umfundi wrote:Otar really gets it. If you are on the cusp of retiring, the books by Michael Zwecher (Retirement Portfolios) and Jim Otar are essential.
Virtually no one else has a rational handle on the difference between saving/investing for retirement and spending/investing in retirement.
And, we are now in the realm of financial planning, not investment advice. Most of what you read here (in this forum) is about the latter.
Thanks for the recommendation, I read Otar a while back but am going through Zwecher's book now. He's not as much of an engineering geek as Otar, just a financial planner writing for other financial professionals, not individual investors. Zwecher also devotes most of his focus to 'floor' investing, making sure all your basic lifestyle needs are covered by safe products, mostly Treasury products like strips, zero coupon, and Treasury bonds. He doesn't recommend TIPS because of their premium and difficulty of ladder construction, instead planning for an inflation-increased maturity for each year of retirement. Instead of living off stock and bond funds in retirement and rebalancing, he converts bond funds to individual bonds that won't fluctuate, with the possibility of adding to the floor with stock gains, but not rebalancing bonds out of the floor. Social security, DB pensions, and annuities can also add to the floor. The benefit of this approach is that by having basic needs assured, retirees can be more aggressive with their stock allocation and not have to withdraw in down markets for basic needs. He recommends deferred annuities for later in life to prevent longevity risk. It has a lot in common with bucket investing, but instead of a cash buffer, you convert all your fixed income into a bond ladder, so you don't have the uncertainty of bucket investing, such as the market crashing right when your income bucket is drying up, and there's not all the uncertainty about when and how much to transfer between buckets. As Otar does, he says that if you don't have enough for a secure floor of basic income, you need to either save more, spend less, or annuitize what you have.
The only place where Zwecher doesn't make sense is on a chapter on risk management, believing that investors need an advisor to sell if their investments go down by a certain amount, and to use individual stock calls and puts and other nonsense to reduce risk. The other problem with establishing a floor is the necessity for significant funds to cover 30-35 years of retirement, and the unattractive long-term rates for any Treasury bonds now. Other than that, though, I think that's a really interesting approach, especially since it allows retirees to have a secure base of basic needs and allow them to be less risk averse with the rest of their portfolio. It's good to see people like Otar, Zweicher, Zvi Bodie, and Wade Pfau focusing on new models for retirement investing beyond the old 4% rule that few actually follow in practice, or the natural inclination of retirees to live off dividends, pretty much impossible now.