My mother came over last night for an evening at the Chicago Botanic Gardens and then dinner. We talked about this over some beers. (She worked as a public health nurse providing in-home medical services, mostly for seniors). Her first comment was: “I would travel more if I had a regular traveling companion”.
She then went on to make a couple of observations.
- People in their 70’s and 80’s are more concentrated versions of what they were in their 30’s and 40’s. Spenders do not become savers and savers do not become spenders.
- As you age, buying stuff becomes less important and spending on personal services increases.
- Her taxes have gone up just like Ziggy’s mother and for the same reasons.
- So many seniors have so little money it’s hard to spend less, and there are lots of incomes that are not inflation indexed.
Her conclusions: any analysis has to begin with how much money the people have available to spend. People voluntarily change their spending habits because of poor health, declining mobility or loss of companionship. They don’t reduce their spending because they are concerned about running out of money, but they do reduce their spending after they run out.
Reflecting on Nord’s original post,
I've always been skeptical that retirees will have the personal discipline to reduce their spending later in ER. But the fact that there's broad-based statistical evidence of the occurrence of reduced spending leads me to believe that discipline isn't necessary. In fact, the lack of overall discipline may be leading to that reduced spending.
There seems to be an element of self-fulfilling behaviour here. Thrifty people and those focused on portfolio survival don’t choose to reduce spending late in life because they adapted much earlier. Involuntary spending reductions are people running out of money because they always spent too much.
Personally I don't see spouse and me ramping up today's spending. Heck, for one reason or another our spending has already been dropping ever since we ER'd. However this later-in-life spending data can support a useful discussion of whether we still care to continue hedging longevity risk with equity risk.
Based on the above, you won’t stop hedging longevity risk because it’s part rational choice and part your basic nature. You also are not likely to run out of money if should be so fortunate to live many more decades because you are dealing with this now. The fact that you and spouse are both financially capable is a big additional asset..