Scott Burns – Don’t quit your day job.
Re: Scott Burns – Don’t quit your day job.
Bob wrote:
"Two other things to be seriously considered are purchasing at retirement a real longevity annuity, aka a delayed real life annuity, that starts paying out in your early to mid 80s. Then continuing to buy more in chunks over time, if your health remains good. And, with real interest rates this low, you should at least consider a reverse mortgage at some point, but probably not before age 70. I'm not sure whether these actions are part of the basic Bogleheads approach."
I'll extrapolate (and Bob will correct me if I've misrepresented the sense of what he's saying) and suggest that maybe he's getting at what Milevsky calls "product allocation" rather than conventional asset allocation that depends on SWR (pick your WR rate).
And it's not only lower returns that may be on the horizon but much higher costs for medical expenses--something that most humans face as they age (all the more so if longevity gains continue).
Just a passing thought or two.
Lev
"Two other things to be seriously considered are purchasing at retirement a real longevity annuity, aka a delayed real life annuity, that starts paying out in your early to mid 80s. Then continuing to buy more in chunks over time, if your health remains good. And, with real interest rates this low, you should at least consider a reverse mortgage at some point, but probably not before age 70. I'm not sure whether these actions are part of the basic Bogleheads approach."
I'll extrapolate (and Bob will correct me if I've misrepresented the sense of what he's saying) and suggest that maybe he's getting at what Milevsky calls "product allocation" rather than conventional asset allocation that depends on SWR (pick your WR rate).
And it's not only lower returns that may be on the horizon but much higher costs for medical expenses--something that most humans face as they age (all the more so if longevity gains continue).
Just a passing thought or two.
Lev
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Re: Scott Burns – Don’t quit your day job.
Waaa waaaa waaaaa
Life is so hard. I can never retire. I better work until I'm 75 and then use a 1.5% withdrawal rate.
Seriously people. It isn't half as dismal as most people seem to think for various reasons.
# 1 You probably won't live 30 years after a standard retirement anyway. Average is 19 years for a 65 year old man and 21 for a 65 year old woman. Don't expect that to go up significantly in your lifetime. Maybe a year or two at best. That means half of retirees only need their portfolio to provide for less than 20 years. You've only got a 10% chance of needing a 30 year portfolio.
# 2 You are allowed to adjust as you go. Returns terrible in your first 5 or 10 years? You're not stuck with your initial withdrawal rate.
# 3 You can buy a SPIA if you're on the bubble of not having enough. Sure, less inheritance, but was that really why you saved all that money for retirement?
# 4 The 4% SWR studies don't directly come out and say this, but MOST OF THE TIME those retirees ended up with more than they retired with after 30 years. It's only in the really bad time periods that you even get close to running out of money. So if 4% worked retiring in 1929, you've got to really wonder how bad it has got to be that you personally need to go to a 3% rate.
# 5 You don't need a 95% chance of portfolio survival. Remember you've only got a 10% chance of living 30 years. If your portfolio has a 90% chance of surviving 30 years, you can multiply 10% x 10% and get a 1% chance that you both live 30 years and your money runs out in 30 years. I'm more than willing to run a 1% chance that I spend my last few years on SS and Medicaid.
Yes, returns will be lower, but don't go crazy thinking about the consequences of that. They're not that dire.
Life is so hard. I can never retire. I better work until I'm 75 and then use a 1.5% withdrawal rate.
Seriously people. It isn't half as dismal as most people seem to think for various reasons.
# 1 You probably won't live 30 years after a standard retirement anyway. Average is 19 years for a 65 year old man and 21 for a 65 year old woman. Don't expect that to go up significantly in your lifetime. Maybe a year or two at best. That means half of retirees only need their portfolio to provide for less than 20 years. You've only got a 10% chance of needing a 30 year portfolio.
# 2 You are allowed to adjust as you go. Returns terrible in your first 5 or 10 years? You're not stuck with your initial withdrawal rate.
# 3 You can buy a SPIA if you're on the bubble of not having enough. Sure, less inheritance, but was that really why you saved all that money for retirement?
# 4 The 4% SWR studies don't directly come out and say this, but MOST OF THE TIME those retirees ended up with more than they retired with after 30 years. It's only in the really bad time periods that you even get close to running out of money. So if 4% worked retiring in 1929, you've got to really wonder how bad it has got to be that you personally need to go to a 3% rate.
# 5 You don't need a 95% chance of portfolio survival. Remember you've only got a 10% chance of living 30 years. If your portfolio has a 90% chance of surviving 30 years, you can multiply 10% x 10% and get a 1% chance that you both live 30 years and your money runs out in 30 years. I'm more than willing to run a 1% chance that I spend my last few years on SS and Medicaid.
Yes, returns will be lower, but don't go crazy thinking about the consequences of that. They're not that dire.
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4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course
Re: Scott Burns – Don’t quit your day job.
+1, It was what I was saying, but you said it better.EmergDoc wrote:Yes, returns will be lower, but don't go crazy thinking about the consequences of that. They're not that dire.
We are already planning for the worst case, and the worst case probably won't happen.
Re: Scott Burns – Don’t quit your day job.
For a while... Not forever. No one is able to predict out 30 years.stemikger wrote:This is nothing new. Even John Bogle agrees that we should expect lower future earnings.
Also, people were predicting lower future earnings in 2012, and we're up 40% since then. Even if we have lower future earnings going forward, recent retirees have that nice bump (and a bump early in retirement, which is more powerful) to make up for lower future earnings.
Last edited by HomerJ on Sun Jul 26, 2015 4:15 pm, edited 2 times in total.
Re: Scott Burns – Don’t quit your day job.
2.5% myself. 50% initial in bonds that hopefully pace inflation, draw down over 20 years. Other half in stocks for growth/accumulation. 2 baskets. If after 20 years stocks have doubled in real terms then great, have the same amount in inflation adjusted terms as at the start. But have to just accept whatever is given, no guarantees. Combined with owning a home so 'rent' in effect all paid up, and other sources of income that come online in later years (state/private pensions) I'd 'won the game' in my early 40's (now in mid 50's). So far stocks have exceeded a average double up in real terms at 20 years rate, enabling more bonds to be tagged onto the end.terrabiped wrote:I've based my retirement calculations on a 2% real return. If I get my more, great. If I get less, I'm good at belt tightening. I'm also planning on a variable percentage withdrawal rate.
50/50 initial stock/bond 2 baskets, 100/0 final stock/bonds 20 years later = 75/25 average stock/bonds. In effect cost averaging more into stocks as age. With a pretty confident/safe/stable 2.5% inflation adjusted yearly income.
Re: Scott Burns – Don’t quit your day job.
Anyone who postpones retirement for 1-3 years is ALWAYS financially better off than the person who didn't.bobcat2 wrote:Someone who postponed retirement 1-3 years in 2010 would be financially much better off than the person who didn't.
What does 2010 have to do with it?
Of course, there are always other considerations besides financial. Like losing 3 years (out of maybe 15-20) spending more time with your family and doing what you want.
Re: Scott Burns – Don’t quit your day job.
So what you are saying is the next 30 years will be far worse than any 30 year period in the past.209south wrote:I haven't used firecalc in a while, but if it relies on long-term historical returns, then I personally wouldn't base my planning on it - I'm sure others differ, but in the current yield/risk premium environment I think that would be wishful thinking.
The next 30 years will be worse than living through the Great Depression or a World War, or high inflation.
You are saying it is wishful thinking to believe that that next 30 years, if bad, might only EQUAL the Great Depression...
But non-wishful thinking, that is, realistic, pragmatic thinking, is to believe that the next 30 years will quite likely, in fact, almost assuredly, be worse than the Great Depression years.
Last edited by HomerJ on Sun Jul 26, 2015 4:17 pm, edited 1 time in total.
Re: Scott Burns – Don’t quit your day job.
This.EmergDoc wrote:So if 4% worked retiring in 1929, you've got to really wonder how bad it has got to be that you personally need to go to a 3% rate.
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Re: Scott Burns – Don’t quit your day job.
Serious question -- where did 209south say anything about the worst 30 years in history?HomerJ wrote:So what you are saying is the next 30 years will be far worse than any 30 year period in the past.209south wrote:I haven't used firecalc in a while, but if it relies on long-term historical returns, then I personally wouldn't base my planning on it - I'm sure others differ, but in the current yield/risk premium environment I think that would be wishful thinking.
The next 30 years will be worse than living through the Great Depression or a World War, or high inflation.
You are saying it is wishful thinking to believe that that next 30 years, if bad, might only EQUAL the Great Depression...
