Solving the Retirement Income Problem

Whether to retire, or when, is a very personal decision. But if one does choose to retire, funding it might become a problem. There are plenty of online calculators that will project one’s incomes and expenses and offer a guess as to whether retiring is feasible or not. I think most of them are junk for three reasons:

#1. They over-estimate how much money can be made from investing.
#2. They under-estimate the impact of inflation.
#3. They under-estimate one’s possible life-span.

Let’s assume one can project one’s likely, average, annual expenses in retirement, because one has been tracking them for the last 20 to 30 years. Let’s bump the expense factor up by a 10% ‘fudge factor’. Let’s assume that inflation will increase each year by average of 6%, not the Fed’s lie that it’s less. Let’s assume one’s life-span will be the current world’s maximum. (112 for men. 122 for women.) Let assume a portfolio growth of a minus (-5%) per year. Let’s assume that transfer payments like pensions and Social Security Insurance will have a zero COLA.

In other words, rather than the nonsense 4% downdown factor most retirement planners use, let’s assume the drawdown factor imposed on one’s net-worth is closer to (-10%) per year, but that the drawdown is offset by spending less than what is provided from one’s transfer payments.

In such a scenario, “How soon does one run out of money before one runs out of life?”

If one still has money on one’s death bed, then how much investment risk has to be taken on before then? Very very litttle, right? Running the previous stress-test has me still solvent at age 116. Therefore, I’m running a very ‘Chicken Little’ portfolio in which the risks that are an inevitable part of investing or trading are kept to a minimum. Therefore, in my investing or trading, I’m not trying to make as much money as I might, but to keep myself out of trouble. That’s a different game than Quill is playing --he quite effectively, I would add-- and why my version of ‘Simon’ is different than his.