concensus that spending will decrease at about the same rate as inflation increases? I understand and agree that spending will decrease, I just never thought it would be significant. Is Ty a little out there?

 

[REWahoo]

Tell me if you would, in your opinion is there concensus that spending will decrease at about the same rate as inflation increases?

I don't believe there is anything resembling a consensus on this theory.

I understand and agree that spending will decrease, I just never thought it would be significant. Is Ty a little out there?

Although I'm sure my spending will change as I age, I'm not at all convinced the decreases in what I spend on travel and hobbies now won't be offset (or even exceeded) by increases in health care costs in the future. For this reason I prefer to take a less "out there" approach and assume my annual expenses will increase at the rate of inflation.

 

[RockOn]

I don't believe there is anything resembling a consensus on this theory.
Although I'm sure my spending will change as I age, I'm not at all convinced the decreases in what I spend on travel and hobbies now won't be offset (or even exceeded) by increases in health care costs in the future. For this reason I prefer to take a less "out there" approach and assume my annual expenses will increase at the rate of inflation.

Thanks, I'm a little skeptical of going that route myself.

 

[quietman]

I believe this study is wrong. Flat out wrong. They correct for means by tracking income - not spending of assets. They confuse spending less BECAUSE YOU HAVE LESS with spending less because you somehow don't want to spend money. It's junk science of the worst sort. We have enough problems with people saving too little without these jokers trying to encourage people to save less or fit some ridiculous academic model of lifetime consumption to make a name for themselves. Publish or perish. Bah humbug.

 

[RockOn]

I believe this study is wrong. Flat out wrong. They correct for means by tracking income - not spending of assets. They confuse spending less BECAUSE YOU HAVE LESS with spending less because you somehow don't want to spend money. It's junk science of the worst sort. We have enough problems with people saving too little without these jokers trying to encourage people to save less or fit some ridiculous academic model of lifetime consumption to make a name for themselves. Publish or perish. Bah humbug.

You are likely correct. It is reasonable to expect spending to decline some with age, how much is the debate. Unless Ty is dead sure he knows, this is playing with fire. Better evidence may be if those retired for 15 to 20+ years that frequent this site would let us know what happened to them. I suppose that would be all over the board though.

 

[retire@40]

This theory that you spend less as you get older really depends on what type of expenses you have.

Maybe if you have a lot of "travel" in your budget, you may take it down a notch as you get older. Maybe the same for "motor vehicle" expenses since old people tend to drive less than young people. However, medical expenses will probably be higher.

If you are living close to your bare bones budget, chances are that budget won't be changing much as you get older.

 

[RockOn]

If you are living close to your bare bones budget, chances are that budget won't be changing much as you get older.

If you are not on a tight budget, do you think spending will decrease enough to cancel out inflation? If I understand it right, I think that's close to what Ty says.

 

[youbet]

If you are not on a tight budget, do you think spending will decrease enough to cancel out inflation? .

No.

Personally, because I am on the leading edge of the boomers, I think competition for elder services will drive prices of those services up as I, and the rest of the boomers, age. The price of buying services that allow you to stay independent will increase to offset savings from not traveling, giving up your Bears season tickets, etc.

That's my plan and I'm sticking to it.

Why are you asking? Are you trying to justify RE'ing with a smaller nestegg? Or are you already RE'd and want to spend more now assuming you'll spend less later? Or?

 

[haha]

Unless Ty is dead sure he knows, this is playing with fire. Better evidence may be if those retired for 15 to 20+ years that frequent this site would let us know what happened to them. I suppose that would be all over the board though.

Well, IMO, even if Ty is dead sure he is right, he is still likely wrong. There have been many people who knew they were right, but were actually full of _-_-.

I am half way between the ages he gives. My spending goes up every year, just like you might think it would. And it is mostly on life necessities and fun.

It's like somebody said above- you can't spend what you don't have.

So as might be expected, if you are getting older and running out of money, you spend less.

The only way this is different from a younger person running out of money is that the young person will usually go to work rather than spend less. So would most older people if that course were open to them.

Wow! Give that genius a Nobel Prize.

Ha

 

[Nords]

I went through that thread. It started to get a little off track, firearms, LTC, and all.

