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Old 06-28-2008, 10:39 AM   #41
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Thanks for the links. I've also been to the ESPlanner website which has other sales stuff. I did the online example but wasn't overwhelmed -- just interested. I'm probably a sale later on this year. The big question I have is what will it really tell me versus FIRECalc since retirement is almost here.
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Old 06-28-2008, 10:57 AM   #42
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Thanks for the links. I've also been to the ESPlanner website which has other sales stuff. I did the online example but wasn't overwhelmed -- just interested. I'm probably a sale later on this year. The big question I have is what will it really tell me versus FIRECalc since retirement is almost here.
I use FIRECALC, ESPP and my own spreadsheets, nice to have more than one "opinion." I would hate to find out my spreadsheets were in error 15 years into retirement when a $199 software pkg might have highlighted my mistake - there's frugal and then there's stupid.

As you know, there is no perfect number so the value of all the calculations and planning is simply a roadmap for spending, saving, investing and planning. All any of us can do is plan based on whatever conditions/assumptions we see ahead (projected longevity, current resources/stability, future returns, future inflation, future taxes, the healthcare costs, the outlook for Soc Sec/Medicare, etc.) and add whatever margin of safety we're comfortable with (if not built into the above assumptions). No plan or person can predict all the variables so no plan or person can give you a 100% probability of success. In the end it's an individual 'leap of faith' we all have to make with (hopefully) some contingency plans at the ready. I wish us all the best of luck...
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Old 06-28-2008, 11:19 AM   #43
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I use FIRECALC, ESPP and my own spreadsheets, nice to have more than one "opinion." I would hate to find out my spreadsheets were in error 15 years into retirement when a $199 software pkg might have highlighted my mistake - there's frugal and then there's stupid.

As you know, there is no perfect number so the value of all the calculations and planning is simply a roadmap for spending, saving, investing and planning. All any of us can do is plan based on whatever conditions/assumptions we see ahead (projected longevity, current resources/stability, future returns, future inflation, future taxes, the healthcare costs, the outlook for Soc Sec/Medicare, etc.) and add whatever margin of safety we're comfortable with (if not built into the above assumptions). No plan or person can predict all the variables so no plan or person can give you a 100% probability of success. In the end it's an individual 'leap of faith' we all have to make with (hopefully) some contingency plans at the ready. I wish us all the best of luck...
Damn! I was hoping to get all this for $200.
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Old 06-28-2008, 11:21 AM   #44
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This looks like it would be good for someone still in the planning stage of retirement. I question its value to someone already retired. I would think increased health care costs as you age would have some impact. It would be interesting to know how he handles that but not $199 worth.
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Old 06-28-2008, 12:17 PM   #45
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Damn! I was hoping to get all this for $200.
Sorry, there's such a wide range of people here you really never know who you are talking to, or who is reading...
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Old 06-28-2008, 02:18 PM   #46
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Originally Posted by Midpack View Post
I use FIRECALC, ESPP and my own spreadsheets, nice to have more than one "opinion." I would hate to find out my spreadsheets were in error 15 years into retirement when a $199 software pkg might have highlighted my mistake - there's frugal and then there's stupid.
Question for you: Do you think you might be getting overly-impressed with the bells, whistles and reams of data outputs?

Quote:
The detailed plan (with Monte Carlo analysis) is 131 pages...I like that kind of detail.
I'm not sure a Monte Carlo analysis is appropriate for a retirement analysis. I don't think the combination of stock, fixed and inflation are random, but are influenced by past events. That is why I keep coming back to FireCalc - it just reports what would have happened in the past. To the degree that the worst of the future will be roughly in line with the worst of the past, there seems to be some value there. BTW, I have no reason to think that the future won't be worse - so I go for 100% success to my max lifetime, and hedge that a bit. No lifetime 4% SWR for me at 53 YO ( note - my 'spend' is ~ 4% now, but have not started collecting my non-cola pension, or SS, or the small cola pension that my wife will probably get).

