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Old 09-21-2017, 03:47 PM
 
2,689 posts, read 1,546,921 times
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Quote:
Originally Posted by TwoByFour View Post
That is a very good way of thinking of retirement investment. However, one way the pension analogy breaks down is that a pension has an infinite time horizon and it is pooled money. While it is paying out distributions, part of that is funded by investment returns but part is also funded by new capital coming in from people who are not yet retired, just paying into the pension fund. It also has no end date, so everything in in looks like a very-long term investment. The shorter an investment horizon is, the harder it becomes. That is a problem for a personal investor with our finite life span but not for a pension.
This is not totally accurate. First, no pension fund has an infinite time horizon, since no one lives infinitely. Instead, the fund is age matched so to speak to its risk pool, the pensioners and those to be. Second, no pension fund is funded by the earnings of current employees, at least not under US law. Instead, the contributions of current employees goes to funding their own environment.
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Old 09-21-2017, 04:26 PM
 
Location: Haiku
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A pension has no termination date, so it is infinite. An individual has to have money available right up to his "end date". Nobody knows when that will be, but statistically it will likely be before 90 for women, 85 for men. Individuals have a finite bucket of money that is being spent down. It is race to see which runs out first - your life or your savings. We bet that it will be our life which ends first. A pension does not have that problem because it is a pool of money and if one person lives to be 105 it won't affect much because someone else is just as likely to die at 70. It has no single date that it needs to provide all of resources by. It does not have the liquidity problem an individual has because it has an infinite time horizon. It just goes on forever.
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Old 09-21-2017, 04:43 PM
 
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Quote:
Originally Posted by TwoByFour View Post
A pension has no termination date, so it is infinite. An individual has to have money available right up to his "end date".
You are confusing "indefinite" with "infinite". No one has ever been documented to live forever. Even Jeanne Calment eventually died at 122.

You can even address longevity risk with annuities. Have someone else assume the risk.

BTW, "infinite time horizons" worsen liquidity problems, since the money needed to fund such a risk is quite high.

I think you have some things backwards?
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Old 09-21-2017, 04:51 PM
 
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Quote:
Originally Posted by TwoByFour View Post
A pension has no termination date, so it is infinite. An individual has to have money available right up to his "end date". Nobody knows when that will be, but statistically it will likely be before 90 for women, 85 for men. Individuals have a finite bucket of money that is being spent down. It is race to see which runs out first - your life or your savings. We bet that it will be our life which ends first. A pension does not have that problem because it is a pool of money and if one person lives to be 105 it won't affect much because someone else is just as likely to die at 70. It has no single date that it needs to provide all of resources by. It does not have the liquidity problem an individual has because it has an infinite time horizon. It just goes on forever.
a pension may have a cola but it will never match your personal rate of inflation so that may not support you so well forever either .

but in any respect when talking statistics the fact that most of us plan for 30 year retirements but very few of us actually see them gets added to the statistics of a portfolio lasting 30 years at 4% .

between the two the odds are about 99% that you will not run out of money .

in fact once human emotions come in to play and the fact we tend to reduce spending in our older years the odds become just about 100% .

the wild card if you have no plan though is long term care .
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Old 09-21-2017, 10:57 PM
 
Location: Haiku
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Quote:
Originally Posted by bigbear99 View Post
You are confusing "indefinite" with "infinite". No one has ever been documented to live forever.
Read what I wrote. I was referring to the fund, not the person.
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Old 09-22-2017, 03:57 AM
 
Location: Central Massachusetts
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Quote:
Originally Posted by mathjak107 View Post
well the whole idea of a safe withdrawal rate is to create a pensionized income that is , safe , secure and consistent .

in reality you are trying to create your own pension .

the same way you don't want your pension to be a variable amount you can't count on each month , is the same logic here .

the whole idea is not to take a pay cut and to most likely have to take raises under more normal conditions .

that does not mean you have to spend your portfolio like a robot , but it does mean you should be able to count on it the same way you would count on a pension not being reduced in bad times ..
I agree that the idea is not to give yourself a pay cut (black bold)

I also totally agree that you should not spend as if you had an endless supply of money (red bold)

But it is this line (green bold) that has flaws. For most folks here and I would put that percentage of folks high, would have some sort of steady income whether it is SS or pension needs to be able to be flexible enough by utilizing any sort of bucket model. Having a fund for rainy days so to speak.

