"How were the yearly annual return estimates entered into the various equity/fixed income/cash inputs as a function of Spreadsheet time?"
The answer is given above, if you care to read it. The allocation ratios between cash, bonds, and equity were variable. Each of those components was automatically calculated on a compounding basis via forty year tables. You vary the input ratios and income assumptions for each income class, the tables automatically ran that via compounding for forty years. I again note your snide description of, as you dismissively term it, a "hand-executed Spreadsheet".
With respect to your comment on "initiating this wasteful activity", I suggest that a word count of your continuing rants and diatribes might be illuminating. Mostly Just Gas.
"Best Wishes" to you, and your Trojan Horses too.

@Dex, The number that jumped out at me was the 4 years of cash for expenses. Isn't the general consensus calling for 18 months to 2 years? 4 years seems high to me and could be a drag on your portfolio.
In general, these types of questions are hard to answer due to all the variables and the unknown future expenses. While some here discredit the Monte Carlo calculators, I find them worthwhile as a confirmation tool. In these important decision making processes, it is better to use all the tools available.

Hi Old Joe,
Your contribution is a first-rate submittal that nicely details your applied procedure when making your retirement decision. Thank you for your excellent effort.
That procedure includes many elements that are embedded in a Monte Carlo analysis.
The question that was asked many years ago, and even today remains unanswered is: How were the yearly annual return estimates entered into the various equity/fixed income/cash inputs as a function of Spreadsheet time?
You were making many future uncertain estimates. For example, how were return’s variability handled for each year in your hand-executed Spreadsheet? History matters in determining a portfolio’s survival likelihood.
Monte Carlo does this arduous, challenging task with a random number input routine controlled by various statistical formats.
Old Joe, you continue to assert that I claim some superior intellect. In your recent post you said when referring to yourself: “yes, MJG, an assumption!, indicating of course a lesser intellect than you obviously possess”. Sarcasm that doesn’t work.
That’s just plain wrong! I have never claimed and will never claim a superior intellect. Your false charges are Trojan Horses designed to denigrate and to distract. Please address the substance of my posts instead of personal attacks. Your campaign is failing. Seasoned MFOers recognize who is initiating this wasteful activity.
Best Wishes.

"Generally, a bottoms up approach is better i.e. budget, net worth, pension, SS etc."
First, the planning and accumulation of data: I designed a worksheet which divided our expenses into various categories, including those which were optional and those which were absolutely required. I didn't buy into the "oh, once you're retired you're expenses will be lower" theme which was so popular at the time.
I did the same thing as my budget shows.
Once a month we tabulated all of our expenses, and filled out that worksheet. After three or four years we had a pretty good idea of our spending patterns. Assuming (yes, MJG, an assumption!, indicating of course a lesser intellect than you obviously possess) that that pattern was a reasonable model for the future, I then spent many, many hours designing a spreadsheet that could consider our net worth, lack of debt, anticipated incomes from pensions, investments and SS, ongoing expenses, and special expenses.
See the link above for the people who retired early on $500K

Basically, we both did the same thing and came to the same conclusion.

