Shouldn't you say something about dryer sheets and kayaks?wab said:. . . Did I miss anything?
Shouldn't you say something about dryer sheets and kayaks?wab said:. . . Did I miss anything?
Cute Fuzzy Bunny said:Interesting that we spend a lot of time measuring and running simulations only to propose that none of it is measurable or predictable, so its a waste of time
If you added
4) We should make sure our investment philosophy reflects realistic expectations of returns and inflation as we experience them
I think this thread hit on some interesting points. So, help me connect the dots.
1) Inflation happens, but we have no control over price increases (other than reacting by substitution, etc).
2) Our spending is dominated by lifestyle choices.
3) Within that lifestyle, our spending is dominated by discretionary choices.
In my experience, none of these factors (lifestyle changes, discretionary spending, inflation) are very predictable. And, of course, investment returns aren't very predictable either.
So, basically all ER's are on a Big Adventure. Do what you can to prepare, and when all else fails, ADAPT.
TromboneAl said:Yes, that's what I intended when I started the thread.
Cute Fuzzy Bunny said:I suppose if we spent a quarter of the time we're spending crapping on the idea actually trying to find out what goodness is in it, we might have a solution.
Sarcasm?
Cute Fuzzy Bunny said:I guess I'm a weirdo.
Cute Fuzzy Bunny said:In short, I can pull up my budget and see what chunk is non-discretionary and what parts of it are rising. Electric, food, tv, internet, etc. I also periodically update my large/capital/periodic purchase plans with newer, usually higher figures to match revised assumptions.
ESRBob said:All I know is that whenever I go the grocery store these days I'm shocked at the cash register. Inflation is real over a number of years -- whether you are a percent above or below the national averages -- and you've got to take it into consideration in your financial planning.
Cute Fuzzy Bunny said:My spending goes up, I either need to make more (higher return, higher risk portfolio), reduce my spending (basket substitute or elimination of non essentials) or make the conscious decision to consume more principal than I had previously considered.
Cute Fuzzy Bunny said:Hmm...so since you've decided to forgo knowledge of what your actual rate of inflation is having on your spending, how would you know how much to reduce your withdrawal rate? Or that you even needed to do so?
How effective are the inflation tracking investments as a hedge when most of them pay 1-2% over CPI-U, if the CPI for a retiree is 1% higher than the CPI-U...prospectively neutralizing the gain or at a minimum cutting it in half?
Cute Fuzzy Bunny said:C-T...perhaps if you can explain why you felt the need to analyze your spending to see that your personal rate of inflation was similar to the CPI-U? Did you feel that the exercise was wasted time? Would you have done anything differently with your spending or investing if you found that your PRI was lower or higher than you thought? Do you believe that because it was similar for you that its therefore similar for everyone? Do you think nobody should make an effort to do what you did? If so, why?
You mean artists engage in unprotected pocket insertions of their writing utensils? How uncivilized.ESRBob said:. . . Sgeee-- maybe engineers and artists are a lot closer than I thought! I see how both fields need a certain percent inspiration and a much bigger percent of disciplined cranking through things. That explains a lot -- except for the pocket protectors
wab said:So, I guess this means that only a 1% SWR is truly safe, and nobody should retire until they have 100X their expenses. Or something.
Reality Retirement Planning: A New Paradigm for an Old Science
by Ty Bernicke, CFP®
Executive Summary
- Traditional retirement planning assumes that a household's expenditures will increase a certain amount each year throughout retirement. Yet data from the U.S. Bureau of Labor's Consumer Expenditure Survey show that household expenditures actually decline as retirees age. Consequently, under traditional retirement planning, consumers tend to oversave for retirement, underspend in their early years of retirement, or postpone retirement.
- "Reality" retirement planning assumes that a household's real spending will decrease incrementally throughout retirement. The result is that clients can make more realistic retirement saving assumptions and will be able to retire sooner.
- The paper analyzes the Consumer Expenditure Survey data to determine whether people are spending less voluntarily as they age or out of financial necessity or generational differences. The conclusion is that reduced spending is voluntary.
- Using Monte Carlo simulation, the paper runs hypothetical retirement income projections comparing traditional retirement planning and reality retirement planning. Under the traditional approach, the couple's nest egg would appear to be depleted by age 80. Under the reality approach, the nest egg at age 80 would be over $2 million.
- Such dramatic differences not only have implications for retirement planning, but for related issues such as estate, tax, and investment planning.
. . .