NYT Article: The Myth of Steady Retirement Spending

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
cadreamer2015
Posts: 705
Joined: Wed Apr 08, 2015 1:52 pm
Location: North County San Diego

NYT Article: The Myth of Steady Retirement Spending

Post by cadreamer2015 » Mon Dec 03, 2018 12:07 pm

This should not come as a surprise to Bogleheads, but good to see it in the popular press:

https://www.nytimes.com/2018/11/29/busi ... ators.html
De gustibus non est disputandum

Irisheyes
Posts: 93
Joined: Wed Feb 14, 2018 1:36 pm

Re: NYT Article: The Myth of Steady Retirement Spending

Post by Irisheyes » Mon Dec 03, 2018 12:49 pm

"One of her firm’s studies grouped 613,000 JPMorgan Chase customers into profiles based on their spending patterns. These included homebodies, globe-trotters, health care spenders and foodies. It’s worth figuring out which profile matches your spending, said Wade Pfau, a professor at the American College of Financial Services and director of retirement research at McLean Asset Management. If you fall into one of the first three groups, you may be looking at spending increases throughout your retirement. But people in the biggest group — the 39 percent who spend more than others on food and drink — can reasonably expect the “Go-Go, Slow-Go, No-Go” progression."

This part of the article struck me as ridiculous. How on earth is deciding if one is a globe trotter or a health care spender or a foodie helpful in predicting retirement spending? First, those categories are not mutually exclusive and second, the most important one -- health care spender -- is unknowable in advance.

Ckprocker
Posts: 11
Joined: Thu Apr 12, 2018 10:12 am

Re: NYT Article: The Myth of Steady Retirement Spending

Post by Ckprocker » Mon Dec 03, 2018 1:59 pm

I definitely plan on spending more in early retirement (first 10 years or so).

I read something about a 6.875% plan where you take that amount out every year but never increase it or add in interest rates. Supposedly that gives you more in your first 10-15 years to spend. I tried searching for that article, but could not find it.

Sandi_k
Posts: 830
Joined: Sat May 16, 2015 11:55 am
Location: SF Bay Area

Re: NYT Article: The Myth of Steady Retirement Spending

Post by Sandi_k » Mon Dec 03, 2018 2:38 pm

Ckprocker wrote:
Mon Dec 03, 2018 1:59 pm
I definitely plan on spending more in early retirement (first 10 years or so).

I read something about a 6.875% plan where you take that amount out every year but never increase it or add in interest rates. Supposedly that gives you more in your first 10-15 years to spend. I tried searching for that article, but could not find it.
Was it something like this?

https://assetbuilder.com/knowledge-cent ... less-later

User avatar
Phineas J. Whoopee
Posts: 7709
Joined: Sun Dec 18, 2011 6:18 pm

Re: NYT Article: The Myth of Steady Retirement Spending

Post by Phineas J. Whoopee » Mon Dec 03, 2018 2:48 pm

Ckprocker wrote:
Mon Dec 03, 2018 1:59 pm
I definitely plan on spending more in early retirement (first 10 years or so).

I read something about a 6.875% plan where you take that amount out every year but never increase it or add in interest rates. Supposedly that gives you more in your first 10-15 years to spend. I tried searching for that article, but could not find it.
6.875 percent is precise to one part in one hundred thousand. How can the last digit or two be meaningful for any real-world human being's spending?

PJW

Ckprocker
Posts: 11
Joined: Thu Apr 12, 2018 10:12 am

Re: NYT Article: The Myth of Steady Retirement Spending

Post by Ckprocker » Mon Dec 03, 2018 3:54 pm

Sandi_k wrote:
Mon Dec 03, 2018 2:38 pm
Ckprocker wrote:
Mon Dec 03, 2018 1:59 pm
I definitely plan on spending more in early retirement (first 10 years or so).

I read something about a 6.875% plan where you take that amount out every year but never increase it or add in interest rates. Supposedly that gives you more in your first 10-15 years to spend. I tried searching for that article, but could not find it.
Was it something like this?

https://assetbuilder.com/knowledge-cent ... less-later
Yes That is the article...thanks for finding it :happy

User avatar
baconavocado
Posts: 197
Joined: Fri Oct 13, 2017 3:03 pm

Re: NYT Article: The Myth of Steady Retirement Spending

Post by baconavocado » Mon Dec 03, 2018 4:08 pm

Irisheyes wrote:
Mon Dec 03, 2018 12:49 pm
"One of her firm’s studies grouped 613,000 JPMorgan Chase customers into profiles based on their spending patterns. These included homebodies, globe-trotters, health care spenders and foodies. It’s worth figuring out which profile matches your spending, said Wade Pfau, a professor at the American College of Financial Services and director of retirement research at McLean Asset Management. If you fall into one of the first three groups, you may be looking at spending increases throughout your retirement. But people in the biggest group — the 39 percent who spend more than others on food and drink — can reasonably expect the “Go-Go, Slow-Go, No-Go” progression."

This part of the article struck me as ridiculous. How on earth is deciding if one is a globe trotter or a health care spender or a foodie helpful in predicting retirement spending? First, those categories are not mutually exclusive and second, the most important one -- health care spender -- is unknowable in advance.
I can understand that. For example, globe-trotters will travel a lot during their early retirement until they've been to every place they want to go, then their spending will drop considerably as they travel less. Spending for homebodies will be more flat throughout retirement.

User avatar
baconavocado
Posts: 197
Joined: Fri Oct 13, 2017 3:03 pm

Re: NYT Article: The Myth of Steady Retirement Spending

Post by baconavocado » Mon Dec 03, 2018 4:09 pm

Ckprocker wrote:
Mon Dec 03, 2018 1:59 pm
I definitely plan on spending more in early retirement (first 10 years or so).

I read something about a 6.875% plan where you take that amount out every year but never increase it or add in interest rates. Supposedly that gives you more in your first 10-15 years to spend. I tried searching for that article, but could not find it.
Make sure you don't retire during or just before a bear market!

Bacchus01
Posts: 2111
Joined: Mon Dec 24, 2012 9:35 pm

Re: NYT Article: The Myth of Steady Retirement Spending

Post by Bacchus01 » Mon Dec 03, 2018 4:12 pm

Irisheyes wrote:
Mon Dec 03, 2018 12:49 pm
"One of her firm’s studies grouped 613,000 JPMorgan Chase customers into profiles based on their spending patterns. These included homebodies, globe-trotters, health care spenders and foodies. It’s worth figuring out which profile matches your spending, said Wade Pfau, a professor at the American College of Financial Services and director of retirement research at McLean Asset Management. If you fall into one of the first three groups, you may be looking at spending increases throughout your retirement. But people in the biggest group — the 39 percent who spend more than others on food and drink — can reasonably expect the “Go-Go, Slow-Go, No-Go” progression."

This part of the article struck me as ridiculous. How on earth is deciding if one is a globe trotter or a health care spender or a foodie helpful in predicting retirement spending? First, those categories are not mutually exclusive and second, the most important one -- health care spender -- is unknowable in advance.
It’s cluster factor analysis to creat statistically relevant groups. It does not mean there is not overlap, but that the dominant tendency is likely in that group. It’s math. Don’t get stuck in the marketing side. The end point, however, is that for 60% of people, spending increases.