If a person doesn't have SS then they are covered by a pension. That all by itself shows that no one lives on an island. So if they are drawing from retirement savings they need to be using the bucket model so that if on a down turn in the market and retirement savings are losing value due to market conditions they might need to look at spending habits and lean heavier on that rainy day fund and the today bucket of money. The draw from retirement savings is to supplement retirement income. It should not be the only source of income. If it is then they were not ready to go into retirement.
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Old 09-22-2017, 04:55 AM
 
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you don't need that rainy day bucket as much as you just need rainy day assets .

as discussed many times there is no advantage to bucketizing anything with cash .

simply rebalancing stocks and bonds can provide the same cash flow . down markets will not have you selling stocks to raise cash . they would have you selling off bonds which likely went up if stocks dived .


so mentally yeah having that cash bucket feels good but in the end it actually does nothing you can't do with zero cash pretty much and just creating an income stream rebalancing when ever you need more cash .

how the sausage is made is irrelevant . it is having enough resources to cover the awe craps .

it is about having enough discretionary income in the plan to adjust if things go badly .

if everything is a need and not a want in the budget it does not matter how much cash you have , you have little to cut back on .

it is not the buckets that give you flexibility . it is the ratio of non discretionary to discretionary spending you have .

so yeah ,we have steady income sources coming in now with social security being about 40k for the two of us , a small 20k pension , about 5k in rental income and i pull in about 15- 20k working when i want . but our expenses and budget require a steady draw from our portfolio too .

our budget we planned around is the entire number and each part is needed to live on . we did have a choice in lifestyle . we could have lived in manhattan but we would have had a much smaller discretionary budget . instead we live in queens and our budget will allow us to make cuts if needed since we keep a very high ratio of discretionary to non discretionary spending .

how we get that cash to live on from the portfolio is irrelevant . a good part is interest and dividends from invested assets . we keep about 1 years cash now but even that can be reduced and taken from investments as needed .

we are getting more comfortable 3 years in with holding less cash .

Last edited by mathjak107; 09-22-2017 at 05:04 AM..
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Old 09-22-2017, 05:29 AM
 
Location: Central Massachusetts
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So again you prove my point. It is the discretionary spending that needs adjusting more than discretionary income. So as markets rise and fall and retirement funds lose and gain value the user of those funds need to re-evaluate the need for a precise income from a variable resource. Nothing short of planning ahead will work.

When a person's income from all streams is a pay check to pay check life and death situation something needs to change. This is not saying that anyone that only has those income streams with no retirement savings did anything wrong. I get it how in a large percentage of the population is living pay check to pay check. So my final line in my post that they were not ready for retirement holds true.
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Old 09-22-2017, 06:54 AM
 
71,728 posts, read 71,829,507 times
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aaaahhhh! but then we get to my point and that is so far in more than 50 years no has had to make that adjustment because of poor markets and that is the idea behind having a safe withdrawal rate that you can now monitor . even 2008 was a bump in the road for the 4% safe withdrawal rate . if you retired in 2008 mentally you may have spent less but you really did not have to .

markets recovered and a v-shaped rebound was not even a blip to the draw rate . it was life as usual from a portfolio standpoint . don't forget this discussion is about creating a pensionized income from your portfolio that should pretty much provide a safe ,secure consistent income regardless of what markets do . unless there is an exceptionally long down turn which so far not even the great depression caused .

so the discussion is not about the spending side which is chock filled with emergency and unexpected spending . it is about developing a safe ,secure consistent income stream regardless of markets that rivals a pension ...

the fact a pension is consistent has nothing to do with the spending side and having to make adjustments because life's non market related zingers are causing over spending at times .

Last edited by mathjak107; 09-22-2017 at 07:57 AM..
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Old 09-22-2017, 08:57 AM
 
Location: Central Massachusetts
4,800 posts, read 4,852,811 times
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Quote:
Originally Posted by mathjak107 View Post
aaaahhhh! but then we get to my point and that is so far in more than 50 years no has had to make that adjustment because of poor markets and that is the idea behind having a safe withdrawal rate that you can now monitor . even 2008 was a bump in the road for the 4% safe withdrawal rate . if you retired in 2008 mentally you may have spent less but you really did not have to .

markets recovered and a v-shaped rebound was not even a blip to the draw rate . it was life as usual from a portfolio standpoint . don't forget this discussion is about creating a pensionized income from your portfolio that should pretty much provide a safe ,secure consistent income regardless of what markets do . unless there is an exceptionally long down turn which so far not even the great depression caused .

so the discussion is not about the spending side which is chock filled with emergency and unexpected spending . it is about developing a safe ,secure consistent income stream regardless of markets that rivals a pension ...

the fact a pension is consistent has nothing to do with the spending side and having to make adjustments because life's non market related zingers are causing over spending at times .
so we came to the same conclusion using similar methods. My explanation is geared more to the lay person and your explanation is geared to the person who was laid. LOL


Oh BTW should we contact Webster for the new word "pensionized"?
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