Hedonic Tilt - Spend More Now, Less Later (in retirement)

[FreeBear]

In this pic, taken last autumn on the Nantahala River (NC), DW and I are both 68 yrs old. It was still fun. Admittedly, 5 yrs ago we would have been doing it in our kayaks and without the guide!

But, I agree, procrastinating on experiences likely best enjoyed when younger just to have "extra padding" in the FIRE portfolio later is risky business. We've really cut back on our paddling adventures due to back problems I've developed and DW's shrinking "sense of adventure."

We're "water" folks too, similar story, even though we are younger. We loved to be out in our kayaks in open water. I actually looked forward to "heavy weather days" to take a pounding in the breaking surf.

Physical issues and also "shrinking sense of adventure" have taken their toll on us too. I'm glad we did some scary stuff when younger, even wish that we had done more earlier but the w*rk thing got in the way.

 

[FreeBear]

The older I get the less I need. Of course a good hobby is important.
I value my freedom more than material goods.

+1

Oh yes!

To be fair, I have a ton of "material goods" from my w*rking days that still serve me well. Actually, I finally have the time to enjoy them and everything else about life now that DW and I are FIRE'd

 

[audreyh1]

I certainly don't deny myself today, and still stay within our means.

BUT

I also see people here sweat long term care costs as a big looming expense in old age.

I don't conclude that I'll necessarily spend less. I might spend more. It won't be on things I enjoy though - rather necessities becoming more expensive.

So I just don't see costs decreasing. Maybe during those later years of not traveling so much because you can't, you are able to save more towards those final years that all of a sudden costs go up quite a bit.

I'm expecting a U shaped curve.

 

[Midpack]

And Kitces and others seemingly confirm the U shape for spending.

I am expecting a somewhat assymetric U, relatively gradual decline with the potential for a short but sharp $ increase nearer the end. That could mean the cumulative average decreases even if the last few years are much higher. Of course, how it all plays out will vary considerably from person to person.

https://www.kitces.com/blog/estimat...penditures-and-the-retirement-spending-smile/

 

[Fedup]

Fortunately or unfortunately, it depends on how you view things, I had the hedonic till when I was in my teens. I don't think I ever denied myself anything. My husband urged me to spend. But car has not been my thing. So I guess, I e got that out of my system, now I can live a more non- hedonic life style.


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[audreyh1]

And Kitces and others seemingly confirm the U shape for spending.

I am expecting a somewhat assymetric U, relatively gradual decline with the potential for a short but sharp $ increase nearer the end. That could mean the cumulative average decreases even if the last few years are much higher. Of course, how it all plays out will vary considerably from person to person.

https://www.kitces.com/blog/estimat...penditures-and-the-retirement-spending-smile/

Thanks for the link.

He points out that usually the spending decrease in the early to middle years more that makes up for the sharp rise at the end. We can only hope so.....

But that probably applies to non-early retirees. DH is just 60, I'm 56. We're still able to spend a lot on discretionary things. I don't think we'll hit the bottom of the U just yet.....

 

[Options]

And Kitces and others seemingly confirm the U shape for spending.

I am expecting a somewhat assymetric U, relatively gradual decline with the potential for a short but sharp $ increase nearer the end. That could mean the cumulative average decreases even if the last few years are much higher. Of course, how it all plays out will vary considerably from person to person.

https://www.kitces.com/blog/estimat...penditures-and-the-retirement-spending-smile/

Dirk Cotton has stated also even with the "U" spending curve, spending still declines as we age.

 

[hnzw_rui]

Lets try a hypothetical and see how it feels . . .

"I know I can't really afford to buy a new BMW now but I can still make the numbers work if I promise that I'll buy a used Hyundai as my very next car when I'm older and not quite so hip."

Not quite BMW as maintenance on that gets to be expensive once warranty runs out but a Lexus is certainly an option (and keep for at least 10 years). There's a pretty good chance I'll croak before needing a replacement vehicle so I might not even need to buy that Hyundai. Also, travel is something that will be easy for me to cut when the choice is between that or paying for essentials.

