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Old 06-09-2012, 12:10 AM   #21
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No flames. I actually find this discussion interesting. You seem to not believe what we are saying about inflation. I know another way to look at it and you have 6 years before you pull the trigger on your plan. So here goes.
I am going to pick six items from your projected budget.
1. Condominium fees $280
2. Property taxes $400
3. Automobile fuel $250
4. Automobile insurance $200
5. Medical insurance $700
6. Utilities $200
I bet you a beer that before you are 53 years old at least one of those items will be 50% higher.
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Old 06-09-2012, 03:35 AM   #22
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FWIW, I think your budget doesn't mention a lot of things.

For example, you have automobile lease, fuel, and insurance but what about maintenance, repairs, registration, license renewal and other driving related costs such as tolls and parking?

I assume you have no pets or hobbies and will never have any over the next 40 years...at least none that will exceed your $100 a month entertainment budget.

I assume you spend nothing on physical activity -- no gym or Y fees, no sports, no exercise equipment, no exercise paraphernalia and you plan to never spend any money on that type of activity.

I was curious about the $15 a month for condominium insurance. What does that cover? That seems really low if it is meant to cover your condo and all your belongings and liability insurance. Do you have an umbrella policy by the way?

You budget $700 a month for medical insurance (which it is unclear if that is a guesstimate or a real number). What is striking though is that it is apparently a policy that will cover 100% of your medical, dental, vision, and hearing costs, as well as all prescription and OTC medications, since you have nothing budgeted for those things.

It is also strikes me that you do not think that you will ever have to buy any furniture, or any tools or supplies or replace appliances or linens, or replace a computer, or television, or printer. Or even, decorative items such as a new picture or a new rug, etc. While these are not expenses that will occur every year, it occurs to me to think that you will likely have some of these expenses over the years but none are budgeted for.

I also note that you budget nothing for gifts.

And, of course, you have budgeted nothing for income taxes.
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Old 06-09-2012, 07:13 AM   #23
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ok, Excellent points catsmeow. The condo association fee will be likely to increase. The 1000 miscellaneous/groceries will easily cover most of what you added. Groceries are roughly 500 per month for my wife and I. Our condo insurance covers all interior replacement costs. In the 280 condo fee is all structure including all interior structure to the sheetrock, floors etc including flood. The condo fee is including money for replacement items like roofs etc. Our utilities budget is last 3 years, stable. Health insurance could be a problem. We will be in the 15% income tax bracket at 100k per year. The health insurance is actually currently 540 combines and that is all in everything. I think my personal rate of inflation will be substantially lower than 3%. If I am wrong, I have 250k coming from a reverse mortgage at 62 (will provide another 1000 per month in income), social security at 62 provides another 1500 per month in income, paid office building provides 150,000 at retirement (15,000 shares x 0.044= 660 per month in income), 7920 annual. Therefore, my backups are poised to provide an additional 38k in annual income.

If I use 60,000 as my needs in retirement and 3% rate of inflation I will need:

About 80k in 10 years, 108k in 20 years and 145k in 30 years.

May I ask how many of those who retired here in 2002 are drawing 20k more out of their portfolio than they started drawing in 2002 If you are, you better plan on going back to work soon given the last 10 years return. How many of you who retired in 1990 are drawing fully 2x the amount you did in 1990?? I really do understand inflation could be a big problem for a fixed income investor like me but....are we overstating the real effects here? I am not trolling here. Just trying to decide if I want this approach or a total return 4% inflation adjusted withdrawal approach. Something about consuming principle scares me...can't really help it.
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Old 06-09-2012, 09:59 AM   #24
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I retired in 2008 and I have been spending similar amounts each year. But this has been a time of low inflation and I have had some expenses decrease (youngest son just finished college). If we were to hve a bought of inflation like in the 80s the numbers would look different. I have a COLAd pension so I am a bit less afraid of inflation but I still need to keep an eye on it. And if I were solely dependent on my investments I would pay a lot of attention to inflation issues.
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Old 06-09-2012, 11:12 AM   #25
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Quote:
Originally Posted by Quantum Sufficit View Post
Just trying to decide if I want this approach or a total return 4% inflation adjusted withdrawal approach. Something about consuming principle scares me...can't really help it.

I think you are talking about two different things here. One is asset allocation and the other is withdrawal strategy. You seem to assume that if you have a more traditional asset allocation that includes equities that this somehow equates to consuming principle. I mean you could set up a withdrawal strategy that set a floor that you wouldn't let you plan go below. For example, on Firecalc I think you can set it so that your portfolio at the end doesn't go below a specified number.
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Old 06-09-2012, 12:30 PM   #26
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Originally Posted by Quantum Sufficit View Post

May I ask how many of those who retired here in 2002 are drawing 20k more out of their portfolio than they started drawing in 2002 If you are, you better plan on going back to work soon given the last 10 years return. How many of you who retired in 1990 are drawing fully 2x the amount you did in 1990?? I really do understand inflation could be a big problem for a fixed income investor like me but....are we overstating the real effects here? I am not trolling here. Just trying to decide if I want this approach or a total return 4% inflation adjusted withdrawal approach. Something about consuming principle scares me...can't really help it.
Yes, inflation is real. I've only been retired for 6 years, but we started keeping track of expenses when we were married in 1970. I dug out some old ledgers.

This is our monthly "food" spending for 71, 72, 73, and 74: $70.58 $68.33 $74.91 $89.33

For comparison, we averaged about $550 per month on the same items over the last 4 years.
(That includes everything we buy at the supermarket including detergent, TP, toothpaste, etc.)
Auto went from under $40 per month to over $250 (both exclude purchases).

Sure, that's 40 years ago. But you're planning on a 40 year retirement.

I think the important thing for you is the other sources of income that you've already listed. I expect that if you put them all into FireCalc (or a spreadsheet you create) your survival rate will go up dramatically. SS is COLA'd, and that can be a big deal.

Many people think that the US is bound to go through another period of high inflation sometime in the next 40 years. You may think you can keep your personal inflation rate at 2% when the CPI says 3%, but what will you do if the CPI is 10%?

Or, you may be thinking that retired people have a natural tendency to decrease consumption over time. You should model that explicitly, how much less do you see yourself consuming at 63, 73, 83, etc?
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Old 06-09-2012, 01:38 PM   #27
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With only fixed income, due to inflation one runs out of purchasing power long before running out of money.

I just plugged in the numbers you gave in the OP. $2M portfolio, $50K spending, 100% LT corporate bond (still not sure about that) and 40 years. FIEcalc says 36% survival.

Switching to 5 year US treasuries increases the success rate to 85%. Cutting spending to 45K increased that to 100%
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