"Generally, a bottoms up approach is better i.e. budget, net worth, pension, SS etc."
@Dex: You've done it now. I prescribed something similar many years ago, based upon my personal experience. Since it didn't involve elaborate financial engineering and theories, but rather common sense based upon life experience, our would-be master of the financial universe regarded that as inherently inferior to his vaunted Monte Carlo approach. He is under the misapprehension that I denigrate Monte Carlo, which is in fact inaccurate. Because he is evidently incapable of contemplating that anything he believes may not be factual, it has led to the present acrimonious exchange of opinion. You may be in danger of joining me in that category.
First, the planning and accumulation of data: I designed a worksheet which divided our expenses into various categories, including those which were optional and those which were absolutely required. I didn't buy into the "oh, once you're retired you're expenses will be lower" theme which was so popular at the time.
Once a month we tabulated all of our expenses, and filled out that worksheet. After three or four years we had a pretty good idea of our spending patterns. Assuming (yes, MJG, an assumption!, indicating of course a lesser intellect than you obviously possess) that that pattern was a reasonable model for the future, I then spent many, many hours designing a spreadsheet that could consider our net worth, lack of debt, anticipated incomes from pensions, investments and SS, ongoing expenses, and special expenses.
It allowed the entry and consideration of variables for inflation, investment income according to various asset allocation percentages (cash/bonds/equity), special expenses, and major financial disasters, a la 2008, which could be inserted at any desired year. It allowed for two expense modes: one allowed variable optional expenses each year (travel and so forth), and an alternative mode which held the expenses to the mandatory for one year, but allowed for additional optional expenses the second year, and so forth alternating every other year. Being a pessimist by nature, every facet of the calculations was designed to utilize the least favorable case. For instance, it assumed that cash would generate less interest than actual inflation, that bond income would merely break even, and that equity income would be in a variable input range from 3 to 5% above inflation.
For income source and expenses it generated a series of compounding tables which ran out for forty years, starting at age 60, which would have taken us to 100 years of age. From all of the subsidiary tables (each of which, using compounding calculations, took about one page of the spreadsheet) it generated a master table showing the remaining investment assets year-by-year.
It was prescient, in that 2008 struck at the least favorable possible time in our case: a few years after we retired. Because of the deliberate pessimistic bias of the calculations, we've weathered that disaster, and are still in excellent financial condition.
If you want a solid substantial approach based upon known variables, rather than Monte Carlo assumptions, I can recommend the spreadsheet approach, based upon personal experience.
Regards- OJ

Hi Dex,
It appears that you have made a decision that is comfortable for your circumstances. Good!
I wish you well and hope that your plan is successful. You were very wise to include safety factors in your wealth component breakout with the inclusion of “near cash” and “contingency” funding.
I surely do not want to rain on your parade, but I did a few exploratory Monte Carlo simulations for a 30-year retirement period to test the robustness of your analysis that included Social Security benefits. Warning red flags went flying.
I did the analyses using your postulated 7% annual return. I examined return standard deviations that ranged between 10% to 18%. Results were disastrous for the 185K investment portfolio by itself. Projected survival rates were at lower mud levels. There is an extremely high probability that you will need to heavily dip into your near cash and contingency components.
Even assuming a $350,000 dollar portfolio earning a 7% annual average return rate, the survival odds never reach an 80% level. That’s a risky route by my compass.
Given the meager market returns in recent years, an assumed 7% annual return rate seems a bit bushytailed. I briefly examined a 6% annual average return; not surprisingly, the estimated survival likelihoods went even further South.
Obviously, you will follow your analytical results and your gut feelings. I proffer only a caution, Take a little time to more fully evaluate your circumstances. You might want to reassess your analysis including portfolio return’s variability as a major element in that rework.
Whatever action you finally implement, I do wish you a relaxed, happy, and trouble-free retirement that permits you to complete any bucket list that inspires you.
Best Wishes.

Nice work Dex.
Some thoughts. I'd be a little worried about a swoon that lasts longer than 4 years and how it would put pressure on your near cash invested assets. A lost decade? Sound possible?
In the example, I didn't give an asset allocation. Look at the examples again, I was conservative e.g. I didn't give any income towards the 4 year near cash or the contingency money. But, a bond, dividend focused portfolio should not be that stressed. So, even in your 10 year example, you may have to cut back on expenses or dip into your principle. The key to the example, are the key things to look at in the evaluation process.
Would it be worth breaking out your invested reserves into smaller pots of money and explore different ways of securing yearly income according to risk (from risk-less to highly risky). How would you expose your reserves to risk-less investments on up and how much would each pot require?
I'm not sure what you mean.
Also, what could you do with your non-liquid assets (house, condo, trailer, etc.) to help your income. How could you make these resources work for you? For example, I own a home that has the potential to add on an in-law apartment. I could rent the main house or the in-law space. This would reduce housing costs without dedicating any additional resources.
Definately, I could rent out my house, but I don't have the need.
Finally, isn't wine a fruit and therefore a food cost?
Nectar of the Gods, yes.

,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,

Nice work Dex.
Some thoughts. I'd be a little worried about a swoon that lasts longer than 4 years and how it would put pressure on your near cash invested assets. A lost decade? Sound possible?
Would it be worth breaking out your invested reserves into smaller pots of money and explore different ways of securing yearly income according to risk (from risk-less to highly risky). How would you expose your reserves to risk-less investments on up and how much would each pot require?
Also, what could you do with your non-liquid assets (house, condo, trailer, etc.) to help your income. How could you make these resources work for you? For example, I own a home that has the potential to add on an in-law apartment. I could rent the main house or the in-law space. This would reduce housing costs without dedicating any additional resources.
Finally, isn't wine a fruit and therefore a food cost?