Honestly, my grandmother was wheelchair-bound for the last 3 decades and hasn't traveled at all.

Also, something I'd like to point out on the Kitces report, the U-shape is not spending per se. Rather it's the rate of change in spending. For the high spend, high net worth individual, spending goes down during the entire period. The difference is, perhaps, spending going down by $4K/year at around 70 years old but it only goes down by $500/year at age 75.

 

[Moemg]

My family has longevity so I have observed my relatives as they have aged . Most of them slowed down in their middle 70's ( less travel ) but once they reached their 90's medical care soared especially once you need home assistance or assisted living .

 

[bmcgonig]

Thanks for the link.



He points out that usually the spending decrease in the early to middle years more that makes up for the sharp rise at the end. We can only hope so.....



But that probably applies to non-early retirees. DH is just 60, I'm 56. We're still able to spend a lot on discretionary things. I don't think we'll hit the bottom of the U just yet.....

The U seems only to occur if health care spending increases, and as he states if you have a medigap policy, then even this doesn't happen. So it seems for many on this board the U doesn't exist at all. The exception, of course, is long term care.


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[bclover]

Affording "Travel" seems to be assumed as a tradeoff here but there are plenty of ways to travel that are much more fulfilling and lower cost than the Four Seasons kind. Just use one's frugality skills for "Travel" as in every other sphere, and go.

lol, Markola, actually the reason why I have been frugal is to enjoy a nicer vacation.
I totally admit, I never understood traveling and living "lower" for lack of a better word than at home.
I truly don't want to travel and go motel style.

I will die happy if I never have to fly coach again in life.


But besides the type of travel, I'm hoping that I'll do "more" of it

 

[Katsmeow]

I don't conclude that I'll necessarily spend less. I might spend more. It won't be on things I enjoy though - rather necessities becoming more expensive.

So I just don't see costs decreasing. Maybe during those later years of not traveling so much because you can't, you are able to save more towards those final years that all of a sudden costs go up quite a bit.

I'm expecting a U shaped curve.

As others have mentioned there is a U shaped curve, but later life spending is still less than it was before. I also recognize that this is individual and you may be right about you.

But, I have watched a lot of relatives and DH's relatives get older as well as other people and they slow down as the get older and spend less. My mom is in her 90s and, yes, she does pay for services now that she didn't pay for when she was in her 70s. She has someone who comes in and cleans her house, she pays for yard work, and so on. But, her overall spending is less. She still lives on her own, but she gets tired easily so she doesn't go out that much. She doesn't want to take trips now. She spends a lot, lot less. And, so did all those other people. Yes, a few people needed long term care, but most of them had it in home. Now, DH's mother was an exception. She had a severe stroke and spent about 8 years in a nursing home before she died. And, yes, she ran out of money at some point. But she was fine because there wasn't really anything else she needed to spend money on at that point. Still she was an exception far outside the norm in terms of long term care stays.

 

[daylatedollarshort]

There's another simple solution. Retire with enough money that you can have what you want and need, both now and in your later years.

Of course, that assumes non-infinite consumer urges, an attitude that Madison Avenue types probably regard as being completely despicable. One would have to settle on some particular lifestyle as being "enough".

That's our plan. We do a lot of fun (to us) events each week and none of it costs much with some Groupons, annual reciprocal memberships and unsold ticket subscription lists. We do have a travel budget and take some longer vacations, but a few weeks vacation each year is not going to make or break our retirement funding either way.

We did a lot of whitewater activities when we were younger. We used to belong to an outdoor adventure co-op, so some of those kinds of activities are already off our bucket lists. We've moved on to different hobbies now that we are older and feeling more mortal.

 

[audreyh1]

The U seems only to occur if health care spending increases, and as he states if you have a medigap policy, then even this doesn't happen. So it seems for many on this board the U doesn't exist at all. The exception, of course, is long term care.


