The fear of retirement, black swan, and math to dissuade the fear.

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randomguy
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Re: The fear of retirement, black swan, and math to dissuade the fear.

Post by randomguy » Mon Nov 13, 2017 4:32 pm

EnjoyIt wrote:
Mon Nov 13, 2017 12:59 pm


That is exactly it. The only way someone gets a raw deal is if they retired at 4% right at the very very peak of the market. If they chose to retire early then they hopefully will be able to find some semi reasonable employment for a few years. If they retired a year or two earlier they would be OK. If they were yet to retire they would likely keep working till they hit their 4% at those market values. Also, as random guy above pointed out, ideally they were not 100% equites and had a reasonable asset allocation and rebalanced through out the run up the previous 5 years. This includes having some percentage in international. A common 50/50-70/30 portfolio with 20-40% international would not be hurting too bad except for that very select few who retired at the tippy top of that peak.
The whole point of the 4% rule though is to see what happens to the people that retire at the worst possible time. If you are going to say you retire 2-3 years before the worst possible time, you should be talking about the 5% rule:)

In the end you have to accept the unknown. It is ok to feel fear at that prospects but you can't let it run your life. Fgiure out what prudent hedging is and don't worry about 1% cases too much. When they happen, figure out how to adapt.

EnjoyIt
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Re: The fear of retirement, black swan, and math to dissuade the fear.

Post by EnjoyIt » Mon Nov 13, 2017 5:57 pm

randomguy wrote:
Mon Nov 13, 2017 4:32 pm
EnjoyIt wrote:
Mon Nov 13, 2017 12:59 pm


That is exactly it. The only way someone gets a raw deal is if they retired at 4% right at the very very peak of the market. If they chose to retire early then they hopefully will be able to find some semi reasonable employment for a few years. If they retired a year or two earlier they would be OK. If they were yet to retire they would likely keep working till they hit their 4% at those market values. Also, as random guy above pointed out, ideally they were not 100% equites and had a reasonable asset allocation and rebalanced through out the run up the previous 5 years. This includes having some percentage in international. A common 50/50-70/30 portfolio with 20-40% international would not be hurting too bad except for that very select few who retired at the tippy top of that peak.
The whole point of the 4% rule though is to see what happens to the people that retire at the worst possible time. If you are going to say you retire 2-3 years before the worst possible time, you should be talking about the 5% rule:)

In the end you have to accept the unknown. It is ok to feel fear at that prospects but you can't let it run your life. Fgiure out what prudent hedging is and don't worry about 1% cases too much. When they happen, figure out how to adapt.
I couldn't agree more. If we retire and there is a percent that things might go downhill for us financially then we need to have a reasonable plan for that small percent chance.

For example:
There may be a 5% chance that a short recession will hit and based on history without any changes in our spending we should be ok. DONE.
There is a 2% chance that the recession will be a bit prolonged so maybe it is best to make sure our budget has discretionary spending that we can cut down on such as traveling and eating out less. DONE
There may be a 1% chance that we will hit a significant depression where we may need to cut costs and look for other sources of income. I am okay with that and hope I can find temporary part time work even flipping burgers if I really have to. I can accept a 1% chance of flipping burgers considering that maybe 50 years of spending in TIPS or maybe 50 years in gold nuggets can protect against that. I am not interested in accumulating for it but am willing to save an extra 2 years living expenses in TIPS or CDs to hedge that bet just a little. Not there yet but will be soon.
There may be a 0.01% chance that something horrible will happen to the world and all markets will collapse. For that I have a decent supply of ammunition and the ability to make more ammunition. DONE

I think we are covered. All we need now is to hit our 27x and we are good to go.

wrongfunds
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Re: The fear of retirement, black swan, and math to dissuade the fear.

Post by wrongfunds » Mon Nov 13, 2017 8:30 pm

where is this number 26.99998Xcoming from? I understand you think you are accounting for 2 years expenses in cash + 25X but that tells me that you believe that 25X has the necessary precision (or is that accuracy?) or you know your exact expenses per year.

hoops777
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Re: The fear of retirement, black swan, and math to dissuade the fear.

Post by hoops777 » Mon Nov 13, 2017 10:18 pm

wrongfunds wrote:
Thu Nov 09, 2017 2:27 pm
Every time this type of topic is created, literally zero new information or strategy is put forth.
Wrong....10,000 a year on cc,banking and brokerage bonus money. :happy
Pretty absurd to think you can do this year after year after year.
K.I.S.S........so easy to say so difficult to do.

EnjoyIt
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Re: The fear of retirement, black swan, and math to dissuade the fear.

Post by EnjoyIt » Mon Nov 13, 2017 11:47 pm

wrongfunds wrote:
Mon Nov 13, 2017 8:30 pm
where is this number 26.99998Xcoming from? I understand you think you are accounting for 2 years expenses in cash + 25X but that tells me that you believe that 25X has the necessary precision (or is that accuracy?) or you know your exact expenses per year.
The two years expenses is to satisfy my fears.
hoops777 wrote:
Mon Nov 13, 2017 10:18 pm
[quote=wrongfunds post_id=3611002 time=<a href="tel:1510255655">1510255655</a> user_id=22845]
Every time this type of topic is created, literally zero new information or strategy is put forth.
Wrong....10,000 a year on cc,banking and brokerage bonus money. :happy
Pretty absurd to think you can do this year after year after year.
[/quote]

Ok, ok. The point wasn't to talk about credit card bonuses but to show some of our fears are irrational. If you read the whole thing it says decrease expenses and have some form of income. It is just to show some math behind our fears and nothing more.

I have fear as well which apparently will cost me 2 years expenses.

wrongfunds
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Re: The fear of retirement, black swan, and math to dissuade the fear.

Post by wrongfunds » Tue Nov 14, 2017 9:35 am

But did you not get the fact that 25X in itself is extremely rough number (aka inaccuracy) itself?