I agree that it is good to get a few diff opinions. FireCalc could have errors. I'm not convinced that I need to spend $199 to do that. Several diff SS models, and back-of-the-envelope calculations indicate the 4% number is reasonable for 95% success for 30 years, and closer to 2% for a 'forever' portfolio.

Hey, but if you spent the $199 and are telling us that it agrees, then THANK YOU for one more data point!

-ERD50
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Old 06-29-2008, 05:36 AM   #47
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Question for you: Do you think you might be getting overly-impressed with the bells, whistles and reams of data outputs?
Answer for you: Not at all.
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Hey, but if you spent the $199 and are telling us that it agrees, then THANK YOU for one more data point!
Glad I could help.
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Garbage In, Garbage Out?
Old 07-02-2008, 04:58 PM   #48
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Garbage In, Garbage Out?

I have now finished reading the library's copy. It was not wasted time, but I would not put the book on my must read list either.

I have a number of "issues" with the book that I have not yet resolved in my mind. My first issue, is "consumption smoothing" the right goal? I certainly don't want my lifestyle to decline. However, would I really want to have the exact same standard of living for the rest of my life? I think an improving standard of living might be nicer. Though if I had successfully resisted "improving" my standard of living for the past three years, I might be retired now, which would certainly be an improvement in my living standard!

However, even assuming "consumption smoothing" is the right goal, can ESPlanner really do that? There is an old computer science saying "Garbage In, Garbage Out" which basically means that even with a perfect computer program, if you feed it bad data, you will get junk results.

ESPlanner is supposed to use lots of data we could never process by hand. However, so much of it is unknown, that much of the input data must be junk. Vanguard's calculator tells me there is a 15% chance that my wife will still be alive 60 years from now. There is no way ESPlanner can realistically project many rather critical values such as tax rates, and health cost inflation, sixty years out and get meaningful results.

I'm also a bit concerned that I seemed to notice more "errors" than I usually notice in the book. If makes me fear the errors that I didn't notice!

The "error" that most sticks in my mind is their analysis on buying versus renting in CA when the cost of renting is significantly lower than buying. Part of their text claims that if you buy, and the value of real estate declines, you win because your property taxes decline. I know CA has funky laws, but at least in my state, if all houses in a town go up or down in value the tax rate goes up or down about the same amount leaving everyone paying about the same amount. If you buy a cheaper house, you will have lower taxes. However, if everyone in town's appraisal goes down, the town's budget doesn't move, and thus the tax rate goes up to compensate. Their analysis seems to have treated "the value of the house goes down" as equivalent to "the owner moved to a cheaper house." The only thing that might save their analysis is CA's prop 13 which definitely favors long-term buy and hold residents, assuming it is never repealed.

On another topic, did I misread, or did the book imply that in 2010 anyone can roll their 401k into a Roth IRA? Is it true? I was under the impression that I have to quit my job to roll my 401k into an IRA, and that the special 2010 Roth conversion rules did not change that restriction.

Bottom line, I expect the book and ESPlanner to be very popular among those people which it says are liquidity constrained, and therefore should not currently be saving. ESPlanner will also be popular with the "want to cross check my plans with every tool out there" crowd. [Which might get me to buy the software. ] However, I would be very hesitant to decrease my savings, or increase my spending, based only on ESPlanner advice.
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Old 07-02-2008, 05:19 PM   #49
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I am reading the book right now. I am not loking for more religion, just for viewpoints. And K's vewpoints are definitely not just one more iteration of the Bernstein/ Bogle mantra.

I say read it, on the principle that serious ideas from a serious expert are worth knowing, especially when they are different from what you already know.

The writing style is a little preachy and pop, which I imagine to be the journalist Burns' influence because I have read books by Laurence alone and they are not written this way.

