Money Mag Article

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Re: Money Mag Article

Postby dbr » Sat Sep 29, 2012 10:03 am

convert949 wrote: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...


The trick here, and it is sad that it needs to be a trick, is to know that the single premium immediate annuity is a valid retirement tool available at low cost from responsible companies while the financial services industry has a plethora of rip-off annuities that are not valid retirement tools almost all the time. As with any investment or insurance people would need to understand the nature of the policy and people need to practice proper diversity of all their income streams and of the vendors that supply those income streams.
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Re: Money Mag Article

Postby ObliviousInvestor » Sat Sep 29, 2012 10:04 am

Edit: Yes, what dbr said.
convert949 wrote: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...

The annuities a commission-paid FA would try to sell you are likely quite different from the annuities we talk about here on the forum as being helpful. (Specifically, we talk about single premium immediate lifetime annuities, sometimes called SPIAs for short.)

That said, the concern about putting a very large portion of your money with one insurance company is a valid one.
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Re: Money Mag Article

Postby victor2244 » Sat Sep 29, 2012 2:39 pm

I just read Bill Bernsteins article and found it very interesting. He mentions that "one should adhere to an index-fund portfolio". I have just discovered the Bogleheads forum and realize that this is one of the main (if not the main) premises/theories embraced by Bogleheads. I plan to post my specific funds/etc. in the near future to get specific recommendations. However, in the meantime, I am wondering what specific index funds and %'s one might recommend for a 60 year year that will not retire for another 8+/- years? Also, bond fund recommendations are welcome. I have assets of about 40 times yearly expenses. I am currently in 45% stocks/10% bonds and 45% cash. The reason I am so heavily in cash is that I recently sold some real estate and got cashed out of company stock and have been trying to figure out what to invest in. Also, what information/articles/etc. would you suggest that I read to learn more about the Bogle-type of investing?
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Re: Money Mag Article

Postby ResNullius » Sat Sep 29, 2012 2:44 pm

victor2244 wrote:I just read Bill Bernsteins article and found it very interesting. He mentions that "one should adhere to an index-fund portfolio". I have just discovered the Bogleheads forum and realize that this is one of the main (if not the main) premises/theories embraced by Bogleheads. I plan to post my specific funds/etc. in the near future to get specific recommendations. However, in the meantime, I am wondering what specific index funds and %'s one might recommend for a 60 year year that will not retire for another 8+/- years? Also, bond fund recommendations are welcome. I have assets of about 40 times yearly expenses. I am currently in 45% stocks/10% bonds and 45% cash. The reason I am so heavily in cash is that I recently sold some real estate and got cashed out of company stock and have been trying to figure out what to invest in. Also, what information/articles/etc. would you suggest that I read to learn more about the Bogle-type of investing?


I think you can do almost anything you want, short of heating your house this Winter by burning your cash. You're in great shape. Personally, I would go with age in short and intermediate term investment grade (or tax exempt) Vanguard funds, with the rest in SP500 and/or Total Market. Good luck.
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Re: Money Mag Article

Postby letsgobobby » Sat Sep 29, 2012 3:39 pm

victor2244 wrote:I just read Bill Bernsteins article and found it very interesting. He mentions that "one should adhere to an index-fund portfolio". I have just discovered the Bogleheads forum and realize that this is one of the main (if not the main) premises/theories embraced by Bogleheads. I plan to post my specific funds/etc. in the near future to get specific recommendations. However, in the meantime, I am wondering what specific index funds and %'s one might recommend for a 60 year year that will not retire for another 8+/- years? Also, bond fund recommendations are welcome. I have assets of about 40 times yearly expenses. I am currently in 45% stocks/10% bonds and 45% cash. The reason I am so heavily in cash is that I recently sold some real estate and got cashed out of company stock and have been trying to figure out what to invest in. Also, what information/articles/etc. would you suggest that I read to learn more about the Bogle-type of investing?


