2. Someone can as easily choose a relatively high withdrawal rate in order to retire earlier at a given modest lifestyle, not make 'frivolous expenditures'. So I think your approach is a bit confused on this, in several times equating higher withdrawal rate with 'frivolity', not necessarily the case.
Not sure I follow. A higher withdrawal rate always increases the risk of running out of money. It also reduces the networth at death, no matter how favorable an investment experience one might have. My interpretation of "frivolous" includes many of the things people in this thread have been mentioning as things to do in retirement. When I retire, I plan to wait around to die, having delayed my retirement as long as I could.
3. This kind of thinking might actually be as prevalent as a reason as 1 or 2, but it's seems hard to logically explain or justify. I've sometimes detected a tendency in myself to act as if that was a valid reason to save, but I consider it irrational for myself.
Free country. You are welcome to disagree. But not rational? Please explain your thinking.
4. I'm specifically speaking of CPI adjusted annuities so I don't see how those provide 'some' inflation protection in any sense that other assets provide more. TIPS adjust to the same index; stocks historically don't do well in times of high inflation; real estate or commodities might do better but tend to be unpopular assets around here. On credit risk of annuities yes it's one consideration, but in balance with other considerations. The actuarial chance of living to 100 is so small, thus the ratio of a $ paid now to an insurance co v what they will pay if you hit that jackpot is so high, that you can greatly over-cover yourself with annuity protection (to guard against credit problems) if the concern is really just to make money last for oneself/spouse to such an extreme age.
On inflation protection, the last time I looked, which was quite a while ago, and I was not that interested anyway, the inflation protection was not complete. The annuities I investigated provided some protection, but would even promise to try not keep increasing by the full CPI at high rates year after year. Insurance companies now may offer annuities that will simply track the CPI, no matter how high the inflation rate, but I did not see them then. If they did, the cost would be pretty high. If I am reluctant to pay for a promise from an insurance company to be around 20 years from now, I am more reluctant to pay a large amount of money for protection against inflation years from now. The risk of living to extreme old age is there, however unlikely. But the three goals of providing a comfortable life, saving money and maximizing networth do not change.
In summary, saying one is withdrawing at a very low rate (anything near or below 2% as a general idea) to preserve a legacy for heirs (my case) or charities makes sense to me. Saying one is doing it in case they/spouse live to some very extreme age makes a lot less sense.
Also must consider constant improvements in medical care make longer lives more likely than they have ever been.
That might justify some rate noticeably below 4%, but at a certain point the actuarial probability of living to a certain age is so low, therefore annuity economics at that age so attractive, it just can't make sense to be conservative enough to fund oneself through a very advanced age without using annuities, if longevity risk is the reason.
We will have to agree to disagree. I would not want to bet my future, or that of the others who will get our assets when we are gone, on the performance of insurance companies decades from now. In my state only a portion of annuity payments are protected by the state fund, and that is funded by other insurance companies. One can buy from a top rated company now, and find both that company and the others that would provide the state fund get in trouble in the same down markets. Then you have paid out a lot of money, and received a promise in return. If they cannot pay off the promise, you don't get your money back.
And 'saving is a goal in itself' I think may actually be the money quote, but the optional task of logically justifying it seems very difficult IMO.
I am not sure how one would provide "logical justification" of saving as a goal. I would not even know what that means. What would a "logical justification" for leaving money to heirs and charities look like? It would be someone's priority, but what would constitute logical justification?
What would be the logical justification for statements like "I like cheese", or " I hate to travel". They would seem to be in the same category as "I consider saving to be an important goal in life".
But I will give you some logic. It makes no sense to wonder whether one will have enough money to support oneself throughout retirement and simultaneously plan to retire before necessary and spend money one need not spend. Warren Buffet can retire whenever he likes. He has reduced the likely duration of his life without earned income by working a long time, and he has accumulated enough money to have no concerns about his financial future. For regular working stiffs, it makes no sense to contemplate retiring before necessary if they have not already fully funded a secure future under the most conservative assumptions. As I indicate, those assumptions include a confluence of bad luck.
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either |
We assume that markets are efficient, that prices are right |