Much of this type of discussion seems to be so laughable if one has taken rudimentary statistical courses. Before somebody tells me how Trinity research proved that 4% worked but 4.01% failed and thus it is necessary to use the 2 decimal digits for the withdrawal rate, do you understand that if the asset numbers were taken on 31 December vs January 1 or April 1, the historical numbers would be very much different? Besides, they are derived from past existing data which is guaranteed to NEVER EVER repeat EXACTLY in the future!

The 4% rate is a concept and not something which is cast in stone. One can describe many "what if ..." type of scenarios where even 1% can be shown to fail.

It is not math which drives the voluntary retirement decision but rather the ability to understand fear and being able to differentiate between rational fear and irrational fear. I am not saying it is easy nor am I saying I have conquered it but at least I recognize it.

hoops777
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Re: The fear of retirement, black swan, and math to dissuade the fear.

Post by hoops777 » Tue Nov 14, 2017 1:13 pm

If you retire with a reasonable amount of money for your age,common sense and the ability to adjust,you will be ok.If a we get hit by an asteroid or the government collapses we will all be in deep no matter who you are or how much money you have.
I would never,ever recommend retiring early to someone who needs even a 5 pct return from the stock market to make it successful.
K.I.S.S........so easy to say so difficult to do.

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Jimbo9911
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Re: The fear of retirement, black swan, and math to dissuade the fear.

Post by Jimbo9911 » Tue Nov 14, 2017 9:03 pm

wrongfunds wrote:
Tue Nov 14, 2017 9:35 am
But did you not get the fact that 25X in itself is extremely rough number (aka inaccuracy) itself?

Much of this type of discussion seems to be so laughable if one has taken rudimentary statistical courses. Before somebody tells me how Trinity research proved that 4% worked but 4.01% failed and thus it is necessary to use the 2 decimal digits for the withdrawal rate, do you understand that if the asset numbers were taken on 31 December vs January 1 or April 1, the historical numbers would be very much different? Besides, they are derived from past existing data which is guaranteed to NEVER EVER repeat EXACTLY in the future!

The 4% rate is a concept and not something which is cast in stone. One can describe many "what if ..." type of scenarios where even 1% can be shown to fail.

It is not math which drives the voluntary retirement decision but rather the ability to understand fear and being able to differentiate between rational fear and irrational fear. I am not saying it is easy nor am I saying I have conquered it but at least I recognize it.
I like the above post.
Jim
Jim

hoops777
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Re: The fear of retirement, black swan, and math to dissuade the fear.

Post by hoops777 » Tue Nov 14, 2017 9:30 pm

Jimbo9911 wrote:
Tue Nov 14, 2017 9:03 pm
wrongfunds wrote:
Tue Nov 14, 2017 9:35 am
But did you not get the fact that 25X in itself is extremely rough number (aka inaccuracy) itself?

Much of this type of discussion seems to be so laughable if one has taken rudimentary statistical courses. Before somebody tells me how Trinity research proved that 4% worked but 4.01% failed and thus it is necessary to use the 2 decimal digits for the withdrawal rate, do you understand that if the asset numbers were taken on 31 December vs January 1 or April 1, the historical numbers would be very much different? Besides, they are derived from past existing data which is guaranteed to NEVER EVER repeat EXACTLY in the future!

The 4% rate is a concept and not something which is cast in stone. One can describe many "what if ..." type of scenarios where even 1% can be shown to fail.

It is not math which drives the voluntary retirement decision but rather the ability to understand fear and being able to differentiate between rational fear and irrational fear. I am not saying it is easy nor am I saying I have conquered it but at least I recognize it.
I like the above post.
Jim
+1 :happy
K.I.S.S........so easy to say so difficult to do.

wrongfunds
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Re: The fear of retirement, black swan, and math to dissuade the fear.

Post by wrongfunds » Wed Nov 15, 2017 9:44 am

My frustration with this recurring topic is that even the most talented posters here do not seem to understand that this type of modeling should always be used as very rough guideline rather than any sort of rule. I know I am not a good teacher because something which are so obvious to me that I have hard time explaining the concept which seems so simple to me. Is it because average person when thrown numbers at them just accepts then at face value?

wrongfunds
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Re: The fear of retirement, black swan, and math to dissuade the fear.

Post by wrongfunds » Wed Nov 15, 2017 10:14 am

The historical record shows us that prospective returns are negatively correlated to starting valuations.
Am I the only one who finds this very funny? People have actually written papers on this topic!

Is it a coincidence when I find a down market, it was high before it went down? I think there must be something to it and I need to publish a study on it to get my PhD!

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siamond
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Re: The fear of retirement, black swan, and math to dissuade the fear.

Post by siamond » Wed Nov 15, 2017 10:29 am

wrongfunds wrote:
Wed Nov 15, 2017 10:14 am
The historical record shows us that prospective returns are negatively correlated to starting valuations.
Am I the only one who finds this very funny? People have actually written papers on this topic!

Is it a coincidence when I find a down market, it was high before it went down? I think there must be something to it and I need to publish a study on it to get my PhD!
Sorry, buddy, somebody beat you to it and actually got a Nobel Prize! That would be Prof. Shiller... Ok, in all fairness, he actually did quite some work to illustrate the point. And in all fairness, the proponents of the Efficient Market Hypothesis were standing quite straight in their boots against this line of thinking, and got a Nobel Prize too! This all sounds a little foolish to me, but hey, I don't have a Nobel Prize, nor even a PhD...

wrongfunds
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Re: The fear of retirement, black swan, and math to dissuade the fear.

Post by wrongfunds » Wed Nov 15, 2017 10:41 am

This all sounds a little foolish to me
But do you find it funny? Would you risk being ridiculed for snickering at the ground breaking and Nobel prize winning assertion of "Market has high probability of going down when it goes high"?