The big unanswerable Q for middle class prospective retirement is: will you or your spouse require LTC -- particularly "Memory Care" -- current name for dementia care. If so, it can be devastating to finances, and will become more so if current trends continue. In the past 7-8 years I have seen this situation play out for 3 family members, all different situations in terms of savings ("wealth"), pensions, and family support. I just recently spent the better part of a year accompanying a relative through an endless succession of visits to living facilities with provisions for "memory care", as well as conferences with a nationally known eldercare lawyer. I learned a great deal about costs, about how facilities determine charges and whether the applicant has "ability to pay", about LTC insurance policies and rates (which BTW will certainly go up substantially in the very near future -- plus a substantial differential for females -ahem). We also observed the interesting fact that deluxe retirement facilities are not only being bought up by corporate entities, but many new ones are under construction by these corporations everywhere as well. Since the supply of those with unlimited resources is finite and the for-profits don't take Medicaid when you run out, I assume that the intended clientile is uppermiddle-to-lower-upper, and if and when you are picked clean, you end up moving to wherever they take Medicaid.
This is an extremely complicated subject, and I am no professional observer, merely one who has been a bystander to the struggles of others, and I can only point out here one of the issues which sooner or later many of us will have to face. None of us knows the future, but this possibility is not one that many of us think about when we plan, and the possibilities for financial catastrophy, particularly for a surviving spouse, do exist.
In summary, my point is that there are possibilities that may arise in our retirement that we do not wish to contemplate; that we should consider, and that
we simply cannot guarantee, but should be aware of.
To those who pursue this post to the closing paragraph -- I wish you well, hope that you do not ever have to contemplate such an issue in your own lives, but that you maintain awareness, not only for yourselves, but for others (aka, our society as a whole), and wish you well....

Hi Dex,
You ask a very open-ended question that is poorly timed if it specifically applies to your situation. From your earlier postings, I recall that you jumped into the retirement stream a few years ago. If so, you are probably an unhappy camper these days that prompted the question. Fortunately, reassessments, recoveries, and reversals are often possible.
Good luck on your reassessment project.
Best Wishes.

Too many assumptions to go into there. Monte Carlo and others are like many rule of thumb (e.g. 4% rule) estimators - good for generalities but not good for the specific situations.
Generally, a bottoms up approach is better i.e. budget, net worth, pension, SS etc.
This is my 2015 budget own home, no debt, single person
Basic Living
House
2,117 RE Tax
2,556 HOA
489 Electric
928 Insurance
300 Misc Purchases
133 Mail Box
6,522 Subtotal House
Car
138 AAA
744 Routine Mtc.
1,164 Insurance
82 Registration
1,800 Gas
3,929 Subtotal Car
Personal Expenses
327 Income Taxes
1,200 Cash
360 Medical
340 Cell Phone
3,300 Food
600 Wine
59 Misc
396 Internet Access
300 Dining Out/Entertainment
4,029 Health Ins.
300 Clothes
- Driving Lic
11,211 Subtotal Personal Expenses
21,661 Total Basic Living
Incremental Living - 1
91 Travel Trailer Reg
492 Storage
Good Sam
583
Incremental Living - 2
6,256 Travel/Education/Etc
Misc Hobbies
6,256
6,839 Total Discretionary
28,500 Total Basic + Incremental
Let's assume I don't have any pension or SS, and no inflation for now. What do I need?
$114,000 in near cash for 4 years of expenses - this is ride out market (bond & stock downturns.
$407,143 earning 7% to get to 28,500/year expenses
$100,000 to 150,000 contingency money, if wanted, earning ???
$621,143 to 671,143 total excluding house
Does a person need all that money? Maybe not if the person will collect SS. The closer they are to collecting SS would affect that - e.g. if they are within 2 years they could have less money in near cash.
This is not meant to be a perfect example.
Now let's use Junkster's info on SS $1294 monthly - 15,528/yr
$28,500 Total Basic + Incremental
-$15,528 SS
$12,972 to be funded
$51,888 in near cash for 4 years of expenses - this is ride out market (bond & stock downturns.
$185,143 earning 7% to get to 12,972/year expenses to be funded
$100,000 to 150,000 contingency money, if wanted, earning ???
$337,031 to 357,031 total excluding house
Both of these examples are better than monte carlo and top down rule of thumb.
There are two reasons I can think of that the top down method is the most discussed:
1. Advisors use them to scare people into buying their services
2. Budgeting is boring and most don't people don't have one nor do most know where they spend their money.

