tag:blogger.com,1999:blog-6167053228142922997.post3417847668098050228..comments2023-10-30T11:57:40.433-04:00Comments on Wade Pfau's Retirement Researcher Blog: ESPlannerAnonymoushttp://www.blogger.com/profile/04168922717655562721noreply@blogger.comBlogger10125tag:blogger.com,1999:blog-6167053228142922997.post-49044293117113912712012-09-03T02:50:33.899-04:002012-09-03T02:50:33.899-04:00Ah, I agree that is was rather well hidden.
It...<br />Ah, I agree that is was rather well hidden.<br /><br />It's at:<br /><br />http://basic.esplanner.com/Anonymoushttps://www.blogger.com/profile/04168922717655562721noreply@blogger.comtag:blogger.com,1999:blog-6167053228142922997.post-39412169114379022452012-09-03T02:46:41.082-04:002012-09-03T02:46:41.082-04:00> A relatively sophisticated free basic version...> A relatively sophisticated free basic version is available <br /><br />Can't find it on the siteAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-6167053228142922997.post-14872933896609726792012-08-20T23:25:19.867-04:002012-08-20T23:25:19.867-04:00Hi Dick,
Of course it is a great complement for y...<br />Hi Dick,<br /><br />Of course it is a great complement for you to say that ESPlanner is not up to my standards. But I'm not so sure, as I still think it is pretty good and far beyond what I can do, as it incorporates taxes, life insurance, and many other features that represents hundreds or thousands of labor hours.<br /><br />You make some interesting points though. I know how to program Monte Carlo simulations with distributions of outcomes, but I'm still not completely comfortable with them. For myself, I'd still rather look at the outcomes with a set of fairly conservative return assumptions. I've got a full financial plan through 105. I know that there are many unknown factors and guesses that will cause deviations to the plan as the years pass by, but I hope that with relatively conservative assumptions, the odds are that things will end up working out better than planned. They could work out worse. And I could make some sort of probability distribution for those outcomes. But at the end of the day, I don't find that to be so helpful to my personal planning.<br /><br />Where ESPlanner still needs work is to better allow a comparison between different strategies. I guess that is the point you are focusing on. Not much attention is paid to the asset allocation decision. And there is no attempt to optimize with that regard.<br /><br />But I think they just haven't gotten that far along yet. I think they'll get there one day. The underlying engine behind what they are doing seems pretty sound to me. This just may be a matter of personal preferences for how you like to see results displayed.<br /><br />Though I became frustrated enough with the process of inputting data and comparing results that I just gave up and made my own spreadsheet, as I've said, that spreadsheet is based on the same principles.<br /><br />One of these days I make a version of the spreadsheet with personal details removed and post it.Anonymoushttps://www.blogger.com/profile/04168922717655562721noreply@blogger.comtag:blogger.com,1999:blog-6167053228142922997.post-18536194993798789522012-08-20T12:24:11.111-04:002012-08-20T12:24:11.111-04:00Wade –
It still appears to me that this ESPlanner...Wade –<br /><br />It still appears to me that this ESPlanner just isn’t up to the quality and responsible investor’s-best-interest approach of your work.<br /><br />Your work features recognition of, and informing investors to cope with, investment-performance uncertainties and informed investment selection, as well as other major considerations such as saving and spending rates. Everything I’m seeing about ESPlanner indicates it’s just another approach that fails to deal responsibly with the big investment questions, instead making assumptions about investment as a basis for lots of academic math on lesser matters.<br /><br />It’s certainly true that magnitudes of saving and spending are most important, as your analyses show. But fine-tuning of those factors is dwarfed by questions of investment uncertainty and investment selection.<br /><br />The responsible approach is to inform the investor of various portfolios’ prospects and uncertainties BEFORE selection – and then incorporate the selection and its uncertainties in lesser refinement of the rest of the plan. It appears to me ESPlanner does the opposite – shooting first, then aiming.<br /><br />If I remember correctly, over at Bogleheads mathematician Rodc did lots of that stuff, with ESPlanner and with his own modeling. And when he considered investment uncertainties, he found that fine-tuning a life plan was like rearranging the deck chairs while ignoring the big questions posed by nearby icebergs.<br /><br />Dick Purcell <br />Dick Purcellhttp://www.dickpurcell.comnoreply@blogger.comtag:blogger.com,1999:blog-6167053228142922997.post-8445497125572697292012-08-19T07:42:32.218-04:002012-08-19T07:42:32.218-04:00Dick,
I won't be able to confirm this until I...Dick,<br /><br />I won't be able to confirm this until I get home and get ESPlanner up and running again, but I do believe that Monte Carlo is activated by clicking a button so that the first set of results a user sees include the distributions of spending outcomes.<br /><br />Without Monte Carlo, the value of ESPlanner is to provide a lifetime set of spending, saving, and insuring decisions that incorporates borrowing constraints, taxes (federal and state), mortality rates, etc. With the spending, how aggressively you set your spending determines how likely you are to have to cut spending later. It is the spending aggressiveness question which provides the only link back to utility maximization, so no need to specify any coefficient values.<br />Anonymoushttps://www.blogger.com/profile/04168922717655562721noreply@blogger.comtag:blogger.com,1999:blog-6167053228142922997.post-22061353041872899202012-08-18T12:31:26.355-04:002012-08-18T12:31:26.355-04:00Wade --
Thanks for your clear and concise reply.
