Money Mag Article

Have a question about your personal investments? No matter how simple or complex, you can ask it here.

Money Mag Article

Postby chrisjul » Wed Aug 29, 2012 2:18 pm

Thoughts on this month's Money magazine interview with William Bernstien....?

I tend to agree with his philosophy of "Once you win the game, why continue to play?".

Edit to add link: http://money.cnn.com/2012/09/04/retirem ... index.html
chrisjul
 
Posts: 78
Joined: Sun Jan 06, 2008 3:15 pm

Re: Money Mag Article

Postby Novine » Wed Aug 29, 2012 2:30 pm

Read it at lunch today. I'm sure that many of Money's advertisers didn't like what he had to say when it comes to target funds and indexing. I definitely think his point about when you start investing and when you start retirement and the state of the market at those times and how that impacts your portfolio is information that needs to be more widely shared. I've only seen it mentioned a couple of times in all of the personal finance books I've read.
Novine
 
Posts: 807
Joined: Mon Nov 17, 2008 9:07 pm

Re: Money Mag Article

Postby Coinsinthefountain » Wed Aug 29, 2012 3:45 pm

I thought about this when I began investing 30 years ago. When you get enough money to retire and live well on it why not take it off the table? Why put it and your future livelihood at risk? Today, I’m happy to take my 3.2% from TIAA-CREF rather than keep it in the stock market. I’ve seen colleagues on the cusp of retirement lose half their assets, forcing them to stay on the job (and be miserable) for years. If you’re lucky in today’s market you might keep the bulk of your nest egg invested and make 5% for the year after all the ups and downs. You might make more, of course, but why stick your neck out if you really don’t need to? Good article and I was surprised to see it in Money.
Coinsinthefountain
 
Posts: 14
Joined: Wed Aug 29, 2012 3:38 pm

Re: Money Mag Article

Postby The Wizard » Wed Aug 29, 2012 3:59 pm

chrisjul wrote:Thoughts on this month's Money magazine interview with William Bernstien....?

I tend to agree with his philosophy of "Once you win the game, why continue to play?".

a) it's not a game
b) if it WAS a game, you'd have to accumulate more than Bill Gates to win the American Conference, at least...
Attempted new signature...
The Wizard
 
Posts: 6615
Joined: Tue Mar 23, 2010 1:45 pm
Location: Reading, MA

Re: Money Mag Article

Postby Shabber » Wed Aug 29, 2012 4:49 pm

The reason people continue to stay invested is not because they like the risk, it is because they chose to save enough that they can comfortably retire if they can earn a 5%-10% return on their nest egg. The 3% guaranteed return with no risk is attractive, but they don't have a large enough nest egg to make that work for the standard of living they want.
User avatar
Shabber
 
Posts: 52
Joined: Thu Oct 01, 2009 1:44 pm
Location: Seattle, WA

Re: Money Mag Article

Postby Kuckie » Wed Aug 29, 2012 8:21 pm

Mr Bernstein was referring to money needed in retirement, when he stated to take it off the table after you have won the game. He also stated that anything above that can be placed in risky assets.

His rule of thumb was that you should save 20 to 25 times your residual living expenses, which is the yearly shortfall after subtracting Social Security and pension payments. For example if your yearly living expenses are 50K and SS and Pension are 30K than you will need 20K for residual expenses which equates to between 400K to 500K in required retirement savings. Once that has been achieved, take that amount off the table by placing it in Treasury or other secure bonds. Anything beyond that may be invested in equities. If equities rise, you can then use some to splurge on a world cruise or any other dream. If they fall you stay home. In either case your retirement funds are safe and secure.
User avatar
Kuckie
 
Posts: 127
Joined: Tue Feb 23, 2010 10:59 am

Re: Money Mag Article

Postby chaz » Wed Aug 29, 2012 8:53 pm

Mr. Bernstein is a terrific author.
Chaz | | “Money is better than poverty, if only for financial reasons." Woody Allen | | http://www.bogleheads.org/wiki/index.php/Main_Page
chaz
 
Posts: 13314
Joined: Tue Feb 27, 2007 2:44 pm

Re: Money Mag Article

Postby The Wizard » Wed Aug 29, 2012 9:04 pm

chaz wrote:Mr. Bernstein is a terrific author.

Yes, but Benjamin Graham is arguably an even more terrific author and his 25/75 allocation rule for both young and old folks is something that we should all ponder...
Attempted new signature...
The Wizard
 
Posts: 6615
Joined: Tue Mar 23, 2010 1:45 pm
Location: Reading, MA

Re: Money Mag Article

Postby chaz » Wed Aug 29, 2012 9:28 pm

The Wizard wrote:
chaz wrote:Mr. Bernstein is a terrific author.

Yes, but Benjamin Graham is arguably an even more terrific author and his 25/75 allocation rule for both young and old folks is something that we should all ponder...

