LivingStandard increase=COLA and 2%

[heyyou]

In the free Sunday Wall Street Journal, Jonathan Clement's article "Harder than Building Wealth" states that the annual standard of living grows by COLA plus another 2% due to wage increases for those still working, and that retiree portfolios cannot stay up with that.
My remarks are that explains why family fortunes often last only three generations and that I'm willing to endure some life style decrease to continue to stay retired. Keeping up with the Jones' lifestyle was impossible for FIRE and most certainly after FIRE. I'm missing the part of expecting to maintain parity all through retirement. That is a presumption from the WSJ article.
Joe

[audreyh1]

Well I should HOPE you get increased standard of living while you are working, otherwise how can you possibly save for the day that you retire!

And how would a retiree EVER EXPECT to keep up with someone working and enjoying wage increases. When you retire, you accept that you have "enough" and you can't expect to expand your lifestyle. It might happen if your investments do better than expected, but you had better not count on it.

Yep - I'm also totally missing the part about expecting to maintain parity. Nope - rather I think Mr. Clements is the one seriously missing the point!

Audrey

[Nords]

Quote:

Originally Posted by heyyou In the free Sunday Wall Street Journal, Jonathan Clement's article "Harder than Building Wealth"...

Getting Going - WSJ.com

Quote:

Originally Posted by heyyou ... states that the annual standard of living grows by COLA plus another 2% due to wage increases for those still working, and that retiree portfolios cannot stay up with that.

This seems to contrast with the statistics we've been seeing about wages not keeping pace with inflation over the last 30 years. Since his whole article is based on this opening point, it'd seem like a good idea for him to comment on the apparent discrepancy. Maybe he's assuming that workers are promoted fast enough to achieve "COLA + 2%" and leapfrog the wage-growth average. That must be hearty consolation in the segments of the economy that aren't seeing those numbers.

The "annual standard of living" improvement may reflect a bigger house, a second car, a TV in every room and a chicken in every pot, but that's discretionary spending and not a requirement like buying groceries or heating oil. I'm trying to imagine a scenario where I'd comment to my spouse "Honey, my standard of living just isn't keeping up with the rest of the neighborhood. I really want a cell phone, so I think I'm going to get a job."

Quote:

Originally Posted by heyyou My remarks are that explains why family fortunes often last only three generations...

I think it's also frequently the case that the third generation has no idea how to build a fortune, let alone maintain it. I can live like a starving college student if I have to because I used to, but the third generation rarely has that experience to fall back on.

I think that the first two generations also rarely invest the time or the effort required to give the third generation the wealth-preservation skills they'd need. And why should they? Once the parents have taught kids the basics of money management, let 'em figure out how to build their own fortunes. That's the responsibility of the third generation. As a member of the first or second generation I'd rather give the wealth to charity than to watch the third generation fritter it away on consumer consumables.

Quote:

Originally Posted by heyyou ... and that I'm willing to endure some life style decrease to continue to stay retired. Keeping up with the Jones' lifestyle was impossible for FIRE and most certainly after FIRE. I'm missing the part of expecting to maintain parity all through retirement. That is a presumption from the WSJ article.

Yep. Not enough of a deprivation to mandate a return to work. And I'm not sure that the putative deprivation exists in the first place.

Clements makes me glad that I'm not paying for a WSJ subscription. Not that I expect Clements to ever retire. He'll probably join forces with Scott Burns!

[maddythebeagle]

So this says that folks have been getting 6% raises (inflation + 2%)....? even if that was the case, it probably doesnt factor in the loss of pensions and the increases in health insurance premiums passed on to employees....and the excess social security payments paid into a system that you probably wont get out....

[MasterBlaster]

Jonathan Clement's point is that...

If you will be comparing yourself to the Jones (or your inlaws etc.) then you just might not be (as) happy over the long haul if you have factored in CPI adjustments to your withdrawal scheme as opposed to wage growth equivalent adjustments.

For many people that I know his point is certainly valid. For many on this forum I suspect it won't matter.

[OAG]

Quote:

Originally Posted by MasterBlaster Jonathan Clement's point is that... If you will be comparing yourself to the Jones (or your inlaws etc.) then you just might not be (as) happy over the long haul if you have factored in CPI adjustments to your withdrawal scheme as opposed to wage growth equivalent adjustments. For many people that I know his point is certainly valid. For many on this forum I suspect it won't matter.

So, is Clement's saying the 4% SWR should actually be 2% PLUS CPI? Or should it be 4% PLUS the Wage Index Increase/Decrease for the past year? I thought "retirement" was just like real estate - Local.

[kcowan]

In my experience, most retirees do not try to maintain there status with neighbours. They accept their lifestyle and ignore what other younger people might be doing with their latest Porsches, iPhones and flat screen TVs.

[Running_Man]

HIS WHOLE PREMISE IS INCORRECT!!!!

In the example he gave the spending needed started at $40,000 per year which was a 4% withdrawl rate of the 1 million dollars. Which lasted forever with the inflation assumption of 3%.

But when he increased the need to inflation plus 2% for wage increases, that is the cost of keeping up with the Jones, he started the spend at $50,000 or 5%. He should have had both start at $40,000 and then go up from there at 5% per year.

The difference? Instead of going belly up in 26 years as he claims the money would last for 36 years. So anyone retiring at 65 could maintain keeping up with the Joneses with his assumptions to age 101. And as a matter of fact you would never dip into your original principal for 29 years and I imagine at age 94 a million dollars would buy a decent annuity......

[twaddle]

Has anybody calculated their personal rate of lifestyle inflation? It's much easier than calculating true inflation. Just look at your annualized rate of spending increases over a long period of time.

Mine was about 12%/year from the time I graduated college to the time I retired at age 40. Thankfully, it has been decreasing since then.