If you found the book to be helpful, please consider leaving a review on Amazon (or Goodreads), as that’s the best way to help others find the book.

Other Recommended Reading

• 4 Practical Uses of TIPS in the Portfolio from Allan Roth
• Can You Be a Boglehead Tech Investor? from Ben Carlson
• IRS Draws a Line on Section 351 from Ron Delegge
• What To Do About Health Insurance When You Get Laid Off from Meg Bartelt
• Government Accountability Office Estimates Annual Tax Fraud of Up To $304 Billion from Martha Waggoner
• IRS Launches Mobile App with Expanded Account Access from Martha Waggoner
• Fidelity Launches Support for Passkeys (Reddit post by by the official FidelityInvestments account)
• Minimizing the Impact of the New 0.5%-of-AGI Floor on Charitable Contributions from Ben Henry-Moreland
• Your HSA Needs a Succession Plan from Christine Benz

Thanks for reading!

What is the Best Age to Claim Social Security?

Social Security Made Simple: Social Security Retirement Benefits and Related Planning Topics Explained in 100 Pages or Less Click here to see it on Amazon.

Disclaimer:Your subscription to this blog does not create a CPA-client or other professional services relationship between you and Michael Piper or between you and Simple Subjects, LLC. By subscribing, you explicitly agree not to hold Michael Piper or Simple Subjects, LLC liable in any way for damages arising from decisions you make based on the information available herein. Neither Michael Piper nor Simple Subjects, LLC makes any warranty as to the accuracy of any information contained in this communication. The information contained herein is for informational and entertainment purposes only and does not constitute financial advice. On financial matters for which assistance is needed, I strongly urge you to meet with a professional advisor who (unlike me) has a professional relationship with you and who (again, unlike me) knows the relevant details of your situation.

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• Household Cybersecurity: a CPA’s Guide to Protecting Your Accounts and Personal Information

As we’ve discussed here lately, data from the FBI and FTC indicate that cybercrime and fraud have been growing at an alarming rate in recent years. In part, that’s because the tools available to the bad guys are getting better and better every year.

Unfortunately, some people aren’t even aware of the problem. They’re just following the same cybersecurity practices that they were following a decade ago.

Some people do recognize the problem, but they aren’t really sure what they should be doing to protect themselves.

And finally, some people recognize the problem, and they’re actively working on improving their security, but they have a lot of questions about newer tools, what is safe, what isn’t safe, etc.

My goal is for this book to be helpful to all three groups.

Most cybersecurity advice boils down to telling you to be careful: be suspicious of that email, don’t click that link, etc. That is good advice, but it doesn’t go far enough, because it only works if you get it right every single time, for the rest of your life.

A primary theme of this book is that, whenever possible, we want to reduce the degree to which your security depends on making the right judgment, in the moment. The goal is to put protections in place that hold up even when somebody in the household makes a mistake. Because, eventually, somebody in the household will make a mistake.

It’s similar to what we do with saving and investing. A plan that relies on somebody remembering to make manual retirement account contributions every month is much less likely to be successful than a plan in which retirement account contributions are automated. In both cases, the idea is to create a system to reduce our dependence on perfect behavior.

The Focus

As is hopefully clear from the title, this isn’t a book about enterprise cybersecurity. Rather, the question at hand is: what does an ordinary household actually need to know and do to protect their money and personal information?

If you’ve been reading this blog for a while, you know that cybersecurity isn’t my primary profession. But I’ve spent considerable time studying the subject: I’ve earned CompTIA’s Security+ certification, ISACA’s Cybersecurity Audit Certificate, and the AICPA’s Information Security & Cyber Risk Certificate.

The book’s guidance is grounded in recommendations and frameworks from relevant government agencies (NIST, CISA, and the UK’s NCSC), as well as the Center for Internet Security.

Still, the perspective I’m bringing to this subject is that of a CPA and financial planner. The book is specifically focused on what households can do to reduce their risk of fraud, account compromise, or other forms of financial harm.

A Broader Goal

I also have somewhat of a broader goal here. While the book itself is entirely focused on what the reader can do to protect themselves and their loved ones, I’m also hoping that this book can be one small piece in a broader shift toward normalizing cybersecurity discussions as part of financial planning discussions — no different than tax planning, for example.

