Search found 4696 matches

by bobcat2
Sat Jan 21, 2017 7:50 pm
Forum: Personal Finance (Not Investing)
Topic: Your Retirement Number, or, calculating the funding ratio
Replies: 183
Views: 18568

Re: MEA CULPA

Bob, how should one go about getting the present (i.e. today's) value of a real life annuity starting in the future? Should one: 1. Get a quote today for the real life annuity starting at the future age. 2. Discount that number to today using a real interest rate. Thanks, Alec Hi Alec, "Get a ...
by bobcat2
Sat Jan 21, 2017 10:04 am
Forum: Personal Finance (Not Investing)
Topic: Your Retirement Number, or, calculating the funding ratio
Replies: 183
Views: 18568

MEA CULPA

I offer a mea culpa for how I have priced the income liability of the funded ratio for individuals. I now believe the better way to price the retirement income liability in the denominator of the funded ratio (FR) is to use the price of a real life annuity. If you are at retirement or in retirement,...
by bobcat2
Fri Jan 20, 2017 11:23 am
Forum: Investing - Theory, News & General
Topic: "How Much Inflation Protection Do You Need?"
Replies: 7
Views: 1324

Re: "How Much Inflation Protection Do You Need?"

For most people their portfolio is primarily for providing income during retirement. It follows that the investor's concerns about inflation should not be with protecting the portfolio against inflation, but rather protecting retirement income against inflation. This change in perspective is far fro...
by bobcat2
Wed Jan 18, 2017 10:25 am
Forum: Personal Finance (Not Investing)
Topic: Your Retirement Number, or, calculating the funding ratio
Replies: 183
Views: 18568

Using the funded ratio to drive retirement investment strategy

Goal Based Investing focused on what matters most: Income Investments Planning Process Conventional Retirement Goal-Based Retirement Investment Goal Wealth accumulation Retirement Income (No specified wealth Goal) (Specified desired income goal) Risk Measure Volatility of portfolio returns Volatili...
by bobcat2
Tue Jan 17, 2017 12:31 am
Forum: Investing - Help with Personal Investments
Topic: When to annuitize?
Replies: 35
Views: 3406

Re: When to annuitize?

When to annuitize?

Not all at once, but instead in chunks. 8-)

BobK
by bobcat2
Sun Jan 15, 2017 10:32 am
Forum: Local Chapters and Bogleheads Community
Topic: Master thread for Washington DC Area Bogleheads
Replies: 90
Views: 20900

Re: Master thread for Washington DC Area Bogleheads

I have written an article on the funded ratio, the topic of this afternoon’s meeting, that is now available at the Bogleheads blog site. BH Barry Barnitz maintains the blog on his personal financial page. Here is a link to the article - Monitoring Your Retirement Goal – the Funded Ratio https://blba...
by bobcat2
Sun Jan 15, 2017 10:12 am
Forum: Personal Finance (Not Investing)
Topic: Your Retirement Number, or, calculating the funding ratio
Replies: 183
Views: 18568

Monitoring Your Retirement Goal – the Funded Ratio

A much revised version of the original post in this thread is now available at the Bogleheads Blog. Barry Barnitz maintains the BH Blog on his personal blog at Financial Page. Here is a link to the revised version - Monitoring Your Retirement Goal – the Funded Ratio https://blbarnitz4.wordpress.com/...
by bobcat2
Mon Jan 09, 2017 10:50 am
Forum: Personal Finance (Not Investing)
Topic: Your Retirement Number, or, calculating the funding ratio
Replies: 183
Views: 18568

Re: Your Retirement Number, or, calculating the funding ratio

Hi JamesG, The funding ratio (FR) is not a forecast. However, there is nothing that prevents a retirement investor from forecasting what the size of their portfolio will be sometime in the future (by whatever method they choose) and calculating the PV of the retirement income liability at that futur...
by bobcat2
Sun Jan 08, 2017 10:52 pm
Forum: Local Chapters and Bogleheads Community
Topic: Master thread for Washington DC Area Bogleheads
Replies: 90
Views: 20900

