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Ideally, in retirement, one would be able to live off income (including social security) without ever having to touch the principle, even after inflation. Research has shown that annuitization can be a big help with that (nice summary in TIAA-Cref newsletter a few weeks ago).

But, the reality, is most of us will have to draw down the principle, or at least need to wait until as late as possible to be reduced to an annuity.

The key, here, is to start with a really accurate budget, including income taxes (which should be fairly small), property taxes, insurance, capital expenditures (car, home repair, appliances), health care, and entertainment/travel (retirees should not have to live in misery). If social security plus potential income, especially in an inflation adjusted annuity, leaves a considerable margin for error (we have to assume inflation adjustments aren't enough), the a move toward income-only makes sense. Otherwise, it is necessary to look at having to draw down all assets, and that means working from relatively conventional assumptions not pet economic theories.

Marx predicted the collapse of capitalism a long time ago. I have never seen a convincing refutation of his arguments, but capitalism still survives (the current perma-bear commentators are just plagarizing Kapital).
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