Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
the videos are flawed badly because they try to use average inflation figures and you can't use average anything . i will explain in a few minutes why .
Last edited by mathjak107; 05-01-2016 at 04:18 AM..
once again , your lack of knowledge in this area does not let you see how flawed those video's are as well as they do not look at using the spia with your own investing . what a joke, those videos are , he should be embarrassed to even have bothered to make them . . they drop the ball in the number 1 area of retirement planning , sequence risk . .
he did not use actual inflation sequences , he used a 3.1% average . you can't use average inflation figures anymore then you can use average returns when spending down .
the results are so skewed without actual sequence in inflation . when actual inflation is used a 28/72 portfolio failed to last 30 years 19 different time frames .
what does a 28% equity mix really look like ? lets see firecalcs actual data based on actual inflation figures as they played out .
--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Your spending in every year after the first year will be adjusted for inflation, so the spending power is preserved.
FIRECalc looked at the 116 possible 30 year periods in the available data, starting with a portfolio of $100,000 and spending your specified amounts each year thereafter.
Here is how your portfolio would have fared in each of the 116 cycles. The lowest and highest portfolio balance at the end of your retirement was $-22,503 to $329,412, with an average at the end of $63,478. (Note: this is looking at all the possible periods; values are in terms of the dollars as of the beginning of the retirement period for each cycle.)
For our purposes, failure means the portfolio was depleted before the end of the 30 years. FIRECalc found that 19 cycles failed, for a success rate of 83.6%.
anything below 90% is unacceptable .
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
an spia by itself should not be used . an spia is akin to just bonds and owning bonds during high inflation times which is the time frame the video uses will have bonds doing poorly without an inflation hedge being used .
so once again you proved nothing about my point which is using an spia with your own investing out performs your own investing and your video's are flawed since you can't use average anything because sequences of returns and inflation count the most .
these guys you quote that pretend to debunk things need an education in basic retirement planning the same as you do .
most folks here fully understand why average anything does not work when spending down and how crucial actual sequences are , so why does this supposed expert in your video not understand basics and he try's to use a constant 3.1% inflation figure year after year . .
that makes a huge difference in how things play out , just like using a constant average return would with never a losing year .
using averages can be off by as much as 15 years compared to actual .
had he used actual inflation he would have found that by year 15 the die was cast in 19 time frames for failure . in fact had he done that he would have found that in 1965/1966 by going out 30 years regardless of how things improved there just wasn't enough money left to grow and recover from the excessive spending the first 15 years took from inflation goping from 1% to double digits in only a few years . .
so just what did this unlucky group in 19695 or 1966 see ?
for the 30 year period they saw a 9.67% annual return for a 60/40 portfolio starting in 1966 becomes a 4.46% real return after inflation, 5.41% for stocks and 2.39% for bonds. not really to bad right ?
however for the first 15 years, the 60/40 portfolio had a real return of 5.74% nominal but -0.18% per year after inflation. Stocks returned 0.8% per year during this period and bonds returned -2.60% per year. And to round it out inflation averaged 5.92% during this 15 year period..
the fact markets bounced back and improved the averages later on meant nothing , to much gets spent down over the first 15 years in all the failure cases .
the math for that 15 year period was the worst ever for a retiree group , nothing to date has matched it .
Last edited by mathjak107; 05-01-2016 at 04:53 AM..
@Robyn55- my Swiss annuities are in US$. Some companies offer them only in Fr, some also in US$ and €. Rates are lower than when I opened my accounts, but still better than bank accounts (and you can use them same as bank accounts because people older than 60 can withdraw from them any amount any time, free of either Swiss or US penalty). Not sure what makes you so certain that some Swiss annuity companies will go under, when no such company went under (or failed to make a single payment to a single client) in more than 150 years :-). La vieille Suisse is pretty well known for safety.
What makes me very concerned is negative interest rates. Which have profoundly negative effects on the ability of insurance companies to meet their obligations:
Buying an insurance product like an annuity today wouldn't give me any peace of mind. To the contrary - it would keep me up at night.
FWIW - any illusions anyone had about the relative safety of Swiss financial institutions should have been shattered by things like the mess at UBS. Which had to be bailed out by the Swiss government. Three times!
interest rates going negative in the short end may not influence bonds much . in fact the rush to lock in yield may produce some nice capital gains as folks and institutions attempt to lock in yields before things go even more negative .
we don't know , but it may actually be pretty good for existing bond portfolio's .
kind of like how rising mortgage rates actually was good for housing as folks started going we better buy now before we can afford even less house .
I to am curious if the OP decided for or against. I took a long time deciding to take mine out but the peace of mind is wonderful. I plan to start taking payments on mine at 65. I really like elnrgby's attitude to live and not worry about money. I would love to work on my own mindset to be more like his/hers.
I'm undecided but at this point in time the argument to use the money as a means to delay SS, which would give me a larger check that raises with COL (although I don't think it really keeps up) sounds like a smarter move.
SS is supposed to respond to inflation although there was no COLA in 2016 and I think most people would agree that while interest rates are in the dumps there has been inflation in areas that most seniors are affected by--medical costs, food, shelter, and property taxes (although some seniors may have their taxes frozen to certain extent depending on where they own property)
personal cost of living is not really reflected in the cpi nor was it ever supposed to be .
the cpi is only a price change index on a basket of stuff , some of which may apply to us and other stuff it doesn't .
the country is actually 1500 mini economy's and very few are the same .
how many times you buy certain things as well as the alternates you choose and the quality level make each one of our personal cost of living unique to us .
the videos are flawed badly because they try to use average inflation figures and you can't use average anything . i will explain in a few minutes why .
You obviously never watched the 2nd video. Pegged to inflation for each year.
You are giving dangerous advice by telling people that immediate annuities are good for seniors.
interest rates going negative in the short end may not influence bonds much . in fact the rush to lock in yield may produce some nice capital gains as folks and institutions attempt to lock in yields before things go even more negative .
we don't know , but it may actually be pretty good for existing bond portfolio's .
kind of like how rising mortgage rates actually was good for housing as folks started going we better buy now before we can afford even less house .
Yields on the Swiss 10 year bond are negative (as are other longer term rates in other countries).
That is hardly the short end of the curve. And we're not talking about bond portfolios or capital gains - we're talking about annuities. And depending on an insurance company to make good on its *very* long term promises to policy holders.
Note that in response to this situation - some insurance companies are investing in areas where they have no business investing IMO - like emerging market debt. Doesn't exactly make me feel warm and fuzzy:
FWIW - if anyone thinks that the regulators and central banks are on top of this - reading The Big Short (a very entertaining book - http://www.amazon.com/Big-Short-Insi.../dp/0393338827 - liked the movie too) will provide a reality check. These guys didn't see the last one coming - and I have no reason to believe they'll see the next one coming either.
If you own annuities - well I guess you own them. Wouldn't buy them now. Not until the interest rate environment gets back to normal. Robyn
I finally got the 2nd video to play. It is still not accurate for the purpose of this discussion.
1966 failed because of high inflation. So trying to use a non inflation adjusted bond which is what an spia is would not be an accurate comparison if you are just pulling out one scenario which is a high inflation one.
First of all no one in their right mind would use a non inflation adjusted annuity alone. They need an inflation hedge. Other wise don't compare them to a stock and bond portfolio.
The proper comparison would be spia vs just a bond portfolio.
So that 28/72 portfolio failed 19 rolling 30 year time frames to date. Know how many times a 35/65 portfolio with 25% in a spia from the bond budget failed ? None
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.
Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
