Regret and Planning for Age-Based Spending

financial advisers know that many

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retirees will reach a point we call the

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regret Zone regret comes from not living

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the life you can afford why does that

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happen one reason is that people may

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focus on success and failure in

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retirement that's a truly terrible way

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to think about retirement because it

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leads to stress anxiety and UND spending

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but you can also find yourself in the

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regret Zone if your plan doesn't

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consider how spending needs typically

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change as people age often people assume

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they'll spend like this the same amount

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every month and every year just adjusted

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for

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inflation this assumes they'll spend the

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same on food vacations gas entertainment

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and so on whether they're 60 or 90 but

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research and our own experience tells us

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that isn't true people typically spend

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more when they're young healthy and

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energetic especially in those vacation

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years right at the beginning of

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retirement but then spending slows down

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as we slow down here we see this pattern

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sometimes called confusingly the

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retirement smile we've stripped out

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inflation here so you can think of this

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as a picture of how spending needs in

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constant dollars is changing as someone

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ages spending is high and even Rises

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early on then it slows down quite a bit

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and then at the end it grows again if we

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take this age-based spending path

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seriously and plan for it we find that

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the exact same resources for example the

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same Social Security benefits and

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portfolio balance can actually support

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much higher spending early in retirement

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more than we would would have been

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available if we were planning to have

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flat spending at all ages as you can see

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here by acknowledging we won't spend as

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much in our 80s and 90s we can spend a

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lot more in our 60s and 70s typically

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we're talking about 10 to 15% or more

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available spending in the early years

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retirees who don't plan for spending

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needs to change as they age can reach a

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point where they realize they've

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underspent at the beginning of

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retirement but once they realize this

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it's too late to go back the grandkids

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are too old for Disney or maybe health

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problems have Arisen or friends have

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died or moved away or the financial

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support the kids could have really

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benefited from early in life is no

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longer needed or as impactful and now

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the plan would support a much higher

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spending level than is actually needed

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or practically possible

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planning for flat spending instead of

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age-based spending can create a mismatch

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between available spending and the goals

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at that phase of Life early on not

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enough income when it's needed later too

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much income when it's not needed the

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age-based spending pattern more closely

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matches the phases of retirement

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sometimes called the go-o years the

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slowo years and the no-go years so while

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there are situations when you might plan

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for other spending patterns this

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age-based approach is incredibly

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powerful for helping retirees avoid

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regret by giving them permission to

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spend pursue their interests and build

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memories throughout life