Honestly, I am laughing at the fact that people find this so amazing that down market has positive correlation with the previously high market. But if you write nice spreadsheet (just a friendly dig) :-) to prove that, people become extremely impressed with your intelligence and think your are next Moses.

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Hyperborea
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Re: The fear of retirement, black swan, and math to dissuade the fear.

Post by Hyperborea » Wed Nov 15, 2017 12:28 pm

TheNightsToCome wrote:
Sat Nov 11, 2017 7:39 pm
"So this time is different?"

I presume this time is the same.

The historical record shows us that prospective returns are negatively correlated to starting valuations. See the first graph in this article for an illustration: https://earlyretirementnow.com/2016/12/ ... valuation/

The historical record also shows that increasing valuations increase the risk of large draw-downs (thus increasing sequence-of-returns risk for a retiree).

You're taking the wrong lesson from history.
You'll note if you look further in that article that graphs after the first show that even with CAPE* greater than 30 that for 30 years 4% can be successful. For longer time periods you can still be successful but at a lower WR.

The entire range of CAPE values is used to generate the overall historical SWR. So, even in the higher CAPE time periods those portfolios were successful if one was withdrawing at a 100% SWR. If one is withdrawing at a SWR with a survival rate of less than 100% then one is more likely to be in one of those failing time periods if CAPE is high. This also assumes that one won't adjust their WR and just blindly continue to withdraw into oblivion.

If you read further on in the series then one could use a glide path approach to reduce SOR risks. Interestingly, the glide path only improves things when CAPE is high. It does come at the cost of reducing the higher possible returns if you don't hit a bad SOR. Also note that he is focused on ultra-long retirements of 60 years. https://earlyretirementnow.com/2017/09/ ... lidepaths/


* I'm unsure on how comparable current CAPE in the US is to CAPE before the mid-1990's when accounting rules on asset and liability recognition changed. I don't think that they are directly comparable. So, current CAPE maybe high it is probably not as high in historical terms as it appears.

TheNightsToCome
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Re: The fear of retirement, black swan, and math to dissuade the fear.

Post by TheNightsToCome » Wed Nov 15, 2017 10:30 pm

wrongfunds wrote:
Wed Nov 15, 2017 10:14 am
The historical record shows us that prospective returns are negatively correlated to starting valuations.
Am I the only one who finds this very funny? People have actually written papers on this topic!

Is it a coincidence when I find a down market, it was high before it went down? I think there must be something to it and I need to publish a study on it to get my PhD!
Um... The valuation is not the price level. The valuation is the price relative to some measure of the value received, such as future cash flows.

If you pay more for a given level of future cash flows (high valuation), you will receive a lower return. Valuations vary to a much greater extent than future cash flows. (And yes, Shiller showed this a long time ago for large US stocks and their long-term dividend streams.)

You can presume that when valuations are high (e.g., 2000 or 1929) that investors (i.e., "the market") know what they are doing, i.e., that high valuations are justified by expectations of increased growth in cash flows, but that is not the lesson from history, quite the opposite.

WanderingDoc
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Re: The fear of retirement, black swan, and math to dissuade the fear.

Post by WanderingDoc » Wed Nov 15, 2017 11:05 pm

randomguy wrote:
Thu Nov 09, 2017 12:31 am
EnjoyIt wrote:
Thu Nov 09, 2017 12:09 am
flyingaway wrote:
Wed Nov 08, 2017 10:33 pm
If I got fired by my employer and I have satisfied the 4% rule, at 53, I would not look for another job. I will make the 4% rule work.
However, if I still have my human capital and my job, although not fun anymore, is not killing me, why not work for a few more years? Maybe the 4% rule did not count the money for my son's wedding. It certainly didn't count the cost of that pill that would reduce my age by 20 years in the future.
Are you sure it isn't killing you? Would you not be healthier if you were more active outside of work, ate healthier because you had the time to prepare it, maybe exercised more. Also, maybe you wasting your day at work is really not worth an overpriced one day party for your son to show off his bride? Sometimes things we think are important are really not worth the time and the health working for it. This party may or may not be an example.

People that want to exercise, eat healthy and so on do it. Blaming the job is just making excuses. You can live life while having a job. It is just a type of procrastinating to say that when I retire I will do xxx. Yes there are exceptions (say you are working 80+ hours/week) but not very many.

And I notice you picked the wedding and not the pill that improves your quality of life:) For an nonhypothetical case, what if working 1 year gives you enough money to avoid yardwork/house keeping for the next 40 years. Is spending 2k hours at work worth it to save 4k hours of labor over the next 40 years? Seems like a reasonable trade off to me. And I much prefer my job to scrubbing toilets:)
Like it or not, its EASIER to eat healthier, exercise better and more, read more books, spend more time with friends and loved ones if you are not working full time.

I agree with them. Having to work an extra 5-10 years in order to insure that your withdrawal rate covers some black swan event is hard-headed. Do people really have trouble finding worthwhile things to do besides work work work? Geez.
One day it suddenly dawned on me that I had won the real estate lottery. | I'm not looking to get rich quickly. I'm not looking to get rich slowly. I'm looking to get rich for sure.

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Re: The fear of retirement, black swan, and math to dissuade the fear.

Post by EnjoyIt » Fri Nov 17, 2017 9:35 am

wrongfunds wrote:
Wed Nov 15, 2017 9:44 am
My frustration with this recurring topic is that even the most talented posters here do not seem to understand that this type of modeling should always be used as very rough guideline rather than any sort of rule. I know I am not a good teacher because something which are so obvious to me that I have hard time explaining the concept which seems so simple to me. Is it because average person when thrown numbers at them just accepts then at face value?
Indeed, only a robot would pick a withdrawal rate and spend exactly that much every year and increase based on inflation every year. It is ludicrous.
Would you believe that people retired in the past before this modeling ever existed? Those who saved for retirement did just fine because they are human and able to adapt to what life gives them. I find that many on this forum have significant irrational fear and willing to work to meet some outlandishly low withdrawal rate. Unfortunately these people offer their fearful advice to new comers who may not fully understand their own needs. Even worse, scare them away from even trying. Look at some of these threads where people say they have x dollars and posters say keep working. Almost always the answer is keep working even if X is in the millions.

