I finally read one article too many about how people’s expenses decline as they age. This is used to justify saving less for retirement and spending more money early in retirement. Here I analyze this line of thinking with the technical concept of retirement crappiness.
It’s fair to say that some people have enough money to have good retirements, but others are more strapped for cash and have crappy retirements. The typical retirement is only somewhat crappy.
Let’s consider what will happen to the typical retiree destined for a somewhat crappy retirement. Some of these people will see the moderate crappiness coming and will control their spending to a not-too-painful level. However, most typical retirees won’t see the crappiness coming or won’t admit it to themselves and will initially spend enough for a good retirement. At some point they’ll be forced to cut spending and start experiencing some crappiness. A common experience as funds dwindle is continued spending cuts and an increasingly crappy retirement experience.
This explains the results of studies that find people spend less as they age. As savings decline, spending declines and crappy retirement experiences increase. Some would have you believe that people voluntarily seek crappiness as they age, but the dominant reason for decreased spending over time is having no choice.
So, when someone tries to tell you that you don’t need to save so much for retirement and can live it up in your early 60s because of some study or other, what they’re really saying is that lots of people have crappy retirements and you should plan to have a crappy retirement too.