Tuesday, September 9, 2014

Complimentary Posts From Steve Vernon

It is always nice to get a compliment--even if it comes from a friend.  Out of the blue last week, my friend, Steve Vernon, Research Scholar for the Stanford Center on Longevity and blogger for CBS MoneyWatch, decided to say a couple of nice things in his blog about our website and the Actuarial Approach for determining a spending budget.  His posts are A simple tool for figuring retirement income and How much can I spend in retirement?

As usual, Steve does an excellent job of discussing his topic in a straight-forward and understandable (i.e., non-actuarial) manner.  I just have just a couple of "clarifying" comments:

Steve indicates that you can input the amount of Social Security in the spreadsheet tool.  This isn't the case.  The "Excluding Social Security V 2.0" Excel spreadsheet is designed to produce a number that you can add to any inflation-indexed income you receive, such as Social Security, to determine your spending budget.

While Steve discusses the need to periodically adjust withdrawals to reflect events that have occurred (which I believe is more important than the sophistication level of the spending tool employed), he does not discuss the smoothing algorithm I recommend in this website.  I believe that it is important to smooth the gains and losses that will occur in the future in a reasonable manner.  And I believe the smoothing algorithm we recommend is an important part of the Actuarial Approach.  

Lastly, although it makes for a good story, I did not develop the Actuarial Approach and website to figure out my own retirement spending budget (although I certainly do use it).   As a defined benefit pension actuary, I became concerned about how individuals will have to "self-insure" their retirement in a defined contribution (401(k)) world over ten years ago while I was still working.  At that time, I pitched my ideas to Dallas Salisbury and others at the Employee Benefit Research Institute (EBRI), AARP and other organizations representing retirees as well as my own professional actuarial organizations.  I thought that my approach could help retirees better manage the risks involved in determining how much they could afford to spend each year.  Apparently, these organizations disagreed.  When I did receive feedback, I was told that my approach was either too complicated or not complicated enough.  This feedback was a source of frustration for me.  When I was close to retiring, my friend and co-worker at Towers Watson, Kin Chan, offered to help me set up this website to help me communicate the approach.  It is an offer that he now, I'm sure, regrets as I send him new thoughts to post every few days.