Phase III - Deja Vu All Over Again

Where are you and where are you going?
IlliniDave
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Re: Phase III - Deja Vu All Over Again

Post by IlliniDave »

I did a first order analysis of my sensitivity to inflation. I'm going to blurt out the results here at the start. I'd written a preamble to it for some context, but the lead was too deeply buried. I left it at the end for the morbidly curious since this is a newish journal and many of the active folks here probably aren't acquainted with my old one. It starts below the "#####"s and will read a little awkward because I flipped things around.

The first-order results are:

With 4% annual inflation forever I continue to see long-term wealth growth across the spending/annuity conditions mentioned below. Withdrawals from the stash are roughly double the baseline, and of course growth rates and terminal wealth are way down.

With 8% annual inflation forever I see slight-to-moderate decreases in wealth over time, down by as much as 50% over 30 years, and with required stash withdrawals at 4X the baseline. I could call that my treading water threshold.

At 13% annual inflation forever, drunken-sailor-spending iDave basically goes broke at age 85. Altar-boy-spending iDave has a few more years. Since I don't think I'll live past 85 (ot to it for that matter), that's about my limit. Beyond 13% I would have to collapse spending to coincide with SS or start liquidating property.

The exercise showed better results than I expected going in.

There are some simple-minded assumptions in the calculations.

On the optimistic side I assumed stocks would still produce returns per their fundamentals above inflation. That ultimately happened after the high inflation of the late 70s/early 80s in the US, but there was a significant lag. So I'm leaving out some sequence of return effects there.

On the pessimistic side I didn't allow for the likelihood that over time bond prices/yields would adjust. I simply assumed their current nominal yield going forward and applied the inflation to get the simulated real yield, which is substantially negative in all the cases. I have a dollop of very short duration bond exposure, but the meat of it is intermediate-term, so a 10-15 year unwind time. I think in the real world by that 10-15 year mark bonds should be returning (real) 0% +/- something small, rather than -10%+ as was the case with 13% inflation assumed.

I stuck with a generic 60/40 allocation. Obviously given my crude modeling, upping stock allocation improves results and upping bond allocation degrades results, over whats given above. I thought it was pointless to play around with allocation for that reason, and held it static.

#############################

My current philosophy about balancing the optimistic and pessimistic sides of my nature is that the happy medium found through remaining optimistic that I can withstand the things I'm pessimistic about.

That could lead to a person proceeding in a dangerously naive fashion. I don't think I'm that person. I probably appear ludicrously conservative to some. I appear that way to myself sometimes, but not always ...

I came to the world of ere with a fully formed plan. It wasn't a case of, "Oh, this sounds neat. If I go by ere I can have a better life and retire early. I'll do it!". It's been more, "I am going to retire early and some of ere resonates with my vision, so I'll apply what I can from it." The resonance was that I'd figured out the ongoing cost of lifestyle was a huge knob that the conventional approach super-glued to some setting then adjusted everything else around it. Using ere as a tool the way I've endeavored probably isn't a very good idea. IOW, don't try this at home, kids! Ere is a lifestyle system, not a tool, and I am probably missing out on all the real benefits by trying to pound nails with it.

Hubris. Not-invented-here bias. Yep. Guilty.

My degree of ideological misalignment with ere produces some benign fallout. Most pertinent maybe is that my working definition of retirement is a little more rigid. Aligned more with the traditional definition I hold it as a crisp one-way event. Unlike the traditional definition I see it as an embarkation rather than a withdrawal. Hitting a juncture where I'd say, "Well, that didn't work out, I guess I'll go back to work," is an event I'm specifically planning to avoid. That drives my over-saving overall overkill.

I'm in year 34 with my only post-university employer. I'm grandfathered into their old retirement system. My retirement benefits will be a single-life annuity from the pension plan and the ability to buy into their retiree health plan by paying 100% of the cost. I'm moving through the area on the benefit accrual curve where it's plausible the annuity could cover all, or nearly all, my expenses until SS begins. That makes a fun "goal" and was a contributor to picking 31 March '21 for my I'm-not-kidding-this-time hard stop.