But non-wishful thinking, that is, realistic, pragmatic thinking, is to believe that the next 30 years will quite likely, in fact, almost assuredly, be worse than the Great Depression years.
Re: Scott Burns – Don’t quit your day job.
A thousand times this. What about all those people who were "just sure" interest rates were going to rise in the last several years (along with the other failed forecasts)? Each made a great case as to why their forecast was to happen and each time something else happened.HomerJ wrote:For a while... Not forever. No one is able to predict out 30 years.stemikger wrote:This is nothing new. Even John Bogle agrees that we should expect lower future earnings.
Also, people were predicting lower future earnings in 2012, and we're up 40% since then. Even if we have lower future earnings going forward, recent retirees have that nice bump (and a bump early in retirement, which is more powerful) to make up for lower future earnings.
I'm troubled by the old “The four most expensive words in the English language are ‘This time it’s different‘“ quote. Expensive in this case meaning one's retirement is made more expensive than it need be. Is it really different this time, because this time it's simple arithmetic? And I'm troubled with any forecast of 30 years--too much can happen, politically, financially, economically, technologically, socially, etc.
OTOH, I've probably made my retirement much more expensive than it need be. I'm not using historical returns . Instead, I'm using FIDO's "poor returns" scenario (versus markets lower or significantly lower scenarios), and ESPlanner's Monte Carlo scenario assuming a zero return on equities, and Upside planning assuming equities lose total value. Should these worst case scenarios come about, I'll still die with too much $. That I know of, you can't get more conservative than that.
Re: Scott Burns – Don’t quit your day job.
#6 For a 30 year retirement anything less than a 3.3% withdrawl rate is an excessively low rate for most people. If you were planning for a lower withdrawl rate, then you would be better off just putting it all into individual TIPS and iBonds and then spending 1/30 of it (3.3%) each year for 30 years. You would need to plan around the tax issues and building a working ladder that would mature at the right times but if you have most of your money in retirement accounts where taxes are not an issue then you should be able to work through that.EmergDoc wrote:Waaa waaaa waaaaa
Life is so hard. I can never retire. I better work until I'm 75 and then use a 1.5% withdrawal rate.
Seriously people. It isn't half as dismal as most people seem to think for various reasons.
# 1 You probably won't live 30 years after a standard retirement anyway. Average is 19 years for a 65 year old man and 21 for a 65 year old woman. Don't expect that to go up significantly in your lifetime. Maybe a year or two at best. That means half of retirees only need their portfolio to provide for less than 20 years. You've only got a 10% chance of needing a 30 year portfolio.
# 2 You are allowed to adjust as you go. Returns terrible in your first 5 or 10 years? You're not stuck with your initial withdrawal rate.
# 3 You can buy a SPIA if you're on the bubble of not having enough. Sure, less inheritance, but was that really why you saved all that money for retirement?
# 4 The 4% SWR studies don't directly come out and say this, but MOST OF THE TIME those retirees ended up with more than they retired with after 30 years. It's only in the really bad time periods that you even get close to running out of money. So if 4% worked retiring in 1929, you've got to really wonder how bad it has got to be that you personally need to go to a 3% rate.
# 5 You don't need a 95% chance of portfolio survival. Remember you've only got a 10% chance of living 30 years. If your portfolio has a 90% chance of surviving 30 years, you can multiply 10% x 10% and get a 1% chance that you both live 30 years and your money runs out in 30 years. I'm more than willing to run a 1% chance that I spend my last few years on SS and Medicaid.
Yes, returns will be lower, but don't go crazy thinking about the consequences of that. They're not that dire.
Re: Scott Burns – Don’t quit your day job.
I basically agree. It's generally impossible to predict the realized return. It isn't impossible to roughly estimate the midpoint of future possibilities, and the expected return should be lower when yields are lower all equal. This is indeed pretty ironclad arithmetic when it comes to assessing the nominal returns of long term zero coupon govt bonds. It's the yield of the bond, period, neglecting any risk of not getting paid, but it's not higher. It's more complicated once you consider real return, bond maturities not exactly matching the investment horizon, and then significantly risky investments like credit risky bonds and finally stocks. But the idea it's unaffected by current yields is very doubtful.bobcat2 wrote:From the article.Current stock dividend yields are known; they are not forecasts. Current bond interest rates are known; they are not forecasts. They are both significantly lower than they were from 1980-2005. They are also both lower than the historical averages going back to 1900. It's difficult to envision a state of the world over the next 25 years where total portfolio returns are not significantly lower than the 1980-2005 period and also lower than the historical average returns going back to 1900. As Burns points out, this is not soothsaying, but instead simple arithmetic.The returns on stocks and bonds are expected to be lower in the future than they have been in the past. This expectation of lower returns doesn’t come from a worrywart oracle. It comes from simple arithmetic.
A recent thread explored it. It's inescapable to me that it's an emotional topic. Almost all of us to varying degrees want returns to be higher. I believe that heavily colors the discussion. As for stocks again there's more room for discussion. To what extent (if at all) have falling dividend yields been offset by more potential for EPS growth through reinvestment and buy backs?
This debate seems to tend to split along the lines of academic research finding less evidence that EPS growth has increased relative to GDP growth in the age of buybacks, or to a quite limited extent; while popular commentators seem more likely to claim it has. Return will be real EPS growth(=real dividend growth, assuming constant payout ratio), plus dividend yield plus/minus valuation change over the investment horizon. AFAIK the reasonable range is real EPS growing at some discount to GDP growth (it was around 1.5% in a 100 yr period of 3% real GDP growth), so somewhere south of today's 2-ish % GDP growth trend, the known 2% dividend, valuations pretty high but in an optimistic mood we might assume that's a 'new normal', ie the expected future valuation is today's and that term drops out, then some fraction of % extra return, or not, for a 'new normal' of more stock buybacks than the past, though with due consideration that forms of positive dilution (like employee grants) have also apparently increased: 3-4% real, 5-6% nominal seem most believable to me. But if you can get 4% real in stocks and .5% real in treasuries in 10 yrs, what's really wrong with that picture? Nothing obvious. It's not miles below the long term historical premium of stock over treasury returns (4.7% 1900-2009) and now the central bank *says* it is trying to drive investors into risky assets to help the economy cyclically. It would make sense the premium is at least somewhat compressed, also consistent with rationally higher valuations.
The main fly in the ointment is if today's high equity valuations aren't the new normal and they eventually revert toward past averages, ie ex post risk premia turn out to have been *really* compressed. That's arguably more of a concern for US than foreign stocks which aren't as highly valued relative to their own past metrics. Likewise if purchasing power of currencies tends to revert that would be another relative tail wind for foreign stocks.
But sure, in *30yrs* a lot of even pretty long term trends could wash out. Ten might be a better horizon for expected return estimation. And this is not only because of uncertainty, but because as several have mentioned, people can adapt to new circumstances in periods much less than 30 yrs.
Re: Scott Burns – Don’t quit your day job.
Firecalc uses historical data, including the Great Depression years, and other historically bad decades.Louis Winthorpe III wrote:Serious question -- where did 209south say anything about the worst 30 years in history?HomerJ wrote:So what you are saying is the next 30 years will be far worse than any 30 year period in the past.209south wrote:I haven't used firecalc in a while, but if it relies on long-term historical returns, then I personally wouldn't base my planning on it - I'm sure others differ, but in the current yield/risk premium environment I think that would be wishful thinking.
The next 30 years will be worse than living through the Great Depression or a World War, or high inflation.
You are saying it is wishful thinking to believe that that next 30 years, if bad, might only EQUAL the Great Depression...
But non-wishful thinking, that is, realistic, pragmatic thinking, is to believe that the next 30 years will quite likely, in fact, almost assuredly, be worse than the Great Depression years.
209south said depending on the firecalc data in the "current yield/risk premium environment is wishful thinking".
If you plug your numbers into firecalc, and it shows you would have done fine in the past, even during the bad historical 30-year periods... then saying that depending on firecalc numbers is wishful thinking means you think the next 30 years will be even worse than any of the 30 year historical periods that firecalc models.
It's certainly possible that the next 30 years will indeed be worse... but I don't know if I'd call it likely.
Re: Scott Burns – Don’t quit your day job.
Been reading Scott a long time. And I would say that in his old age he has gotten a little - how to put it? - cranky? I don't know. Thinks the tea party stuff for taxation is good. I don't know.
He used to be commonsense and practical information. when he was journalist. It seems that since he started his own company that tone has changed and he is darker and scarier now. I wonder if it is to drive business to his company?
