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Retirement Research Conference in DC in August (free)

The 2014 Retirement Research Consortium Meeting will be held on August 7-8, 2014 at the National Press Club in Washington, DC. The event is free of charge, but registration is required. You can view the agenda and sign up for the conference at the following link at the Boston College Center for Reti...
by bobcat2
Mon Jul 21, 2014 2:33 pm
 
Forum: Local Chapters and Bogleheads Community
Topic: Retirement Research Conference in DC in August (free)
Replies: 2
Views: 238

Re: Lifecycle Financial Planning Spreadsheet

I'd start by trying the free online ESPlanner Basic tool here - Link - https://basic.esplanner.com/ and here - https://basic.esplanner.com/ESPlannerBasic/about/ESPlannerBasic . After running ESPlanner Basic I would compare those answers with what you are getting in your spreadsheet. Economist Wade P...
by bobcat2
Mon Jul 21, 2014 2:17 pm
 
Forum: Personal Finance (Not Investing)
Topic: Lifecycle Financial Planning Spreadsheet
Replies: 3
Views: 782

DC BHs meeting Sunday - July 20 - new location & time

Update - Our next meeting is this coming Sunday, July 20, 3:00-5:30, in the second floor meeting room at the Arlington, VA Central Library, 1015 N. Quincy Street, Arlington, VA 22201. IIRC the second floor meeting room is on the south side of the library. The library has a free parking lot behind th...
by bobcat2
Fri Jul 18, 2014 11:02 am
 
Forum: Local Chapters and Bogleheads Community
Topic: DC BHs meeting Sunday - July 20 - new location & time
Replies: 0
Views: 115

Re: Master thread for Washington DC Area Bogleheads

Update - Our next meeting is this coming Sunday, July 20, 3:00-5:30, in the second floor meeting room at the Arlington, VA Central Library, 1015 N. Quincy Street, Arlington, VA 22201. IIRC the second floor meeting room is on the south side of the library. The library has a free parking lot behind th...
by bobcat2
Wed Jul 16, 2014 12:32 pm
 
Forum: Local Chapters and Bogleheads Community
Topic: Master thread for Washington DC Area Bogleheads
Replies: 5
Views: 770

Re: Delaying SS while working past age 70

My point with all of the above is simply that it doesn't make sense to broadly refer to delaying Social Security as actuarially neutral (or worse than neutral, or better than neutral). Wherever the decision falls on that spectrum for unmarried people, it's significantly better for a high-PIA spouse...
by bobcat2
Sun Jul 13, 2014 9:00 am
 
Forum: Personal Finance (Not Investing)
Topic: Delaying SS while working past age 70
Replies: 135
Views: 9360

Re: Merton: 401(k) retirement plans face crisis

Hi gmaynardkrebs, You wrote. I must respectfully disagree. Merton is talking about the dire cases. Merton claims that we have a "retirement crisis"; that to me sounds quite dire, and very different from what you suggest he means, inter alia, that a lot of people might not be meeting their ...
by bobcat2
Sun Jul 13, 2014 8:36 am
 
Forum: Investing - Theory, News & General
Topic: Merton: 401(k) retirement plans face crisis
Replies: 188
Views: 16682

Re: Merton: 401(k) retirement plans face crisis

gmaynardkrebs wrote. The range of outcomes, including negative outcomes, always and everywhere increases with time when riskier assets are added. (See Bodie's hurricane path analogy.) Adding risk, by definition, increases the risk of a shortfall in retirement. That's true and using Monte Carlo analy...
by bobcat2
Sun Jul 13, 2014 12:18 am
 
Forum: Investing - Theory, News & General
Topic: Merton: 401(k) retirement plans face crisis
Replies: 188
Views: 16682

Re: Merton: 401(k) retirement plans face crisis

Reliance on Monte Carlo simulations, ie., volatility risk = real world risk. Basically, the Taleb "Black Swan" critique of Merton. But, I acknowledge the Shiller point you make, that it was not actually Merton, but the way his ideas were misused at LTCM, that was the problem. That said, I...
by bobcat2
Sat Jul 12, 2014 8:29 pm
 
