Spending Models in Retirement

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armentb
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Joined: Fri Apr 05, 2019 3:39 pm

Spending Models in Retirement

Post by armentb » Thu May 02, 2019 6:30 pm

Currently 58 and looking for suitable model for spending in retirement. I am assuming there are 3 waves of spending: 1) 55 to 65 2) 65 to 75 3) 75 and beyond. I am assuming spending for category 1 > category 2 > category 3. Are there any bogleheads out there who have lived thru these stages that can suggest percentages to use for each of the 3 segments, or perhaps there is a better way to model the spending. Thanks.

yousha
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Re: Spending Models in Retirement

Post by yousha » Thu May 02, 2019 6:37 pm

My spending philosophy is spend what you need and not what you want!

Admiral
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Re: Spending Models in Retirement

Post by Admiral » Thu May 02, 2019 6:54 pm

armentb wrote:
Thu May 02, 2019 6:30 pm
Currently 58 and looking for suitable model for spending in retirement. I am assuming there are 3 waves of spending: 1) 55 to 65 2) 65 to 75 3) 75 and beyond. I am assuming spending for category 1 > category 2 > category 3. Are there any bogleheads out there who have lived thru these stages that can suggest percentages to use for each of the 3 segments, or perhaps there is a better way to model the spending. Thanks.
Well I'm not so sure about your assumptions. Most of the recent modeling shows that end of life expenses (let's say last 5 years) can be higher than the middle years (full time care, nursing home, health issues and related procedures, etc). I would not say that, for the average healthy retiree, spending at 76 will be less than at 70. It depends. And most people are not retired at 55. 62 is average. Much of your spending (in terms of portfolio draw) will depend on how much of your expenses are covered by income streams (SS/pension). For example if your expenses will be 80% covered, you can spend more in the pre-SS years than if they are 50% covered,

A suitable model is one where you don't run out of money regardless of when it's spent. I suggest you look at Variable Percentage Withdrawal (viewtopic.php?t=120430) or play around with Flexible Retirement Planner:https://www.flexibleretirementplanner.com

delamer
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Re: Spending Models in Retirement

Post by delamer » Thu May 02, 2019 7:01 pm

If you are attributing a big part of the decline to reductions in travel/entertainment, you can set aside a chunk of money (figuratively speaking) to cover those expenses. Then the rest of your portfolio can be a more consistent withdrawal rate for core expenses.

Horsefly
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Location: Colorado, mostly

Re: Spending Models in Retirement

Post by Horsefly » Thu May 02, 2019 7:06 pm

armentb wrote:
Thu May 02, 2019 6:30 pm
Currently 58 and looking for suitable model for spending in retirement. I am assuming there are 3 waves of spending: 1) 55 to 65 2) 65 to 75 3) 75 and beyond. I am assuming spending for category 1 > category 2 > category 3. Are there any bogleheads out there who have lived thru these stages that can suggest percentages to use for each of the 3 segments, or perhaps there is a better way to model the spending. Thanks.
My "mother of all spreadsheets" does something similar. I retired at 55. My projections of spending are categorized into 55-67, 67-80, and above 80. And yes, cat 1 > cat 2 > cat 3. I escalated the annual withdrawals by a nominal inflation rate.

There's lots more to it, but suffice it to say that we've spent well under my projection each year. I guess that's good, but it also means I need to adjust the spending projections for them to mean much. I guess it is OK as a worse case.

MnD
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Re: Spending Models in Retirement

Post by MnD » Fri May 03, 2019 8:38 am

Recent paper that I'm too lazy to find indicates spending on average declines 1% per year in the first decade of retirement, 2% per year in the 2nd decade and 1% per year in the third, plus a one time 30% decrease upon the death of one partner. I'm not planning or banking on that but it's another line of evidence to not obsess about running out of money in retirement.

carolinaman
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Re: Spending Models in Retirement

Post by carolinaman » Fri May 03, 2019 8:56 am

What expenses we incur may vary a lot during these different time frames but the total may not change that much. Generally, we are more active at the younger ages and spend more on travel, entertainment and hobbies. As we get older, those expenses may decline, especially when our health declines. However, those expenses may be offset by increased health care. Some serious health conditions may require really expensive drugs, some of which may not be covered by insurance or you or your partner may require 24 hour health care. These situations can dramatically increase expenses.

Every situation is different but I would not assume a substantial decline in spending in later years. If you choose to self insure for LTC (we did), you need to be sure you cover an extended time in a nursing home. So some form of contingency funds should be set aside for that.

Ybsybs
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Re: Spending Models in Retirement

Post by Ybsybs » Fri May 03, 2019 9:07 am

No direct personal experience.

I've read retirement spending is typically u-shapped with the so called "go-go years" and end of life "no-go years" exceeding the middle "slow-go years."

My service as money manager for my in-laws indicates their expenses align with that u-shape and in total cost we are seeing: "no-go" > "go-go" > "slow-go." But since government services are stepping in to cover the high costs of nursing care, the total cost to *them* is "go-go" > "no-go" > "slow-go."

For myself and my spouse, I hope to not draw upon government services intended for the needy and so we are saving with the expectation of self-paying for our end of life care.

IMO
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Re: Spending Models in Retirement

Post by IMO » Fri May 03, 2019 11:05 am

Ybsybs wrote:
Fri May 03, 2019 9:07 am

For myself and my spouse, I hope to not draw upon government services intended for the needy and so we are saving with the expectation of self-paying for our end of life care.
Does that also include self paying for full healthcare, not taking medicare? Never heard anyone expect to do that.

Ybsybs
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Re: Spending Models in Retirement

Post by Ybsybs » Fri May 03, 2019 11:21 am

IMO wrote:
Fri May 03, 2019 11:05 am
Ybsybs wrote:
Fri May 03, 2019 9:07 am

For myself and my spouse, I hope to not draw upon government services intended for the needy and so we are saving with the expectation of self-paying for our end of life care.
Does that also include self paying for full healthcare, not taking medicare? Never heard anyone expect to do that.
I'm delighted to accept Medicare and intend to pay for supplemental insurance such as a Medicare Advantage plan or whatever the Plan F equivalent ends up being (specifics to be determined when we reach 65+).

I hope we never use Medicaid. It's nice that the program exists. But we have sufficient means. I think something will have to be extremely messed up with our spending levels if we end up eligible for it.

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