Is There An Unlimited Duration SWR?

[MichaelB]

This is not a financial question. Over a half century what affects the ability of a portfolio to continue to provide real positive return indefinitely is not the initial withdrawal rate. Instead, it is technology, global politics, war, mother nature, taxes, economic collapse. Regardless of the beginning withdrawal rate, opportunities will present themselves that will allow for major portfolio calamity or enrichment. How the portfolio responds to these situations is the critical factor.

A low initial withdrawal rate - less that 2% - seems important not so much because it is more sustainable but because it points to a buffer or reserve that can withstand substantial loss but still take advantage of unexpected opportunity.

 

[MichaelB]

One additional thought: the withdrawal rate assumes an initial expense that is kept at the same real level throughout the entire period. Over a half century there will be improvements in standard of living. Most of these are not reflected in the inflation rate and require real increases in spending to enjoy and real increases in wages to afford.

Other threads on this (not sure if here or at RADDR's site) have estimated this to be around 1% per year. This would have to be reflected in the assumptions as well, which just reinforces the need for a very low initial withdrawal rate.

 

[BigNick]

One additional thought: the withdrawal rate assumes an initial expense that is kept at the same real level throughout the entire period. Over a half century there will be improvements in standard of living. Most of these are not reflected in the inflation rate and require real increases in spending to enjoy and real increases in wages to afford.

I'm with Bernicke here. Although I hope my spending doesn't drop when he says (around age 56, apparently, which is what FireCalc includes by default), my observations of real retired people show that, medical expenses apart, they simply don't follow the improvements in the standard of living. My mother is 86 and has no clue of what she would use the Internet for. I have no need for any form of personal music player.

It's hard enough keeping up with inflation; let's leave the ever-increasing spiral of consumption to our kids (or, even better, other peoples' kids). Those of us who have LBYM for 30 or more years aren't about to become gadget nuts.

 

[Gone4Good]

I'm with Bernicke here. Although I hope my spending doesn't drop when he says (around age 56, apparently, which is what FireCalc includes by default), my observations of real retired people show that, medical expenses apart, they simply don't follow the improvements in the standard of living. My mother is 86 and has no clue of what she would use the Internet for. I have no need for any form of personal music player.

It's hard enough keeping up with inflation; let's leave the ever-increasing spiral of consumption to our kids (or, even better, other peoples' kids). Those of us who have LBYM for 30 or more years aren't about to become gadget nuts.

There has always been a chicken and the egg aspect to declining spending in old age. Although you bring up a good point about limited interest in new technology, I've always wondered whether many older people spend less because they choose to, or because they have no other choice. One thing I know for certain, though: I'm not going to plan on the former and be forced into the later.

 

[Gone4Good]

Other threads on this (not sure if here or at RADDR's site) have estimated this to be around 1% per year. This would have to be reflected in the assumptions as well, which just reinforces the need for a very low initial withdrawal rate.

One thought experiment is to envision someone who retired at 50 in 1980. Today he'd be 80. What new expenditures would today's 80 year old have that he didn't have 30 years earlier. The only thing that really comes to mind is more telecommunication connections . . . cell phones and internet. I can't think of much else.

 

[REWahoo]

Although you bring up a good point about limited interest in new technology, I've always wondered whether many older people spend less because they choose to, or because they have no other choice.

Here's a first person report directly from the front lines:

At age 64 I definitely find myself losing interest in the latest technology/toys. It appears my "Wow, that's neat!" gene is beginning to atrophy. I have absolutely no interest in 3D TV for example, nor do I want to Twitter with all the twits out there or get in anyone's face on Facebook.

Oh yeah, one more thing...
YouTube - Get off my lawn

 

[Gone4Good]

Here's a first person report directly from the front lines:

Have you noticed a decline in spending consistent with the theory?

 

[REWahoo]

Have you noticed a decline in spending consistent with the theory?

No, not yet.

However I do believe the theory is accurate, at least for my genetic makeup. I've witnessed an age-related spending decline first-hand via my parents and three older siblings, and I can definitely see it on my horizon.

