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1. 

   Dragline
   

   Master
   Joined: Aug '11
   Posts: 962

   Here is an interesting paper on SWR's for retired persons that applies Gompertz Law of Mortality

   http://www.ifid.ca/pdf_workingpapers/Spending_Retirement_Vulcan_14MAR2010.pdf

   The paper assumed a "standard" retirement age. I was wondering if anyone had looked into these types of calculations Early Retirement scenarios.

   For an explanation of Gompertz Law of Mortality see http://gravityandlevity.wordpress.com/2009/07/08/your-body-wasnt-built-to-last-a-lesson-from-human-mortality-rates/

   Note the reverse s-shape of the survival rates over time.

   Posted 1 year ago #
2. 

   jennypenny
   

   Expert
   Joined: Jul '11
   Posts: 1,338

   I don't understand one of their conclusions on pg. 22:

   "Our final result that we have not emphasized within the paper is counter-intuitive and perhaps even controversial. To wit: borrowing against pension income might be optimal at advanced ages. For individuals with relatively large pre-existing (Defined Benefit) pension income, it might make sense to pre-consume (and enjoy) the pension while they are still young. The lower the (longevity) risk aversion, the more optimal this becomes."

   What do they mean by borrowing against pension income? Do they just mean, say, having a mortgage equal to the pension amount? Or am I missing something obvious?

   Posted 1 year ago #
3. 

   dragoncar
   

   Expert
   Joined: Oct '10
   Posts: 1,287

   They mean something like this:

   http://www.uspensionfunding.com/ (typically very predatory)

   Posted 1 year ago #
4. 

   chenda
   

   Master
   Joined: Jun '11
   Posts: 371

   deleted

   Posted 1 year ago #
5. 

   jennypenny
   

   Expert
   Joined: Jul '11
   Posts: 1,338

   @dragoncar--Thanks. I'd never heard of that before.

   Posted 1 year ago #
6. 

   Dragline
   

   Master
   Joined: Aug '11
   Posts: 962

   Here is another paper on this subject:

   http://www.davidmblanchett.com/JointLifeExpectancyvJoFP.pdf?attredirects=0

   Unfortunately, you have to download it to read it. But its not very long.

   Posted 1 year ago #
7. 

   jennypenny
   

   Expert
   Joined: Jul '11
   Posts: 1,338

   Thanks dragline.

   According to that last paper you posted, spending can increase as retirees age because their life expectancy drops. Standard consumption patterns for retirees though show that spending is higher early on and decreases with age (assuming normal retirement age). That contradiction seems like a big problem.

   Now assume you're a typical ERE convert and you're going to retire much earlier. I think that changes consumption patterns. For ER/ERE types, I think the pattern is different. I don't think people will spend more early on and spend less as they get older. At first, spending should be lower because they are physically capable of performing most tasks themselves (gardening, cutting the grass, home repairs) and they are usually healthier. As they age they might begin to pay people to perform these services. Under that scenario, ER/ERE seems to line up SWR (slowly increasing over time) with consumption (slowly increasing over time), unlike the first scenario with traditional retirees.

   Another point in ERE's favor.

   Posted 1 year ago #

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