10 ms·

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, p

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.
  - bradleyjg 10y ago
    I can't speak to the rest of the country, but that's not the case in NY. It's a complicated story with lots of wrinkles, but the long and short of it is that you can buy a long term care policy of a certain length and then the state (under the medicaid program) will take over payments after that. You don't need to change facilities. In any event, I have yet to visit a nursing home that the word "attractive" would be even in the ballpark of appropriate to use. Separately, optimizing for being able to pay out of pocket for a top tier nursing home seems like a strange life goal to me. Maybe people really do have that preference, but it looks to me like a lot of people in the greater "personal finance" hobbyist world just like saving for it's own sake. Nothing wrong with that of course, but the sanctimoniousness of this group is a way over the top IMO.
    - tome 10y ago
      > Separately, optimizing for being able to pay out of pocket for a top tier nursing home seems like a strange life goal to me. Being able to afford a comfortable life after I am literally too infirm to work is the vast majority of the reason I continue to want to earn money. I'd be really interested if you could persuade me that I am misguided on that!
      - bradleyjg 10y ago
        Consider this hypo: You are now 60 or 65 or maybe even 70, you're slowing down some, but you aren't too infirm to work. You have a fair bit of savings. Do you: 1) Keep working until you can't work anymore 2) Retire, but live frugally so that you can be sure if you make it past 95 and need skilled nursing care you'll be able to keep private paying for a top notch nursing home. 3) Build out a retirement budget that assumes you won't make it past 95, make the absolute most of the next decade or so of relatively good health (hopefully!)? Go take that trip you and your wife always dreamed. Lavish your adorable grandchildren with gifts that certainly don't need. Fly business class instead of squeezing your old bones into coach. Keep in mind that if nothing else you'll still have social security no matter how long you live. Granted this is somewhat exaggerated for effect, but there's a difference between taking the worst case scenario (a funny way of referring to living a long time) into consideration and letting the tail wag the dog.
- noonespecial 10y ago
  One set of my grandparents ended up on assistance in a $2500/month home. It was like a state prison. There were actual bars. The other set is 98 & 95. They pay more than 14,000/month! It's like a cruise ship. The difference is hard to put into words.
  - antisthenes 10y ago
    > They pay more than 14,000/month! It's like a cruise ship. I would certainly hope so, considering for 14,000/month you can live on an actual cruise ship with money left over for entertainment and a few other things. It also pains me to see such luxury spent on the elderly. While you may have a personal attachment to them, the rest of society would do much better with that money spent to educate and help the new generations.
    - baq 10y ago
      The counter argument is that those 14k enters circulation instead of laying idly on some account. Not an economist, so don't ask me what's the better alternative...
      - jacobr1 10y ago
        In normal circumstances, money is rarely idle in an account. It is invested into loans and such. The past decade has been at times unusual in that regard though.
    - noonespecial 10y ago
      Many people are employed by the $14k, some to work their way through school so...
    - styrophone 10y ago
      >It also pains me to see such luxury spent on the elderly. While you may have a personal attachment to them, the rest of society would do much better with that money spent to educate and help the new generations. I don't think we have any reason to believe that this is an unearned luxury lavished on a lucky elderly couple. It appears more likely that this is their own money, saved and invested over their lifetime, and their's to spend how they wish. Furthermore, advanced age is no reason to cast someone off to a bland waiting room. It's not healthy for a society to consider somebody's value limited to their future contribution potential. I'm happy to contribute economically to present-day's elderly folks, not only for my own attachment to someone, but for the social contract that I, too, will be old, and I doubt I'll suddenly just want to stand in the corner.
martincmartin 10y ago
This is partly why the standard advice is to purchase an inflation-adjusted fixed annuity: someone else takes over all those risks, including longevity risk. You can use an annuity for your non discretionary income - rent, clothing, food, taxes - and keep the rest in traditional investments. And don't forget, Social Security acts like an annuity in this analysis too.
- RockyMcNuts 10y ago
  those annuities are, unfortunately, very expensive in terms of fees paid to the person who sells and manages it, and you are also exposed to credit risk if the counterparty goes belly-up during your (long) retirement, which seems crazy now, but it would have seemed crazy to worry about AIG counterparty risk pre-2008.
  - bradleyjg 10y ago