Of course this can be derailed by a serious chronic illness and I'm not proposing to anyone, including me, that it's OK to spend considerably more in your early years of retirement because you won't need it later on.

 

[W2R]

Here's a first person report directly from the front lines:

At age 64 I definitely find myself losing interest in the latest technology/toys. It appears my "Wow, that's neat!" gene is beginning to atrophy. I have absolutely no interest in 3D TV for example, nor do I want to Twitter with all the twits out there or get in anyone's face on Facebook.

I wonder if this is why I haven't bought an iPhone. Now that it is available on Verizon (my carrier), that issue is coming up again. At last I can afford one, and this is the toy that the world SAYS I am supposed to want. I am still on the fence, though, unsure of what to do.

The world SAYS I should want to access my email all the time (I get about 3/week that aren't spam, and none of them are of earth shattering importance). The world SAYS I will find so many other uses for it, though I am skeptical.

Instead of believing what the world SAYS I should want, I grumble to myself about how quicky it needs recharging, about how hard it must be to read anything on that itty-bitty teeny-tiny screen, and about how (with the data plan) I would be paying twice as much monthly forever. Which I can afford, but paying that much seems ridiculous.

YouTube - Get off my lawn

On the other hand, about those 3-D TV's - - - I don't think the 3D aspect is interesting, but as my eyes get older I am thinking that my next TV could be 60" instead of 42". Ah!!!! Now there's something I would like.

 

[Texas Proud]

Can you say S. P. I. A.?

That would not work... it is based on a group of people... and AFAIK, everybody dies at some point... so it is not forever...

 

[harley]

One additional thought: the withdrawal rate assumes an initial expense that is kept at the same real level throughout the entire period. Over a half century there will be improvements in standard of living. Most of these are not reflected in the inflation rate and require real increases in spending to enjoy and real increases in wages to afford.

Other threads on this (not sure if here or at RADDR's site) have estimated this to be around 1% per year. This would have to be reflected in the assumptions as well, which just reinforces the need for a very low initial withdrawal rate.

I'm not sure I agree with this. In my experience, technology improvements don't cause a significant increase in spending. Especially if you are not an early adopter. I'm with ReW on this. I'm a techie, but I'm definitely losing interest in it. If 3D becomes worthwhile, I'll buy a 3D TV when the time comes to replace my current one. By that point they'll be the same price my current LCD is, so no increase in spending. Same with the cell phone thing. By the time the iPhone or whatever becomes useful to me, the price will have dropped to just replacement costs. Sort of like cell phones in general. Yes, you pay for them and have to pay for usage, but don't you remember those big long distance bill of the past century? We just replaced one expense with another (better) one.

Now if they come up with a teleporter, I'll probably go with that over airline travel, even if it's a little more expensive. But other than that, I suspect the big tech changes will just fit into normal expenditures by the time I get to them.

On the other hand, about those 3-D TV's - - - I don't think the 3D aspect is interesting, but as my eyes get older I am thinking that my next TV could be 60" instead of 42". Ah!!!! Now there's something I would like.

No need for that, by then you'll be using something like these - http://www.geekalerts.com/cinemizer-ipod-video-glasses/

 

[donheff]

One thought experiment is to envision someone who retired at 50 in 1980. Today he'd be 80. What new expenditures would today's 80 year old have that he didn't have 30 years earlier. The only thing that really comes to mind is more telecommunication connections . . . cell phones and internet. I can't think of much else.

I have three canaries in the coal mine - a brother and two sisters respectively 15, 17 and 18 years older than me. They all have pretty good financial resources and are active (my sisters camp, sail, etc). Yet all of them are traveling less and eating out less than they did 15 to 20 years ago. And they don't follow technology and automotive fads. They are definitely not spending more on a real basis. My parents were the same. They traveled extensively in their 60s and early 70s and then tapered off dropping to very little in their 80s. I plan with the assumption that I will not follow their path (i.e. that I will continue to travel, eat out, et al until my 90s) but I understand the reality will likely be more like theirs.

