"Retirement Spending Smile"

Pat38493

OldScientist said:

Linton said:

Pat38493 said:

Linton said:

Rather than assume you will be steadily spending less over the years I think it is better to create a separate pot to pay for ticking off your travel bucket list or whatever you want to do in the early years of retirement.  And when the money has gone that's it.  But you keep the money allocated for day to day living expenses constant in real terms.  After all you have become accustomed to that standard of living over many years, it is unreasonable to force your fiture self into what you may consider as poverty at an age when change becomes difficult to handle.

Assuming that day to day expenditure decreases is I think an unjustified increase in risk.  You can get the same effect by say increasing your assumed investment return. Neither change reality, they merely increase the risk you are prepared to accept. What the average person does is irrelevent.

Good points however this might well be what the people in the study did before they retired.  As far as I understood it, the study was about what the people really spent during their retirement regardless of what they had available.

There seems to be a key bit of information missing - the richer you are the more discretionary expenditure you can afford.  If for eample you are a multi-millionaire used to having a new car and several expensive holidays every year then sure your expenditure will decrease considerably when you get older.  On the other hand if you are basing your retirement on barely making ends meet planning on expenditure decreasing over time would be foolish, if anything you may need more.

This is why I suggest for planning purposes you have separate pots for essential and discretionary expenditure.  "essential" being what you consider necessary for an acceptably comfortable life style, not what you could possibly live on were there no other choice.

Blanchett's report did investigate whether the decreases in spending were voluntary or necessary by looking at four different groups by spend and net worth between the ages of 65 and 75, and further classified these into two additional groups, “matched” (i.e. low spend and low net worth, high spend and high net worth) and “mismatched” (i.e. low spend and high net worth, high spend and low net worth). While the 'smile' appears to be the only thing that ever seemed to be discussed, there was somewhat more than that in the report.

Of course, whether US results are relevant to the UK is another question (medical costs/insurance is something we don't currently have to budget for).

Yes this is what I saw as well.

The applicability to the UK is indeed a question, but in terms of medical / health, you might expect that this would actually reduce the upturn in the smile if state funded healthcare is largely available, excepting in those cases where full car home type scenario is needed, which could happen both in UK and US.

For the rest of it, the data kind of makes sense that as you get older, you do a bit less each year for various reasons - less energy, less inclination to organize expensive round the world trips and so on.

Also - when retired you have more time to seek out bargains and make sure you are not being ripped off on all the services and items.

Another thing is that as you get older, routine illnesses like virus, cold, etc - are going to last longer and might reduce your spending for longer periods - I noticed this in the last few weeks when both myself and wife were ill and we have had no inclination to eat out or anything during that time so we've spent virtually nothing apart from on painkillers and normal day to day costs for several weeks.

On the flipside, the need for services like gardener or domestic cleaner might become more important as you have less energy to do it later on in retirement.

Of course there will always be opposite cases if people decide to take up an expensive hobby and suchlike.