tag:blogger.com,1999:blog-6167053228142922997.post7567744951830786534..comments2023-10-30T11:57:40.433-04:00Comments on Wade Pfau's Retirement Researcher Blog: Fixed Time Horizons vs. Survival Probabilities for Retirement PlanningAnonymoushttp://www.blogger.com/profile/04168922717655562721noreply@blogger.comBlogger6125tag:blogger.com,1999:blog-6167053228142922997.post-66324514139276221942012-05-05T10:46:42.424-04:002012-05-05T10:46:42.424-04:00Thanks Larry, and yes, that is a big wild card. I ...Thanks Larry, and yes, that is a big wild card. I don't know how much extra savings should be planned to cushion for that as health care costs continue to rise faster than inflation. As I haven't looked much into that, I do have a sort of implicit assumption that people have long-term care insurance, but there still may be a variety of growing and uncovered expenses.<br /><br />As an aside, living in Japan may be causing me to not have full appreciation about the costs of health care. Though most things are more expensive here, health care is much cheaper. And I mean total costs including what the insurer pays. A short visit to the doctor which might have a total cost of $200 in the US (my last experience) is about $10 here. The consumer pays 30% of that... 210 yen or about $2.50Anonymoushttps://www.blogger.com/profile/04168922717655562721noreply@blogger.comtag:blogger.com,1999:blog-6167053228142922997.post-2513415258495662762012-05-05T10:39:40.659-04:002012-05-05T10:39:40.659-04:00Thanks for the input. It is useful to hear about s...Thanks for the input. It is useful to hear about someone planning to spend less later on specifically because of the low probability of survival.Anonymoushttps://www.blogger.com/profile/04168922717655562721noreply@blogger.comtag:blogger.com,1999:blog-6167053228142922997.post-46097256605813071932012-05-04T12:51:53.043-04:002012-05-04T12:51:53.043-04:00"But at least I do think it makes some sense ..."But at least I do think it makes some sense to accept the idea that if you do end up making it to a really advanced age, you will be willing to live a frugal lifestyle and keep the memories of all the more you enjoyed with the additional spending earlier in retirement."<br /><br />Wade, it seems to me the biggest variable not mentioned here is unreimbursed health care costs. Even at age 63.5 (with an average life expectancy of 18.3 years, I've just determined), I'm finding my personal costs for deductibles, co-pays, prescriptions, tests, and the like shooting up significantly over the past few years and who knows where or when it'll stop. The 95-year-old may be able to live a more frugal lifestyle otherwise, but what if he/she needs long-term care and doesn't have insurance, or has a disease requiring expensive unreimbursed treatment?Larrynoreply@blogger.comtag:blogger.com,1999:blog-6167053228142922997.post-39531071623652526692012-05-03T10:19:33.530-04:002012-05-03T10:19:33.530-04:00I can tell you how my wife and I handle this issue...I can tell you how my wife and I handle this issue when planning for our retirement using ESPlanner. For each of us we keep the default maximum lifetime age at 100 in ESPlanner.<br /><br />I am eight years older than my wife. When I reach 83 in our plan the household standard of living index is decreased from 100 to 99. We continue to decrease our HH living standard by 1 as each year passes. Once my wife reaches 83 we decrease the living standard by 2 as each year passes. Once I reach my maximum age of 100 we freeze the living standard index at the level.<br /><br />These decreases in the living standard index are done primarily because the probability of us both surviving to advanced ages is relatively low, and not because we think we will be spending less if we are both alive at advanced ages. If we get to the point where we are both over 83 and alive and kicking we would freeze the living index at that level and look at ways to get income out of our house.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-6167053228142922997.post-71592473072438077732012-05-01T00:00:26.625-04:002012-05-01T00:00:26.625-04:00Joe,
Thanks for sharing. About bequests, I never...Joe,<br /><br />Thanks for sharing. About bequests, I never focused too much on them myself. But now I do need to incorporate them, as I am looking at variable withdrawal strategies which may withdraw different amounts and so comparing with bequests at the same time is vital to help ensure fairness in evaluating among strategies.<br /><br />I was going to keep writing that this is why I don't follow what you are saying, but actually now I do see your point better as I'm writing. I was going to say that the focus is on how averse you are to running out of wealth, but that is the same as what you are saying, I see. <br /><br />Perhaps you are describing a good way to think of it. How badly you view negative balances to positive balances could help define what time horizon you should plan for. Interesting!Anonymoushttps://www.blogger.com/profile/04168922717655562721noreply@blogger.comtag:blogger.com,1999:blog-6167053228142922997.post-75664370939522483822012-04-29T11:43:21.844-04:002012-04-29T11:43:21.844-04:00This is an excellent discussion of an important is...This is an excellent discussion of an important issue for retirement planning. I admit that in my research work I have tended to use survival probabilities because it added sophistication. However, I agree with the Curtis point that for deciding on a "safe" withdrawal rate it makes sense to use a conservative fixed horizon. For a question like, what can I expect to leave to the kids, it's probably worth doing the exercise with survival probabilities (or just using the expected lifetime). Also, using survival probabilities can be useful for general research--pointing up issues like how poorly bonds perform as retirement investments when variable mortality is considered.<br /><br />Finally, one slightly geeky consideration. How do you figure out how conservative to be in choosing a fixed horizon? If one were indifferent between positive and negative bequests, it would be appropriate to use life expectancy. If negative bequests were 10 times as bad as positive bequests in a utility sense (10:1 loss aversion), then one could roughly balance the outcomes by choosing a planning age with a 1/11 chance of outliving. I'm not sure I'd really get that technical myself, but I offer the thought.Joe Tomlinsonnoreply@blogger.com