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I didn't vote. I don't know much about these things but I did stop and think about this. It's logical to me to think maybe they do need a bit more money now because it's the beginning of their retirement and they are in the best physical shape they are ever going to see. Maybe they want to spend a bit more now to do things and it might also follow there will be a next stage where their needs go down because they won't want to do things like travel, etc.
I would say the correct answer here is. It depends.
If you want to maintain your pre-retirement life style after you retire and don't want to move to a cheaper cost of living area and downsize, then the only appreciable decrease in spending you may see would be in your saving for retirement which may cease once you retire and in your federal taxes, if you have a large tax deferred account or a pension that is tax exempt.
Also as you age, and become less mobile, you will be less likely to travel (provided you traveled pre-retirement) or partake in outdoor events as often. But what you may save there can easily be eaten up by health issues. Besides long term health issues which you may or may not have, you will most likely have the need for extensive dental work. Just got my estimate for $14,000 - Ouch. What happened here? Also increased medications as you age. The need to hire outside people for physical labor as mentioned by Robyn.
I do agree with the 3 Go time frames and concept, but I think the significance in savings between your first ten years and your second ten years focasus mostly on descretionary spending and depends largely on the type of retirement you have and your income level going into retirement. For someone like yourself living in NY on $100,000+ retirement income, and still partaking in all of the goodies the city offers, I agree it is particularly applicable to you. But for someone retiring on $30-$40,000 a year, the fall to level 2 may not be as significant.
I do however feel compelled to point out to other readers before assuming this tremendous drop in spending, it really all depends on where you are starting from in considering this study.
That's why I don't like stating that your spending does not "fall of the cliff" until you are in your mid 70's. For some people, that cliff may be just a dip in the road.
the key to whether spending falls off or not is just as you said , having a fair amount of discretionary income .
you can't cut back on things if everything is a need . so those who live pretty much on a tight budget will feel the pinches of inflation far more .
you would not believe what i spent on dental the last 8 or 9 years .
i had six implants put in 8 years ago and rejected 3 over the course of the years . that was 25k .
then last year had 4 more put in . yikes !.
but i certainly do see even our spending falling off as we age .
we are taking all kinds of trips now . in fact we were away on a hunting trip up until last week .
much of what we do and spend on will slowly dwindle down through the years as we spend more time closer to home .
spending patterns were thought to be generational as well . it was believed as an example that if you were great depression children you tended to spend less all your life . so if your age group was compared to a younger one without considering that group of depression children tended to always spend less then it did appear that you spent less as you aged .
but the sun life study disproved that when they followed thousands of retirees through the various ages and saw that there definitely was a falling off in spending that was solely age related .
Last edited by mathjak107; 12-03-2015 at 02:33 AM..
like i said , it is easy enough to monitor your sustainability in real time .
that 2% real return average the first 15 years that you mathematically need to maintain just 4% inflation adjusted spending is a good yard stick .
if as the years go on and well before the 15 year mark , you are not averaging that much , a red flag should go up and be prepared to cut spending proactively .
since 2000 which is actually one of the worst years to have retired, a balanced fund has returned a 2.90% real return average . i think even wellesely income came in at 2.70%
so while not great our most recent worst case retiree's to date are still on track to have a constant income stream unchanged but they won't have much left at the end . .
they are quite close to where the 1929 retiree stood 15 years in . they also survived the 4% draw rate but just barely .
the common denominator to all the worst periods of time was the fact they failed to maintain that 2% real return average the first 15 years . even though some of them had great years 16-30 the amount left after 15 years was just to small to benefit from the later growth so the entire retirement is really based on how the first 15 years go .
in fact what is startling is the 30 year results for those worst time frames were pretty respectable , but when you look at the first 15 years they were awful .
if the 2008 retiree did not succumb to bad investor behavior even if they were 100% stock funds they are at the moment just fine . their retirement track is just the typical track all the other average time frames have seen , nothing better or worse .
the brief dip was a non event in the scheme of things .
of course even a modest dip can be harmful if it is over an extended period of time . an extended downturn day 1 of retirement can inflict the greatest damage but if you have an up cycle first before that downturn then it is not as big a deal and may be not a problem at all .
for the near term i think a balanced portfolio may see 3-4% returns in nominal terms . about 6% from equity's and 2-3% from bonds .
so far this year while large caps are struggling the overall markets if you are diversified and not just large caps , have been fine .
i see my fidelity contra fund is up 8.50% , fidelity blue chip growth up almost 8% , fidelity growth co is up nicely as well , nasdaq index is up almost 10% , fidelity balanced fund is up almost 3% . . so the overall markets are doing fine .
just owning the s&p 500 which are just the big large caps is not a diversified portfolio.. in fact historically anytime you have had a period like last year where the s&p 500 got all the attention and nothing else mattered the s&p unde rperformed the following 5 years as it leveled itself out .
over all my balanced 50/50 mix is up about 3% . . more aggressive models are up more .
Last edited by mathjak107; 12-03-2015 at 04:03 AM..
...Also as you age, and become less mobile, you will be less likely to travel (provided you traveled pre-retirement) or partake in outdoor events as often...
