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sadly an old friend is one of those . he sold his car dealer ship decades ago and retired . had no interest in investing or learning about withdrawals . all his money went in the bank .
here we are 25 years later and i saw him one morning driving car service .
Robyn has written some great posts on dealing or trying to deal with inflation in this low interest environment.
Thanks for the link. I will read it in depth when I have a little extra time. For now - the thing that popped out to me at first glance was that the category with the largest drop in terms of $$$ was housing. Which is obviously meaningless if you don't plan to move/downsize - or you're not in a position where you'll pay off a mortgage during this time frame. Perhaps many/most people move/downsize in their 70's? Don't know. But I don't plan to. What these other people do is irrelevant when it comes to my spending. Or people who are doing what I'm doing (suspect you are probably in this category). Robyn
many folks we know did down size once the kids are out . we have friends that went from renting a 3 bedroom apartment in an okay building to a 1 bedroom in a luxury building for much less money .
a recent survey here had some 400,000 long island baby boomers and millennial's say they planned on selling their 600-800k little long island homes at retirement and live elsewhere like kings .
there can also be a cut in spending with a corresponding cut in income .
we are interested in buying a co-op perhaps next year . if we do we will have 6k less in expenses then renting but we will also give up 12k in income on the money we ill spend to buy .
so yep expenses will be less , but in this case so will income .
here is what michael kitces had to say about the sun life study .
a study released several years ago by Sun Life entitled "The Expense Reality" – discussed on this blog back in 2008 – showed indeed that international travel spending declines for retirees in their 70s, domestic travel expenses decline for retirees in their 80s, and a wide array of other miscellaneous expenses, from new/second business start-up expenses, to hobby expenses, decline in the later years. On the other hand, the study also showed that certain categories have "unexpected" increases; for instance, expenditures on luxury items jumps for those in their 70s, and charitable giving rises for those in their 80s. Yet these are perhaps the ultimate in purely discretionary expenses… suggesting that the reality is not only that other spending categories decline in the later years, but that clients who can afford to sustain the spending actually increase consumption on luxury items and charitable giving to fill the spending void left by other category decreases!
So what does all this mean from the planning perspective? It suggests that as a baseline, we probably should project client spending to decrease by at least 10%, if not 20% to 30%, in the later years (e.g., age 75+, or especially age 80+), on an inflation-adjusted basis. This is especially true if the client has otherwise put reasonable insurance in place for health care and long-term care. The greater the affluence of the client, and the larger the percentage of discretionary spending relative to total spending, the greater the projected spending decline in later years. Arguably, this means that clients may need less to retire that we often suggest, and/or could retire earlier; from the safe withdrawal rate perspective, it implies the initial withdrawal rate could potentially be much higher, if later spending cuts are built in up front.
i see them spending less on travel , especially over seas trips . less money on clothes then they did , the beauty parlor and nail salons . entertainment takes a big hit in the folks we know . .
they don't eat out as much , many no longer go the gym . make up purchases seem to be a biggy with woman , that seems to be cut since they don't go out as much at 80 .
there are likely loads of things no longer done or bought but since i don't live with them i can't say but if i can find ty bericke's study i am sure it is all there .
When it comes to travel - my husband and I travel outside the US once a year. We are not tour or cruise people and like to go to big cities in first world countries for 1-2 weeks. We have always traveled at a fairly high level. But now it's pretty much "front of the plane" and "luxury hotels" with no exceptions Because we are too old/creaky to suffer cramped back of the plane seating or 2* places without a lot of amenities. So we are spending more on travel - not less. For many people (although not all - there are some pretty hardy seniors out there) - the discomfort involved in traveling "economy" becomes a real PITA when you get older. And - if all they can afford is "economy" - they don't do it at all. On our part - we'll just continue to do what we're doing now until we can't afford it - or are totally unable to do it from a physical point of view. FWIW - our newest "must have" is limos between airports and hotels. No taxis and definitely no buses or subways. Because we have problems handling our luggage.
Note that IMO - it isn't only an issue of being able to afford things - it's an issue of being comfortable paying for things even if one can afford them. A lot of older people are really cheap. They don't want to pay an airport porter $10 to get their bags from here to there. They won't tip the people who take them in a wheelchair through security $5 (it's discretionary but I think those people expect a gratuity). And maybe for some people - especially men - it's a "macho" thing (if I can't do it myself - I won't do it at all). Can't say my husband was enthusiastic about getting extra help when we first started to need it - but he is perfectly ok with it now. I think men like to be pampered every bit as much as women .
Guess we have never spent a ton on clothes since we stopped working. We buy a lot of Florida "sports type clothing" - middle of the road. Although my husband does buy a nice suit/sports jacket once every few years (they're expensive). And we do spend a fair amount on new/zippy golf equipment - which includes expensive golf shoes . Never spent much on hair cuts. Or anything on nail salons (I don't like the idea of cutting nail implements that have been used on other people being used on my hands - so I have always been a DIY person). I have never worn makeup. Nothing to be saved there.