Yeah the 1980s were a bed of roses. Just exactly what was inflation back then? Oh yeah they were in the 10% - 20% range. Yes those were the good ole days. I am sure we would want those numbers back. Just think about retiring with those inflation numbers today.
He used to be commonsense and practical information. when he was journalist. It seems that since he started his own company that tone has changed and he is darker and scarier now. I wonder if it is to drive business to his company?
Yeah the 1980s were a bed of roses. Just exactly what was inflation back then? Oh yeah they were in the 10% - 20% range. Yes those were the good ole days. I am sure we would want those numbers back. Just think about retiring with those inflation numbers today.
Re: Scott Burns – Don’t quit your day job.
HomerJ, to be clear I didn't say returns were 'likely to be lower than ANY previous 30 year period', though that is possible; what I said was 'it is wishful thinking to believe returns going forward will equal or exceed historical returns', based on current market valuations of equities and bonds. It may be subtle, but I trust you can see the difference. Having said all that, and to pick on one basic asset class, I assume you have read the innumerable prior threads on expected returns on fixed income investments...do you agree or disagree that current yields are the best indicator of future returns to fixed income? (And I'm not talking about the yield on BND, but the yield on actual direct fixed income investments across the yield curve.) And fundamentally, do you think it is prudent for prospective early-retirees to count on 'historical returns' in retirement, or to consider current market valuations to assess the returns they may experience in retirement?
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Re: Scott Burns – Don’t quit your day job.
I think you've distorted his argument. If you've gone into firecalc and run the numbers for every rolling 30 year period, you've gone several steps farther than 209south did.HomerJ wrote:Firecalc uses historical data, including the Great Depression years, and other historically bad decades.Louis Winthorpe III wrote:
Serious question -- where did 209south say anything about the worst 30 years in history?
209south said depending on the firecalc data in the "current yield/risk premium environment is wishful thinking".
If you plug your numbers into firecalc, and it shows you would have done fine in the past, even during the bad historical 30-year periods...
Re: Scott Burns – Don’t quit your day job.
If every path of your portfolio on firecalc succeeds, then what you said is true: firecalc would only be wishful thinking if the next 30yrs is worse than any 30yr path in firecalc's range of history. That cannot be excluded, so even there it's not necessarily 100% convincing to just say *really*? The modern US markets haven't had *really* horrendous 30 yr periods like some countries. The Depression, 70's stagflation etc were much shorter than that. But still I wouldn't call it 'wishful thinking' to have reasonable (not necessarily 100%) confidence in a plan which *never* would have failed in the past per firecalc.HomerJ wrote:Firecalc uses historical data, including the Great Depression years, and other historically bad decades.Louis Winthorpe III wrote:Serious question -- where did 209south say anything about the worst 30 years in history?HomerJ wrote:So what you are saying is the next 30 years will be far worse than any 30 year period in the past.209south wrote:I haven't used firecalc in a while, but if it relies on long-term historical returns, then I personally wouldn't base my planning on it - I'm sure others differ, but in the current yield/risk premium environment I think that would be wishful thinking.
209south said depending on the firecalc data in the "current yield/risk premium environment is wishful thinking".
If you plug your numbers into firecalc, and it shows you would have done fine in the past, even during the bad historical 30-year periods... then saying that depending on firecalc numbers is wishful thinking means you think the next 30 years will be even worse than any of the 30 year historical periods that firecalc models.
But practically speaking, acceptable plans generally do have some small failure rate in firecalc. For example the default 4% over 30 yr plan fails about 5% of the time per firecalc. And in that case since all the paths together are from a period of returns generally higher than what we should expect now (I think it's reasonable to say, by a significant margin IMO), it's likely the failure rate would be higher than 5%, assuming a similar variation in returns around the expectation.
Vol might be the actual point of contention. One assumption might be, 'OK, looking at yields and valuations E[r] should be lower than long term historical realized, but extreme events like the Depression and 70's stagflation are less likely (because we have circuit breakers, govts and central banks have learned their lessons, etc), that might even be one reason *why* E[r] is lower'. But we've had some pretty wild vol fairly recently, and at least a reasonable argument might be made that current underlying problems are intractable and will eventually just explode despite all govt/central bank activism to contain them, or even because of it. I personally would be especially loath to assume a smoother path in the future.
The practical question is how literally you should take the confidence interval: not that literally I'd say. But as mentioned 10% failure at an age you only have a 10% chance of reaching isn't so bad.
Re: Scott Burns – Don’t quit your day job.
+2 Excellent post. Those who are still around in 30 years can check and see if all those predictions of lower returns were correct. I place no stock in any market return predictions regardless of who makes them. A better predictor is likely to be long-term average returns of the past 100 years. Reversion to the mean is likely a better predictor of future performance than speculation.EmergDoc wrote:Waaa waaaa waaaaa
Life is so hard. I can never retire. I better work until I'm 75 and then use a 1.5% withdrawal rate.
Seriously people. It isn't half as dismal as most people seem to think for various reasons.
# 1 You probably won't live 30 years after a standard retirement anyway. Average is 19 years for a 65 year old man and 21 for a 65 year old woman. Don't expect that to go up significantly in your lifetime. Maybe a year or two at best. That means half of retirees only need their portfolio to provide for less than 20 years. You've only got a 10% chance of needing a 30 year portfolio.
# 2 You are allowed to adjust as you go. Returns terrible in your first 5 or 10 years? You're not stuck with your initial withdrawal rate.
# 3 You can buy a SPIA if you're on the bubble of not having enough. Sure, less inheritance, but was that really why you saved all that money for retirement?
# 4 The 4% SWR studies don't directly come out and say this, but MOST OF THE TIME those retirees ended up with more than they retired with after 30 years. It's only in the really bad time periods that you even get close to running out of money. So if 4% worked retiring in 1929, you've got to really wonder how bad it has got to be that you personally need to go to a 3% rate.
# 5 You don't need a 95% chance of portfolio survival. Remember you've only got a 10% chance of living 30 years. If your portfolio has a 90% chance of surviving 30 years, you can multiply 10% x 10% and get a 1% chance that you both live 30 years and your money runs out in 30 years. I'm more than willing to run a 1% chance that I spend my last few years on SS and Medicaid.
Yes, returns will be lower, but don't go crazy thinking about the consequences of that. They're not that dire.
This year Scott Burns is telling us not to quit our day jobs. Last year he was telling us to be sure and get our bucket list done before age 80.
http://assetbuilder.com/scott_burns/the_hedonic_clock
Young Morgan Housel seems to have the correct perspective on matters involving precision vs. rules of thumb when it comes to matters of investing.
http://www.fool.com/investing/general/2 ... lnk0000003
Best wishes, |
Michael |
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Invest your time actively and your money passively.
Re: Scott Burns – Don’t quit your day job.
Agree on the EmergDoc post (couldn't fit it in here) and I had earlier read the excellent Housel article and just have to post his "good-enough-for-me" part that I think you're referring to:mlebuf wrote:...
This year Scott Burns is telling us not to quit our day jobs. Last year he was telling us to be sure and get our bucket list done before age 80.
http://assetbuilder.com/scott_burns/the_hedonic_clock
Young Morgan Housel seems to have the correct perspective on matters involving precision vs. rules of thumb when it comes to matters of investing.
http://www.fool.com/investing/general/2 ... lnk0000003
"One of biggest investing lessons I've learned is that the more precise you try to calculate, the further from reality you're likely to end up. Precise calculations creates a spell of overconfidence, which makes you double down on whatever you want to believe no matter how wrong it is. Some examples are staggering: Wall Street's top market strategists predict each January how much the S&P 500 will go up over the following year. Their collective track records are worse than if you just assumed stocks go up by their long-term history average every year.
"In a messy world of emotions and misinformation, broad rules of thumb can be an excellent strategy.
"Rules of thumb aren't perfect, of course. But that's their advantage. By starting with a strategy you know isn't perfect, you naturally leave yourself room for error, and are more flexible in accepting the market's whims.
"So I don't use fancy valuation models to calculate how much stocks should return over the next 10 years. I assume 6% a year after inflation over the long haul. I figure that's good enough.
"I don't forecast what the market will do this year. I assume the market will go down half of all days, a third of all years, and a fifth of all decades. That's probably good enough.
"I don't predict what the economy will do this year. I assume we'll have a recession every five to seven years. Good enough.
"Don't bother me with calculators that show me how much money I'll have in 30 years. I don't know what my bills will be next month. I save as much money as I reasonably can while living a lifestyle that I'm content with. I figure that's good enough.
"Spare me with your analysis of why I should own stocks from some country because of economic trends. I'm diversified, and accept part of my portfolio will always be doing worse than others. I figure that's good enough."
