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Old 02-06-2011, 10:04 PM   #21
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Of course all of these FIRECalc runs assume that next 50 or 100 years looks like the last 100+ years in the US.

I think for the future a more global view will be necessary.
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Old 02-06-2011, 10:38 PM   #22
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I think for the future a more global view will be necessary.
I think even Dimson & Marsh avoided speculating on the answer to that aspect of the question. Just when you think you're on the right track, you run across 1920s Germany or 1966 America or 1990s-? Japan...
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Old 02-07-2011, 06:05 AM   #23
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I guess I didn't state in my prior post, although I was thinking along these lines, that 2% probably approaches an unlimited** duration. A 100% 30-yr TIPS portfolio gets you 30 years of 2% withdrawals. There is reinvestment risk at year 30, but at that time you still have 100% of your starting portfolio in real terms and are still only needing to draw 2%.

** For my usage, "unlimited duration" excludes nuclear holocaust, alien invasions, and any, and all, Mad Max type scenarios.
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Old 02-07-2011, 06:32 AM   #24
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All of these Firecalc runs with various starting WRs just seem to show that you can have a really, really bad run for a while. Clearly if you lose 50%+ of your portfolio in the first few years you are in a tough spot. It all just reinforces our discussions that you need to be able to shelter your portfolio from large withdrawals in the event of a crash (particularly in the early years). Two ways we have discussed for doing this are reducing spending or segregating an emergency cash stash apart from the portfolio.
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Old 02-07-2011, 07:11 AM   #25
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Can you say S. P. I. A.?
Yep... if I were afraid of living 40-50 years past my retirement date, I'd be looking at more annuities.

Paying an SPIA premium is in effect pushing the SWR risk on to an insurance company. I was interested to see here that for a 50-year-old single male, $100K buys you $481/mo for life, which is 5.772%. If we allow 2.5% for inflation, that would suggest that an SWR of 3.2% is possible, even if you have to pay commission and make a profit. (Of course, on the flip side, the insurance company can afford a certain number of "SWR failures"; we typically can't).
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Old 02-07-2011, 07:56 AM   #26
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This is not a financial question. Over a half century what affects the ability of a portfolio to continue to provide real positive return indefinitely is not the initial withdrawal rate. Instead, it is technology, global politics, war, mother nature, taxes, economic collapse. Regardless of the beginning withdrawal rate, opportunities will present themselves that will allow for major portfolio calamity or enrichment. How the portfolio responds to these situations is the critical factor.

A low initial withdrawal rate - less that 2% - seems important not so much because it is more sustainable but because it points to a buffer or reserve that can withstand substantial loss but still take advantage of unexpected opportunity.
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Old 02-07-2011, 08:51 AM   #27
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One additional thought: the withdrawal rate assumes an initial expense that is kept at the same real level throughout the entire period. Over a half century there will be improvements in standard of living. Most of these are not reflected in the inflation rate and require real increases in spending to enjoy and real increases in wages to afford.

Other threads on this (not sure if here or at RADDR's site) have estimated this to be around 1% per year. This would have to be reflected in the assumptions as well, which just reinforces the need for a very low initial withdrawal rate.
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Old 02-07-2011, 09:00 AM   #28
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One additional thought: the withdrawal rate assumes an initial expense that is kept at the same real level throughout the entire period. Over a half century there will be improvements in standard of living. Most of these are not reflected in the inflation rate and require real increases in spending to enjoy and real increases in wages to afford.
I'm with Bernicke here. Although I hope my spending doesn't drop when he says (around age 56, apparently, which is what FireCalc includes by default), my observations of real retired people show that, medical expenses apart, they simply don't follow the improvements in the standard of living. My mother is 86 and has no clue of what she would use the Internet for. I have no need for any form of personal music player.