User avatar
willthrill81
Posts: 6572
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: NYT Article: The Myth of Steady Retirement Spending

Post by willthrill81 » Mon Dec 03, 2018 4:24 pm

Irisheyes wrote:
Mon Dec 03, 2018 12:49 pm
"One of her firm’s studies grouped 613,000 JPMorgan Chase customers into profiles based on their spending patterns. These included homebodies, globe-trotters, health care spenders and foodies. It’s worth figuring out which profile matches your spending, said Wade Pfau, a professor at the American College of Financial Services and director of retirement research at McLean Asset Management. If you fall into one of the first three groups, you may be looking at spending increases throughout your retirement. But people in the biggest group — the 39 percent who spend more than others on food and drink — can reasonably expect the “Go-Go, Slow-Go, No-Go” progression."

This part of the article struck me as ridiculous. How on earth is deciding if one is a globe trotter or a health care spender or a foodie helpful in predicting retirement spending? First, those categories are not mutually exclusive and second, the most important one -- health care spender -- is unknowable in advance.
I agree. Further, how do you know that you will remain in a certain spending segment over the long-term? My wife and I would probably be 'globe-trotters', but one health issue can shut that down quickly.

Further, this could lead a casual observer into thinking that spending is out of retirees' control, when the opposite is far more true. If your portfolio suffers as time goes on, research has consistently shown that even the financially illiterate reduce their spending.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

User avatar
willthrill81
Posts: 6572
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: NYT Article: The Myth of Steady Retirement Spending

Post by willthrill81 » Mon Dec 03, 2018 4:28 pm

Bacchus01 wrote:
Mon Dec 03, 2018 4:12 pm
The end point, however, is that for 60% of people, spending increases.
That runs completely counter to David Blanchett's research as well as data from the Bureau of Labor Statistics Consumer Expenditure Survey.

Image

Two-thirds of retirees experience declines in real spending over time, 1-2% annually (depending on whose data are used. Only one-sixth of retirees report real spending increases, and certainly some portion of them are spending more simply because they have the means to do so.
in other words, the reality seems to be that retirees actually decrease their real retirement spending throughout almost all of their retirement, with annual decreases of 1%/year that accelerate to 2%/year through the “slow-go” years before turning upwards (but not positive!) to ‘mere’ 1%/year declines again by the end of retirement.
https://www.kitces.com/blog/estimating- ... ing-smile/
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

Olemiss540
Posts: 636
Joined: Fri Aug 18, 2017 8:46 pm

Re: NYT Article: The Myth of Steady Retirement Spending

Post by Olemiss540 » Mon Dec 03, 2018 4:33 pm

Phineas J. Whoopee wrote:
Mon Dec 03, 2018 2:48 pm
Ckprocker wrote:
Mon Dec 03, 2018 1:59 pm
I definitely plan on spending more in early retirement (first 10 years or so).

I read something about a 6.875% plan where you take that amount out every year but never increase it or add in interest rates. Supposedly that gives you more in your first 10-15 years to spend. I tried searching for that article, but could not find it.
6.875 percent is precise to one part in one hundred thousand. How can the last digit or two be meaningful for any real-world human being's spending?

PJW
The audacity of some people.

To be fair, many of vanguard's funds have expense ratios precise to the thousandth decimal place. Don't think anyone is lobbying them to round those off.....
I hold index funds because I do not overestimate my ability to pick stocks OR stock pickers.

User avatar
Phineas J. Whoopee
Posts: 7709
Joined: Sun Dec 18, 2011 6:18 pm

Re: NYT Article: The Myth of Steady Retirement Spending

Post by Phineas J. Whoopee » Mon Dec 03, 2018 5:19 pm

Olemiss540 wrote:
Mon Dec 03, 2018 4:33 pm
Phineas J. Whoopee wrote:
Mon Dec 03, 2018 2:48 pm
Ckprocker wrote:
Mon Dec 03, 2018 1:59 pm
I definitely plan on spending more in early retirement (first 10 years or so).

I read something about a 6.875% plan where you take that amount out every year but never increase it or add in interest rates. Supposedly that gives you more in your first 10-15 years to spend. I tried searching for that article, but could not find it.
6.875 percent is precise to one part in one hundred thousand. How can the last digit or two be meaningful for any real-world human being's spending?

PJW
The audacity of some people.

To be fair, many of vanguard's funds have expense ratios precise to the thousandth decimal place. Don't think anyone is lobbying them to round those off.....
They express them to one ten thousandth, I believe, although I am prone to order of magnitude errors. I always have to remind myself what units I'm calculating in.

If expressed as 6 and 7/8 percent it might not be so clear how precise the claim is. An individual might not take it as being so. Perhaps a rational person (hah!) would take it to mean somewhere between 6 and 13/16, and 6 and 15/16. I dunno.

My financial calculator has a twelve-digit mantissa it displays, and internally calculates it to fifteen digits.

That doesn't mean it's significant that if I have enough I can spend five more dollars per year in early retirement.

Explaining why expressing financial thingies in eights of a unit was for so long customary in the US is left as an exercise for the reader.

PJW

User avatar
vineviz
Posts: 2357
Joined: Tue May 15, 2018 1:55 pm

Re: NYT Article: The Myth of Steady Retirement Spending

Post by vineviz » Mon Dec 03, 2018 5:38 pm

willthrill81 wrote:
Mon Dec 03, 2018 4:28 pm
Bacchus01 wrote:
Mon Dec 03, 2018 4:12 pm
The end point, however, is that for 60% of people, spending increases.
That runs completely counter to David Blanchett's research as well as data from the Bureau of Labor Statistics Consumer Expenditure Survey.
Maybe not completely counter. I'd have to look up the data to be sure, but I suspect that most people have rising nominal expenditures through retirement but declining real expenditures.

In other words spending increases more most retirees, just at a rate that is less than inflation.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

User avatar
willthrill81
Posts: 6572
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: NYT Article: The Myth of Steady Retirement Spending

Post by willthrill81 » Mon Dec 03, 2018 5:46 pm

vineviz wrote:
Mon Dec 03, 2018 5:38 pm
willthrill81 wrote:
Mon Dec 03, 2018 4:28 pm
Bacchus01 wrote:
Mon Dec 03, 2018 4:12 pm
The end point, however, is that for 60% of people, spending increases.
That runs completely counter to David Blanchett's research as well as data from the Bureau of Labor Statistics Consumer Expenditure Survey.
Maybe not completely counter. I'd have to look up the data to be sure, but I suspect that most people have rising nominal expenditures through retirement but declining real expenditures.

In other words spending increases more most retirees, just at a rate that is less than inflation.
Why would anyone be concerned with spending in nominal dollars? Real dollars are what count.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

User avatar
vineviz
Posts: 2357
Joined: Tue May 15, 2018 1:55 pm

Re: NYT Article: The Myth of Steady Retirement Spending

Post by vineviz » Mon Dec 03, 2018 6:22 pm

willthrill81 wrote:
Mon Dec 03, 2018 5:46 pm
Why would anyone be concerned with spending in nominal dollars?
Because everything gets paid, and virtually everything gets measured, in nominal dollars.

When Visa starts inflation-adjusting my credit card statement, I'll get more excited about chastising people for discussing their spending in nominal dollars.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

User avatar
willthrill81
Posts: 6572
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: NYT Article: The Myth of Steady Retirement Spending

Post by willthrill81 » Mon Dec 03, 2018 6:27 pm

vineviz wrote:
Mon Dec 03, 2018 6:22 pm
willthrill81 wrote:
Mon Dec 03, 2018 5:46 pm
Why would anyone be concerned with spending in nominal dollars?
Because everything gets paid, and virtually everything gets measured, in nominal dollars.

