17 ms·

Safe Retirement Spending Using TensorFlow

180 points by RockyMcNuts 10y ago

dnadler 10y ago
What are the units of spend_mean, spend_min and spend_max in the table, and what exactly are these referring to? The post says: >The mean amount you would have been able to spend by year if you had followed this plan, you retired in years 1928-1985 and you enjoyed a 30-year retirement. But I don't really follow... in year 1, spend_mean is 4.567. Does that mean on average I spend $4.57 in year 1? Is this in addition to the constant spending? Is variable spending in addition to constant spending? Or is this the % of the portfolio that I am drawing from by spending my const_spend target?
- T-A 10y ago
  From the y axis in the chart: "Annual spending as % of starting portfolio".
- deleted 10y ago
  [deleted]
- sombremesa 10y ago
  I'm assuming it's all dollars. There is no $4.57, it's actually $4,567 (but I guess the actual number doesn't matter if you treat them all the same). spend_mean, spend_min, and spend_max are probably the amounts you'd spend if you were in the mean, min and max respectively. For example, according to this data, the mean amount you have saved up is ~$667,459 (I calculated this backwards) - so for the first year you'd spend 2321 + 0.002102*667459 = $3,724. Likewise if you saved the max in the dataset you'd spend $5,358 instead (total, not in addition to anything). And yes, the var spending is in addition to const spending, it's explained a bit lower in the article.
- RockyMcNuts 10y ago
  author of TFA here, I updated the descriptions a little, basically in year 25 you spend $2.321 in constant dollars (starting portfolio in the example is 100, so 2.321% of starting portfolio adjusted for inflation) plus 8.218% of the value of the portfolio in that year. Using that strategy, over all 59 cohorts 1928-1986, - median cash flow in year 25 was 12.16 - worst case 3.756 - best case 27.38 - all as a % of starting portfolio, in constant dollars.
krapht 10y ago
Interesting example, but the model is unappealing to me. The CRRA assumption is definitely untrue for most people, including me.
- sombremesa 10y ago
  I agree. I feel that the only reasons to choose an outcome with a value lower than an expected value are ignorance, or aversion to gambling risk (when taking a one-time risk rather than averaging over time), neither of which should be applying here. I'd love to see some counterpoints.
  - BillyParadise 10y ago
    Counterpoints galore here - http://www.financialwisdomforum.org/gummy-stuff/gummy_stuff.htm http://www.financialwisdomforum.org/gummy-stuff/gummy_stuff.... Warning - it can be tough reading (and not in the usual scholarly sense, either!) as the author definitely had his own "style". Also it's written from a Canadian point of view, though the concepts are universal. (ie - Americans shouldn't automatically dismiss the link.)
  - rgoddard 10y ago
    Being risk-adverse with retirement spending is perfectly rational. Most people will have to take into minimum expense amounts. Pursuing a strategy which will have the more likely outcome of not being able to pay your minimum expenses would not make sense for many people. Comparing only the expected values without including the volatility is an incomplete comparison. The critique is aimed at the assumption that your risk aversion is scale invariant. i.e. you behave the same when the values are in the 10s of dollars, or the 10,000s of dollars. I might be perfectly fine with taking the coin flip when the outcomes are either $10 or $15, but if the outcomes are $10,000 or $15,000 I might rather take a lower guaranteed amount of $12,000 because that will meet my expenses but the $10,000 won't.
    - RockyMcNuts 10y ago
      Fair enough, but for this retirement problem you're comparing outcomes within 1-2 orders of magnitude. If you don't have scale invariance you'll get a different answer if you put in $100K, $1m and $10m starting portfolios, but that difference wouldn't tell you anything useful. IMO best way to look at γ is an arbitrary tunable smoothing parameter, just tune it until it looks like what you're most comfortable with, trading off smoothness for maximizing cash flow.
danielvf 10y ago
I was actually paid to build something like this once. A financial products company wanted a visualization tool that would let a customer enter their wealth, pick a variety of investment strategies, spending strategies, and retirement durations, and then see how it all played out over historical data. You could scrub a timeline back and forth to change the starting year, and see your weath and spending charted out over the course of that retirement. It was best retirement savings education I've ever seen. Almost every retirement planner just shows you averages, and life looks simple and predictable. Reality is very, very different. Things I learned: 1. The stock market will probably crash at some point during your retirement, and you will loose half of any wealth you have in it. 2. In spite of the big drops, the higher compounding rates of stocks mean that a bond heavy retirement gives you way less money, even in the worst market retirement years. 30 years lets money grow for a long time. 3. Attempting to spend as much money as possible drastically increases your odds of running out of money, or suddenly having a lot less to spend. (Seriously, what is up with people attempting to run out of money exactly on their 95th birthday?) 4. Any retirement planning should take into account that you could end up with way more, or way less money that you thought. (Sadly, the web app was never released by the company.)
- bradleyjg 10y ago
  > Seriously, what is up with people attempting to run out of money exactly on their 95th birthday? Money does you no good if you are dead. And it does you very little good if you are completely out of it in a nursing home. I don't know of any male relative that has ever lived to 95 years old, and only a small percentage of female relatives. My parents are in their mid-60s, just started their retirements and they are doing as much traveling as they can while they are still both healthy. I applaud their decision.
  - aquark 10y ago
    > Money ... does you very little good if you are completely out of it in a nursing home Well, there is the question of paying for the nursing home. The sad reality is that the options offered by our social safety nets at lot less attractive than the options available if you can pay for it. Unless you are completely out of it to the point of not caring, at which point your loved ones may still care though.
arcanus 10y ago
Fun article. > "That being said, this optimization seems to run 4-5x faster on CPU than GPU." I'm guessing it is a question of throughput. GPUs are becoming almost like vector processors, and so if you do not 'feed the beast' then throwing hoards of threads at the problem will just increase contention, versus improving scalability. Sort of embarrassing, as I am a Bayes guy, but I've not seen much MCMC performed on GPUs. Given the parallelism, I would expect it could nicely scream with lots of threads (if you also had lots of chains) but this is a guess.
nappy-doo 10y ago
Anyone who's interested in this kind of thing would do well to visit http://www.cfiresim.com/ http://www.cfiresim.com/ I think it's probably one of the best historical modelling simulators out there, allows you to save/share your sims, and models all kinds of neat things like inheritances and expected large expenses.
lisashaw813 10y ago
I was diagnose of lung cancer May 12th 2013 and i have done surgeries for treatment and it did not work until i heard about Alaba Herbal Treatment and i decided to use it for cancer treatment, i contacted the Alaba Solutions Team via their email: alabasolutions@gmail.com and the medication was delivered to my doorstep and i was informed by the team on how to use the medication for treatment,after using it for treatment for 60 days,i felt different then i went for to see the doctor and i was told that i am no longer suffering from cancer. Lisa Shaw Florida USA

