

Optimal certainty-equivalent spending retirements with DataNitro - karamazov
http://blog.streeteye.com/blog/2014/01/2534/

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saalweachter
You can die penniless with _way_ less math than that.

The problem I have with this analysis is that -- at least with my first read-
through -- it has no floor on income. It's just trying to maximize the amount
of money spent during your lifetime, with the only penalty for spending early
being that you don't earn interest on the money later in life.

The question most people want answered involves a floor to the amount of money
they have to spend in the year. If I spend all my money at age 90 and manage
to live to age 91, my regret isn't the 5% interest I missed out on, it's that
I'm now destitute and homeless at age 91.

How do I maximize my expected lifetime spending while maintaining some floor
on my annual spending?

~~~
RockyMcNuts
In this framework, if you have a floor income, your utility is negative
infinity below that, and 0 at or above that income.

So basically run the same analysis with that utility function which is the
CRRA function as risk aversion parameter gamma approaches infinity.

Alternatively, read Bengen's 1994 article - using historical data at that
time, the number he came up with was 4% and a 50/50 stock/bond portfolio -
[http://www.retailinvestor.org/pdf/Bengen1.pdf](http://www.retailinvestor.org/pdf/Bengen1.pdf)

If you wanted to, you could segment your plan into a 'safe' withdrawal
portfolio that puts a floor on your retirement income (assuming future is no
worse than the past, which is of course not guaranteed), and one that
maximizes spending/certainty-equivalent spending for some level of risk
aversion.

~~~
RockyMcNuts
(should have mentioned, I'm the author of TFA)

and, motivated by you guys, posted parts 2 and 3

[http://blog.streeteye.com/blog/2014/01/optimal-certainty-
equ...](http://blog.streeteye.com/blog/2014/01/optimal-certainty-equivalent-
retirement-plans-part-2/)

[http://blog.streeteye.com/blog/2014/01/retirement-plans-
that...](http://blog.streeteye.com/blog/2014/01/retirement-plans-that-
maximize-certainty-equivalent-spending-part-3)

