Comments on: How to Calculate Your “Number” http://allfinancialmatters.com/2005/12/01/how-to-calculate-your-number/ A personal finance blog dedicated to discussing such topics as budgeting, asset allocation, 401K, IRA, cash flow, insurance, financial planning, portfolio management, and other areas in personal finance. Sat, 11 Feb 2012 20:32:19 +0000 hourly 1 http://wordpress.org/?v= By: Dave2 http://allfinancialmatters.com/2005/12/01/how-to-calculate-your-number/comment-page-1/#comment-25571 Dave2 Wed, 13 Sep 2006 21:15:24 +0000 http://www.allthingsfinancialblog.com/?p=170#comment-25571 "Why would you want your portfolio to keep pace with inflation + withdrawal rate?" If you retire at 65 and live to 95, retirement lasts 30 years. Most people are aware that early in a 30 year mortgage, most of your payment is interest. As a result of the same math, there's little difference between the amount you can withdraw from retirement savings and maintain your principal indefinitely vs. the amount you can withdraw if you plan to draw the principal down to zero in 30 years. “Why would you want your portfolio to keep pace with inflation + withdrawal rate?”

If you retire at 65 and live to 95, retirement lasts 30 years. Most people are aware that early in a 30 year mortgage, most of your payment is interest. As a result of the same math, there’s little difference between the amount you can withdraw from retirement savings and maintain your principal indefinitely vs. the amount you can withdraw if you plan to draw the principal down to zero in 30 years.

]]> By: rmark http://allfinancialmatters.com/2005/12/01/how-to-calculate-your-number/comment-page-1/#comment-991 rmark Mon, 09 Jan 2006 01:01:32 +0000 http://www.allthingsfinancialblog.com/?p=170#comment-991 Expected real returns, taxes deferred or paid from work while saving, less fund costs Saving Withdrawal (tax based on nominal return) Stocks = (1/pe) - fund costs -2 - taxes Bonds = yield - inflation - fund costs -1- taxes Actively managed funds may have extra costs equal to their published expense ratios. Often 0% net real return after taxes by late life from ever more conservative portfolios. Expected real returns, taxes deferred or paid from work while saving, less fund costs
Saving Withdrawal (tax based on nominal return)
Stocks = (1/pe) – fund costs -2 – taxes
Bonds = yield – inflation – fund costs -1- taxes
Actively managed funds may have extra costs equal to their published expense ratios.

Often 0% net real return after taxes by late life from ever more conservative portfolios.

]]> By: rmark http://allfinancialmatters.com/2005/12/01/how-to-calculate-your-number/comment-page-1/#comment-990 rmark Mon, 09 Jan 2006 01:00:04 +0000 http://www.allthingsfinancialblog.com/?p=170#comment-990 Some minimum pension should be covered by Pension Guarantee Corp. The 4% withdrawal assumes a portfolio about 60/40 stock, bond. or conservative, lower withdrawal. Fixed pensions should be discounted for inflation, spend part aand re-invest the rest. Some minimum pension should be covered by Pension Guarantee Corp.
The 4% withdrawal assumes a portfolio about 60/40 stock, bond. or conservative, lower withdrawal.
Fixed pensions should be discounted for inflation, spend part aand re-invest the rest.

]]> By: Barry Barnitz http://allfinancialmatters.com/2005/12/01/how-to-calculate-your-number/comment-page-1/#comment-543 Barry Barnitz Fri, 02 Dec 2005 07:25:59 +0000 http://www.allthingsfinancialblog.com/?p=170#comment-543 Hi JLP: Partial annuitization of a nest egg is likely to be an important part of most investors distribution strategies. If you read the three studies I have linked (as well as the news article showing net worth stats) you might agree with this statement. Moshe Milevsky and John Ameriks are leading authorities on the subject. Monte Carlo analysis, utility functions, and quantative risk assessment all suggest considering <i> low cost immediate annuities in the payout calculus. On the fixed immediate annuity side, Vanguard offers an inflation-indexed immediate annuity. Both Vanguard and TIAA-CREF offer graded annuities. On the variable immediate annuity front, Vanguard, TIAA-CREF, and now Fidelity offer low cost vehicles (Vanguard being the lowest cost). Check my <a href="http://financialpage.blogspot.com/2005/11/gentle-introduction-to-cal_113341550246240683.html" rel="nofollow">post</a> for details. regards, Barry</i> Hi JLP:

Partial annuitization of a nest egg is likely to be an important part of most investors distribution strategies.

