Foolishness of the 4% rule

[Deleted User]

UK and Canadian tax burdens are very similar, or at least they were 10 years ago.  

US tax burden varies by the state. My company brings American and British engineers to work on projects in Canada. If its for more than 6 months then they are subject to Canadian taxes.   When the Yanks come across, tax equalization sometimes forces us to double charge out rates (always an adjustment but its state dependent). For Brits there is no adjustment. 

If we start comparing council tax, then perhaps you should also compare VAT (depends on state, but MUCH lower in the US). 

Now… Healthcare is free in Canada but people are often forced to travel to and pay in the US. And oldies in the US are largely covered by the taxpayer anyway.  

Its all kinda irrelevant. Bottom line is that the cost of healthcare is controlled by the government and not subject to inflation in either US or UK as an aging population would trigger if it was driven by the market forces.

And longterm care is indeed an insurance issue. Not needed as often as people think. 

Which is why in practice retirees’ expenditure goes down as they age in the same way in different countries. 

And state pension was never meant to be sufficient by itself in either of our countries although it is the most generous in the US. 

MK62

For a variety of reasons, different country's state pension provisions are, for the most part, not directly comparable......one of the many reasons why much (not saying all) of what is discussed on this forum is pretty country specific.

Terron

bostonerimus said:

Terron said:

Deleted_User said:

When talking about essential spending it can't be reduced, because it is essential, and an increase beyond inflation is likely not essential.  So the only option that makes sense is for unwavering index-linked withdrawal. 

You are assuming that essential spending is going up with whichever “index” you prefer.  In practice its unlikely to be true.  A couple of holidays a year might me essential for a 65 year old but an 85 year old might not be interested at all. Rental pricing or petrol might not be relevant at all. 

As people get older, the “inflation” which impacts them the most is healthcare. There isn’t a real market for healthcare; most countries have the government as one and only or the dominant buyer (even in the US).  The government has strong incentive to not let inflation impact healthcare.  Even as population ages and demand soars, prices are actually going down. Market retaliates by creating a shortage of supply and we get implicit healthcare rationing and having an indexed pension won’t help here.  

Its complicated but as discussed above, the cost of  retirees basic needs tends to go down as they age. 

It may go down or it may go up if you need care. Assuming it stays the same works as a first approximation. 
In the UK health costs drop to zero on state retirement age as you no longer need to pay NI and even in England prescription charges drop to zero. Inflation does affect health costs for the NHS but not for retirees. 

The idea behind this is spot on, but OAPs do still contribute to the NHS budget as a lot of it comes from general taxation. Still I look at my tax burden in the US and it is higher than I'd pay in the UK on a similar income because there's Federal, State and local taxes to pay and my equivalent of UK council tax is now $8k pa...and I have to pay $100 per month for health insurance (which is incredibly inexpensive for the US). However, the UK does have the very worrying and potentially expensive issue of social care in old age. That's a cost that many people now have as they age. This wasn't an issue for my grandparents in the UK in the 1970s as they had local authority/NHS paid for places in retirement homes when they needed them. My Father did have to worry about it a bit, but got hospice care. My Mum died suddenly at home. I'm in the US and the provision is just as bad/expensive as in the UK, but at least in the US I have a long term care insurance policy which should cover most of the cost.

Social care comes in stages. Ten years ago my mother needed home visits towards the end of her life, and did not outlive the free period (6 weeks). Then my dad needed visits as he could not dress himself (Parkinsons). After a period in hospital the visits went up to 4 a day. He had to pay. Then he went back into hospital and then into residential care. The council would have paid, but he could afford it on his NHS pension - he had been a doctor for 39 years. He was there for 10 weeks.

We toured half a dozen homes looking for a good one for my dad. Most were horrible, in that they were full of people who seemed zombies. One good one had no spaces, but the other was excellent.  Near the golf club he had been a member of so his friends could visit, and one of the carers was a former patient of his from when she was a child.

I had a great aunt who was in a care home in the 70s. She could remember her great-grandfather who died when she was 10. He was born in 1820.

bostonerimus

Thrugelmir said:

bostonerimus said:

Terron said:

Deleted_User said:

When talking about essential spending it can't be reduced, because it is essential, and an increase beyond inflation is likely not essential.  So the only option that makes sense is for unwavering index-linked withdrawal. 

You are assuming that essential spending is going up with whichever “index” you prefer.  In practice its unlikely to be true.  A couple of holidays a year might me essential for a 65 year old but an 85 year old might not be interested at all. Rental pricing or petrol might not be relevant at all. 

As people get older, the “inflation” which impacts them the most is healthcare. There isn’t a real market for healthcare; most countries have the government as one and only or the dominant buyer (even in the US).  The government has strong incentive to not let inflation impact healthcare.  Even as population ages and demand soars, prices are actually going down. Market retaliates by creating a shortage of supply and we get implicit healthcare rationing and having an indexed pension won’t help here.  

