New York Times 11/29/18 "The Myth of Steady Retirement Spending..."

[Basenji]

Some good news from a study on retirement spending. Article talks about the 4% rule and the only criticism is it may be too generous (as in one is likely to need less money in retirement than one thinks).

The Myth of Steady Retirement Spending, and Why Reality May Cost Less
https://www.nytimes.com/2018/11/29/business/retirement/retirement-spending-calculators.html
[not sure if behind the paywall]

Even when it declines, retirement spending in today’s dollars doesn’t always follow a straight path. It often resembles a smile, according to a study by David Blanchett, head of retirement research at Morningstar. That is, it starts high, gradually declines, and then increases toward the end of a retiree’s life. He based his study on real-life data from the Health and Retirement Study, a project of the National Institute on Aging and the University of Michigan.

Those later-year gains in spending are almost always related to health care, Dr. Blanchett said. Even with those increases, however, retirees in their 70s and 80s still tend to spend less than when they first quit working.

“The real change in annual spending through retirement is clearly negative,” Dr. Blanchett said.

[nereo]

Dovetailing with that NY Times article - Michael Kitces has a great blog post about how must retirees spending decreases year-over-year using data from the US Bureau of STatistics
https://www.kitces.com/blog/age-banding-by-basu-to-model-retirement-spending-needs-by-category/
The two most eye-popping graphs from that are below:


Obviously the spending amongs the most affluent is not a model for mustachian frugal living, but it does show how major categories like housing and food/beverages decline even as health care costs increase.

[Basenji]

Thanks @nereo. Very interesting that chart with percentage of spending. I thought the healthcare portion would go up much more. It looks like for most people it's fairly even as a percentage of costs until one is about 80 to 85 yo. I wonder if "housing" includes things like retirement or care homes. I may read that study.

[Abe]

I liked the article, and really helps lay to rest the financial industry's boogeyman of excess spending in retirement.

With regards to the spending data: I would hope the housing cost in the late 60s - late 70s would be much lower (unless it's for retirement home as Basenji noted.) Otherwise, the data suggest that most people still have sizable mortgages at that age.

Also, if you're spending $20k a year ($1800/month) on food and beverages - wowza! We don't really watch our food spending, and have never managed to get even close to that amount in a month.

[nereo]

With regards to the spending data: I would hope the housing cost in the late 60s - late 70s would be much lower (unless it's for retirement home as Basenji noted.) Otherwise, the data suggest that most people still have sizable mortgages at that age.

I think its a reflection of all the other expenses with home ownership which never go away and increase with inflation. Towards the end of a fixed 30 year a person's non-morgage housing expenses typically dwarf their monthly mortgage payment.

Also, if you're spending $20k a year ($1800/month) on food and beverages - wowza! We don't really watch our food spending, and have never managed to get even close to that amount in a month.

Just be aware that this is data for the most affluent (which I believe here is hte upper quartile).The food budget likely is dominated by frequent meals out.  As said, not the typical mustachian budget.

[dude]

Another Kitces article touching tangentially on this topic:

https://www.kitces.com/blog/consumption-gap-in-retirement-why-most-retirees-will-never-spend-down-their-portfolio/

[Rockne]

As usual, the gold is in the comments (of the article linked in the comments):

Another Kitces article touching tangentially on this topic:

https://www.kitces.com/blog/consumption-gap-in-retirement-why-most-retirees-will-never-spend-down-their-portfolio/

MikeP's comments really get to the heart of the inverse relationship between Happiness & Money. For me, as I have become more aware of what makes me happy, the spending dynamic in my life has organically changed. It isn't the steak dinners out at a fancy restaurant that I enjoy (although they sure are good); it is the good company of friends, the conversation, and the memories made laughing over a bottle or two of wine - all which I can have for a fraction of the cost of going out. The wealth accumulation is a side effect of deeply understanding the driving factors.

[Boofinator]

Interesting article, and I agree with its premises. However, I don't think it applies to the typical FIRE Mustachian, as spending generally doesn't have much room to go down (and this is confirmed in my mind by the spending of the FIRE bloggers I follow).

[Basenji]

Interesting article, and I agree with its premises. However, I don't think it applies to the typical FIRE Mustachian, as spending generally doesn't have much room to go down (and this is confirmed in my mind by the spending of the FIRE bloggers I follow).

Good point.

[ATMD]

MikeP's comments really get to the heart of the inverse relationship between Happiness & Money. For me, as I have become more aware of what makes me happy, the spending dynamic in my life has organically changed. It isn't the steak dinners out at a fancy restaurant that I enjoy (although they sure are good); it is the good company of friends, the conversation, and the memories made laughing over a bottle or two of wine - all which I can have for a fraction of the cost of going out. The wealth accumulation is a side effect of deeply understanding the driving factors.

The best things in this world are free.