As it stands right now, most general-audience personal finance materials don’t discuss it at all. Most financial professionals don’t discuss the topic with their clients. Financial planning training materials don’t cover it.

Cybersecurity gets left out, because it’s considered a “tech” topic rather than a personal finance topic.

That’s fine for the people who have a loved one who is savvy on these topics and willing to personally coach them. But most people don’t have that. Most people, even people trying really hard to make sure their finances are in order, are getting little to no information about cybersecurity and fraud prevention. And I believe that gap is a contributing factor to the dramatic increase in fraud that we’re seeing.

And so I hope this book will also be useful to financial professionals who recognize that cybersecurity and fraud prevention are increasingly relevant to the households they serve, but who aren’t sure what they should be telling clients.

Table of Contents

Introduction: An Epidemic of Fraud

Part One: The Threat

1. What Does a Thief Need to Access Your Financial Accounts?
2. Know Your Opponent
3. We Need Protective Policies, Because Mistakes Happen

Part Two: Fundamental Cybersecurity Concepts

4. You Are the CISO (Chief Information Security Officer)
5. The CIA Triad
6. Cryptography Basics
7. Understanding Authentication
8. Password Strength

Part Three: The Tools

9. Password Managers
10. Authenticator Apps
11. Passkeys
12. Physical Security Keys

Part Four: Policies

13. Account Configurations
14. Device Security
15. Network Security
16. Security Maintenance
17. Responding to a Cybersecurity Incident
18. Protecting Vulnerable Loved Ones

Conclusion: Layers of Protection

If you think the book might be helpful to you or a loved one, please pick up a copy:

Household Cybersecurity: a CPA’s Guide to Protecting Your Accounts and Personal Information

And if you do find it helpful, please consider posting a review on Amazon!

What is the Best Age to Claim Social Security?

Social Security Made Simple: Social Security Retirement Benefits and Related Planning Topics Explained in 100 Pages or Less Click here to see it on Amazon.

Disclaimer:Your subscription to this blog does not create a CPA-client or other professional services relationship between you and Michael Piper or between you and Simple Subjects, LLC. By subscribing, you explicitly agree not to hold Michael Piper or Simple Subjects, LLC liable in any way for damages arising from decisions you make based on the information available herein. Neither Michael Piper nor Simple Subjects, LLC makes any warranty as to the accuracy of any information contained in this communication. The information contained herein is for informational and entertainment purposes only and does not constitute financial advice. On financial matters for which assistance is needed, I strongly urge you to meet with a professional advisor who (unlike me) has a professional relationship with you and who (again, unlike me) knows the relevant details of your situation.

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One way in which advisors can be categorized is by what services they provide. At a very high level, the options would be:

1. Advice-only (i.e., they provide advice but do not manage the portfolio),
2. Portfolio management with very limited advice, or
3. Comprehensive financial planning, together with portfolio management.

Financial planners/advisors can also be grouped by designation (CFP, CPA, PFS, CFA, EA, etc.) or by areas of expertise.

Finally, it’s important to have a good idea of what fee model(s) you’d be willing to accept. Allan Roth recently wrote a piece discussing the pros and cons (from the client perspective) of the various fee-only (i.e., non-commission) models:

• Strengths & Weaknesses of Advisor Fee–Only Models from the Client Perspective from Allan Roth

Other Recommended Reading

• Educating Clients About Common Scams is No Longer Sufficient (guest article by me, for NAPFA Magazine)
• 5 Investments You Don’t Really Need from Christine Benz and Margaret Giles
• Caring for My Father Put My Life on Pause for 7 Years. Here’s What I Learned (The Long View episode with Elliott Appel as guest)
• Why Are Valuations Falling in a Bull Market? from Ben Carlson
• What Was the Best Portfolio Over the Last 50 Years? from Nick Maggiulli
• The New QCD Reporting Rule Raises a Big Question for IRA Owners from Denise Appleby
• Meta’s Muse AI Assistant Has a Vulnerability That Can Turn it into a Mac Backdoor from Pieter Arntz
• IRS Cyber Weaknesses Put Taxpayer Data at Risk Again, TIGTA Says from Martha Waggoner

Thanks for reading!

