Comments on: The $812K Question: Will Social Security Be Around in 2045? http://blog.adamnash.com/2006/11/03/the-812k-question-will-social-security-be-around-in-2045/ The personal blog of Adam Nash Wed, 15 Feb 2012 02:29:16 +0000 hourly 1 http://wordpress.com/ By: tom sheridan http://blog.adamnash.com/2006/11/03/the-812k-question-will-social-security-be-around-in-2045/#comment-25029 Sun, 06 Jul 2008 04:25:16 +0000 http://psychohistory.wordpress.com/2006/11/03/the-812k-question-will-social-security-be-around-in-2045/#comment-25029 I get ssi and ssdi. I would like to know if these programs will be around forvever?

Please e-mail me at tomp1253@msn.com

]]> By: Bill Woessner http://blog.adamnash.com/2006/11/03/the-812k-question-will-social-security-be-around-in-2045/#comment-280 Fri, 03 Nov 2006 20:01:21 +0000 http://psychohistory.wordpress.com/2006/11/03/the-812k-question-will-social-security-be-around-in-2045/#comment-280 This isn’t particularly insightful, but it’s another way of looking at things. You can also view the rule of 25 as an extremely aggressive rule with a 50% safety margin. Suppose you put all your assets in an S&P 500 index fund. The next day, the market crashes. You lose 50% of your assets. Assuming your investment resumes its historical return, how much of your original amount can you withdraw?

I = P(exp(r) – 1)

where I is the annual interest, P is the principal amount and r is the annual rate of reutrn. Since you lost half your original amount, we’ll use P = 1/2. The historical return of the S&P 500 is 7.7% after inflation.

I = (exp(7.7%) – 1) / 2 = 4%

Oualla! The rule of 25.

BTW, I don’t think you should count on Social Security being around in 2045.

]]> By: Adam Nash http://blog.adamnash.com/2006/11/03/the-812k-question-will-social-security-be-around-in-2045/#comment-279 Fri, 03 Nov 2006 17:07:14 +0000 http://psychohistory.wordpress.com/2006/11/03/the-812k-question-will-social-security-be-around-in-2045/#comment-279 Yes, it’s a very conservative estimate. It basically says I can’t predict when I am going to die, and I don’t want to take any risk that I will run out of money before I die.

There are far more sophisticated methods to attempt to plan out withdrawals, asset class mix, and life expectancy to boost your withdrawal rate. However, they all include some amount of risk that you will actually run out of money before you die.

I’ve heard some people adjust their withdrawal rate up to 5% to account for this. But I think you’ll find in most personal finance journals they always tend to recommend 4-5% as the maximum you can “rely on” without depleting your funds early.

]]> By: Klep http://blog.adamnash.com/2006/11/03/the-812k-question-will-social-security-be-around-in-2045/#comment-277 Fri, 03 Nov 2006 16:57:14 +0000 http://psychohistory.wordpress.com/2006/11/03/the-812k-question-will-social-security-be-around-in-2045/#comment-277 Doesn’t your 4% rule imply that you’ll never die? Or at least, it prepares for the possibility. Even if you assume you die at 150, that should greatly reduce the amount you need to save.

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