Too conservative for most investors.
Chaz | | “Money is better than poverty, if only for financial reasons." Woody Allen | | http://www.bogleheads.org/wiki/index.php/Main_Page
chaz
 
Posts: 13314
Joined: Tue Feb 27, 2007 2:44 pm

Re: Money Mag Article

Postby Ozonewanderer » Wed Aug 29, 2012 9:47 pm

Kuckie wrote:Mr Bernstein was referring to money needed in retirement, when he stated to take it off the table after you have won the game. He also stated that anything above that can be placed in risky assets.

His rule of thumb was that you should save 20 to 25 times your residual living expenses, which is the yearly shortfall after subtracting Social Security and pension payments. For example if your yearly living expenses are 50K and SS and Pension are 30K than you will need 20K for residual expenses which equates to between 400K to 500K in required retirement savings. Once that has been achieved, take that amount off the table by placing it in Treasury or other secure bonds. Anything beyond that may be invested in equities. If equities rise, you can then use some to splurge on a world cruise or any other dream. If they fall you stay home. In either case your retirement funds are safe and secure.

This is a more interesting idea than "...why continue to play?" or "...why not take it off the table?" I didn't read the article. Which of these approaches does Benrstein suggest? They both make sense.
User avatar
Ozonewanderer
 
Posts: 571
Joined: Mon Apr 12, 2010 12:27 am
Location: Central NY, South FL

Re: Money Mag Article

Postby Alan S. » Wed Aug 29, 2012 10:16 pm

The article appears to overlook that many of these successful people who have won the game have legacy plans for either their family or charities. They look beyond their own lifetimes as a reason to attempt further asset accumulation. If the added risks comes back to bite them, they are willing to reduce their living standards. Of course, the amount of assets they choose to risk and the amount of risk contained in their investment choices can still be relatively conservative.

In other words, they really don't consider the game totally won based on their own needs.
Alan S.
 
Posts: 3705
Joined: Mon May 16, 2011 6:07 pm
Location: Prescott, AZ

Re: Money Mag Article

Postby jginseattle » Wed Aug 29, 2012 11:36 pm

chaz wrote:
The Wizard wrote:
chaz wrote:Mr. Bernstein is a terrific author.

Yes, but Benjamin Graham is arguably an even more terrific author and his 25/75 allocation rule for both young and old folks is something that we should all ponder...

Too conservative for most investors.


Grham's rule works in both directions. Never more than 75% in either bonds or equities.
jginseattle
 
Posts: 477
Joined: Fri Jul 01, 2011 7:33 pm

Re: Money Mag Article

Postby bayview » Thu Aug 30, 2012 12:20 am

Kuckie wrote:Mr Bernstein was referring to money needed in retirement, when he stated to take it off the table after you have won the game. He also stated that anything above that can be placed in risky assets.

His rule of thumb was that you should save 20 to 25 times your residual living expenses, which is the yearly shortfall after subtracting Social Security and pension payments. For example if your yearly living expenses are 50K and SS and Pension are 30K than you will need 20K for residual expenses which equates to between 400K to 500K in required retirement savings. Once that has been achieved, take that amount off the table by placing it in Treasury or other secure bonds. Anything beyond that may be invested in equities. If equities rise, you can then use some to splurge on a world cruise or any other dream. If they fall you stay home. In either case your retirement funds are safe and secure.

Holy cow. An article on personal finance that makes sense; that doesn't try to create a panicked reaction in readers, making them feel the need to invest even more, and support Wall Street to an even higher degree. How'd the editors let this one get by?

"Lots" is fun, but there's much to be said for "enough."
bayview
Moderator
 
Posts: 536
Joined: Thu Aug 02, 2012 7:05 pm

Re: Money Mag Article

Postby johnep » Thu Aug 30, 2012 4:58 am

Article makes a lot of sense to me. When I reviewed my conservative portfolio with a Vanguard consultant after retirement he said the same thing. However, if you intend to leave an inheritance, that portion should probably be more aggressively invested.
johnep
 
Posts: 1161
Joined: Wed Dec 28, 2011 9:56 am
Location: North Carolina

Re: Money Mag Article

Postby Mian » Thu Aug 30, 2012 9:51 am

Does anyone know if this interview is available online? Anyone have a link?

Thanks..
User avatar
Mian
 
Posts: 89
Joined: Wed Jun 03, 2009 6:02 am

Mr. Bogle looked directly at Bill Bernstein

Postby Taylor Larimore » Thu Aug 30, 2012 10:21 am

Chris:

Thank you for the interview with Bill Bernstein.

I once had the honor of sitting at a large round table having lunch with Mr. Bogle, Bill Bernstein, and other well-known investment authorities. Jack Bogle commented: "I have never before been surrounded with so much intelligence.". He was looking directly at Bill Bernstein.

Bogleheads who read Bill's "Efficient Frontier" articles understand why so many of us call Boglehead, Dr. Bernstein, "brilliant."

http://www.efficientfrontier.com/ef/index.shtml

Best wishes
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle
User avatar
Taylor Larimore
Advisory Board
 
Posts: 20212
Joined: Tue Feb 27, 2007 8:09 pm
Location: Miami FL

Re: Money Mag Article

Postby Dandy » Thu Aug 30, 2012 10:37 am

Makes sense when you have won the game not to fumble. Mr B is someone to listen to.

