Kiplinger’s recent published an article that is getting a lot of buzz about their description of three different phases of retirement. They are proposing that retirees plan on spending more early – during your ‘Go-Go Years’ – versus later in retirement, when your energy & desire to be very active may decline.
Calling the later two stages ‘Slow-Go’ and ‘Won’t-Go’, they propose people plan to front load their travel & entertainment spending. This advice aligns with the article I wrote in January showing that people spend less as they age.
Most people planning for FIRE get this idea conceptually, but I thought I would share how we have built it into our planning.
Our annual withdrawal rate since we retired 3 years ago has been about 5%. That’s a 1 percentage point above the 4% withdrawal rate you often see published as a planning rule of thumb.
There are a few reasons we are withdrawing more now, but most is due to outlays for our son’s college tuition & expenses. These will end next year, but I imagine we’ll still be above 4%. We have built extra into our spending plan to support travel and other ‘Go-Go’ activities.
Our ordinary income, which is close to nothing right now, will grow when my MegaCorp pension and Social Security kick in during our 60s. Our savings withdrawal rate drops dramatically at that time, but our spending stays aggressive. In our 70s, I’ve ratcheted down our spending by 5% at age 75, age 80, and age 85. That’s a 15% spending reduction over 10 years.
That’s the best sense I could put to spending a little more now, when we are more active. After all, the very idea of FIRE is buying yourself the time to go out and enjoy yourself. We’ve been traveling 5-6x a year since we reached FIRE, but I don’t see us keeping up that same pace later in life.
While our financial forecast ends at age 90, although that doesn’t mean we expect to have exhausted all of our assets at that time. We have plenty of cushion built in the model to ensure we don’t get caught short.
How have you planned spending for your ‘Go-Go’ years?
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MrFireStation 
How have you accounted for the potential healthcare cost increase in your later years. I’ve been thinking that the money, I bookmark for travel in my earlier years, will shift over to cover healthcare cost increases in the later years. I think I read something back in the day that said 50% of your entire healthcare expenditure over your lifetime happens in the last 6 months of life. We just try to keep holding on!
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Good question. I’d answer that two ways: 1) we pay quite a bit for health insurance / deductible now since we are on individual coverage. It’s almost what we spend on travel (although came down a bit this year). That will be savings once we are on Medicare. 2) we are saving aggressively in our HSA and not spending any of it. It goes in tax free, grows tax free, and comes out tax free – so it is a great investment that can be used on future healthcare expenses.
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The cost of long term care (assisted living, private home care, nursing home) is only going to go up. My father paid $72,000)/year for a shared room in a memory care assisted living facility and that was in 2009. It’s hard to imagine getting old and no longer being independent, but if you live long enough, you are going to need care at some point. If you don’t have a spouse or children or some other family willing to help, you are going to have to pay for it. Health insurance isn’t going to cover it, and my experience as a medical social worker showed me long term care insurance companies make you jump through hoops before they pay out anything. Just don’t fool yourself. Unless you die very soon after the slow go years, you are very likely going to need a lot more money than you think for your care. In our case, we have a paid off house that is worth over $1.7 million now. We will stay in it as long as we can and then sell it and use that money to pay for assisted living.
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Yes – we’ve looked at LTC with our financial planner & insurance agent, but are ‘self-insured’. We can cover the costs through our savings. We also have a valuable, paid off house that has been kept out of our FIRE plans – so the value of that is an additional cushion.
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I retire next week. I have a pension to replace 75% of current pay. My HSA will take my health insurance premium to age 62 which my wife’s Social Security will cover. I have 12 years of “need” in cash for the remaining 25% of income. I will have to pull money from deferred accounts at 70 1/2, but I’m not certain if I will ever spend down nest egg other than divides. I look to my paid off residence to fund long term care.
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Congratulations on your big day, Dave! You’ll love the freedom & autonomy. Sounds like you are well planned for your financial needs, now you can just focus on FUN!
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We took a less traditional approach to building our “Go-Go years” plan. In retrospect, we probably over supplied our 401k’s during our career years. It wasn’t until we were in our early forties, that I became more FI aware and realized we didn’t have a solid plan for retiring early. After much research, we took a huge left turn into real estate investing. Our timing couldn’t have been better with the 2007 downturn. We bought all of our current RE holdings since that time, and retired early just over two years ago as a result of those properties. Our plan was pretty simple. Live entirely off rental income (cash-flow) from 50-59.5 yrs old (We are calling those our Go-Go “Early Decade”). We built in enough cash flowing properties to live very comfortably and travel 5-6 times per year. We plan to convert those large 401ks to Roths along the way (during our Early and Typical Go-Go years) to reduce eventual RMD’s. We will nearly double our income when those retirement funds become available (at 59.5 yrs old). Our more “Typical Decade” of Go-Go years (from age 60-70 yrs old) can be significantly increased as a result of the additional retirement fund incomes (I’m only assuming a very safe 3%-3.5% annual draw, so those funds are very likely to continue to grow though out our lifetimes). Plus we will have several remaining rental property mortgages paying off along the way, further significantly increasing our incomes (but likely also triggering additional tax implications, but that’s a first world problem that we can deal with). We will likely delay SS until 70 yrs old, ensuring a maximum SS draw, which will only further improve our income at 70 yrs old. If we are still healthy and still love traveling, we should be in a great position to continue to do so as long as we want. I assume, as we age, we will eventually travel less, and expenses will eventually shift from travel to medical expenses as we age, but we should be well positioned to continue to self insure. We are also maxing HSA’s each year with no plans to use until later in life. We will likely still have significant real estate holdings, that can be liquidated as necessary, or (hopefully) leave at a stepped up basis to our daughters along with a likely very nice Roth balance. We recognize that are many factors that can impact this plan, but I’m comfortable we can sufficiently react accordingly, as necessary. Two and a half years in, and I wouldn’t change a thing. Loving the “Early Decade” Go-Go years!!
Btw…Great topic, thanks for covering it.
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I’m jealous of your approach to real estate! I never got into investment properties during the downturn. A friend of mine bought 1-2 a year between 2008-2012 and has a nice portfolio of rental townhomes that have appreciated a lot. We built a new home for ourselves in 2009 instead. That has been nice, but not the big financial WIN that investment properties would have been.
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Did the real estate rental bit. Hated being a landlord. To each his own. Sold the real estate (accountant was pissed) put the $ into muni bonds.
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Yeah – the landlord role does not seem very appealing!
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