We still have a gym membership. And we still eat out a lot (and spend a lot on dining) when we're in cities with really good restaurants (which doesn't happen to be where we live). We would probably spend 3 times as much on dining out (and weigh 20 pounds more) if we lived in Manhattan.
I don't know if I'm normal or unusual. Doesn't matter. What I do know is what we spend money on. Where we might save money down the road is particular to us. And just because some old ladies who live elsewhere save money when they stop going to the beauty parlor every week when they reach age X isn't going to save me a dime. I think this is the way people have to look at their situations. Doesn't matter what other people do. What matters is your personal spending habits - and how they might change in the future. Robyn
This is a good link but it also raises the question/issue of the social behavioral characteristics of Baby Boomers v other generations that may have been more mindful of financial prudence than the current wave of retirees joining the ranks now. Boomers have a reputation of being conspicuous consumers and not savers. While older generations during their working years may have spent differently. Old habits are hard to break and spending involves choices and the alternative choices that are being traded off.
I am a baby boomer. But a saver too. I spend within my means (which aren't modest). But also like to splurge on occasion and I know what the proper amounts are in terms of spending on certain things - like tipping. When it comes to my father and his girlfriend - they are not people of modest means either. OTOH - they are cheap IMO. At some point - we took over signing for any restaurant meals they paid for using their credit cards (which were few and far between - we pay for most of them) because they were only leaving like 10-15% tips.
FWIW - it is amazing how much good will one can generate by leaving little gratuities here and there. We always tip the cart staff at our golf club $5 to clean our clubs - help us take them to the car. Now $5 seems like nothing to me in terms of this service. But there are apparently so many people who don't tip even $5 (they don't leave any tips at all) that we seem to be well liked. We also increase the recommended annual holiday gift staff gratuity from $30 to $100. Again - this doesn't seem like a big deal. But it apparently is.
Along these lines - here's a fun story. Our golf club hosts the Players Championship. Super big deal golf tournament with purse > $1 million. The cart/dining staff takes care of the pros who play in the tournament. They work in various capacities (in the locker room - the pro's dining room - etc.). During this week - they don't earn tips from the average duffers who usually play the 2 courses at the facility (loss of income). It is the norm for the winner to tip the staff - and the normal expected tip is about $5k. The staff always rooted for a Phil Mickelson kind of guy to win. Because he would tip $10k. And they were never enthusiastic about a Tiger Woods kind of guy winning - because he would tip nothing. IOW - my husband and I are less valuable than a Phil Mickelson type - more valuable than a Tiger Woods type .
My husband walks around with a wallet full of $5 bills. Which he uses to tip appropriately. He is a very well appreciated person best I can tell in terms of the people who help us to do things. Robyn
Figure out the least amount of money they can live on. Then go from there. If they have 1M along with ss they are doing great. Remember if the house is paid they will have the option of a reverse mortgage at a later time. I say down size and live.. You can't take it with you..
I think a good way to amortize (consume) retirement funds is to use a remaining life expectancy approach like is done for IRA distributions. Take your retirement funds and divide by your now perceived expected life expectancy and that's what you have available for the new year. Some years it will be higher than others depending on how your invested funds did.
Those of us who spent their lives being self-employed and experienced earnings volatility will have no problem with such a model while those who perhaps earned stable salaries (government workers, etc.) may struggle.
In the world in which I earn my living, I'm privy to the finances of my clients. While I realize that those I serve may be different than the masses, not all are wealthy and must pay attention to living within their means. Having said that, I've never experienced a client running out of money.
Your mileage may vary.
Well that's all well and good assuming we have a good handle on when we're going to die. And who has a clue about that? I think if I guessed - I might be right - within 5-10 years. Possibly. If I knew exactly when my husband and I would die - financial planning would be a piece of cake .
I suspect that professionals who have clients don't usually have clients who run out of money. People who aren't in the position to be clients of professionals might encounter this problem more. Robyn
using rmd's and following the irs chart in my opinion is a poor idea . no one needs 10% withdrawal rates when they are 90 . they need the money when they are younger .
there are systems that do use the rmd schedule but heavily modified so that does not happen .
it can be just as easy to just take 4% a year of your balance each year . tht gives you more when you are up and less when you are down with one change .
if you are down you just take 5% less then the year before or what you took the prior year , which ever is higher .
that is how we set our maximum budget each year .
Doesn't it really depend? What if you need a SNF that costs over $100,000/year when you're 85?
I think you are confusing "wants" and "needs". Your or your wife might NEED a SNF down the road. You might currently WANT to take your kids on vacation.
Perhaps I am sensitive to this stuff because I have seen how much our older parents have spent on various kinds of senior facilities (that they need/needed). None has been cheap - ever in the lower cost spread parts of the country where we live. Robyn
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