I have not read the article but the advice seems similar to cover your residual expenses with an immediate annuity. The concern is that aside from Social Security most pensions and immediate annuities are not going to keep up with inflation especially the real inflation retirees experience e.g. medical and long term care. Does the 20 to 25 times residual expenses and his recommended investment/savings for that amount address inflation concerns? e.g. do the earnings at a safe interest rate seem to be enough?
Dandy
 
Posts: 2447
Joined: Sun Apr 25, 2010 7:42 pm

Re: Money Mag Article

Postby sschullo » Thu Aug 30, 2012 10:47 am

Read the article. Mr. B. offers a new way of looking at planning for retirement. The overall strategy is the same. As you get closer to hanging it up, allocate more to fixed accounts, despite what the market, the bulls and the pundits are saying.
Use the talents you possess, for the woods would be a very silent place if no birds sang except the best. -Henry van Dyke, poet (1852-1933)
sschullo
 
Posts: 1606
Joined: Sun Apr 01, 2007 8:25 am
Location: Rancho Mirage, CA

Re: Money Mag Article

Postby The Wizard » Thu Aug 30, 2012 11:12 am

sschullo wrote:Read the article. Mr. B. offers a new way of looking at planning for retirement. The overall strategy is the same. As you get closer to hanging it up, allocate more to fixed accounts, despite what the market, the bulls and the pundits are saying.

I've not read the article yet, but my copy came in the mail yesterday, so perhaps tonight.
But the part I highlighted above is really nothing more than the standard adjustment of AA with age that is a mainline Boglehead tenet...
Attempted new signature...
The Wizard
 
Posts: 6615
Joined: Tue Mar 23, 2010 1:45 pm
Location: Reading, MA

Re: Money Mag Article

Postby Jerry_lee » Thu Aug 30, 2012 11:29 am

Agree, this ain't a "game".

The problem, of course, is that you won't know if you won until the game is over, to extend the sports metaphor. What your spending habits/requirements may be at age 65 and what you forecast them to be in 20 or 25 years and what they turn out to be could be very, very different.

Best to always balance the desire to avoid massive short term losses (note that when people talk about "50% losses", they are referring to 100% equity portfolios, not more traditional balanced allocations--say 60/40) with the need to grow purchasing power for unexpected future requirements.

2 declines of 40%+ in the last 10 years has everyone wanting to avoid risk. But we forget that embracing risk carries with it an expected return. And the greater this perception of risk (must be pretty high with all the SPIA threads and "take your chips off the table when you've won" comments), the greater the reward for bearing it. Finally, remember, risk can show up (at least) two ways: sustain losses so big and permanent that your spending capacity is impaired, or invest so conservatively that your future spending requirements far outstrip your assets ability to keep up. In my opinion, the second is far worse, as you will see the inevitability of it play out slowly over time--the Chinese water torture of retirement outcomes.

PS -- you don't need to be a "bull" (someone's watching too much CNBC!) to appreciate the virtues of stock market investing. A simple understanding of capitalism, risk and return, and a bit of historical perspective is all you need. Far too many people don't have that.
The most disciplined investor in the world.
Jerry_lee
 
Posts: 915
Joined: Tue Mar 06, 2012 1:55 pm

The Worst Mistake

Postby Taylor Larimore » Thu Aug 30, 2012 12:30 pm

Bogleheads:

The title of Bill Bernsteins article is:

The Worst Retirement Investing Mistake is Not Knowing When to Take Money Off the Table.


I strongly agree with Bill who will be on the Panel of Experts at our Boglehead Conference in October. Here's how I know Bill is right:

I once visited the Museum of American Finance in New York City to learn more about my grandfather, Christopher F. Coombs. They found the following excerpts in a book titled: "The Story of Investment Companies" by Hugh Bullock:

"The United Founders Corporation, came into being at the top of the pyramid, organized by Mr. Seagrave, Christopher F. Coombs, and Frank B. Erwin."

"The Founders group, above all others, was the hallmark of the Roaring Twenties."

"The resources so dominated by the United Founders Corporation group were at one time in excess of $2,100,000,000."


My millionaire grandfather died bankrupt when I was 13.

Our family learned the hard way: "The most important rule for retirees, and near-retirees is Don't risk what you'll need."

Best wishes.
Taylor Coombs Larimore
"Simplicity is the master key to financial success." -- Jack Bogle
User avatar
Taylor Larimore
Advisory Board
 
Posts: 20212
Joined: Tue Feb 27, 2007 8:09 pm
Location: Miami FL

Re: Money Mag Article

Postby Helot » Thu Aug 30, 2012 1:11 pm

I'm curious what others think about what one should do when one currently has exactly 20 times one's yearly income requirement.

For example, if a 70 year old couple, after SS income, requires an additional $15,000 a year to provide for their living expenses, which of the following would one recommend:

    SPIA using the $300,000: Non-Inflation Adjusted: $18,000 per year / Inflation adjusted: $13,000 per year
    $300,000 in a Treasury or TIPS ladder
    $300,000 in a conservative balanced portfolio: Stock 25% / Bonds 75%
    $300,000 in a moderate balanced portfolio: Stock 50% / Bonds 50%
    Some combination of the above: 50% SPIA, 50% moderate portfolio
    Any other suggestion ...