 

[beowulf]

Instead of believing what the world SAYS I should want, I grumble to myself about how quicky it needs recharging, about how hard it must be to read anything on that itty-bitty teeny-tiny screen, and about how (with the data plan) I would be paying twice as much monthly forever.

You need an IPad, which is essentially an ITouch or non-talking IPhone for seniors . DW loves it and it has replaced her desktop (now defunct anyway) and laptop. Only problem for me is that I HATE typing on a a screen. You can buy external keyboards, but no one wnats to carry those around.

 

[harley]

You need an IPad, which is essentially an ITouch or non-talking IPhone for seniors . DW loves it and it has replaced her desktop (now defunct anyway) and laptop. Only problem for me is that I HATE typing on a a screen. You can buy external keyboards, but no one wnats to carry those around.

Don't you people ever watch TV? In a few years you won't need a pad or a keyboard. You'll have glasses (or contacts, or retinal implants), and use gloves with Wii technology to detect the finger and hand movements on your virtual keyboard. Only until voice commands become reliable, though.

 

[donheff]

You need an IPad, which is essentially an ITouch or non-talking IPhone for seniors . DW loves it and it has replaced her desktop (now defunct anyway) and laptop. Only problem for me is that I HATE typing on a a screen. You can buy external keyboards, but no one wnats to carry those around.

I have a Motorola Droid Global phone and never use the manual keyboard. I prefer the screen. I would get an iPad to replace the travel netbook but am waiting to see what's up with the new Motorola Xoom Android pad. I don't want or need the data plan but I want the cameras (coming to the next iPad, I know).

 

[Nords]

At age 64 I definitely find myself losing interest in the latest technology/toys. It appears my "Wow, that's neat!" gene is beginning to atrophy. I have absolutely no interest in 3D TV for example, nor do I want to Twitter with all the twits out there or get in anyone's face on Facebook.

Yeah, but what about those cool new RVs?

I'm not sure I ever had an interest in the latest tech, but I sure appreciate you guys working out all the bugs for me and then dropping the prices by a couple orders of magnitude.

For example I've always known that it's a good idea to work out, but for one reason or another it hasn't happened as regularly as it should. However for the last six months, listening to an iPod while working out has made a huge difference... so has not having to listen to live radio anymore. I think it's novelty of not having to listen to the entire CD to get the one or two good songs, or not having to listen to a whole slug of commercials in the middle of a set of pushups. This epiphany occurred... what... a decade after the iPod came out?

In a few more years I anticipate being similarly entranced by a Kindle XVII, especially if they replicate my local library's latest bestseller "hot pick lists" for free and without having to actually haul myself out of the recliner to pick them up from the library.

Way out into the next decade I can see similar lifestyle improvements from the tech behind Kinect.

I'm expecting you "canary in the coal mine" Boomers ahead of me to push similar enhancements to entertainment & mobility technology before I become bored with being immobilized...

 

[Gone4Good]

Now if they come up with a teleporter, I'll probably go with that over airline travel, even if it's a little more expensive. But other than that, I suspect the big tech changes will just fit into normal expenditures by the time I get to them.

I think that is the key . . . technological innovation that really makes an impact on day-to-day life. There hasn't been that much lately, and who knows if there will be in the future. Things are pretty comfortable from the perspective of the average American. Most of the "got to have it" innovations of the recent past fall in the category of "can live without it." Now compare everything we've developed in the past 50 years with indoor plumbing, refrigeration, central heating, electric lighting, the automobile and the air plane. Those were innovations worth paying dearly for. A phone that plays games and can surf the web . . . Eh!

The one exception is medical technology. Everything from hip replacements to statins has had a huge impact on people's lives. In these kinds of conversations we tend to say "except for medical expenditures . . . " But maybe medical innovations are the things that are really driving our standard of living increases these days.

 

[yakers]

I wonder if this is why I haven't bought an iPhone. Now that it is available on Verizon (my carrier), that issue is coming up again. At last I can afford one, and this is the toy that the world SAYS I am supposed to want. I am still on the fence, though, unsure of what to do.

Just get it, you'll love it. DW had antique version 1 and it really comes in handy while traveling. Now she has version 4, big improvement, Skypes with grandchildren from anywhere, got the full GPS package and no longer need the Garmin, and much, much more.

