Hebeler analysis

[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?

[Brat]

There is no sofware that cures fools. I think FireCalc gives the user a realistic estimate of what retirement savings can be expected to generate in income if it is invested in index funds. If people don't manage their resources wisely they will blow it and we all will be paying for their care with Medicaid.

[Nords]

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.

[REWahoo]

Originally Posted by Nords

...the Holy Grail of the Ultimate Retirement Planner.

I can see this one coming a mile away. Those old military acronyms are kicking in now...you're gonna call it...HOGURP.

[Nords]

Originally Posted by REWahoo!

...you're gonna call it...HOGURP.

Sounds like the aftereffects of a bad bowl of chili!

I'm amazed that the ***** filter let that acronym go by...

[JohnP]

ferco - I read Henry's book about the time I retired and took it to heart.* Later, I ran the I-ORP retirement calculator which showed that (at 3% inflation rate) one would need about 2.5 times the current retirement withdrawal at live the same lifestyle in 25 years!* While Henry's book doesn't really deal with "early" retirees he does talk about preparing for a "long" retirement.* He proposes high allocations to equities as one solution to keeping up with inflation in the long - 25-35 or more years in - retirement.

Certainly, competent planning is necessary to avoid running out of funds while you still have a long lifetime in front of you.*

Personally, I liked the book but couldn't get through his feedback-based dynamic planning process; as an engineer, I understand and use feedback principles but just thought that he made it too complex for the potential user.* I-ORP and Firecalc are what I use for the long term projections and I envision using the C-T approved approach of reducing spending in bad years and increasing in good years.

JohnP