Forum: Investing - Theory, News & General
Topic: Merton: 401(k) retirement plans face crisis
Replies: 188
Views: 16682

Re: Delaying SS while working past age 70

I priced a $200/month $2,400 a year real life annuity at Income Solutions for a 66 year old single woman. BobK BobK, shouldn't you have priced an annuity for a 67-year-old woman? Social Security pays her $32,400 when she is 67. I don't think so. She can get $32,400 real annuitized income for life b...
by bobcat2
Sat Jul 12, 2014 3:21 pm
 
Forum: Personal Finance (Not Investing)
Topic: Delaying SS while working past age 70
Replies: 135
Views: 9360

Re: Merton: 401(k) retirement plans face crisis

I am not conflating anything. I was simply trying to indicate reaching a level of savings that could assure a future level of income, long before that income is needed. 4% is as good a rule of thumb as any. It most certainly is not. The best way to cost a future real income stream is to price a rea...
by bobcat2
Sat Jul 12, 2014 12:53 pm
 
Forum: Investing - Theory, News & General
Topic: Merton: 401(k) retirement plans face crisis
Replies: 188
Views: 16682

Re: Merton: 401(k) retirement plans face crisis

Consider the Long-Term Capital Management debacle in 1998, when the Federal Reserve leaned on financial titans to rescue a massive hedge fund and stave off global fallout. Lots of people hold that the moral of the LCTM story was the failed thinking of two of the firm's founders, Robert Merton and M...
by bobcat2
Sat Jul 12, 2014 12:32 pm
 
Forum: Investing - Theory, News & General
Topic: Merton: 401(k) retirement plans face crisis
Replies: 188
Views: 16682

Re: Delaying SS while working past age 70

Here is a simple example of whether delaying SS benefits is actuarially advantageous. A 66 year old single woman has recently retired. She can take SS this year and receive $30,000 in income per year. If she delays for one year she will receive $32,400 in income per year. She decides she wants $32,4...
by bobcat2
Sat Jul 12, 2014 12:19 pm
 
Forum: Personal Finance (Not Investing)
Topic: Delaying SS while working past age 70
Replies: 135
Views: 9360

Re: Merton: 401(k) retirement plans face crisis

It's hard to forgive LTCM, and this does seem like it is based on the same core logic. How does one possibly draw this conclusion? I don't see anything in the logic of this plan that is even remotely related to core strategies employed at LTCM. What are the strategies you see that are the same? It ...
by bobcat2
Sat Jul 12, 2014 11:59 am
 
Forum: Investing - Theory, News & General
Topic: Merton: 401(k) retirement plans face crisis
Replies: 188
Views: 16682

Re: Merton: 401(k) retirement plans face crisis

One of the main objectives of sound retirement planning is to avoid fluctuations in income and thus avoid unintended changes in consumption. Having significantly more than 30% of your desired retirement income coming thru a variable withdrawal plan is simply poor planning. Most Americans will get 40...
by bobcat2
Sat Jul 12, 2014 11:46 am
 
Forum: Investing - Theory, News & General
Topic: Merton: 401(k) retirement plans face crisis
Replies: 188
Views: 16682

Re: Merton: 401(k) retirement plans face crisis

An adaptive withdrawal strategy married to a portfolio that contains a significant portion of risky assets will almost certainly result in an unintended high variation of annual income. The point of good retirement strategy is to minimize the amount of unintended income variation. This is best accom...
by bobcat2
Sat Jul 12, 2014 10:26 am
 
Forum: Investing - Theory, News & General
Topic: Merton: 401(k) retirement plans face crisis
Replies: 188
Views: 16682

Re: Merton: 401(k) retirement plans face crisis

Hi Leeraar, What Merton is proposing is a DC plan that will produce a given level of income much like a DB pension plan, except the income is real instead of nominal. If the plan is geared to produce x dollars of real income during retirement with high probability, isn’t Merton's approach the way it...
by bobcat2
Sat Jul 12, 2014 9:48 am
 
Forum: Investing - Theory, News & General
Topic: Merton: 401(k) retirement plans face crisis
Replies: 188
Views: 16682

Re: Delaying SS while working past age 70

What is 3% is still 3% supposed to show??? Real LT interest rates today are about 0.8%.