Knowing spending was the biggest knob I could turn at will led to an emphasis on looking at things as a function of spending, and later as function of spending and and outside income level, since the difference between the two drives what savings has to fill in. I have three combos that I routinely monitor:

1. Drunken-sailor-spending iDave who is let down by the system and only receives 75-80% of the external income promised (annuity + SS).

2. Drunken-sailor-spending iDave who gets what the system promised.

3. Altar-boy-spending iDave who gets what the system promised.

Number 1 serves as a baseline, number 3 I consider an upper bound, and 2 is between them, a surrogate for "expected outcome" maybe.

A relatively simple first-order assessment based on those three conditions show a trend of increasing wealth over time for each. Not the runaway wealth mode jacob has talked about because I use pretty muted assumptions for future investment growth, but upward nonetheless. The assessment also indicates withdrawal rates significantly below the iconic 4% mark.They are at zero for condition 3 today, and might be at zero for condition 2 by the end of next March.

All great news, right?

The biggest weakness I see in the methodology is that there's a baked-in assumption that inflation will be consistent and within the range we've seen over the last 25ish years. For the basic ongoing computation I just use whatever the most recent "US Inflation Rate" metric from Shiller's site is. In part that's because I was too lazy to add yet more knobs to my overly knobby iDaveSim3 spreadsheet. So for the last few years in my basic calculations inflation assumptions have drifted around 2-3%. But I finally bit the bullet, added some knobs, and now can fiddle with inflation all I want to get some parametric feel for it.

classical_Liberal
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Re: Phase III - Deja Vu All Over Again

Post by classical_Liberal »

@idave
Real assets perform very well in high inflationary environments. You own two homes, no? Are you calculating that into your results? I realize you don't want to sell or rent them, but if you are making assumptions of double digit inflation for 30+ years (pretty nightmarish situation), at the very least you should look at real estate ROI's on rental or leveraged property in the 70's to early 80's and take that into account, since you'd have options there too in such a SHTF. That'd likely paint an even rosier picture. Or if you're seriously worried about such a high inflationary situation, grab some leverage on one of those properties at extremely low rates while you still have income to qualify, to maintain future optionality. Or slap a quarter of that 40% bond fund into a TIP's fund, that'd dramatically change your results on the bad side, while making almost no difference on the good side. You can set yourself up to "not lose" in inflation.

AxelHeyst
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Re: Phase III - Deja Vu All Over Again

Post by AxelHeyst »

IlliniDave wrote:
Thu May 21, 2020 8:21 am
What do you think about "attic fans"?
Commercial design is very different than residential design, and I've spent my whole life living in and designing for arid climates (20% RH is muggy to me), so my professional opinion is almost worthless (good pros know when they're in a realm where their opinion is no better (or even worse) than laypeople). Also, I've never lived in a house with conventional HVAC. That said, I'm a fan of any kind of "night flush" strategy, that's had a good track record for thousands of years. Everyone else's input sounded good to me.

7Wannabe5
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Re: Phase III - Deja Vu All Over Again

Post by 7Wannabe5 »

Leave IDave be. I like how slow his journal moves. It reminds me of being a sleepy child in the back of a car on an interminable car ride, comforted in the feeling that even if I do nod off, I will not have missed anything, because “When will we get there?” is seemingly approached only in the fabled manner of half again yet paradox.

IlliniDave
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Re: Phase III - Deja Vu All Over Again

Post by IlliniDave »

classical_Liberal wrote:
Thu May 21, 2020 11:47 am
@idave
Real assets perform very well in high inflationary environments. You own two homes, no? Are you calculating that into your results? ... Or if you're seriously worried about such a high inflationary situation ...
cL, that was looking at the stash in isolation. And just ~first order. Making too much of the results is not unlike what happened with some of those early c19 projections. Throwing a static template on a dynamic situation and looking forward can mislead you. What the exercise, which was designed to err on the pessimistic side, told me is where things start to break down if I handle a high inflation environment stupidly, ostrich style. In reality, after 1 year of 13% inflation I'd be making adjustments to mute it's effect.