I'm shocked, shocked I say, to find that we have trouble sticking to the subject at hand. We shouldl go back through those off-track threads and remove all references to "Bernicke" so that the right keywords will turn up in the search.

Or maybe we should tag all the Bernicke threads for "firearms", "LTC", and "politics".

Tell me if you would, in your opinion is there concensus that spending will decrease at about the same rate as inflation increases? I understand and agree that spending will decrease, I just never thought it would be significant. Is Ty a little out there?

I think he failed to adequately analyze the expenses of geriatric, long-term, and end-of-life care. Even if his solution had been "buy insurance and annuities", the SWR would have still been dangerously high.

Ty's research started with the anecdotal evidence of dozens of FPs telling him that all their clients reduced their spending as they aged. Then he dug up spending data to support that conclusion.

I wonder how many of today's older retirees (born & raised during the Depression) have put so much of their portfolio into fixed-income assets (like my parents-in-law) that they feel obligated to cut spending every year. As others on this thread have mentioned, the prophecy is self-fulfilling.

OTOH spouse spent a couple days with her uncle & his wife in Miami a few months back. They're in their high 70s but they still managed to rack up over $300 at Joe's Stone Crab... plus dessert.

From http://www.early-retirement.org/forums/search.php?searchid=384895&pp=25 I got:

http://www.early-retirement.org/forums/f28/bankrate-com-s-latest-er-articles-28045.html#post522921
http://www.early-retirement.org/forums/f36/bernicke-input-26937.html#post504373
http://www.early-retirement.org/for...ernicke-social-security-26863.html#post501503
http://www.early-retirement.org/forums/f26/paranoia-reigns-26728.html#post499157
http://www.early-retirement.org/forums/f28/expenses-85-a-26409.html#post492681
http://www.early-retirement.org/forums/f28/ty-bernicke-22570.html#post491656
http://www.early-retirement.org/forums/f28/you-chicken-re-26260.html#post490134
http://www.early-retirement.org/for...ur-70-s-80-s-90-s-100-s-25789.html#post483795
http://www.early-retirement.org/for...re-decreased-stages-age-25888.html#post482878
http://www.early-retirement.org/for...g-decrease-advanced-age-25280.html#post469922
http://www.early-retirement.org/forums/f28/poll-what-s-your-withdrawal-scheme-25205.html#post468734

If other posters want to add their Bernicke links to this thread, I'll round them all up for a new FAQ Archive post.

 

[chinaco]

Here is a report from BC on spending as we age.

http://www.urban.org/UploadedPDF/411130_expenditure_patterns.pdf

 

[2B]

I have seen both my father's and in-laws' spending go down as they aged. In my father's case, he went from barely getting by on his pension and SS to saving a considerable sum before he died. My in-laws reduced their spending but increased their giving to almost 40% of their income to their church.

I have read the Bernicke article and have no reason to doubt that it is correct. Spending at a higher level than 4% is somewhat of a heresy here but the choice is either delaying retirement or going to the great beyond with a big pile of money left behind.

My personal plan is to have a "decent" life style which is fully linked to inflation. The extras which include traveling is covered by a Bernicke plan. I'm willing to take the "risk" of not being able to travel as much at 85 as I'd like to get more at 60 when I know I'll be in good enough shape to do it. Then there is a minimum cash level that I put into the FIRECalc run to cover end of life costs should I be unlucky enough to need it.

 

[OAG]

A little microcosm of a real life example (mine). Age 55 Base Line for BOTH expenses (spending) and income (money AVAILABLE for expenses) in INFLATION adjusted dollars (nominal 3% per year; the approximate nominal CPI according to US Government) through Age 70. Expenses INCREASE but slower than INCOME. So yes spending (Expenses) relative to income DECREASES. However, if income did not increase faster than expenses the opposite could be true. So again, "it depends".

 

[Texas Proud]

My mother is 88 and her expenses have gone down over the years in real dollars...

Now, this last year I think they have gone up, but am not sure as I have not done any checking... but with food and gas up like they are, I think there is no way she could have paid less....

 

[RockOn]

Why are you asking? Are you trying to justify RE'ing with a smaller nestegg? Or are you already RE'd and want to spend more now assuming you'll spend less later? Or?