"Yes, investing is simple. But it is not easy, for it requires discipline, patience, steadfastness, and that most uncommon of all gifts, common sense." ~Jack Bogle
Re: Scott Burns – Don’t quit your day job.
US or international?
Re: Scott Burns – Don’t quit your day job.
+1EmergDoc wrote:Waaa waaaa waaaaa
Life is so hard. I can never retire. I better work until I'm 75 and then use a 1.5% withdrawal rate.
Seriously people. It isn't half as dismal as most people seem to think for various reasons.
# 1 You probably won't live 30 years after a standard retirement anyway. Average is 19 years for a 65 year old man and 21 for a 65 year old woman. Don't expect that to go up significantly in your lifetime. Maybe a year or two at best. That means half of retirees only need their portfolio to provide for less than 20 years. You've only got a 10% chance of needing a 30 year portfolio.
# 2 You are allowed to adjust as you go. Returns terrible in your first 5 or 10 years? You're not stuck with your initial withdrawal rate.
# 3 You can buy a SPIA if you're on the bubble of not having enough. Sure, less inheritance, but was that really why you saved all that money for retirement?
# 4 The 4% SWR studies don't directly come out and say this, but MOST OF THE TIME those retirees ended up with more than they retired with after 30 years. It's only in the really bad time periods that you even get close to running out of money. So if 4% worked retiring in 1929, you've got to really wonder how bad it has got to be that you personally need to go to a 3% rate.
# 5 You don't need a 95% chance of portfolio survival. Remember you've only got a 10% chance of living 30 years. If your portfolio has a 90% chance of surviving 30 years, you can multiply 10% x 10% and get a 1% chance that you both live 30 years and your money runs out in 30 years. I'm more than willing to run a 1% chance that I spend my last few years on SS and Medicaid.
Yes, returns will be lower, but don't go crazy thinking about the consequences of that. They're not that dire.
Thanks for the reminder EmergDoc!
The stark reality. We don't live forever. I think when we spend all these years saving for the future, we have a hard time spending when the future comes. We all did the right thing, some here are extremely wealthy and some started late but will still have more than most. Life is short, use some of that money to create memories with the people you love.
Choose Simplicity ~ Stay the Course!! ~ Press on Regardless!!!
Re: Scott Burns – Don’t quit your day job.
I assume 6% a year after inflation over the long haul. I figure that's good enough.
Indeed! This conversation has gone somewhat in circles, but I thought I'd use three different data points to explain why I think it is important for prospective retirees to think carefully about retirement timing so they don't run out of money...I agree it's a trade-off between 'enjoying life' and 'prudent planning', and different folks will reach different conclusions, but one should at least consider the downside scenarios. (Working an extra couple years is painful for some, but can't be as bad as running out of money in your 80s)
I'm a 55 year old with a 35/65 boglehead'ish portfolio - conservative, feeling I've 'won the game' and don't need to take much risk - all low-cost index funds, mostly with Vanguard. As I contemplate early retirement, and having read Pfau, Bernstein, Arnott and many others, I assume what I hope are conservative future real returns of 3% on equities (domestic, international and REITs) and 0.5% on investment grade debt (my TIPs funds are near-zero, my total bond is 0.2% real currently, and munis are higher). I assume 2% real returns on my modest high yield bond position, and zero real returns on my 5% bullion exposure. I hope I'm conservative, but the bottom line is with these numbers it's a push - I could retire at 55 but would likely have to make spending compromises in retirement (no second home, cheaper vacations, etc. - nothing tragic but not what I'm hoping for either.) My model shows a net worth at age 85 of $1.35mm and at age 100 (I can hope!) of $300,000 - that is pre-compromising so it's comfortable.
BUT if I use Housel's 6% 'good enough' real return on equities, I'd be laughing all the way to the bank, and if I use firecalc's 7% real on my portfolio my only worries will involve estate planning. In comparison, the numbers are as follows:
Base case net worth at 85 and 100 - $1,350,000 and $300,000
Housel case at 85 and 100 - $4,910,000 and $6,200,000
firecalc case at 85 and 100 - $12,410,000 and $24,703,000
So, make your own assumptions, but please don't blithely waltz into retirement without understanding what different future returns environments will imply for your future!
Indeed! This conversation has gone somewhat in circles, but I thought I'd use three different data points to explain why I think it is important for prospective retirees to think carefully about retirement timing so they don't run out of money...I agree it's a trade-off between 'enjoying life' and 'prudent planning', and different folks will reach different conclusions, but one should at least consider the downside scenarios. (Working an extra couple years is painful for some, but can't be as bad as running out of money in your 80s)
I'm a 55 year old with a 35/65 boglehead'ish portfolio - conservative, feeling I've 'won the game' and don't need to take much risk - all low-cost index funds, mostly with Vanguard. As I contemplate early retirement, and having read Pfau, Bernstein, Arnott and many others, I assume what I hope are conservative future real returns of 3% on equities (domestic, international and REITs) and 0.5% on investment grade debt (my TIPs funds are near-zero, my total bond is 0.2% real currently, and munis are higher). I assume 2% real returns on my modest high yield bond position, and zero real returns on my 5% bullion exposure. I hope I'm conservative, but the bottom line is with these numbers it's a push - I could retire at 55 but would likely have to make spending compromises in retirement (no second home, cheaper vacations, etc. - nothing tragic but not what I'm hoping for either.) My model shows a net worth at age 85 of $1.35mm and at age 100 (I can hope!) of $300,000 - that is pre-compromising so it's comfortable.
BUT if I use Housel's 6% 'good enough' real return on equities, I'd be laughing all the way to the bank, and if I use firecalc's 7% real on my portfolio my only worries will involve estate planning. In comparison, the numbers are as follows:
Base case net worth at 85 and 100 - $1,350,000 and $300,000
Housel case at 85 and 100 - $4,910,000 and $6,200,000
firecalc case at 85 and 100 - $12,410,000 and $24,703,000
So, make your own assumptions, but please don't blithely waltz into retirement without understanding what different future returns environments will imply for your future!
Re: Scott Burns – Don’t quit your day job.
Also, don't blithely forget about sequence of returns, so your numbers probably will not reflect the actuals. That's why it is also important to employ a withdrawal system like VPW, that will take less in down market years. So, that if you do retire into a bad sequence of returns, your portfolio will have a safety mechanism to insure survivability.209south wrote: Base case net worth at 85 and 100 - $1,350,000 and $300,000
Housel case at 85 and 100 - $4,910,000 and $6,200,000
firecalc case at 85 and 100 - $12,410,000 and $24,703,000
So, make your own assumptions, but please don't blithely waltz into retirement without understanding what different future returns environments will imply for your future!
Re: Scott Burns – Don’t quit your day job.
Very true, BahamaMan - I run a mean excel spreadsheet but haven't figured out how to build Monte Carlo simulation into it...that is actually one reason I use what I hope to be conservative returns expectations.
Re: Scott Burns – Don’t quit your day job.
I agree with Emerg Doc's post mostly too, but see no actual reason the returns for a given 100 yrs should be called the best predictor for the following 30, or especially the following 10 or 15yrs. Again, I question whether mainly whether it's *necessary* to estimate expected return for 30 yrs, aside from the difficulty, since we belong to a adaptable species which can change its plans and expectations in the longer run.mlebuf wrote:+2 Excellent post. Those who are still around in 30 years can check and see if all those predictions of lower returns were correct. I place no stock in any market return predictions regardless of who makes them. A better predictor is likely to be long-term average returns of the past 100 years. Reversion to the mean is likely a better predictor of future performance than speculation.EmergDoc wrote:Waaa waaaa waaaaa
Life is so hard. I can never retire. I better work until I'm 75 and then use a 1.5% withdrawal rate.
But 'reversion to the mean' from here should mean lower returns than historical, because valuations have risen very significantly above the historical mean, especially going back a whole 100 yrs. And no mean reversion of valuations but historical GDP/EPS growth relationship of last 100 yrs, with lower dividend yields and lower apparent growth trend than last 100 yrs, would still imply more like 4% real than 6% for US stocks without a reversion of valuations to the historic mean; reversion to the mean in valuations would reduce it further. We can't expect, as a midpoint, the same output from the returns machine as last 100 yrs when we know the inputs imply a lower output, and then turn around and justify optimism in terms of the historic returns machine. Maybe the future returns machine is more favorable, but the past one tends to say returns will be lower.