When Visa starts inflation-adjusting my credit card statement, I'll get more excited about chastising people for discussing their spending in nominal dollars.
The notion I was disparaging was that retirees' spending goes up over time. That may be true in nominal dollars, but it isn't true in real dollars. And whether we're talking about Social Security or portfolio withdrawals, we talk about real dollars.

To your example, I wouldn't be wise to assume that our grocery budget of $500 monthly will stay $500 twenty years down the road. However, it might be the same in real dollars.

If the argument is that retirees' spending tends to increase merely due to the force of inflation, that's a truism that doesn't really tell us anything meaningful.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

Sandi_k
Posts: 830
Joined: Sat May 16, 2015 11:55 am
Location: SF Bay Area

Re: NYT Article: The Myth of Steady Retirement Spending

Post by Sandi_k » Mon Dec 03, 2018 6:51 pm

Ckprocker wrote:
Mon Dec 03, 2018 3:54 pm
Sandi_k wrote:
Mon Dec 03, 2018 2:38 pm
Ckprocker wrote:
Mon Dec 03, 2018 1:59 pm
I definitely plan on spending more in early retirement (first 10 years or so).

I read something about a 6.875% plan where you take that amount out every year but never increase it or add in interest rates. Supposedly that gives you more in your first 10-15 years to spend. I tried searching for that article, but could not find it.
Was it something like this?

https://assetbuilder.com/knowledge-cent ... less-later
Yes That is the article...thanks for finding it :happy
No worries, I had saved and shared it awhile ago. :-)

User avatar
vineviz
Posts: 2357
Joined: Tue May 15, 2018 1:55 pm

Re: NYT Article: The Myth of Steady Retirement Spending

Post by vineviz » Mon Dec 03, 2018 7:03 pm

willthrill81 wrote:
Mon Dec 03, 2018 6:27 pm
To your example, I wouldn't be wise to assume that our grocery budget of $500 monthly will stay $500 twenty years down the road. However, it might be the same in real dollars.
I doubt anyone here is making that assumption.

In any case, both nominal and real terms are valid ways of discussing this topic. Neither is wrong or right, we just need to make sure we understand which we are discussing.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

heyyou
Posts: 3198
Joined: Tue Feb 20, 2007 4:58 pm

Re: NYT Article: The Myth of Steady Retirement Spending

Post by heyyou » Mon Dec 03, 2018 7:35 pm

The 800# gorilla is health care costs for a spouse with unequal longevity to the other one.

User avatar
willthrill81
Posts: 6572
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: NYT Article: The Myth of Steady Retirement Spending

Post by willthrill81 » Mon Dec 03, 2018 7:37 pm

heyyou wrote:
Mon Dec 03, 2018 7:35 pm
The 800# gorilla is health care costs for a spouse with unequal longevity to the other one.
Are you referring to early retirees (i.e. before Medicare eligibility), retirees' healthcare expenditures not covered by Medicare, or Medicare itself failing?
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

averagedude
Posts: 368
Joined: Sun May 13, 2018 3:41 pm

Re: NYT Article: The Myth of Steady Retirement Spending

Post by averagedude » Mon Dec 03, 2018 7:57 pm

Thanks OP, i found the article interesting. Most retirees in my circle of friends "middle class" spend slightly more when they first retire, but after several years they spend way less. They spend more at the beginning on traveling because they didnt have the time to do so when they were working. After a couple of years they settle down, and most of their time is spent baby sitting their grandkids where their children use them as free daycare, and they spend very little money. Just what i have observed from middle class America.
Last edited by averagedude on Mon Dec 03, 2018 7:58 pm, edited 1 time in total.

AlohaJoe
Posts: 3944
Joined: Mon Nov 26, 2007 2:00 pm
Location: Saigon, Vietnam

Re: NYT Article: The Myth of Steady Retirement Spending

Post by AlohaJoe » Mon Dec 03, 2018 7:57 pm

Irisheyes wrote:
Mon Dec 03, 2018 12:49 pm
This part of the article struck me as ridiculous. How on earth is deciding if one is a globe trotter or a health care spender or a foodie helpful in predicting retirement spending? First, those categories are not mutually exclusive and second, the most important one -- health care spender -- is unknowable in advance.
It doesn't strike me as ridiculous.

No one said they are mutually exclusive. You seem unaware of what cluster analysis is or does. Here's a wikipedia link that helps explain it: https://en.wikipedia.org/wiki/Cluster_analysis

How is it useful? The report explains how it is useful. For each of the 4 types it describes the impacts on retirement planning and they include a section "Using Spending Profiles in a Financial Plan". For instance, spending profiles show that foodies can use a lower rate of inflation when estimating future spending. Homebodies need to have a larger buffer because housing expenses tend to go up (the longer you stay in a home the more maintenance it requires and the more of it you need to outsource due to declining physical ability). Their research on globetrotters found that travel didn't go down after age 75 so plans that assume "I'll travel a lot in my 60s and then that expense will go down" are probably not realistic.

I mean, all of that sounds useful and actionable. But I actually read the paper instead of making knee-jerk reactions.

AlohaJoe
Posts: 3944
Joined: Mon Nov 26, 2007 2:00 pm
Location: Saigon, Vietnam

Re: NYT Article: The Myth of Steady Retirement Spending

Post by AlohaJoe » Mon Dec 03, 2018 8:00 pm

baconavocado wrote:
Mon Dec 03, 2018 4:08 pm
For example, globe-trotters will travel a lot during their early retirement until they've been to every place they want to go, then their spending will drop considerably as they travel less.
That's not what their research found.
Surprisingly, perhaps, there are just as many globetrotters over age 75 as there are in younger age groups. Spending on travel was also the highest for those age 75+ who fit this pro- file. We would assume that these are individuals who have traveled throughout their lives, like to travel and hope to keep going. Given how important travel is for these individuals, their financial plans should account for these ongoing expenses as a specific spending item
Spending for homebodies will be more flat throughout retirement.
That's not what their research found due to the reasons I mentioned in a previous post: the longer you stay in a house the more maintenance it requires the more of that maintenance you need to outsource.
Spending such a significant share of total income on housing can be realistic when someone is working, but once earned income slows or stops it can be a significant burden

AlohaJoe
Posts: 3944
Joined: Mon Nov 26, 2007 2:00 pm
Location: Saigon, Vietnam

Re: NYT Article: The Myth of Steady Retirement Spending

Post by AlohaJoe » Mon Dec 03, 2018 8:11 pm

Bacchus01 wrote:
Mon Dec 03, 2018 4:12 pm
It’s cluster factor analysis to creat statistically relevant groups. It does not mean there is not overlap, but that the dominant tendency is likely in that group. It’s math. Don’t get stuck in the marketing side. The end point, however, is that for 60% of people, spending increases.
That's not what the JP Morgan study claims. Wade Pfau is the one making that claim based on his interpretation of the JP Morgan study and I disagree with his characterisation. Here are some charts from the study:

Image
Image

All the JP Morgan study is trying to illustrate is something that I doubt any Boglehead would actually argue with if they read the study
financial advisors should focus their clients’ attention on current spending patterns and future goals [...] When assumptions are personalized for particular spending types, financial plans can be more targeted and effective. After a financial advisor has identified a client’s spending profile, the advisor should have detailed discussions of where income has been—and will be—spent. The assumptions of the financial plan can then be tailored to fit the client’s particular experience. Health care costs should always be carved out as a separate item in a plan.
I mean...sounds exactly like the advice I see every day here on Bogleheads.