With 40x expenses your biggest decision is whether you intend to leave money to children, charity, etc. If yes, you still probably want a balanced portfolio of something like 50/50. If no, then you are Zvi Bodie's and Bill Bernstein's prototype of someone who needs to take minimal risk. Put all your tax-deferred accounts in TIPS. In taxable, buy munis and ladder SPIAs. Poof, you'll never run out of money.
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Re: Money Mag Article

Postby Austintatious » Sat Sep 29, 2012 3:52 pm

I believe Bernstein's advice works well for those in the position to act on it, though I also believe it can be overdone. I recently (not long before reading the article) discussed the concept of pulling one's retirement assets "off the table" with a longtime friend, a well paid professional who's never married and has no children or significant financial obligation to others. I don't know the details, but I believe that he's saved a very substantial sum, having maxed out for decades. At any rate, he's confident that he has more than sufficient assets to last him as long as he might be around, and he's recently converted all his retirement accounts to CD's, convinced that contuing his investments, any investments, in stocks and bonds (he's been a fund investor) were "way too risky". He made it quite clear that the 2007/2008 collapse was the "last straw" in convincing him that he ought to make the move. While it makes sense to me, at least in part, I've wondered if he's overreacted by taking more off the table, even what might be a reasonably conservative table, than just those assets which would have assured him financial security for his lifetime. In the end, I guess it always should be whatever allows you to sleep soundly at night.

The real shame is that we don't have a good alternative for those many Americans approaching and even reaching so called retirement age who just don't have sufficient assets to last them through their projected lifetime. The idea of having 20 to 25 times residual living expenses is not yet, and may never be, a reality. They know they don't have enough set aside, yet they're afraid of keeping what they have in the very asset classes they most need to be in for the growth they still badly need. And the Fed's policies surely aren't helping things for them, when it's so clear that interest rates will be at or near zero for years. It's those folks who are most in need of good advice for a very bad situation.
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The Three Fund Portfolio

Postby Taylor Larimore » Sat Sep 29, 2012 5:30 pm

Victor:
I am wondering what specific index funds and %'s one might recommend for a 60 year year that will not retire for another 8+/- years? Also, bond fund recommendations are welcome.


Consider three total market index funds. There is also a link to Vanguard's asset-allocation tool in the link below for recommended %'s:

THE THREE FUND PORTFOLIO

"Does this (three fund) portfolio seem overly simplistic, even amateurish? Get over it. Over the next few decades, the overwhelming majority of all professional investors will not be able to beat it." -- Bill Bernstein

Best wishes.
Taylor
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Re: Money Mag Article

Postby victor2244 » Sat Sep 29, 2012 6:53 pm

Thanks for the input. Taylor, actually I spent the afternoon reading your link regarding the 3 fund approach and found it fascinating. Regarding the TBF, is it more or less susceptible to interest rate increases than an intermediate bond fund. Rates are so low they will eventually have to go up, even though this may not be for a couple of years. Am I better off with the TBF or an intermediate bond fund at this time? Since I am in a high tax bracket, should I still stick with TBF or a tax exempt fnd? Any suggestions on where to get additional information on ladderred SPIA's and how do they fit into the 3 bond fund approach? The Vanguard allocation helper has me TSF/TIF/TBM=35%/20%/45%. I would like to give more to charity and leave rest to my kids so this may be a reasonable allocation, although I will have to think more about the suggestion about reducing stocks/risk and taking more off the table. Thanks.
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Answer to questions

Postby Taylor Larimore » Sat Sep 29, 2012 10:31 pm

Victor:

I will try to answer your questions:
Regarding the TBF, is it more or less susceptible to interest rate increases than an intermediate bond fund?

Find the duration of bond funds you are considering. The ones with the longest duration should be most susceptible to interest rate risk (and higher long-term return). I favor Total Bond Market Index Fund because of its diversification.

Rates are so low they will eventually have to go up, even though this may not be for a couple of years. Am I better off with the TBF or an intermediate bond fund at this time?

Bogleheads argue this choice ad nauseam. In my view, there will not be much difference between the two bond funds over extended periods.

Since I am in a high tax bracket, should I still stick with TBF or a tax exempt fnd?


I believe that the higher return of a taxable bond fund in a tax-deferred account is better than a tax-exempt bond fund in a taxable account.