I don't know how worried I am about inflation as high as what I had to posit for the results to get interesting. Not worried enough I'd feel good about making drastic changes to hedge the possibility. TIPS isn't a bad idea, unfortunately not available in my retirement account which is large enough for a meaningful position.

About a quarter of my net worth is real estate, and I assume it will more-or-less retain it's value in real terms, similar to what I assumed about stocks. Proceeds from selling the cabin combined with SS would get me by for 5-10 years even if I burned through money like drunken-sailor-spending iDave.

IlliniDave
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Re: Phase III - Deja Vu All Over Again

Post by IlliniDave »

I made it to within 200 dollars of my 1/1/2020 stash balance at Wednesday's close, but Thursday's closing tumble knocked me out of contention for getting back into the black in the sense that YTD contributions covered YTD losses.

Some frightful images out of Minneapolis over the last couple days. Sort of a first cousin to the political risk I sense having exposure to. To all who live in that neck of the woods, I wish you peace and safe passage as you move through your day-to-day. I've been there once only if you count a layover at the airport, but it should not surprise anyone here that I have a strong attachment to the state of Minnesota. Watching a part of it's largest city burn made me ill. I don't have words for what that cop did, and I don't have words for the arson and looting that followed. Reinforces my desire to leave enough geographic buffer between me and the nearest big city to give me a running head start if the S really starts HTF. Makes me wonder what kind of a world I'll be retiring into, and my grandchildren growing up in. I hope I'm just getting emotionally caught up in the sensationalism and I'm wrong about the trends I tell myself I see.

I want to go back to the Tom Bukovac quote I included a while back.

The older you get, the more you realize stayin' at home is where it's at. Find a rhythm, and stick with it. If you venture off of it, it better be for a damn good reason.

It both struck a chord (pun intended) when I first heard it, and it's stuck with me since. One little patch of silver lining in the pandemic is I feel I've made some progress finding a rhythm in life under conditions where days I don't have anywhere I have to go outnumber the days where I do.

Rhythm turns sound into music. Rhythm turns life into ??? I'm usually good with metaphors and analogies, but that one's got me stumped. Hope I come up with something soon.

Even though much in the news serves as the proverbial wet blanket tossed over me, I think internally I'm finally moving ahead again. I'm eating better, have lost all my c19 weight gain, a lot of achiness that appeared in my back and shoulders over the last couple months is gone. The latter might be more attributable to adjusting the length of one of my guitar straps and not slouching over the instrument so much, but I also think stress played a role.

And I'm back to having no idea what's true about the damn virus. All I know is I don't want it and I'm gonna keep hiding because that's my rhythm. Maybe I'll change time signatures one day. In truth, I hope I do, but for now I have to sick with the glue that's holding my sometimes-frazzled old self together. Maybe with enough work I can slide into the little pocket just behind the beat where all the cool cats hang.

Jason
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Re: Phase III - Deja Vu All Over Again

Post by Jason »

IlliniDave wrote:
Fri May 29, 2020 2:50 pm
Rhythm turns sound into music. Rhythm turns life into ???
I think you got to go with "dance."

7Wannabe5
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Re: Phase III - Deja Vu All Over Again

Post by 7Wannabe5 »

Hmmm...I’m a natural homebody myself, but I still suspect that one old man’s comfortable rhythm might be another old woman’s dull routine.

Routine turns sound into buzz tone or dripping faucet torture.
Routine turns life into punchcard controlled sleepwalking toward smothering oblivion.