Next Meeting Sunday Jan 15 @ Silver Spring library

Our next meeting will be from 2:30-4:30 next Sunday, January 15, in meeting room #2 at the Silver Spring Library, 900 Wayne Ave, Silver Spring, MD 20910. (The reason for the time change is that the meeting room closes at 4:30 and the library closes at 5:00.) This will be our first of two planned mee...
by bobcat2
Fri Jan 06, 2017 5:30 pm
Forum: Personal Finance (Not Investing)
Topic: Your Retirement Number, or, calculating the funding ratio
Replies: 183
Views: 18568

Re: Your Retirement Number, or, calculating the funding ratio

OP: I never got your point/motivation of this thread. For individuals from Kiplinger. In planning for retirement, you have probably crunched many numbers: the value of your investment portfolio, the income stream from Social Security or a pension, your projected annual spending, and your life expec...
by bobcat2
Wed Jan 04, 2017 10:42 pm
Forum: Personal Finance (Not Investing)
Topic: Your Retirement Number, or, calculating the funding ratio
Replies: 183
Views: 18568

Re: Your Retirement Number, or, calculating the funding ratio

The problem with calculating the funding ratio may be that it requires a paradigm/cognitive shift. To me calculating the funding ratio is common sense. Of course if you can not afford to depend on the "number" as in that you cut it to close and and you may be victim to vicissitudes of sto...
by bobcat2
Tue Jan 03, 2017 10:08 pm
Forum: Personal Finance (Not Investing)
Topic: Your Retirement Number, or, calculating the funding ratio
Replies: 183
Views: 18568

Re: Your Retirement Number, or, calculating the funding ratio

Quotes from another thread where the funding ratio (FR) is discussed. Unfortunately the funding ratio is based on funding retirement with a TIPS ladder which is going to be very tough with a 60 year horizon. One can up the discount rate to say assume a higher return based on holding stocks and bonds...
by bobcat2
Mon Jan 02, 2017 10:32 pm
Forum: Personal Finance (Not Investing)
Topic: Your Retirement Number, or, calculating the funding ratio
Replies: 183
Views: 18568

Re: Your Retirement Number, or, calculating the funding ratio

What is a real discount number? I don't understand what present value actually is. Why do I need to calculate it? I have the current balance of my accounts. The real interest rate is the rate of interest an investor, saver or lender receives (or expects to receive) after allowing for inflation. Use...
by bobcat2
Mon Jan 02, 2017 6:29 pm
Forum: Personal Finance (Not Investing)
Topic: Your Retirement Number, or, calculating the funding ratio
Replies: 183
Views: 18568

Re: Your Retirement Number, or, calculating the funding ratio

Let me put it another way, your way is too incredibly complicated with way too many variables to be estimated that you can't possibly get to. What discount rate will you use for your PV starting 25 years from now? How to calculate the FR with only retirement portfolio and SS & you treat SS as i...
by bobcat2
Mon Jan 02, 2017 1:54 pm
Forum: Personal Finance (Not Investing)
Topic: Your Retirement Number, or, calculating the funding ratio
Replies: 183
Views: 18568

Re: Your Retirement Number, or, calculating the funding ratio

Since Dean thinks stocks are safe in the LR, it follows that he would think investing part of the SS Trust Fund in the stock market would be a jim-dandy idea. :wink: Except, of course, there is no SS Trust fund, it is simply bookkeeping entries. Every dollar of FICA received was spent. This (there ...
by bobcat2
Mon Jan 02, 2017 1:21 pm
Forum: Personal Finance (Not Investing)
Topic: Your Retirement Number, or, calculating the funding ratio
Replies: 183
Views: 18568

Re: Your Retirement Number, or, calculating the funding ratio

Another simple way to calculate: price an annuity, immediate or deferred, real or nominal, as appropriate. In other words, how much income can you buy with your current portfolio. Compare income stream from this annuity to desired income stream. This was raised earlier. Was there a response? This i...
by bobcat2
Mon Jan 02, 2017 1:09 pm
Forum: Personal Finance (Not Investing)
Topic: Your Retirement Number, or, calculating the funding ratio
Replies: 183
Views: 18568