I think the answers to this question would provide some further context regarding the current discussion.
Helot
 
Posts: 243
Joined: Sat Mar 03, 2007 3:05 pm

Re: Money Mag Article

Postby Peter Foley » Thu Aug 30, 2012 1:35 pm

I incorporated the sentiment of "taking money off the table" into my Investment Policy Statement. I did it based on Larry Swedroe's advice of balancing the ability to take risk with the need to take risk. Same good advice, just stated differently.
User avatar
Peter Foley
 
Posts: 2372
Joined: Fri Nov 23, 2007 10:34 am
Location: Lake Wobegon

Re: Money Mag Article

Postby Confused » Thu Aug 30, 2012 1:49 pm

Helot wrote:I'm curious what others think about what one should do when one currently has exactly 20 times one's yearly income requirement.


I've wondered that, too. My spouse and I have a monthly expense of $1,800. Or annually, $21,600. Twenty times that is $432,000. Given our savings amount of $2,300 month, or $27,600 annually, and our current cash of $28,000, we'd have our $432k in 14.6 years. Sounds like I could retire in my early 40s and my spouse would be in his/her late 30s. Sounds like something is not right.
Confused
 
Posts: 418
Joined: Wed Jun 20, 2012 1:23 pm

Re: Money Mag Article

Postby The Wizard » Thu Aug 30, 2012 2:00 pm

Confused wrote:
Helot wrote:I'm curious what others think about what one should do when one currently has exactly 20 times one's yearly income requirement.


I've wondered that, too. My spouse and I have a monthly expense of $1,800. Or annually, $21,600. Twenty times that is $432,000. Given our savings amount of $2,300 month, or $27,600 annually, and our current cash of $28,000, we'd have our $432k in 14.6 years. Sounds like I could retire in my early 40s and my spouse would be in his/her late 30s. Sounds like something is not right.

This is getting away from the point of the MM article.
But it's not a good idea to retire on JUST ENOUGH income to meet your monthly expenses.
Better to have a fair amount more somehow, either extra income or extra savings.
I just paid $1300 for a bunch of repairs/maintenance on my truck. How would that fit into an $1800/month budget?
Attempted new signature...
The Wizard
 
Posts: 6615
Joined: Tue Mar 23, 2010 1:45 pm
Location: Reading, MA

Re: Money Mag Article

Postby zotty » Thu Aug 30, 2012 2:10 pm

Confused wrote:I've wondered that, too. My spouse and I have a monthly expense of $1,800. Or annually, $21,600. Twenty times that is $432,000. Given our savings amount of $2,300 month, or $27,600 annually, and our current cash of $28,000, we'd have our $432k in 14.6 years. Sounds like I could retire in my early 40s and my spouse would be in his/her late 30s. Sounds like something is not right.


I don't know what my number is, either. it's a long way away. However, i don't think of that number as an inflection point of financial independence, but rather, a realignment for your need for risk. If you have 20x your daily expenses, a TIPS ladder (with positive real yield!) starts to make sense. You can project that money into the future without subjecting it to the whims of the equity market. It may seriously underperform, but it won't disappear. You have insured yourself some level of comfort in retirement.
zotty
 
Posts: 684
Joined: Tue Sep 15, 2009 5:18 pm
Location: DFW, Texas

Re: Money Mag Article

Postby irwinmfletcher » Thu Aug 30, 2012 2:36 pm

Confused--I think Bernstein is assuming you are in your 60s, hence 20 to 25 times should last you until you pass if you can make a small profit over inflation. If you are in your 40s, 25 years only gets you until most people retire--maybe 40 to 50 times is more accurate in that case.
irwinmfletcher
 
Posts: 51
Joined: Wed Feb 22, 2012 11:55 am

Re: Money Mag Article

Postby Helot » Thu Aug 30, 2012 3:09 pm

This is getting away from the point of the MM article.


To be clear, I'm not actually asking for particular advice, I'm trying to provide examples of possible implementation tactics regarding what one does with his nest egg upon retirement. Some suggest annuitization, some suggest ladders of TIPS or nominal treasuries, and some suggest maintaining a balanced portfolio throughout retirement and drawing down upon it appropriately, i.e. the SWR (2%, 3%, 4%, 5%?)

To be fair to your statement, though, I have not read the article (I don't believe it's available online yet), so I'll concede your point.
Helot
 
Posts: 243
Joined: Sat Mar 03, 2007 3:05 pm

Re: Money Mag Article

Postby Jerry_lee » Thu Aug 30, 2012 4:24 pm

Helot wrote:I'm curious what others think about what one should do when one currently has exactly 20 times one's yearly income requirement.

For example, if a 70 year old couple, after SS income, requires an additional $15,000 a year to provide for their living expenses, which of the following would one recommend:

    SPIA using the $300,000: Non-Inflation Adjusted: $18,000 per year / Inflation adjusted: $13,000 per year
    $300,000 in a Treasury or TIPS ladder
    $300,000 in a conservative balanced portfolio: Stock 25% / Bonds 75%
    $300,000 in a moderate balanced portfolio: Stock 50% / Bonds 50%
    Some combination of the above: 50% SPIA, 50% moderate portfolio
    Any other suggestion ...