I'd also note again how low E[r]'s tend to be a product of academic types, and high ones more often Wall Street analysts or non-WS popular commentators. That doesn't prove who is right, but it's worth considering the implication. Who likes to hear about low E[r]? It's always clear from these threads many people *really* don't. That said I agree with EDoc not to pile conservative assumptions on top of one another and worry too much. There's a few % chance we reach advanced old age *and* run out of money? OK, but there's probably a bigger chance we reach advanced old age and don't know anything, even who we are, anymore; and a large % chance we don't make it to advanced old age at all. So look on the bright side.
Re: Scott Burns – Don’t quit your day job.
Not sure I agree with Wall Street guys pushing high expected returns. Most of the stuff I've read have been along the lines of the Topic of this post. "You must save and work more or you'll never be able to retire." Either that, or "returns will be dismal, Buy annuities".Johno wrote:I'd also note again how low E[r]'s tend to be a product of academic types, and high ones more often Wall Street analysts or non-WS popular commentators. That doesn't prove who is right, but it's worth considering the implication. Who likes to hear about low E[r]? It's always clear from these threads many people *really* don't.
Which category do you think Scott Burns falls into? Academic or not?
Last edited by BahamaMan on Mon Jul 27, 2015 12:53 pm, edited 1 time in total.
Re: Scott Burns – Don’t quit your day job.
Finally, after many years of accumulating wealth and learning hard, costly lessons per investing such as guarding against "Greed and Fear" in the markets, we turned it over to a higher power,...."VPAS" who does it all for us now . Thankfully our pensions, SS, Medicae Advantage, and inheritance monies allows us to live comfortably in a CCRC and re-invest our RMD's and capital gains . Only tapping the folios with VPAS direction for big ticket items,...Today the markets are dropping big time again as China markets are in a frenzy of discontent . VPAS feels like a security blanket more and more now too,..! 33.
"By gnawing through a dike, even a Rat can destroy a nation ." {Edmund Burke}
Re: Scott Burns – Don’t quit your day job.
This is a great point which is sometimes forgotten by some. Even some Pros.EmergDoc wrote: # 4 The 4% SWR studies don't directly come out and say this, but MOST OF THE TIME those retirees ended up with more than they retired with after 30 years. It's only in the really bad time periods that you even get close to running out of money. So if 4% worked retiring in 1929, you've got to really wonder how bad it has got to be that you personally need to go to a 3% rate.
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Re: Scott Burns – Don’t quit your day job.
From quick look up (never heard of him previously) Scott Burns is a financial columnist but that's what I'd assumed anyway reading the link, not an academic. But what I meant to say is that I don't know of much if any real academic research which would lead one to expect high E[r], to say support the statement 'the 100 yr realized return is the best estimate of E[r]'. That kind of optimism seems mainly limited to some WS strategists*, popular commentators and regular investors. But it's a fair point that some other WS strategists* and some popular commentators and regular investors are also down on E[r].BahamaMan wrote:Not sure I agree with Wall Street guys pushing high expected returns. Most of the stuff I've read have been along the lines of the Topic of this post. "You must save and work more or you'll never be able to retire." Either that, or "returns will be dismal, Buy annuities".Johno wrote:I'd also note again how low E[r]'s tend to be a product of academic types, and high ones more often Wall Street analysts or non-WS popular commentators. That doesn't prove who is right, but it's worth considering the implication. Who likes to hear about low E[r]? It's always clear from these threads many people *really* don't.
Which category do you think Scott Burns falls into? Academic or not?
*by which I'm not referring to the bulk of them paid to try to predict what's going to happen next week or next yr, these discussions so often get derailed by mixing in that different topic which truly is noise. I'm speaking of the relative few who have and stick with a mandate to opine on true strategy and thus deal with issues like medium-long term E[r].
Re: Scott Burns – Don’t quit your day job.
I do not believe this is accurate, unless you are speaking only of the short-term.Johno wrote:But 'reversion to the mean' from here should mean lower returns than historical, because valuations have risen very significantly above the historical mean, especially going back a whole 100 yrs.
The historical mean INCLUDES bad years and bad decades... We can have a bad 10-15 years ahead of us, and still achieve very close to the historical mean returns over a 30 year period.
Again, only for the short-term... Who knows what growth will be like in 10-30 years?And no mean reversion of valuations but historical GDP/EPS growth relationship of last 100 yrs, with lower dividend yields and lower apparent growth trend than last 100 yrs, would still imply more like 4% real than 6% for US stocks
We may indeed be in for a bad decade according to all the "signs"... (Remember however, people have been predicting a bad decade since 2012, based on "signs")
But that's NORMAL... Bad decades happen. And still we've gotten the historical average over the long term...
Now, things may indeed be worse going forward, long-term... That's possible... But I don't see it as being probable just because we appear to be due for a bad decade.
"This time its different" does not apply to high valuations or low growth forecasts. Bad decades happen.
A bad decade is no reason to believe that long-term returns will be permanently lower than in the past...
Re: Scott Burns – Don’t quit your day job.
On the first it would indeed be accurate *if* PE10 (say) reverted to the long term mean. Say that's 16 and today's is 26. It's just arithmetic what effect that would have if PE10 went to 16 in 10 yrs or 30 yrs, around -mid 4%'s v. -mid 1's % pa. If it went to 16 in 10 yrs, but back to 26 in 30yr, then it's basically irrelevant to E[r] if we agree 30 yrs must be the estimating horizon. And I was simply responding to a comment that suggested 'reversion to the mean' was a reason to expect the long term historic return to be replicated: it neglects that 'mean reversion' of valuation would be a penalty on return.HomerJ wrote:I do not believe this is accurate, unless you are speaking only of the short-term.Johno wrote:But 'reversion to the mean' from here should mean lower returns than historical, because valuations have risen very significantly above the historical mean, especially going back a whole 100 yrs.
The historical mean INCLUDES bad years and bad decades... We can have a bad 10-15 years ahead of us, and still achieve very close to the historical mean returns over a 30 year period.
Again, only for the short-term... Who knows what growth will be like in 10-30 years?And no mean reversion of valuations but historical GDP/EPS growth relationship of last 100 yrs, with lower dividend yields and lower apparent growth trend than last 100 yrs, would still imply more like 4% real than 6% for US stocks
A bad decade is no reason to believe that long-term returns will be permanently lower than in the past...
My estimate for E[r] was 2% real EPS+2% div yld=4% real give or take, boosting EPS growth from what would have been expected in a 2% economy based on 100 yr history (it was 1.5% in a 3% economy in that period) due to some tailwind from buybacks, but that estimate assumes *no* reversion to the mean of valuations.
And I don't see a conflict between 10 and 30 yr estimate of E[r] being of much significance as long as we remain laser focused on not confusing expected return with realized future return. The only two reasons to have a different estimate of E[r] for 10 yrs v 30yrs is if there's a real reason to think the *expected* EPS growth rate is a lot different for those two horizons (I don't see why), or again if you expect a reversion in valuations to drag down returns and expect more of it to happen in next 10 yrs than next 30 (that's mainly why Research Associate's US stock E[r] is so low, 0.8% real, assumes significant *expected* reduction in valuation in only 10 yrs). But again my estimate didn't assume a reversion of valuations. Otherwise dividend yield is known, and those are the only three components.
Re: Scott Burns – Don’t quit your day job.
Johno wrote:And I don't see a conflict between 10 and 30 yr estimate of E[r] being of much significance as long as we remain laser focused on not confusing expected return with realized future return.
Can you explain this? I must be confusing the two.
I submit that the "expected" EPS growth in 2045 is probably a less accurate number than the "expected" EPS growth in 2016.if there's a real reason to think the *expected* EPS growth rate is a lot different for those two horizons [10 year vs. 30 year] (I don't see why)
Does EPS change over 30 years? Is it different today than it was in 1985? Could someone in 1985 have made an accurate expected EPS growth statement for 2015?
I guess I really don't understand where you guys are coming up with these numbers... I see a lot of 10-year predictions, and then people extrapolating those to last forever.
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Re: Scott Burns – Don’t quit your day job.
Thank you for sharing.
We have always looked for ways to increase our retirement contributions each and every year.
Best.
We have always looked for ways to increase our retirement contributions each and every year.
Best.
John C. Bogle: “Simplicity is the master key to financial success."
Re: Scott Burns – Don’t quit your day job.
Please forgive me if I'm beating a dead horse, but predictions of this sort have given me heartburn for a while, and I'm really trying to understand the logic being used.HomerJ wrote:Johno wrote:And I don't see a conflict between 10 and 30 yr estimate of E[r] being of much significance as long as we remain laser focused on not confusing expected return with realized future return.
Can you explain this? I must be confusing the two.
