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How Much Is A Future Year Worth?
Old 07-23-2012, 12:44 PM   #1
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How Much Is A Future Year Worth?

Scott Burns has a thought provoking article suggesting that we should spend the nestegg while we can. In his article he suggests tha saving the nestegg cause we may make it to 99, may not be as important as living large before then. The numbers certainly point that way.

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Old 07-23-2012, 01:00 PM   #2
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I would say the article is more relevant for a typical 65 year old retiree than the folks here shooting for ER in their 50's or 40's, or even in their 30's. You don't need as much safety in your planning when there is a high likelihood you won't be here to enjoy your money for the full 30+ year retirement period. However if you will have 4-6 decades of anticipated retirement and a high probability of being alive during most of those decades, it is prudent to plan for it.
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Old 07-23-2012, 01:02 PM   #3
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IMO he is wrong right out of the gate:
Quote:
There are two kinds of people in this world. Spenders. And Savers. There is no middle ground.
I took a middle way. I never had the extreme deprivation that some here endured. At the same time, I never spent money on things that would not give me or my wife of my children value, and I always lived with the knowledge that what I didn't spend would likely compound well over time. I think there are many people who live in a middle way. In fact, most people with secure government jobs can live very well, while also expecting to live very well in a long period of retirement.
He also makes the error of applying to something based on the law of large numbers, to a single person- oneself. Works fine for insurance, not so well for individual life plans.

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Old 07-23-2012, 01:08 PM   #4
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The article appears to be musings on probabilities rather than possibilities and trying to place a "worth" on the probabilities. Not much value here, IMHO.
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Old 07-23-2012, 01:27 PM   #5
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I took a middle way. I never had the extreme deprivation that some here endured. At the same time, I never spent money on things that would not give me or my wife of my children value, and I always lived with the knowledge that what I didn't spend would likely compound well over time.
I guess it all depends on how each of us defines "extreme deprivation" and "value". I follow the same general take on spending - don't overly deprive myself or family, and make sure what we spend brings value.

To take an example out of the OP's article, I wouldn't spend a bunch of money today on a Corvette even if I know that the odds are that my grandchildren will end up spending the money on that Corvette in a few decades. I would rather know that I have a high probability of having plenty of money to live on indefinitely, with the knowledge that if I don't get a chance to spend everything, my kids or grandkids will certainly enjoy spending my money buying their own Corvettes some day.
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Old 07-23-2012, 01:53 PM   #6
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I think so much of it is a value judgement.

One person may not wish to leave a single penny to heirs and have all of one's life savings spent while alive. While for another person, leaving something behind is very important.

For some, taking the chances and living day to day is the way to go, where as for someone else, having a rainy day fund is of utmost important.

Does one take the money early or wait? In a simliar fashion, that's the question about taking social security early or wait? Waiting, you'd get a bigger payout at a later age, but will you be around long enough to enjoy that?
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Old 07-23-2012, 02:17 PM   #7
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I have a problem with his basic assumptions. First, there are good wines that are not costly, and only a few dollars a bottle more than two or three buck chuck. I buy these. Second, instead of buying the Corvette, I would love to take my kids and grandkids on a nice vacation with me - one they could not afford on their own. The memories are priceless.

As far as making certain I will still have funds at 95, all I can say is that if I come to the conclusion I won't hit 95, I can always spend more. But, if I hit 95 and don't have the $$, I really don't want to go back to work. Peace of Mind has a value.
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Old 07-23-2012, 02:23 PM   #8
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Originally Posted by easysurfer View Post
While for another person, leaving something behind is very important.
Which for us (having an adult, disabled "child") is the case.

We certainly have much more (financially) than we will ever need, to live retirement as we wish. However, as responsible parents (which ours were not) we are driven in our financial decisions for not only our, but his future needs, which we calculate at a minimum 20+ years after we're gone since he suffers from a condition that will not reduce his expected lifespan.

There are many different situations. An article written for the "general public" dosen't necessarily apply.
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Old 07-23-2012, 02:35 PM   #9
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Stupid article. He states there is no middle path but the whole point of the article is to focus on life expectancies to encourage us to take some undefined middle path. And, as Ha noted, many of us have been on a middle path for decades. The article would have a lot more value if he articulated a spending plan (or an approach to divining one) that incorporated his life cycle value numbers. But simply saying the years between 65 and 75 are twice as "valuable" as those from 75 on doesn't help us decide how much is safe to spend.
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Old 07-23-2012, 02:35 PM   #10
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Find something you enjoy doing and is rewarding. Then you wont have to retire and your money problem is solved. Hey I should put that in my newsletter.

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Old 07-23-2012, 03:13 PM   #11
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I am on the side of those who think there is a middle path. I think members here are very intelligent and capable of managing spending without going hog-wild.
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Old 07-23-2012, 03:41 PM   #12
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The article made the point that the probability of living the 10 years of 65 to 75 is as high as for the 25 years from 75 to 100. Yet, in planning we usually spread out the expenses uniformly.