I think the answers to this question would provide some further context regarding the current discussion.


Well, lets think about this. At age 70, a male has a 14 year life expectancy, a female has a 16 year life expectancy. Assuming a 15 year average joint life expectancy, you are paying the insurance company $300k to give you back $270K (18k x 15 years not knowing what actual CPI will be). So here we have an asset with an expected return of -0.7% per year.

Unfortunately, you could die early. Amortization tables say a 70 year old male has a 2.5% chance of dying within the year. By age 75, we are talking 4% in that year. You are looking at over a 15% chance of dying in the first 5 years you annuitize.

If you instead just put the money in a 60/40 S&P 500 and 5YR t-note portfolio taking $13k a year + 3% inflation, the odds are almost nil that you run out of money during this short a period. As a matter of fact, only at age 90 (5 years longer than your life expectancy) do you see a 2% chance of running out of money. At age 95? A 6% chance. Oh, and while we are discussing "tail outcomes", 20% of the time at 95 yrs old your principal is over $1.8M. The 50th percentile has you at $850M.

Lowering your equity allocation doesn't improve your odds. You swap "less annual volatility" for the high probability of less future wealth. Your odds of going broke at 90 are 1%, and 3% at 95--statistically indistinguishable from the 60/40. 80th percentile wealth at 95 is only $1.1M, and $630K at the 50th percentile, however, and that is real money.

If you have at least a half a dozen people in your family who are still living and older than 100, AND you are the worst investor in the world (bad behavior ---> not able to buy and hold simple index funds), I'd consider a SPIA. If not, stocks and bonds look pretty good.
The most disciplined investor in the world.
Jerry_lee
 
Posts: 915
Joined: Tue Mar 06, 2012 1:55 pm

Re: Money Mag Article

Postby Helot » Thu Aug 30, 2012 5:11 pm

Jerry_lee wrote:Well, lets think about this.


I appreciate the response. Further, I appreciate the conversation and debate you encourage/engender since your joining the forum.

I'd like to hear your thoughts on the argument made for an SPIA's mortality credits. In your analysis above, you point out the negative return of an SPIA at a 15 year life expectancy. The argument made on behalf of SPIAs, though, is the protection and income provided should an individual exceed his life expectancy, "longevity risk." This and the "insured" and "guaranteed" nature of the product.

It strikes me that when one ultimately selects among the various solutions to the retirement income problem, what one is really doing is showing their behavioral cards.
Helot
 
Posts: 243
Joined: Sat Mar 03, 2007 3:05 pm

Re: Money Mag Article

Postby Jerry_lee » Fri Aug 31, 2012 10:15 am

Helot wrote:
Jerry_lee wrote:Well, lets think about this.


I appreciate the response. Further, I appreciate the conversation and debate you encourage/engender since your joining the forum.

I'd like to hear your thoughts on the argument made for an SPIA's mortality credits. In your analysis above, you point out the negative return of an SPIA at a 15 year life expectancy. The argument made on behalf of SPIAs, though, is the protection and income provided should an individual exceed his life expectancy, "longevity risk." This and the "insured" and "guaranteed" nature of the product.

It strikes me that when one ultimately selects among the various solutions to the retirement income problem, what one is really doing is showing their behavioral cards.


Helot,

Thanks for the compliment. Just trying to present all sides.

My thoughts on SPIAs role as a hedge against longevity risk is: sure it is, at a very high cost. If you are willing to pay the costs, and forego alternatives, then go for it...but you need to understand the costs and the alternatives.

I think you are right, people choose SPIAs for behavioral reasons (fear, mostly). So long as you are looking at all sides, then that is OK I guess. But, on average, you are much better off "self-insuring" against longevity risk by maintaing a total return portfolio of stocks and bonds and being flexible enough to make changes when circumstances require it.

By the way, my prediction is that SPIAs will be all but replaced in the not so distant future by actual longevity insurance -- you buy a contract that pays income starting at age 90 or some predetermined age. Premiums would be much lower and very affordable and allow investors to stick with traditional stocks and bonds for the bulk of their retirement but also add a safety net if returns are in the bottom 1% of the distribution or if they live to the oldest 1% of the population or whatever...
The most disciplined investor in the world.
Jerry_lee
 
Posts: 915
Joined: Tue Mar 06, 2012 1:55 pm

Single Premium Immediate Annuities (SPIA)

Postby Taylor Larimore » Fri Aug 31, 2012 1:46 pm

Bogleheads:

A male age 75 can purchase a Single Premium Immediate Annuity which will provide a guaranteed lifetime income of 9.24%. No other investment can make this guarantee. We own two SPIAs and no longer worry about bear markets or running out of money. We are very glad we purchased them.

http://www.immediateannuities.com/infor ... rates.html

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle
User avatar
Taylor Larimore
Advisory Board
 
Posts: 20212
Joined: Tue Feb 27, 2007 8:09 pm
Location: Miami FL

Re: Money Mag Article

Postby Booper » Fri Aug 31, 2012 1:52 pm

chrisjul wrote:Thoughts on this month's Money magazine interview with William Bernstien....?

