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Old 04-17-2016, 03:21 AM
 
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Quote:
Originally Posted by PatMil View Post
For me the most important retirement planning tool is the one between your ears.

You need to understand the impact of all the assumptions that are used by the tools. Your guesses are probably as good as anyone else. In addition you need to understand that eventually you are going to have to live these assumptions.

The best of these tools are ones that use a Monte Carlo simulation - where there is not only one answer! These tools have their place but they don't replace a lot of careful thinking.
there is less than a fraction of a percent difference between monte carlo and actual historical data going back to every 30 year rolling time frame since 1926 .

it looks like 1965/1966 was just about the worst 30 year time frame even computers can come up with . you can run both in fire calc .

what changes from calculator to calculator are assumptions about inflation and how they compute it , whether or not they inflate healthcare and long term care more and how far back the data set goes , the standard is usually based on 1926 and forward .,

it is only when you use a reverse amortization calculator like the market watch one or any of those other straight line how long will my money last calculators that you will be way off . most that use actual data or monte carlo of the same time frames will be pretty close to the same results and provide a safe starting point .

all these tools are to give you a starting point , they are not and never were supposed to be life long plans . unless you are a worst case scenario you will leave to much money unspent most of the time on the table left over that was never enjoyed so raise's along the way are important .

your own spending patterns and tax situation will influence the numbers as well once they become part of the spending side of the equation .

Last edited by mathjak107; 04-17-2016 at 04:46 AM..
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Old 04-17-2016, 11:59 AM
 
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I have three hours of paperwork in front of me, so I will keep this short. (ah, the life of the self employed.)


Didn't read the article, but, I think they can be harmful for people who dissect every little last detail.


I got married in 1983, way before the internet. And one of the things we were determined to do, because we saw what my mom went through when my dad died at 57, was save. We didn't know squat about investing, had to learn, we didn't know squat about retirement, had to learn, but I did hear about the 4% rule.


Which was cool, because at the time, passbook savings accounts paid 5.5% Wow -- save a bunch of money, and never touch the principal and leave it in a passbook savings -- or maybe a money market!!! They paid even more!


Babes in the woods.


I sat down and did some ciphering (anyone else remember Jethro Bodine?) and came up with the amount of 750,000.00 we had to save to get the handsome income of 30,000. a year. Which to us sounded like a fortune!


And so we set to saving...and living frugally, and we're happy. But I am the type of person that I dissect every little detail.... and frankly, when the downturn hit, I freaked. I got obsessive over our investments and it was ugly. I had at one point started thinking of cutting everything out because I thought we really needed 5 million dollars. Yeah...no. So I let it go -- I disconnected. We got it all back, and now I need to reconnect again -- but not in the same way.


Life is fluid, there is no magic number, and what ever I save, it will be what we will use and everything is okay.
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Old 04-17-2016, 01:20 PM
 
Location: Haiku
4,188 posts, read 2,599,410 times
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Quote:
Originally Posted by PatMil View Post
The best of these tools are ones that use a Monte Carlo simulation - where there is not only one answer! These tools have their place but they don't replace a lot of careful thinking.
A Monte Carlo simulation requires a model for the variability in annual returns called a probability density function (PDF). The two most commonly used PDF's are a normal distribution and lognormal distribution. The problem is, neither one of these accurately models the actual data, although it is closer to a lognormal than to a normal distribution.

There is another problem - annual returns are not independent events - there is a positive auto-correlation to the time sequence of returns. We see this as bull markets and bear markets that tend to be multi-year runs. Any MC simulation that uses a lognormal PDF cannot account for sequence of return correlations; the PDF simply does not have that information in it.

I have not looked at all MC simulators so cannot say if they all are failing in this regard, but the couple I have looked at in the past did not. For this reason I trust the simulations that use historical data more than the ones based on MC. The trouble with historical data is the number of 30 year sequences is limited.
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Old 04-17-2016, 02:52 PM
 
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the historical may be limited with 110 30 year periods if you look at the trinity study or bill bengans safemax study but the ones that count , those worst case scenario's have been about as ugly as ugly ever was .

since 1966 no time frame was as horrible mathematically . even the y2k retiree has not had it that bad . they are on track to be comparable to the 1929 retiree which was not as bad as the 1965/1966 group .

all the rolling 30 year periods that were examined were looked at to identify the worst of the worst . for all purposes except for 1907-1929-1937-1965/1966
every other period was discarded . having more periods unless they were worse they don't count . in fact shiller has his data going back 146 years and has no worse time frames in the data set of rolling 30 year periods . the safe withdrawal rate is based on those time frames above .