Ha
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Old 07-02-2008, 07:38 PM   #50
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On another topic, did I misread, or did the book imply that in 2010 anyone can roll their 401k into a Roth IRA? Is it true? I was under the impression that I have to quit my job to roll my 401k into an IRA, and that the special 2010 Roth conversion rules did not change that restriction.
The issue of rolling your 401k without quitting your job, depends on the rules of your particular 401k. Check with you plan administer. In my case, and many others, after attaining a certain age, you can roll part of the 401k to an IRA, while retaining part within the company's plan. Once you have it into a traditional IRA, in 2010, the cap was removed for means testing to allow you to pay the taxes and move your money from the IRA into a Roth. That provision expires after 2010. Also as part of that process, you are able to defer payment of those taxes to spread equally over 2011 and 2012, that would be due to that movement into the Roth from the IRA.
All of this is subject to whoever gets elected, leaving this provision alone, and not canceling it. Another reason to vote Rep.
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Old 07-02-2008, 09:05 PM   #51
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In my case, and many others, after attaining a certain age, you can roll part of the 401k to an IRA, while retaining part within the company's plan.
Found it. I must be 59.5 years old to make a non-hardship withdrawal while still employed at my company. Unfortunately, that won't happen until after 2010 in my case.
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Old 07-03-2008, 11:34 AM   #52
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If I'm recalling correctly, my wife's plan will allow her to roll up to 50% of her balance out to an IRA while still working. She's 29.

I'm not sure on mine, but I think I can only roll when I quit.
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Old 07-05-2008, 07:53 AM   #53
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I got the book from the library Thursday afternoon and just finished it. I highly recommend it. I found it gave me a new way of looking at things and it challenged some of my long held opinions (annuities and LTC).

In my case "consumption smoothing" is really a question of retirement spending so it is less complicated than a 20-something just starting out. The book discussed the risk-rewards of being too heavy in equities and the need of balancing all resources. That wasn't too novel an idea for this forum but it was presented well. It still comes down to unknowable risks -- inflation, stock market performance, taxes, changes in entitlements, etc.

He made a big case for inflation-indexed annuities but then turned right around and said insurance companies severely overcharge for them and there is a significant risk of default. That's pretty much what I've been saying. I would love to buy an annuity but they are financial rip-offs!

There was a plug for LTC insurance but then he also turned right around and described how insurance companies can easily screw you when it comes time to collect. They can also change the terms in many cases so you paid for 40 years without being able to get coverage when you need it. My father had LTC insurance and he was "risk adjusted" every few years by having the whole group get a big price increase. The smart thing was to reapply to a lower cost, new policy -- if you still qualified. Again, I'd love have true, affordable LTC insurance but I don't trust the insurance companies.

It wasn't a sales pitch for the software unless you wanted to see it that way. Unfortunately, there isn't any way to self-analyze without buying the program. I'm not sure if I'm going to get it. I probably will just to play with all the scenarios. Consumption smoothing for me is really a risk assessment of all the seen and unseen things lurking out there.
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Old 07-06-2008, 10:18 AM   #54
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I got the book from the library (was on the wait list for a week). Anyway, did a quick read and set it aside. Will do a second read next week. I agree with 2B. It seemed as if they were making a recommendation and then would point out the flaws. I'm not sure I picked up anything new. DH occasionally comments that he doesn't want to over prepare for RE at the expense of living for today. But, when I ask him what we are giving up - he doesn't have any good examples (except a new car....that he agrees we don't need). The book was okay....I will give it a 2nd read.
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Old 07-08-2008, 06:52 PM   #55
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I ended up spending about 30 minutes reading and Barnes and Noble before deciding to buy Ben Grahams instead. (I am 100% sure that Buffett and Grahams know more than I do vs only 80% sure about Burns and Larry.)

I thought the point about consumption smoothing were interesting. And I see how traditional financial tools fail to take into account kids leaving the nest, mortgages being paid off etc. Although, I think you can use FIRECalc to replicate most everything but taxes.

It seems like a good book for those in the accumulation phase.

Could anyone who has read summarize the key take away for those of us who have already retired?
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Old 07-08-2008, 07:03 PM   #56
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I ended up spending about 30 minutes reading and Barnes and Noble before deciding to buy Ben Grahams instead. (I am 100% sure that Buffett and Grahams know more than I do vs only 80% sure about Burns and Larry.)