I tend to agree with his philosophy of "Once you win the game, why continue to play?".


Please include a link to the article you are referring to.
Booper
 
Posts: 113
Joined: Mon Apr 16, 2012 6:26 pm

Re: Money Mag Article

Postby joe8d » Fri Aug 31, 2012 8:44 pm

Kuckie wrote:Mr Bernstein was referring to money needed in retirement, when he stated to take it off the table after you have won the game. He also stated that anything above that can be placed in risky assets.

His rule of thumb was that you should save 20 to 25 times your residual living expenses, which is the yearly shortfall after subtracting Social Security and pension payments. For example if your yearly living expenses are 50K and SS and Pension are 30K than you will need 20K for residual expenses which equates to between 400K to 500K in required retirement savings. Once that has been achieved, take that amount off the table by placing it in Treasury or other secure bonds. Anything beyond that may be invested in equities. If equities rise, you can then use some to splurge on a world cruise or any other dream. If they fall you stay home. In either case your retirement funds are safe and secure.


Great Advice. Basically what I have done.I have a 50/50 portfolio with the Debt Instruments side more than sufficient to cover my retirement.Also, his recommendation to use short term investment grade bonds for inflation protection is another thing I do.
Last edited by joe8d on Fri Aug 31, 2012 9:05 pm, edited 1 time in total.
All the Best, | Joe
User avatar
joe8d
 
Posts: 3522
Joined: Tue Feb 20, 2007 8:27 pm
Location: Buffalo,NY

Re: Money Mag Article

Postby Taylor Larimore » Fri Aug 31, 2012 9:05 pm

Joe wrote:

I have a 50/50 portfolio with the Debt Instruments side more than sufficient to cover my retirement.


This is an excellent plan that most retirees would do well to follow.

Congratulations and best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle
User avatar
Taylor Larimore
Advisory Board
 
Posts: 20212
Joined: Tue Feb 27, 2007 8:09 pm
Location: Miami FL

Re: Money Mag Article

Postby DTSC » Fri Aug 31, 2012 9:05 pm

Confused wrote:
Helot wrote:I'm curious what others think about what one should do when one currently has exactly 20 times one's yearly income requirement.


I've wondered that, too. My spouse and I have a monthly expense of $1,800. Or annually, $21,600. Twenty times that is $432,000. Given our savings amount of $2,300 month, or $27,600 annually, and our current cash of $28,000, we'd have our $432k in 14.6 years. Sounds like I could retire in my early 40s and my spouse would be in his/her late 30s. Sounds like something is not right.


I don't think something is not right, but it appears that you live frugally and/or in a low cost of living area. Maybe you don't have children. My mortgage alone exceeds $1800.
DTSC
 
Posts: 876
Joined: Mon Oct 20, 2008 9:47 am
Location: Illinois

Re: Money Mag Article Online Next Week

Postby Bill Bernstein » Sat Sep 01, 2012 1:04 am

Hi All:

Thanks for all the kind comments.

I'm told that Money will post the piece online after Labor Day, around the 4th-6th.

Best,

Bill
Bill Bernstein
 
Posts: 444
Joined: Sat Jun 23, 2007 12:47 am

Re: Money Mag Article

Postby midareff » Sat Sep 01, 2012 1:51 am

Shabber wrote:The reason people continue to stay invested is not because they like the risk, it is because they chose to save enough that they can comfortably retire if they can earn a 5%-10% return on their nest egg. The 3% guaranteed return with no risk is attractive, but they don't have a large enough nest egg to make that work for the standard of living they want.


A 3% guaranteed return is only attractive with inflation at 1.5%. :oops: If it returns to long term averages/mean it will not be enough.
User avatar
midareff
 
Posts: 2511
Joined: Mon Nov 29, 2010 10:43 am
Location: Biscayne Bay, South Florida

Re: Money Mag Article

Postby Confused » Sat Sep 01, 2012 10:29 am

DTSC wrote:
Confused wrote:
Helot wrote:I'm curious what others think about what one should do when one currently has exactly 20 times one's yearly income requirement.


I've wondered that, too. My spouse and I have a monthly expense of $1,800. Or annually, $21,600. Twenty times that is $432,000. Given our savings amount of $2,300 month, or $27,600 annually, and our current cash of $28,000, we'd have our $432k in 14.6 years. Sounds like I could retire in my early 40s and my spouse would be in his/her late 30s. Sounds like something is not right.


I don't think something is not right, but it appears that you live frugally and/or in a low cost of living area. Maybe you don't have children. My mortgage alone exceeds $1800.


Rent: $550
Gas + Electric: ~$60
Cell phone: $37
Internet: $50
Groceries: ~$200
Gasoline: ~$160
Health insurance: $69
Auto insurance: $28
Charitable contributions: ~400
Entertainment: $15
Slush Fund: $30

That gets us up to $1600/month in expenses, with other odds and ends, I guess, taking up the rest of our expenses.

