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June 21, 2008


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Very true.

Given the length of time involved (40+ years) and the number of variables, we increased our target retirement number to the point were we (hopefully) will not have to draw down principal at all. I do not want to wake up when I am 80 and realise that a combination of higher than expected inflation and other factors has reduced us to living off cat food and food stamps when it is (likely) to be too late to go back to work.

Except when they aren't. If you plan to live forever, you can't fail (financially anyway), and there is little difference between 30 years and forever. That doesn't mean set it and forget though.

What bonds deliver a real 3% these days?

An excellent post! Finally! Marotta commenting on something well within his true area of expertise. Well worth reading.

Jake --

Can we now agree that miracles do happen? ;-)

Marotta, another one of your erstwhile detractors weighing in with a "nice job." I realize it would be difficult to say anything new and of interest in this area without becoming miquetoast, especially considering some of the withering criticism you've received here in the past. I especially like the analogy of door heights to illustrate the fallacy of planning for the "average" longevity.

One quibble: you claim that thinking of assets in terms of their "average" real return "removes some of the wobble factor" -- I would argue it doesn't remove it so much as incorporates it. I mean we're talking about the future, so we're all guessing, both at returns from any given asset class AND at the rate of inflation. So why guess seperately? Guess now, and we'll make it TWO yes TWO guesses for the price of one! Supplies are unlimited! (Offer may not be available in your state. Operators are standing by.)

Granted, this is a structural factor of the business of financial planning. You can't change the fact that you're planning for an uncertain future,
and in fact the reason financial planners exist is to help "remove some of the uncertainty." You did a nice job of describing a successful approach to managing the uncertainty.

This post is pretty good coverage of the topic, straight forward & simplified but not overly-so. Thank you.

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