I have my fears as well, some rational and some I know are just silly but can't help having them.

hoops777
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Re: The fear of retirement, black swan, and math to dissuade the fear.

Post by hoops777 » Sat Nov 18, 2017 12:19 pm

EnjoyIt wrote:
Fri Nov 17, 2017 9:35 am
wrongfunds wrote:
Wed Nov 15, 2017 9:44 am
My frustration with this recurring topic is that even the most talented posters here do not seem to understand that this type of modeling should always be used as very rough guideline rather than any sort of rule. I know I am not a good teacher because something which are so obvious to me that I have hard time explaining the concept which seems so simple to me. Is it because average person when thrown numbers at them just accepts then at face value?
Indeed, only a robot would pick a withdrawal rate and spend exactly that much every year and increase based on inflation every year. It is ludicrous.
Would you believe that people retired in the past before this modeling ever existed? Those who saved for retirement did just fine because they are human and able to adapt to what life gives them. I find that many on this forum have significant irrational fear and willing to work to meet some outlandishly low withdrawal rate. Unfortunately these people offer their fearful advice to new comers who may not fully understand their own needs. Even worse, scare them away from even trying. Look at some of these threads where people say they have x dollars and posters say keep working. Almost always the answer is keep working even if X is in the millions.

I have my fears as well, some rational and some I know are just silly but can't help having them.
Well,some people appear to need well over 100,000 a year to sustain their desired lifestyle,so everyone is different and has to make choices.
K.I.S.S........so easy to say so difficult to do.

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Hyperborea
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Re: The fear of retirement, black swan, and math to dissuade the fear.

Post by Hyperborea » Sat Nov 18, 2017 1:24 pm

hoops777 wrote:
Sat Nov 18, 2017 12:19 pm
EnjoyIt wrote:
Fri Nov 17, 2017 9:35 am
wrongfunds wrote:
Wed Nov 15, 2017 9:44 am
My frustration with this recurring topic is that even the most talented posters here do not seem to understand that this type of modeling should always be used as very rough guideline rather than any sort of rule. I know I am not a good teacher because something which are so obvious to me that I have hard time explaining the concept which seems so simple to me. Is it because average person when thrown numbers at them just accepts then at face value?
Indeed, only a robot would pick a withdrawal rate and spend exactly that much every year and increase based on inflation every year. It is ludicrous.
Would you believe that people retired in the past before this modeling ever existed? Those who saved for retirement did just fine because they are human and able to adapt to what life gives them. I find that many on this forum have significant irrational fear and willing to work to meet some outlandishly low withdrawal rate. Unfortunately these people offer their fearful advice to new comers who may not fully understand their own needs. Even worse, scare them away from even trying. Look at some of these threads where people say they have x dollars and posters say keep working. Almost always the answer is keep working even if X is in the millions.

I have my fears as well, some rational and some I know are just silly but can't help having them.
Well,some people appear to need well over 100,000 a year to sustain their desired lifestyle,so everyone is different and has to make choices.

The amount that somebody needs to retire is somewhat irrelevant to the problem. It's a matter of savings percentage of your income while working and then spending percentage of the portfolio while retired. Actually, those who do plan on $100K+ spending in retirement are safer since there is a lot more leeway in the budget. At $30K / year there is a lot less room to cut the budget if something goes bad (personal or broader). Complaining about those who have saved more and consequently spend more sounds a bit like sour grapes or even envy.

hoops777
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Re: The fear of retirement, black swan, and math to dissuade the fear.

Post by hoops777 » Sat Nov 18, 2017 5:35 pm

Hyperborea wrote:
Sat Nov 18, 2017 1:24 pm
hoops777 wrote:
Sat Nov 18, 2017 12:19 pm
EnjoyIt wrote:
Fri Nov 17, 2017 9:35 am
wrongfunds wrote:
Wed Nov 15, 2017 9:44 am
My frustration with this recurring topic is that even the most talented posters here do not seem to understand that this type of modeling should always be used as very rough guideline rather than any sort of rule. I know I am not a good teacher because something which are so obvious to me that I have hard time explaining the concept which seems so simple to me. Is it because average person when thrown numbers at them just accepts then at face value?
Indeed, only a robot would pick a withdrawal rate and spend exactly that much every year and increase based on inflation every year. It is ludicrous.
Would you believe that people retired in the past before this modeling ever existed? Those who saved for retirement did just fine because they are human and able to adapt to what life gives them. I find that many on this forum have significant irrational fear and willing to work to meet some outlandishly low withdrawal rate. Unfortunately these people offer their fearful advice to new comers who may not fully understand their own needs. Even worse, scare them away from even trying. Look at some of these threads where people say they have x dollars and posters say keep working. Almost always the answer is keep working even if X is in the millions.

I have my fears as well, some rational and some I know are just silly but can't help having them.
Well,some people appear to need well over 100,000 a year to sustain their desired lifestyle,so everyone is different and has to make choices.

The amount that somebody needs to retire is somewhat irrelevant to the problem. It's a matter of savings percentage of your income while working and then spending percentage of the portfolio while retired. Actually, those who do plan on $100K+ spending in retirement are safer since there is a lot more leeway in the budget. At $30K / year there is a lot less room to cut the budget if something goes bad (personal or broader). Complaining about those who have saved more and consequently spend more sounds a bit like sour grapes or even envy.
If you were referring to me,you are mistaken.If you need 2,000,000 to maintain your lifestyle I could care less.You are also assuming the person who only needs 30,000 has less money than the person who needs much more.My point was If you need well over 100,000 you obviously need a lot more money than someone who only needs 30,000.Duh :happy You make a choice regarding exactly what your lifestyle is and you go from there.Believe me when I say there is no envy here,just contentment that we could easily double our lifestyle costs and sleep well at night.Saving more does not mean you need to spend more,but you can if you want.The beauty of low overhead.
K.I.S.S........so easy to say so difficult to do.

