PBS Frontline - Can You Afford to Retire?

[gindie]

Tonight, Tues. 5/16* Check your local listings

http://www.pbs.org/wgbh/pages/frontline/retirement/

[dory36]

Be afraid... be very afraid.

From their press release:
"To maintain their standard of living, experts say, Americans with pensions or 401(k) type plans need to accumulate at least six to ten times their annual pay before they reach retirement."

If these experts believe retirees will live on 25-35% of their preretirement annual income, this is about right, but I suspect that's not their message.

[kaneohe]

I 'm guessing that they are assuming reasonable SS in addition.

[HFWR]

Maybe if you're 65yo, have a pension w/health insurance, SS and Medicare...

[perinova]

if at 62 they have nothing much saved (like some data shows) they will live with that much. and only after 10 years of saving about 50% of their income.
I think I'll watch that show

Also from the press release:

Quote:

"The nightmare I have," says pension expert Brooks Hamilton, "is the vision of people ... outliving their retirement income, and being down to Social Security, and inflation eats them up." Hamilton feels that the impact of this crisis may go beyond individuals' standard of living. "What holds up our economy ... is consumer spending. When retirees are 20 percent of the economy and run out of money, then `poof' there goes the economy."

Of course the one factor that will save this is immigration. Bush is now sending the national guard down to 'protect' our borders. You know how well his timing works! :

[youbet]

Quote:

Originally Posted by HFWR Maybe if you're 65yo, have a pension w/health insurance, SS and Medicare...

Agreed HFWR. On this board we, of course, think in terms of ER supported by personal resources. Government policy, for the wave of retirees coming over the next couple of decades, is to retire at 66, collect unreduced SS and use Medicare for health insurance.

Not exactly the way I'm going to do it but, apparently the way many will be doing it.

[youbet]

Quote:

Originally Posted by Cut-Throat Of course the one factor that will save this is immigration.

Help me with the math here C-T......* *Hamilton refers to a situation where retirees are 20% of the US population.* In order for this to be a smaller percentage, say 10%, does that mean we would have to double the US population via immigration for the math to work out?* If so, it seems like a lot of additional folks to arrive, establish residency with homes and infrastructure, put to work, etc., in such short order.

Perhaps additional fixes need to be implemented beyond open immigration?

Quote:

Originally Posted by youbet Help me with the math here C-T...... Hamilton refers to a situation where retirees are 20% of the US population. In order for this to be a smaller percentage, say 10%, does that mean we would have to double the US population via immigration for the math to work out? If so, it seems like a lot of additional folks to arrive, establish residency with homes and infrastructure, put to work, etc., in such short order. Perhaps additional fixes need to be implemented beyond open immigration?

Let me help you here - Yes, our economy is all about growth, without it markets stagnate as Japan, Germany and Italy has. Eventually our 'growth' will come to an end. - When exactly when would you like to see us stagnate? - I'm hoping after I'm dead.

So either you convince all of the young mothers in this country to start popping babies in the next year or two or you open up immigration.

What are your additional fixes?

[youbet]

Thanks C-T!* As always, your remarks can be counted on to be well thought out, free of emotional content and helpful to us all!

[Cool Dood]

Productivity gains are more important than population gains for growth, and will be even more so in the future. One smart guy who invents a machine that makes car parts instead of a hundred thousand humans making those car parts is doing more for the economy than thousands and thousands of immigrant laborers.

Heck, most unskilled immigrants probably cost the economy a bit more than they add to it, or barely break even.

Quote:

Originally Posted by Cool Dood Productivity gains are more important than population gains for growth, and will be even more so in the future. One smart guy who invents a machine that makes car parts instead of a hundred thousand humans making those car parts is doing more for the economy than thousands and thousands of immigrant laborers. Heck, most unskilled immigrants probably cost the economy a bit more than they add to it, or barely break even.

But that one smart guy is not going to pay for your Social Security or buy all the car parts that are made!

Also Japan has had the best cars in the World, and that has not helped them save their economy

[obryanjf]

Help me with the math;

using 10 times the salary (10x) and 4% withdrawls (using ER SWR rules) yields 40% of pre retirement salary which is what many here claim to be their ER reality. *Add in some SS and one gets to 50% or maybe 60%. *Not catastrophic to ER types, maybe *a pinch to non ER types. *Some emotional adjustment likely to be needed.
Using a non fixed withdrawl method may give up to 5% withdrawls (based on my playing around with the numbers, with some 'minimal' risk on purchasing power). *

Add in the fact that the 4% SWR number is good for what, a 30 or 40 year simulation and the number could reasonablely be increased to maybe 5% for a much shorter life after ER (no late retirement). *

Now the 6 times salary may be a real stretch, but the 10 times salary with SS, faith in govt and a decrease in retirement years might work.

job

[jdw_fire]

Quote:

Originally Posted by Daddy O Help me with the math; using 10 times the salary (10x) and 4% withdrawls (using ER SWR rules) yields 40% of pre retirement salary which is what many here claim to be their ER reality. *Add in some SS and one gets to 50% or maybe 60%. *Not catastrophic to ER types, maybe *a pinch to non ER types. *Some emotional adjustment likely to be needed. Using a non fixed withdrawl method may give up to 5% withdrawls (based on my playing around with the numbers, with some 'minimal' risk on purchasing power). *

If you use an inflation protected immediate annuity you can push this to 6% W/D for a 66yo couple as long as both are alive (you will lose half when the first dies) and 6.37% W/D for a single 66yo male with "no" risk on purchasing power.