IlliniDave
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Re: Phase III - Deja Vu All Over Again

Post by IlliniDave »

Jason wrote:
Fri May 29, 2020 3:39 pm
I think you got to go with "dance."
I guess not being much of a dancer that one doesn't resonate with me too much, but I think it's in the right vein. Literally, the pairing would be motion and dance. I suppose I'm looking for an emblem that's not as strongly associated with music. Good idea, though.

Jason
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Re: Phase III - Deja Vu All Over Again

Post by Jason »

Putting aside the analogy, it seems to be along the lines of Blaise Pascal's "All of humanity's problems stem from man's inability to sit quietly in a room alone." And I think the lockdown has proven at least a partial truthfulness to that statement. I understand that most people by nature or necessity have to leave their room as members of humanity generally fall somewhere between Bill Gates and a monk. But for those able to sit quietly in a room, they know it to be a great pleasure. And if there is some old woman in the background harping on about you being an old faucet or a punchcard, threaten to send her possible corona suffering ass to the nursing home and watch how quickly she S'sTFU.

7Wannabe5
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Re: Phase III - Deja Vu All Over Again

Post by 7Wannabe5 »

@Jason: It is the purpose of the hot feminine energy to bring the chaos. It is the purpose of the cool feminine energy to bring the calm.

IlliniDave is clearly signaling for hot feminine energy even though he might believe that he is looking for calm. OTOH, you are likely fairly self-aware that you are signaling for calm, which leads me to believe that your wife must be a lovely woman with a very pleasant manner.

Jason
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Re: Phase III - Deja Vu All Over Again

Post by Jason »

7Wannabe5 wrote:
Sat May 30, 2020 7:49 am
which leads me to believe that your wife must be a lovely woman with a very pleasant manner.
Opposites do attract.

What I really don't understand is why Dave just doesn't spend some of his free time learning how to dance instead of most likely diddling around with his fishing lures. If he added the ability to properly dip a lady, he'd be unstoppable in the over 55 community.

Jason
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Re: Phase III - Deja Vu All Over Again

Post by Jason »

7Wannabe5 wrote:
Sat May 30, 2020 7:49 am
which leads me to believe that your wife must be a lovely woman with a very pleasant manner.
Opposites do attract.

What I really don't understand is why Dave just doesn't spend some of his free time learning how to dance instead of most likely diddling around with his fishing lures. If he added the ability to properly dip a lady, he'd be unstoppable in the over 55 community.

IlliniDave
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Re: Phase III - Deja Vu All Over Again

Post by IlliniDave »

7Wannabe5 wrote:
Fri May 29, 2020 4:05 pm
Hmmm...I’m a natural homebody myself, but I still suspect that one old man’s comfortable rhythm might be another old woman’s dull routine.

Routine turns sound into buzz tone or dripping faucet torture.
Routine turns life into punchcard controlled sleepwalking toward smothering oblivion.
That's quite possible, especially if one borrows figuratively from vintage 80s arcade music. But rhythm and routine don't have to be synonyms. One of my all-time favorite pieces of music is the prelude from Bach's cello suite in G. If you look at it mathematically vs time, on paper it's an unbroken stream of sixteenth notes (iirc) in 4/4 time--structurally about as boring as it can get. In that dimension. But it's not a one-dimensional construct. Hand the blueprint to a skilled human actuator and it's not so boring, at least to some listeners, others admittedly might be bored to tears.

I suppose if you took that composition and looped it all day every day it would soon be a fine surrogate for a leaky faucet. I'm envisioning a longer arc than what would lead to equating rhythm to doing the same thing at the same time every day. This will be pushing the analogy way too far, but with Bach's prelude maybe the first four bars of arpeggios with a little melodic movement on top would correspond to the present through the transition to getting physically settled on the other side. The next bar that gives way to a meandering melody that lands in a different key might reflect a period of exploration. The next bars then bloom into an echo of the first four bars in the new key, maybe a period of realizing the potential of new pursuits, etc.