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I'm expecting long-term care costs which aren't covered by Medigap.

 

[tmm99]

Example: We just got a quote for mowing our 3-acre lawn: $290 per mow. Over a season, that adds up to the cost of a very nice lawn tractor. So we are going to buy one.

Wow, I didn't know getting the lawn mowed cost that much.


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[hnzw_rui]

Wow, I didn't know getting the lawn mowed cost that much.

I think the 3-acre thing adds to the cost just a teeny tiny bit.

 

[FIREmenow]

We have been thinking along these lines also with our planning. We're about 2 years away now. I think I have decided to take SS at 62 just for that reason.

I plotted below scenarios with SS at different ages along with pensions and savings withdrawals. I included inflation, expected returns, SS COLA, etc.

Yeah, the "guarantee" goes down (just) a bit by the end, but I think I decided I'll deal with that when the time comes I think I'd rather be able to be a bit more "spendy" early on.

 

[Markola]

lol, Markola, actually the reason why I have been frugal is to enjoy a nicer vacation.
I totally admit, I never understood traveling and living "lower" for lack of a better word than at home.
I truly don't want to travel and go motel style.

I will die happy if I never have to fly coach again in life.


But besides the type of travel, I'm hoping that I'll do "more" of it

I've done it all and enjoyed it all, ranging from a great hostel in Amsterdam I'll never forget, to completely forgettable Hiltons, to an unforgettable summer camping in our western national parks, to flying from NYC to Kauai first class last year and parking our butts on the beach at the St. Regis and letting them bring us cocktails all day. You gotta use the right tool for the job!

 

[kcowan]

We did the extended stay in the US sunbelt when we first retired, trying different places. We also did Mexico every year for a few weeks. Now we have settled into one month in Europe and 5-6 months in Mexico and that is well within our budget.

We have our eyes on some extensive cruises that should increase our budget for a few years.

 

[Danmar]

We asked him how he managed to stay in such good condition, and his answer was that he lived in Phoenix and ran up Camelback mountain almost every morning before breakfast.

Wow, I can attest that that is very impressive for any aged person, let alone a 75 year old.

 

[walkinwood]

Not taking inflation into account may work for people retiring at 65. For those retiring in their late 40s like we did, I think inflation could be an issue. I'd rather just use Bernicke's formula in firecalc. That too is a form of hedonic tilt.

Currently, we're just using percentage of portfolio.

 

[MasterBlaster]

There's another simple solution. Retire with enough money that you can have what you want and need, both now and in your later years.

Your thought misses the point of maximizing nest-egg utility while you are alive. Leaving a large unspent nest-egg is seen by the authors as undesirable.

 

[W2R]

Your thought misses the point of maximizing nest-egg utility while you are alive. Leaving a large unspent nest-egg is seen by the authors as undesirable.

Yeah, crazy knee-jerk assumption (and judgment) by the authors, isn't it? Or so it seems to me. The rest of my prior post, below, expands on my line of thought.

There's another simple solution. Retire with enough money that you can have what you want and need, both now and in your later years.

Of course, that assumes non-infinite consumer urges, an attitude that Madison Avenue types probably regard as being completely despicable. One would have to settle on some particular lifestyle as being "enough".

How dreadful to contemplate the retiree who has no desire for a Lamborghini, a trip around the world, or a giant mansion, but instead is completely happy and fulfilled with only a used Toyota, a trip across town, and a modest home. It's almost unpatriotic.

 

[Danmar]

Sometimes people change their spending desires, especially during a long retirement. No matter how much one has there are always things that might pop up. So it is difficult to always anticipate with certainly your spending levels.

 

[jkern]

That is a great idea . I am so glad I did all the adventure travel in my 40's & 50's . Let's face it white water rafting is not as much fun at 69.

Maybe, maybe not! I was snow skiing last Friday and rode the chair lift to the top with an 80 year old guy. He was still skiing advanced runs. Last month I played 18 holes of golf with a 91 year old. You never know.