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-   -   Ty Bernicke...Retirement Spending (https://www.early-retirement.org/forums/f28/ty-bernicke-retirement-spending-35427.html)

RockOn 05-04-2008 06:06 PM

Ty Bernicke...Retirement Spending
 
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 05-04-2008 06:12 PM

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

RockOn 05-04-2008 06:14 PM

Quote:

Originally Posted by REWahoo (Post 652981)
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 05-04-2008 06:17 PM

Try this thread: https://www.early-retirement.org/foru...ire-17317.html

RockOn 05-04-2008 06:32 PM

Quote:

Originally Posted by REWahoo (Post 652984)

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 05-04-2008 06:52 PM

Quote:

Originally Posted by RockOn (Post 652996)
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.

Quote:

Originally Posted by RockOn (Post 652996)
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 05-04-2008 06:55 PM

Quote:

Originally Posted by REWahoo (Post 653001)
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 05-04-2008 07:10 PM

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 05-04-2008 07:26 PM

Quote:

Originally Posted by quietman (Post 653009)
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 05-04-2008 09:06 PM

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 05-04-2008 09:14 PM

Quote:

Originally Posted by retire@40 (Post 653050)
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 05-04-2008 09:38 PM

Quote:

Originally Posted by RockOn (Post 653055)
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 05-04-2008 10:07 PM

Quote:

Originally Posted by RockOn (Post 653020)
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 05-04-2008 11:36 PM

Quote:

Originally Posted by RockOn (Post 652996)
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".

Quote:

Originally Posted by RockOn (Post 652996)
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 https://www.early-retirement.org/foru...d=384895&pp=25 I got:

https://www.early-retirement.org/foru...tml#post522921
https://www.early-retirement.org/foru...tml#post504373
https://www.early-retirement.org/foru...tml#post501503
https://www.early-retirement.org/foru...tml#post499157
https://www.early-retirement.org/foru...tml#post492681
https://www.early-retirement.org/foru...tml#post491656
https://www.early-retirement.org/foru...tml#post490134
https://www.early-retirement.org/foru...tml#post483795
https://www.early-retirement.org/foru...tml#post482878
https://www.early-retirement.org/foru...tml#post469922
https://www.early-retirement.org/foru...tml#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 05-05-2008 03:39 AM

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

https://www.urban.org/UploadedPDF/411...e_patterns.pdf

2B 05-05-2008 04:01 AM

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 05-05-2008 05:36 AM

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 05-05-2008 06:27 AM

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 05-05-2008 07:36 AM

Quote:

Originally Posted by youbet (Post 653071)
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 05-05-2008 07:44 AM

Quote:

Originally Posted by chinaco (Post 653115)
Here is a report from BC on spending as we age.

https://www.urban.org/UploadedPDF/411...e_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?


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