The Retirement Spending “Smile” Is Real

It’s nice when personal experience confirms an idea.

That’s what has happened for me over the last decade. Year by year, I’ve seen the Burns family spending do exactly what researchers have predicted.

Decline.

The reality in our checkbook

No, I’m not about to hold out the alms bowl. Burns family finances are better today than they were five, 10 and 15 years ago. What has happened is that our spending has changed. It has painlessly declined.

Why? Because we’ve aged.

And, for the record, my 79^th birthday is coming up this week.

Here are some examples.

— Food. When my wife and I worked in Dallas, we often had dinner out. We shopped for food once a week. Things in our refrigerator could die of neglect. Today, we eat less. We eat fresh. And we don’t eat dinner out very often. All of this is entirely by choice. The only food-related bill that has increased? What we spend on wine. That, most likely, is due to a modest bit of quality inflation.

— Clothing. Without the need for a work wardrobe, your closet can be much smaller. Out here in Texas Hill Country, anything beyond denims and a T-shirt is considered overdressed. So I’m down to one suit that I can wear to speaking engagements, weddings and funerals.

For my wife, certain clothing items are simply missing — like what I once called “the Imelda Wall” of high-heels. Dress is simpler now, but still imaginative in color, texture and pattern. It may help that I am still startled by her beauty.

So for both of us, clothing expenses are down.

— Transportation. It’s just possible that our 2010 Lexus RX350 and our 2013 Honda Fit will last longer than we do. Both are “no payments” and both have been fault-free. I don’t expect to replace either until an electric alternative appears. In lieu of that, I may start buying carbon offsets for our fuel consumption. Both cars could be done for about $100 a year.

— Travel. As you get older, air travel wears more. So we do it less. We still go to Mexico (free, on Southwest points) and a few other places. But my recent trip to France was a rarity. As a practical matter, we’ll go anyplace we can get to in four hours or less, non-stop.

Younger people who hunger for more travel won’t believe that less travel is painless, but they can’t say “been there, done that” yet. We can.

— Entertainment. We read more books on Kindle, fewer in print. We “cut the cord” and sent our cable box back a few years ago. We subscribe to Netflix. We get Amazon Prime as a freebie with “free shipping.” And the only television station we watch is PBS. Our lives are now advertising-free.

It’s also amazing how much entertainment in Texas is free. We spent a recent weekend at the Texas Songwriters Festival in Dripping Springs, free but for the cost of hot dogs, beer and some CDs.

—Shelter. Most people spend less as they get older. I think we do, but we recently moved and started a major project with 22 acres in Texas Hill Country. I expect annual costs will be far less than our previous homes in Dallas and Santa Fe, but I could be kidding myself.

What the research shows

All of this confirms what the research and surveys have shown. For most people, spending tends to peak in their 50s. In fact, except for healthcare (everyone’s wild card) we tend to spend less year after year.

So academic researchers Kenn Taccino and Cynthia Salzman were right in 1999. That’s when they published a paper in the Journal of Financial Planning. The paper detailed how spending declined for different income groups between age 65 to 74 and those 75 and older.

A few years later, financial planner Ty Bernicke introduced “Reality Retirement Planning,” based on the idea that retirement spending was lower than conventional wisdom’s requirement: 80 percent of final earned income.

The retirement spending “smile.”

Then, in 2013, Morningstar researcher David Blanchett plowed the same ground once more. He found “the retirement spending smile.” He demonstrated that spending declined at first, and then bottomed. Later, it started to rise as health-spending increases overpowered other spending categories. The net effect was a U-shaped spending curve, a “smile.”

While the scaremongers of financial product sales regale us with stories of retirement hardship and misery that can be cured only by buying this or that financial product, the reality is that retirement costs less than expected for most people.

The consequence is that people who haven’t saved enough, according to the financial services industry, are likely to find that their savings will do just fine.

This isn’t about deprivation.

It’s important to be clear here: This doesn’t happen because people are deprived. It happens because we change as we get older.

Want some specifics? Here’s a table from the 1999 Taccino/Salzman paper. The pattern is confirmed by more recent research.

How Spending Changes for Incomes over $40,000

Source: Journal of Financial Planning, February 1999 *Note: minor categories are not reported, categories do not sum to total.

We’d all like to live highly individual lives. And we can. But life has certain realities. One is that we are creatures. We have a life cycle. And, very broadly, we live within its boundaries.

Related columns:

Scott Burns, “Living the Good Life, along with Riley,” 09/07/2019   https://scottburns.com/living-the-good-life-along-with-riley/

Scott Burns, “Letter from France: We can learn from the French,” 10/11/2019  https://scottburns.com/letter-from-france-we-can-learn-from-the-french/

Scott Burns, “In the future, you’ll need less money,” 04/04/1999   https://scottburns.com/in-the-future-youll-need-less-money/

Scott Burns, “Consumption: it’s just so 1950,” 08/14/2005   https://scottburns.com/consumption-its-just-so-1950/

Scott Burns, “In the future, you’ll need less money, the sequel,” 07/17/2005   https://scottburns.com/in-the-future-youll-need-less-money-the-sequel/

Scott Burns, “The Contentment Factor,” 11/21/2014   https://scottburns.com/the-contentment-factor/

Sources and References:

David Blanchett, “Estimating the True Cost of Retirement,” Morningstar 11/05/2013 https://www.morningstar.com/content/dam/marketing/shared/research/foundational/677785-EstimatingTrueCostRetirement.pdf

Texas Songwriters Festival, Dripping Springs website  http://drippingspringssongwritersfestival.com

This information is distributed for education purposes, and it is not to be construed as an offer, solicitation, recommendation, or endorsement of any particular security, product, or service.

Photo: Scott Burns, A Hill Country view

(c)  Scott Burns, 2019