    You may be thinking of variable annuities, which aren't really annuities and are something close to an outright scam. Immediate annuities are a vanilla product offered by almost every life insurance company. There's a competitive market for them and they don't have particularly high embedded fees. That said, they are priced based on a very conservative model--in part because their regulators require them to invest that way--and so you may well be disappointed with what you can get for your money. The only wrinkle is the is inflation rider which can vary in the details from company to company, so is not as easy to compare, and therefore tends to be less of an efficient market (i.e. has fairly high costs for the protection you get). One interesting thing you can do with annuities is buy a deferred annuity, again a fairly vanilla, competitive product. If you set the deferred date to well into your old age (usually 85) and no death benefit you can get a relatively large monthly payout. This then acts as a sort of insurance policy (along with social security) that insures you won't outlive your money and allows you to be more aggressive in spending the rest of it.
    - RockyMcNuts 10y ago
      I'd be interested to see a good in-depth analysis. If you get a vanilla annuity, you have significant inflation risk over decades. The guys who bought annuities in e.g. late 60s saw them destroyed by inflation. It's not a great fit for a 30-year retirement. You should be able to get an inflation-adjusted annuity at the TIPS rate plus a credit spread. But right now that TIPS rate is effectively nothing. And I don't know whether the credit spread plus the insurance company tax benefit is a good deal. Packaging e.g. an S&P index fund in an insurance product, so you don't pay taxes until you get payouts, would be a really good idea, but typically insurance companies tack on sales commissions and fees far in excess of e.g. SPY or VFINX. If Fidelity or Vanguard offered that, it would be a good deal, but I hadn't seen that... looking at that Fidelity product now https://www.fidelity.com/annuities/FPRA-variable-annuity/overview https://www.fidelity.com/annuities/FPRA-variable-annuity/ove...
illumin8 10y ago
1. You should not be 100% invested in stocks during retirement (or ever). Diversified portfolios that contain stocks, bonds, cash, and inflation protected assets (such as gold or real-estate) are highly recommended. 2. See #1. Diversification is the way to reduce the risk of stock market crashes, while still getting high annual returns. Diversied portfolios such as the Permanent Portfolio have averaged 9.3% CAGR over the last 40+ years. 3. Average lifespan in developed countries is still increasing dramatically. It might be ~80 years now, but kids just entering the workforce could easily live 100+ years. You better plan for it, unless you want to work right up until the day you die. 4. Agreed.
- velodrome 10y ago
  > Diversied portfolios such as the Permanent Portfolio have averaged 9.3% CAGR over the last 40+ years. Past performance is no guarantee of future results.
  - eximius 10y ago
    But they sure are comforting. Past results guarantee future results in the same circumstances. Over time, circumstances change which invalidates their value. But, in the short term, they imply a probability of future results based off of the volatility of the circumstance state.
    - toomuchtodo 10y ago
      Negative interest rates, slowing growth, models based on historical returns we'll never see again. Not comforting at all.
      - mcguire 10y ago
        Got another option?
        toomuchtodo 10y ago
stevenwiles 10y ago
I made something exactly like what you describe as well. It sounds like mine probably had more features and was slightly more useful, but still, really nice effort. (it was also never released by the company) I still use the tool today to plan my finances and it is the most amazing thing I have ever used for planning my money. I absolutely owe my wealth to this piece of software.
- phodo 10y ago
  why don't you release it or open source it?
- mr_than 10y ago
  I'd also be keen to see one if these unreleased tools. My own experience getting into investing out of uni right at the start of the GFC taught me a hell of a lot about these straight line "predictions".
- gm-conspiracy 10y ago
  Not sure if you are aware, but the tone of your comment makes you sound like a jerk.
h4nkoslo 10y ago
Planning financial investments for a 50 year time horizon when mass-market finance has really only been around since ~the 1970s is crazy. An entire retirement system predicated on long term financial returns > GDP growth, likewise insane. There is insufficient data regardless of modeling technique to derive decent simulation-based conclusions about asset classes that literally didn't exist 50 years ago. There are decent datasets for precious metals, real estate, and government bonds, but the results aren't super encouraging for average investors.
- elcct 10y ago
  It is like with long term weather forecasts, people just want to have it regardless if it makes sense or not.
  - dublidu 10y ago
    It's more like long term climate forecasts. We know it's probably going to get hotter.
- peter303 10y ago
  Also taxes have been all over the place in past 40 years. First there were no IRAs or 401ks that long ago. (But you could defer taxes in an annuity, never-sold stock, or carry-forward housing basis) Long term capital gain taxes were only lower than short term during half that time. So the wisdom is: tax law will change again. Take advantage of what you can now.
  - Spooky23 10y ago
    That's why I always put more money in traditional 401k vs Roth. Bird in hand.
- snowwrestler 10y ago
  You're making a weird distinction by saying "mass-market finance" as if the fundamentals of asset classes change radically depending on how they are marketed. Stocks, as an asset class, have been around a lot longer than the 1970s, and they have on average grown a lot faster than GDP over that time. That makes sense since stock prices measure a form of wealth, and GDP measures income. Big difference.