Any suggestions on where to get additional information on laddered SPIA's and how do they fit into the 3 bond fund approach?


I don't like complicated portfolios. Ladders are too complicated for me to bother with. We have a simple investment portfolio plus two SPIA (Single Premium Immediate Annuities). I consider our SPIAs as income like social security--not part of our portfolio.

I think you will find this 2-year old Vanguard Research article insightful:

Bonds and rates: The reality behind the headlines

Best wishes.
Taylor
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Re: Money Mag Article

Postby letsgobobby » Sun Sep 30, 2012 1:31 am

Regarding laddered SPIAs, I simply meant that if you are talking about investing substantial $$$, you do not want to put a large lump sum with a single insurer that could go bankrupt in the future, especially if that lump sum amount is above the state guarantee. Also, by annuitizing over several years, you get the benefit of reduced inflation risk, increased age-based payouts, and the benefit (if you can call it that) that you might die before annuitizing, leaving a larger nest egg to heirs.

Since you do want to leave money to heirs (charity and children), an SPIA might not be your best bet. If it were me, with 40x expenses, I'd treat 30x expenses in a traditional portfolio: 40/60 stocks/bonds with a heavy dose of TIPS. And 10x expenses I would shoot for the stars: 50/50 US and international stocks with a heavy tilt to small and value. Why? 30x expenses gives me 3.3% SWR which is safe 99% of the time for 30+ years. The 10x expenses is for heirs: go for broke (within reason). If you shoot for the stars and only get to the moon, your charities and children will still be happy. If you get unlucky, they only get half what they hoped for BUT in all likelihood, your 'base' 30x portfolio will also have money left over at your deaths and they'll get some of that, too.

Good problem to have. :beer
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Re: Money Mag Article

Postby victor2244 » Sun Sep 30, 2012 1:05 pm

Thanks for the input. I do have one question. You mentioned:

30x expenses gives me 3.3% SWR which is safe 99% of the time for 30+ years.

Pardon my ignorance, but what does SWR mean (I assume the R is return)? Also, is there a chart/table that lets you make this calculation?
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Re: Money Mag Article

Postby dbr » Sun Sep 30, 2012 1:15 pm

SWR = safe withdrawal rate

For background you can start with these, but there is a massive amount of discussion on the subject:

http://www.bogleheads.org/wiki/Safe_Withdrawal_Rates
http://www.firecalc.com/
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SWR ?

Postby Taylor Larimore » Sun Sep 30, 2012 1:19 pm

victor2244 wrote:Thanks for the input. I do have one question. You mentioned:

30x expenses gives me 3.3% SWR which is safe 99% of the time for 30+ years.

Pardon my ignorance, but what does SWR mean (I assume the R is return)? Also, is there a chart/table that lets you make this calculation?


Hi Victor:

"SWR" is an abbreviation for "Safe Withdrawal Rate." We have endless arguments what that figure should be. No one knows because it is impossible to forecast the future. The most common opinion (based on past performance) is that it should be safe to withdraw 4%, plus annual inflation, from a diversified portfolio at age 65 until death.

Best wishes.
Taylor
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Re: Money Mag Article

Postby jwa » Sun Sep 30, 2012 1:20 pm

swr = safe withdrawal rate
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Re: Money Mag Article

Postby jwa » Sun Sep 30, 2012 1:23 pm

Taylor Larimore is my hero! SS, small pension, a couple SPIAs, and the 3 fund portfolio. I see absolutely no need to be more complicated than that for me and my beloved wife. Thank you Taylor!
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Re: Money Mag Article

Postby tiresias » Fri Oct 19, 2012 7:09 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.


my problem with bernstein's multiple of 20-25 times expenses is that it assumes a retirement of 20 to 25 years. what if i'm retired for 30 or 35 years? i don't want be eatin alpo at age 95 or 100!
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Re: Money Mag Article

Postby tiresias » Tue Nov 13, 2012 2:56 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.


what does bernstein mean by "residual living expenses?" does he mean bare essentials?
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Re: Money Mag Article