It's hard enough keeping up with inflation; let's leave the ever-increasing spiral of consumption to our kids (or, even better, other peoples' kids). Those of us who have LBYM for 30 or more years aren't about to become gadget nuts.
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Old 02-07-2011, 09:04 AM   #29
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I'm with Bernicke here. Although I hope my spending doesn't drop when he says (around age 56, apparently, which is what FireCalc includes by default), my observations of real retired people show that, medical expenses apart, they simply don't follow the improvements in the standard of living. My mother is 86 and has no clue of what she would use the Internet for. I have no need for any form of personal music player.

It's hard enough keeping up with inflation; let's leave the ever-increasing spiral of consumption to our kids (or, even better, other peoples' kids). Those of us who have LBYM for 30 or more years aren't about to become gadget nuts.
There has always been a chicken and the egg aspect to declining spending in old age. Although you bring up a good point about limited interest in new technology, I've always wondered whether many older people spend less because they choose to, or because they have no other choice. One thing I know for certain, though: I'm not going to plan on the former and be forced into the later.
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Old 02-07-2011, 09:13 AM   #30
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Other threads on this (not sure if here or at RADDR's site) have estimated this to be around 1% per year. This would have to be reflected in the assumptions as well, which just reinforces the need for a very low initial withdrawal rate.
One thought experiment is to envision someone who retired at 50 in 1980. Today he'd be 80. What new expenditures would today's 80 year old have that he didn't have 30 years earlier. The only thing that really comes to mind is more telecommunication connections . . . cell phones and internet. I can't think of much else.
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Old 02-07-2011, 09:16 AM   #31
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Although you bring up a good point about limited interest in new technology, I've always wondered whether many older people spend less because they choose to, or because they have no other choice.

Here's a first person report directly from the front lines:

At age 64 I definitely find myself losing interest in the latest technology/toys. It appears my "Wow, that's neat!" gene is beginning to atrophy. I have absolutely no interest in 3D TV for example, nor do I want to Twitter with all the twits out there or get in anyone's face on Facebook.

Oh yeah, one more thing...
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Old 02-07-2011, 09:35 AM   #32
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Here's a first person report directly from the front lines:
Have you noticed a decline in spending consistent with the theory?
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Old 02-07-2011, 09:53 AM   #33
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Have you noticed a decline in spending consistent with the theory?
No, not yet.

However I do believe the theory is accurate, at least for my genetic makeup. I've witnessed an age-related spending decline first-hand via my parents and three older siblings, and I can definitely see it on my horizon.

Of course this can be derailed by a serious chronic illness and I'm not proposing to anyone, including me, that it's OK to spend considerably more in your early years of retirement because you won't need it later on.
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Old 02-07-2011, 10:18 AM   #34
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Here's a first person report directly from the front lines:

At age 64 I definitely find myself losing interest in the latest technology/toys. It appears my "Wow, that's neat!" gene is beginning to atrophy. I have absolutely no interest in 3D TV for example, nor do I want to Twitter with all the twits out there or get in anyone's face on Facebook.
I wonder if this is why I haven't bought an iPhone. Now that it is available on Verizon (my carrier), that issue is coming up again. At last I can afford one, and this is the toy that the world SAYS I am supposed to want. I am still on the fence, though, unsure of what to do.

The world SAYS I should want to access my email all the time (I get about 3/week that aren't spam, and none of them are of earth shattering importance). The world SAYS I will find so many other uses for it, though I am skeptical.

Instead of believing what the world SAYS I should want, I grumble to myself about how quicky it needs recharging, about how hard it must be to read anything on that itty-bitty teeny-tiny screen, and about how (with the data plan) I would be paying twice as much monthly forever. Which I can afford, but paying that much seems ridiculous.

On the other hand, about those 3-D TV's - - - I don't think the 3D aspect is interesting, but as my eyes get older I am thinking that my next TV could be 60" instead of 42". Ah!!!! Now there's something I would like.
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Old 02-07-2011, 10:24 AM   #35
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Can you say S. P. I. A.?

That would not work... it is based on a group of people... and AFAIK, everybody dies at some point... so it is not forever...
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Old 02-07-2011, 10:24 AM   #36
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One additional thought: the withdrawal rate assumes an initial expense that is kept at the same real level throughout the entire period. Over a half century there will be improvements in standard of living. Most of these are not reflected in the inflation rate and require real increases in spending to enjoy and real increases in wages to afford.

