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Foolishness of the 4% rule

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  • Thrugelmir
    Thrugelmir Posts: 89,546 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Photogenic
    Terron 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.
    First world problems. People chat on internet forums how wealthy they've become. Then resent paying for their own care with the money.  Much of which was gained from good fortune rather than any productive output. 
  • Terron 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.
    First world problems. People chat on internet forums how wealthy they've become. Then resent paying for their own care with the money.  Much of which was gained from good fortune rather than any productive output. 

    They also forget a large part of their wealth was due to government support through unprecedented fiscal expansion.
  • [Deleted User]
    [Deleted User] Posts: 0 Newbie
    1,000 Posts Third Anniversary Name Dropper
    edited 29 September 2021 at 12:15PM
    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.
    Comments like this, helpful and smart as they are, always make me wonder what the author is doing a) reading and commenting on this topic and b) on this financial forum. You do realize that even if you are here you could ignore?  

    Doing it once raises eyebrows. And then copying and reposting the same smartness again and again… Blocked. 
  • 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.
    Comments like this, helpful and smart as they are, always make me wonder what the author is doing a) reading and commenting on this topic and b) on this financial forum. You do realize that even if you are here you could ignore?  

    Doing it once raises eyebrows. And then copying and reposting the same smartness again and again… Blocked. 
    The self referencing nihilism is sad.
    “So we beat on, boats against the current, borne back ceaselessly into the past.”
  • bostonerimus
    bostonerimus Posts: 5,617 Forumite
    Sixth Anniversary 1,000 Posts Name Dropper
    edited 29 September 2021 at 4:12PM
    Terron 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.
    First world problems. People chat on internet forums how wealthy they've become. Then resent paying for their own care with the money.  Much of which was gained from good fortune rather than any productive output. 
    Many people get old and infirm and need some form of elder care...wherever you live. In societies where the old increasingly live alone and social care does not always come from families then it has to be paid for. We have to decide how to pay for it either from means tested funds, or some form of private or Government insurance scheme. The rich will always be ok and able to pay for excellent care, you'd hope that the poor would get good care from some safety net scheme (although I doubt that) and then there is the middle who see large portions of their lifetime savings disappear at the end of life. The current debate in the UK indicates that the majority of people don't like the current situation and we'll see what happens to the increased NICs. Personally I would have got the money from higher taxes on corporations, plugging of tax loopholes used by Amazon etc, dividends, CG and income tax.
    “So we beat on, boats against the current, borne back ceaselessly into the past.”
  • MK62
    MK62 Posts: 1,741 Forumite
    Seventh Anniversary 1,000 Posts Name Dropper
    edited 29 September 2021 at 4:05PM
     Personally I would have got the money from higher taxes on corporations, dividends, CG and income tax.
    All in good time...... ;)
    Personally though, I thought the freeze on the Personal Allowance was a regressive step - I'd have preferred to see a rise in income tax instead, but at the time the govt didn't want to break a manifesto promise.....though you could argue that this is a play on words, as freezing the PA is effectively a tax rise, for most, in all but name.
    The NI increase is more debatable.......they have to get more money from somewhere, while at the same time not shafting the economy....it's tough to square that circle.......but again I think it would have been fairer on income tax....if they wanted to get more from employers, they could have raised just the employers NI rate (though, again, not sure this would be a good idea quite yet....with furlough finishing etc)......

  • bostonerimus
    bostonerimus Posts: 5,617 Forumite
    Sixth Anniversary 1,000 Posts Name Dropper
    edited 29 September 2021 at 4:20PM
    MK62 said:
     Personally I would have got the money from higher taxes on corporations, dividends, CG and income tax.
    All in good time...... ;)
    Personally though, I thought the freeze on the Personal Allowance was a regressive step - I'd have preferred to see a rise in income tax instead, but at the time the govt didn't want to break a manifesto promise.....though you could argue that this is a play on words, as freezing the PA is effectively a tax rise, for most, in all but name.
    The NI increase is more debatable.......they have to get more money from somewhere, while at the same time not shafting the economy....it's tough to square that circle.......but again I think it would have been fairer on income tax....if they wanted to get more from employers, they could have raised just the employers NI rate (though, again, not sure this would be a good idea quite yet....with furlough finishing etc)......

    I like that NIC taxes increases hits both employers and employees, but not that it excludes retirees and hits those on lower wages hardest. I think it might have been chosen partly because it doesn't have the word "tax" in its title. But budgeting for social care is a big unknown for any retiree as we don't really know how out of pocket costs will change, or whether we'll have to pay them at all.
    “So we beat on, boats against the current, borne back ceaselessly into the past.”
  • Terron
    Terron Posts: 846 Forumite
    Part of the Furniture 500 Posts Name Dropper Photogenic
    Deleted_User said:

    UK/Canada have GPs which serve as guardians to limit usage of the system. 

    No. In the UK GP's provide 90% of the healthcare for 10% of the budget. They don't ration usage (though a shortage of GPs in an area might do so). They are either salaried or partners and their pay does not depend on how much they do (baring some incentive schemes and extra work they might do). So they are more motivated to provide preventative care than doctors in system where they are paid by activity, and are not motivated to bump up costs/profits by performing unnecessary work.

    My father was a GP. 
  • The increase in NIC is for one year only. After that there will be a new tax - the health and social care levy. Over time we could (not saying we will) see the HSC levy be applied to eg unearned income and/or continuing after SPA, while leaving NIC as is.
  • Terron 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.
    First world problems. People chat on internet forums how wealthy they've become. Then resent paying for their own care with the money.  Much of which was gained from good fortune rather than any productive output. 
    Personally I would have got the money from higher taxes on corporations, plugging of tax loopholes used by Amazon etc, dividends, CG and income tax.

    Then the 4% rule will have to become the 3% rule.
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