What is the Best Age to Claim Social Security?

Social Security Made Simple: Social Security Retirement Benefits and Related Planning Topics Explained in 100 Pages or Less Click here to see it on Amazon.

Disclaimer:Your subscription to this blog does not create a CPA-client or other professional services relationship between you and Michael Piper or between you and Simple Subjects, LLC. By subscribing, you explicitly agree not to hold Michael Piper or Simple Subjects, LLC liable in any way for damages arising from decisions you make based on the information available herein. Neither Michael Piper nor Simple Subjects, LLC makes any warranty as to the accuracy of any information contained in this communication. The information contained herein is for informational and entertainment purposes only and does not constitute financial advice. On financial matters for which assistance is needed, I strongly urge you to meet with a professional advisor who (unlike me) has a professional relationship with you and who (again, unlike me) knows the relevant details of your situation.

You may unsubscribe at any time by clicking the link at the bottom of this email (or by removing this RSS feed from your feed reader if you have subscribed via a feed reader).

But that’s not a good enough reason to buy an individual stock. (Nor is it a good enough reason to choose not to sell a stock that you already own.)

Choosing to allocate anything more than a trivial portion of your portfolio to an individual stock means taking on considerable additional risk, relative to simply owning a diversified fund of stocks. So you need to have a strong reason to think that this particular stock will earn better returns than the overall market.

And, what most people don’t know is that the performance of a given stock is not determined by whether the underlying company performs well or poorly. Rather, it is determined by whether the underlying company does better or worse than the market expected it to do. There is, therefore, little to be gained from picking individual stocks unless you have some unique insight about the company which the broader overall market does not have — something that isn’t already “priced in.”

A quick litmus test: have you even attempted a financial analysis of the company? Have you looked at their financial statements? Have you done any financial modeling at all? If not, you owe it to yourself to be honest about what you’re doing. You’re investing based on vibes. And you’re pitting that approach, and your money, against professionals who are taking a considerably more rigorous approach to the process.

Another hurdle: if you do think you have a unique insight into this company’s future profitability, it’s important to make sure that you won’t be running afoul of insider trading rules if you make any trades based on the information you have.

But even from that point (i.e., you firmly believe you have a unique insight into the company’s future profitability, and you’re confident that it’s not based on insider information), there are still multiple ways that it can go wrong.

The unique insight you have about the company could turn out to be wrong. A common version of this is, “right line of business, wrong company.” You successfully identified a line of business that grew much faster than the market expected, but the specific company you chose turned out not to be the winner in that industry.

Alternatively, the unique insight you have about the company could turn out to be right, but you were wrong about it being unique. In other words, the market already knew, and the information was already baked into the price.

Another possibility: the unique insight you have about the company turns out to be right, but you weren’t accounting for some negative factor that the market was accounting for (and you were thus overvaluing the stock).

And finally: the unique insight you have about the company turns out to be right, but neither you nor the market was accounting for a negative factor that turned out to be important (i.e., everybody was overvaluing the stock).

What is the Best Age to Claim Social Security?

Social Security Made Simple: Social Security Retirement Benefits and Related Planning Topics Explained in 100 Pages or Less Click here to see it on Amazon.

Disclaimer:Your subscription to this blog does not create a CPA-client or other professional services relationship between you and Michael Piper or between you and Simple Subjects, LLC. By subscribing, you explicitly agree not to hold Michael Piper or Simple Subjects, LLC liable in any way for damages arising from decisions you make based on the information available herein. Neither Michael Piper nor Simple Subjects, LLC makes any warranty as to the accuracy of any information contained in this communication. The information contained herein is for informational and entertainment purposes only and does not constitute financial advice. On financial matters for which assistance is needed, I strongly urge you to meet with a professional advisor who (unlike me) has a professional relationship with you and who (again, unlike me) knows the relevant details of your situation.

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This is up there with the 2017 Equifax breach in terms of total number of people affected (i.e., almost half the U.S. population). It’s depressing/infuriating that we have so little control of where our information ends up. And this event definitely reinforces the lesson that any account secured exclusively with “private” information is no longer sufficiently secured, as the bad guys increasingly have access to our private information.