Re: Your Retirement Number, or, calculating the funding ratio

I believe you're confusing Dean Baker with someone else. He has long been opposed to subjecting Social Security recipients to stock risks. No, I am not. Dean thinks exposing individual recipients to stock risks is a bad idea. I agree. But he thinks subjecting the funding of SS to the risks of the s...
by bobcat2
Mon Jan 02, 2017 12:50 pm
Forum: Personal Finance (Not Investing)
Topic: Your Retirement Number, or, calculating the funding ratio
Replies: 183
Views: 18568

Re: Your Retirement Number, or, calculating the funding ratio

Another simple way to calculate: price an annuity, immediate or deferred, real or nominal, as appropriate. In other words, how much income can you buy with your current portfolio. Compare income stream from this annuity to desired income stream. This was raised earlier. Was there a response? This i...
by bobcat2
Mon Jan 02, 2017 12:39 pm
Forum: Personal Finance (Not Investing)
Topic: Your Retirement Number, or, calculating the funding ratio
Replies: 183
Views: 18568

Re: Your Retirement Number, or, calculating the funding ratio

...Finance and economics are clear on this issue. The PV of a liability that must be met with high probability has nothing to do with the expected return on the assets. This is true whether we are discussing the county firefighters' pension fund or your 401k. If the liability is to be met with high...
by bobcat2
Mon Jan 02, 2017 12:08 pm
Forum: Investing - Theory, News & General
Topic: Good time to buy inflation-adjusted SPIA?
Replies: 47
Views: 3380

Re: Good time to buy inflation-adjusted SPIA?

Here Larry Kotlikoff discusses life annuities and the real life annuity from Principal he bought for his mother Would you still buy a SPIA if you only needed 2.5% from your portfolio (40% equity funds) in retirement to live on? Maybe for peace of mind? Thanks This depends on how risk averse you are...
by bobcat2
Mon Jan 02, 2017 11:43 am
Forum: Personal Finance (Not Investing)
Topic: Your Retirement Number, or, calculating the funding ratio
Replies: 183
Views: 18568

Re: Your Retirement Number, or, calculating the funding ratio

Bacchus01 wrote:Here is a much simpler process:

Desired Income / Safe Withdrawl Rate

Voila. Your target.


For every complex problem there is an answer that is clear, simple, and wrong.
- H. L. Mencken
by bobcat2
Sun Jan 01, 2017 9:16 pm
Forum: Investing - Theory, News & General
Topic: Good time to buy inflation-adjusted SPIA?
Replies: 47
Views: 3380

Re: Good time to buy inflation-adjusted SPIA?

Bob, thank you for your response. Are you aware of how many companies offer Real (Inflation Adjusted) Single Premium Immediate Annuities? I went to the Income Solutions site thru the Vanguard portal and looked at quotes from six insurance companies. A few years ago three insurance companies at Inco...
by bobcat2
Sun Jan 01, 2017 6:41 pm
Forum: Investing - Theory, News & General
Topic: Good time to buy inflation-adjusted SPIA?
Replies: 47
Views: 3380

Re: Good time to buy inflation-adjusted SPIA?

Bob, the problem with TIPS in 2008-2009 was a liquidity issue if I remember right. From peak to trough, the Vanguard Inflation Adjusted Bond fund dropped 9.4%, while nominal treasuries rose. This was an anomaly, and longer term TIPS matched to the duration of a Real Single Premium Immediate Annuity...
by bobcat2
Sat Dec 31, 2016 2:14 pm
Forum: Investing - Theory, News & General
Topic: Good time to buy inflation-adjusted SPIA?
Replies: 47
Views: 3380

Re: Good time to buy inflation-adjusted SPIA?

The other thing that made me a bit leery was the performance of TIPS during the 2008-2009 financial crisis. Asset classes don't always act in the way that we expect them to. I have a wariness about putting too many eggs in the TIPS basket. What if TIPS again at some point act in a way investors don...
by bobcat2
Thu Dec 29, 2016 10:27 pm
Forum: Personal Finance (Not Investing)
Topic: Your Retirement Number, or, calculating the funding ratio
Replies: 183
Views: 18568

Re: Your Retirement Number, or, calculating the funding ratio

To new investors - The concepts in this thread are somewhat beyond the "newbie" level. It's not critical to understand the discussion for retirement planning. Hi LadyGeek, I demur from your assessment of the funding ratio (FR). This simple calculation takes explicitly into account the lev...
by bobcat2
Thu Dec 29, 2016 1:58 pm
Forum: Personal Finance (Not Investing)
Topic: Your Retirement Number, or, calculating the funding ratio
Replies: 183
Views: 18568

