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7 Most Important Retirement Equations
Old 06-10-2012, 02:03 PM   #1
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7 Most Important Retirement Equations

Just finished reading (or skimming, actually) "The 7 Most Important Equations for Your Retirement" by Moshe Milevsky.

The math was over my head -- that's why I skimmed -- although I suspect engineering types, of which this forum has many, would eat it up.

He takes a different approach, which is hinted at in his subhead: "The Fascinating People and Ideas Behind Planning Your Retirement Income." I've read a lot of retirement planning books, and many of them have been similar. Not this one. It distills the thoughts of great mathematicians of history and makes their approaches currently applicable to your retirement planning.

I found the chapter on mortality rates most interesting, since there is so much discussion nowadays of longer lifespans and the impact on Social Security and retirement planning in general. The assumption always is that many of us are headed to 100 and beyond and need to plan accordingly. I think it's wishful thinking. As a table in the book indicates, if you're 55 now, your chances of making it to 85 are 47%, to 90 about 27%, to 95 about 11%, and to 100 about 2%.

Quote:
From the book: "As Gompertz's law says, your mortality rate is increasing by 9% per year, so whether you are 45 or 65, the changes of becoming a centenarian are quite slim."
I found this oddly reassuring.
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Old 06-10-2012, 03:17 PM   #2
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...(snip)...
The assumption always is that many of us are headed to 100 and beyond and need to plan accordingly. I think it's wishful thinking. As a table in the book indicates, if you're 55 now, your chances of making it to 85 are 47%, to 90 about 27%, to 95 about 11%, and to 100 about 2%.
Yes, it is depressing that we have to check out and that day draws nearer.

When I run FIRECalc I just run it to the mid-80's. I figure plan B will cover us for the rest, if we get there.

DW has an friend in her 80's (I think) who moved into a rental in a retirement community. She likes to keep active but it's clear some cognitive issues are slowly creeping in. Driving at night is out for her. I'm not excited to watch her in the coming years but maybe she will do just fine.
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Old 06-10-2012, 06:26 PM   #3
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...and here they are

http://milevsky.info.yorku.ca/files/...QR_handout.pdf

nice to see Kolmogrov get in there.
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Old 06-10-2012, 07:36 PM   #4
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Originally Posted by wishin&hopin View Post
I found the chapter on mortality rates most interesting, since there is so much discussion nowadays of longer lifespans and the impact on Social Security and retirement planning in general. The assumption always is that many of us are headed to 100 and beyond and need to plan accordingly. I think it's wishful thinking. As a table in the book indicates, if you're 55 now, your chances of making it to 85 are 47%, to 90 about 27%, to 95 about 11%, and to 100 about 2%.
I think human lifespans are about the same, but fewer people are dying younger.

OTOH spouse's grandparents reputedly all made it to triple digits (they lied about their ages a lot during emigration/immigration) and her parents are showing the same good health in their late 70s. So I'd give more weight to family history if the numbers could be longer than average.
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Old 06-11-2012, 12:57 PM   #5
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"Past performance is no guarantee of future results."

That's also true of longevity tables. If major advances in cancer and cardio treatment come into play, the average longevity could take a big leap upward.
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Old 06-11-2012, 02:01 PM   #6
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Ah, here we go:
http://www.healthsentinel.com/joomla...-1900-1998.jpg

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Old 06-11-2012, 07:17 PM   #7
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It's interesting that the greatest impact of the advances of the 20th century was on the life expectancy at birth. Many people who formerly would have died as children are surviving, and if they make it to the 60 year old cohort, then their life expectancy going forward will be a little bit more than it would have been in the past.....but not much!

The long term return on investment is why I became a baby doctor.
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Old 06-11-2012, 07:26 PM   #8
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It's interesting that the greatest impact of the advances of the 20th century was on the life expectancy at birth. Many people who formerly would have died as children are surviving, and if they make it to the 60 year old cohort, then their life expectancy going forward will be a little bit more than it would have been in the past.....but not much!

The long term return on investment is why I became a baby doctor.
And as such, you are greatly appreciated! I'd imagine that modern neonatal wards in hospitals are pretty incredible these days. Even the tiniest premature infants seem to live sometimes. So, I am thinking that baby doctors like you, and the sophisticated new equipment available to you, are saving many, many lives.
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Old 06-11-2012, 08:10 PM   #9
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And as such, you are greatly appreciated! I'd imagine that modern neonatal wards in hospitals are pretty incredible these days. Even the tiniest premature infants seem to live sometimes. So, I am thinking that baby doctors like you, and the sophisticated new equipment available to you, are saving many, many lives.
Thanks W2R, but we can't take all the credit. Clean water and immunization made the biggest difference.
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Old 06-11-2012, 08:16 PM   #10
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Thanks W2R, but we can't take all the credit. Clean water and immunization made the biggest difference.
Well, you're the expert although I will still (secretly, in the back of my mind) give doctors like you some of the credit, too. Whoever or whatever was responsible, this great improvement in infant mortality has eradicated so much parental heartbreak and misery, not to mention saving some babies who might grow up to change the world for the better.

It's worth a big smile just thinking about it.
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Old 06-11-2012, 08:39 PM   #11
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Thanks W2R, but we can't take all the credit. Clean water and immunization made the biggest difference.
And antibiotics, beginning with the discovery of Penicillin in 1928.
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Old 06-12-2012, 08:10 AM   #12
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It's interesting that the greatest impact of the advances of the 20th century was on the life expectancy at birth. Many people who formerly would have died as children are surviving, and if they make it to the 60 year old cohort, then their life expectancy going forward will be a little bit more than it would have been in the past.....but not much!
I'm one of those - pyloric stenosis at three weeks of age. My parents said survival rates then were 50%, it's routine now.