• FBI Probes Service Selling 153M+ Drivers Licenses from Brian Krebs

Other Recommended Reading

• Jean Chatzky: How to Create a Forever Paycheck for Retirement (The Long View podcast episode with Christine Benz and Amy Arnott)
• Americans Deserve Better Oversight of Their Annuities from Bloomberg News
• How You Can Lose Your Entire Investment When Investing with Leverage (Borrowed Money) from Jim Dahle
• White House Mandates Agencies (Eventually) Use Login.gov for Public-Facing Websites from Christian Robles
• Vanguard’s Acquisition of Altruist is More About ETF Cost Than About Tech from Ben Henry-Moreland and Michael Kitces
• Here’s How Much Americans Rely on Social Security – at All Income Levels from Alicia Munnell
• Explaining the Rise in Alternative Investments in Public Pension Plans from Juliane Begenau, Pauline Liang, and Emil Siriwardane

Thanks for reading!

What is the Best Age to Claim Social Security?

Social Security Made Simple: Social Security Retirement Benefits and Related Planning Topics Explained in 100 Pages or Less Click here to see it on Amazon.

Disclaimer:Your subscription to this blog does not create a CPA-client or other professional services relationship between you and Michael Piper or between you and Simple Subjects, LLC. By subscribing, you explicitly agree not to hold Michael Piper or Simple Subjects, LLC liable in any way for damages arising from decisions you make based on the information available herein. Neither Michael Piper nor Simple Subjects, LLC makes any warranty as to the accuracy of any information contained in this communication. The information contained herein is for informational and entertainment purposes only and does not constitute financial advice. On financial matters for which assistance is needed, I strongly urge you to meet with a professional advisor who (unlike me) has a professional relationship with you and who (again, unlike me) knows the relevant details of your situation.

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“Have you encountered the ‘Inflation-Linked Distributing Ladder’ ETFs from Northern Trust? It looks to me that they create an entire TIPS ladder for you, and all you have to do is just buy a single fund. Too good to be true?”

Yes, the ETFs in question do create an entire TIPS ladder for you. But there is a catch. We’ll get to that in a moment.

Firstly, I want to note that these are very different from iShares’ target-maturity TIPS ETFs. The ETFs from iShares each buy TIPS maturing in a single year (i.e., each of the ETFs could serve as a single rung in a ladder, rather than being a ladder on its own).

In contrast, the Inflation-Linked Distributing Ladder ETFs from Northern Trust each own an entire TIPS ladder (with the final year being the year in the fund’s name). Here are the options so far:

• Northern Trust 2030 Inflation-Linked Distributing Ladder ETF (TIPA)
• Northern Trust 2031 Inflation-Linked Distributing Ladder ETF (TIPE)
• Northern Trust 2035 Inflation-Linked Distributing Ladder ETF (TIPB)
• Northern Trust 2036 Inflation-Linked Distributing Ladder ETF (TIPF)
• Northern Trust 2045 Inflation-Linked Distributing Ladder ETF (TIPC)
• Northern Trust 2046 Inflation-Linked Distributing Ladder ETF (TIPG)
• Northern Trust 2055 Inflation-Linked Distributing Ladder ETF (TIPD)
• Northern Trust 2056 Inflation-Linked Distributing Ladder ETF (TIPH)

They started with the 2030, 2035, 2045, and 2055 funds last year, and added the other funds this year. It seems likely that next year they’ll launch another four funds (i.e., 2032, 2037, 2047, 2057).

The idea is that, for each fund, as the bonds mature or make interest payments, the fund distributes cash. And when the final bonds mature, the fund distributes its remaining assets and then closes. So, yes, each of these ETFs really is an entire TIPS ladder via a single fund.

And they’re low-cost as well, with expense ratios of just 0.10%.

The catch: the distribution policy makes no sense (at least in my opinion). The funds distribute cash when bonds pay interest or mature, which makes sense. But they also distribute the inflation adjustments as they occur. What that means is that, in order for your holding to actually go up along with inflation (which is generally the idea of a TIPS ladder), you’d have to manually reinvest the distributions that are the result of inflation adjustments. And you can’t just set it to automatically reinvest all distributions, otherwise you’d be reinvesting the other distributions as well.