User avatar
willthrill81
Posts: 6572
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: NYT Article: The Myth of Steady Retirement Spending

Post by willthrill81 » Mon Dec 03, 2018 8:22 pm

AlohaJoe wrote:
Mon Dec 03, 2018 8:11 pm
All the JP Morgan study is trying to illustrate is something that I doubt any Boglehead would actually argue with if they read the study
financial advisors should focus their clients’ attention on current spending patterns and future goals [...] When assumptions are personalized for particular spending types, financial plans can be more targeted and effective. After a financial advisor has identified a client’s spending profile, the advisor should have detailed discussions of where income has been—and will be—spent. The assumptions of the financial plan can then be tailored to fit the client’s particular experience. Health care costs should always be carved out as a separate item in a plan.
I mean...sounds exactly like the advice I see every day here on Bogleheads.
That aligns with Blanchett's research and the BLS CES data. Overall spending tends to decline as retirees' age. Even though healthcare expenses tend to rise as retirees age, they are usually more than offset by decreased expenses in other categories. IIRC, transportation and grocery expenses are a couple of the categories that see the biggest decreases in terms of actual dollars.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

Irisheyes
Posts: 93
Joined: Wed Feb 14, 2018 1:36 pm

Re: NYT Article: The Myth of Steady Retirement Spending

Post by Irisheyes » Mon Dec 03, 2018 8:39 pm

AlohaJoe wrote:
Mon Dec 03, 2018 7:57 pm
Irisheyes wrote:
Mon Dec 03, 2018 12:49 pm
This part of the article struck me as ridiculous. How on earth is deciding if one is a globe trotter or a health care spender or a foodie helpful in predicting retirement spending? First, those categories are not mutually exclusive and second, the most important one -- health care spender -- is unknowable in advance.
It doesn't strike me as ridiculous.

No one said they are mutually exclusive. You seem unaware of what cluster analysis is or does. Here's a wikipedia link that helps explain it: https://en.wikipedia.org/wiki/Cluster_analysis

How is it useful? The report explains how it is useful. For each of the 4 types it describes the impacts on retirement planning and they include a section "Using Spending Profiles in a Financial Plan". For instance, spending profiles show that foodies can use a lower rate of inflation when estimating future spending. Homebodies need to have a larger buffer because housing expenses tend to go up (the longer you stay in a home the more maintenance it requires and the more of it you need to outsource due to declining physical ability). Their research on globetrotters found that travel didn't go down after age 75 so plans that assume "I'll travel a lot in my 60s and then that expense will go down" are probably not realistic.

I mean, all of that sounds useful and actionable. But I actually read the paper instead of making knee-jerk reactions.
I'm a homebody who is also a globe trotter, and I'm a foodie. I may or may not become a healthcare spender,.

How is the information as presented in the article actionable on my part?

At the very least, throwing in the wild card of "health care spender" makes the rest of the fancy cluster analysis completely beside the point.

AlohaJoe
Posts: 3944
Joined: Mon Nov 26, 2007 2:00 pm
Location: Saigon, Vietnam

Re: NYT Article: The Myth of Steady Retirement Spending

Post by AlohaJoe » Mon Dec 03, 2018 8:50 pm

Irisheyes wrote:
Mon Dec 03, 2018 8:39 pm
I'm a homebody who is also a globe trotter, and I'm a foodie. I may or may not become a healthcare spender,.
Since you didn't perform cluster analysis on yourself using the proprietary JP Morgan dataset we know your claims are without basis. I don't understand why you are so upset with this study that you haven't even read.

Irisheyes
Posts: 93
Joined: Wed Feb 14, 2018 1:36 pm

Re: NYT Article: The Myth of Steady Retirement Spending

Post by Irisheyes » Mon Dec 03, 2018 8:53 pm

AlohaJoe wrote:
Mon Dec 03, 2018 8:50 pm
Irisheyes wrote:
Mon Dec 03, 2018 8:39 pm
I'm a homebody who is also a globe trotter, and I'm a foodie. I may or may not become a healthcare spender,.
Since you didn't perform cluster analysis on yourself using the proprietary JP Morgan dataset we know your claims are without basis. I don't understand why you are so upset with this study that you haven't even read.
I'm taking issue with an argument. That doesn't equate to being upset. You still haven't addressed the glaring flaw in their analysis -- which is to equate "health care spender" with the category of "foodie" or "globe trotter." The latter are known, or can be predicted, while the former for most of us is not and can't be.

AlohaJoe
Posts: 3944
Joined: Mon Nov 26, 2007 2:00 pm
Location: Saigon, Vietnam

Re: NYT Article: The Myth of Steady Retirement Spending

Post by AlohaJoe » Mon Dec 03, 2018 9:10 pm

Irisheyes wrote:
Mon Dec 03, 2018 8:53 pm
AlohaJoe wrote:
Mon Dec 03, 2018 8:50 pm
Irisheyes wrote:
Mon Dec 03, 2018 8:39 pm
I'm a homebody who is also a globe trotter, and I'm a foodie. I may or may not become a healthcare spender,.
Since you didn't perform cluster analysis on yourself using the proprietary JP Morgan dataset we know your claims are without basis. I don't understand why you are so upset with this study that you haven't even read.
I'm taking issue with an argument. That doesn't equate to being upset. You still haven't addressed the glaring flaw in their analysis -- which is to equate "health care spender" with the category of "foodie" or "globe trotter." The latter are known, or can be predicted, while the former for most of us is not and can't be.
When a person starts making ridiculous arguments -- like calling yourself a globe trotter or a homebody when you don't even know what that means in the context of the study -- they aren't engaging with the subject, they are making emotional replies and not useful replies that contribute to the discussion.

You seem to be saying that because none of us can predict the future we shouldn't bother looking at our current expenses and lifestyle when planning our retirement. Because there may be exceptions we can't learn anything from the common case. I don't think that's a useful position to take when planning retirement. But I guess we can agree to disagree.

Irisheyes
Posts: 93
Joined: Wed Feb 14, 2018 1:36 pm

Re: NYT Article: The Myth of Steady Retirement Spending

Post by Irisheyes » Mon Dec 03, 2018 9:17 pm

AlohaJoe wrote:
Mon Dec 03, 2018 9:10 pm


When a person starts making ridiculous arguments -- like calling yourself a globe trotter or a homebody when you don't even know what that means in the context of the study -- they aren't engaging with the subject, they are making emotional replies and not useful replies that contribute to the discussion.

You seem to be saying that because none of us can predict the future we shouldn't bother looking at our current expenses and lifestyle when planning our retirement. Because there may be exceptions we can't learn anything from the common case. I don't think that's a useful position to take when planning retirement. But I guess we can agree to disagree.

I said nothing about what any of us should or should not do with respect to retirement. We all know that healthcare is a wild card that we will have to deal with. The study "domesticates" that wild card by equating it with the ultimately very malleable categories of "foodie" and "globetrotter." That invalidates the study from my perspective.

You have not been able to tell me why it doesn't.

(Throwing out terms like "Cluster analysis" and "Proprietary software" doesn't address it.)

skjoldur
Posts: 147
Joined: Thu Sep 25, 2014 3:11 pm

Re: NYT Article: The Myth of Steady Retirement Spending

Post by skjoldur » Mon Dec 03, 2018 11:56 pm

As far as I can tell this is not longitudinal data covering the same spenders over their life trajectory. It is simply spending for different age groups of people alive at the same time. Can anyone confirm that?