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Hyperborea
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Re: The fear of retirement, black swan, and math to dissuade the fear.

Post by Hyperborea » Sat Nov 18, 2017 6:47 pm

hoops777 wrote:
Sat Nov 18, 2017 5:35 pm
Hyperborea wrote:
Sat Nov 18, 2017 1:24 pm
hoops777 wrote:
Sat Nov 18, 2017 12:19 pm
EnjoyIt wrote:
Fri Nov 17, 2017 9:35 am
wrongfunds wrote:
Wed Nov 15, 2017 9:44 am
My frustration with this recurring topic is that even the most talented posters here do not seem to understand that this type of modeling should always be used as very rough guideline rather than any sort of rule. I know I am not a good teacher because something which are so obvious to me that I have hard time explaining the concept which seems so simple to me. Is it because average person when thrown numbers at them just accepts then at face value?
Indeed, only a robot would pick a withdrawal rate and spend exactly that much every year and increase based on inflation every year. It is ludicrous.
Would you believe that people retired in the past before this modeling ever existed? Those who saved for retirement did just fine because they are human and able to adapt to what life gives them. I find that many on this forum have significant irrational fear and willing to work to meet some outlandishly low withdrawal rate. Unfortunately these people offer their fearful advice to new comers who may not fully understand their own needs. Even worse, scare them away from even trying. Look at some of these threads where people say they have x dollars and posters say keep working. Almost always the answer is keep working even if X is in the millions.

I have my fears as well, some rational and some I know are just silly but can't help having them.
Well,some people appear to need well over 100,000 a year to sustain their desired lifestyle,so everyone is different and has to make choices.

The amount that somebody needs to retire is somewhat irrelevant to the problem. It's a matter of savings percentage of your income while working and then spending percentage of the portfolio while retired. Actually, those who do plan on $100K+ spending in retirement are safer since there is a lot more leeway in the budget. At $30K / year there is a lot less room to cut the budget if something goes bad (personal or broader). Complaining about those who have saved more and consequently spend more sounds a bit like sour grapes or even envy.
If you were referring to me,you are mistaken.If you need 2,000,000 to maintain your lifestyle I could care less.
If you couldn't care less then I am unsure why you brought up the level of spending that one might have in retirement.

hoops777 wrote:
Sat Nov 18, 2017 5:35 pm
You are also assuming the person who only needs 30,000 has less money than the person who needs much more.My point was If you need well over 100,000 you obviously need a lot more money than someone who only needs 30,000.Duh :happy You make a choice regarding exactly what your lifestyle is and you go from there.Believe me when I say there is no envy here,just contentment that we could easily double our lifestyle costs and sleep well at night.Saving more does not mean you need to spend more,but you can if you want.The beauty of low overhead.
Sure, if we assume that two different people have $50M in retirement and one is taking $2M / year (4%) and the other is taking $30K / year (0.06%) then surely the one taking 0.06% is in some way safer. However, one would hope that they enjoyed the hard work needed to amass that $50M and didn't do it just to have a wildly unnecessarily low withdrawal rate and that they aren't withdrawing so low out of fear of rabid black swans attacking them and stealing their precious horde.

On the other, more rational side, if we take two people living on a 4% WR (or lower if you desire) then the one living on $100K and the other on $30K there is likely to be far more leeway in the $100K budget. There is likely to be little in the way that can easily be cut on the lower living costs.

hoops777
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Re: The fear of retirement, black swan, and math to dissuade the fear.

Post by hoops777 » Sat Nov 18, 2017 9:39 pm

Hyperborea wrote:
Sat Nov 18, 2017 6:47 pm
hoops777 wrote:
Sat Nov 18, 2017 5:35 pm
Hyperborea wrote:
Sat Nov 18, 2017 1:24 pm
hoops777 wrote:
Sat Nov 18, 2017 12:19 pm
EnjoyIt wrote:
Fri Nov 17, 2017 9:35 am


Indeed, only a robot would pick a withdrawal rate and spend exactly that much every year and increase based on inflation every year. It is ludicrous.
Would you believe that people retired in the past before this modeling ever existed? Those who saved for retirement did just fine because they are human and able to adapt to what life gives them. I find that many on this forum have significant irrational fear and willing to work to meet some outlandishly low withdrawal rate. Unfortunately these people offer their fearful advice to new comers who may not fully understand their own needs. Even worse, scare them away from even trying. Look at some of these threads where people say they have x dollars and posters say keep working. Almost always the answer is keep working even if X is in the millions.

I have my fears as well, some rational and some I know are just silly but can't help having them.
Well,some people appear to need well over 100,000 a year to sustain their desired lifestyle,so everyone is different and has to make choices.

The amount that somebody needs to retire is somewhat irrelevant to the problem. It's a matter of savings percentage of your income while working and then spending percentage of the portfolio while retired. Actually, those who do plan on $100K+ spending in retirement are safer since there is a lot more leeway in the budget. At $30K / year there is a lot less room to cut the budget if something goes bad (personal or broader). Complaining about those who have saved more and consequently spend more sounds a bit like sour grapes or even envy.
If you were referring to me,you are mistaken.If you need 2,000,000 to maintain your lifestyle I could care less.
If you couldn't care less then I am unsure why you brought up the level of spending that one might have in retirement.

hoops777 wrote:
Sat Nov 18, 2017 5:35 pm
You are also assuming the person who only needs 30,000 has less money than the person who needs much more.My point was If you need well over 100,000 you obviously need a lot more money than someone who only needs 30,000.Duh :happy You make a choice regarding exactly what your lifestyle is and you go from there.Believe me when I say there is no envy here,just contentment that we could easily double our lifestyle costs and sleep well at night.Saving more does not mean you need to spend more,but you can if you want.The beauty of low overhead.
Sure, if we assume that two different people have $50M in retirement and one is taking $2M / year (4%) and the other is taking $30K / year (0.06%) then surely the one taking 0.06% is in some way safer. However, one would hope that they enjoyed the hard work needed to amass that $50M and didn't do it just to have a wildly unnecessarily low withdrawal rate and that they aren't withdrawing so low out of fear of rabid black swans attacking them and stealing their precious horde.

