Figuring your spend-down rate |
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Will
boomers go bust?
Some suggest that the recent assault on traditional
retirement-planning assumptions is itself a thinly veiled rationalization for
baby boomers to continue their wanton spending ways. After all, who wouldn't like
to hear that their nest is sufficiently feathered and it's OK to buy that plasma
TV?
But Bernicke says don't confuse the spend-down debate with
a license to consume. "Nobody is advising against saving," he says.
"The issue is spending AFTER retirement."
How to
find your perfect post-retirement spending zone? Kotlikoff says the key is to
input more (not less) of your data and have it crunched by a disinterested party
(i.e., not affiliated with a financial company) whose calculations are free of
the rules of thumb of interested parties (i.e., financial institutions). Bankrate's retirement
calculator is one place to start.
"This stuff is rocket
science, and it's time for people to realize that it's not just fun and games
here. You can't dumb it down," Kotlikoff says. "It's a little like trying
to target to the moon; if you're off a little bit in the calculation of the trajectory
and you don't have any self-correcting mechanism, you're going to miss it. If
you miss it by a small deviation, one degree, that can leave you thousands of
miles away.
"If you target for the wrong retirement spending,
you make a 10 percent mistake, you're making it for 40 years if you live to be
100. A 10 percent mistake times 40 is a big number."
Software
programs such as ESPlanner and the similarly priced Financial
Engines emphasize their roots in economic theory and intentionally distance
themselves from the financial products market.
Kotlikoff predicts
financial planners in the future will be required to have economics degrees.
Bernicke
says seeking objective advice from a living, breathing -- and reliable -- financial
planner is even better if you hope to spend happily ever after.
"We're
starting to talk about it and be more reasonable about it, as opposed to getting
our information directly from the very financial institutions that stand to benefit
the most from telling us that we need too much. It's sort of like asking Philip
Morris if you should take up smoking. Why would we ever go to an investment company
to get objective advice on how much we need to save? How much do they stand to
benefit by telling us we need to save, on average, 40 percent more than we actually
need? Their revenue goes up by the billions."
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