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wade

So what is the growth rate for the line of credit and who determines that? Is it part of the initial contract? Is it tied to LIBOR or some other rate? What are the odds that it grows to be more than the value of the house given the huge head start the house was given if all you get is $131K out of ...

wade

The $131,000 grows each year, IF you don't tap. If I did open a RM, any costs would be paid from existing funds, leaving the entire initial line of credit to grow. I'm still having trouble wrapping my head around this. WHY does the $131K grow each year and how is it determined how much it grows? To...

wade

EmergDoc, thanks for starting the thread. Broken Man, before the whole discuss gets anchored on the idea of a $11k upfront cost, I think you might find better results if you keep shopping. Assuming you are talking about a HECM reverse mortgage, which most are, then upfront costs involve: -lender's _...

wade

ogd: You are making an interesting point. I would still say that I'm not talking down to my audience. I just think of the goal of retirement income planning as being different from traditional wealth management. It's not necessarily the case that one seeks to earn the highest possible returns, but j...

wade

BHChinook: I agree with your observation. ogd: You are surely correct that it is theoretically possible to develop a strategy with bond funds that systematically reduce their duration over time. I'm not sure how you would implement that, practically speaking, to match the duration for an individual'...

wade

I'm 38, and it is hard to say what sort of new financial products will exist in the future. As I'm now I'm a Vanguard investor. But I would like to believe I'd be willing to incorporate income annuities over time. There is the behavioral hurdle of losing those assets from the financial statement, bu...

wade

Thanks for the interesting discussion. I'm the author of the Advisor Perspectives article being discussed. To clarify, I did mean bond funds. So the new title of this thread is more accurate. Bond funds can still trigger sequence risk by having to be sold at a loss when rates rise. Household investo...

wade

On the subject about using the illustrated whole life policy in the simulations, this is something I considered a lot. For the median and 90th percentile outcomes for investments, I do think it is reasonable to expect that the illustration will hold. It may be harder for the illustration to hold in ...

wade

Another point which has been coming up is that most people lapse on their whole life policies before collecting the death benefit.

Obviously, for this strategy I'm discussing to work properly, it's important NOT to do that!

wade

Hi gang, The 1.59% fee assumption on investments doesn't apply to Bogleheads who view personal finance as a hobby and who take the time and energy needed to understand and live by the Bogleheads philosophy. This isn't the typical American though. Even many who COULD manage their own personal finance...

wade

Hi everyone, this is Wade, who authored the article. Two quick points before I have a chance to review the thread more carefully. In the whitepaper, there are 3 scenarios. Scenario 2 is Investments + Term Life + Joint Life SPIA. I didn't mention this scenario in the Forbes column, because I was tryi...

wade

Hi, Thank you for the clarifications on your contract. I find what you've included to be a bit vague as well, but it seems like your interpretation is reasonable. That is, you would determine if a new high watermark is reached using the closing price at the end of the day prior to the contract date,...

wade

Dale, Yes, one day. Suppose I bought the contract on April 24, 2015. It has a provision to check for step-ups on the anniversary of the contract. Should that be at the close of business on April 23, 2016, or April 24, 2016? It can matter if there is a big market move on April 24, 2016. And the probl...

wade

Hi Bogleheads, I received a phone call from an individual with a concern about his variable annuity contract with guaranteed withdrawal benefits on the benefit base. I'm wondering if anyone has experienced a similar concern. Basically, on the "effective anniversary date" of the contract, y...

wade

Siamond, thanks for the good comments. About the XYZ rule, I'm specifically calculating it with regard to the year 30 spending. You are right that spending could dip lower in some years and then come back up by year 30. I thought about considering whether spending fell below the threshold in any yea...

wade

I've got a few more minutes... Siamond on the issue of the spending trajectory implied by the strategy, this really was my purpose in showing the distribution of spending at 10, 20, and 30 years into retirement. You can see the slope from those numbers. And it is important to realize there is not a ...

wade

Hi all, I'm glad to see this thread come alive with lots of interest comments. Let me add my 2 cents on some of these issues: Fees: I assume a 0.5% annual fee. I always struggle with that. Bogleheads can spend less, but many will spend more. Practically, this can be viewed as underperformance relati...

wade

Thanks Lee. I completely agree with what you are saying. This is a big part of a lot of Powerpoint presentations I make these days. I also recently co-wrote a whitepaper for Challenger in Australia, and Section 2 is about this. Here's a table summarizing some of the key important differents between ...

wade

A few quick thoughts on this topic... Larry, we did offer a rebuttal to Jared's blog post here: m As for other issues: -the article does assume constant inflation-adjusted spending. The conclusions might change with a dynamic spending strategy. We are starting to look into this. -the article is mean...

wade

Taylor, thank you very much for sharing. Nedsaid, that slide showing stocks, bonds and income annuities wasn't meant to imply the allocation. Just the menu of available options. Though I can understand how it could be misinterpreted. Though I talk about sensible default allocations during accumulati...