On the other, more rational side, if we take two people living on a 4% WR (or lower if you desire) then the one living on $100K and the other on $30K there is likely to be far more leeway in the $100K budget. There is likely to be little in the way that can easily be cut on the lower living costs.
Well I really have to point out that not everyone is focused on spending and living a richer lifestyle.It is a matter of choice.Some people are quite content with earning a lot of money and living a simple life.Someone who has no need or desire to spend at a higher level usually has nothing to do with fear of black swans stealing their precious horde.
For example,in a few years when we are both taking our full SS,we will be able to do just about everything we want to do,including a lot of travel, barely touching our retirement funds.We could by a new Tesla,fly first class,eat in expensive restaurants,buy season tickets,whatever, if we want to,but that is not us.Money is just money,and we all decide how we spend it,hopefully without judgement from anyone else.Whatever floats your boat.I get more enjoyment playing with my 3 year old grandson than just about anything I could pay for,but that is me.
K.I.S.S........so easy to say so difficult to do.

randomguy
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Re: The fear of retirement, black swan, and math to dissuade the fear.

Post by randomguy » Sat Nov 18, 2017 9:55 pm

hoops777 wrote:
Sat Nov 18, 2017 9:39 pm

Well I really have to point out that not everyone is focused on spending and living a richer lifestyle.It is a matter of choice.Some people are quite content with earning a lot of money and living a simple life.Someone who has no need or desire to spend at a higher level usually has nothing to do with fear of black swans stealing their precious horde.
For example,in a few years when we are both taking our full SS,we will be able to do just about everything we want to do,including a lot of travel, barely touching our retirement funds.We could by a new Tesla,fly first class,eat in expensive restaurants,buy season tickets,whatever, if we want to,but that is not us.Money is just money,and we all decide how we spend it,hopefully without judgement from anyone else.Whatever floats your boat.I get more enjoyment playing with my 3 year old grandson than just about anything I could pay for,but that is me.
So what happens when the black swan comes and you don't get your SS check and medicare not longer exists? Sounds unthinkable? That is exactly what a black swan is.

But yeah at a certain level if you get your SWR low enough (i.e. 0%), you don't have this problem. It doesn't change the fact that it is a problem that other people have to deal with. And unfortunately their is no perfect solution. There are ones that are good enough and then you have to adapt. Various withdrawal schemes are great for giving guideance but during actual retirement you will have to adjust to what live throughs at you. Most of the time you will have to decide to spend (or not spend) all that added money. During bad paths, you will have to decide how much living today you want to put off to handle the risk of an uncertain future.

EnjoyIt
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Re: The fear of retirement, black swan, and math to dissuade the fear.

Post by EnjoyIt » Sun Nov 19, 2017 8:57 am

randomguy wrote:
Sat Nov 18, 2017 9:55 pm

So what happens when the black swan comes and you don't get your SS check and medicare not longer exists? Sounds unthinkable? That is exactly what a black swan is.
How do you protect against that and every other horrible thing life can throw at you? You do realize that if SS and Medicare just disappeared you will likely have far more to worry about than your withdrawal rate. There is preparing for real possibilities and then there is irrational fear.

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BenfromToronto
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Re: The fear of retirement, black swan, and math to dissuade the fear.

Post by BenfromToronto » Sun Nov 19, 2017 10:06 am

wrongfunds wrote:
Thu Nov 09, 2017 2:27 pm
Every time this type of topic is created, literally zero new information or strategy is put forth.
Here is a strategy that should work for most real black swans (it will not work for a nuclear holocaust or may not work for an alien invasion :? ): buy a farm (you can use as a vacation home).

In the 1900's, my father's family owned silk factories (in Lyon, in France); they were very wealthy.
During the great depression, the factories went bankrupt and they lost almost everything
My grandmother (a WWI widow) could/was not willing to work.
She had kept a vacation home with two farms on it.

Then came WWII.
French people were starving and they were cold; butter and eggs could be bought on the black market for a lot of gold.
My father's family and their farmers were able to grow their own stuff; pick fruits in their orchard; raise chicken and pids; milk ther cows; cut woods and heat their home.
For five years, they lived better than any of their rich friends who were desperate to visit them for a good meal.

Warren Buffet's father was a stockbroker during the great depression; he bought a farm.

Our net worth is about 50 times our annual expenses. We owned our two homes and have no debts.
Given all the discussion about SWRs, I am happy about our asset allocation. With 90% stocks (with about 98% non-US, including emerging markets); 2.5% TIPS; 7.5% directly owned rental properties; 4.5% cash-equivalent; 0.5% gold.
If I retired today, the income generated by our assets (dividends; rent, interest) could pay for our living expenses (and I am not factoring in social security and a couple of pensions we can collect in a few years).

Still, when I have thought of actual black swans that have happened during the past 100 years (e.g., Russian revolution; WWII; Lebanon civil war), I have fantasized about buying a farm.
Becoming rich slowly is simple --earn, save, invest following a Bogleheads philosophy-- but it is not easy.

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BenfromToronto
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Re: The fear of retirement, black swan, and math to dissuade the fear.

Post by BenfromToronto » Sun Nov 19, 2017 10:35 am

TheNightsToCome wrote:
Sat Nov 11, 2017 3:47 pm
"But $10 - $15K a year for health insurance? And that's just the premium? Costs go up if I actually need it? That is hard to swallow and a really big hurdle for retirement around 50 years old."

