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save their analysis is CA's prop 13 which definitely favors long-term buy and hold residents, assuming it is never repealed.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.
