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

[Danmar]

I wouldn't call this a "Problem" but rather an issue. I am constantly thinking about how to
"Optimize" our spending/giving over the rest of our lives. In our case our spending is not determined by some pre-determined idea of what is appropriate but rather by what is available and enjoyable to us in the circumstances. Always trying to optimize this but not easy given all the variables
"

[braumeister]

Quote:

Originally Posted by Danmar I am constantly thinking about how to "Optimize" our spending/giving over the rest of our lives.

As long as we're happy with what we're doing, I consider our spending to be optimized.

Otherwise, I'd be afraid of getting into some kind of "This would make us 15% happier than that", which would be a dreadful frame of mind.

[Danmar]

Quote:

Originally Posted by braumeister As long as we're happy with what we're doing, I consider our spending to be optimized. Otherwise, I'd be afraid of getting into some kind of "This would make us 15% happier than that", which would be a dreadful frame of mind.

Well, I don't think of it that way, More like should I buy a new boat now, or wait till this one dies? Is 3.7% WR too conservative vs a 4.1% rate? Should I try to maintain my principal as a bequest to my daughter. Should I gift her more now to help with a house purchase?

In all cases I am trying to balance off the competing objectives of current consumption/gifting vs future consumption/gifting Everybody does this in some way or another. Agree that trying to measure "happiness" is difficult. What I don't do is think. "This is my spending level and I don't want to change it". I try to remain flexible and since our finances give us a fair bit of flexibility, I try to keep an open mind as to spending levels in order to try (at least in a general way) to maximize utility.

[NW-Bound]

Ah, but the incremental hedonic thrill is ever diminishing, and must be balanced against the pleasure of seeing your stash grow.

[Danmar]

Quote:

Originally Posted by NW-Bound Ah, but the incremental hedonic thrill is ever diminishing, and must be balanced against the pleasure of seeing your stash grow.

Agree. But I guess the decreasing marginal thrill is pretty personal. I haven't noticed it much, maybe more of a theoretical thing? This coupled with the realization that you can only spend it or give it away and let someone else spend it, keeps things in equilibrium?

[daylatedollarshort]

Quote:

Originally Posted by NW-Bound Ah, but the incremental hedonic thrill is ever diminishing, and must be balanced against the pleasure of seeing your stash grow.

Understanding the hedonic treadmill has saved us a lot of money. I think most research shows after a certain point spending more doesn't bring more happiness, and in fact too much stuff to deal with can add to stress levels.

I think advertising tends to skew our perception of what things really make us all happy. I have learned a lot from books and watching Ted Talks on happiness:

https://www.ted.com/topics/happiness

Supposedly the happiest person on the planet based on MRI analysis is actually a Buddhist monk.

[NW-Bound]

I can only speak for myself, but when I was faced with a life-threatening illness I thought to myself that if and when I came out of it I would get myself a new fancy class B RV. I had in mind one that went for a low 6 figure. It would be 4x what I have ever paid for a vehicle.

Then, when I have fully recovered, I changed my mind. The market has knocked down my stash a lot more than the cost of this RV, but even if it had not I would most likely not take the splurge. Old frugal habits die hard.

[Hermit]

Quote:

Originally Posted by Music Lover That's right...you never know. But, those are the exceptions. The reality is that there are a lot more 65 year old golfers than 90 year old golfers and there are very, very few 80-year old skiers....even on the bunny hill, never mind on advanced runs. With careful planning, people can spend a little more in the early years without leaving themselves destitute in the later years.

Have you been to Monarch ski area lately? They have a season pass for $20 if you are over 69. In prior years it was free. The place is overrun with geezers during the week.

[audreyh1]

Just as long as people realize that long-term care costs are NOT covered by Medigap! Yes, the health part will be covered, but not the rest of the care costs in a facility.

Kitces mentions in the U article something about using LTC insurance to help with the possible sudden rise at the end (the part not covered by Medigap). But in a later article he realizes that the protection one might normally expect for the cost when buying insurance as there isn't a "high deductible elimination period" version available and the amount that will be paid out is capped.

https://www.kitces.com/blog/can-incr...pealing-again/

In a later presentation he talks about how the LTC insurance industry is struggling. https://www.kitces.com/wp-content/up...5-Handouts.pdf

I expect to have the amount an LTC policy would pay set aside for one of us, and the survivor can spend down the assets if needed. And that's why I plan on a U shape in our spending.