180 points by RockyMcNuts 10y ago

What are the units of spend_mean, spend_min and spend_max in the table, and what exactly are these referring to? The post says: >The mean amount you would have been able to spend by year if you had followed this plan, you retired in years 1928-1985 and you enjoyed a 30-year retirement. But I don't really follow... in year 1, spend_mean is 4.567. Does that mean on average I spend $4.57 in year 1? Is this in addition to the constant spending? Is variable spending in addition to constant spending? Or is this the % of the portfolio that I am drawing from by spending my const_spend target?

T-A 10y ago
From the y axis in the chart: "Annual spending as % of starting portfolio".
deleted 10y ago
[deleted]
sombremesa 10y ago
I'm assuming it's all dollars. There is no $4.57, it's actually $4,567 (but I guess the actual number doesn't matter if you treat them all the same). spend_mean, spend_min, and spend_max are probably the amounts you'd spend if you were in the mean, min and max respectively. For example, according to this data, the mean amount you have saved up is ~$667,459 (I calculated this backwards) - so for the first year you'd spend 2321 + 0.002102*667459 = $3,724. Likewise if you saved the max in the dataset you'd spend $5,358 instead (total, not in addition to anything). And yes, the var spending is in addition to const spending, it's explained a bit lower in the article.
RockyMcNuts 10y ago
author of TFA here, I updated the descriptions a little, basically in year 25 you spend $2.321 in constant dollars (starting portfolio in the example is 100, so 2.321% of starting portfolio adjusted for inflation) plus 8.218% of the value of the portfolio in that year. Using that strategy, over all 59 cohorts 1928-1986, - median cash flow in year 25 was 12.16 - worst case 3.756 - best case 27.38 - all as a % of starting portfolio, in constant dollars.

krapht 10y ago

Interesting example, but the model is unappealing to me. The CRRA assumption is definitely untrue for most people, including me.

