wanaberetiree
Full time employment: Posting here.
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- Apr 20, 2010
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I thought you might be interested in this Stanford Graduate School of Business Research: Saving for Retirement? Beware the 4 Percent Rule
Whatever happened to good, old-fashioned decision reinforcement like hot-wiring their seats and turning up the voltage if they make "bad" choices.?Sharpe, Goldstein, and Hal Ersner-Hershfield, of the Kellogg School of Management, are currently testing an experiment that will use computer software to change the appearance of photos of test subjects as they make choices about retirement. Here's a rough description of how the experiment will work. As the subject moves a slider to the left, which indicates earning more now and saving less, a photo of the subject as a young person gets happier, while a computer-aged photo of the subject as an older person, gets less happy. The reverse is true as well; saving more for retirement makes the older photo happier and the younger photo less happy. The hypothesis to be tested, says Sharpe, is that a visual representation of outcomes will be more meaningful than a column of numbers.
....................Purchasing surpluses just to reach the 4%? Seriously?
"If a retiree adopts a 4 percent rule, he will waste money by purchasing surpluses, will overpay for his spending distribution, and may be saddled with an inferior spending plan," wrote Sharpe and colleagues Jason Scott"
Ha, yes, we are all lily-livered pansies when the market takes a dive, but that isn't what we are taking issue with here. You don't see any problem with the article incorrectly defining and misconstruing the 4% rule?
He didn't try - and he failed to correctly explain (define) even the basic rule itself, and further demonstrated his lack of accuracy by implying it required spending of 4% annually.How could a short article explain all the ins and out of the 4% rule(s)?
He didn't try - and he failed to correctly explain (define) even the basic rule itself, and further demonstrated his lack of accuracy by implying it required spending of 4% annually.
By screwing up the simple definition and reasonable application of the rule, he managed to sidetrack a considerable number of his audience and cause them to focus on his inaccuracy rather than his main point - even though that point may be obvious to many of us.
Unfortunately, I don't think that Sharpe has any great solutions for the problem.
Rustic, if that is what he meant, I agree completely. But this is not Sharpe writing, it is a newswire article quoting snippets, and if I read it correctly, doing some explicating of its own.Ha,
For me it goes to credibility. Unless Sharpe is misquoted, then his credibility is blown when he implies that the 4% rule is 'Each year you take 4%, adjusted for inflation, from your portfolio and spend it weather you need to or not. Buy 'surpluses' if you have to but spend the 4%'.'
I took this to mean not that a retiree would keep buying things that s/he didn't want or need, but that due to the nature of the process, early on and perhaps at other times, spending 4% is too much, and it may set up the portfolio for failure or close calls. So he wasn't spending surpluses in the sense to too much food on the plate, or too many cars, but that s/he was not able to accurately assess what a safe level of spending might be. Presumably those Firecalc runs that end in failure or come near failure are not because someone just kept spending because s/he thought it was required, but because s/he didn't realize that in her/his case, 4% was going to be too much to spend and have income until death."If a retiree adopts a 4 percent rule, he will waste money by purchasing surpluses, will overpay for his spending distribution, and may be saddled with an inferior spending plan," wrote Sharpe and colleagues Jason Scott
Wahoo,
How could you say such. Sharpe is a Nobel Laureate and a Professor Emeritus at a major university. He could not possibly be wrong:
Sorry, could not resist. My bad.