There's no way I could afford a $1800 mortgage, that would eat up 100% of my spouses income plus 25% of mine. So, yeah, probably a low cost area combined with frugal living combine with no kids, but that's what you gotta do with low income.
Confused
 
Posts: 418
Joined: Wed Jun 20, 2012 1:23 pm

Re: Money Mag Article

Postby DTSC » Sat Sep 01, 2012 10:57 am

Confused wrote:
DTSC wrote:
Confused wrote:
Helot wrote:I'm curious what others think about what one should do when one currently has exactly 20 times one's yearly income requirement.


I've wondered that, too. My spouse and I have a monthly expense of $1,800. Or annually, $21,600. Twenty times that is $432,000. Given our savings amount of $2,300 month, or $27,600 annually, and our current cash of $28,000, we'd have our $432k in 14.6 years. Sounds like I could retire in my early 40s and my spouse would be in his/her late 30s. Sounds like something is not right.


I don't think something is not right, but it appears that you live frugally and/or in a low cost of living area. Maybe you don't have children. My mortgage alone exceeds $1800.


Rent: $550
Gas + Electric: ~$60
Cell phone: $37
Internet: $50
Groceries: ~$200
Gasoline: ~$160
Health insurance: $69
Auto insurance: $28
Charitable contributions: ~400
Entertainment: $15
Slush Fund: $30

That gets us up to $1600/month in expenses, with other odds and ends, I guess, taking up the rest of our expenses.

There's no way I could afford a $1800 mortgage, that would eat up 100% of my spouses income plus 25% of mine. So, yeah, probably a low cost area combined with frugal living combine with no kids, but that's what you gotta do with low income.


You are (admirably) much more frugal than most as you save $500 than you spend each month! Yeah children are very expensive and certainly the reason most people cannot retire early, if at all. To each his own.
DTSC
 
Posts: 876
Joined: Mon Oct 20, 2008 9:47 am
Location: Illinois

Re: Money Mag Article

Postby DTSC » Sat Sep 01, 2012 10:57 am

Confused wrote:
DTSC wrote:
Confused wrote:
Helot wrote:I'm curious what others think about what one should do when one currently has exactly 20 times one's yearly income requirement.


I've wondered that, too. My spouse and I have a monthly expense of $1,800. Or annually, $21,600. Twenty times that is $432,000. Given our savings amount of $2,300 month, or $27,600 annually, and our current cash of $28,000, we'd have our $432k in 14.6 years. Sounds like I could retire in my early 40s and my spouse would be in his/her late 30s. Sounds like something is not right.


I don't think something is not right, but it appears that you live frugally and/or in a low cost of living area. Maybe you don't have children. My mortgage alone exceeds $1800.


Rent: $550
Gas + Electric: ~$60
Cell phone: $37
Internet: $50
Groceries: ~$200
Gasoline: ~$160
Health insurance: $69
Auto insurance: $28
Charitable contributions: ~400
Entertainment: $15
Slush Fund: $30

That gets us up to $1600/month in expenses, with other odds and ends, I guess, taking up the rest of our expenses.

There's no way I could afford a $1800 mortgage, that would eat up 100% of my spouses income plus 25% of mine. So, yeah, probably a low cost area combined with frugal living combine with no kids, but that's what you gotta do with low income.


You are (admirably) much more frugal than most as you save $500 than you spend each month! Yeah children are very expensive and certainly the reason most people cannot retire early, if at all. To each his own.
DTSC
 
Posts: 876
Joined: Mon Oct 20, 2008 9:47 am
Location: Illinois

Re: Money Mag Article

Postby woodedareas » Sat Sep 01, 2012 11:05 am

After careful planning I thought I was moving forward with 70/30( bonds) in the Index Funds with some adjustment. I agree with Bernstein but now I am completely lost. I don't want any further risk now that I am over 70 but need a minimum of 4% preferably 5%. Should I continue on with my proposed investment scenario or is ther e another more conservative approach to my 4-5% goal? Half of my funds could be set aside or taken off the table in term of the stock market but we still desire about 4% minimum. My question is when money is taken off the table where is it parked securely and at what return.
I would really appreciate your thoughts as I am about about to monthly invest in my asset allocation with Vanguard at about 70/30 ( with some adjustment for TIPS) after the election.If there is a better and safer way to approach 4-5% I would love to learn about it.
Thanks
woodedareas
 
Posts: 23
Joined: Mon Aug 20, 2012 6:55 pm

Re: Money Mag Article

Postby marco1910 » Sat Sep 01, 2012 11:57 am

"This recommendation to use short term investment grade bonds for inflation protection is another thing I do."

can you give some examples (Vanguard) of these bond funds and how short term investment grade bonds protect you from inflation?..what about the TIPS fund?