I suspect that all kinds of mistakes could creep in to an analysis that assumes that the patterns observed this way apply to individual spending trajectories over the course of a retirement.

randomguy
Posts: 6661
Joined: Wed Sep 17, 2014 9:00 am

Re: NYT Article: The Myth of Steady Retirement Spending

Post by randomguy » Tue Dec 04, 2018 2:06 am

skjoldur wrote:
Mon Dec 03, 2018 11:56 pm
As far as I can tell this is not longitudinal data covering the same spenders over their life trajectory. It is simply spending for different age groups of people alive at the same time. Can anyone confirm that?

I suspect that all kinds of mistakes could creep in to an analysis that assumes that the patterns observed this way apply to individual spending trajectories over the course of a retirement.
If it is the dataset I remember, yep. Also think about the number for the mass affluent chart. Think about what a 45-50 year old with 1-2 million and a job verus the 65-69 with the same 1-2 million and retired. The working person is a lot richer (they have the same assets and another 10-20 years of work if they want it) and it shows in the increased spending. If you just look at the really retired crowd. You are going from 84 (76 if you thin 70 is the more accurate retirement age) to 67k at 85+. Thats a 20% drop. <10% if you go off the 70 year old. That is is with the margin of error for me:)

I would be concerned that nobody is average. Imagine you have 2 couples each spending 100k year. In year 10, the spouse of 1 couple dies. The survivor sells his big house and moves some place smaller and loses the desire to travel. Couple A keeps spending 100k. Survivor B spends 60k. Average is 80k like the chart says but is that a useful average? Couple A sure doesn't want to cut their spending down and the survior isn't going to up their spending. Given you don't know if your spouse is going to die in 5 years or 20 (or either of your health changes), I am not sure how plannable any of this is.

randomguy
Posts: 6661
Joined: Wed Sep 17, 2014 9:00 am

Re: NYT Article: The Myth of Steady Retirement Spending

Post by randomguy » Tue Dec 04, 2018 2:11 am

willthrill81 wrote:
Mon Dec 03, 2018 7:37 pm
heyyou wrote:
Mon Dec 03, 2018 7:35 pm
The 800# gorilla is health care costs for a spouse with unequal longevity to the other one.
Are you referring to early retirees (i.e. before Medicare eligibility), retirees' healthcare expenditures not covered by Medicare, or Medicare itself failing?
The gorilla is probably nursing home care. Medical insurance tends to cap your medical spending in the 10-20k range but once you start need nurses to come to the house or you need full time care, you shoot up to 80k+ in a heartbeat. For one person it isn't a big deal (you spend the money on a nursing home instead of your house and if you go broke you go on medicaid). For a couple, your expenses don't drop (other person still needs somewhere to live) and the medicaid back up plan isn't anywhere near as appealing.

User avatar
willthrill81
Posts: 6572
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: NYT Article: The Myth of Steady Retirement Spending

Post by willthrill81 » Tue Dec 04, 2018 11:51 am

randomguy wrote:
Tue Dec 04, 2018 2:11 am
willthrill81 wrote:
Mon Dec 03, 2018 7:37 pm
heyyou wrote:
Mon Dec 03, 2018 7:35 pm
The 800# gorilla is health care costs for a spouse with unequal longevity to the other one.
Are you referring to early retirees (i.e. before Medicare eligibility), retirees' healthcare expenditures not covered by Medicare, or Medicare itself failing?
The gorilla is probably nursing home care. Medical insurance tends to cap your medical spending in the 10-20k range but once you start need nurses to come to the house or you need full time care, you shoot up to 80k+ in a heartbeat. For one person it isn't a big deal (you spend the money on a nursing home instead of your house and if you go broke you go on medicaid). For a couple, your expenses don't drop (other person still needs somewhere to live) and the medicaid back up plan isn't anywhere near as appealing.
That's where Medicaid compliant annuities can really help. Irrevocable trusts set up at least five years before going on Medicaid can help the 'healthy' spouse as well.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

Admiral
Posts: 1466
Joined: Mon Oct 27, 2014 12:35 pm

Re: NYT Article: The Myth of Steady Retirement Spending

Post by Admiral » Tue Dec 04, 2018 12:33 pm

willthrill81 wrote:
Tue Dec 04, 2018 11:51 am
randomguy wrote:
Tue Dec 04, 2018 2:11 am
willthrill81 wrote:
Mon Dec 03, 2018 7:37 pm
heyyou wrote:
Mon Dec 03, 2018 7:35 pm
The 800# gorilla is health care costs for a spouse with unequal longevity to the other one.
Are you referring to early retirees (i.e. before Medicare eligibility), retirees' healthcare expenditures not covered by Medicare, or Medicare itself failing?
The gorilla is probably nursing home care. Medical insurance tends to cap your medical spending in the 10-20k range but once you start need nurses to come to the house or you need full time care, you shoot up to 80k+ in a heartbeat. For one person it isn't a big deal (you spend the money on a nursing home instead of your house and if you go broke you go on medicaid). For a couple, your expenses don't drop (other person still needs somewhere to live) and the medicaid back up plan isn't anywhere near as appealing.
That's where Medicaid compliant annuities can really help. Irrevocable trusts set up at least five years before going on Medicaid can help the 'healthy' spouse as well.
There are plenty of insurance policies available that will cover full-time, in-home nursing care to end of life. I know, because my aging parents have one (the policy, not the home care yet, thankfully). They are not cheap, and the premiums go up (typically after your rate-lock period expires) but they do exist. So, an annuity is not the only option.

fourwheelcycle
Posts: 488
Joined: Sun May 25, 2014 5:55 pm

Re: NYT Article: The Myth of Steady Retirement Spending

Post by fourwheelcycle » Tue Dec 04, 2018 3:12 pm

My wife and I are ready, willing and able to spend more in retirement. I am now ten years into retirement and we have definitely increased our international travel - but only from zero trips per year to about one and a half trips per year. We have found that the years when we do two trips to Europe or other distant locations are simply too draining. This is especially true of the air flights, since even though we could afford more than economy class we have never been willing to pay for it.

We enjoy cooking at home. Although we also enjoy good restaurant meals we only end up going to restaurants about once a month, except when we are on vacations. As a result, although we have set aside any budget limit on groceries my guess is that our total expenditure for groceries and restaurant meals has increased by less than $2K per year since I retired.

I have always had hobbies and have enjoyed spending money on them. My wife and I both enjoy purchasing furniture and decor items that we think fit perfectly for our home. True to her gender, my wife enjoys shopping for new clothing and we both enjoy adding new winter coats for our cold New England environment. As it turns out, however, now that we have reached and concluded our sixties, we find that we have already purchased a large portion of the possible items in these categories we can reasonably use or even fit into our home. We often comment that our acquisition stage has reached its peak and we soon need to begin the de-acquisition stage that will make our house seem appropriately decongested when the time comes to sell it and move on to a retirement community (perhaps in another seven to ten years).

All in all, I would say our total annual spending has not increased at all since I retired. We have begun traveling abroad on a regular basis and we have purchased a couple of nice cars, but these expenses have added up to much less than we were spending on eight years of college during the ten years that preceded my retirement.
Last edited by fourwheelcycle on Tue Dec 04, 2018 4:23 pm, edited 1 time in total.