Heck, there's even a ER Forum App, doesn't get any better than that.

 

[donheff]

Originally Posted by W2R
I wonder if this is why I haven't bought an iPhone. Now that it is available on Verizon (my carrier), that issue is coming up again. At last I can afford one, and this is the toy that the world SAYS I am supposed to want. I am still on the fence, though, unsure of what to do.

Just get it, you'll love it. DW had antique version 1 and it really comes in handy while traveling. Now she has version 4, big improvement, Skypes with grandchildren from anywhere, got the full GPS package and no longer need the Garmin, and much, much more.

Heck, there's even a ER Forum App, doesn't get any better than that.

DW is getting an iPhone now that it is out on Verizon. I got a Motorola Droid 2 Global. It has two features I like: 1) I can turn on the tethering package for $.75/day and it becomes a WIFI hotspot (same on the iPhone I think); and 2) It has a dual SIM and will work in Europe so I can check email, use Google Maps, etc. I don't know that the Verizon iPhone is global -- it may be CDMA only??

 

[Marc1962]

The one exception is medical technology. Everything from hip replacements to statins has had a huge impact on people's lives. In these kinds of conversations we tend to say "except for medical expenditures . . . " But maybe medical innovations are the things that are really driving our standard of living increases these days.

Great insight!

 

[packrat44]

So, can you 'tough out' losing half the portfolio in the first 5 years when you want it to last 40-50 years? Not so easy.-ERD50

Many of us who were close to 100% equities did have our portfolios drop to 50% (or close to it) and yes it was tough to watch. This major drop also occurred about 2 1/2 years after retiring. All selling of equities ceased. Portfolio is now back up to about 95% of the peak. Only withdrawals were from the cash side and only enough to pay taxes. If the market continues to be favorable, I will probably take some capital gains while the tax rates are favorable and replenish the cash account.

Being flexible with your withdrawal requirement helps. Also, it doesn't hurt to have both a military and federal pension for the basic needs.

 

[beowulf]

Putting a camera on an IPad seems kind of silly. Why would anyone haul around something the size of a book to take pictures? That's what phones are for .

Voice recognition doesn't work with a strong Brooklyn akcent. Fergeddaboudit.

 

[donheff]

Putting a camera on an IPad seems kind of silly. Why would anyone haul around something the size od a book to take pictures? That's what phones are for .

One word - Skype. The Motorola has two -- one faces the user and one faces the other way (for pictures). I agree that the camera wouldn't be much use. But a pad seems like the idea platform for video phone calls.

 

[packrat44]

This is not a financial question. Over a half century what affects the ability of a portfolio to continue to provide real positive return indefinitely is not the initial withdrawal rate. Instead, it is technology, global politics, war, mother nature, taxes, economic collapse. Regardless of the beginning withdrawal rate, opportunities will present themselves that will allow for major portfolio calamity or enrichment. How the portfolio responds to these situations is the critical factor.

A low initial withdrawal rate - less that 2% - seems important not so much because it is more sustainable but because it points to a buffer or reserve that can withstand substantial loss but still take advantage of unexpected opportunity.

In total agreement with your entire post.

While we expect the pensions and future SS benefits to cover all "needs" and "wants", the portfolio will be used as a back-up to hopefully buffer the unforeseeable.

 

[packrat44]

Here's a first person report directly from the front lines:

At age 64 I definitely find myself losing interest in the latest technology/toys. It appears my "Wow, that's neat!" gene is beginning to atrophy. I have absolutely no interest in 3D TV for example, nor do I want to Twitter with all the twits out there or get in anyone's face on Facebook.

Oh yeah, one more thing...
YouTube - Get off my lawn

Recently one of my brothers was upgrading his computer so he took his old one over to my parents house (father 96; mom 93). Dad - "What is that thing?" Brother - "It's a computer so you and mom can email the family members and go on the internet." Dad - "I have gone all through life without a computer and I don't want one now. Get that d@mn thing out of my house and don't every bring it back!" Technology and old dogs often don't get along well together.