Quote:

Originally Posted by Daddy O Add in the fact that the 4% SWR number is good for what, a 30 or 40 year simulation and the number could reasonablely be increased to maybe 5% for a much shorter life after ER (no late retirement).* *

You better plan on living to 100yo so no help here

Quote:

Originally Posted by Daddy O Now the 6 times salary may be a real stretch, but the 10 times salary with SS, faith in govt ... might work.*

Faith in the insurance companies that sold you the annuities might even make 6 times salary work

[perinova]

Quote:

Originally Posted by Daddy O Using a non fixed withdrawl method may give up to 5% withdrawls (based on my playing around with the numbers, with some 'minimal' risk on purchasing power).

Daddy O
Can you explain the method? Are you thinking of adjusting withdrawal rate of the current portfolio value?

[obryanjf]

I'll try to be concise and clear.* I modeled 5 withdrawal methods; variable withdrawls (% of portfolio value), fixed inflation adjusted (like FIRECALC), Hybrid (1/2 fixed + 1/2 variable), ESRBob and Guyton.*

During bad withdrawl years, I artifically keep the inflation adjusted withdrawls at 75% of the initial withdrawl; without this, the inflation adjusted withdrawls can get pretty ugly in inflation adjusted terms. For a 40 year simulation, the non fixed models yield withdrawls of around 5% +/-.* For 30/50 year simulations everything shifts a little left/right. The failure graphs show each model over a range of withdrawl percentages and for a time frame, 30, 40 or 50 years.

I look at the failure rates for various timeframes, also I tend to look at the inflation adjusted withdrawls as a percentage of the initial withdrawls (WDi/WD0 %) and the withdrawl % (WD%) to see how they behave over time.*

The variable, Guyton and ESRBob methods are best to provide higher withdrawls but are highly volatile, and the one I like is the Hybrid due to much lower volatility and stable withdrawls and withdrawl %.

See the graphs at with links below (see if it works)

For the MinMax graphs; Let me explain, the WDi/WD0 % (left axis) is graphed for each of the 75 runs.* This represents the % of purchasing power of the withdrawls over the years.* It starts at 100% and gyrates all over the place as inflation and the protfolio change.* *Note the minimum if around 75%.* The average over all 75 runs is the bold red line.* Now the var graph is noticeably more chaotic than the hybrid.* Notice the fixed stays at 4% WD% until some failures at later years.* Review the other graphs and draw your conclusions.

The next line of interest is the bold red line with yellow dots (right axis).* It is the Maximun WD% over all runs.* *When it starts to spike you are generally starting down the path of running out of money for a particular year.* Also my premise is when retired, I would start to get nervous if my WD % is running hot, like 15 or 20%.* Again draw your conclusions.

BTW, the growth and mechanics of withdrawing are as described by Guyton in his paper.* Do not expect my results to perfectly match that of FIRECALC or ESRBob.* dory36 or ESRBob may or may not agree with how I implemented their strategy.

job*

this was a suggested method of doing large attachment.* We'll see if it works.

[samclem]

Daddy O,

Wow, that's some work. I'm still digesting it, it's too bad the chart/axis labels didn't txfr with all of them.

The attachments opened fine for me (Windows XP, Mozilla)

Basic question: What data did you use for the modelling of inflation/asset porformance, etc (actual historical, monte carlo, rollling years, etc).

Thanks again. I think when we are done chewing on this is will reinforce that there's no single best withdrawal strategy (e.g. folks who can absorb more volatility can get higher average returns by choosing the appropriate withdrawal method).

[justin]

I tried playing with a hybrid variable+fixed withdrawal strategy in FIREcalc. Suprisingly good results!

Very safe results using 3% fixed plus 2% variable and 2% fixed plus 4% variable.

5% or 6% SWR with some volatility from year to year seems to fit me better than 4% fixed each year.

I figure I'll have at least 3-4 decades of retirement and maybe 6 or more.

[youbet]

Justin,

So how do you take the variable withdrawal rates to your budget? What happens in the low withdrawal years?

[obryanjf]

Quote:

Originally Posted by samclem Basic question: What data did you use for the modelling of inflation/asset porformance, etc (actual historical, monte carlo, rollling years, etc). Thanks again. I think when we are done chewing on this is will reinforce that there's no single best withdrawal strategy (e.g. folks who can absorb more volatility can get higher average returns by choosing the appropriate withdrawal method).

I use Gummys data with 10 asset classes plus inflation starting in 1928. I run with a baseline 1MM portfolio spread 10% Tbills, 20% 5 yr treasuries, 40% S&P, 10% small value, 10% large value and 10% small growth. No real logic there, just what I picked weeks ago. Based on other posts, you likely can add a 10, 20 or 30 basis points to the WD% by diversifing better.

I use 75 rolling periods, not Monte Carlo, when the data runs out it rolls over to the beg of the data(1928) to make a full simulation. All the models were subject to the same back end mechanics.

If I can reasonably make my spreadsheet/macros easier to understand and use, I'll post them so others that are inclined can do their own analysis.

job