JackoC
Posts: 360
Joined: Sun Aug 12, 2018 11:14 am

Re: NYT Article: The Myth of Steady Retirement Spending

Post by JackoC » Tue Dec 04, 2018 3:45 pm

willthrill81 wrote:
Mon Dec 03, 2018 4:24 pm
Irisheyes wrote:
Mon Dec 03, 2018 12:49 pm
"One of her firm’s studies grouped 613,000 JPMorgan Chase customers into profiles based on their spending patterns. These included homebodies, globe-trotters, health care spenders and foodies. It’s worth figuring out which profile matches your spending, said Wade Pfau, a professor at the American College of Financial Services and director of retirement research at McLean Asset Management. If you fall into one of the first three groups, you may be looking at spending increases throughout your retirement. But people in the biggest group — the 39 percent who spend more than others on food and drink — can reasonably expect the “Go-Go, Slow-Go, No-Go” progression."

This part of the article struck me as ridiculous. How on earth is deciding if one is a globe trotter or a health care spender or a foodie helpful in predicting retirement spending? First, those categories are not mutually exclusive and second, the most important one -- health care spender -- is unknowable in advance.
I agree. Further, how do you know that you will remain in a certain spending segment over the long-term? My wife and I would probably be 'globe-trotters', but one health issue can shut that down quickly.

Further, this could lead a casual observer into thinking that spending is out of retirees' control, when the opposite is far more true. If your portfolio suffers as time goes on, research has consistently shown that even the financially illiterate reduce their spending.
Travel lovers will not end up spending as much as they planned on travel if their health goes downhill soon, but travel haters won't spend much on it regardless of their health. People whose spending has been greatly constrained by having to devote so much of their time and energy to work (rather than spending their time/energy on expensive travel, hobbies etc) will probably spend more and for longer than people who mainly would have preferred quietly sitting at home to going to work. But almost everyone will be sitting around eventually if they last long enough, and maybe requiring expensive care by then. Nobody knows the future, but I think people can plan to some degree based on what they like to do. That seems fairly obvious actually.

With health care spending the future variability is more important I'd grant, since almost nobody consciously wants to consume a lot of healthcare and virtually nobody at all wants to be in poor health. However even in that case some people are more likely to seek tests and treatment for vague symptoms other people ignore, and can know this about themselves. And as people get closer to retirement they have a somewhat better idea of the general progression of their health, health issues might be emerging already, and sadly don't usually get better as you age.

protagonist
Posts: 5487
Joined: Sun Dec 26, 2010 12:47 pm

Re: NYT Article: The Myth of Steady Retirement Spending

Post by protagonist » Tue Dec 04, 2018 4:08 pm

My thoughts upon reading this:

1. It is in the financial interest of financial advisors to maximize the potential desperate financial needs of their clients going forward and their potential fears of running out of money.

2. I never bothered calculating what percentage of my nest egg I spend annually. I just know I am living within my means, and even in the scariest worst case financial Armageddon scenario short of complete societal collapse , I will get about $3K/month from Social Security starting age 70, keep enough in very safe investments, and probably won't have to worry much. Running low on money would be, in fact, the best case scenario for me- it would mean I probably lived to 100 and still was healthy enough to be spending on whatever I wanted . Stressing over pennies and what percent of my money I spend each year will, if anything, just lead to my dying sooner.

As for the future being unpredictable? It is. So I'm not going to needlessly worry now about forces beyond my control. That would either lead me to an early grave, or make my remaining years that much less fun.

If overspending was a problem, I suppose guidelines like 4% would be useful. But that is not my problem.

User avatar
willthrill81
Posts: 6572
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: NYT Article: The Myth of Steady Retirement Spending

Post by willthrill81 » Tue Dec 04, 2018 4:19 pm

JackoC wrote:
Tue Dec 04, 2018 3:45 pm
willthrill81 wrote:
Mon Dec 03, 2018 4:24 pm
Irisheyes wrote:
Mon Dec 03, 2018 12:49 pm
"One of her firm’s studies grouped 613,000 JPMorgan Chase customers into profiles based on their spending patterns. These included homebodies, globe-trotters, health care spenders and foodies. It’s worth figuring out which profile matches your spending, said Wade Pfau, a professor at the American College of Financial Services and director of retirement research at McLean Asset Management. If you fall into one of the first three groups, you may be looking at spending increases throughout your retirement. But people in the biggest group — the 39 percent who spend more than others on food and drink — can reasonably expect the “Go-Go, Slow-Go, No-Go” progression."

This part of the article struck me as ridiculous. How on earth is deciding if one is a globe trotter or a health care spender or a foodie helpful in predicting retirement spending? First, those categories are not mutually exclusive and second, the most important one -- health care spender -- is unknowable in advance.
I agree. Further, how do you know that you will remain in a certain spending segment over the long-term? My wife and I would probably be 'globe-trotters', but one health issue can shut that down quickly.

Further, this could lead a casual observer into thinking that spending is out of retirees' control, when the opposite is far more true. If your portfolio suffers as time goes on, research has consistently shown that even the financially illiterate reduce their spending.
Travel lovers will not end up spending as much as they planned on travel if their health goes downhill soon, but travel haters won't spend much on it regardless of their health. People whose spending has been greatly constrained by having to devote so much of their time and energy to work (rather than spending their time/energy on expensive travel, hobbies etc) will probably spend more and for longer than people who mainly would have preferred quietly sitting at home to going to work. But almost everyone will be sitting around eventually if they last long enough, and maybe requiring expensive care by then. Nobody knows the future, but I think people can plan to some degree based on what they like to do. That seems fairly obvious actually.

With health care spending the future variability is more important I'd grant, since almost nobody consciously wants to consume a lot of healthcare and virtually nobody at all wants to be in poor health. However even in that case some people are more likely to seek tests and treatment for vague symptoms other people ignore, and can know this about themselves. And as people get closer to retirement they have a somewhat better idea of the general progression of their health, health issues might be emerging already, and sadly don't usually get better as you age.
I agree very much that everyone should determine what they want to do in retirement in conjunction with their financial means. I also agree that this should be obvious. It isn't clear to me that there is any value to speak of from looking at the results of this cluster analysis, trying to determine whether you fit best, and then using that for planning purposes.

My parents would probably be best classified as 'globe-trotters', but their desire to continue that lifestyle in retirement is diminishing because they are running out of places they want to visit overseas at least, and they are concerned that their health, while still good, will not hold up beyond perhaps another decade. That knowledge is important from a planning perspective; simplifying it to this classification system would not benefit them at all.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

The Wizard
Posts: 12455
Joined: Tue Mar 23, 2010 1:45 pm
Location: Reading, MA

Re: NYT Article: The Myth of Steady Retirement Spending

Post by The Wizard » Tue Dec 04, 2018 5:10 pm

When I read these articles about spending changes with age, I usually wonder if it's voluntary or involuntary.

It's possible that some folks have very modest retirement savings which they burn mostly through in the first 5-10 years of retirement and then subsist only on SS for their remaining years.
This would be an involuntary change in spending profile.

A voluntary change might be someone with above average retirement income from pension/annuities + SS + RMDs.
That person simply tires of travel at age 72 and henceforth spends only 50% of his retirement income, resulting in a steadily increasing portfolio size over the next decade.

Without making a distinction between diverse circumstances like this, a study is pretty much useless...
Attempted new signature...