BobK
by bobcat2
Thu Jul 10, 2014 6:23 pm
 
Forum: Personal Finance (Not Investing)
Topic: Delaying SS while working past age 70
Replies: 135
Views: 9360

Re: Delaying SS while working past age 70

ubermax wrote. hopefully the Duggan & Soares paper above will help to articulate my point regards actuarial equivalence. That paper is not relevant to SS delay strategies today because it is out of date. Since it was written in 2001 the payoff from delaying retirement has increased. Compared to ...
by bobcat2
Thu Jul 10, 2014 3:54 pm
 
Forum: Personal Finance (Not Investing)
Topic: Delaying SS while working past age 70
Replies: 135
Views: 9360

Re: Merton: 401(k) retirement plans face crisis

The strategy of de-risking the portfolio as you approach retirement, particularly if you are at or close to being able to meet your retirement income objectives, puts you at an AA that is significantly more conservative than the traditional AA rules of thumb such as age in bonds. Does it follow tha...
by bobcat2
Thu Jul 10, 2014 3:30 pm
 
Forum: Investing - Theory, News & General
Topic: Merton: 401(k) retirement plans face crisis
Replies: 188
Views: 16682

Re: Merton: 401(k) retirement plans face crisis

You can plan to hit retirement earlier than your actual retirement date and still minimize risk. If you are on target or slightly above target to reach your goal 7 years before retirement using a portfolio with very little equities, then having a 75/25 portfolio is not very reasonable at that point ...
by bobcat2
Thu Jul 10, 2014 12:08 pm
 
Forum: Investing - Theory, News & General
Topic: Merton: 401(k) retirement plans face crisis
Replies: 188
Views: 16682

Re: Merton: 401(k) retirement plans face crisis

... also because you cannot hit a goal with any precision while holding a high percentage in stocks. BobK This is where the issue is. If you plan to meet the goal before you plan to retire, you will be able to build a cushion (if you wish) and a lot of the need to hunker down to avoid a possible do...
by bobcat2
Thu Jul 10, 2014 11:24 am
 
Forum: Investing - Theory, News & General
Topic: Merton: 401(k) retirement plans face crisis
Replies: 188
Views: 16682

Re: Merton: 401(k) retirement plans face crisis

If I could summarize the majority of the comments on this (and every other board) with regard to the core Merton concept, that retirement investing should be about minimizing the risk of a shortfall, as opposed to building the biggest nest egg, it comes down to this: "Everything I've read says...
by bobcat2
Thu Jul 10, 2014 8:15 am
 
Forum: Investing - Theory, News & General
Topic: Merton: 401(k) retirement plans face crisis
Replies: 188
Views: 16682

Re: Merton: 401(k) retirement plans face crisis

If I could summarize the majority of the comments on this (and every other board) with regard to the core Merton concept, that retirement investing should be about minimizing the risk of a shortfall, as opposed to building the biggest nest egg, it comes down to this: "Everything I've read says...
by bobcat2
Thu Jul 10, 2014 12:45 am
 
Forum: Investing - Theory, News & General
Topic: Merton: 401(k) retirement plans face crisis
Replies: 188
Views: 16682

Re: Delaying SS while working past age 70

More backup for what the Oblivious Investor is saying. It is widely believed the benefit adjustments made for delaying Social Security benefits are actuarially fair. In other words, the average individual receives the same expected present value regardless of when benefits begin. Of course, even if ...
by bobcat2
Wed Jul 09, 2014 10:30 pm
 
Forum: Personal Finance (Not Investing)
Topic: Delaying SS while working past age 70
Replies: 135
Views: 9360

Re: Merton: 401(k) retirement plans face crisis

A target date fund has practically nothing to do with hitting an income goal. Large amounts of verbal hand waving to the contrary do not negate that simple fact. You can argue that income goals aren't appropriate and aiming for an expected wealth goal is appropriate. If that's your argument, a targe...
by bobcat2
Wed Jul 09, 2014 5:12 pm
 
