WSJ: Where Retirees Underestimate Spending

[Human]

The article is behind the WSJ’s paywall, so here’s the summary:

“We spoke to financial advisers about some of the most frequent mistakes people make when it comes to estimating how much they’ll spend in retirement.”

1. Helping family
2. Big-ticket periodic items
3. Entertainment
4. Health care
5. Long-term care
6. Living a long life

Source: https://www.wsj.com/articles/where-retirees-underestimate-spending-1524061487

 

[HadEnuff]

The article is behind the WSJ’s paywall, so here’s the summary:

“We spoke to financial advisers about some of the most frequent mistakes people make when it comes to estimating how much they’ll spend in retirement.”

1. Helping family
2. Big-ticket periodic items
3. Entertainment
4. Health care
5. Long-term care
6. Living a long life

Source: https://www.wsj.com/articles/where-retirees-underestimate-spending-1524061487

Not exactly earth shakingly new information, IMO.

 

[garyt]

So basically, everything.

 

[CaptTom]

“We spoke to financial advisers...

Tells me all I need to know.

But seriously it's rare that I read anything in the press nowadays that does more than scratch the surface of whatever topic of the piece may be about. Plus, both the "financial advisers" and the WSJ may have conflicts of interest with the whole idea of RE.

It's true those are probably the "biggies" to worry about, but I think most people who reach a point where they can RE have already thought about them.

 

[Hyper]

All those times We've spoken with advisors. #6, life expectancy is the only thing I remember them speaking about. They all tried to push the fact that you need at least 80% of current income and expected loans for cars, home, etc for the rest of your lives. Not once did they ever talk about individuals having every thing paid for in retirement.

 

[aja8888]

The article is behind the WSJ’s paywall, so here’s the summary:

“We spoke to financial advisers about some of the most frequent mistakes people make when it comes to estimating how much they’ll spend in retirement.”

1. Helping family
2. Big-ticket periodic items
3. Entertainment
4. Health care
5. Long-term care
6. Living a long life

Source: https://www.wsj.com/articles/where-retirees-underestimate-spending-1524061487

Looks like WSJ is looking for page filler material.

 

[nun]

The article is behind the WSJ’s paywall, so here’s the summary:

“We spoke to financial advisers about some of the most frequent mistakes people make when it comes to estimating how much they’ll spend in retirement.”

1. Helping family
2. Big-ticket periodic items
3. Entertainment
4. Health care
5. Long-term care
6. Living a long life

Source: https://www.wsj.com/articles/where-retirees-underestimate-spending-1524061487

Not really a surprise. Here's what I've done in those areas

Helping Family.
All my family is back in the UK so I can avoid them most of the time.......seriously my help is currently large Christmas checks to my grand nieces and nephews and money left to them in the will.

Big Ticket items.
I bought a new car and spent on home repairs (new roof etc) before I retired, but I still have a large cash slush fund for such items separate from my regular spending account

Entertainment.
I cut the cord to save on cable bills. I have an annual pass to the local cinema that cost me $300 and spend as I've always done on meals out and booze. I go on bicycle touring holidays which are inexpensive; a couple of thousand dollars will easily cover a couple of months.

Health Care.
State retiree health benefits. $100/month premium and low deductibles.

Long term care
I bought a policy that will pay $300/day with a max payout of $350k back in 1997. The monthly premium is $30.

Living a long time.
I'll get SS checks from both the US and the UK and have a defined benefit state pension that will give an index linked lifetime income. I also own a rental property. So I can rely on those for life.

 

[Rustic23]

I read this as things people don't think about, or under estimate. If you look back to some of the 'Do I have enough' post here, one or two of these has been under considered by some of the posters.

 

[RAE]

Helping family is one that rings true for me. I could spend a lot of money helping adult children who are struggling to get established with their lives, if I chose to. I sorta knew before I retired that was going to be the case (to some extent), but I didn't know it was going to go on for as long as it has. We've had to set some limits.

 

[ShokWaveRider]

I would be curious on how much people actually spend on helping family. Aging parents especially who have not saved as well as we have for their retirement and cannot afford to maintain their standard of living. We have to constantly help DW's father every time there is an unexpected expenditure. He lives alone in a 3 bedroom house and does not want to move. He also insists on spending $200pm on Smokes and $100pm on Lottery tickets. What makes it worse is he is 4000 miles away.

 

[NW-Bound]

The article is behind the WSJ’s paywall, so here’s the summary:

“We spoke to financial advisers about some of the most frequent mistakes people make when it comes to estimating how much they’ll spend in retirement.”

1. Helping family
2. Big-ticket periodic items
3. Entertainment
4. Health care
5. Long-term care
6. Living a long life

Source: https://www.wsj.com/articles/where-retirees-underestimate-spending-1524061487

There's also an unexpected desire to "blow some dough".

The key point is whether one has enough margin in the WR to handle all the above.