For couples in their 50s, health insurance premiums alone often run $25,000-$30,000 per year. That's the cost in my area. The deductible is additional. Dental costs (which can be substantial for many) are additional. I'm 58, and this is why I am still working.
If one is prevented from retiring early beacue of the cost of health insurance while waiting for Medicare, there are alternatives to continuing one's current work.
For instance, my sister-in-law retired as a teacher in her early 50's and took a (very small) job as a (very low-paid) part-time librarian that allowed her to buy a group health insurance.
Becoming rich slowly is simple --earn, save, invest following a Bogleheads philosophy-- but it is not easy.

Johnnie
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Re: The fear of retirement, black swan, and math to dissuade the fear.

Post by Johnnie » Sun Nov 19, 2017 11:30 am

"- Market valuation at the time of retirement can impact market returns over an extended period of time, which in turn impacts safe withdrawal rates. When market valuation is at average or favorable levels, increase the safe withdrawal rate by 0.5% to 1.0%; at unfavorable valuation, use the existing baseline. A willingness to tactically adjust the portfolio in light of valuation changes can add an additional 0.2% to the withdrawal rate."

From "20 Years of Safe Withdrawal Rate Research" by Michael Kitces, May 2012.
https://www.aicpa.org/interestareas/per ... ch2012.pdf

That's a summary of a longer discussion. Several papers on valuations by Kitces, Pfau and others are described. Other SWR issues are also covered.
"I know nothing."

EnjoyIt
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Re: The fear of retirement, black swan, and math to dissuade the fear.

Post by EnjoyIt » Sun Nov 19, 2017 11:40 am

BenfromToronto wrote:
Sun Nov 19, 2017 10:06 am


Here is a strategy that should work for most real black swans (it will not work for a nuclear holocaust or may not work for an alien invasion :? ): buy a farm (you can use as a vacation home).

In the 1900's, my father's family owned silk factories (in Lyon, in France); they were very wealthy.
During the great depression, the factories went bankrupt and they lost almost everything
My grandmother (a WWI widow) could/was not willing to work.
She had kept a vacation home with two farms on it.

Then came WWII.
French people were starving and they were cold; butter and eggs could be bought on the black market for a lot of gold.
My father's family and their farmers were able to grow their own stuff; pick fruits in their orchard; raise chicken and pids; milk ther cows; cut woods and heat their home.
For five years, they lived better than any of their rich friends who were desperate to visit them for a good meal.

Warren Buffet's father was a stockbroker during the great depression; he bought a farm.

Our net worth is about 50 times our annual expenses. We owned our two homes and have no debts.
Given all the discussion about SWRs, I am happy about our asset allocation. With 90% stocks (with about 98% non-US, including emerging markets); 2.5% TIPS; 7.5% directly owned rental properties; 4.5% cash-equivalent; 0.5% gold.
If I retired today, the income generated by our assets (dividends; rent, interest) could pay for our living expenses (and I am not factoring in social security and a couple of pensions we can collect in a few years).

Still, when I have thought of actual black swans that have happened during the past 100 years (e.g., Russian revolution; WWII; Lebanon civil war), I have fantasized about buying a farm.
I think you are on to something. Baring a nuclear holocaust, owning a farm is a great hedge for some serious catastrophes. I would assume it is even better than saving to some ridiculously low withdrawal rate. The only downside is that now you have to work on a farm so you don't really get to retire. Maybe a better answer is to own some land with enough resources on it to sustain yourself and your family. A decent garden, chickens, and a cow. That should probably do it.

randomguy
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Re: The fear of retirement, black swan, and math to dissuade the fear.

Post by randomguy » Sun Nov 19, 2017 11:54 am

EnjoyIt wrote:
Sun Nov 19, 2017 8:57 am
randomguy wrote:
Sat Nov 18, 2017 9:55 pm

So what happens when the black swan comes and you don't get your SS check and medicare not longer exists? Sounds unthinkable? That is exactly what a black swan is.
How do you protect against that and every other horrible thing life can throw at you? You do realize that if SS and Medicare just disappeared you will likely have far more to worry about than your withdrawal rate. There is preparing for real possibilities and then there is irrational fear.
The point was that living on SS doesn't eliminate black swans. They are unlikely to happen but that is what everyone says about a black swan until they happen. A black swan is not some expected event (i.e. the markets will drop in the next 30 years by 30%+. That isn't a black swan event). They are the things that everyone says will not happen.

Should you let fear of black swans run your life? Of course not. But pretending they can't happen is delusional.

randomguy
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Re: The fear of retirement, black swan, and math to dissuade the fear.

Post by randomguy » Sun Nov 19, 2017 11:59 am

EnjoyIt wrote:
Sun Nov 19, 2017 11:40 am

I think you are on to something. Baring a nuclear holocaust, owning a farm is a great hedge for some serious catastrophes. I would assume it is even better than saving to some ridiculously low withdrawal rate. The only downside is that now you have to work on a farm so you don't really get to retire. Maybe a better answer is to own some land with enough resources on it to sustain yourself and your family. A decent garden, chickens, and a cow. That should probably do it.
What happened to farmers during the great depression?:) Or in Russia before the revolution (do you think anyone in 1910 Russia could have seen the end coming so quickly)? Wouldn't you rather be the person with 10x as much money as need to either ride out the depression or to leave the country for a different one? The hedge against black swans isn't having one plans. It is having a dozen and hoping one works. And yes that is insanely expensive when you start talking about collapses of civilization.

hoops777
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Re: The fear of retirement, black swan, and math to dissuade the fear.

Post by hoops777 » Sun Nov 19, 2017 3:34 pm

Well if civilization collapses there is nothing you can do to prepare with the exception of learning how to live off the land.I think that is way,way beyond financial survival.
Like I said earlier,the more money you have saved and the lower your overhead,the better chance you have to get through any financial black swan and live your normal life.
K.I.S.S........so easy to say so difficult to do.