Its complicated but as discussed above, the cost of  retirees basic needs tends to go down as they age. 

It may go down or it may go up if you need care. Assuming it stays the same works as a first approximation. 
In the UK health costs drop to zero on state retirement age as you no longer need to pay NI and even in England prescription charges drop to zero. Inflation does affect health costs for the NHS but not for retirees. 

However, the UK does have the very worrying and potentially expensive issue of social care in old age. 

If people were paid decent wages and given employment rights. The USA would be in a very similar position. 

The USA is in a similar situation to the UK when it comes to social care...of course there are large variations from State to State. Lots of people need it, care workers are poorly paid, it is expensive and it is means tested so you have to spend down savings before you qualify for any help. The US does have long term care insurance policies that you can buy, but they are becoming increasingly expensive.

bostonerimus

Deleted_User said:

UK and Canadian tax burdens are very similar, or at least they were 10 years ago.  

US tax burden varies by the state. My company brings American and British engineers to work on projects in Canada. If its for more than 6 months then they are subject to Canadian taxes.   When the Yanks come across, tax equalization sometimes forces us to double charge out rates (always an adjustment but its state dependent). For Brits there is no adjustment. 

If we start comparing council tax, then perhaps you should also compare VAT (depends on state, but MUCH lower in the US). 

Now… Healthcare is free in Canada but people are often forced to travel to and pay in the US. And oldies in the US are largely covered by the taxpayer anyway.  

Its all kinda irrelevant. Bottom line is that the cost of healthcare is controlled by the government and not subject to inflation in either US or UK as an aging population would trigger if it was driven by the market forces.

And longterm care is indeed an insurance issue. Not needed as often as people think. 

Which is why in practice retirees’ expenditure goes down as they age in the same way in different countries. 

And state pension was never meant to be sufficient by itself in either of our countries although it is the most generous in the US. 

In the US you are always paying for healthcare. Working people will pay hundreds of dollars a month for an employer subsidized health plan and then still expect to pay thousands in deductibles when they get sick. On top of that they pay 1.45% Medicare tax on their wages to help pay for healthcare in retirement. However, when they retire they still have to pay around $200 per month for this government medical plan and to get insurance for stuff the government doesn't cover...and then there's the cost of drugs which is very high. The NHS, with all it's problems, makes retirement planning in the UK far less complicated that the US.

bostonerimus

MK62 said:

For a variety of reasons, different country's state pension provisions are, for the most part, not directly comparable......one of the many reasons why much (not saying all) of what is discussed on this forum is pretty country specific.

Definitely true. I will qualify for UK SP and when I get that I expect it to be around 10k GBP and I will also qualify for US SS which will be the equivalent of 20k GBP (using 1.5 as a dollar to pound conversion). So I get twice as much "state pension" from the US. For the US pension I have paid 6.2% FICA tax (equivalent of NIC) and I think in the UK I'd pay 7% Class 1 NIC on the same salary. 

The US still has a social security pension that takes into account your earnings history rather than the flat rate one in the UK.

[Deleted User]

bostonerimus said:

Deleted_User said:

UK and Canadian tax burdens are very similar, or at least they were 10 years ago.  

US tax burden varies by the state. My company brings American and British engineers to work on projects in Canada. If its for more than 6 months then they are subject to Canadian taxes.   When the Yanks come across, tax equalization sometimes forces us to double charge out rates (always an adjustment but its state dependent). For Brits there is no adjustment. 

If we start comparing council tax, then perhaps you should also compare VAT (depends on state, but MUCH lower in the US). 

Now… Healthcare is free in Canada but people are often forced to travel to and pay in the US. And oldies in the US are largely covered by the taxpayer anyway.  

Its all kinda irrelevant. Bottom line is that the cost of healthcare is controlled by the government and not subject to inflation in either US or UK as an aging population would trigger if it was driven by the market forces.

And longterm care is indeed an insurance issue. Not needed as often as people think. 

Which is why in practice retirees’ expenditure goes down as they age in the same way in different countries. 

And state pension was never meant to be sufficient by itself in either of our countries although it is the most generous in the US. 

In the US you are always paying for healthcare. Working people will pay hundreds of dollars a month for an employer subsidized health plan and then still expect to pay thousands in deductibles when they get sick. On top of that they pay 1.45% Medicare tax on their wages to help pay for healthcare in retirement. However, they still have to pay around $200 per month for this government medical plan and to get insurance for stuff the government doesn't cover...and then there's the cost of drugs which is very high. The NHS, with all it's problems, makes retirement planning in the UK far less complicated that the US.