Postby Billyboy » Tue Nov 13, 2012 6:13 pm

In using William Berstein's philosophy, quote: "This portfolio should be in safe assets: Treasury Inflation-Protected Securities, annuities, or even short term bonds," using Vanguard only, in TIRA's, with the exception of annuities, what would be fellow Bogleheads recommendations to use, following his guidelines?
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Re: Money Mag Article

Postby cb474 » Thu Mar 14, 2013 7:45 pm

Just came across this article from Bernstein. I see the logic of the take money off the table if you've hit your number policy. But I do wonder how many people it really applies to. How many people really manage to save 20 to 25 times their yearly expenses by retirement age? I suspect a lot of people are more in a grey area, somewhere short of that goal.

At the same time, despite the fact that people are living longer, it is usually not noted that this does not mean that they are necessarily healthier and full of more energy at those advanced ages. So Bernstein's advice to just keep working if you haven't hit your number, may be unrealistic. This could depend a lot on the nature of one's job, one's employer, and economic circumstances.

So given that a lot of people may reach retirement age, not have hit their number, and not have good options to keep working, I wonder how Bernstein's advice squares with the also often discussion of safe withdrawal rates and the use of calculators like Firecalc that look at the odds of running out of money before retirement. I feel a comment from Jerry_lee above in this thread sums up the counter-balancing concerns:

Jerry_lee wrote: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


Indeed, how do we square Bernstein's suggestion about taking money off the table, with things like Firecalc that seem to show that portfolios with more equity risk often have better odds of lasting through retirement, at a given withdrawal rate? In other words, overly conservative investments can actually increase the odds of running out of money. It seems to me that Bernstein doesn't really discuss this side of the coin.

Interested in people's thoughts on the question.
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Re: Money Mag Article

Postby tiresias » Thu Mar 14, 2013 10:35 pm

~~~ when dumb money acknowledges its limitations, it ceases to be dumb ~~~
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Re: Money Mag Article

Postby HomerJ » Thu Mar 14, 2013 10:51 pm



This is just recency basis.

"All good things come to an end," said David Blanchett, one of the study's authors and head of retirement research for Morningstar Investment Management. "Today's investors who purchase bonds will earn returns significantly lower than historical averages."


I call B.S. The 4% number comes from studies that include 20-30 years of TERRIBLE bond returns (60s and 70s), and still 4% worked. The great bull bond market of the last 30 years is not the "historical" average. We don't need 9% returns from bond funds to achieve 4% sustainable withdrawals.
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Re: Money Mag Article

Postby burt » Fri Mar 15, 2013 9:11 am

I like this quote from Mr. Bernstein:

"It's hard to cut back on risk and accept lower returns when your neighbors are getting rich."



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Re: Money Mag Article

Postby wrysys » Fri Mar 15, 2013 9:28 am

Confused: read this site and link, http://www.mrmoneymustache.com/2012/01/ ... etirement/. The blogger retired at age 30, with a wife and a kid. He also preaches the gospel of living frugally, investing in index funds, and also earning some side income doing house work/contractor stuff.

I'm interested in others thoughts on his analysis of early retirement. It seems his approach is close to bernstein's formula. He is an entertaining writer
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Re: Money Mag Article

Postby Grt2bOutdoors » Fri Mar 15, 2013 9:43 am

burt wrote:I like this quote from Mr. Bernstein:

"It's hard to cut back on risk and accept lower returns when your neighbors are getting rich."



burt


Show me your balance sheet, then we'll see if you truly are rich or is it just a mirage. In other words, show me the money. :moneybag
"Luck is not a strategy" Asking Portfolio Questions
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Re: Money Mag Article

Postby burt » Fri Mar 15, 2013 7:51 pm

Grt2bOutdoors wrote:
burt wrote:I like this quote from Mr. Bernstein:

"It's hard to cut back on risk and accept lower returns when your neighbors are getting rich."



burt


Show me your balance sheet, then we'll see if you truly are rich or is it just a mirage. In other words, show me the money. :moneybag


??
Not sure your meaning. For me ........ time to take some money off the table.

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