[Danmar]

LTC less an issue in Canada. So I really have no excuse for hoarding the stash.

[Gone4Good]

Quote:

Originally Posted by Danmar LTC less an issue in Canada. So I really have no excuse for hoarding the stash.

Good point.

Along those same lines, that smile curve may be a lot less smiley for us younger ER's who can't necessarily depend on the same generous benefits from Medicare as the folks in the study.

I know I'm paying a heck of a lot more now for both health care and insurance than my 70 year old mother does. I don't really expect my health spending to decline when I'm her age - although that would be something to smile about.

[pb4uski]

My experience is that we were fairly conservative during our first year or two of retirement because it was an unknown. After a couple years and the sky not falling (and our portfolio actually growing) we loosened the reins a bit and spend a bit more. We have not felt a need to alter withdrawals for inflation yet.

[Meadbh]

Quote:

Originally Posted by Danmar LTC less an issue in Canada. So I really have no excuse for hoarding the stash.

While there are subsidies, you're going to be on the hook for significant costs. See tab 04, revenue by source.

https://www.cihi.ca/en/residential_l...tablesweb.xlsx

[Danmar]

Quote:

Originally Posted by Meadbh While there are subsidies, you're going to be on the hook for significant costs. See tab 04, revenue by source. https://www.cihi.ca/en/residential_l...tablesweb.xlsx

Yes, I understand but LTC costs will only be a fraction of our current spend so won't be an issue as long as I can stop spending on other things.

My mother is currently in a very expensive LTC facility with the costs around $7k per month. Can't see how LTC could cost more than $250k per year?

[Meadbh]

Quote:

Originally Posted by Danmar Yes, I understand but LTC costs will only be a fraction of our current spend so won't be an issue as long as I can stop spending on other things. My mother is currently in a very expensive LTC facility with the costs around $7k per month. Can't see how LTC could cost more than $250k per year?

True enough, from your perspective your final years might be cheaper, provided you sell three or four homes and all your toys!

My lifestyle expenses are less than $50K per year but if I need LTC I want to be able to afford the best, just like your mother. For $7K a month, it had better be good!

[braumeister]

Quote:

Originally Posted by Meadbh if I need LTC I want to be able to afford the best, just like your mother. For $7K a month, it had better be good!

I'm with you, but around here the good assisted living, memory care places are all private pay only, and my mother's place was costing over $6K a month when she died almost four years ago. It was better than most similar facilities, but nowhere near the top end.

[RobLJ]

Quote:

Originally Posted by Hermit Have you been to Monarch ski area lately? They have a season pass for $20 if you are over 69. In prior years it was free. The place is overrun with geezers during the week.

Loved Monarch (we had a cabin above the Gorge and skiied there) and did notice a lot of older skiiers. We're seeing the same thing in Reno at Northstar and Mt. Rose, although I think it's a couple hundred for a pass for them for the older set.

[kcowan]

We consider the main forces for Hedonic Shift to be the elimination of our airmiles balance. We are trying Air Transat Plus this year to see if it can supplant business class.

Also we know that cruising will be more expensive than just staying in hotels. And we have a lot of cruises on the bucket list. (Although relocation cruises can actually be cheaper than hotels and meals. Barcelona to Vancouver is on the list.)

[Danmar]

Quote:

Originally Posted by kcowan We consider the main forces for Hedonic Shift to be the elimination of our airmiles balance. We are trying Air Transat Plus this year to see if it can supplant business class.

Interesting, we are also trying Air Transat Plus for our trip to Italy in June. A friend recommended it but I am sceptical. They already have changed the return flight to stop at Montreal rather than direct to Toronto.

[audreyh1]

Quote:

Originally Posted by kcowan Also we know that cruising will be more expensive than just staying in hotels. And we have a lot of cruises on the bucket list. (Although relocation cruises can actually be cheaper than hotels and meals. Barcelona to Vancouver is on the list.)

I also consider that rather than giving up travel that quickly, I will be spending more for comfort in travel as I am older.

We haven't been doing cruises as that is something I figure I'll be more inclined to do when I can't (or am unwilling to) get around as well on my own. Same for trips in general where a tour company does all the work. Also - paying more for airfare. We've only flown first class once so far.

And then there are the drivers, private tours, baggage handlers, you name it.

We'll just have to pay up for the smaller ship cruises. No way I'll get DH on a large passenger boat.