So these ETFs are much less work to set up than a DIY ladder of individual TIPS, but they involve ongoing management work, whereas a ladder of individual TIPS is generally just left alone once it has been put it place.

They’re so close to being a major convenience upgrade. But as it stands, they’re just trading work now for work later. For some people that might still be a desirable tradeoff. For me, it puts them in the “neat idea, but no thank you” category.

One other point: so far, the funds are tiny, in terms of assets managed. I hope they catch on. But I hope even more that somebody eventually creates a product that really is a set-it-and-forget-it TIPS ladder all in a single fund.

What is the Best Age to Claim Social Security?

Social Security Made Simple: Social Security Retirement Benefits and Related Planning Topics Explained in 100 Pages or Less Click here to see it on Amazon.

Disclaimer:Your subscription to this blog does not create a CPA-client or other professional services relationship between you and Michael Piper or between you and Simple Subjects, LLC. By subscribing, you explicitly agree not to hold Michael Piper or Simple Subjects, LLC liable in any way for damages arising from decisions you make based on the information available herein. Neither Michael Piper nor Simple Subjects, LLC makes any warranty as to the accuracy of any information contained in this communication. The information contained herein is for informational and entertainment purposes only and does not constitute financial advice. On financial matters for which assistance is needed, I strongly urge you to meet with a professional advisor who (unlike me) has a professional relationship with you and who (again, unlike me) knows the relevant details of your situation.

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It’s hard to overstate the significance of that event, in terms of its impact on individual investors. Today, using low-cost, index-tracking funds is largely the default way to invest. The success of Vanguard’s index-tracking funds — and the fact that they operated the funds at-cost — revolutionized the entire industry.

• The Index Fund Turns 50: How Jack Bogle Changed Investing Forever from Allan Roth

Other Recommended Reading

• Why I Object to ‘Hitting a Number’ for Retirement from Christine Benz
• Do AIs Make Good Traders, and Do They Make Good Traders Better? from Jerry Bell, Victor Haghani and James White
• Vanguard to Acquire Altruist Advisor Custody Platform (Vanguard press release)
• Now THIS is a Bull Market from Ben Carlson
• Getting Ahead Has Never Been Easy from Ben Carlson
• The Value of Naming a Trusted Contact (And How They Differ from POAs) from William Anderson
• Roth Employer Contributions Come With a 1099-R Surprise from Denise Appleby

Thanks for reading!

What is the Best Age to Claim Social Security?

Social Security Made Simple: Social Security Retirement Benefits and Related Planning Topics Explained in 100 Pages or Less Click here to see it on Amazon.

Disclaimer:Your subscription to this blog does not create a CPA-client or other professional services relationship between you and Michael Piper or between you and Simple Subjects, LLC. By subscribing, you explicitly agree not to hold Michael Piper or Simple Subjects, LLC liable in any way for damages arising from decisions you make based on the information available herein. Neither Michael Piper nor Simple Subjects, LLC makes any warranty as to the accuracy of any information contained in this communication. The information contained herein is for informational and entertainment purposes only and does not constitute financial advice. On financial matters for which assistance is needed, I strongly urge you to meet with a professional advisor who (unlike me) has a professional relationship with you and who (again, unlike me) knows the relevant details of your situation.

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“You have said, and I have read elsewhere also, that passkeys are ‘phishing resistant.’ I’m ready to believe that, because everybody ‘in the know’ says so, but I haven’t really been able to wrap my head around WHY that’s the case. Is that something you could write about?”

Broadly speaking, phishing happens in either of two ways:

1. You somehow end up on a malicious website (one designed to look like your bank, email provider, etc.), and you don’t realize it’s not the real deal. So you enter your login credentials to sign in, and now the bad guy has collected those credentials.
2. As part of a communication (e.g., a text or phone call from the bad guy, who convinces you that they work at your bank or some other place where you have an account), you are tricked into sharing your login credentials (e.g., sharing them by text or stating them over the phone).

Passkeys are inherently strong against both of those types of attacks.

Phishing via Malicious Website

Passkeys are domain-bound, which means that when you create a passkey, saved as a part of that passkey is the specific domain that it’s used for. For example, if you bank with Chase, and you create a passkey while signed in on Chase.com, that passkey is specifically bound to the domain Chase.com.

