{"id":1207,"date":"2020-08-20T06:11:52","date_gmt":"2020-08-20T05:11:52","guid":{"rendered":"https:\/\/evolvemyretirement.com\/blog\/?p=1207"},"modified":"2022-02-08T11:39:56","modified_gmt":"2022-02-08T11:39:56","slug":"consumption-smoothing-retirement","status":"publish","type":"post","link":"https:\/\/evolvemyretirement.com\/blog\/consumption-smoothing-retirement\/","title":{"rendered":"Consumption Smoothing Your Way To Retirement"},"content":{"rendered":"\n<p>Consumption smoothing is what <a aria-label=\"undefined (opens in a new tab)\" href=\"https:\/\/evolvemyretirement.com?heading=The%20Consumption%20Smoothing%20Calculator\" target=\"_blank\" rel=\"noreferrer noopener\">EvolveMyRetirement\u00ae<\/a> is all about. But just what is it? Here&#8217;s the <a aria-label=\"undefined (opens in a new tab)\" href=\"https:\/\/www.investopedia.com\/terms\/c\/consumption-smoothing.asp\" target=\"_blank\" rel=\"noreferrer noopener\">definition from Investopedia<\/a>: &#8220;Consumption smoothing is the practice of optimizing our standard of living by ensuring a proper balance between spending and saving during the different phases of our lives.&#8221; That&#8217;s easier said than done. It certainly can&#8217;t be done by guesswork; even less so by no planning at all.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Simplified consumption smoothing<\/h2>\n\n\n\n<p>Even without the uncertainties of the future, consumption smoothing is a hard problem. If you spend too much before you retire, you&#8217;ll need to reduce your standard of living in retirement. If you spend too little before you retire, you&#8217;ll die without having enjoyed life to the full. There are many complicating factors including:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>The desire to leave a legacy<\/li><li>Choosing your age of retirement<\/li><li>Multiple sources of income and fixed spending<\/li><li>Taxation<\/li><\/ul>\n\n\n\n<p>We need to make fixed assumptions about inflation, interest rates and investment growth rates. It&#8217;s then possible (though difficult) to calculate a discretionary spending rate at which you die leaving <em>exactly<\/em> the desired legacy.<\/p>\n\n\n\n<p>The problem is: the calculation will be wrong, because fixed assumptions are always wildly wrong. <\/p>\n\n\n\n<h2 class=\"wp-block-heading\">The real problem<\/h2>\n\n\n\n<p>In our simplified problem we ignored uncertainty. But in the real world we need to take many uncertain factors into account, such as:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>Life expectancy<\/li><li>Inflation<\/li><li>Interest rates<\/li><li>Investment growth<\/li><li>Risk versus reward<\/li><li>Annuities versus drawdown<\/li><\/ul>\n\n\n\n<p>Once we add these uncertainties into the problem, consumption smoothing becomes far more complex. In fact there is almost never a <em>guaranteed <\/em>optimal level of spending. For nearly everyone, every strategy has a particular risk of failure. The appropriate balance of risk against reward depends on our personal risk tolerance.<\/p>\n\n\n\n<p>Traditional consumption smoothing means ensuring a constant standard of living throughout our life. With uncertainty in the mix, we also have to choose whether to modify our standard of living in response to unfolding events; or to stick with our original strategy come what may. Most people would tend to be flexible, so planning for it can make sense.<\/p>\n\n\n\n<p>The number of variables is so large that we need advanced modelling techniques to cope with them. Fortunately, we built our <a href=\"https:\/\/evolvemyretirement.com\/?heading=The%20Consumption%20Smoothing%20Calculator\" target=\"_blank\" aria-label=\"undefined (opens in a new tab)\" rel=\"noreferrer noopener\">Consumption Smoothing Calculator<\/a>, using such advanced techniques. Even though its underlying technology is highly sophisticated, it&#8217;s easy to use.<\/p>\n<!-- AddThis Advanced Settings generic via filter on the_content --><!-- AddThis Share Buttons generic via filter on the_content -->","protected":false},"excerpt":{"rendered":"<p>Consumption smoothing is what EvolveMyRetirement\u00ae is all about. But just what is it? Here&#8217;s the definition from Investopedia: &#8220;Consumption smoothing is the practice of optimizing our standard of living by ensuring a proper balance between spending and saving during the<!