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Author: Lokicious Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 35387  
Subject: Meditation on Year End Addition Date: 1/15/2006 11:21 AM
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Having received all my year-end statements, went through the "check it's all there," "where are we at" exercise last night during the endless chatter that now accompanies figure skating. (My wife loves to watch figure skating and, as a genuine fan of ballet, I like the better actual performances, but we really need a new Tanya Harding to liven up the incessant gossip.)

Anyway, we're about 1% ahead of where I expected a year ago, mostly thanks to the stock market doing better than projected (by me), and I think we're likely to be about 5-10% ahead of my original target (when I first started trying to figure out what we would need about 5 years ago) when we reach tentative retirement date (c. July 2014). If the traders are right about inflation (2.4%) and this applies to our personal inflation (not bloody likely), we're looking at the possibility of less than 2.5% initial withdrawal rate, not including Social Security or home/property. As a realist (not having been born with a silver spoon in my mouth and not being able to afford to be an optimist), I can recognize lots that can go wrong, but I'm comfortable enough with these projections to believe that adding risk in the hope of having a bigger portfolio is unnecessary and dangerous.

I've talked about this before, but I believe in the radically un-American notion of "enough" instead of "more." This is, of course, why we have managed to save money—we don't buy stuff just to buy it—but it is also an investment/savings philosophy that runs counter to everything the finance industry tries to make us believe. Asset allocation planning that starts from "enough" and asks what the most conservative allocation and savings strategy is that will let us achieve "enough" is very different from planning that assumes everyone wants to maximize returns based on some level of risk management or risk "tolerance." Put another, "enough" as opposed to "more" rationally leads to a much lower "tolerance" for risk, because higher "tolerance" is irrational.

"Enough" is, of course, defined by one's goals. For someone who wants simply to have "enough" to survive a long retirement, as an individual or couple, "enough" is different than for someone who wants to leave money to progeny (or charity).

Even if one chooses "enough" as a philosophy, achieving "enough" will depend on circumstances and choices. For example, those who prioritize early retirement will need either a much lower initial withdrawal rate or a much higher return (requriing more risk of losses to nominal principal) than those choosing to retire later. Those who prioritize spending during working years will also need higher returns to maintain that lifestyle, since they will be saving a much lower % of income. Sadly, for most people, "enough" is almost impossible to achieve simply because there isn't enough money left over from living a comfortable or less than comfortable life to save for retirement, though I have to say I know a lot of upper middle-class folks who are going to start retirement with maybe 10 times (or less) their pre-retirement after-paycheck expenses, because they think what they spend money on now qualifies as necessities for living a comfortable life.
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