I have used this strategy for a good number of years and have throttled my equity allocation back as summer approaches and then usually ramp it back up come late summer and into early fall. The strategy has worked, for me, more times than not. Will it work this summer? Your guess is as good as mine.
Old_Skeet

>> Ignore uniformed judgments by individuals who never used the tool, or even read the literature on the subject.<<
Because I am a bit slow and IQ challenged, please explain to me why a single individual over age 65, debt free, and in need of $20,000 to 25,000 annually (or even $30,000) in out of pocket expenses (after SS and pensions) and with a $2,000,000+ nest egg needs to learn anything about Monte Carlo simulations?? I have known a few lucky investors and traders in this situation who over the years have been in the right place at the right time. They seemed to have done quite well being blissfully ignorant of your beloved mumbo jumbo Monte Carlo and other assorted worthless statistics.
Edit: From reading many of your recent posts and vitriolic exchanges with other members,
it appears you enjoy being a troll.

Hi Dex,
You ask a very open-ended question that is poorly timed if it specifically applies to your situation. From your earlier postings, I recall that you jumped into the retirement stream a few years ago. If so, you are probably an unhappy camper these days that prompted the question. Fortunately, reassessments, recoveries, and reversals are often possible.
A million dollars is a nice nest-egg. But, like in most instances, it depends. It depends very much on the particulars of the situation such as age, wealth, health, partner relationships, preferences, location, and a host of other tangibles and intangibles.
A single answer isn’t appropriate in this forum even for a specific person since the relevant circumstances are dynamic and in constant flux. It is especially not appropriate from the MFO membership given our incomplete and imperfect understanding of your circumstances.
But we can offer generic guidelines and some useful references that will permit candidate retirees to make more informed decisions.
A limitless array of planning tools and aids are easily accessible for anyone willing to do the work. I retired over two decades ago, and even in those prehistoric days, the literature was overwhelming. I selectively used it. Today, given the Internet capabilities, it is a still easier task, but requires some careful screening. All advice is not equal.
I purchased a retirement planning tool generated by an outfit called Educational Technologies, Inc. It included tapes and written documentation. Major sections in it incorporated psychological adjustment, financial planning, investment, heath issues, estate planning, and financial benefit units. I supplemented the financial planning section with independent Monte Carlo simulations.
The retirement decision is multi-dimensional. It is complex with many interacting, dynamic parts. Given that complexity, I doubt that well-meaning MFOers can provide definitive answers beyond some incomplete hints and references. As Reagan said: “Trust, but verify”.
A million dollars might service you very comfortably, but might be totally inadequate for me. In the end, it depends. In the end, the candidate retiree must do the heavy lifting himself. Do the necessary homework. There are no magic wands to simplify the task that MFOers can honestly offer.
I remain consistent in my response to similar questions that you asked on earlier submittals. Explore the usefulness of Monte Carlo simulations. Ignore uniformed judgments by individuals who never used the tool, or even read the literature on the subject.
Experience is a great teacher, but is a time consuming and costly educator. Monte Carlo simulators provide a shortcut learning tool that permits its users to examine a plethora of what-if scenarios tailored to your specific situation. I’ve identified many Internet accessible Monte Carlo codes on earlier interchanges. You can only fully trust your own work.
Good luck on your reassessment project.
Best Wishes.

The table shows $42,557 for a single person. If you are debt free that housing figure would be drastically lower. But also, you have to buy a new vehicle (or newer used one if you are really frugal) every 8 years or so and not sure that is computed anywhere in the table. The healthcare figure also seems a bit higher than medicare plus a 100% supplemental policy. Most of the debt free singles in my area that are retired and over age 65 get by on an average of $36,000 annually (some a tad higher/lower) If they only receive SS and get the average there ($1294 monthly) that means they have out of pocket expenses of around $20,500 annually. So if they have an investment nest egg of $2,000,000 they can live off their principal only if needed without the need of that Monte Carlo mumbo jumbo. If anything they better begin ramping up their retirement spending ala travel, a summer vacation rental, and the like unless they want to leave a lot to their heirs.

