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[Solved] variable spending projection with CAPE

Issues and Potential Errors

Last Post by christopher schraff 3 years ago

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David

(@d)

Active Member Customer

Joined: 3 years ago

Posts: 4

Topic starter September 28, 2023 8:46 pm

Hello,

If I choose the "CAPE Rules" Spending Strategy and update the analysis the fixed-rate savings and expenses curves are identical to those generated by a "Specified Expenses" strategy. The ranges for these respective curves are vastly different as expected and agree with what is displayed in the Scenario comparison page.

The respective Expenses tables in the Tabular Projections are also identical. The "Non-Essential Phased" expenses" column is populated while the "Variable Spending" Column is empty - exactly like the "Specified Expenses" Strategy. Other strategies will zero the non-essential phased expenses and calculate a variable spending as I expected.

This also occurs with the "Specified Expenses with Smoothing" (SEWS) strategy.

Am I thinking about this correctly?

Thanks,

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Stuart Matthews

(@smatthews51)

Member Admin

Joined: 6 years ago

Posts: 618

September 29, 2023 7:11 am

@dpgentilegmail-com Please note this passage in the section in the user manual on the CAPE Rules Method:

The CAPE Rules method is only applicable during historical analysis because the CAPE is a calculated value that’s a function of the Price Earnings (PE) ratio for a 10-year period and is a matter of historical record and is included in PRC’s historical data. Consequently, this value simply doesn’t apply to fixed rate or Monte Carlo analyses because they don’t use the historical record. Therefore, if you run either a fixed rate or a Monte Carlo analysis using the CAPE Rules method PRC will default to using specified expenses only.

So, you can never do a fixed rate analysis using the CAPE method and as a result the tabular projection views will not show any variable spending; however, you CAN use the CAPE method for historical sequence analysis. Then, while the historical sequence analysis is active, you can view the associated results in each of the Tabular Projections views and you should notice the variable spending column being populated after your retirement date.

Stuart

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David

(@d)

Active Member Customer

Joined: 3 years ago

Posts: 4

Topic starter September 29, 2023 10:44 am

Thanks for the quick reply. I have read that section of the manual and sort of understood the fixed rate behavior, I just couldn't see any variable spending.

It turns out that I did not have the Historical Sequence Analysis for a specific year active. Now I see variable spending.

Thanks.

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David

(@d)

Active Member Customer

Joined: 3 years ago

Posts: 4

Topic starter September 30, 2023 7:54 pm

Stuart,

As I stated above, once the Historical Sequence Analysis is activated, I do see the Variable Spending column populated. However, I also see the non-essential Misc expenses and non-essential Phased expenses populated for all years post-retirement. Shouldn't these be zero? The CAPE variable spending appears to be added to my essential and non-essential spending profiles, essentially sending me on a flaming death-spiral 😩.

When I run a Constant Spending scenario the non-essential spending is indeed zero and replaced by the Variable spending.

I can manually delete the non-essential expenses from the CAPE scenario, and everything makes more sense.

The user manual reads as follows:

"Prior to retirement, spending is the same regardless of the spending strategy and, thereafter, non-essential spending is based on the CAPE Rules spending method (during historical analyses) while essential spending is as specified on the various PRC expense pages."

I'd like to add screenshots, but I can't see how to do it.

Am I looking at this correctly?

Thanks again for your help.

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Stuart Matthews

(@smatthews51)

Member Admin

Joined: 6 years ago

Posts: 618

October 3, 2023 7:09 am

@d You're right, the specified non-essential spending SHOULD go to zero when the CAPE strategy is selected and the Historical Sequence Analysis is active, but it doesn't. This turns out to be an error which I just fixed in v3.9. Please check this out when you get a chance and let me know if it resolves the problem for you.

Thanks!

Stuart

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David

(@d)

Active Member Customer

Joined: 3 years ago

Posts: 4

Topic starter October 11, 2023 3:29 pm

Will do.

Thanks Stuart

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christopher schraff

(@a44c8zz)

Active Member Customer

Joined: 4 years ago

Posts: 4

December 25, 2023 2:25 pm

Hi Stuart, I had an issue that I reported seven months ago that we were not able to identify the root cause (title:CAPE spending strategy gives wildly inaccurate resuits in all scenarios) The symptoms sounds similar to this thread in that I had large variable spending amounts. I am please to say that whatever you did to fix this in the version 9 change also resolved my issue and I am now getting results that make sense with CAPE spending.

Thanks for a great product (and also great support!) and I am looking forward to your web-based release soon.

Chris

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