So if you someday unknowingly end up on a malicious website that is designed to look like Chase.com, your passkey simply won’t work. The “accidentally enter your login credentials into a malicious website” scenario simply doesn’t exist with a passkey in the way that it does with a password.

Note, however, that if you have a website for which you can sign in via passkey or via password, then just because you have a passkey doesn’t mean you’re now invulnerable to being tricked into entering your password into a malicious website.

But even still, the passkey provides some useful protection. If you normally sign in with a passkey, and one day that passkey does not load, do not assume that your passkey “isn’t working” and that you should enter your password instead. Rather, treat your passkey not loading as a valuable and critical signal that you might be on the wrong website. Rather than entering your password, it’s probably best to start over: in the location bar of your browser type the known URL of the website you’re intending to visit (or use a bookmark). To be clear, passkeys can sometimes fail to load for benign reasons, but the safe response is the same either way: re-navigate to the website via a known-safe method.

Phishing via Malicious Communication

In normal usage, the user doesn’t actually see the secret part of the passkey (i.e., the private key of the private/public key pair). It’s saved in your password manager (or on a security key such as a YubiKey). And when you click a button to log in with a passkey, all of the magic (i.e., your device accessing your private key, using it to create a digital signature, and sending that digital signature to the website you’re logging into) happens behind the scenes, out of the user’s view. The user doesn’t even have an easy way (or, in some cases, any way) to share the secret part. And if you don’t have a way to share it, you can’t be tricked into sharing it with a bad guy.

What is the Best Age to Claim Social Security?

Social Security Made Simple: Social Security Retirement Benefits and Related Planning Topics Explained in 100 Pages or Less Click here to see it on Amazon.

Disclaimer:Your subscription to this blog does not create a CPA-client or other professional services relationship between you and Michael Piper or between you and Simple Subjects, LLC. By subscribing, you explicitly agree not to hold Michael Piper or Simple Subjects, LLC liable in any way for damages arising from decisions you make based on the information available herein. Neither Michael Piper nor Simple Subjects, LLC makes any warranty as to the accuracy of any information contained in this communication. The information contained herein is for informational and entertainment purposes only and does not constitute financial advice. On financial matters for which assistance is needed, I strongly urge you to meet with a professional advisor who (unlike me) has a professional relationship with you and who (again, unlike me) knows the relevant details of your situation.

You may unsubscribe at any time by clicking the link at the bottom of this email (or by removing this RSS feed from your feed reader if you have subscribed via a feed reader).

It’s important to understand that interest rates are quite hard to predict. And there’s no rule that says that TIPS yields can’t go meaningfully above 3%. So there’s no way to say, “today is the very best time to buy.” But it is fair to say that “inflation + 3%” is a better expected return from the bond side of a portfolio than has been available for quite some time, without using lower-quality bonds.

• Long TIPS Yield 3%. Time to Buy? from Edward McQuarrie and William Bernstein

Other Recommended Reading

• You May Not Get to Choose When You Retire from Christine Benz
• What Doubters Get Wrong About the 60/40 Portfolio from Jason Kephart
• PACE: A Better Model for Elder Care? from Harry Margolis
• The Mega-cap IPOs’ Impact on Index Funds from Allan Roth
• The Best Way to Sell a Concentrated Position from Nick Maggiulli
• Health Shocks and Annuity Choices from Johannes Hagen, Michal Hodor, and Abigail Hurwitz
• Find Your Fascination from Ben Carlson
• IRS Clarifies that $2,500 Trump Account Limit is Per Employee from Martha Waggoner
• IRS Warns Crypto Holders about Fake Compliance Portal Scam from Martha Waggoner
• Keeping Your Bitcoin Riches Safe Has Never Been Harder from Emily Nicolle

Thanks for reading!

What is the Best Age to Claim Social Security?

Social Security Made Simple: Social Security Retirement Benefits and Related Planning Topics Explained in 100 Pages or Less Click here to see it on Amazon.