Forum: Investing - Theory, News & General
Topic: Merton: 401(k) retirement plans face crisis
Replies: 188
Views: 16682

Re: Delaying SS while working past age 70

Private life annuities are constantly changing the life expectancy assumptions built into their plans on the basis of the most current data on life expectancy. Private life annuities are constantly changing the payouts based on changes in LT real interest rates. For a life annuity to be actuarially ...
by bobcat2
Wed Jul 09, 2014 2:21 pm
 
Forum: Personal Finance (Not Investing)
Topic: Delaying SS while working past age 70
Replies: 135
Views: 9360

Re: Merton: 401(k) retirement plans face crisis

Rekenthaler's admiration of target date funds is either disingenuous or ignorant. Target date funds only 'target' a lower allocation to stocks as one nears retirement. That target has nothing to do with meeting an income goal at retirement. So inquiring minds want to know, just how does a target fun...
by bobcat2
Wed Jul 09, 2014 1:39 pm
 
Forum: Investing - Theory, News & General
Topic: Merton: 401(k) retirement plans face crisis
Replies: 188
Views: 16682

Re: Delaying SS while working past age 70

So I looked at the impact of delaying from 62 to 63 for FRA = 66. Breakeven age is still about age 78 discounted at 0% real, but a large percentage of the lost one year's benefit is recovered well before that. On the other hand, you don't really gain much by waiting one year. Kevin The point I was ...
by bobcat2
Wed Jul 09, 2014 12:10 am
 
Forum: Personal Finance (Not Investing)
Topic: Delaying SS while working past age 70
Replies: 135
Views: 9360

Re: Delaying SS while working past age 70

She has a little bit of an option. She can withdraw her application for benefits (and pay back benefits received) within 12 months. Also, she can still suspend at FRA. That's true, but at age 62 to call this even a little bit of an option is likely overstating the case IMO. :D OTOH she has a lot of...
by bobcat2
Tue Jul 08, 2014 5:06 pm
 
Forum: Personal Finance (Not Investing)
Topic: Delaying SS while working past age 70
Replies: 135
Views: 9360

Re: Delaying SS while working past age 70

BobK, I already understood everything you said (great stuff), but it doesn't directly address my point. I used a 1% real rate to get the breakeven points mentioned (late 70s to mid 80s). Generic differences don't matter if you know your own situation. Whether male or female, if you are single and y...
by bobcat2
Tue Jul 08, 2014 4:49 pm
 
Forum: Personal Finance (Not Investing)
Topic: Delaying SS while working past age 70
Replies: 135
Views: 9360

Re: Delaying SS while working past age 70

BobK, all of your contributions here are tremendous, but I'd think that a single person doesn't need to be gravely ill for not delaying to make sense. With breakeven in the late 70s (delay from 62 to 66) to mid 80s (delay from 66 to 70), it seems that if one's health is bad enough that one's chance...
by bobcat2
Tue Jul 08, 2014 2:25 pm
 
Forum: Personal Finance (Not Investing)
Topic: Delaying SS while working past age 70
Replies: 135
Views: 9360

Re: Delaying SS while working past age 70

Hi SGM, I thought Sita Slavov's presentation of these materials that we saw at the 2012 RRC Conference was excellent. For those who weren't there, here is a summary of many of their findings and her slides that accompanied her presentation. Summary - https://www.nber.org/programs/ag/rrc/rrc2012/summ...
by bobcat2
Tue Jul 08, 2014 1:51 pm
 
Forum: Personal Finance (Not Investing)
Topic: Delaying SS while working past age 70
Replies: 135
Views: 9360

Re: Delaying SS while working past age 70

IMO the two Shoven and Slavov papers simply reveal aspects of SS that had been overlooked. For a real life annuity to be actuarially fair it needs to be based on current real LT interest rates and current longevity at retirement age. SS is based on an ‘average’ real LT interest rate of about 2.9% an...
by bobcat2
Tue Jul 08, 2014 9:42 am
 
Forum: Personal Finance (Not Investing)
Topic: Delaying SS while working past age 70
Replies: 135
Views: 9360