>> The only thing that's obvious is that Krugman is either an idiot or he's blatantly lying.
Wow. What a thing to write. Talk about heat instead of light.
Here:
[Fatas] Let me start with the obvious point: your debt is someone else's assets.
http://fatasmihov.blogspot.com/2015/02/those-mountains-of-debt-and-assets.html
>> counts the asset (all the Treasury bonds we hold are counted as assets in our net worth) but it doesn't count the debt.
Why do you think that is?
>> not about Americans and foreigners, it's about which Americans got the benefits and which Americans pay the costs.
right
>> The benefits have already been given. The costs have yet to be paid.
it is always this way !
>> We've been running annual deficits since the mid 1950s with only a couple years of surpluses at the end of Clinton's presidency.
So? It does not matter, all that matters is percentage of GDP.
>> I'll agree with Fatas, growing debt doesn't have to mean we're living beyond our means, but it sure looks that way.
You are not getting it, and I would say do not want to, but your writing is so clear and your interest in reading is manifestly so high, that cannot be the case. Keep reading is all I can suggest.
... Except if you really think Paul Krugman is 'not even close', well, then, no, there is no point in more reading. Quite aside from his being idiotic or blatant liar.
The below is rather deep in the weeds, but may be of interest. Maurice above for example thinks there is a real problem with Paul Samuelson as he read him and the sophisticated views on debt needs and levels today:
http://delong.typepad.com/sdj/2013/03/bill-black-is-justifiably-irate-monday-hoisted-from-comments-weblogging.html
This might help those who read Samuelson (Paul) in college:
http://krugman.blogs.nytimes.com/2009/12/15/the-incomparable-economist/
http://krugman.blogs.nytimes.com/2009/12/14/samuelson-friedman-and-monetary-policy/comment-page-1/
>> Fatas didn't say that debt isn't an indication that we're living beyond our means. He said it doesn't have to be.
Help me understand how this is something other than hairsplitting.
Finally, share what you think the answers are yourself, to whatever you say the problems are? Somehow cut more spending? What? Gold standard? Raise wealthy taxes back to 90%?

Krugman said "Antonio Fatas, commenting on recent work on deleveraging or the lack thereof, emphasizes one of my favorite points: no, debt does not mean that we’re stealing from future generations." Fatas said absolutely nothing about stealing from future generations. He only said that rising debt levels don't necessarily mean we're living beyond our means and he provided as an example the government of Singapore. He also admitted subsequently that Singapore is an outlier among governments.
Fatas even says "This argument does not deny that the actual composition and ownership of assets and liabilities matters" and goes on to say that one has to be careful drawing conclusions from analyses that refer only to the debt side of the balance sheet.
So Krugman goes on to say "Globally, and for the most part even within countries, a rise in debt isn’t an indication that we’re living beyond our means, because as Fatas puts it, one person’s debt is another person’s asset; or as I equivalently put it, debt is money we owe to ourselves — an obviously true statement that, I have discovered, has the power to induce blinding rage in many people."
The only thing that's obvious is that Krugman is either an idiot or he's blatantly lying. I'm not sure which is worse. Fatas didn't say that debt isn't an indication that we're living beyond our means. He said it doesn't have to be. And then Krugman claims that one person's debt is another person's asset is equivalent to debt being money we owe to ourselves. I guess if I loan money to myself that's true but as of last August, more than one third of our debt was owned by foreigners.
forbes.com/sites/mikepatton/2014/10/28/who-owns-the-most-u-s-debt/
That's something more than $6 trillion of "our" debt that is someone else's asset!
The rest let's say is our own asset. But when you look at what started this discussion, the median net worth of Americans, that counts the asset (all the Treasury bonds we hold are counted as assets in our net worth) but it doesn't count the debt. Similar to what Fatas is saying, it’s dangerous to draw conclusions paying attention to only one side of the balance sheet. Yet when I made a comment about the national debt you suggested we should exclude that because it misguides the discussion. If you really believe we owe the money to ourselves and that we're not stealing from future generations why would you be comfortable with a discussion of net worth that counts the asset but excludes the liability?
The question of whether we're stealing from future generations isn't solved even if all of our debt was owned by Americans because it's not about Americans and foreigners, it's about which Americans got the benefits and which Americans pay the costs. The benefits have already been given. The costs have yet to be paid. We've been running annual deficits since the mid 1950s with only a couple years of surpluses at the end of Clinton's presidency. I'll agree with Fatas, growing debt doesn't have to mean we're living beyond our means, but it sure looks that way. We're not at all like his Singapore example where they take the money they raise from issuing debt and save it because they regularly run budget surpluses. I would love to hear a logical explanation why future generations aren't going to be worse off than if we handed them a country with far less debt than we'll pass on, but Krugman isn't even close.