 

[Backpacker]

All those times We've spoken with advisors. #6, life expectancy is the only thing I remember them speaking about. They all tried to push the fact that you need at least 80% of current income and expected loans for cars, home, etc for the rest of your lives. Not once did they ever talk about individuals having every thing paid for in retirement.

That's my one question quiz for any FA I meet. As soon as they start spouting % of income needed in retirement I'm done listening. [emoji86]

 

[joeea]

Overall, we are in good shape financially. All the calculators project that our assets will cover us no matter how long we live. We expect to leave a decent legacy to our children.

Helping family
Have already done a fair amount of that. Helped with house down payments. Helped daughter-in-law pay off school loans. Funding 529s for grandchildren.

I don't expect too much more as children are financially settled now.

Big-ticket periodic items
We really aren't the big-ticket type. We don't buy expensive cars. No need for a boat. We already own the house we expect to retire in. No need for expensive repairs or additions at this time.

We may splurge on a big vacation once my wife finally joins me in retirement, and a bit of travel but nothing extraordinary.

Entertainment
We don't spend excessively here. Movies, plays, etc. No really expensive hobbies.

Health care
Who knows? We've got good, inexpensive subsidized ACA plans at the moment. In a few years we'll have Medicare.

Long-term care
We've got a decent Long Term Care Insurance plan. The premiums aren't currently too expensive, and we'll start using my HSA to pay for them once reaching 65. If we were forced to self-insure we could.

Living a long life
Have some serious longevity on my father's side. I am currently being treated for lymphoma but it is going fine so far. Family longevity on my wife's side is a bit less, but she's pretty healthy other than being pre-diabetic.

We plan to delay at least my Social Security (and maybe hers) until 70 as longevity insurance. That and a few annuities we have should provide a very good base for long lives.

 

[W2R]

My comments are in blue, below:

1. Helping family Which people also do before they retire.
2. Big-ticket periodic items Which people also pay for before they retire.
3. Entertainment Which people also pay for before they retire.
4. Health care OK, I suppose most pay more but Medicare helps at age 65.
5. Long-term care Yes, this is something to think about although it seems to me that the costs are difficult/impossible to predict so far in advance.
6. Living a long life Why would anyone plan for retirement income to run out before they have lived an unusually long life?

 

[Dtail]

Not really a surprise. Here's what I've done in those areas

Helping Family.
All my family is back in the UK so I can avoid them most of the time.......seriously my help is currently large Christmas checks to my grand nieces and nephews and money left to them in the will.

Big Ticket items.
I bought a new car and spent on home repairs (new roof etc) before I retired, but I still have a large cash slush fund for such items separate from my regular spending account

Entertainment.
I cut the cord to save on cable bills. I have an annual pass to the local cinema that cost me $300 and spend as I've always done on meals out and booze. I go on bicycle touring holidays which are inexpensive; a couple of thousand dollars will easily cover a couple of months.

Health Care.
State retiree health benefits. $100/month premium and low deductibles.

Long term care
I bought a policy that will pay $300/day with a max payout of $350k back in 1997. The monthly premium is $30.

Living a long time.
I'll get SS checks from both the US and the UK and have a defined benefit state pension that will give an index linked lifetime income. I also own a rental property. So I can rely on those for life.

You are truly set in these 2 areas.

 

[Souschef]

1. Helping family 529's set up for grandchildren. $X from my RMD divided among our sons annually. All our parents are gone, unfortunately
   
2. Big-ticket periodic items We have 2 new paid for cars and no mortgage
3. Entertainment Local road trips. We have cut way back on travel. We used to spend $20K to 40K annually
   
4. Health care Medicare advantage
5. Long-term care Enough money to cover it
6. Living a long life My day died at 92, my mom at 102. Taking the average, I am figuring 97, I just joined the United Flying Octogenarians
   

 

[Human]

I would be curious on how much people actually spend on helping family. Aging parents especially who have not saved as well as we have for their retirement and cannot afford to maintain their standard of living. We have to constantly help DW's father every time there is an unexpected expenditure. He lives alone in a 3 bedroom house and does not want to move. He also insists on spending $200pm on Smokes and $100pm on Lottery tickets. What makes it worse is he is 4000 miles away.

Aging parents have become a fairly big expense for me. Fortunately, I’m not having to provide for them. Instead it’s the frequent travel to where they live, as they need a significant amount of help. I didn’t account for this in any of my retirement spending projections.

 

[Red Badger]

All those times We've spoken with advisors. #6, life expectancy is the only thing I remember them speaking about. They all tried to push the fact that you need at least 80% of current income and expected loans for cars, home, etc for the rest of your lives. Not once did they ever talk about individuals having every thing paid for in retirement.

+1.
Until I learned better, I was scared to death about the 80% rule (seemed pervasive on all FA sites, WSJ, AARP, etc). But once I started tracking our situation, I realized that we were living year in-year out on substantially less than 50% of earnings.

80%might be needed for some, but for us, pure hogwash.