Re: Delaying SS while working past age 70

I believe SS last set longevity at retirement in the mid 1980s. SS sets nothing, although I would expect them to advise Congress. The increase in FRA was in the 1983 amendments (you had the date right). The first people affected were those born in 1938, who would have turned 65 in 2003, twenty year...
by bobcat2
Mon Jul 07, 2014 5:08 pm
 
Forum: Personal Finance (Not Investing)
Topic: Delaying SS while working past age 70
Replies: 135
Views: 9360

Re: Delaying SS while working past age 70

ubermax wrote. Well Bobcat2 that all sounds good but can you mathematically prove any of it ? I don't have to do that. Shoven and Slavov have already shown these results in two papers they wrote in 2012. Shoven, John B., and Slavov, Sita Nataraj, The Decision To Delay Social Security Benefits: Theor...
by bobcat2
Mon Jul 07, 2014 4:52 pm
 
Forum: Personal Finance (Not Investing)
Topic: Delaying SS while working past age 70
Replies: 135
Views: 9360

Re: Delaying SS while working past age 70

I apologize for being a little critical without offering some advise but with SS benefits as well as those under a pension plan , early receipt involves a reduction and deferred receipt involves a bump up - I don't know the actuarial assumptions underlying the benefits under SS but for all I know t...
by bobcat2
Mon Jul 07, 2014 4:34 pm
 
Forum: Personal Finance (Not Investing)
Topic: Delaying SS while working past age 70
Replies: 135
Views: 9360

Re: Delaying SS while working past age 70

A higher discount rate always tells you to start early as your future dollars aren't worth so much. This is true (future dollars aren't worth as much) even if you don't change the starting age, e.g., compare 66 to 66 to 66 for the three discount rates. Another way of thinking about this is that the...
by bobcat2
Sun Jul 06, 2014 6:40 am
 
Forum: Personal Finance (Not Investing)
Topic: Delaying SS while working past age 70
Replies: 135
Views: 9360

Re: Delaying SS while working past age 70

As usual good work sscritic. :beer I knew there seemed to be something wrong with the calculations by MB, but didn't know what was wrong. I would think at a 2% real rate, delay would be beneficial to single women as women live longer than men. (Using the right life table is important. :wink: ) It is...
by bobcat2
Sat Jul 05, 2014 6:06 pm
 
Forum: Personal Finance (Not Investing)
Topic: Delaying SS while working past age 70
Replies: 135
Views: 9360

Re: Delaying SS while working past age 70

Bobcat, Thanks for showing the example NPV calculations. Shouldn't you be discounting the "delay until 70" stream of cash flows all the way back to age 66? It looks like you started discounting at 70 (?) Also, your expected value column for the age 66 benefit looks funny - did you make a ...
by bobcat2
Sat Jul 05, 2014 1:40 pm
 
Forum: Personal Finance (Not Investing)
Topic: Delaying SS while working past age 70
Replies: 135
Views: 9360

Re: Delaying SS while working past age 70

Let's start by doing a simple stylized single person choosing between ages 66 and 70. $24,000 real benefit at age 66 roughly $33,000 real benefit if delay benefits to age 70 discount rate 2% age discounted value prob alive Exp(PV) discounted value Exp(PV) (starting at age 66 in thousands) (starting ...
by bobcat2
Sat Jul 05, 2014 10:54 am
 
Forum: Personal Finance (Not Investing)
Topic: Delaying SS while working past age 70
Replies: 135
Views: 9360

Re: Delaying SS while working past age 70

If the probability of being alive at ages 66-69 is zero, then the probability of being alive (and therefore receiving benefits) must be zero at all later ages. It's not the probability of being alive that is zero for years 66-69, it's that the SS benefit is zero for those years if you wait to start...
by bobcat2
Sat Jul 05, 2014 9:44 am
 
Forum: Personal Finance (Not Investing)
Topic: Delaying SS while working past age 70
Replies: 135
Views: 9360

Re: Delaying SS while working past age 70

Perhaps the reason for the widespread advice to delay to age 70 is that most people don't have the luxury of being able to invest their SS payments , and the guaranteed 8% per year increase in the SS payments provides more longevity insurance than the less certain returns from their portfolios. No....
by bobcat2
Sat Jul 05, 2014 8:58 am
 
Forum: Personal Finance (Not Investing)
Topic: Delaying SS while working past age 70
Replies: 135
Views: 9360

Re: Delaying SS while working past age 70

This calculation is simple for a single person. For a couple it is more complicated. You have to work with the PV of both being alive and the PV of one member of the couple being alive.