RudyS
Posts: 1373
Joined: Tue Oct 27, 2015 10:11 am

Re: NYT Article: The Myth of Steady Retirement Spending

Post by RudyS » Tue Dec 04, 2018 11:00 pm

Admiral wrote:
Tue Dec 04, 2018 12:33 pm
willthrill81 wrote:
Tue Dec 04, 2018 11:51 am
randomguy wrote:
Tue Dec 04, 2018 2:11 am
willthrill81 wrote:
Mon Dec 03, 2018 7:37 pm
heyyou wrote:
Mon Dec 03, 2018 7:35 pm
The 800# gorilla is health care costs for a spouse with unequal longevity to the other one.
Are you referring to early retirees (i.e. before Medicare eligibility), retirees' healthcare expenditures not covered by Medicare, or Medicare itself failing?
The gorilla is probably nursing home care. Medical insurance tends to cap your medical spending in the 10-20k range but once you start need nurses to come to the house or you need full time care, you shoot up to 80k+ in a heartbeat. For one person it isn't a big deal (you spend the money on a nursing home instead of your house and if you go broke you go on medicaid). For a couple, your expenses don't drop (other person still needs somewhere to live) and the medicaid back up plan isn't anywhere near as appealing.
That's where Medicaid compliant annuities can really help. Irrevocable trusts set up at least five years before going on Medicaid can help the 'healthy' spouse as well.
There are plenty of insurance policies available that will cover full-time, in-home nursing care to end of life. I know, because my aging parents have one (the policy, not the home care yet, thankfully). They are not cheap, and the premiums go up (typically after your rate-lock period expires) but they do exist. So, an annuity is not the only option.
For a few people, this may work well: Enter a Type A Continuing Care Retirement Community. Large buy-in price, high monthly payments. BUT, you and spouse have an independent living apartment, as long as you can manage. Those CCRCs generally serve one meal included in the price, daily. Once, if, one of you needs to move to assisted living, and then perhaps nursing care, the other spouse can still remain in the apartment. The higher levels of care are included in the buy-in and monthly prices. That can put an effective cap on what can be called LTC costs.

randomguy
Posts: 6661
Joined: Wed Sep 17, 2014 9:00 am

Re: NYT Article: The Myth of Steady Retirement Spending

Post by randomguy » Tue Dec 04, 2018 11:50 pm

The Wizard wrote:
Tue Dec 04, 2018 5:10 pm
When I read these articles about spending changes with age, I usually wonder if it's voluntary or involuntary.

It's possible that some folks have very modest retirement savings which they burn mostly through in the first 5-10 years of retirement and then subsist only on SS for their remaining years.
This would be an involuntary change in spending profile.

A voluntary change might be someone with above average retirement income from pension/annuities + SS + RMDs.
That person simply tires of travel at age 72 and henceforth spends only 50% of his retirement income, resulting in a steadily increasing portfolio size over the next decade.

Without making a distinction between diverse circumstances like this, a study is pretty much useless...
I would have to read this study again but in general declining spending isn't linked to declining wealth in every study that I have read. People have more assets and spend less. Obviously we are talking in general and not specific cases.

randomguy
Posts: 6661
Joined: Wed Sep 17, 2014 9:00 am

Re: NYT Article: The Myth of Steady Retirement Spending

Post by randomguy » Tue Dec 04, 2018 11:59 pm

willthrill81 wrote:
Tue Dec 04, 2018 11:51 am
randomguy wrote:
Tue Dec 04, 2018 2:11 am
willthrill81 wrote:
Mon Dec 03, 2018 7:37 pm
heyyou wrote:
Mon Dec 03, 2018 7:35 pm
The 800# gorilla is health care costs for a spouse with unequal longevity to the other one.
Are you referring to early retirees (i.e. before Medicare eligibility), retirees' healthcare expenditures not covered by Medicare, or Medicare itself failing?
The gorilla is probably nursing home care. Medical insurance tends to cap your medical spending in the 10-20k range but once you start need nurses to come to the house or you need full time care, you shoot up to 80k+ in a heartbeat. For one person it isn't a big deal (you spend the money on a nursing home instead of your house and if you go broke you go on medicaid). For a couple, your expenses don't drop (other person still needs somewhere to live) and the medicaid back up plan isn't anywhere near as appealing.
That's where Medicaid compliant annuities can really help. Irrevocable trusts set up at least five years before going on Medicaid can help the 'healthy' spouse as well.
To some extent yes. You do run into issues in that a lot of homes don't accept medicaid patients. To be a medicaid patient there, you have to start off as a paying one. So you end up with 200k+ of added expenses. Long term care insurance is similarly expensive. The plans that cover 5+ years are pretty pricey these days (they were a lot more affordable 10+ years ago). It isn't an unsolvable problem. It can be an expensive one though.

User avatar
willthrill81
Posts: 6572
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: NYT Article: The Myth of Steady Retirement Spending

Post by willthrill81 » Wed Dec 05, 2018 12:14 am

randomguy wrote:
Tue Dec 04, 2018 11:59 pm
willthrill81 wrote:
Tue Dec 04, 2018 11:51 am
randomguy wrote:
Tue Dec 04, 2018 2:11 am
willthrill81 wrote:
Mon Dec 03, 2018 7:37 pm
heyyou wrote:
Mon Dec 03, 2018 7:35 pm
The 800# gorilla is health care costs for a spouse with unequal longevity to the other one.
Are you referring to early retirees (i.e. before Medicare eligibility), retirees' healthcare expenditures not covered by Medicare, or Medicare itself failing?
The gorilla is probably nursing home care. Medical insurance tends to cap your medical spending in the 10-20k range but once you start need nurses to come to the house or you need full time care, you shoot up to 80k+ in a heartbeat. For one person it isn't a big deal (you spend the money on a nursing home instead of your house and if you go broke you go on medicaid). For a couple, your expenses don't drop (other person still needs somewhere to live) and the medicaid back up plan isn't anywhere near as appealing.
That's where Medicaid compliant annuities can really help. Irrevocable trusts set up at least five years before going on Medicaid can help the 'healthy' spouse as well.
To some extent yes. You do run into issues in that a lot of homes don't accept medicaid patients. To be a medicaid patient there, you have to start off as a paying one. So you end up with 200k+ of added expenses. Long term care insurance is similarly expensive. The plans that cover 5+ years are pretty pricey these days (they were a lot more affordable 10+ years ago). It isn't an unsolvable problem. It can be an expensive one though.
A lot don't, but most simply cannot afford not to accept Medicaid patients because the overwhelming majority of nursing home patients are on it. Yes, there are some areas where there is a significant and positive difference in care between self-pay and Medicaid-pay facilities, but in many places, there is literally none because the facilities are identical. It pays to have good knowledge of the facilities in your area.

