Originally Posted by ferco
Was reviewing an article by Henry Hebeler dated 3/8/05 entitled "An Appeal for Better Planning"; in the article he speaks of exhaustive vs dynamic analysis. He spells a out a rather dismal outlook for most who don't adjust their spending in retirement. But more importantly, I'm concerned because it appears as though if one ER's without the "proper" planning he/she may very well run out of dinero if they live too long.Can the math guys, Brewer, Gummy or Nords address this. Is FIREcalc the absolute answer?
Consider Hebeler's background-- hyperachiever Boeing financial executive. He makes even nuclear submariners look like frivolous hedonist slackers.
Financial calculators are all different methods of trying to answer the same question. FIRECalc assumes that past is prologue. Monte Carlo assumes that the future will be even more random than the past, with less correlation between annual returns. Neither one of them can handle changing correlations among various asset classes, new asset classes with insufficient "history" (like international investments & REITs), or the occasional unforeseen nuclear detonation or runaway inflation.
Hebeler uses closed-loop feedback. It's an extremely simple, intuitive, and conservative method. It works great. It'll guarantee that you never run out of money, but it's also a bit difficult to use his method to forecast your ER without an incredibly tedious amount of budgetary planning. (Given his background, I bet that never fazed Hebeler.) The calculations, let alone the answers, might even discourage some timid souls to stay chained to their cubicles.
I think Hebeler also does a great job of pointing out some of the bad planning assumptions that people make-- living to their median life expectancy, reducing their spending in their latter years, reducing their stock allocations as they grow older, and fearing volatility more than inflation. Having said that, all those assumptions can be dealt with in FIRECalc and MC planners. Raise your assumed lifespan to age 120. Make detailed budgets or raise spending every year for CPI. Bite the planning bullet and exchange hypothetical healthcare inflation for the relatively well-known expense of a long-term care policy. Semi-retire. Stay with stocks, history's only proven inflation-beater. Embrace upside volatility by keeping enough cash to handle a couple years of downward volatility.
You haven't even mentioned FinancialEngines.com, ESPlanner, or IORP yet.
Or go to extremes-- live off your dividends and/or your annuities and never touch the principal. Kinda like investing as if you're immortal, and your heirs will certainly be appreciative of your conservative approach.
To answer your question, no. FIRECalc is not the absolute answer. But it's a great estimate, it's one of the few products available from a guy with ER credibility and no profit motive, and it's certainly one of the easiest to use.
At some point the assets bucket will be outweighed by the BS bucket and a life decision will be made. It can be made by you or it can be made for you. The alternative is a lifetime in Cubicleville suffering from analysis paralysis while searching for the Holy Grail of the Ultimate Retirement Planner.