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.
- bradleyjg 10y ago
  I can't speak to the rest of the country, but that's not the case in NY. It's a complicated story with lots of wrinkles, but the long and short of it is that you can buy a long term care policy of a certain length and then the state (under the medicaid program) will take over payments after that. You don't need to change facilities. In any event, I have yet to visit a nursing home that the word "attractive" would be even in the ballpark of appropriate to use. Separately, optimizing for being able to pay out of pocket for a top tier nursing home seems like a strange life goal to me. Maybe people really do have that preference, but it looks to me like a lot of people in the greater "personal finance" hobbyist world just like saving for it's own sake. Nothing wrong with that of course, but the sanctimoniousness of this group is a way over the top IMO.
  - tome 10y ago
    > Separately, optimizing for being able to pay out of pocket for a top tier nursing home seems like a strange life goal to me. Being able to afford a comfortable life after I am literally too infirm to work is the vast majority of the reason I continue to want to earn money. I'd be really interested if you could persuade me that I am misguided on that!
    - bradleyjg 10y ago
      Consider this hypo: You are now 60 or 65 or maybe even 70, you're slowing down some, but you aren't too infirm to work. You have a fair bit of savings. Do you: 1) Keep working until you can't work anymore 2) Retire, but live frugally so that you can be sure if you make it past 95 and need skilled nursing care you'll be able to keep private paying for a top notch nursing home. 3) Build out a retirement budget that assumes you won't make it past 95, make the absolute most of the next decade or so of relatively good health (hopefully!)? Go take that trip you and your wife always dreamed. Lavish your adorable grandchildren with gifts that certainly don't need. Fly business class instead of squeezing your old bones into coach. Keep in mind that if nothing else you'll still have social security no matter how long you live. Granted this is somewhat exaggerated for effect, but there's a difference between taking the worst case scenario (a funny way of referring to living a long time) into consideration and letting the tail wag the dog.
noonespecial 10y ago
One set of my grandparents ended up on assistance in a $2500/month home. It was like a state prison. There were actual bars. The other set is 98 & 95. They pay more than 14,000/month! It's like a cruise ship. The difference is hard to put into words.
- antisthenes 10y ago
  > They pay more than 14,000/month! It's like a cruise ship. I would certainly hope so, considering for 14,000/month you can live on an actual cruise ship with money left over for entertainment and a few other things. It also pains me to see such luxury spent on the elderly. While you may have a personal attachment to them, the rest of society would do much better with that money spent to educate and help the new generations.
  - baq 10y ago
    The counter argument is that those 14k enters circulation instead of laying idly on some account. Not an economist, so don't ask me what's the better alternative...
    - jacobr1 10y ago
      In normal circumstances, money is rarely idle in an account. It is invested into loans and such. The past decade has been at times unusual in that regard though.
  - noonespecial 10y ago
    Many people are employed by the $14k, some to work their way through school so...
  - styrophone 10y ago
    >It also pains me to see such luxury spent on the elderly. While you may have a personal attachment to them, the rest of society would do much better with that money spent to educate and help the new generations. I don't think we have any reason to believe that this is an unearned luxury lavished on a lucky elderly couple. It appears more likely that this is their own money, saved and invested over their lifetime, and their's to spend how they wish. Furthermore, advanced age is no reason to cast someone off to a bland waiting room. It's not healthy for a society to consider somebody's value limited to their future contribution potential. I'm happy to contribute economically to present-day's elderly folks, not only for my own attachment to someone, but for the social contract that I, too, will be old, and I doubt I'll suddenly just want to stand in the corner.

martincmartin 10y ago

This is partly why the standard advice is to purchase an inflation-adjusted fixed annuity: someone else takes over all those risks, including longevity risk. You can use an annuity for your non discretionary income - rent, clothing, food, taxes - and keep the rest in traditional investments. And don't forget, Social Security acts like an annuity in this analysis too.