Or - if you want to keep traveling - you may spend more money on it because you need more money to travel "in comfort". Which is what we do. OTOH - it is possible (although increasingly difficult these days) to save some $$$ by becoming proficient in terms of frequent flyer/stayer programs/credit cards/etc.
Like you mention - a lot depends on your health. My parents were boaters until they were in their early 80's - when health issues popped up. My inlaws were golfers until their late 70's - when they developed health issues. But then - as you also point out - health care expenses can easily gobble up whatever you save by going into "forced retirement" from your favorite activities. Perhaps the people who do these studies just count the things people stop doing? And fail to take into account the things people have to spend money on (like home health aides)? Maybe they assume that everyone who gets older and sicker just moves into a Medicaid bed in a SNF? Which would be an extremely dubious assumption (especially considering that most people prefer to "age in place" to the maximum extent possible). Robyn
I didn't vote. I don't know much about these things but I did stop and think about this. It's logical to me to think maybe they do need a bit more money now because it's the beginning of their retirement and they are in the best physical shape they are ever going to see. Maybe they want to spend a bit more now to do things and it might also follow there will be a next stage where their needs go down because they won't want to do things like travel, etc.
Does that justify?
There's a difference between living on current income stream vs investment income. Even with a quite modest current income stream, one can travel and maintain the kind of moderate lifestyle as in a similar lifestyle preretirement, though not high off the hog. To me personally and so far, investment money is not something for current income needs. It will be used to supplement the needed income when the time comes. In planning for travel, I simply save for it from the current income stream. Yeah it cramps my style a bit but I'm fine with my lifestyle.
like i said , it is easy enough to monitor your sustainability in real time .
that 2% real return average the first 15 years that you mathematically need to maintain just 4% inflation adjusted spending is a good yard stick .
if as the years go on and well before the 15 year mark , you are not averaging that much , a red flag should go up and be prepared to cut spending proactively .
since 2000 which is actually one of the worst years to have retired, a balanced fund has returned a 2.90% real return average . i think even wellesely income came in at 2.70%
so while not great our most recent worst case retiree's to date are still on track to have a constant income stream unchanged but they won't have much left at the end . .
they are quite close to where the 1929 retiree stood 15 years in . they also survived the 4% draw rate but just barely .
the common denominator to all the worst periods of time was the fact they failed to maintain that 2% real return average the first 15 years . even though some of them had great years 16-30 the amount left after 15 years was just to small to benefit from the later growth so the entire retirement is really based on how the first 15 years go .
in fact what is startling is the 30 year results for those worst time frames were pretty respectable , but when you look at the first 15 years they were awful .
if the 2008 retiree did not succumb to bad investor behavior even if they were 100% stock funds they are at the moment just fine . their retirement track is just the typical track all the other average time frames have seen , nothing better or worse .
the brief dip was a non event in the scheme of things .
of course even a modest dip can be harmful if it is over an extended period of time . an extended downturn day 1 of retirement can inflict the greatest damage but if you have an up cycle first before that downturn then it is not as big a deal and may be not a problem at all .
for the near term i think a balanced portfolio may see 3-4% returns in nominal terms . about 6% from equity's and 2-3% from bonds .
so far this year while large caps are struggling the overall markets if you are diversified and not just large caps , have been fine .
i see my fidelity contra fund is up 8.50% , fidelity blue chip growth up almost 8% , fidelity growth co is up nicely as well , nasdaq index is up almost 10% , fidelity balanced fund is up almost 3% . . so the overall markets are doing fine .
just owning the s&p 500 which are just the big large caps is not a diversified portfolio.. in fact historically anytime you have had a period like last year where the s&p 500 got all the attention and nothing else mattered the s&p unde rperformed the following 5 years as it leveled itself out .
over all my balanced 50/50 mix is up about 3% . . more aggressive models are up more .
Bada Bing. Even Wellesley is up over 2%. Blue chip growth, contra and growth company are solid long term active funds and are part of my active mix to help balance my index portfolio
There's a difference between living on current income stream vs investment income. Even with a quite modest current income stream, one can travel and maintain the kind of moderate lifestyle as in a similar lifestyle preretirement, though not high off the hog. To me personally and so far, investment money is not something for current income needs. It will be used to supplement the needed income when the time comes. In planning for travel, I simply save for it from the current income stream. Yeah it cramps my style a bit but I'm fine with my lifestyle.
that premise would not be correct 100% , there is no rule for drawing income from a portfolio .
it all depends on your chosen method of drawing that income .
some prefer buckets . they use a cash bucket for spending , refill from the bond bucket and then down the road refill from their equity's .
the problem with that is as you spend down cash and bonds your allocations to equity gets larger and larger .
before refilling you cn be way more allocated to stocks then you want because of the spending down of the cash and bonds .
other folks like to draw their income from all parts of the pie maintaining their allocations, even while spending down . they will spend down a bit of whatever investment needs rebalancing each year to get things back in line.
how you create that income stream is irrelevant .
some folks will reinvest dividends to grow over time , and spend assets with smaller returns first instead .
there are many other methods for drawing an income out there
Our withdrawal percentage is not traditional for many and fine for others. We take out as WANTED with market performance in the background. It is done with strong fixed streams and knowing we have a strong SS for new kicking in at 70. Then barring the unforeseen we will draw down for RMD's and increase savings investing. It is FireCalc driven with end of life targets and goals
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