If you read the three studies I have linked (as well as the news article showing net worth stats) you might agree with this statement. Moshe Milevsky and John Ameriks are leading authorities on the subject. Monte Carlo analysis, utility functions, and quantative risk assessment all suggest considering low cost immediate annuities in the payout calculus.

On the fixed immediate annuity side, Vanguard offers an inflation-indexed immediate annuity. Both Vanguard and TIAA-CREF offer graded annuities.

On the variable immediate annuity front, Vanguard, TIAA-CREF, and now Fidelity offer low cost vehicles (Vanguard being the lowest cost).

Check my post for details.

regards,
Barry

]]> By: JLP http://allfinancialmatters.com/2005/12/01/how-to-calculate-your-number/comment-page-1/#comment-542 JLP Fri, 02 Dec 2005 04:39:19 +0000 http://www.allthingsfinancialblog.com/?p=170#comment-542 Dave, Good point. Some people may not want to leave $4 million. In that case, they can draw down their principal if they so desire. However, they have to be very careful doing so because once their principal is gone, it's gone. What happens if they draw down too much and live too long? I'm not an advocate of annuities of any type but in this case, a person in this case might be suited for a fixed immediate annuity for a portion of their savings. Dave,

Good point. Some people may not want to leave $4 million. In that case, they can draw down their principal if they so desire. However, they have to be very careful doing so because once their principal is gone, it’s gone. What happens if they draw down too much and live too long?

I’m not an advocate of annuities of any type but in this case, a person in this case might be suited for a fixed immediate annuity for a portion of their savings.

]]> By: Dave http://allfinancialmatters.com/2005/12/01/how-to-calculate-your-number/comment-page-1/#comment-541 Dave Fri, 02 Dec 2005 04:32:28 +0000 http://www.allthingsfinancialblog.com/?p=170#comment-541 Why would you want your portfolio to keep pace with inflation + withdrawal rate? In other words, why would you want your portfolio to stay constant through retirement? Why would you want to die with $4 million in the bank? I must be missing something here. Why would you want your portfolio to keep pace with inflation + withdrawal rate? In other words, why would you want your portfolio to stay constant through retirement? Why would you want to die with $4 million in the bank? I must be missing something here.

]]> By: JLP http://allfinancialmatters.com/2005/12/01/how-to-calculate-your-number/comment-page-1/#comment-540 JLP Fri, 02 Dec 2005 00:31:57 +0000 http://www.allthingsfinancialblog.com/?p=170#comment-540 Foobarista, You are right but I can't possibly run all the various scenarios. If someone only needs $50,000 per year in today's dollars, then they can pretty much figure out that their Number is going to be half of the number in the example. There's no doubt that people can have a comfortable retirement on less than $100,000 per year. Foobarista,

You are right but I can’t possibly run all the various scenarios. If someone only needs $50,000 per year in today’s dollars, then they can pretty much figure out that their Number is going to be half of the number in the example.

There’s no doubt that people can have a comfortable retirement on less than $100,000 per year.

]]> By: Foobarista http://allfinancialmatters.com/2005/12/01/how-to-calculate-your-number/comment-page-1/#comment-539 Foobarista Fri, 02 Dec 2005 00:23:46 +0000 http://www.allthingsfinancialblog.com/?p=170#comment-539 One important thing missing in these discussions is how to come up with the number in the first place. Do you actually need to burn through $100K in current dollars every year in retirement? That's more than enough to keep you in the country club, particularly if you do the right things and pay off the mortgage, have the kids through college, and have no ongoing debt. Having a country-club retirement is nice - particularly if you already are used to this sort of life - but to say that you need an amount in the corporate jet range to do so will just scare people to vote for bigger SS payments and to heck with the national consequences. If you start with an amount to keep you in a comfortable but more midsize retirement, the number won't seem so impossibly daunting. One important thing missing in these discussions is how to come up with the number in the first place. Do you actually need to burn through $100K in current dollars every year in retirement? That’s more than enough to keep you in the country club, particularly if you do the right things and pay off the mortgage, have the kids through college, and have no ongoing debt.

Having a country-club retirement is nice – particularly if you already are used to this sort of life – but to say that you need an amount in the corporate jet range to do so will just scare people to vote for bigger SS payments and to heck with the national consequences. If you start with an amount to keep you in a comfortable but more midsize retirement, the number won’t seem so impossibly daunting.

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