Re: Your Retirement Number, or, calculating the funding ratio

I believe there is more of a difference between the 4% SWR rule and the funding ratio (FR) than Rodc infers in his posts. Two things are extremely important in determining the sustainability of a retirement plan; prevailing real interest rates and longevity. The levels of these two variables and how...
by bobcat2
Thu Dec 29, 2016 11:38 am
Forum: Personal Finance (Not Investing)
Topic: Your Retirement Number, or, calculating the funding ratio
Replies: 183
Views: 18568

Re: Your Retirement Number, or, calculating the funding ratio

Rodc, There is a big difference between a procedure that updates automatically every year without the participant's making ad hoc adjustments and another that may work, if the participant should happen to make the right adjustments on their own. Also the one warn's right away, the other provides no ...
by bobcat2
Wed Dec 28, 2016 9:18 pm
Forum: Personal Finance (Not Investing)
Topic: Your Retirement Number, or, calculating the funding ratio
Replies: 183
Views: 18568

Funding Ratio vs 4% rule

The 4% SWR rule and the Funding Ratio Here is an example that shows that the Funding Ratio is much more useful than the 4% SWR rule. Calculating the Funding Ratio (FR) doesn’t end once you begin retirement. Consider Erwin, who is extremely longevity risk averse. He is retiring at age 62 and is plan...
by bobcat2
Tue Dec 27, 2016 10:39 pm
Forum: Personal Finance (Not Investing)
Topic: Your Retirement Number, or, calculating the funding ratio
Replies: 183
Views: 18568

Re: Your Retirement Number, or, calculating the funding ratio

An Advantage of including PV of SS in Funding Ratio Calculation It really doesn’t make much difference whether you include Social Security (SS) in the funding ratio (FR) calculation or not, or simply consider it a separate known retirement income stream. However, calculating the PV of SS at differe...
by bobcat2
Tue Dec 27, 2016 1:56 am
Forum: Personal Finance (Not Investing)
Topic: Your Retirement Number, or, calculating the funding ratio
Replies: 183
Views: 18568

Re: Your Retirement Number, or, calculating the funding ratio

If you think it is reasonable to think you will never make additional contributions to SS I can't stop you. I guess my point is that I think it is equally likely that I will make contributions to SS, and to my retirement accounts (at least, so far any year I have had wages, I have both SS and retir...
by bobcat2
Tue Dec 27, 2016 1:30 am
Forum: Personal Finance (Not Investing)
Topic: Your Retirement Number, or, calculating the funding ratio
Replies: 183
Views: 18568

Re: Your Retirement Number, or, calculating the funding ratio

The Eonomist's Buttonwood columnist on the muddle-headed world of American public-pension accounting. American public-sector schemes discount their liabilities by the expected return on their assets. The riskier the asset mix, the higher the assumed return—and the lower the bill appears to be. This ...
by bobcat2
Tue Dec 27, 2016 1:18 am
Forum: Personal Finance (Not Investing)
Topic: Your Retirement Number, or, calculating the funding ratio
Replies: 183
Views: 18568

Re: Your Retirement Number, or, calculating the funding ratio

Ok, I admit I haven't read all of the posts, but I am wondering about one seeming inconsistency in the approach. You speak of this being a snapshot of where you are today, hence you don't include any future retirement calculations. HOwever, isnt the SS amount implicitly including that? When I get a...
by bobcat2
Tue Dec 27, 2016 12:59 am
Forum: Personal Finance (Not Investing)
Topic: Your Retirement Number, or, calculating the funding ratio
Replies: 183
Views: 18568

Re: Your Retirement Number, or, calculating the funding ratio

Robert Novy-Marx is one of the better known financial economists on this board principally because he is one of Larry Swedroe's favorite economists and Larry often cites Novy-Marx's papers. Here is Robert Novy-Marx on valuing liabilities of pensions. Keep in mind that for most American workers their...
by bobcat2
Mon Dec 26, 2016 11:46 pm
Forum: Personal Finance (Not Investing)
Topic: Your Retirement Number, or, calculating the funding ratio
Replies: 183
Views: 18568