Thanks
Marco
marco1910
 
Posts: 51
Joined: Sun Oct 12, 2008 3:21 pm

Re: Single Premium Immediate Annuities (SPIA)

Postby Jerry_lee » Sat Sep 01, 2012 12:05 pm

Taylor Larimore wrote:Bogleheads:

A male age 75 can purchase a Single Premium Immediate Annuity which will provide a guaranteed lifetime income of 9.24%. No other investment can make this guarantee. We own two SPIAs and no longer worry about bear markets or running out of money. We are very glad we purchased them.

http://www.immediateannuities.com/infor ... rates.html

Best wishes.
Taylor


With a life expectancy of 10 years or less, the expected return on this investment is about -1% per year. We always think about 4% SWRs when it comes to stocks/bonds, and see a # like 9% and think: wow, SPIAs are much better! But 4% is a 30 year estimate. Over 10 years, you are safe pulling out closer to 12%, over 20 years, more like 6-8%.

And, of course, if you don't reach your life expectancy, which many won't, SPIAs begin to rival lottery tickets in terms of their expected payoffs.

Incidentally, balanced stock & bond investors who hold high quality fixed income don't worry about bear markets either (we know to expect them and they are part of investing) -- we simply sell off bonds (also helps to rebalance our portfolios) until equities have recovered.

Of course, you can always pay someone else to take away some risks. But you will pay, and probably pay dearly.
The most disciplined investor in the world.
Jerry_lee
 
Posts: 915
Joined: Tue Mar 06, 2012 1:55 pm

Re: Money Mag Article

Postby CyberBob » Tue Sep 04, 2012 10:49 am

The article is now online. Here is a link: The worst retirement investing mistake.
Also see this other thread.

Bob
User avatar
CyberBob
 
Posts: 2941
Joined: Tue Feb 20, 2007 2:53 pm

Re: Money Mag Article

Postby joe8d » Tue Sep 04, 2012 7:15 pm

marco1910 wrote:"This recommendation to use short term investment grade bonds for inflation protection is another thing I do."

can you give some examples (Vanguard) of these bond funds and how short term investment grade bonds protect you from inflation?..what about the TIPS fund?

Thanks
Marco


From Bill's article:

But there's another asset class that people really don't think about when they think about inflation protection, which is short, high-quality bonds with a maturity of less than three years. If we ever do get an inflationary shock, investors will demand a high real short-term rate of return. It's what happened during the late '70s and early '80s.

Even though interest rates are terrible right now, if inflation recurs -- as I think it probably will -- short-term bonds are a fine place to be, as are individual Treasuries or certificates of deposit. Since they mature soon, you can replace them quickly with newer, higher-interest bonds.

Interest rates usually more than keep up with inflation. It's true that real yields right now are historically low, but as a student of financial history I have to believe that's not going to last forever.
All the Best, | Joe
User avatar
joe8d
 
Posts: 3522
Joined: Tue Feb 20, 2007 8:27 pm
Location: Buffalo,NY

Re: Money Mag Article

Postby Kuckie » Wed Sep 05, 2012 7:03 pm

User avatar
Kuckie
 
Posts: 127
Joined: Tue Feb 23, 2010 10:59 am

Re: Money Mag Article

Postby convert949 » Sat Sep 29, 2012 8:39 am

All of the cat food jokes aside, I found this to be a very thought provoking article on a personal level. The "Reader's Digest" version is as follows... Was with Ameriprise for more than half of my liquid assets up until 2008 including Annuities and VUL products. Advisor constantly chided me about being too conservative. Entered 2008 as substantially retired at age 58 with a 65/35 (stock/Bond) AA riding it into the depths with his assurances that everything was OK. In early 2009 my actually retirement year I dumped him and embraced the Boglehead way. I struggled with the appropriate AA as I knew that to become more conservative at the low spelled disaster for my retirement. Moved all to Vanguard and started with 55/45 allocation, reducing to 50/50 and now have reduced to 45/55 at age 63. I am pleased to say that I have recovered pretty much all of those early losses as of this date.

Herein lies the rub... my current allocation does not meet the 20-25 year rule without including equities at some percentage. I am considering modifying my IS even further. I am wondering how many retirees are having similar thoughts after reading the article :?:
User avatar
convert949
 
Posts: 228
Joined: Thu May 07, 2009 8:33 am
Location: Island Heights, NJ

Re: Money Mag Article

Postby dbr » Sat Sep 29, 2012 8:47 am

convert949 wrote:
Herein lies the rub... my current allocation does not meet the 20-25 year rule without including equities at some percentage. I am considering modifying my IS even further. I am wondering how many retirees are having similar thoughts after reading the article :?:


One might notice that the word annuity turns up more than once in that article. That should be food for thought (and not Alpo [Am I one that really hates seeing that expression in articles like this?]).

There is a discussion in Jim Otar's book about the subject.
dbr
 
Posts: 14704
Joined: Sun Mar 04, 2007 9:50 am

Re: Money Mag Article

Postby convert949 » Sat Sep 29, 2012 8:54 am

Hi DBR...

Yeah, I know. Gives me the creeps though as the Ameriprise guy tried to sell us annuities to the extent that in his words "it eliminated the need for bonds" in our portfolio. Still concerned about putting that much faith in an insurance company...
User avatar
convert949
 
Posts: 228
Joined: Thu May 07, 2009 8:33 am
Location: Island Heights, NJ

Next

Return to Investing - Help with Personal Investments

Who is online

Users browsing this forum: 10b5-1, ekonstan, ruralavalon, Yahoo [Bot] and 49 guests