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Author: TMFPixy Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75379  
Subject: Re: What's the big deal? Date: 12/24/1999 10:20 AM
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Greetings, DRCURRAN, and welcome. You wrote:

<<I just finished reading all about how much to take out for retirement and conclude it is only academic fodder. What is the big deal? The only thing you have to do is put variables into a future value of an annuity that you can do in Excel. The only secret is to know how long you will live. Otherwise, using average figures will give you an idea of what you can take out and die broke. >>

Academic fodder it is, as are most studies, but fodder that should stimulate one's thinking. The "big deal" is that averages do not work well for those who are taking from rather than contributing to their portfolios, and those who rely on such averages can be in for some very unpleasant surprises when they do. All that counts is what actually happens from year to year. When you retire and start taking those withdrawals, the state of the market and the amount you take have a large impact on the survivability of those portfolios. After all, we all want them to last as long as we do. How long we will last, of course, is the interesting question. You can make a reasonable guess based on statistics and family history without a doubt. Add five years or so to safeside that guess, and you'll probably be in the ballpark. Using that data, then perhaps you can make a reasonable guess as what to take each year so you die broke. But resign yourself to two things when you do: Die in exactly the year you say, and be prepared for some unpleasant bumps in the road that mean you may have to take less money than you wish to in later years. Or worse, have no money to take at all.

<<One other point that bugs me in all these studies is that it assumes that as one ages, money needs are constant. I really do not think that I will spend as much money (yes, include inflation and medicines) when I am in my 80's as I need now in my 60's. Most retirees with any sustainable investment portfolio will probably have a paid up mortgage. What prices are going to rise that would wipe out a portfolio and send me into poverty? Think about what you spend money on. How much of your budget is food? As you age you will eat less. How much for clothing? As you retire you think less about clothes. See what I mean?>>

I don't disagree with the concept. Indeed, if there were some rational and easy way to model a general withdrawals to reflect heavy spending in early retirement, light in middle retirement, and increased in later retirement, such models would be more meaningful than they are now. Unfortunately, there's just no easy way to do that across the board, either individually or in general.

<<Studies that include any data older than 10 years are analagous to trying to drive one's car by only looking at the rear view mirror! The ability to forecast alternatives and adjust to changing scenarios is unlike anything that existed over 10 years ago for the average person. >>

Again, I don't disagree. However, history is still the best guide to the future we have. Those who ignore it do so at their own peril. It can and will repeat itself. I concur that giving a heavier recognition to recent history is better than treating all years with an equal value. But to ignore totally anything older than ten year is sheer folly IMHO. We can repeat a depression, and we can repeat hyper-inflation. Therefore, I try to err on the side of conservativism, and choose not to ignore the decades past. Obviously, you disagree. Your choice, your consequences.

Regards..Pixy
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