OK, so nobody wants to die broke. But if one has means above bare-bone subsistence and can afford some luxuries and leisure activities, would it not make sense to front-load those extraneous expenses in the earlier years? Scott Burns argues that it would maximize our money's utility in the probability sense. Many of us who are conservative planners do not like that. But I will say that most of us end up spending less as time goes on anyway, as Bernicke found out from empirical data. So, why not plan on that decelerated spending curve rather than the constant consumption model?
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Old 07-23-2012, 04:42 PM   #13
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There absolutely is a middle path. It's all about setting your priorities. My DW and are aggressive savers and investors. On the other hand we enjoy at least 4-5 weeks on vacation trips and support a lake house in addition to our primary residence. On the frugal side both of our cars are over 8 years old and hopefully will go at least 7 more. Just a couple of examples, but my point is there are a lot of people in the middle ground as well.
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Old 07-23-2012, 05:05 PM   #14
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People have very different views on when and on what to spend money on. Depends on your tastes and you individual spending utility function. There is no "right" answer other than to live within your means, however you might define it. The article is pretty weak.
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Old 07-23-2012, 05:51 PM   #15
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I think it's a good thing to remember, though, when an unexpected once-in-a-lifetime opportunity comes up that's not in the budget--go for it with no regrets and savor it. Gather ye rosebuds, etc., etc.
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Old 07-23-2012, 06:22 PM   #16
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Quote:
Originally Posted by haha View Post
IMO he is wrong right out of the gate:

I took a middle way. I never had the extreme deprivation that some here endured. At the same time, I never spent money on things that would not give me or my wife of my children value, and I always lived with the knowledge that what I didn't spend would likely compound well over time. I think there are many people who live in a middle way. In fact, most people with secure government jobs can live very well, while also expecting to live very well in a long period of retirement.
He also makes the error of applying to something based on the law of large numbers, to a single person- oneself. Works fine for insurance, not so well for individual life plans.

Ha
Ha took my answer, on both points.
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Old 07-23-2012, 08:50 PM   #17
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Quote:
Originally Posted by NW-Bound View Post
The article made the point that the probability of living the 10 years of 65 to 75 is as high as for the 25 years from 75 to 100. Yet, in planning we usually spread out the expenses uniformly.

OK, so nobody wants to die broke. But if one has means above bare-bone subsistence and can afford some luxuries and leisure activities, would it not make sense to front-load those extraneous expenses in the earlier years? Scott Burns argues that it would maximize our money's utility in the probability sense. Many of us who are conservative planners do not like that. But I will say that most of us end up spending less as time goes on anyway, as Bernicke found out from empirical data. So, why not plan on that decelerated spending curve rather than the constant consumption model?
Two cautionary opposing points of view:

One train of thought against throttling up the budget too much in the early years is that investment markets tend to be cyclical. While it's certainly not guaranteed, there is a chance that as you start to hit 81 and need to spend decently on assisted living care, the market starts to drop in a downturn. Combining increasing withdrawals for your care with poor market returns can be a sharp double whammy. Multiply that by 5 years in a care facility if you self-insure for Long Term Care (which some on this forum are doing), and your portfolio could really take a huge hit in no time flat.

The other train of thought is that if you are able to spend wisely, and enjoy your 60s/early 70s on a modest budget, you still have money to spend on things you want if you are still healthy in your 80s. Perhaps you won't do as many crazy things as in your 60s....but my widowed grandmother took 2 cruises when she was 80 and 81 with me and my sister. If I hadn't been the only one helping to take care of her, and I wanted to spend even more time with her, she could have been talked into taking other trips. She went out to eat often, and didn't deprive herself of food at the grocery store....as well as lived in a pretty expensive home with not-too-cheap real estate taxes, just as she wanted. And also left quite a legacy behind - again, just as she wanted. She was the saving type, so even if she knew she would make it to 88 with a good portfolio (thanks to my shrewed buying of callable CDs with juicy yields), she probably wouldn't have spent too much more...but her wealth gave her choices.

And having the wealth is kind of like having some freedoms outlined in the Constitution - even though many people don't vote, or choose not to own firearms, it might give them a certain sense of ease or comfort knowing that there are freedoms available to them if they so choose, whether or not they need/want to actually do that. It's not quite the same as having the money "just in case" you need it - it's slightly different.
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Old 07-23-2012, 11:00 PM   #18
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Wade Pfau has been working in the same direction. One approach, though not his primary one I think, is to use the RMD's to determine the portfolio withdrawals. RMD's are based on life expectancies that are adjusted as you get older. They have the effect of allowing higher earlier spending, but with some concern for the future. Reasonable enough, but I can't help thinking about having to pay for help around the house and yard (and broker?) as I age, nursing home costs, and rejuvination treatments. I'm not sure I see declining costs as I age.
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Old 07-24-2012, 12:01 AM   #19
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I don't object to dying broke. I do object to becoming broke before I'm dead. Most of these spend now or save for later arguments seem to ignore the uncertainty in any such spending calculations. Since I cannot know what unexpected events may happen in my future, I will likely save more than I need, but I consider that I am buying security with those funds. I don't have to actually spend the money on Corvettes to get value from having it. I value the security it gives me in knowing I can reasonably deal with what the unexpected future brings.
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Old 07-24-2012, 01:18 AM   #20
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+10. This is what financial independence is all about, isn't it ?
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I don't have to actually spend the money on Corvettes to get value from having it. I value the security it gives me in knowing I can reasonably deal with what the unexpected future brings.
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