Re: Your Retirement Number, or, calculating the funding ratio

Kevin, You wrote, ... it seems to me that you are just trying to force fit economic justifications that apply to pension funds to individuals with 401k/403b plans where the financial situation is just different. ... You are trying to justify applying a discount rate to a liability where the discount...
by bobcat2
Mon Dec 26, 2016 10:18 pm
Forum: Personal Finance (Not Investing)
Topic: Your Retirement Number, or, calculating the funding ratio
Replies: 183
Views: 18568

Re: Your Retirement Number, or, calculating the funding ratio

One problem is that as the market goes up and down, so does their funding ratio #. Yep, that's a real problem. If you are 70/30 stocks-bonds the year before retirement and the stock market drops 35% your FR might drop from 1.02 to something like 0.9. That is truly a real problem. It's too bad that ...
by bobcat2
Mon Dec 26, 2016 10:00 pm
Forum: Personal Finance (Not Investing)
Topic: Is it possible to graduate from college in 3 years?
Replies: 101
Views: 4557

Re: Is it possible to graduate from college in 3 years?

I once had girlfriend with a double major in math and economics who graduated in three years. She went to a private college full-time during the regular school year and commuted to a public university near her parents home in Cleveland during the summer.

BobK
by bobcat2
Mon Dec 26, 2016 9:42 pm
Forum: Personal Finance (Not Investing)
Topic: Your Retirement Number, or, calculating the funding ratio
Replies: 183
Views: 18568

Re: Your Retirement Number, or, calculating the funding ratio

One problem is that as the market goes up and down, so does their funding ratio #. Yep, that's a real problem. If you are 70/30 stocks-bonds the year before retirement and the stock market drops 35% your FR might drop from 1.02 to something like 0.9. That is truly a real problem. It's too bad that ...
by bobcat2
Mon Dec 26, 2016 8:28 pm
Forum: Personal Finance (Not Investing)
Topic: Your Retirement Number, or, calculating the funding ratio
Replies: 183
Views: 18568

Re: Your Retirement Number, or, calculating the funding ratio

I read the article, and it did not really justify using this discount rate [the lowest risk rate] at all. From the Paula Hogan article. What is the relevance of these ideas for your own personal financial planning? Or more to the point, what ideas from the pension world do we NOT want to bring over...
by bobcat2
Mon Dec 26, 2016 1:39 pm
Forum: Personal Finance (Not Investing)
Topic: Your Retirement Number, or, calculating the funding ratio
Replies: 183
Views: 18568

Re: Your Retirement Number, or, calculating the funding ratio

This is what completely drives me nuts- how one can estimate his live expectancy? You might be in good health and got cancer and be over in an year (know such cases), and be in poor health but new treatments extend your life to late 80s. ( know such cases as well) From other hand, I always thought ...
by bobcat2
Sun Dec 25, 2016 1:04 pm
Forum: Personal Finance (Not Investing)
Topic: Your Retirement Number, or, calculating the funding ratio
Replies: 183
Views: 18568

Re: Your Retirement Number, or, calculating the funding ratio

Thoughts? Kevin Hi Kevin, Here are some of my thoughts on the concerns you raise in your post. Use of the funding ratio The funding ratio (FR) is not concerned with future returns, or even how you will be doing in the future. It is only concerned with how you are doing now. Calculate the FR regular...
by bobcat2
Fri Dec 23, 2016 10:52 pm
Forum: Personal Finance (Not Investing)
Topic: Your Retirement Number, or, calculating the funding ratio
Replies: 183
Views: 18568

Re: Your Retirement Number, or, calculating the funding ratio

Just my preference but I would rather apply a simplistic rule to a modest portion of the income stream, and keep accurate what is accurate, than a cascade of simplistic assumptions to every income stream. Better to make accurate estimates where you can rather than inaccurate estimates everywhere. H...
by bobcat2
Fri Dec 23, 2016 6:48 pm
Forum: Personal Finance (Not Investing)
Topic: Your Retirement Number, or, calculating the funding ratio
Replies: 183
Views: 18568

