SG FOM (for retirees)

[sgeeeee]

As far as I know, this FOM has no merit, but I wanted to try out the poll function.   

Note that the "typical" $1M net worth retiree with 30 years of retirement ahead and an annual expense rate of $40,000/year would score a 0.83 on this test. Values larger than that are probably very safe. Values smaller than that are more risky.

 

[MasterBlaster]

So if I am interpreting your FOM correctly:

Your FOM represents the net worth divided by the (long life - 90 years) expected spending.

IE., the ratio of assets to lifetime expected spending.

Since the assets can be assumed to (hopefully) grow faster than spending, the ratio need be somewhat less than 1.0

You have listed the knee in the curve at 0.83. Where did that (magic) number come from ??

Another way to look at this FOM: Is that if your burn rate is too high you go broke and end up eating dog food. If your burn rate is too low you die with way too many assets and waste the opportunity to spend them.

Those with a FOM greater than 1.0 need ask themselves why they are not spending more.

 

[flipstress]

What does FOM stand for?

 

[MasterBlaster]

FOM is shorthand for "Figure of Merit"

FOM ==> ballpark number to get handle on spending versus savings

 

[laurence]

Didn't vote (since I'm not retired) but my FOM is almost 0.1!!

....guess I'll hold off on retiring just yet....

 

[unclemick]

Soooo - if you are higher than 2-3 range - - probably a good idea to raise your expected spending.

This says the women of the house are right and I'm wrong.

Not sure I like that - maybe I should change the 90 to 110 or maybe even a 120.

Heh, heh, heh.

 

[Mr._johngalt]

Right on 0.5. Thought I'd be lower.

JG

 

[REWahoo]

As far as I know, this FOM has no merit...

I would agree since it ignores pension and SS.

REW

 

[unclemick]

Hmmm

I dinked around and backed out pensions/SS covered part of expenses - and only used the part that 'the portfolio income stream' had to cover.

In real life - this would be the most variable/easy part of the expense budget since - I allocate pension/SS(was divs) toward the essential core items first.

Food, shelter, transportation, dryer sheets - and then lagniappe fun stuff.

 

[MasterBlaster]

A few comments. If you include a pension and SS then these must be subtracted from the burn rate before the calculation is done.

Hopefully your pension and your SS will never run out.

The FOM is a ratio of your assets to your non-pension, non-SS spending.  In other words a ratio of your assets to the lifetime spending that your assets are funding. It helps to answer the question - Do I have enough savings ? 

 

[REWahoo]

A few comments. If you include a pension and SS then these must be subtracted from the burn rate before the calculation is done.

Got it. Moved my FOM up to a 1.0. Good thing I retired or I could have become another unclemick.

REW

 

[Mr._johngalt]

Got it. Stayed at 0.5. BTW, there are worse things than ending up
like unclemick

JG

 

[REWahoo]

Got it. Stayed at 0.5. BTW, there are worse things than ending up
like unclemick

JG

It's not being a tightwad that concerns me, its all his talk about "the women". I've only got one around here and that's about all I can handle.

REW

 

[unclemick]

It's a tough job - I'm telling you.

BTY - the local Walmart - has Dickies winterweight coveralls on sale.

Generic - fix a flat - in can is 3.98 at Pep Boys - whereas the State environmental fee for tire disposal is $3 a tire - plus now $10 to mount and balance a well selected junkyard 'Maypop' tire at various prices.

Maybe I'll get a spare - to help the FOM number - but I do like $3.98 - plus tax of course.

Heh, heh, heh.

 

[MasterBlaster]

Perhaps a better FOM would be one that included the time value of money (your assets)

something like :

FOM = Assets(1+int rate)^(90-AGE) - BurnRate(90-AGE)

where:

int rate is the INFLATION ADJUSTED gains on your assets normalized by percent
(ie. 5 per cent annual gains ==> int_rate of .05)

^ is the exponent

so the new FOM is then the lifetime inflation adjusted Assets compounded over your lifetime less your lifetime inflation adjusted spending. If this new FOM is greater than zero then you are in good shape.

 

[unclemick]

88 year old Mom, SO, and step daughter in spare room.

Now - if I were younger and lived in France - wellllll??

Heh, heh, heh.

My buddy - the dog - is male.

 

[Mr._johngalt]

Perhaps a better FOM would be one that included the time value of money (your assets)

something like :

FOM = Assets(1+int rate)^(90-AGE)    - BurnRate(90-AGE)

where:

int rate is the INFLATION ADJUSTED gains on your assets normalized by percent
(ie. 5 per cent annual gains ==> int_rate of .05)

^ is the exponent

so the new FOM is then the lifetime inflation adjusted Assets compounded over your lifetime less your lifetime inflation adjusted spending. If this new FOM is greater than zero then you are in good shape.

You're thinking man.  Too complicated.  Maybe you didn't know.  We're just screwing around and killing time here  

JG

 

[shiny]

.998

Well, at least UncleMick isn't letting it affect his wealth like this guy

http://news.bbc.co.uk/2/hi/africa/4720457.stm

Shiney

 

[Mr._johngalt]

It's not being a tightwad that concerns me, its all his talk about "the women".  I've only got one around here and that's about all I can handle. 

REW

I feel your pain, man !

JG

 

[sgeeeee]

I would agree since it ignores pension and SS.

REW

It ignores pension and SS only if you do. I use annuity calculators to establish a present net worth for my pensions, then include that in my net worth calculation. I don't include SS though. You can do it several ways and see what it indicates.

But it still has questionable meaning. I think like a lot of FOMs, it might provide some crude information.

 

[sgeeeee]

Perhaps a better FOM would be one that included the time value of money (your assets)

something like :

FOM = Assets(1+int rate)^(90-AGE)    - BurnRate(90-AGE)

where:

int rate is the INFLATION ADJUSTED gains on your assets normalized by percent
(ie. 5 per cent annual gains ==> int_rate of .05)

^ is the exponent

so the new FOM is then the lifetime inflation adjusted Assets compounded over your lifetime less your lifetime inflation adjusted spending. If this new FOM is greater than zero then you are in good shape.

Yeah . . . consideration of the time value of your money would be better. I just tried to keep it simple. But the FOM as originally expressed underestimates the situation for young people relative to old pharts.

 

[sgeeeee]

. . .
You have listed the knee in the curve at 0.83. Where did that (magic) number come from ??

. . .

A lot of the early historical retirement studies used a 30 year retirement period and a starting nest egg value of $1M. The 4% rule came out of these studies which corresponds to $40,000/ year in expences. If you plug these numbers into the FOM, you get a value of 0.83.

 

[Nords]

Yeah . . . consideration of the time value of your money would be better.  I just tried to keep it simple.  But the FOM as originally expressed underestimates the situation for young people relative to old pharts.   

Now, see, there's your problem.

We need an engineer to start varying each term of the formula, graph the results on three axes, perhaps with a fourth time variable animated in a video, and then we can each pick our personal sweet spot from the plot.

I'd do it but I've just noticed that the surf forecast is "south shore two to four" and I only have two hours before departure.