 

[Dtail]

+1.
Until I learned better, I was scared to death about the 80% rule (seemed pervasive on all FA sites, WSJ, AARP, etc). But once I started tracking our situation, I realized that we were living year in-year out on substantially less than 50% of earnings.

80%might be needed for some, but for us, pure hogwash.

+2
We slashed our expenses quite a bit before FIRE, so the monies we made before FIRE has no formulaic relevance to retirement needs.

 

[free2020]

+1.
Until I learned better, I was scared to death about the 80% rule (seemed pervasive on all FA sites, WSJ, AARP, etc). But once I started tracking our situation, I realized that we were living year in-year out on substantially less than 50% of earnings.

80%might be needed for some, but for us, pure hogwash.

+1 Don’t ask the barber if you need a haircut- Warren Buffett

Although I’m not retired, I see from up close how retirees spend. Time, social and giving back considerations rule over spending money.

 

[HadEnuff]

All those times We've spoken with advisors. #6, life expectancy is the only thing I remember them speaking about. They all tried to push the fact that you need at least 80% of current income and expected loans for cars, home, etc for the rest of your lives. Not once did they ever talk about individuals having every thing paid for in retirement.

+1.
Until I learned better, I was scared to death about the 80% rule (seemed pervasive on all FA sites, WSJ, AARP, etc). But once I started tracking our situation, I realized that we were living year in-year out on substantially less than 50% of earnings.

80%might be needed for some, but for us, pure hogwash.

It never made sense to me, since I and most folks I knew who were keen to retire ASAP were LBYM types. Obviously if you are making a certain amount, and stashing away a significant portion of it for retirement funds, and living on a smaller portion of it, what you EARN is not the issue. It's what you SPEND that determines what you need.

But statements like that are good because they help identify quickly, the voices you should mute.

 

[Midpack]

Wow, tough crowd. Not news here but...

Though most, not all (folks here have missed some of them), here have accounted for those expense/issues, this is by no means a mainstream crowd. I’ll bet many non-LBYMers have failed to account for several of those considerations.

 

[joeea]

I would be curious on how much people actually spend on helping family.

We spent over $70k over the past 6 years helping our daughter-in-law pay off student loans.

We spent about $40k helping our sons with their house downpayments.

The big expenses are seemingly behind us now. We continue to fund 529s for our grandchildren.

Only one remaining parent between us and he is financially fine.

 

[karen1972]

Seems about right.

1. Helping family. Was worried about my parents but with my dad working to 80, they are sufficiently set now. Nieces/Nephews have a set amount set aside and the rest will get whatever is left in the will.
2. Big-ticket periodic items These are mostly known.. did HOA Reserve budget so just used that strategy for my own.. just need to understand # of useful years of life and cost and budget accordingly.
3. Entertainment This one to me makes no sense.. its completely discretionary, figure it out.
4. Health care I took a starting $18K ( premium+Out of Pocket Max) and then factored in 11% YoY inflation. Any remaining goes into a "not covered" bucket.
5/6. Long-term care/ Living a long life Honestly I think 4/5/6 kind of blur as if your really sick your not likely to life long, if you need LTC, you won't last that long either. Worst case scenario you need all 3, but I didn't plan for it... if at 90 I'm broke, I'm ok with that.

 

[athena53]

As others have pointed out, most of us have considered these, but I agree that the average person who thinks they can retire at 62 and get by on SS alone is in for a shock.


[*]Helping family

Thank heaven, not an issue. Mom and Dad were savers and my 4 siblings and I learned well. Dad is 87 and widowed and last I heard still had about $500K left and is living in an Independent Living facility. DS and DDIL are very responsible and haven't asked me for a dime but I am funding the granddaughters' 529s. After DH died I started sending his poor-as-a-church-mouse brother and SIL $1,000 a month for 24 months. Just wrote the 18th check yesterday. Not required in the will, but I wanted to do something and that's what DH and I agreed on before he died. It's rescued them from some bad situations including emergency car repairs and a dead refrigerator.


[*]Big-ticket periodic items

Travel is my passion but I have few other extravagances. Can dial back if necessary and I have funds for the occasional "oh, crap" expenses such as home repair and the rare car purchase.

[*]Entertainment

Not much even if you count the seminary classes I'm taking right now.

[*]Health care

This turned out to be far more expensive than I anticipated when I retired 4 years ago at age 61. Premiums last year were $9K/month with crappy coverage. Medicare kicked in on 1/1. Thank heaven I never had any substantial OOP expenses during those years- partly good genes and healthy living, partly luck and the grace of God.


[*]Long-term care

Should be OK- don't have insurance but since I'll no longer be traveling, will have no home/car expenses, can cut back charity to zero, etc. I should be fine.


[*]Living a long life

Happens a lot in my family so I need to anticipate it. Currently collecting SS Survivor benefits and planning on waiting to take my own till age 70 and that will be a nice bump. Keeping average W/D rate under 4%. Had an expensive downsizing in 2015 but withdrew only 3% in 2016 and 2017.