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Morningstar: Estimating the true cost of retirement
Old 01-21-2014, 11:59 AM   #1
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Morningstar: Estimating the true cost of retirement

Morningstar has an interesting paper on estimating the true cost of retirement. It finds that it depends on: (assuming constant portfolio composition & returns)

1. the replacement rate chosen

2. the annual change in expenses

3. life expectancy

The paper uses data from surveys etc. and finds that points 1 & 2 have different answers based on the initial spending & funding ratio (spending to net worth). Their findings on point 2 were the most interesting (and useful) to me.

I found it to be quite insightful and will probably help people who are still figuring out how much they need to save & what kind of SWR they're going to use.

A video interview
Three Main Variables in the Retirement Cost Equation

and the paper:
http://corporate.morningstar.com/ib/...Retirement.pdf
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Old 01-21-2014, 03:37 PM   #2
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Good video. Thanks. Interesting point about spending decreasing with age.
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Old 01-21-2014, 07:52 PM   #3
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Thanks for that walkinwood. Very insightful video.
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Old 01-21-2014, 09:22 PM   #4
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This was a good video. Thanks for posting.

One thing we did to come up with a retirement budget was put our expenses in the same format as the Consumer Expenditure Survey and compare them line by line. We cut back where our expenses were needlessly high in order to semi-ER -

CE Expenditure Tables

We though we were frugal before, but we definitely had some categories we could have been watching closer over the years, and cutting the high expenses made it easier to retire early.
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Old 01-21-2014, 09:26 PM   #5
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Quote:
Originally Posted by walkinwood View Post
I go to the Morningstar Link, but I don't see the video. Where is it?

Ha
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Old 01-22-2014, 06:12 AM   #6
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I suppose new retirees spend some extra money on buying retirement toys and furnishings for their new digs. Along with some travel these could be reasons for higher spending at the start of retirement. Or it could be all the money folks pay to get their investments set up including taxes and fees to advisors.

Anyways, there were really no surprises at all in this paper especially for retirees on this forum who have lived it.
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Old 01-22-2014, 08:31 AM   #7
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Quote:
Originally Posted by haha View Post
I go to the Morningstar Link, but I don't see the video. Where is it?

Ha
Did you use the following link?
Three Main Variables in the Retirement Cost Equation
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Old 01-22-2014, 01:57 PM   #8
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This is on page 5 of the paper. I think it's a good insight which runs against a lot of the advice I see.

"If an individual is interested in truly smoothing consumption,
then it may make sense to delay saving for retirement until age 35, which is when wages are higher."
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Old 01-22-2014, 06:33 PM   #9
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Quote:
Originally Posted by Independent View Post
This is on page 5 of the paper. I think it's a good insight which runs against a lot of the advice I see.

"If an individual is interested in truly smoothing consumption,
then it may make sense to delay saving for retirement until age 35, which is when wages are higher."
.. unless you're already earning more than enough to have a satisfying lifestyle.

I was saving before 35, but I moved in with future DW at that age and the savings rate (for both of us) spiked.
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