I submit that the "expected" EPS growth in 2045 is probably a less accurate number than the "expected" EPS growth in 2016.if there's a real reason to think the *expected* EPS growth rate is a lot different for those two horizons [10 year vs. 30 year] (I don't see why)
Does EPS change over 30 years? Is it different today than it was in 1985? Could someone in 1985 have made an accurate expected EPS growth statement for 2015?
I guess I really don't understand where you guys are coming up with these numbers... I see a lot of 10-year predictions, and then people extrapolating those to last forever.
One huge takeaway I got from Bernstein's 4 Pillars of Investing is the incredibly long history of failed predictions. Is it really different this time because it's not a forecast, it's "simple arithmetic"? Reminds me of the chartists with their "head and shoulders", "peaks and valleys", etc., all attempting to see patterns where none exist, all of whom have been debunked. I've read every book summary contained in Taylor's Gems, and a common theme is no one can predict the future. In one of them is the saying "nobody knows nuthin'". Then you've got either Munger or Buffet (forget which) saying in last year's shareholder letter that no one, much less either of them, can predict the future. In fact, in his 2015 shareholder meeting Buffet stated Berkshire will "never made an acquisition based on macro factors." This is because "we know we don't know." I believe the same can be said for any prediction based on anything from anyone, be it Bernstein, Pfau, Ferri, Burns, or anyone. They might get a range or ballpark but even a clock is right twice a day.
During market bubbles, predictions magically appear as to why this time it's different based on greed. I can't help but see the current 30 year doom and gloom this time it's different predictions now based on fear. Fear and greed. Same attempts to predict/forecast, different emotions used.
The only actionable takeaway I see from the Burns article is to be conservative in planning for retirement, but what Boglehead didn't already know that?
Re: Scott Burns – Don’t quit your day job.
The problem of course is defining conservative. Is the 4% rule the more or less survived the great depression and the 70s conservative enough? Half the board seems to think that is being crazy optimistic and we should plan on some negative real (i.e. do the math on what 2% SWR for 30 years works out to). Some of this is the way the 4% rule is stated (you don't see the part about 6% working like 60% of the time) and some is just a somewhat justified reaction to the last 15 years. We have had two of the worst crashes every in a sort period. That is the type of stuff that scars people for life. How many people avoided investing in the market in the 50s and 60s because of memories of the great depression? I am guessing it was a lot (granted the investment tools back then were a lot more primative).2015 wrote: The only actionable takeaway I see from the Burns article is to be conservative in planning for retirement, but what Boglehead didn't already know that?
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Re: Scott Burns – Don’t quit your day job.
I'd still say the actionable takeaway is simply to invest in cheaper parts of the market .. Some say you should be at least 50% international stocks now - which is a reasonable safeguard .. Some (like Jim Rogers) are avoiding the US altogether and investing in areas like Russia and China
Of course international developed stocks are still expensive, but they're not as expensive as the US .. and it's only valuations producing these bleak forecasts
The problem with the tech crash and the financial crisis is markets weren't given the chance to fully correct through either ... instead we kept bumping asset prices up again, with debt and with stimulus ... So neither of these crashes have really created decent buying opportunities, and it could be the case that we've just kept delaying what could be a more painful and drawn out bear market
Of course international developed stocks are still expensive, but they're not as expensive as the US .. and it's only valuations producing these bleak forecasts
The problem with the tech crash and the financial crisis is markets weren't given the chance to fully correct through either ... instead we kept bumping asset prices up again, with debt and with stimulus ... So neither of these crashes have really created decent buying opportunities, and it could be the case that we've just kept delaying what could be a more painful and drawn out bear market
"Economics is a method rather than a doctrine, an apparatus of the mind, a technique of thinking, which helps its possessor to draw correct conclusions." - John Maynard Keynes
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Re: Scott Burns – Don’t quit your day job.
This is sort of my take. I plan/test "nominally" with a relatively conservative number for returns (3.5% real over 30 years), targeting a relatively conservative withdrawal load (2.5% average). That is inspired by the uniform consensus of the sober-minded investment authorities I most respect that we should probably expect somewhat lower returns over the medium-term future. If that is wrong on the bleak side then after a few years I can look at what I want to do with a bunch of excess money. If things are even worse than the tepid outlooks I'll have to get by mostly on SS and what inflation doesn't chew off my little retirement annuity. I get into that scenario where, ignoring any sequence of returns stuff, returns are worse than -3%/yr real. I'm looking at retiring early, prior to 55, but 30-40 years is still more time then I'm statistically likely to need funding for.209south wrote: BUT if I use Housel's 6% 'good enough' real return on equities, I'd be laughing all the way to the bank, and if I use firecalc's 7% real on my portfolio my only worries will involve estate planning. In comparison, the numbers are as follows:
Base case net worth at 85 and 100 - $1,350,000 and $300,000
Housel case at 85 and 100 - $4,910,000 and $6,200,000
firecalc case at 85 and 100 - $12,410,000 and $24,703,000
So, make your own assumptions, but please don't blithely waltz into retirement without understanding what different future returns environments will imply for your future!
It's not an easy thing emotionally to dial the knobs down and look at where you could wind up if Murphy takes up permanent residence. That might be why there is so much aversion/objection to return outlooks when they are less than rosy. And for some people it's probably psychologically best they ignore outlooks. But for the morbidly curious who really want to think through how much suck they can withstand, they are worth considering.
Don't do something. Just stand there!
Re: Scott Burns – Don’t quit your day job.
Great post.IlliniDave wrote:This is sort of my take. I plan/test "nominally" with a relatively conservative number for returns (3.5% real over 30 years), targeting a relatively conservative withdrawal load (2.5% average). That is inspired by the uniform consensus of the sober-minded investment authorities I most respect that we should probably expect somewhat lower returns over the medium-term future. If that is wrong on the bleak side then after a few years I can look at what I want to do with a bunch of excess money. If things are even worse than the tepid outlooks I'll have to get by mostly on SS and what inflation doesn't chew off my little retirement annuity. I get into that scenario where, ignoring any sequence of returns stuff, returns are worse than -3%/yr real. I'm looking at retiring early, prior to 55, but 30-40 years is still more time then I'm statistically likely to need funding for.209south wrote: BUT if I use Housel's 6% 'good enough' real return on equities, I'd be laughing all the way to the bank, and if I use firecalc's 7% real on my portfolio my only worries will involve estate planning. In comparison, the numbers are as follows:
Base case net worth at 85 and 100 - $1,350,000 and $300,000
Housel case at 85 and 100 - $4,910,000 and $6,200,000
firecalc case at 85 and 100 - $12,410,000 and $24,703,000
So, make your own assumptions, but please don't blithely waltz into retirement without understanding what different future returns environments will imply for your future!
It's not an easy thing emotionally to dial the knobs down and look at where you could wind up if Murphy takes up permanent residence. That might be why there is so much aversion/objection to return outlooks when they are less than rosy. And for some people it's probably psychologically best they ignore outlooks. But for the morbidly curious who really want to think through how much suck they can withstand, they are worth considering.
Re: Scott Burns – Don’t quit your day job.
Great post...randomguy wrote:The problem of course is defining conservative. Is the 4% rule the more or less survived the great depression and the 70s conservative enough? Half the board seems to think that is being crazy optimistic and we should plan on some negative real (i.e. do the math on what 2% SWR for 30 years works out to). Some of this is the way the 4% rule is stated (you don't see the part about 6% working like 60% of the time) and some is just a somewhat justified reaction to the last 15 years. We have had two of the worst crashes every in a sort period. That is the type of stuff that scars people for life. How many people avoided investing in the market in the 50s and 60s because of memories of the great depression? I am guessing it was a lot (granted the investment tools back then were a lot more primative).2015 wrote: The only actionable takeaway I see from the Burns article is to be conservative in planning for retirement, but what Boglehead didn't already know that?
People keep saying "Expected returns are much lower than the historical average"... Yes, that is why we suggest 4%...
During the AVERAGE times, people could take out 5%-6%... During the GOOD times, people could take out 7%-8%...
When people say "Oooh, bad times ahead, better go down to 3%", they are not understanding where the 4% comes from.
Re: Scott Burns – Don’t quit your day job.
Just to be clear, 2.5% withdrawal is a super extreme conservative withdrawal rate, not "relatively conservative"IlliniDave wrote:This is sort of my take. I plan/test "nominally" with a relatively conservative number for returns (3.5% real over 30 years), targeting a relatively conservative withdrawal load (2.5% average).
