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Re: Modifying the 4% SWR
Old 02-16-2006, 10:40 AM   #21
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Re: Modifying the 4% SWR

You have a point about the rigor of the analysis. The analysis strongly suggests that spending declines with age but it is not a rigorous proof.

Still, the planner watched this scenario over many times that older people just didn't have the interest or ability to spend all of the money that their traditional spending plan warranted. After you've traveled around the world once or three times and the house is all fixed up and you are on your third new car in 6 years there just may not be all that much stuff that you aspire to. At least that's the implication of the paper.

to quote from the article:

The dramatically different spending tendencies between my firm's younger and older retired clients served as the catalyst for this study. Many of our younger retirees had problems spending within the income parameters of their retirement plans, while the majority of our older retirees were spending far less than what they could afford. It is my opinion that these spending tendencies hold the key to a much larger picture, which includes creating more realistic retirement projections by making adjustments to the traditional retirement planning approach.

regarding spending patterns, there will always be new cool stuff to buy. Also notice from Table 4 that for older people that spending had gone up around 10 % in the last twenty years. Still the past is not a prediction of the who knows.

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Re: Modifying the 4% SWR
Old 02-16-2006, 11:05 AM   #22
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Re: Modifying the 4% SWR

I'd like to see the same numbers broken out over the same pattern from 1980 or 1960, if the trend was the same, I'd say its pretty well cemented. I'd also like to see the actual method of collecting and consolidating the data, although I'm familiar with many of the BLS studies and they're not that bad. I do get a little queasy when I see stats pulled from someone book (the harry dent 'roaring 2000s').

I see the spending went up in table 4 but again, its a disconnected piece of data. Did it go up because it was voluntary? Does it show unaccounted for cost increases or "invisible inflation".

Strikes me that this is a great way to track "real" inflation in a prairie dog way. Actually how I track my own personal rate of inflation. If my spending for food goes up 15% from one year to the next, then food went up 15%. We dont tend to eat nothing but pasta one year and maine lobster tails the next. Similarly, by tracking the SAME GROUP'S spending from one year to the next, in major buckets like the ones shown above, it should be feasible, at least in year against adjacent year, to determine real inflation. Although that number would need to be slightly weighted by the alleged factor that aging reduces spending.

If you could establish a generic year on year uplift or drag down in spending as a function of age, then apply that to a broad based group of people in different income brackets, you could very easily and effectively measure true inflation for those groups measured. No need of baskets, buckets, or hedonics.

All that having been said, I believe people spend less as they age. I believe that in some income brackets there are hard decisions made on medicine vs food quality or a vacation. I believe health care is having and will have a profound and continued effect.

I have an interesting little "fish bowl" in observing my Dad's Sun City neighbors and talking with them. Mostly people in their 70's and 80's, fairly well to do, lots of available home equity as their homes have more than doubled in the last 5 years.

A small percentage travel a lot, mainly to gambling towns like reno and south tahoe. Very few japanese or german luxury cars. They do as a group like to spend money on things like the club house and golf courses, both of which are interestingly underutilized, but the end game is that they like to be able to take visiting friends and family to those places to show off how nice the place is and thats how they show their status. Just paid a fortune to have the roads re-oiled to make them "a deeper, darker black"...weirdest thing I've ever seen...the roads looked fine to me...apparently they just werent the right color. Everybody's up in arms about the new medicare stuff...a lot of people finding their meds are no longer covered or that they have to pay more when all they heard was that this new plan would save them money. A lot of heavy drinkers, but thats mostly in the closet. A lot of under-eating and eating of cheap weird cost saving food. Lady across the street from my dad bought about 200lbs of cheap beef roasts when they were on sale and is still eating them 2 years later, but has to cover them with barbecue sauce to cover the appearance of the long freezer burned meat (my dad avoids offers of dinner at her house). Lots and lots and lots of health problems. In fact I cant think of one household where at least one spouse isnt afflicted by something that limits mobility or travelability. Many couples rarely, if ever, leave the house except for necessities.

I'm going to bet that the 50-somethings of today will have a foreign luxury car rather than a buick or caddy in the garage. Maybe travel more. Plausibly eat better. The 'depression' influence wont be there for one thing.

Be fearful when others are greedy, and greedy when others are fearful. Just another form of "buy low, sell high" for those who have trouble with things. This rule is not universal. Do not buy a 1973 Pinto because everyone else is afraid of it.
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Re: Modifying the 4% SWR
Old 02-16-2006, 12:42 PM   #23
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Re: Modifying the 4% SWR

Originally Posted by MasterBlaster
Per your comment about healthcare: Notice that healthcare costs are included in the analysis.
I hear ya, but this sentence concerns me: "One limitation of this data includes the potential absence of long-term care costs. For example, a person in a nursing home is unlikely to participate in a survey from the Bureau of Labor Statistics. This would give the health-care-expenditures category artificially low average expenses."

IOW, as near as I can tell, they're saying that the data in Tables 1 & 2 doesn't include the costs of the heroic life-saving measures taken in the final year of one's existence. And I doubt that any of that final year is spent consulting with the financial advisor, either, as the family is busy liquidating the portfolio instead of rebalancing it.

So it's confusing to read that disclaimer and then see them base their Table 5 analysis on the spending reductions from Tables 1 & 2.

I'd much rather live an enjoyable life, one where I feel that our spending decisions have value as well as the constraints of a 4% SWR, and end with a big portfolio that's donated to charity. I suspect that the me I'll become in four decades will appreciate it too, and I'm certainly not willing to risk the alternatives based on that sort of research.

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Re: Modifying the 4% SWR
Old 02-16-2006, 02:54 PM   #24
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Re: Modifying the 4% SWR

I expect my portfolio will not be so large that I'll be leaving a lot to anyone...

I will use 4% as a rule-of-thumb, but certainly not blindly...

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