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Old 04-08-2010, 04:35 PM   #21
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IMO - if you live to be old... you are extremely likely to do less discretionary spending. Granted Health care spending could increase (how significantly is crap shoot).

Spending less as one ages has been shown in study after study. If you have older parents or grand parents that you have observed closely you have likely seen it.


We are not on the edge in terms of being able to ER. We know we will taper down our discretionary spending when we age (assuming we live to be old).

+1 on the needing enough to retire... there is not much of a way to finesse the numbers other than cutting back on spending.

Oh yeah.. in ER we have a 60/40 alloc at age 55. We are going to use a quasi-bucket approach to make sure our plans are not interrupted.
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Old 04-08-2010, 05:11 PM   #22
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Chinaco - So how exactly does one use what you posted ? How exactly does one plan for such ? FWIW I have seen the decreasing real spending models like Bernicke's "Reality Retirement Plan". Still how exactly do you pro[ose to spend down the stash ?

Here's the flaw in all of these schemes. We don't really know how much we will need or how long we'll need it for. So we plan accordingly and probably leave a fair amount of money on the table when we go. That sure beats dying cold hungry and homeless.
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Old 04-08-2010, 06:29 PM   #23
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ERD50 / Masterblaster

Appreciate all the insights / comments here. I'm just a conservative accumulator with a 50/30/20 allocation and I hopin' to FIRE or at least esr within the next year. Before the 2008/2009 downturn, our allocation was 55/25/20. I understand at my age (55), may be looking at a 3.5 swr.
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Old 04-08-2010, 07:53 PM   #24
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I understand at my age (55), may be looking at a 3.5 swr.
I don't really know anything, but I think that 3.5% swr versus the common 4.0% will do more for your portfolio survivability than varying the AA by 10-20% either way. Just my impression from doing FireCalc runs, but I think you are smart to go with a 3.5% target.


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Old 04-09-2010, 12:51 AM   #25
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(snip) But I know what you are saying - many people seem to be frightened by these higher stock allocations. But if you turned it around and asked them which survival rate looks better (w/o seeing the AA), I don't think they'd have trouble giving an answer. Yet, one leads to the other (with all the normal caveats, YMMV, etc).

-ERD50
Is asking which survival rate they like better based on an assumption that the portfolios are the same size? ISTM there are two ways to ensure that a portfolio will survive: either increase the stock allocation or increase the size of the portfolio. The choice comes down to, "I am willing to put up with the increased volatility if it means I can safely retire with a smaller portfolio" vs "I am willing to put up with having to save and accumulate for longer if it means I will have less volatility".
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Old 04-09-2010, 07:37 AM   #26
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Is asking which survival rate they like better based on an assumption that the portfolios are the same size?
Of course.

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ISTM there are two ways to ensure that a portfolio will survive: either increase the stock allocation or increase the size of the portfolio. The choice comes down to, "I am willing to put up with the increased volatility if it means I can safely retire with a smaller portfolio" vs "I am willing to put up with having to save and accumulate for longer if it means I will have less volatility".
That seems like a reasonable way to put it. Though I think people may overestimate just how much volatility they are trading away, and how much they can soften it by increasing the bond side, or even cutting expenses in 'bad times'. I started a thread, must be a couple years old now, something about 'scary dips in net worth', and I get the sense that the kind of dips that people think they will avoid are still possible, even with a lower WR% and more conservative holdings.

The trouble with cutting in 'bad times' is, we don't really know what a 'bad time' is until it's over. If you cut for every bad year, or every consecutive bad two years, I think you will do a lot of cutting. But if you don't, and we have a bad 5 years, you maybe missed 40% of the years you needed to cut. But I don't have a good model for this. But the poor models I've made didn't seem to help much.

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Old 04-09-2010, 04:49 PM   #27
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Chinaco - So how exactly does one use what you posted ? How exactly does one plan for such ? FWIW I have seen the decreasing real spending models like Bernicke's "Reality Retirement Plan". Still how exactly do you pro[ose to spend down the stash ?

Here's the flaw in all of these schemes. We don't really know how much we will need or how long we'll need it for. So we plan accordingly and probably leave a fair amount of money on the table when we go. That sure beats dying cold hungry and homeless.
Good Question.

Our situation is too complicated to describe in this post (as is the case with most). We do not intend to leave a large estate (we will spend it) so that is not a consideration. Our goal is to live and enjoy while we are still on the younger side of our lives but to make sure our needs are covered when we are older. We have hedged LTC with a low cost/reasonable coverage group policy with inflation protection (of course anything can happen in the future). We intend to hedge some of the longevity risk by delaying my SS (we will take DW at 62). We have no debt and intend to keep it that way. I will set back money to cover spending as we age based on projections (with reduced discretionary spending) at around age 75. In other words, I expect that we will travel less at that age (which accounts for fairly generous discretionary spending before 75). We will still have discretionary money to spend past 75... But at a reduced rate. Past that, we will make decisions as the future unfolds.

Bottom line... we have over saved, it is time to enjoy. If it turns out that we need to tighten the belt, we can do it.

In a nutshell, I have a basic approach and past that, I will deal with reality as it unfolds.
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