Yes, that's why 6% (which is the historical average, not 4%) is probably a bad idea.That is inspired by the uniform consensus of the sober-minded investment authorities I most respect that we should probably expect somewhat lower returns over the medium-term future.
2.5% is an extreme reaction.
No I agree with you. I'm pretty conservative too. I'm always looking at the worst-case too. I personally think that's very smart once you've got a pile of money. I don't need large returns to have everything I want in retirement. I've pretty much got it made. So now I'm protecting myself against small chance BAD events.It's not an easy thing emotionally to dial the knobs down and look at where you could wind up if Murphy takes up permanent residence. That might be why there is so much aversion/objection to return outlooks when they are less than rosy. And for some people it's probably psychologically best they ignore outlooks. But for the morbidly curious who really want to think through how much suck they can withstand, they are worth considering.
I'm 50/50 stocks/bonds and my house is paid off because I know it's possible that the Great Depression II could start next week, and I could lose 80% of my stock portfolio. Very likely that won't happen, and I'll end up with only $2 million instead of $3 million if I had stayed 70/30 stocks/bonds and kept a mortgage.
But that's okay because I only need $2 million, and now I'm more protected if a huge Japan like crash happens in the U.S.
So I get being conservative...
But it can be taken to an extreme...
4% is already conservative... 3%-3.5% is super conservative... 2.5% is ultra-conservative.
Sounds like you've achieved 40x your expenses at an early age, so for you it's fine... it really doesn't change your life that much... Easy to be that conservative.
For many people they may hit 25x-30x expenses at 62, and KEEP WORKING because they are so scared and feel like they MUST have 40x expenses to be safe...
Those are years of life given up, and I hate to see people get scared into working 4 extra years and then die 2 years after retiring.
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Re: Scott Burns – Don’t quit your day job.
I would hate to see that too. If I were looking at retiring 10-15 years older than I am I would plan differently. If I was intending a more generous budget (more room for belt-tightening) I would plan differently. Context is important. 40x is a function of where I am at right now. My estimate for returns (3.5% real) is in between the most recent outlooks of Dr. Bernstein and Bogle. I recall seeing 2%-3% SWR recommended for early retirees in the Boglehead's Guide to Retirement for a significantly early retire which was published a number of years back when forward looking return outlooks were markedly higher. I've seen 2% withdrawal in Bernstein's writing more than once. So I don't see anything as "extreme" or "super extreme" or "ultra-" or "too far".HomerJ wrote:Just to be clear, 2.5% withdrawal is a super extreme conservative withdrawal rate, not "relatively conservative"IlliniDave wrote:This is sort of my take. I plan/test "nominally" with a relatively conservative number for returns (3.5% real over 30 years), targeting a relatively conservative withdrawal load (2.5% average).
Yes, that's why 6% (which is the historical average, not 4%) is probably a bad idea.That is inspired by the uniform consensus of the sober-minded investment authorities I most respect that we should probably expect somewhat lower returns over the medium-term future.
2.5% is an extreme reaction.
No I agree with you. I'm pretty conservative too. I'm always looking at the worst-case too. I personally think that's very smart once you've got a pile of money. I don't need large returns to have everything I want in retirement. I've pretty much got it made. So now I'm protecting myself against small chance BAD events.It's not an easy thing emotionally to dial the knobs down and look at where you could wind up if Murphy takes up permanent residence. That might be why there is so much aversion/objection to return outlooks when they are less than rosy. And for some people it's probably psychologically best they ignore outlooks. But for the morbidly curious who really want to think through how much suck they can withstand, they are worth considering.
I'm 50/50 stocks/bonds and my house is paid off because I know it's possible that the Great Depression II could start next week, and I could lose 80% of my stock portfolio. Very likely that won't happen, and I'll end up with only $2 million instead of $3 million if I had stayed 70/30 stocks/bonds and kept a mortgage.
But that's okay because I only need $2 million, and now I'm more protected if a huge Japan like crash happens in the U.S.
So I get being conservative...
But it can be taken to an extreme...
4% is already conservative... 3%-3.5% is super conservative... 2.5% is ultra-conservative.
Sounds like you've achieved 40x your expenses at an early age, so for you it's fine... it really doesn't change your life that much... Easy to be that conservative.
For many people they may hit 25x-30x expenses at 62, and KEEP WORKING because they are so scared and feel like they MUST have 40x expenses to be safe...
Those are years of life given up, and I hate to see people get scared into working 4 extra years and then die 2 years after retiring.
In the end, my defense is only that I'm doing what I believe is the right thing for me, and using what I feel are the most prudent assumptions for my situation and temperament. I truly hope no one out there extends their work life until they die because of anything I say or do. I don't recommend anyone else do things my way. Time may very well prove me a fool. It has many times before.
Don't do something. Just stand there!
Re: Scott Burns – Don’t quit your day job.
You are 100% correct...IlliniDave wrote:Context is important.
Your case is indeed not as extreme I was making out since you plan to retire earlier than most and need your money to last many more years.
So my apologies about the "ultra-conservative" comments...
But you are in REALLY good shape if you have almost 40x expenses saved up and are still in your 40s.
- Wildebeest
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Re: Scott Burns – Don’t quit your day job.
I am pretty sure that most if not all of the readers, who identify themselves as Bogleheads, could have quit their day jobs years ago (if they are over the age of 55). What do I base this on: The Dunning- Kruger Effect.
Most of the Bogleheads have more money than they will ever spend in a life time and when death will whisk us away, we'll leave a fortune.
I find Scott Burns entertaining and I like the way he sprinkles facts to show he knows more that I. I like his take on things and his way with words, but I do not take his post as a serious admonition.
Most of the Bogleheads have more money than they will ever spend in a life time and when death will whisk us away, we'll leave a fortune.
I find Scott Burns entertaining and I like the way he sprinkles facts to show he knows more that I. I like his take on things and his way with words, but I do not take his post as a serious admonition.
The Golden Rule: One should treat others as one would like others to treat oneself.
Re: Scott Burns – Don’t quit your day job.
1. Returns are a random variable, as are two of three components in return if formulated as real E[r]= real dividend growth+dividend yield+valuation change. We're assuming real EPS growth=dividend growth. So those two variables EPS growth and valuation, have an expected value and a variance. Realized return is the particular outcome along the whole 'cone' of values as the variance is realized. There's no way to predict it, IMO. However that's not the same as saying you can't estimate the expected value, the middle of that cone of possible outcomes. Estimating E[r] is all about the latter.HomerJ wrote:Johno wrote:And I don't see a conflict between 10 and 30 yr estimate of E[r] being of much significance as long as we remain laser focused on not confusing expected return with realized future return.
1. Can you explain this? I must be confusing the two.2. I submit that the "expected" EPS growth in 2045 is probably a less accurate number than the "expected" EPS growth in 2016.if there's a real reason to think the *expected* EPS growth rate is a lot different for those two horizons [10 year vs. 30 year] (I don't see why)
Does EPS change over 30 years? Is it different today than it was in 1985? Could someone in 1985 have made an accurate expected EPS growth statement for 2015?
I guess I really don't understand where you guys are coming up with these numbers... I see a lot of 10-year predictions, and then people extrapolating those to last forever.
And in fact you really have to take a stab at the latter, or else how could you possibly decide whether to invest in stocks? Say if you really couldn't say if the return is more likely to be below 70% per year than above 70% per year, or couldn't say it was more likely to be above -5% than below -5%, there would be no rational basis to invest in stocks. Mostly, people who reject expected return estimation are really saying the long term historical return is also the middle of the distribution of future return. That's explicitly what the poster I was originally answering said when you jumped in. But if you break it down into components and look at past relationships, that's not really very plausible, to say return is as likely to exceed 7% as undershoot 7% real, ie in rough terms the meaning of expected return. I explained in previous posts why, I won't keep repeating.
2. It's not the EPS growth in a particular future year but cumulatively from now to then. Below about 10yrs you're talking part of a business cycle. In a horizon some rough multiple of a business cycle a lot of the noise of GDP growth washes out. GDP growth over a cycle for a given country is actually not that wildly varying, and the relationship of EPS growth to GDP growth hasn't been either. These are trends where it's particularly reasonable IMO to estimate a mid point, which is still not a prediction of exactly what GDP growth or EPS growth will average in the long term. Again it's just a point where it seems about equally likely the realized outcome will be higher as that it will be lower.
A lot of the variation in stock returns in return=div growth+yield+valuation change, is valuation change. Minute to minute that's 100% of the variation. In ten years it's often still a lot of it. But again, I'm making the stock-friendly assumption that valuations are just as likely to be even higher than now in 10 yrs as lower than now. That's the implication of real E[r]=2% ('buyback enhanced' in an only 2% economy) EPS+2%yield +0% valuation effect=4%, the estimated middle of the distribution of future outcomes, not a prediction of the where on the cone of possible outcomes things will actually end up.
