I’ve reset the Decrease Risk Tolerance With Age slider back to its default which gives me a 2. This results in my asset allocation suggesting around 65% equities for the whole period, which I’m comfortable with.

I think I’ll need to spend some time in a darkened room with a cold towel over my head if I’m to understand exactly what’s going on. Useful brain exercise!

Ben Mathew Ph.D is interviewed for The Rational Reminder Podcast.

https://youtu.be/-2Ul4bdHkXE?si=u7MVTNMG4Vg-6wbE

What drives the best financial planning decisions? In this episode, Ben Felix and Mark McGrath sit down with Ben Mathew, a PhD in economics from the University of Chicago and author of Economics: The Remarkable Story of How the Economy Works. The discussion explores the lifecycle model of economics, a powerful yet underutilized framework for financial planning, and contrasts it with traditional approaches like safe withdrawal rates (SWR). Ben Mathew shares insights into the lifecycle model, its origins, and its practical applications in aligning financial decisions with personal goals over a lifetime. We also dig into Ben’s innovative financial planning tool, TPAW (Total Portfolio Allocation and Withdrawal) Planner, designed to bring the lifecycle model into practice. While the discussion delves into the complexities of financial planning, it’s packed with actionable insights for listeners seeking smarter, evidence-based strategies. Join us for a deep dive into the lifecycle model and discover how it compares to traditional safe withdrawal rates.

Timestamps:

0:00:00​ Intro
0:03:20​ The main problem financial planning aims to solve
0:07:47​ How effective simple rules of thumb (like the 4% rule) are for long-term financial planning
0:12:37​ Why more people aren't using the lifecycle model
0:16:46​ The basic premise of the lifecycle model
0:21:15​ How withdrawals in the lifecycle model relate to amortization
0:25:38​ How amortization-based withdrawals change when risk is added
0:31:25​ With amortization-based variable withdrawals, how spending changes if the portfolio drops 10%
0:37:43​ The amount variability in spending seen in historical simulations
0:43:51​ How spending variability can be tailored to someone's preferences
0:50:55​ How quickly spending recovers after a market crash
0:55:13​ What the lifecycle model says about asset allocation
1:05:02​ How advice changes if we assume we have limited information about how expected returns vary through time
1:11:51​ How asset allocation in the model changes based on the time horizon of the goal being funded
1:17:38​ How asset allocation in the model changes with wealth
1:21:02​ How the Safe Withdrawal Rate (SWR) methodology works
1:25:18​ The problems with the SWR approach
1:37:36​ How the probability of success metric that drives SWR relates to the utility function in economics
1:42:55​ How a variable withdrawal strategy using SWR differs from Amortization Based Withdrawals
1:49:32​ Ben discusses his online Total Portfolio Allocation and Withdrawal (TPAW) tool
1:54:04​ Ben defines success in his life

TPAW takes portfolio drops or gains and spreads them across the remaining retirement timeline, so your withdrawal increases or falls are adjust accordingly, with the remaining time smoothing the adjustments. SWR basically plays for safety in the worst cases from the off, so you end up with more than you need at the end in many cases. so, you have to start with a larger portfolio to reach an acceptable minimum withdrawal rate.

Bottom line with all retirement withdrawal plans from invested assets is that a bad starting sequence of returns or a prolonged downturn will hurt your portfolio and present risks to withdrawals, no amount of fiddling with spreadsheets or models is going to change those basic facts. If your living expenses are to come from invested assets you need a sizeable starting pot and hope for an average or good 30/40 year period.

And no, dividend stocks aren't the answer either. A mix of guaranteed fixed income (state pensions, DB pensions, annuity, interest from cash/bonds) and the rest from investments reduces the risks.

Mostly muddled meanderings, from who? versus a Professor of Economics.

He candidly admits he hasn't even looked at the Planner...

Am I wrong In thinking that Victor Haghani who is closely involved with TPAW was a founder member of LTCM -that investment formula that worked wonderfully till it didn’t?
Just makes me wonder a bit
xxd09