I thought the point about consumption smoothing were interesting. And I see how traditional financial tools fail to take into account kids leaving the nest, mortgages being paid off etc. Although, I think you can use FIRECalc to replicate most everything but taxes.

It seems like a good book for those in the accumulation phase.

Could anyone who has read summarize the key take away for those of us who have already retired?
I have read it. I don't think the book lends itself to an easy summary; or maybe it is just that I am not good enough at summaries to do it. I think there is a lot in there. It is not an investment book really, so there is no real comparison to Graham and Dodd.

I guess one big point is actions usually have many direct and indirect effects on your overall standard of living and financial security, so think broadly about any plans.

Ha
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Old 07-09-2008, 06:25 AM   #57
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Summary: It delves into a lot of financial planning topics, pre- and some post retirement. It asks some provocative questions and offers POV's that are not mainstream in some cases, but it does not go too deep on most topics so you may be left with some (worthwhile) homework. Just look at the Table of Contents to decide if it's a worthwhile read for you. I'd recommend reading it, but it's not among my top ten financial/investing books...
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Old 07-10-2008, 10:26 AM   #58
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ESPlanner is mentioned 9 times in 300 pages, and 3 of them are in the Intro or Epilogue, so 6 times in the body of the book. In 7 cases they do no more than mention they used ESPlanner as the tool used to calculate numbers presented, that's it. On pgs 12-14 there is a section titled "Full Disclosure" in which they describe ESPlanner - I would consider that the extent of the pitch.

Yes, but how often is the term "consumption smoothing" mentioned? This term has become virtually synomonous with Esplanner. Search for consumption smoothing soiftware on the web and the vast majority of the hits will be associated with this product.

I am normally a sucker for stuff like this, but after reviewing the postings and responses at the Esplanner Forums, I have reconsidered. The application is very limited in its treatment of personal and investment real estate and still appears to be quite buggy. I've been there and done that. I am not interested in wasting my time devising arcane work-arounds and offline subroutines to deal with the programs inadequacies. Since real estate is my investment of choice I think I will continue to use my tried and true spreadsheets rather than pay $50/year for the pleasure of debugging this thing.
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Economic Life-Cycle Planning
Old 07-10-2008, 11:27 AM   #59
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Economic Life-Cycle Planning

Consumption smoothing is an integral part of the science of economic life cycle investing, saving, and insuring. Economic life cycle theory and models are the standard way economists have analyzed household financial behavior for the past 30 years.

Among research economists there are probably hundreds of consumption optimization models based on dynamic programming that are being used to analyze household financial behavior through the lens of economic life cycle theory. ESPlanner is one of the most advanced of these consumption optimization models and the first consumption optimization model to be made available for sale to the general public. It won't be the last.

I'll bet that 15 years from now almost all the financial planning models you actually have to pay for will be consumption optimization models based on dynamic programming.

Finally, consumption smoothing does not necessarily mean flat or level real consumption. A consumption path could be gently trending up or down and still be a smooth consumption path. Consumption smoothing means avoiding abrupt consumption shifts, i.e. avoiding consumption disruption.

Robert K

PS - It wasn't until the late 1990's that economists even considered porting consumption optimization models to the PC desktop. Dynamic programming methods were, and are, simply too processing and memory intensive for the desktop PC hardware of the mid 1990's and earlier to begin to handle. Even today most consumption optimization models are run exclusively on mainframes and workstations. One of the biggest hurdles the ESPlanner guys face is making dynamic programming algorithms more efficient, and the accompanying computer code more efficient, so that ESPlanner simulation runs are a manner of minutes, and not hours, when run on a desktop PC.
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Old 07-10-2008, 11:32 AM   #60
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I'll bet that 15 years from now almost all the financial planning models you actually have to pay for will be consumption optimization models based on dynamic programming.
Great! Hopefully by then the bugs will have been worked out.
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