BobK
by bobcat2
Sat Jul 05, 2014 1:11 am
 
Forum: Personal Finance (Not Investing)
Topic: Delaying SS while working past age 70
Replies: 135
Views: 9360

Re: Delaying SS while working past age 70

To compute the NPV of SS benefits collected beginning at age 66 vs age 70. SS is a safe investment, so the best discount rate is the rate of 20 year TIPS. Do calculations in real terms. Finding PV of age 66 benefit thru age 100 Calculate the discounted value for each year of the age 66 annual benefi...
by bobcat2
Fri Jul 04, 2014 11:52 pm
 
Forum: Personal Finance (Not Investing)
Topic: Delaying SS while working past age 70
Replies: 135
Views: 9360

Re: Merton: 401(k) retirement plans face crisis

Bob - Do you know why Merton is apparently having difficulty with selling this concept? Is it lack of seed money to start the equivalent of a DB plan? Is it his own reputation? Is it reluctance of employers to take on a new type of risk? All or none of these? Anyway, implying that everyone else is ...
by bobcat2
Fri Jul 04, 2014 2:08 pm
 
Forum: Investing - Theory, News & General
Topic: Merton: 401(k) retirement plans face crisis
Replies: 188
Views: 16682

Re: Merton: 401(k) retirement plans face crisis

Can someone explain to me why the private market, ie, insurers, mutual fund companies, has not offered a product that would "duplicate" as much as possible the basic features of the DB system, basically, some sort of deferred annuity, which you pay into during your working years, and star...
by bobcat2
Fri Jul 04, 2014 1:16 pm
 
Forum: Investing - Theory, News & General
Topic: Merton: 401(k) retirement plans face crisis
Replies: 188
Views: 16682

Re: Merton: 401(k) retirement plans face crisis

The academics do seem to have a model of converting all assets to annuity that doesn't really make sense when they are that simplistic about it. I suspect you are referring to Menahem Yaari's classic 1965 paper on annuitization, Uncertain Lifetime, Life Insurance and the Theory of the Consumer. A c...
by bobcat2
Fri Jul 04, 2014 1:07 pm
 
Forum: Investing - Theory, News & General
Topic: Merton: 401(k) retirement plans face crisis
Replies: 188
Views: 16682

Re: Merton: 401(k) retirement plans face crisis

The economists I've seen that espouse a strong annuity view are usually on the industry payroll. And we've got a large number of expert investors on this board, most of whom tread lightly in the annuity space. Somebody's got it wrong, and I don't think it's us. I'd never make a statement like "...
by bobcat2
Fri Jul 04, 2014 12:30 pm
 
Forum: Investing - Theory, News & General
Topic: Merton: 401(k) retirement plans face crisis
Replies: 188
Views: 16682

Re: Merton: 401(k) retirement plans face crisis

Hi Leeraar, Merton continually points out that the investor has three ways to improve the chances of meeting retirement income goals: Save more (consume less) now, work longer (retire later), or take more risk (and accept a larger loss if the risk shows up). I would say the first two are both very i...
by bobcat2
Wed Jul 02, 2014 8:54 am
 
Forum: Investing - Theory, News & General
Topic: Merton: 401(k) retirement plans face crisis
Replies: 188
Views: 16682

Re: Merton: 401(k) retirement plans face crisis

Most investors will be better off investing to accumulate assets for retirement instead of trying to fund for the purchase of income because: 1. No one can calculate how much income they will need for retirement that will begin 10 or more years in the future that could last 40 years. 2. No one can ...
by bobcat2
Tue Jul 01, 2014 10:33 pm
 
Forum: Investing - Theory, News & General
Topic: Merton: 401(k) retirement plans face crisis
Replies: 188
Views: 16682
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