Other threads on this (not sure if here or at RADDR's site) have estimated this to be around 1% per year. This would have to be reflected in the assumptions as well, which just reinforces the need for a very low initial withdrawal rate.
I'm not sure I agree with this. In my experience, technology improvements don't cause a significant increase in spending. Especially if you are not an early adopter. I'm with ReW on this. I'm a techie, but I'm definitely losing interest in it. If 3D becomes worthwhile, I'll buy a 3D TV when the time comes to replace my current one. By that point they'll be the same price my current LCD is, so no increase in spending. Same with the cell phone thing. By the time the iPhone or whatever becomes useful to me, the price will have dropped to just replacement costs. Sort of like cell phones in general. Yes, you pay for them and have to pay for usage, but don't you remember those big long distance bill of the past century? We just replaced one expense with another (better) one.

Now if they come up with a teleporter, I'll probably go with that over airline travel, even if it's a little more expensive. But other than that, I suspect the big tech changes will just fit into normal expenditures by the time I get to them.

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On the other hand, about those 3-D TV's - - - I don't think the 3D aspect is interesting, but as my eyes get older I am thinking that my next TV could be 60" instead of 42". Ah!!!! Now there's something I would like.
No need for that, by then you'll be using something like these - http://www.geekalerts.com/cinemizer-ipod-video-glasses/
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Old 02-07-2011, 10:24 AM   #37
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One thought experiment is to envision someone who retired at 50 in 1980. Today he'd be 80. What new expenditures would today's 80 year old have that he didn't have 30 years earlier. The only thing that really comes to mind is more telecommunication connections . . . cell phones and internet. I can't think of much else.
I have three canaries in the coal mine - a brother and two sisters respectively 15, 17 and 18 years older than me. They all have pretty good financial resources and are active (my sisters camp, sail, etc). Yet all of them are traveling less and eating out less than they did 15 to 20 years ago. And they don't follow technology and automotive fads. They are definitely not spending more on a real basis. My parents were the same. They traveled extensively in their 60s and early 70s and then tapered off dropping to very little in their 80s. I plan with the assumption that I will not follow their path (i.e. that I will continue to travel, eat out, et al until my 90s) but I understand the reality will likely be more like theirs.
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Old 02-07-2011, 10:29 AM   #38
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Instead of believing what the world SAYS I should want, I grumble to myself about how quicky it needs recharging, about how hard it must be to read anything on that itty-bitty teeny-tiny screen, and about how (with the data plan) I would be paying twice as much monthly forever.
You need an IPad, which is essentially an ITouch or non-talking IPhone for seniors . DW loves it and it has replaced her desktop (now defunct anyway) and laptop. Only problem for me is that I HATE typing on a a screen. You can buy external keyboards, but no one wnats to carry those around.
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Old 02-07-2011, 10:34 AM   #39
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You need an IPad, which is essentially an ITouch or non-talking IPhone for seniors . DW loves it and it has replaced her desktop (now defunct anyway) and laptop. Only problem for me is that I HATE typing on a a screen. You can buy external keyboards, but no one wnats to carry those around.
Don't you people ever watch TV? In a few years you won't need a pad or a keyboard. You'll have glasses (or contacts, or retinal implants), and use gloves with Wii technology to detect the finger and hand movements on your virtual keyboard. Only until voice commands become reliable, though.
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Old 02-07-2011, 10:37 AM   #40
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You need an IPad, which is essentially an ITouch or non-talking IPhone for seniors . DW loves it and it has replaced her desktop (now defunct anyway) and laptop. Only problem for me is that I HATE typing on a a screen. You can buy external keyboards, but no one wnats to carry those around.
I have a Motorola Droid Global phone and never use the manual keyboard. I prefer the screen. I would get an iPad to replace the travel netbook but am waiting to see what's up with the new Motorola Xoom Android pad. I don't want or need the data plan but I want the cameras (coming to the next iPad, I know).
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