TheNightsToCome
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Re: The fear of retirement, black swan, and math to dissuade the fear.

Post by TheNightsToCome » Sun Nov 19, 2017 8:37 pm

BenfromToronto wrote:
Sun Nov 19, 2017 10:35 am
TheNightsToCome wrote:
Sat Nov 11, 2017 3:47 pm
"But $10 - $15K a year for health insurance? And that's just the premium? Costs go up if I actually need it? That is hard to swallow and a really big hurdle for retirement around 50 years old."

For couples in their 50s, health insurance premiums alone often run $25,000-$30,000 per year. That's the cost in my area. The deductible is additional. Dental costs (which can be substantial for many) are additional. I'm 58, and this is why I am still working.
If one is prevented from retiring early beacue of the cost of health insurance while waiting for Medicare, there are alternatives to continuing one's current work.
For instance, my sister-in-law retired as a teacher in her early 50's and took a (very small) job as a (very low-paid) part-time librarian that allowed her to buy a group health insurance.
Retirement would be nice, but I'd rather work at the stressful, highly-compensated job I was trained to do rather than as a barista. I don't think the latter change would improve my life.

sambb
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Re: The fear of retirement, black swan, and math to dissuade the fear.

Post by sambb » Sun Nov 19, 2017 8:39 pm

health insurance and future uncertainty related to it, is a major reason to keep working. so might as well find a job that one likes! I really like mine - the key is understanding the mission of the company, not one's own goals.
To me, the most worrisome black swans are vanguard IT failure, international uncertainty, plague/disease, and of course personal health.

randomguy
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Re: The fear of retirement, black swan, and math to dissuade the fear.

Post by randomguy » Sun Nov 19, 2017 8:51 pm

hoops777 wrote:
Sun Nov 19, 2017 3:34 pm
Well if civilization collapses there is nothing you can do to prepare with the exception of learning how to live off the land.I think that is way,way beyond financial survival.
Like I said earlier,the more money you have saved and the lower your overhead,the better chance you have to get through any financial black swan and live your normal life.
It is more what if your civilization collapses (i.e. you lived in Cuba, Russia, China, Roman empire... during the revolution). More money helps with more than just financial black swans. It can also help deal with political ones by being able to get out of dodge. But at some point, you hit collapse points where nothing is going to help. When the aliens from Rigel show up and start canning humans for snacks, pretty much all planning is going to be useless.

The headline is the problem with this thread. The math doesn't help with black swans. It also doesn't need to. The fear of retirement for most people isn't from black swans. It is from normal market volatility. Sure maybe Japan counts as a black swan but most of the worries are more about lost decades (30s, 00's late 60s/70s) and not lost 3 decades. That is a fear that is pretty easily dealt with by saving a bit more money and using modern tools (TIPs, diversification). Heck even Japan was handled pretty well by them. You then just have to decide how bad you think the worse possible future will be. And when you start thinking about it being 25%+ worse, TIP ladders pretty much allow you to have a 30x SWR with mainly just political risk.

It is one thing to be conservative (say use the 4% rule). Or even ultra conservative (assume the future will be worse and go with a 3% rule). But at some point it starts becoming crazy talk (2% rule, 1% rule, -1% rule,....)

ResearchMed
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Re: The fear of retirement, black swan, and math to dissuade the fear.

Post by ResearchMed » Sun Nov 19, 2017 8:54 pm

sambb wrote:
Sun Nov 19, 2017 8:39 pm
health insurance and future uncertainty related to it, is a major reason to keep working. so might as well find a job that one likes! I really like mine - the key is understanding the mission of the company, not one's own goals.
To me, the most worrisome black swans are vanguard IT failure, international uncertainty, plague/disease, and of course personal health.
And for ONE of these, there is at least a partial fix/prevention: "vanguard IT failure"...

That is why we have money at more than one vendor, and always will (at least two). IF there is a failure at all of them, that likely becomes a different type of problem.
(For "personal health", one can obviously be as careful as possible to get vaccinations, and proper care/testing as needed, but there can always be unfortunate health outcomes that simply could not have been prevented.)

It's one thing to lose access to, say, 1/3 of your money, whether it is temporary (short or long term) or permanent. :shock:
It's something very different if the loss is of almost all of your money.

RM
This signature is a placebo. You are in the control group.

sambb
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Re: The fear of retirement, black swan, and math to dissuade the fear.

Post by sambb » Sun Nov 19, 2017 8:56 pm

great point about holding money elsewhere than vanguard. I am astonished at their IT and customer service issues that people report here. THis points to a leadership issue usually. Thanks for pointing out that this is preventable by putting funds in more than one place.

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Re: The fear of retirement, black swan, and math to dissuade the fear.

Post by technovelist » Sun Nov 19, 2017 9:21 pm

randomguy wrote:
Sun Nov 19, 2017 11:59 am
EnjoyIt wrote:
Sun Nov 19, 2017 11:40 am

I think you are on to something. Baring a nuclear holocaust, owning a farm is a great hedge for some serious catastrophes. I would assume it is even better than saving to some ridiculously low withdrawal rate. The only downside is that now you have to work on a farm so you don't really get to retire. Maybe a better answer is to own some land with enough resources on it to sustain yourself and your family. A decent garden, chickens, and a cow. That should probably do it.
What happened to farmers during the great depression?:) Or in Russia before the revolution (do you think anyone in 1910 Russia could have seen the end coming so quickly)? Wouldn't you rather be the person with 10x as much money as need to either ride out the depression or to leave the country for a different one? The hedge against black swans isn't having one plans. It is having a dozen and hoping one works. And yes that is insanely expensive when you start talking about collapses of civilization.
Yes, I can confirm that this is true. That's because I was very concerned about Y2K and took quite a few precautions against a collapse of civilization.

Fortunately some of those precautions turned out to be profitable, so I wasn't wiped out when nothing much happened.
In theory, theory and practice are identical. In practice, they often differ.

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