-- AddThis Advanced Settings generic via filter on get_the_excerpt --><!-- AddThis Share Buttons generic via filter on get_the_excerpt --><\/p>\n","protected":false},"author":1,"featured_media":157,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[36,27,9,37,34],"class_list":["post-1207","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-uncategorized","tag-consumption-smoothing","tag-retirement-calculator","tag-retirement-planning","tag-risk","tag-uncertainty"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.1.1 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Consumption Smoothing Your Way To Retirement - EvolveMyRetirement<\/title>\n<meta name=\"description\" content=\"Learn about consumption smoothing, and how EvolveMyRetirement uses it in conjunction with advanced modelling techniques to optimise your retirement.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/evolvemyretirement.com\/blog\/consumption-smoothing-retirement\/\" \/>\n<meta property=\"og:locale\" content=\"en_GB\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Consumption Smoothing Your Way To Retirement - EvolveMyRetirement\" \/>\n<meta property=\"og:description\" content=\"Learn about consumption smoothing, and how EvolveMyRetirement uses it in conjunction with advanced modelling techniques to optimise your retirement.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/evolvemyretirement.com\/blog\/consumption-smoothing-retirement\/\" \/>\n<meta property=\"og:site_name\" content=\"EvolveMyRetirement\" \/>\n<meta property=\"article:publisher\" content=\"https:\/\/www.facebook.com\/evolvemyretirement\" \/>\n<meta property=\"article:published_time\" content=\"2020-08-20T05:11:52+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2022-02-08T11:39:56+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/evolvemyretirement.com\/blog\/wp-content\/uploads\/beach-1.jpg\" \/>\n\t<meta property=\"og:image:width\" content=\"1920\" \/>\n\t<meta property=\"og:image:height\" content=\"1080\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/jpeg\" \/>\n<meta name=\"author\" content=\"Nick\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:creator\" content=\"@evolvemyretire\" \/>\n<meta name=\"twitter:site\" content=\"@evolvemyretire\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"Nick\" \/>\n\t<meta name=\"twitter:label2\" content=\"Estimated reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"2 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"Article\",\"@id\":\"https:\/\/evolvemyretirement.com\/blog\/consumption-smoothing-retirement\/#article\",\"isPartOf\":{\"@id\":\"https:\/\/evolvemyretirement.com\/blog\/consumption-smoothing-retirement\/\"},\"author\":{\"name\":\"Nick\",\"@id\":\"https:\/\/evolvemyretirement.com\/blog\/#\/schema\/person\/927febeaea45f5b77b454c800da0e5b8\"},\"headline\":\"Consumption Smoothing Your Way To Retirement\",\"datePublished\":\"2020-08-20T05:11:52+00:00\",\"dateModified\":\"2022-02-08T11:39:56+00:00\",\"mainEntityOfPage\":{\"@id\":\"https:\/\/evolvemyretirement.com\/blog\/consumption-smoothing-retirement\/\"},\"wordCount\":391,\"commentCount\":0,\"publisher\":{\"@id\":\"https:\/\/evolvemyretirement.com\/blog\/#organization\"},\"image\":{\"@id\":\"https:\/\/evolvemyretirement.com\/blog\/consumption-smoothing-retirement\/#primaryimage\"},\"thumbnailUrl\":\"https:\/\/evolvemyretirement.com\/blog\/wp-content\/uploads\/beach-1.jpg\",\"keywords\":[\"consumption smoothing\",\"retirement calculator\",\"retirement planning\",\"risk\",\"uncertainty\"],\"articleSection\":[\"Uncategorized\"],\"inLanguage\":\"en-GB\",\"potentialAction\":[{\"@type\":\"CommentAction\",\"name\":\"Comment\",\"target\":[\"https:\/\/evolvemyretirement.com\/blog\/consumption-smoothing-retirement\/#respond\"]}]},{\"@type\":\"WebPage\",\"@id\":\"https:\/\/evolvemyretirement.com\/blog\/consumption-smoothing-retirement\/\",\"url\":\"https:\/\/evolvemyretirement.com\/blog\/consumption-smoothing-retirement\/\",\"name\":\"Consumption Smoothing Your Way To Retirement - 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