Post
by JOtar » Wed Sep 02, 2009 9:39 am
Very interesting comments above.
1. RMD question/comments. I think HueyLD summed it up extremely well. No need to add another word from me.
2. Trinity study, or any other studies: I ignore (and throw away) any academic study that: A. uses some kind of simulator, Monte Carlo or otherwise, B. uses "generous" historical dividends, C. data starting in 1926 or later.
Some may call it arrogant, but I find it mentally less cluttering, because it eliminates 98% of the academic research from my "inbox".
For example, I contributed a chapter on the luck factor to "Retirement Income Redesigned" a few years ago. Eventually, I received one complimentary copy of the book from the publisher. I could only find one chapter in it that was trustworthy to read, and that was W. Bengen's chapter. That is because he also uses actual market history. Many other chapters may be great reading in theory, but they used simulators and other approaches that have weak "legs" (see page 292, "Unveiling the Retirement Myth").
3. Otar Retirement Calculator: I developed it in year 2000 when I was writing my first book "High Expectations and False Dreams", where I talked about the adverse effects of the sequence of returns, inflation and reverse dollar cost averaging, basically the three components of the luck factor several years before many others jumped later on on the bandwagon.
At that time, when I published that book, I made a simpler retirement calculator available on my website for almost free (I asked people to donate to Cancer Society) that reflected the sequence of returns to some extent (2-layered Monte Carlo). A few fellow advisors asked me to make the Otar Retirement Calculator that I used for the first book, available for them in a more user friendly edition. At that time it was a 45 mB program which had everything from life insurance to owning your second home in it. So, I chopped away everything that is not related to retirement planning, reduced the size to 15 mB and made the program available for others since 2004. Yes, you can change any income at any age, higher lower, buy a car every three years, include investment portfolios, VA-GMWB, VA-GMIB, life annuity, VPA etc in your income allocation and see results.
Firecalc: If you are using Firecalc, then you are already miles ahead of the crowd. As long as you are using the actual history, a history that is not contaminated by statistics or infested by academic theories, you are on the right track. I don't know when Firecalc started, you should ask it to them. When I was looking at calculators in 2004, before I made mine commercially available, there was no calculator available then based on actual market history, as far as I could tell then.
4. Be safe, do not round up 3.7% to 4%. It is not worth going broke at age 91, when you might not know the difference between the urinal and the mattress. At that time, it is too late to make adjustments of 0.3%.
To the skeptics that say "can you rely on historical outcomes?" My answer is "No, I can't". I think the outcome will be worse in this century than last century. The culture of short-term thinking and unethical behavior is much more ingrained now then before and it is all around us. We are, in effect, stealing from our children by downloading all this debt and burden to them, just for us to feel good for a while longer. So, if you want to be even safer, keep your SWR to 3.3% to account for that. And if you have been living frugally, meeting this benchmark should not be that difficult.
have a wonderful day