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Re: Scott Burns – Don’t quit your day job.
Well I'm not that young, but thanks. Looking like I'll check out at 52 next year most likely, so only 15 years ahead of my official retirement age. There has been no heroics on my part--the low fruit is having very modest lifestyle expenses partially offset by a small old-school retirement annuity once I hit 55, which makes the 40x number much easier to reach.HomerJ wrote:You are 100% correct...IlliniDave wrote:Context is important.
Your case is indeed not as extreme I was making out since you plan to retire earlier than most and need your money to last many more years.
So my apologies about the "ultra-conservative" comments...
But you are in REALLY good shape if you have almost 40x expenses saved up and are still in your 40s.
Don't do something. Just stand there!
Re: Scott Burns – Don’t quit your day job.
I'm surprised nobody has yet mentioned William Bernstein's paper, "The Paradox of Wealth and the End of History Illusion". (Here's one link where it's available.)
I haven't read it in a while, but it has made a lasting impression on me... I don't recall if he specifically says what future returns will be, but he makes a rational argument for why they will likely be lower. The over-simplified version is that the cost of capital is falling rapidly. Lending money is a highly competitive business---a huge supply of available money naturally leads to competitive (i.e. low) interest rates. Of course new factories are still being built, but many new ventures are quite light on hard assets, e.g. software firms. They simply don't need huge amount of capital, until they need to scale massively like Google or Facebook.
And building on a similar line of thought: the last 100 years have been dominated by the USA and rapid growth. Certainly not all countries have had the explosive growth of the USA in the last century. I think it's reasonable to assume that globalization will make all countries look more alike than similar. In other words, the next 100 years---in the USA or worldwide---will probably look most like the total world returns of the last 100 years. And unless I'm missing something, good data for the whole world doesn't exist as far back as it does for USA (or a few other select countries).
And growth will ultimately be capped. Until space colonization becomes a reality, there is a limit to how much growth the Earth can sustain. Not trying to make a "save the earth" kind of argument, but I think it is a fact that growth must end at some point---it's true for any finite ecosystem (bacteria in a Petri dish), why would it be any different for a single planet? Of course I don't know when that point will come. I vaguely recall reading something somewhere that the max sustainable human population for the earth is somewhere around 7 to 12 billion (foggy memory and I can't even remember the source, so take that with all the salt in the ocean).
Perhaps space is the next growth-enabling frontier, following the cadence of agriculture, industrialization, computing. If that frontier can indeed be exploited, then growth will be effectively unlimited (certainly well beyond the limits of my comprehension anyway!).
I guess saying all these things is trying to make a case for "this time it's different".
I haven't read it in a while, but it has made a lasting impression on me... I don't recall if he specifically says what future returns will be, but he makes a rational argument for why they will likely be lower. The over-simplified version is that the cost of capital is falling rapidly. Lending money is a highly competitive business---a huge supply of available money naturally leads to competitive (i.e. low) interest rates. Of course new factories are still being built, but many new ventures are quite light on hard assets, e.g. software firms. They simply don't need huge amount of capital, until they need to scale massively like Google or Facebook.
And building on a similar line of thought: the last 100 years have been dominated by the USA and rapid growth. Certainly not all countries have had the explosive growth of the USA in the last century. I think it's reasonable to assume that globalization will make all countries look more alike than similar. In other words, the next 100 years---in the USA or worldwide---will probably look most like the total world returns of the last 100 years. And unless I'm missing something, good data for the whole world doesn't exist as far back as it does for USA (or a few other select countries).
And growth will ultimately be capped. Until space colonization becomes a reality, there is a limit to how much growth the Earth can sustain. Not trying to make a "save the earth" kind of argument, but I think it is a fact that growth must end at some point---it's true for any finite ecosystem (bacteria in a Petri dish), why would it be any different for a single planet? Of course I don't know when that point will come. I vaguely recall reading something somewhere that the max sustainable human population for the earth is somewhere around 7 to 12 billion (foggy memory and I can't even remember the source, so take that with all the salt in the ocean).
Perhaps space is the next growth-enabling frontier, following the cadence of agriculture, industrialization, computing. If that frontier can indeed be exploited, then growth will be effectively unlimited (certainly well beyond the limits of my comprehension anyway!).
I guess saying all these things is trying to make a case for "this time it's different".
Re: Scott Burns – Don’t quit your day job.
Yep, that was written in early 2012... Total Stock Market Index is up 70% since then.... His argument for lower returns going forward was indeed very rational and made a lot of sense... so far, it's been wrong... but then again, we may have a 50% crash soon which will make him right again.WageSlave wrote:I'm surprised nobody has yet mentioned William Bernstein's paper, "The Paradox of Wealth and the End of History Illusion". (Here's one link where it's available.)
I haven't read it in a while, but it has made a lasting impression on me... I don't recall if he specifically says what future returns will be, but he makes a rational argument for why they will likely be lower.
Maybe all the other countries will come up to the USA level of returns? Or they will meet in the middle? Doesn't have to be that the US drops all the way down to the world average for the last 100 years...And building on a similar line of thought: the last 100 years have been dominated by the USA and rapid growth. Certainly not all countries have had the explosive growth of the USA in the last century. I think it's reasonable to assume that globalization will make all countries look more alike than similar. In other words, the next 100 years---in the USA or worldwide---will probably look most like the total world returns of the last 100 years. And unless I'm missing something, good data for the whole world doesn't exist as far back as it does for USA (or a few other select countries).
This is a good point, but I think we still have another generation or two of growth, even limited to the Earth... There are a billion Indians and Chinese that may join the middle class over the next 20-30 years.And growth will ultimately be capped. Until space colonization becomes a reality, there is a limit to how much growth the Earth can sustain. Not trying to make a "save the earth" kind of argument, but I think it is a fact that growth must end at some point---it's true for any finite ecosystem (bacteria in a Petri dish), why would it be any different for a single planet? Of course I don't know when that point will come.
Mining the asteroids or solar power satellites beaming unlimited energy to the earth via microwaves could unleash a lot of growth in the 2030s...Perhaps space is the next growth-enabling frontier, following the cadence of agriculture, industrialization, computing. If that frontier can indeed be exploited, then growth will be effectively unlimited (certainly well beyond the limits of my comprehension anyway!).
Re: Scott Burns – Don’t quit your day job.
Doesn't this sum up the whole "listening to returns predictions/forecasts from 'people I respect' argument" in a nutshell? Even a broken clock is right twice a day. I'm beginning to wonder if when someone said "tune out the noise" they were referring to some of the noise on this forum as well.HomerJ wrote:Emphasis addedWageSlave wrote:I'm surprised nobody has yet mentioned William Bernstein's paper, "The Paradox of Wealth and the End of History Illusion". (Here's one link where it's available.)
I haven't read it in a while, but it has made a lasting impression on me... I don't recall if he specifically says what future returns will be, but he makes a rational argument for why they will likely be lower.
Yep, that was written in early 2012... Total Stock Market Index is up 70% since then.... His argument for lower returns going forward was indeed very rational and made a lot of sense... so far, it's been wrong... but then again, we may have a 50% crash soon which will make him right again.
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Re: Scott Burns – Don’t quit your day job.
+1 ..... This forum is actually the hardest noise to tune out, because members are so knowledgeable. Guys like Cramer are pretty laughable!!2015 wrote:Doesn't this sum up the whole "listening to returns predictions/forecasts from 'people I respect' argument" in a nutshell? Even a broken clock is right twice a day. I'm beginning to wonder if when someone said "tune out the noise" they were referring to some of the noise on this forum as well.
Re: Scott Burns – Don’t quit your day job.
I agree. There are some very smart people here. However, simplicity usually wins out in the end. A lot goes over my head here and sometimes I feel I don't belong, but John Bogle and Taylor Larimore are the masters of simplicity and include people like me in their investing circles. I am grateful for those two men.BahamaMan wrote:+1 ..... This forum is actually the hardest noise to tune out, because members are so knowledgeable. Guys like Cramer are pretty laughable!!2015 wrote:Doesn't this sum up the whole "listening to returns predictions/forecasts from 'people I respect' argument" in a nutshell? Even a broken clock is right twice a day. I'm beginning to wonder if when someone said "tune out the noise" they were referring to some of the noise on this forum as well.
Choose Simplicity ~ Stay the Course!! ~ Press on Regardless!!!