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I believe these figures are for a newborn.


In one column, the SS website does present "life-span expectations" and shows them to be a decreasing function of age. But I didn't borrow that number from them. Instead, I divided each year's survivors by the original cohort of 100,000 to create a betting table.

Therefore, the plan, in order to keep from running out of money, is to assume an infinite lifespan and arrange one's portfolio so you can live off the interest and dividends without touching principal, or better, add enough principal each year so you have corrected for inflation.

In theory, that plan could work *provided* investment returns always stayed far enough ahead of taxes and inflation to allow for a draw. But in practice, it's very difficult to pull the needed money out of markets, year after year. So this is the compromise I've settled for. As long as my investable net-worth (aka, working capital, minus real estate equity) can be shown on paper to increase each year beyond my likely maximum life-expectancy, then my retirement plan is considered to have a sufficient margin of safety. In other words, somewhere around age 134, I do run out of money, and there's not much I can do about that other than lie to myself that inflation isn't really running at about 6% per year and/or that I will somehow be able to pull better money out of markets than my track record says I can.

Run the numbers. If an investor's income-tax rate is 40% (Fed and State) and if inflation is running at 6%, then it takes a 10% investment return just to break even. There's been years when I pulled three times that out of markets, and my long-term, 27-year average is around 16%. But there's no way I should ever count on being able to do much better than a steady 8%-9% per year going forward from where we are now in the macro-economic cycle, unless I want to go to work full-time as a trader, which I don't. Meeting my ordinary living expenses should never be a problem with my current investing gig, no matter how long I live. But, eventually, taxes and inflation would overcome assets and my ability to stay ahead of expenses. Hopefully, I'll never live long enough to see the day. But that day cannot be ruled out. "All it takes is one nuclear bomb to ruin your whole day (and investment plans)."

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When Life Gives You Lemons
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