Again, I don't mean all that too literally. I have no intention to map my life to that piece of music. The idea I'm trying to illustrate in that comparison is that steady rhythm and stagnation need not go hand-in-hand.

All that said, it would be very easy for me to fall into a static daily routine. I actually like a certain amount of routine. I also understand that some people have a strong need to wipe the slate clean and start over periodically. I prefer threads of continuity that connect befores to afters, I suppose, and I'm certain from some perspectives that spells dullard. :)

IlliniDave
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Re: Phase III - Deja Vu All Over Again

Post by IlliniDave »

Jason wrote:
Sat May 30, 2020 8:03 am

What I really don't understand is why Dave just doesn't spend some of his free time learning how to dance instead of most likely diddling around with his fishing lures. If he added the ability to properly dip a lady, he'd be unstoppable in the over 55 community.
Maybe there's some girl out there who surreptitiously measures how skillfully a guy diddles around with his lure rather then worrying about how light he is on his feet?

Yeah, okay, I know. To the extent any of us can author our own situation through our actions, my actions have me effectively sitting around with a big fat Sharpie writing "bachelor". Not that the feminine energy 7Wb5 refers to is necessarily a bad thing. The lack of it in my orbit is simply collateral damage. :lol:

ertyu
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Re: Phase III - Deja Vu All Over Again

Post by ertyu »

IlliniDave wrote:
Sat May 30, 2020 8:50 am
To the extent any of us can author our own situation through our actions, my actions have me effectively sitting around with a big fat Sharpie writing "bachelor".
same here -- but hey, there's worse ways to live. with time, i'm starting to appreciate my solitude and the small freedoms it grants me.

7Wannabe5
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Re: Phase III - Deja Vu All Over Again

Post by 7Wannabe5 »

Gotcha. We’re not really all that different. I am also a homebody who sometimes dreams of ideal set of practices.

Anyways, you’re not a bachelor. You’re a divorced man with adult children. Different vibe entirely. Although it still must be true that your current practices are doing a VERY good job at preserving your solitude. I might need to take a note from your book. I chopped off all of my yellow hair, but I still look friendly. Maybe if I imagine that my eyes are like ice cubes and stretch my lips out very thin and straight, I might better be able to signal “Leave me to my solitude.”...

...Nope, took a look in the mirror, and that just made me look kind of like a chubby toddler intent on filling her diaper.

IlliniDave
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Re: Phase III - Deja Vu All Over Again

Post by IlliniDave »

7Wannabe5 wrote:
Sat May 30, 2020 10:07 am
...
Although it still must be true that your current practices are doing a VERY good job at preserving your solitude. I might need to take a note from your book. I chopped off all of my yellow hair, but I still look friendly. Maybe if I imagine that my eyes are like ice cubes and stretch my lips out very thin and straight, I might better be able to signal “Leave me to my solitude.”...
Believe it or not, I'm actually rather friendly for the most part, so it's not like I have some sort of brooding aloofness to my persona. Actually, if that were the case, I would probably attract more attention, some of which admittedly might be unwanted. As it is I probably get tossed into the "nice guy" bucket (a cohort of the discard pile) very quickly very often.

Of course, there is gender discrepancy going on as well. I'm not real good with the topic of signalling, but I suspect that at the median of their respective distributions, males and females are prone to send different signals towards the same end.

7Wannabe5
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Re: Phase III - Deja Vu All Over Again

Post by 7Wannabe5 »

Well, it’s important to recognize that a good guy and a nice guy are not the same thing. Maybe they’re just assuming you’re taken ;)

horsewoman
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Re: Phase III - Deja Vu All Over Again

Post by horsewoman »

I don't have much to add to the discussion, but I liked your music related metaphors! Maybe life is like a song, there is an intro and an outro, and in between verses, bridges and choruses happen, plus a few breaks. Some stay in one key with 4 chords, which is not necessarily a bad thing - there are plenty of great songs like this. Others are more adventurous, with key changes or unconventional chord progressions...

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