And from what I've heard, a solution to the 'self-pay' facilities is simply to go in as self-pay for a year or two, then switch to Medicaid. The cost of this need not be overly burdensome for most BHs. If LTC were no more than a ~$200k risk, it wouldn't be a serious problem for them. At least in our situation, the real threat is ten years or more of nursing home care.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

randomguy
Posts: 6661
Joined: Wed Sep 17, 2014 9:00 am

Re: NYT Article: The Myth of Steady Retirement Spending

Post by randomguy » Wed Dec 05, 2018 12:23 am

willthrill81 wrote:
Wed Dec 05, 2018 12:14 am
randomguy wrote:
Tue Dec 04, 2018 11:59 pm
willthrill81 wrote:
Tue Dec 04, 2018 11:51 am
randomguy wrote:
Tue Dec 04, 2018 2:11 am
willthrill81 wrote:
Mon Dec 03, 2018 7:37 pm


Are you referring to early retirees (i.e. before Medicare eligibility), retirees' healthcare expenditures not covered by Medicare, or Medicare itself failing?
The gorilla is probably nursing home care. Medical insurance tends to cap your medical spending in the 10-20k range but once you start need nurses to come to the house or you need full time care, you shoot up to 80k+ in a heartbeat. For one person it isn't a big deal (you spend the money on a nursing home instead of your house and if you go broke you go on medicaid). For a couple, your expenses don't drop (other person still needs somewhere to live) and the medicaid back up plan isn't anywhere near as appealing.
That's where Medicaid compliant annuities can really help. Irrevocable trusts set up at least five years before going on Medicaid can help the 'healthy' spouse as well.
To some extent yes. You do run into issues in that a lot of homes don't accept medicaid patients. To be a medicaid patient there, you have to start off as a paying one. So you end up with 200k+ of added expenses. Long term care insurance is similarly expensive. The plans that cover 5+ years are pretty pricey these days (they were a lot more affordable 10+ years ago). It isn't an unsolvable problem. It can be an expensive one though.
A lot don't, but most simply cannot afford not to accept Medicaid patients because the overwhelming majority of nursing home patients are on it. Yes, there are some areas where there is a significant and positive difference in care between self-pay and Medicaid-pay facilities, but in many places, there is literally none because the facilities are identical. It pays to have good knowledge of the facilities in your area.

And from what I've heard, a solution to the 'self-pay' facilities is simply to go in as self-pay for a year or two, then switch to Medicaid. The cost of this need not be overly burdensome for most BHs. If LTC were no more than a ~$200k risk, it wouldn't be a serious problem for them. At least in our situation, the real threat is ten years or more of nursing home care.
I don't have stats on how many do self pay first (i.e. you do realize your second paragraph is a repeat of what I said:)) versus medicaid from the start. Or how many of of the medicaid from the start have wait lists. My impression was everyone but there could be some regional sampling bias there:) Personally I want to start out with the nice room and end up with the cheap room at the end.:)

User avatar
willthrill81
Posts: 6572
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: NYT Article: The Myth of Steady Retirement Spending

Post by willthrill81 » Wed Dec 05, 2018 12:26 am

randomguy wrote:
Wed Dec 05, 2018 12:23 am
willthrill81 wrote:
Wed Dec 05, 2018 12:14 am
randomguy wrote:
Tue Dec 04, 2018 11:59 pm
willthrill81 wrote:
Tue Dec 04, 2018 11:51 am
randomguy wrote:
Tue Dec 04, 2018 2:11 am


The gorilla is probably nursing home care. Medical insurance tends to cap your medical spending in the 10-20k range but once you start need nurses to come to the house or you need full time care, you shoot up to 80k+ in a heartbeat. For one person it isn't a big deal (you spend the money on a nursing home instead of your house and if you go broke you go on medicaid). For a couple, your expenses don't drop (other person still needs somewhere to live) and the medicaid back up plan isn't anywhere near as appealing.
That's where Medicaid compliant annuities can really help. Irrevocable trusts set up at least five years before going on Medicaid can help the 'healthy' spouse as well.
To some extent yes. You do run into issues in that a lot of homes don't accept medicaid patients. To be a medicaid patient there, you have to start off as a paying one. So you end up with 200k+ of added expenses. Long term care insurance is similarly expensive. The plans that cover 5+ years are pretty pricey these days (they were a lot more affordable 10+ years ago). It isn't an unsolvable problem. It can be an expensive one though.
A lot don't, but most simply cannot afford not to accept Medicaid patients because the overwhelming majority of nursing home patients are on it. Yes, there are some areas where there is a significant and positive difference in care between self-pay and Medicaid-pay facilities, but in many places, there is literally none because the facilities are identical. It pays to have good knowledge of the facilities in your area.

And from what I've heard, a solution to the 'self-pay' facilities is simply to go in as self-pay for a year or two, then switch to Medicaid. The cost of this need not be overly burdensome for most BHs. If LTC were no more than a ~$200k risk, it wouldn't be a serious problem for them. At least in our situation, the real threat is ten years or more of nursing home care.
I don't have stats on how many do self pay first (i.e. you do realize your second paragraph is a repeat of what I said:)) versus medicaid from the start. Or how many of of the medicaid from the start have wait lists. My impression was everyone but there could be some regional sampling bias there:) Personally I want to start out with the nice room and end up with the cheap room at the end.:)
Yep. :wink:

Odds are pretty high that even if you do need LTC in a facility, you won't be there more than three years. You'll probably be able to pay for that without more than a couple of eye blinks.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

SQRT
Posts: 955
Joined: Sat Feb 05, 2011 9:44 am

Re: NYT Article: The Myth of Steady Retirement Spending

Post by SQRT » Wed Dec 05, 2018 4:57 am

Been retired 12 years. 68 years old now. Spending was very high first couple years as we bought two more vacation properties. Levelled out for a few years but we have been increasing spending again as our portfolio has grown. I think spending ends up being set based on two factors: the desire to spend and the means to spend.

The first factor probably goes through a “life cycle” where the retiree wants to do certain things when physically able. Travel the obvious one but perhaps eating out, entertainment,clothing,etc might also be examples. Maybe “fun” things become “old” as we do? Health care/end of life living arrangements another obvious issue especially for those living in the US.

The means to meet this spending desire will change based on market conditions or perhaps the initiation of a funding source (pension or SS).

The intersection of these two factors will determine actual spending for most people, I think.

In our case though, the primary constraint so far has tended to be means. We have lots of ideas how we might productively spend of give more. Will be interesting to see if this constraint moves more to the “desire” side as we get older.
Last edited by SQRT on Wed Dec 05, 2018 10:39 am, edited 1 time in total.

Bacchus01
Posts: 2111
Joined: Mon Dec 24, 2012 9:35 pm

Re: NYT Article: The Myth of Steady Retirement Spending

Post by Bacchus01 » Wed Dec 05, 2018 7:29 am

AlohaJoe wrote:
Mon Dec 03, 2018 8:50 pm
Irisheyes wrote:
Mon Dec 03, 2018 8:39 pm
I'm a homebody who is also a globe trotter, and I'm a foodie. I may or may not become a healthcare spender,.
Since you didn't perform cluster analysis on yourself using the proprietary JP Morgan dataset we know your claims are without basis. I don't understand why you are so upset with this study that you haven't even read.
Or that he/she doesn’t even understand

User avatar
willthrill81
Posts: 6572
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: NYT Article: The Myth of Steady Retirement Spending

Post by willthrill81 » Wed Dec 05, 2018 10:11 am

SQRT wrote:
Wed Dec 05, 2018 4:57 am
Been retired 12 years. 68 years old now. Spending was very high first couple years as we bought two more vacation properties. Levelled our for a few years but we have been increasing spending again as our portfolio has grown. I think spending ends up being set based on two factors: the desire to spend and the means to spend.

The first factor probably goes through a “life cycle” where the retiree wants to do certain things when physically able. Travel the obvious one but perhaps eating out, entertainment,clothing,etc might also be examples. Maybe “fun” things become “old” as we do? Health care/end of life living arrangements another obvious issue especially for those living in the US.

The means to meet this spending desire will change based on market conditions or perhaps the initiation of a funding source (pension or SS).

The intersection of these two factors will determine actual spending for most people, I think.

In our case though, the primary constraint so far has tended to be means. We have lots of ideas how we might productively spend of give more. Will be interesting to see if this constraint moves more to the “desire” side as we get older.
Thank you for elaborating on your situation. :beer
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

Post Reply