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Subject:  Re: Others with un-retirement? Your ratio? Date:  11/11/2007  3:43 PM
Author:  Imaginistics Number:  1176 of 1906


Just to clarify, what you've been referring to as "my assumptions" are not mine, but those of the USA Today article. Not my main source of financial advice but I did come across that article..Actually not USA Today's assumptions but apparently those of a T. Rowe Price study. The author isn't 100% clear when he (John Waggoner) is quoting from T Rose Price and when he is adding his own comments. So please give them the credit/blame for assumption, not me, ok? ;-)

He spoke with Christine Fahlund, "Senior financial planner at T. Rowe Price" For the third factoid, about running out of money if you invested it all in stocks in 1972, going broke due to "high inflation and lousy returns" by 1985, they don't spell it out but I assume the answer to "what are you assuming you earned?" that they would give would be something like the SP500 or wilshire 5000 or something alone those lines.

For factoid 1 T. Rowe Price's assumptions are probably that the money is in some analogous aggregate for bonds/bond funds, given what those were earning in 1977. It's kind of a silly statistic in the sense that even stocks which, over the long term, have higher returns, aren't going to grow enough to safely take out 6% every single year, so at least on average, taking out 6% over the long term out of bonds isn't safe, so T. Rowe Price would be proving the obvious there, I suppose..

For the second one,

Investing same i stocks entirely would leave one with $12 million by 2007 (adjusting for inflation it's less than that but still a very nice sum)

again I don't know since the article didn't spell it out but imagine that T Rowe Price was using average aggregate (SP500, etc) annual returns starting that year, 1977... For withdrawals the article just states, "T. Rowe Price tested a variety of portfolio mixes to see how they fared when taking withdrawals. The mix with the greatest success was about 50% stocks and 50% bonds"

As far as "pat" percentages, my feelings are like yours..don't believe in them. However, I do find the arguments made not just in this story but in other sources, quite convincing, that since there are fewer pensions and people are living longer, that some of the old percentages like 70% or even 80% for bonds might be too high, that is equities being too small a percent, if one went by these (so called) old rules.

Of course there are more options than bonds and as you said, but also REITs and even immediate annuities can round out the mix.

A little google shows T Rowe Price is making the rounds on this one..found an online version of the USA today article,

and in NY Times, Fahlund is quoted among others. Merrill Lynch, Fidelity, Charles Schwab, others, are quoted and most are gearing up to increase their education efforts, "Other companies, like Vanguard, plan to mix advice, education and financial products..said Robert Nestor,..'Everyone's looking at the demographics and saying trouble is coming if we don't prepare people accordingly,''"

Of course they are not charities and these folks want to profit so skepticism is warranted..but I'm not going to argue with the need to improve how well educated Americans (or others in Europe etc for that matter) are about retirement

''The baby boomers are retiring, and just like everything the baby boomers have done or needed, it has determined very sharp trends and sharp needs,'' said Cynthia Egan, executive vice president of Fidelity's Retirement Income Services. ''As they begin to shift from accumulating for retirement to actually living in retirement, it will require a great deal of thought as well as a great deal of education.''

Perhaps among the most useful things were the url for for retirement income calculator (the fine print also lists some of their assumptions, like 6.5% returns for "Investment-Grade Domestic Bonds" etc. Think I'll give the RIC a spin..

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