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Calculation of living standard per adult

This continues the Very Basic Question discussion...

What is the relationship between smoothed discretionary spending and living standard per adult?

Example:

Couple age 35 with two children ages 10 and 5
Two adults can live as cheaply as 1.6, and child costs 70% of adult.

ESPlanner results:

Age Spending LS/Adult

35-43 $24,238 $10,571
44-48 $20,730 $10,571
49+ $16,913 $10,571

$16,913 = (1.6)(10,571), so that makes sense.

How does $24,238 for two adults and two children relate to $10,571?
How does $20,730 for two adults and one child relate to $10,571?

1

ESPlanner uses the power function, x^nth, to model the economies of joint living, where x is the number of equivalent adults.

The default value is that 2 people require 1.6 times the consumption to live at the same standard of living as 1 person.
Therefore, n is such that 2^n = 1.6, i.e. n is about 0.678.

x^0.678 times the standard of living = consumption

With 2 adults:
(2^0.678) * $10,571 = 1.6 * $10,571 = $16,913

With 2 adults and 1 child, given that a child is equivalent to 0.7 adults:
(2.7^0.678) * $10,571 = 1.96 * $10,571 = $20,731

With 2 adults and 2 children:
(3.4^0.678) * $10,571 = 2.29 * $10,571 = $24,238

If you change either the 1.6 or the 0.7, the formula will be adjusted accordingly.

Mike O'Connor

2

Thanks. That's exactly what I wanted to know.