And I'm named after an uncle who died at age 3 from an infection that a shot of penicillin would have fixed had it existed at the time.

So it does make a difference.
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Old 06-12-2012, 05:14 PM   #13
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Longevity really is one of the great "unknowables" of ER.

I calculate my potential longevity by averaging my parents longevity (both died of natural causes with help from diseases of aging) and adding 5 years for the "improvements" in longevity since their generation. I then add another 5 years as a fudge factor. That puts me in the mid 90's range. (DW gets to late 80's by this formula.)

If I live beyond the mid 90's, I may need to go to "plan B" as Lsbcal mentioned. Financially, that might include either selling the primary residence for an annuity or perhaps doing a reverse mortgage. I don't count real estate in my "invested" stash, but I do view it as a back-up. I figure for the value of my property in Paradise, I could live comfortably for 4 to 5 years in a "facility" which would take me to the century mark. After that? There's always the 9mm solution if I still have the strength and mental capacity. Just kidding about the 9mm solution - I think. Naturally, YMMV.
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Old 06-13-2012, 12:43 PM   #14
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Longevity really is one of the great "unknowables" of ER.

I calculate my potential longevity by averaging my parents longevity (both died of natural causes with help from diseases of aging) and adding 5 years for the "improvements" in longevity since their generation. I then add another 5 years as a fudge factor. That puts me in the mid 90's range. (DW gets to late 80's by this formula.)
Interesting approach. I took the older of the two parents longevity and added a fudge factor. It was still depressingly young for me. DH's parents are still alive at age 86 and 89... but he's 10 years older than me... I figure odds are we'll die at about the same time since he's got longevity on his side. No idea how much longer his parents will live... so I put in enough years for DH to reach 100 when I do firecalc.
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Old 06-13-2012, 01:21 PM   #15
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Interesting approach. I took the older of the two parents longevity and added a fudge factor. It was still depressingly young for me. DH's parents are still alive at age 86 and 89... but he's 10 years older than me... I figure odds are we'll die at about the same time since he's got longevity on his side. No idea how much longer his parents will live... so I put in enough years for DH to reach 100 when I do firecalc.
This whole discussion got me thinking: Many formulae we use for determining our "safe" withdrawal rates are based on 30 year slices of financial history. Of course, Firecalc and others allow us to stretch this out to longer periods, but I'm under the impression that 30 years is kind of the "ideal" time frame to use for the "4% rule" Anything longer gives a somewhat lower SWR. The younger folks on the forum have to extrapolate or fudge to some extent from 4%. It occurred to me that I'm now at the age when 30 years is just about the maximum I could expect to live. When you think about it, that's kind of liberating! It's a "good" thing if you think about it the right way. As always, YMMV.
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Old 06-14-2012, 01:09 PM   #16
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Longevity really is one of the great "unknowables" of ER.

I calculate my potential longevity by averaging my parents longevity (both died of natural causes with help from diseases of aging) and adding 5 years for the "improvements" in longevity since their generation. I then add another 5 years as a fudge factor. That puts me in the mid 90's range. (DW gets to late 80's by this formula.)
This thread makes me wonder if there are any "accurate" statistics out there that really can predict your life span based on your parents'. My folks are both alive at 90 ish and yet their many siblings left the earth at 47, 49, 59, 68,72, 80, 86, and 88. Considering my life has been very different than my parents, I dont think I will make it as long as them. But who knows...?
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Old 06-14-2012, 10:00 PM   #17
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I just took a class call "Aging and the Brain". One of the points made by the teacher was that the human lifespan is about 100 yrs which is consistent with the 2% in the original post. The "goal" for medicine was to reduce the years of infirmity. Basically, you want to live a healthy active productive life and then suddenly drop dead. So our retirement planning should be about trying to stay healthy for as long as you can i.e. less time in a retirement home. Don't forget that there is about a 50% chance of some sort of Alzheimers after age 85.
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Old 06-15-2012, 11:12 AM   #18
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This thread makes me wonder if there are any "accurate" statistics out there that really can predict your life span based on your parents'. My folks are both alive at 90 ish and yet their many siblings left the earth at 47, 49, 59, 68,72, 80, 86, and 88. Considering my life has been very different than my parents, I dont think I will make it as long as them. But who knows...?
Here's a life expectancy calculator I tried when I started ER planning. I think it requires some contact info now.


http://www.livingto100.com/calculator

It considers factors like smoking and exercise among many others.
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Old 06-15-2012, 03:49 PM   #19
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For an interesting take on what the longevity of our and future generations might be, you could read Ray Kurzweil's books Transcend and Singularity. Both books deal with the rate that advances are being made in medicine and Artificial Intelligence and how these advances might greatly extend the lifespans of people now living. Interesting reading even if you don't buy into the "science".
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Old 06-15-2012, 08:09 PM   #20
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This thread makes me wonder if there are any "accurate" statistics out there that really can predict your life span based on your parents'. My folks are both alive at 90 ish and yet their many siblings left the earth at 47, 49, 59, 68,72, 80, 86, and 88. Considering my life has been very different than my parents, I dont think I will make it as long as them. But who knows...?
Right. Best not to put too much stead in your parents' longevity. See:

Lifestyle Affects Life Expectancy More Than Genetics, Swedish Study Finds
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