RockyMcNuts 10y ago
those annuities are, unfortunately, very expensive in terms of fees paid to the person who sells and manages it, and you are also exposed to credit risk if the counterparty goes belly-up during your (long) retirement, which seems crazy now, but it would have seemed crazy to worry about AIG counterparty risk pre-2008.
- bradleyjg 10y ago
  You may be thinking of variable annuities, which aren't really annuities and are something close to an outright scam. Immediate annuities are a vanilla product offered by almost every life insurance company. There's a competitive market for them and they don't have particularly high embedded fees. That said, they are priced based on a very conservative model--in part because their regulators require them to invest that way--and so you may well be disappointed with what you can get for your money. The only wrinkle is the is inflation rider which can vary in the details from company to company, so is not as easy to compare, and therefore tends to be less of an efficient market (i.e. has fairly high costs for the protection you get). One interesting thing you can do with annuities is buy a deferred annuity, again a fairly vanilla, competitive product. If you set the deferred date to well into your old age (usually 85) and no death benefit you can get a relatively large monthly payout. This then acts as a sort of insurance policy (along with social security) that insures you won't outlive your money and allows you to be more aggressive in spending the rest of it.
  - RockyMcNuts 10y ago
    I'd be interested to see a good in-depth analysis. If you get a vanilla annuity, you have significant inflation risk over decades. The guys who bought annuities in e.g. late 60s saw them destroyed by inflation. It's not a great fit for a 30-year retirement. You should be able to get an inflation-adjusted annuity at the TIPS rate plus a credit spread. But right now that TIPS rate is effectively nothing. And I don't know whether the credit spread plus the insurance company tax benefit is a good deal. Packaging e.g. an S&P index fund in an insurance product, so you don't pay taxes until you get payouts, would be a really good idea, but typically insurance companies tack on sales commissions and fees far in excess of e.g. SPY or VFINX. If Fidelity or Vanguard offered that, it would be a good deal, but I hadn't seen that... looking at that Fidelity product now https://www.fidelity.com/annuities/FPRA-variable-annuity/overview https://www.fidelity.com/annuities/FPRA-variable-annuity/ove...

illumin8 10y ago

1. You should not be 100% invested in stocks during retirement (or ever). Diversified portfolios that contain stocks, bonds, cash, and inflation protected assets (such as gold or real-estate) are highly recommended. 2. See #1. Diversification is the way to reduce the risk of stock market crashes, while still getting high annual returns. Diversied portfolios such as the Permanent Portfolio have averaged 9.3% CAGR over the last 40+ years. 3. Average lifespan in developed countries is still increasing dramatically. It might be ~80 years now, but kids just entering the workforce could easily live 100+ years. You better plan for it, unless you want to work right up until the day you die. 4. Agreed.

velodrome 10y ago
> Diversied portfolios such as the Permanent Portfolio have averaged 9.3% CAGR over the last 40+ years. Past performance is no guarantee of future results.
- eximius 10y ago
  But they sure are comforting. Past results guarantee future results in the same circumstances. Over time, circumstances change which invalidates their value. But, in the short term, they imply a probability of future results based off of the volatility of the circumstance state.
  - toomuchtodo 10y ago
    Negative interest rates, slowing growth, models based on historical returns we'll never see again. Not comforting at all.
    - mcguire 10y ago
      Got another option?
      - toomuchtodo 10y ago

stevenwiles 10y ago

I made something exactly like what you describe as well. It sounds like mine probably had more features and was slightly more useful, but still, really nice effort. (it was also never released by the company) I still use the tool today to plan my finances and it is the most amazing thing I have ever used for planning my money. I absolutely owe my wealth to this piece of software.

phodo 10y ago
why don't you release it or open source it?
mr_than 10y ago
I'd also be keen to see one if these unreleased tools. My own experience getting into investing out of uni right at the start of the GFC taught me a hell of a lot about these straight line "predictions".
gm-conspiracy 10y ago
Not sure if you are aware, but the tone of your comment makes you sound like a jerk.

h4nkoslo 10y ago

Planning financial investments for a 50 year time horizon when mass-market finance has really only been around since ~the 1970s is crazy. An entire retirement system predicated on long term financial returns > GDP growth, likewise insane. There is insufficient data regardless of modeling technique to derive decent simulation-based conclusions about asset classes that literally didn't exist 50 years ago. There are decent datasets for precious metals, real estate, and government bonds, but the results aren't super encouraging for average investors.

elcct 10y ago
It is like with long term weather forecasts, people just want to have it regardless if it makes sense or not.
- dublidu 10y ago
  It's more like long term climate forecasts. We know it's probably going to get hotter.
peter303 10y ago
Also taxes have been all over the place in past 40 years. First there were no IRAs or 401ks that long ago. (But you could defer taxes in an annuity, never-sold stock, or carry-forward housing basis) Long term capital gain taxes were only lower than short term during half that time. So the wisdom is: tax law will change again. Take advantage of what you can now.
- Spooky23 10y ago
  That's why I always put more money in traditional 401k vs Roth. Bird in hand.
snowwrestler 10y ago
You're making a weird distinction by saying "mass-market finance" as if the fundamentals of asset classes change radically depending on how they are marketed. Stocks, as an asset class, have been around a lot longer than the 1970s, and they have on average grown a lot faster than GDP over that time. That makes sense since stock prices measure a form of wealth, and GDP measures income. Big difference.