I am almost retired....I'm trying to figure out if I have a built in safety factor in my plan since I did not take decreased spending into account. I just use 3% for inflation and leave it at that.

 

[RockOn]

Here is a report from BC on spending as we age.

http://www.urban.org/UploadedPDF/411130_expenditure_patterns.pdf

I don't have time to read it all but by scanning it, it looks like spending does go down, but not enough to offset inflation. It's hard to know if there are other factors at work though, such as running out of money to spend. Agreed?

 

[growing_older]

My grandparents had mixed results. One saw expenses decline as he moved in with a daughter and slowly reduced his outside activities. This also roughly coincided with his declining assets and relying on a fixed income. The other grandparent saw expenses increase as she traveled until she couldn't (didn't care to any more?) but her travel expenses did rise with inflation and higher levels of service up until she stopped. Then she moved into a graduated elder living care home where her expenses rose over the years as she accessed increasing levels of care. She also increased her "expenses" in gifts to grandchildren and great grandchildren, sponsoring a family get together every few years, and the like. I now see my parents starting down a similar path. They are more likely to hire help to clean and do heavy yard work that they used to do themselves. They have increased medical expenses and voluntarily increase even that by shopping for the best providers they can - even when it costs more. They hire more services like snow removal as they get older and I expect the trend will continue.

For me, I would rather have the assets and freedom to maintain some degree of independence even though my expenses rise instead of being locked in to a declining income model because that's what some grand average lead me to believe and I didn't save enough. So what if I have assets left over if I was wrong. Much worse if I was wrong and run out when I'm too old to get more.

 

[unclemick]

hmmm hmmm hmmm. My spending is erratic but generally trends upward - because it can - the discretsionary amount.

1993 -2008, age 49 to 64/65, on average the core(shelter,food,transportation, etc) has shrink over time relative to the fun and funky part - all praise to Bogle's 'Policy Portofolio' and time in the market.

Soooo - twist my arm and I could agree - BUT I'm not getting any younger and I when 'I believe' more can be spent - then I do.

heh heh heh - .

 

[youbet]

Personally, I think there is a grey area between spending less voluntarily and spending less because you see your savings eroding or age related expenses increasing. Frankly, if money were of no concern, I'd be spending more right now. And as I age I think I'd continue to spend more and in many cases need to spend more.

Here's an example....... DW and I like wilderness experiences. This is not inexpensive recreation, but if you primarily DIY, not out of reach for most. Our canoe trips are becoming problamatic because my knees aren't cooporating on portages. We're considering hiring a guide for the next trip to do the heavy hauling, setting up camp, cooking, etc. We'll be able to spend more time fishing, taking pictures, enjoying the scenery and just enjoying the natural surroundings we love. The catch is that bringing a guide with is an $250 - $300/day incremental expense. And if we do a fly-in, we pay his/her expenses for that as well. This hardly sounds like spending less for travel as we age!

There is no end to anecdotal examples....... But the general point is that, for us, we're deciding between traveling less due to age/health related limitations and continuing to travel but spending more for services to do so.

My feeling about Bernicke is that he'd consider a decision on our part to just stay home and not spend the incremental two grand for a guide as voluntary......... We'd be spending less at our own discretion. But I think we'd be making that decision because we're worried about the expense. So Ty and I just have different outlooks on what's voluntary and what's budget mandated.

I vote for continuing to travel even if you need to pay for special services, stay in your own home even if you need to hire out all maintenance and cleaning, take in entertainment even if you need a limo to drive you there, dine out, gift the grandkids, support charities, etc., as you age. Even if it costs more to do so....... JMHO.

 

[Ed_The_Gypsy]

So as might be expected, if you are getting older and running out of money, you spend less.

Ha, I think you nailed it.

 

[2B]

Ha, I think you nailed it.

Bernicke is very specific that the spending patterns are not based on the lack of assets. Repeating myself, my father and in-laws dramatically reduced their discretionary spending except for (in my in-laws case) an illogical amount of church donations. Their traveling went to nothing. It became food and shelter. All the clothing were gifts on their birthdays or Christmas.