Aon RIRR problems
In reading "Spend til the End" it seemed to me that one of the biggest problems with the RIRR is that it Quote:assumes that retirees use none of the principal of their assets to finance their retirement consumption. Instead, retirees are assumed to be able to spend only the income earned on the assets [page 99]. To me this appears to be the RIRR mistake that is easiest for most people to understand.
However, I can't find anyone else who has made this particular criticism of the RIRR. Also, I can't find anywhere on the Aon website where they say they do this. How did you discover this mistake, and is there a website or other source where Aon owns up to doing this?
Thanks,
Bob K
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Hi Bob, I discern this from the fact that they are focused on income replacement. Income doesn't include principal. There is nothing in their methodology that appears to use principal to cover targeted spending unless I've missed something. best, Larry
Hi Larry,
Well if Aon is actually assuming no spending from principal, then it seems to me the financial planning industry's practice of marrying a RIRR rule with a SWR rule is absolutely nuts!
On the one hand they are using a rule that assumes no retirement spending from principal when planning for retirement (RIRR). Then upon retirement they switch to another rule (SWR) that assumes principal is spent over a 30 year retirement period, and this second rule tells them what the probability is of having at least $1 of principal left after 30 years. This combination makes no sense whatsoever. :roll:
Best,
Bob K