Last edited by mathjak107; 04-17-2016 at 03:12 PM..
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Old 04-17-2016, 04:49 PM
 
Location: Central Massachusetts
4,800 posts, read 4,856,396 times
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Quote:
Originally Posted by PatMil View Post
For me the most important retirement planning tool is the one between your ears.

You need to understand the impact of all the assumptions that are used by the tools. Your guesses are probably as good as anyone else. In addition you need to understand that eventually you are going to have to live these assumptions.

The best of these tools are ones that use a Monte Carlo simulation - where there is not only one answer! These tools have their place but they don't replace a lot of careful thinking.
and consideration.

Great post PatMil
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Old 04-17-2016, 05:06 PM
 
Location: Florida -
8,767 posts, read 10,862,335 times
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My observation of many of these tools is that they are designed by people attempting to sell you retirement and financial planning services and products. As a result, the answers are predictable:

1) Regardless of how much you have, you will need at least twice that much
2) Their product or service is your best solution.
3) You need to save 2-3 times what you are saving now and work until you are at least 67
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Old 04-17-2016, 05:40 PM
 
71,806 posts, read 71,896,917 times
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nonesense .

i have yet to see a real calculator and not some sales tool that does that . they are all based on worst case outcomes that we either had or can be simulated .

there is no sales pitch in those calculators . not firecalc , not fidelity's planner , and others like them . in fact none of the true calculators tell you how much you need , you tell it what you have . the calculator just does simple math and looks at how many rolling 30 year periods your draw you want to take with the allocation you want has already failed .

there is nothing to sell you with these tools . the answers are all data based and based on real math and data .

you may decide you are willing to take the risk and draw more with a lower success rate or that you rather invest less aggressively and save more but that doesn't change the results .
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Old 04-17-2016, 05:46 PM
 
11,941 posts, read 20,414,269 times
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Quote:
Originally Posted by jghorton View Post
My observation of many of these tools is that they are designed by people attempting to sell you retirement and financial planning services and products. As a result, the answers are predictable:

1) Regardless of how much you have, you will need at least twice that much
2) Their product or service is your best solution.
3) You need to save 2-3 times what you are saving now and work until you are at least 67

Totally agree -- I think the brokerage firms dish out a lot of fear in order to profit. And the bad thing is, it backfires on them. I think they'd have a lot more money, if they didn't tell people they needed so much. I know tons of people who make lower middle class wages, but still respectable money, and who could still save a respectable amount, but the amount they think they need to put away makes them throw their hands up and give up.


By the way -- five hours of paperwork, but I'm all caught up. YIKES... I'm trying to get all my ducks in a row before I get my hand operated on.
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Old 04-17-2016, 06:28 PM
 
71,806 posts, read 71,896,917 times
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when it comes to marketing , yep i sure agree . that is what firms do , they sell . you are never a client , just a customer .

but when it comes to these tools if they are truly using a retirement calculator that is not a toy and just some kind of marketing tool the numbers that these calculators use are your own .

they don't imply anything other then just do addition and subtraction each year of actual data or computer simulations of that data and the spending you give it .


you can google best planners and there are quite a few today and the common denominator to all of those are they use your numbers and simple math and there is no marketing built in.

each 30 year period has each years returns interest and inflation calculated off YOUR balance and spending is subtracted and on to the next year , so on and so on depending on how many 30 year time frames you ran out of money you are given a success rate .

that is all they do and if you understand what it is they do and look at you will realize it is just math going on , no marketing , no inflating numbers , it is just what it is .
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Old 04-17-2016, 07:18 PM
 
Location: NC Piedmont
3,911 posts, read 2,884,049 times
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My FA told me that some of the tools that his firm (Janney) and others use are often restricted to clients only not because they are trying to use them as bait or an advertisment but because they do scare people. They aren't trying to convince you to invest more by pretending what you have isn't enough, just telling you what the odds are that it is or isn't enough based on historical data. And a good FA will encourage you to think about prioritizing planned expenses if you need to lower your draw to increase the odds of success, not just pound you to invest more if you tell him that isn't likely to happen.
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