Re: Your Retirement Number, or, calculating the funding ratio

I really don't understand the controversy. Your income needs = income from stream sources (streamsources income / income needs). More than 1.0, you're doing OK. Less than 1.0, you are in trouble. The ratio is Current. The ratio could be an indicator for the future depending how you massage the numb...
by bobcat2
Fri Dec 23, 2016 4:11 pm
Forum: Personal Finance (Not Investing)
Topic: Your Retirement Number, or, calculating the funding ratio
Replies: 183
Views: 18568

Re: Your Retirement Number, or, calculating the funding ratio

Larry wants a $70,000/year income in retirement, which will be 12 years from now. He estimates Social Security of $26,000/year. Therefore he will need $44,000/year from his portfolio. How much income can Larry expect from his $600,000 portfolio? How large a portfolio will he need to generate $44,00...
by bobcat2
Fri Dec 23, 2016 2:33 pm
Forum: Personal Finance (Not Investing)
Topic: Your Retirement Number, or, calculating the funding ratio
Replies: 183
Views: 18568

Re: Your Retirement Number, or, calculating the funding ratio

Did I miss something here, or is someone actually considering that SS is of no concern to someone planning for retirement income. It would seem obvious that almost anyone retiring today or in the near future would have SS or a SS alternative pension as a very significant fraction of income. Also, o...
by bobcat2
Fri Dec 23, 2016 2:26 pm
Forum: Personal Finance (Not Investing)
Topic: Your Retirement Number, or, calculating the funding ratio
Replies: 183
Views: 18568

Re: Your Retirement Number, or, calculating the funding ratio

I fail to see the big distinction between including or excluding the SS benefit in doing the calculation. As Rodc is wont to say SS income being included or excluded from the calculation "should only be of interest for those that always demand answers to 3 significant digits". If you incl...
by bobcat2
Fri Dec 23, 2016 2:19 pm
Forum: Personal Finance (Not Investing)
Topic: Your Retirement Number, or, calculating the funding ratio
Replies: 183
Views: 18568

Re: Your Retirement Number, or, calculating the funding ratio

Larry wants a $70,000/year income in retirement, which will be 12 years from now. He estimates Social Security of $26,000/year. Therefore he will need $44,000/year from his portfolio. How much income can Larry expect from his $600,000 portfolio? How large a portfolio will he need to generate $44,00...
by bobcat2
Fri Dec 23, 2016 1:23 pm
Forum: Personal Finance (Not Investing)
Topic: Your Retirement Number, or, calculating the funding ratio
Replies: 183
Views: 18568

Re: Your Retirement Number, or, calculating the funding ratio

I fail to see the big distinction between including or excluding the SS benefit in doing the calculation. As Rodc is wont to say SS income being included or excluded from the calculation "should only be of interest for those that always demand answers to 3 significant digits". If you inclu...
by bobcat2
Fri Dec 23, 2016 12:18 pm
Forum: Personal Finance (Not Investing)
Topic: Your Retirement Number, or, calculating the funding ratio
Replies: 183
Views: 18568

Re: Your Retirement Number, or, calculating the funding ratio

Can you please help me understand how you arrived at 3.5 as your discount rate? Based on previous conversations here and my own research, I've been using 2% for inflation-indexed future cash flows, and 4.04% for non inflation-adjusted cash flows. Thank you. Long term real bonds are currently yieldi...
by bobcat2
Fri Dec 23, 2016 12:13 pm
Forum: Personal Finance (Not Investing)
Topic: Your Retirement Number, or, calculating the funding ratio
Replies: 183
Views: 18568

Re: Your Retirement Number, or, calculating the funding ratio

Larry wants a $70,000/year income in retirement, which will be 12 years from now. He estimates Social Security of $26,000/year. Therefore he will need $44,000/year from his portfolio. How much income can Larry expect from his $600,000 portfolio? ... He might compute the PV of $44,000 starting when ...
by bobcat2
Fri Dec 23, 2016 12:00 am
Forum: Investing - Theory, News & General
Topic: Three fund portfolio for retirement
Replies: 79
Views: 9351

Re: Three fund portfolio for retirement

Lieutenant.Columbo wrote:For funds held if Taxable accounts, won't the costs & taxes associated to monthly rebalancing eat away the benefit resulting from rebalancing?
Yes. It is assumed you are doing this in your tax advantaged retirement savings account.

BobK

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