Disclaimer:Your subscription to this blog does not create a CPA-client or other professional services relationship between you and Michael Piper or between you and Simple Subjects, LLC. By subscribing, you explicitly agree not to hold Michael Piper or Simple Subjects, LLC liable in any way for damages arising from decisions you make based on the information available herein. Neither Michael Piper nor Simple Subjects, LLC makes any warranty as to the accuracy of any information contained in this communication. The information contained herein is for informational and entertainment purposes only and does not constitute financial advice. On financial matters for which assistance is needed, I strongly urge you to meet with a professional advisor who (unlike me) has a professional relationship with you and who (again, unlike me) knows the relevant details of your situation.

You may unsubscribe at any time by clicking the link at the bottom of this email (or by removing this RSS feed from your feed reader if you have subscribed via a feed reader).

Relative to Blanchett’s earlier work on how retirees change their spending over time, his latest paper had two particularly noteworthy findings.

Median vs Mean

The first especially interesting finding was the difference between the median and mean (average).

For the median retiree, inflation-adjusted spending decreases throughout retirement.

For the average (mean) retiree, however, inflation adjusted spending goes back up at older ages (though it still stays below the initial level of spending).

The difference appears to be significantly due to large health-related costs at older ages, which are included when calculating a mean, but which do not affect the median retiree. For example, as Blanchett writes, “among those who passed away at the age of 95, the median cumulative real lifetime unexpected out-of-pocket medical expenses were only about $50,000 compared to roughly $250,000 at the 95th percentile.”

Reducing Spending by Choice

The second particularly interesting finding is that even households that are “funded or overfunded” still reduce spending. That is, while some retiree households reduce their spending due to limited funds, even households who don’t need to reduce spending nonetheless typically do still reduce spending over time.

As Blanchett writes, “Only those respondents who were the most well-funded and spending at lower levels tended to increase in spending. Average real spending declined for all respondents spending $80,000 or more, regardless of funded status, although spending declines were lower as funded status tended to improve.”

Why People Reduce Spending

To me, it’s not surprising at all to find that people reduce spending over their retirement, even when they aren’t forced to do so.

For example, imagine a world in which there was absolutely no uncertainty. You know exactly what your career earnings and investment returns will be. You know what inflation is going to be. You know exactly how long you (and your spouse, if applicable) will live. You know exactly what your health care costs (and other “lumpy” costs such as home repairs) will be each year.

And so you’re left with some, definitively known, amount of discretionary spending, which you can allocate across the years of your life.

In that world, how would you allocate those dollars, across time?

There’s no right or wrong answer here. But most people would choose to do more discretionary spending in their earlier years and less in their later years, simply because it’s easier to enjoy discretionary spending at a younger age. At 25 it’s easier to have a travel-the-world type of adventure than at 45. It’s easier at 45 than at 65. And it’s easier at 65 than at 85. And the same things goes for most types of discretionary spending. It’s just easier to do it the younger we are.

Some people might choose the classical economics “consumption smoothing” idea of having your spending stay level over time. But it’s hard to imagine many people intentionally choosing an increasing spending path all the way through life (e.g., pinching pennies at age 35 so that you can “live large” at age 85).

Now let’s bring back one type of uncertainty: lifespan. So we’re still assuming no investment risk, no uncertainty as to health care costs or other big expenses. But now we don’t know how long you’ll live. Naturally, that means we need to plan for a scenario where you live longer than your life expectancy, but there’s another aspect here that is often left out. And that is: would you weight earlier years more heavily (i.e., choose to spend more in those years than in the above case) simply because you know you’ll be alive in those years? In other words, separate from the decision you made above about year-by-year spending preferences, when we add longevity uncertainty into the mix, would you now choose to, for example, further shift the spending in the direction of the earlier years, simply because you’re more likely to be alive during those years?

Again, different people will answer differently here. But this factor is either not important to you, or it’s a point in favor of more spending in earlier years. Nobody would say, “I’m less likely to be alive at age 95 than at age 65, and therefore I will plan to allocate more dollars to spending at age 95 than at age 65.”

So we have two factors, both of which point in favor of weighting earlier spending more heavily than later spending (though to differing degrees from one person to another). For most households, that’s broadly the goal that we’re trying to achieve.

“Reducing spending throughout retirement” might sound bad. (And indeed, being forced to do so is probably not what we want.) But “intentionally choosing to spend more in earlier retirement” is another way of saying the same thing, and it is broadly something that people want to do.

What is the Best Age to Claim Social Security?

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