sombremesa 10y ago
I agree. I feel that the only reasons to choose an outcome with a value lower than an expected value are ignorance, or aversion to gambling risk (when taking a one-time risk rather than averaging over time), neither of which should be applying here. I'd love to see some counterpoints.
- BillyParadise 10y ago
  Counterpoints galore here - http://www.financialwisdomforum.org/gummy-stuff/gummy_stuff.htm http://www.financialwisdomforum.org/gummy-stuff/gummy_stuff.... Warning - it can be tough reading (and not in the usual scholarly sense, either!) as the author definitely had his own "style". Also it's written from a Canadian point of view, though the concepts are universal. (ie - Americans shouldn't automatically dismiss the link.)
- rgoddard 10y ago
  Being risk-adverse with retirement spending is perfectly rational. Most people will have to take into minimum expense amounts. Pursuing a strategy which will have the more likely outcome of not being able to pay your minimum expenses would not make sense for many people. Comparing only the expected values without including the volatility is an incomplete comparison. The critique is aimed at the assumption that your risk aversion is scale invariant. i.e. you behave the same when the values are in the 10s of dollars, or the 10,000s of dollars. I might be perfectly fine with taking the coin flip when the outcomes are either $10 or $15, but if the outcomes are $10,000 or $15,000 I might rather take a lower guaranteed amount of $12,000 because that will meet my expenses but the $10,000 won't.
  - RockyMcNuts 10y ago
    Fair enough, but for this retirement problem you're comparing outcomes within 1-2 orders of magnitude. If you don't have scale invariance you'll get a different answer if you put in $100K, $1m and $10m starting portfolios, but that difference wouldn't tell you anything useful. IMO best way to look at γ is an arbitrary tunable smoothing parameter, just tune it until it looks like what you're most comfortable with, trading off smoothness for maximizing cash flow.

danielvf 10y ago

I was actually paid to build something like this once. A financial products company wanted a visualization tool that would let a customer enter their wealth, pick a variety of investment strategies, spending strategies, and retirement durations, and then see how it all played out over historical data. You could scrub a timeline back and forth to change the starting year, and see your weath and spending charted out over the course of that retirement. It was best retirement savings education I've ever seen. Almost every retirement planner just shows you averages, and life looks simple and predictable. Reality is very, very different. Things I learned: 1. The stock market will probably crash at some point during your retirement, and you will loose half of any wealth you have in it. 2. In spite of the big drops, the higher compounding rates of stocks mean that a bond heavy retirement gives you way less money, even in the worst market retirement years. 30 years lets money grow for a long time. 3. Attempting to spend as much money as possible drastically increases your odds of running out of money, or suddenly having a lot less to spend. (Seriously, what is up with people attempting to run out of money exactly on their 95th birthday?) 4. Any retirement planning should take into account that you could end up with way more, or way less money that you thought. (Sadly, the web app was never released by the company.)

bradleyjg 10y ago
> Seriously, what is up with people attempting to run out of money exactly on their 95th birthday? Money does you no good if you are dead. And it does you very little good if you are completely out of it in a nursing home. I don't know of any male relative that has ever lived to 95 years old, and only a small percentage of female relatives. My parents are in their mid-60s, just started their retirements and they are doing as much traveling as they can while they are still both healthy. I applaud their decision.
- aquark 10y ago
  > Money ... does you very little good if you are completely out of it in a nursing home Well, there is the question of paying for the nursing home. The sad reality is that the options offered by our social safety nets at lot less attractive than the options available if you can pay for it. Unless you are completely out of it to the point of not caring, at which point your loved ones may still care though.

arcanus 10y ago

Fun article. > "That being said, this optimization seems to run 4-5x faster on CPU than GPU." I'm guessing it is a question of throughput. GPUs are becoming almost like vector processors, and so if you do not 'feed the beast' then throwing hoards of threads at the problem will just increase contention, versus improving scalability. Sort of embarrassing, as I am a Bayes guy, but I've not seen much MCMC performed on GPUs. Given the parallelism, I would expect it could nicely scream with lots of threads (if you also had lots of chains) but this is a guess.

nappy-doo 10y ago

Anyone who's interested in this kind of thing would do well to visit http://www.cfiresim.com/ http://www.cfiresim.com/ I think it's probably one of the best historical modelling simulators out there, allows you to save/share your sims, and models all kinds of neat things like inheritances and expected large expenses.

lisashaw813 10y ago

I was diagnose of lung cancer May 12th 2013 and i have done surgeries for treatment and it did not work until i heard about Alaba Herbal Treatment and i decided to use it for cancer treatment, i contacted the Alaba Solutions Team via their email: alabasolutions@gmail.com and the medication was delivered to my doorstep and i was informed by the team on how to use the medication for treatment,after using it for treatment for 60 days,i felt different then i went for to see the doctor and i was told that i am no longer suffering from cancer. Lisa Shaw Florida USA