There is no free healthcare anywhere, assuming the nurses are paid in North Korea. At the point of use US retirees have the vast majority of their healthcare costs covered by Medicare.  The cost of drugs in the US is about to go down, which is an example of what I am talking about.  Canada is also funding drugs for retirees and about to fund them for everyone. UK has something similar. 

Plural of an anecdote is not data, but…

Talked to a friend of ours in Britain. He had to give up work. Has a swelling near his spine and is in pain.  Did an MRI. Unfortunately the doctor in that hospital was unable to read this type of MRI.  MRI was sent to another hospitals. The doctors in that hospital would not provide a diagnosis based on an MRI from another hospital. He is waiting for another MRI. Its been 8 months.  

My company has thousands of staff in the US.  When Canadian colleagues have a health issue they tend to do nothing about it until it becomes impossible to ignore. I noticed US colleagues access their healthcare in similar cases.  Of course its covered by the benefits (accept fr a small portion).  Its just easier to access.  UK/Canada have GPs which serve as guardians to limit usage of the system. 

Not a fan of “free” healthcare. Its a rationed lottery system based on post code and is always underfunded by design. But the point relevant to this thread is that the cost of healthcare is what impacts retirees’ inflation and its not permitted to rise with CPI in either of our countries. 

bostonerimus

Terron said:

bostonerimus said:

Terron said:

Deleted_User said:

When talking about essential spending it can't be reduced, because it is essential, and an increase beyond inflation is likely not essential.  So the only option that makes sense is for unwavering index-linked withdrawal. 

You are assuming that essential spending is going up with whichever “index” you prefer.  In practice its unlikely to be true.  A couple of holidays a year might me essential for a 65 year old but an 85 year old might not be interested at all. Rental pricing or petrol might not be relevant at all. 

As people get older, the “inflation” which impacts them the most is healthcare. There isn’t a real market for healthcare; most countries have the government as one and only or the dominant buyer (even in the US).  The government has strong incentive to not let inflation impact healthcare.  Even as population ages and demand soars, prices are actually going down. Market retaliates by creating a shortage of supply and we get implicit healthcare rationing and having an indexed pension won’t help here.  

Its complicated but as discussed above, the cost of  retirees basic needs tends to go down as they age. 

It may go down or it may go up if you need care. Assuming it stays the same works as a first approximation. 
In the UK health costs drop to zero on state retirement age as you no longer need to pay NI and even in England prescription charges drop to zero. Inflation does affect health costs for the NHS but not for retirees. 

The idea behind this is spot on, but OAPs do still contribute to the NHS budget as a lot of it comes from general taxation. Still I look at my tax burden in the US and it is higher than I'd pay in the UK on a similar income because there's Federal, State and local taxes to pay and my equivalent of UK council tax is now $8k pa...and I have to pay $100 per month for health insurance (which is incredibly inexpensive for the US). However, the UK does have the very worrying and potentially expensive issue of social care in old age. That's a cost that many people now have as they age. This wasn't an issue for my grandparents in the UK in the 1970s as they had local authority/NHS paid for places in retirement homes when they needed them. My Father did have to worry about it a bit, but got hospice care. My Mum died suddenly at home. I'm in the US and the provision is just as bad/expensive as in the UK, but at least in the US I have a long term care insurance policy which should cover most of the cost.

Social care comes in stages. Ten years ago my mother needed home visits towards the end of her life, and did not outlive the free period (6 weeks). Then my dad needed visits as he could not dress himself (Parkinsons). After a period in hospital the visits went up to 4 a day. He had to pay. Then he went back into hospital and then into residential care. The council would have paid, but he could afford it on his NHS pension - he had been a doctor for 39 years. He was there for 10 weeks.

We toured half a dozen homes looking for a good one for my dad. Most were horrible, in that they were full of people who seemed zombies. One good one had no spaces, but the other was excellent.  Near the golf club he had been a member of so his friends could visit, and one of the carers was a former patient of his from when she was a child.

I had a great aunt who was in a care home in the 70s. She could remember her great-grandfather who died when she was 10. He was born in 1820.

These are situations that we all have to deal with; first as a child trying to help a parent and then as the person needing care ourselves. Obviously there is so much to worry about and often money comes into the picture when it's the last thing that should be of concern. In our withdrawal planning the massive spike in spending on social care should be considered, I think the average stay in a residential home is around 2 years.

For my Father my Mum was his carer until the doctor recommended a hospice...I think as much for my Mum as my Dad. My Mum lived for 20 more years and would not move out of the house and was vey reluctant to have help come in. My brothers and I eventually got her to agree to moving closer to one brother so he could visit every day, but a month after that she had a stroke and a neighbour called the ambulance. 