...Wade --<br /><br />Thanks for your clear and concise reply.<br /><br />I guess I have misinterpreted the paragraph I cited.<br /><br />But at the ESPlanner site, it appears to me that to get the Monte Carlo I have to pay, and it appears the Monte Carlo may be done at the end of the process, and if the latter is true I do not want to pay.<br /><br />My concern can be resolved by answering this question: Is the Monte Carlo done before or after the user is asked the return-rate question? <br /><br />Dick PurcellDick Purcellhttp://www.dickpurcell.comnoreply@blogger.comtag:blogger.com,1999:blog-6167053228142922997.post-81543939464742466662012-08-18T10:24:40.629-04:002012-08-18T10:24:40.629-04:00Hi Dick,
In this case, I'd say you are misrep...<br />Hi Dick,<br /><br />In this case, I'd say you are misrepresenting ESPlanner. Just click on the Monte Carlo feature and you can see the probability distributions for what is your #1 goal: your sustainable current and future lifestyle as represented by the amount you are able to spend.<br /><br />As I mentioned, my _own_ financial planning is based on a spreadsheet inspired by the ESPlanner approach. It's not a case of math for math's sake.Anonymoushttps://www.blogger.com/profile/04168922717655562721noreply@blogger.comtag:blogger.com,1999:blog-6167053228142922997.post-55163242511731092092012-08-18T05:26:55.660-04:002012-08-18T05:26:55.660-04:00Wade, I was about to take a new look at ESPlanner ...Wade, I was about to take a new look at ESPlanner as you suggested. But I’m so appalled by the aspect of it described in your paragraph beginning “ESPlanner is based on underlying principles of academic economics” that I’d prefer to eat broccoli. I suspect the latter would be better for my wealth as well as my health.<br /><br />I continue to scream that the #1 responsibility of advisors and advisory tools is to do their best to INFORM the investor of goal probabilities and uncertainties of alternatives, so the investor can make informed choices. For over two decades, academics have taught and promoted the opposite: first get the investor choice, then apply the academics' math to see the implications of the investor's choice for his future goals.<br /><br />It’s the equivalent of changing “Ready, aim, fire” so the “fire” comes first.<br /><br />It’s an easy matter to show the investor how alternatives compare in probabilistic assessments for his goals, so he can make informed choices. Instead, for the last two decades devices such as “risk questionnaires” and “utility functions” have been used to extract key decisions from investors based on technical specs for single-year return rates, without informing the investors of implications of those decisions for their goals. It appears the primary purpose is not to inform and best serve the investor, but rather to facilitate application of the academics’ math.<br /><br />It sure appears to me that, as described, the ESPlanner step of asking the investor to choose his return rate is just another way to facilitate application of academic math, more than to best inform and serve investors. If I am asked to make that choice, I answer “No! I know future return rates are uncertain. I want you to SHOW ME HOW THE CHOICES COMPARE IN RESULT PROBABILITIES FOR MY GOALS, so I can make INFORMED choices!<br /><br />Am I misinterpreting, and misrepresenting ESPlanner??<br /><br />Dick Purcell<br />Dick Purcellhttp://www.dickpurcell.comnoreply@blogger.comtag:blogger.com,1999:blog-6167053228142922997.post-25769185723361973262012-08-16T19:14:59.761-04:002012-08-16T19:14:59.761-04:00Jason, good questions!
About the first one, I was...Jason, good questions!<br /><br />About the first one, I was concerned about that as well. The baseline assumption is that you wish to maintain the same spending until your maximum planning age. But there is an option where you can set the relative spending at different ages to be different. So you can manually adjust the software to account for this issue as you wish.<br /><br />About discounting future spending, the software implicitly assumes you value consumption the same at all future ages. But with consumption smoothing, you still end up adjusting spending from year to year if your portfolio includes volatile assets. It depends on market performance. The way someone would deal with this is through the choice about how aggressive they wish to be with their spending, with more aggressive spending leading to a greater likelihood of future cuts. The implications of these assumptions can be explored with the Monte Carlo features in the software. The software does make it easy for you to develop a lifetime plan that if followed will make you less likely to fall victim to this behavioral problem.<br /><br />Thank you again, WadeAnonymoushttps://www.blogger.com/profile/04168922717655562721noreply@blogger.comtag:blogger.com,1999:blog-6167053228142922997.post-58962992840808999622012-08-16T19:00:20.265-04:002012-08-16T19:00:20.265-04:00I understand that we want to smooth utility over t...I understand that we want to smooth utility over time, which, implicitly, means smoothing income. However, as Chris Christensen so poignantly points out (http://amateurtraveler.com/2012/08/09/how-much-longer-will-my-parents-travel/), there comes a time when we can no longer physically do certain things and slow down our material/experiential consumption, perhaps to be replaced by healthcare consumption. After all, if I have difficulty walking, then a long trip is unappealing, and if I can no longer drive, then the nice car won't do me any good. Did you find the software accounted for this expected shift?<br /><br />Additionally, if, as humans, we're used to discounting future utility such as Thaler posits, then are we going to be prone to spend more aggressively now. In general, we are willing to subject the future self to less pleasure in exchange for current pleasure; it's why we join gyms but always say we'll go there tomorrow. Does the software make it difficult for us to fall victim to our own bias towards our present utility?<br /><br />I'm a fan of the LCSI approach, but also believe that we can't just blindly rely on modeling lest we let our psychological biases get in the way of achieving life outcomes which reflect the model outcomes.Jason Hullhttp://www.hullfinancialplanning.comnoreply@blogger.com