Our spending desires (and needs) change through time. Blanchett observes a “retirement spending smile” that varies slightly for retirees with different household spending levels.
Getting taxed once is hard enough, but getting hit a second time on the same dollars? That’s enough to give even a compliant taxpayer the urge to toss crates of tea into Boston Harbor. Whether double taxation like the gift tax is morally right or not is a topic for someone else to tackle. But if you […]
Most people are focused on saving for retirement so they’ll have the money they need to fund their income in retirement. However, ask most people how much they’re going to spend in retirement and they have no idea. To plan for retirement effectively, you need to have some sense of what your spending needs are actually going to be.
Data breaches are a constant concern in our modern society. As the latest in a long string of data breaches, Equifax recently announced they were the target of a cyberattack in which the sensitive information of nearly half of all Americans was compromised. You can follow this link to see if you’re one of the 143 […]
With this overview of how the different variable spending strategies performed historically, it is worthwhile to put a bit more effort into understanding the relative performance of these strategies in different market environments.
As an alternative to failure rates, I suggest calibrating the downside risk across strategies in order to match them for a level of risk the retiree is comfortable taking. This calibration is done with a customized “XYZ formula” that I first outlined in my article, “Making Sense Out of Variable Strategies for Retirees” in the Journal of Financial Planning.
The 4% rule has a planning horizon of thirty years. But is that a long enough horizon?
An important simplifying assumption in William Bengen’s research is that retirees spend constant inflation-adjusted amounts throughout retirement. This may be at odds with the spending patterns of many retirees.
Because the tax situations of individuals will vary so greatly in terms of tax rates, interest and dividends supported by the portfolio, and the cost-basis of the taxable account, it is impossible to create one general number for a sustainable spending rate from a taxable account.
This is a matter where Monte Carlo simulations are able to shine, by allowing simulations to begin from today’s starting point rather than incorporating historical outcomes generated from completely different market environments.