So my parents avoided having to pay any long term social care bills by getting a terminal illness and by being bloody minded. I think my Mum's final couple of years would have been better if she had been living with other people.

bostonerimus

Deleted_User said:

bostonerimus said:

Deleted_User said:

UK and Canadian tax burdens are very similar, or at least they were 10 years ago.  

US tax burden varies by the state. My company brings American and British engineers to work on projects in Canada. If its for more than 6 months then they are subject to Canadian taxes.   When the Yanks come across, tax equalization sometimes forces us to double charge out rates (always an adjustment but its state dependent). For Brits there is no adjustment. 

If we start comparing council tax, then perhaps you should also compare VAT (depends on state, but MUCH lower in the US). 

Now… Healthcare is free in Canada but people are often forced to travel to and pay in the US. And oldies in the US are largely covered by the taxpayer anyway.  

Its all kinda irrelevant. Bottom line is that the cost of healthcare is controlled by the government and not subject to inflation in either US or UK as an aging population would trigger if it was driven by the market forces.

And longterm care is indeed an insurance issue. Not needed as often as people think. 

Which is why in practice retirees’ expenditure goes down as they age in the same way in different countries. 

And state pension was never meant to be sufficient by itself in either of our countries although it is the most generous in the US. 

In the US you are always paying for healthcare. Working people will pay hundreds of dollars a month for an employer subsidized health plan and then still expect to pay thousands in deductibles when they get sick. On top of that they pay 1.45% Medicare tax on their wages to help pay for healthcare in retirement. However, they still have to pay around $200 per month for this government medical plan and to get insurance for stuff the government doesn't cover...and then there's the cost of drugs which is very high. The NHS, with all it's problems, makes retirement planning in the UK far less complicated that the US.

There is no free healthcare anywhere, assuming the nurses are paid in North Korea. At the point of use US retirees have the vast majority of their healthcare costs covered by Medicare.  The cost of drugs in the US is about to go down, which is an example of what I am talking about.  Canada is also funding drugs for retirees and about to fund them for everyone. UK has something similar. 

Plural of an anecdote is not data, but…

Talked to a friend of ours in Britain. He had to give up work. Has a swelling near his spine and is in pain.  Did an MRI. Unfortunately the doctor in that hospital was unable to read this type of MRI.  MRI was sent to another hospitals. The doctors in that hospital would not provide a diagnosis based on an MRI from another hospital. He is waiting for another MRI. Its been 8 months.  

My company has thousands of staff in the US.  When Canadian colleagues have a health issue they tend to do nothing about it until it becomes impossible to ignore. I noticed US colleagues access their healthcare in similar cases.  Of course its covered by the benefits (accept fr a small portion).  Its just easier to access.  UK/Canada have GPs which serve as guardians to limit usage of the system. 

Not a fan of “free” healthcare. Its a rationed lottery system based on post code and is always underfunded by design. But the point relevant to this thread is that the cost of healthcare is what impacts retirees’ inflation and its not permitted to rise with CPI in either of our countries. 

Healthcare as to be paid for, but the US has managed to produce the most inefficient and expensive way of doing it. Access is an issue in the UK because of chronic under funding and access is an issue in the US for those that simply don't have insurance or avoid going to the doctor because they cannot afford the deductible. If someone retires before Medicare age they will have to pay hundreds or even thousands per month to get insurance. When they do reach Medicare age (65) the $150/month that a retiree must pay for Medicare does not cover a lot of healthcare and they have to pay for extra insurance.  There are "no cost" options for this extra insurance, but they will pay the first $5k or $10k when they get sick. I'm lucky as a retired state employee as I get state healthcare for $100 per month with a $5k deductible, but I can afford that easily, and I get access to some of the World's best hospitals. When I reach Medicare age I will go on the state Medicare plan and my premiums will jump to $250 per month, but everything will be covered.

So I get a great plan and a great price for the US, but most people are not as lucky and retirement planning and withdrawals of "4%" need to cover health costs that bankrupt thousands of US retirees every year. At least the UK retiree doesn't have to worry about that.

itwasntme001

itwasntme001 said:

27 pages of time and effort spent on trying to come to some sort of conclusion on a "safe" withdrawal rate and how best to accomplish it.  Surely time better spent actually enjoying life by spending some of the money?  If there is a 1 in 2 or 1 in 3 chance of getting cancer in a lifetime, surely time better spent keeping fit and healthy and not stressing or worrying over safe withdrawal rates?  And so what if you run out of money into old age.  You will be cared for by the state anyway.

Better to just have a very rough sense of how much you can spend and set appropriate allocations.  No need to get so accurate about these things and certainly no need for 27 pages.

Perfection is the enemy of good/action/progress etc.

And now 51 pages of nonsense.  People trying to bring order and precision in a world that is inherently disordered and chaotic.  Utterly pointless.