"Additionally, in terms of wealth distribution I'd be curious to know what the population of the "1%" looks like over the years and whether or not that uppermost level of wealth is held by more or fewer hands."
I would think that the numbers to reach the 1% level are being adjusted upwards. Even with that said, I suspect there are more people in that category than before. The average person didn't invest in the markets just a relatively short time ago in history.

Just a few quick thoughts and then I will return to edit later.
Housing - might be fairly accurate if utilities are included.
Transportation - a quick and dirty calculation at $2.50/gallon of regular buys one about 2700 gallons. In seven years of commuting to work with a Silverado pickup I've used 5100 gallons. The articles estimate seems high but may include airfare etc. that I am not accounting for.
Food - $102/week for groceries is more than twice what I spend on average. I'm not sure if dining out is included here or in the Entertainment category.
Apparel - I don't spend that much in 10 years. Sandals and shorts aren't that expensive.

Just getting ready to walk out the door and go hiking and you start another one. I've always thought you need to be debt free (no mortgage, no rent, etc.) For a single retiree over age 65, $2,000,000 should do the trick and $3,000,000 for a couple. That's assuming your only income is Social Security and you don't live in some ultra expensive region of the country. It's also based on never making another penny in the market and conversely never losing another penny. Albeit I would hope your account can still compound, even if ever so slightly over those retirement years. Not a popular concept here, but you can control your losses in the market. On the other hand, I know many retirees who don't have even $100,000 but because of generous pensions and SS are living the good life. Dex, you are the master of interesting threads where there is never a right or wrong answer. Check in later this evening.

"“the odds that merely having more money will make you happier are pretty close to zero”."
Can I have his, then?
Over the past few years, I've increasingly focused on having a long-term view and preparing for that and being satisfied with that and then going with the flow to some degree. I just find it ultimately healthy. Hobbies, learning, reading. Ultimately, I've found that I've learned a great degree via investing because it has lead me in unexpected directions as I try to research companies, countries, industries, etc. I'd always found healthcare to be something that I "didn't understand, so let a fund manager do it." One day, I went, why couldn't I try to understand a lot of these concepts? It's ultimately been rewarding on a number of levels.
That said, in terms of people going, "Money doesn't make you happier" often leads me to saying some variation on what I do above.
As for occasional humor, I just find it better than being so serious about certain subjects I ultimately don't think I will change nor will I change someone's opinion on. Perhaps a little humor will lead someone to maybe be a little more open than arguing with them would or maybe have a second thought about something they'd stood firm on. Maybe not.
Perhaps there's a part of me that feels monetary policy has been distorted over the last several years to the point where perhaps it is a little ridiculous the kind of "Twilight Zone" we find ourselves in, where the focus is not really on anything but what Yellen might say (this Friday btw) and good news is regarded as bad because the market is so addicted to easy money.
As for the graph in the original post, perhaps it really does show that those who are doing well are doing well and much of the rest of the economy is not, or muddling along. Perhaps it further illustrates the lack of financial education (was told by a relative the other day when mentioning financial education that their 25-year-old had no idea how to write a check.) We are all on an investing board. What % of the population hasn't been taught or taught themselves basic investing concepts? I'd be willing to guess a larger % than most would think and that's unfortunate.
Additionally, in terms of wealth distribution I'd be curious to know what the population of the "1%" looks like over the years and whether or not that uppermost level of wealth is held by more or fewer hands.