wade

Taylor, Thank you for sharing the post. And, Oicuryy, thanks for the article link. I didn't know about the article, and it's already approaching its 1-year anniversary. Great discussion. A lot of the movies and murder mysteries seem to focus on a mortality-lottery version in which the last survivor ...

wade

BobK, Thanks for the further explanation. I recall this discussion came up before here: http://www.bogleheads.org/forum/viewtopic.php?f=10&t=93405 http://www3.grips.ac.jp/~wpfau/images/Dimensional.JPG Indeed, perhaps Robert Merton has developed a black-box dynamic asset allocation strategy that ...

wade

Great thread. I'd just add that I agree about Asset Dedication not being a lifecycle finance approach. It builds a front-end bond ladder of 3-10 years, but relies on investing in risky assets to cover subsequent liabilities. It relies on "stocks for the long run" which is a central tenant ...

wade

Hi all, I'm just checking in with LadyGeek about getting this info to the Wiki. BobK built a great list of resources and the Wiki entry looks great. My only quibble would be to move: Pensionize Your Nest Egg: How to Use Product Allocation to Create a Guaranteed Income for Life Moshe A. Milevsky, Ale...

wade

I am wondering if somebody would be interested in doing this study. Might even make a decent publication- The aim of the study would be to reach conclusions such as - Start with a 4% withdrawal from yrs 1 to 10 of retirement - AND IF- 1. At the beginning of year 11 your portfolio is at >= 110% of i...

wade

I believe that the 22x number is based on the specific strategy of retiring at 65, buying a 20-year TIPS bond ladder, and buying a deferred income annuity which begins payments at age 85. This allows for a higher than 4% withdrawal rate, though with a great deal of inflation risk related to the defe...

wade

Would a retiree who maintained a 30% - 40% equity allocation during the entire period of retirement have a true need for TIPS? I would expect the equity would provide a real return over the intermediate to long term. I would expect that too. But this gets at the heart of the difference between prob...

wade

Why not a simple allocation to Total Bond Index and stay the course? For retirees, I'd argue that it is because the lack of protection for unexpected inflation as well as the heightened sequence of return created by having to realize capital losses to finance retirement spending if interest rates r...

wade

Didn't Bernstein (and other such respected authors/thinkers) advocate waiting to implement a TIPS Ladder Strategy until TIPS yields are within a more historically normal range? If Wade Pfau's above-posted TIPS ladder reflects today's lower-than-historically-normal TIPS yields, how different would b...

wade

Wade - I checked the website you referenced: Modern Retirement Theory. I didn't see any information there about what they do or what they provide. Is it essentially a paid retirement financial planning service? If so, do you think it's worth checking into or are the ideas pretty much DIY for a soph...

wade

Great discussion. Just a few thoughts which haven't been emphasized yet... - I do agree with dbr about making sure you have sufficient funds to deal with contingencies like unexpected expenses over those 25 years. A spending shock which requires selling additional parts of the ladder at a time of hi...

wade

Using the same prices Wade Pfau does from WSJ TIPS Quotes 12/18/2013 I populated my TIPS Ladder Builder spreadsheet to match his ladder. For a 30-year $10,000 per year ladder I got a cost of $249,900 which is pretty close to his cost of $247,588. It makes sense the figures are close since we both u...

wade

I've written a blog post about your suggested strategy: m It reduces the risk of portfolio depletion, but it doesn't eliminate the risk. That half which is fixed to the constant amount can still cause your portfolio to collapse to zero. That being said, you are using a low withdrawal rate, and the f...

wade

As the end of the year approaches and people may be getting into the tax mindset, it seems like a good time to bring this thread back to life. The last post was in May 2012. Has there been any updates about backdoor Roths since then? Is the fact that the IRS hasn't taken action about this lending gr...

wade

Browser: That's right. When I plug in a higher average for inflation to bounce around, it doesn't take as long for inflation-adjusted SPIAs to catch up, making them look more attractive. Higher average inflation is the one factor that can change the efficient frontier, and in this case it leads to a...

wade

In this paper, pension plans are only mentioned twice and that is at the very beginning (page 2) where the paper summarizes the reasons most Safe Withdrawal Rate studies are inadequate (they don't account for defined benefit pensions, among other things). Despite that, the rest of the paper makes n...

wade

Browser: I'm torn about this issue. I like inflation projection. But with fixed SPIAs offering 50-60% more initial payout than inflation-adjusted SPIAs, it's a tough decision. My reading of William Bernstein's new e-book Deep Risk suggests to me that there is merit to using less assets to buy the sa...

wade

Greg, Thanks for the nice words. About your questions: 1) You are getting at a worthwhile point in that there is a value judgement in choosing the 10th percentile of the distribution for the percentage of lifetime spending goals achieved. But please note that at the 50th percentile, nothing much fai...

wade

Taylor: Thank you very much for sharing this video and also the one about rising equity glidepaths. I do hope to clarify one matter. This article (with higher stock allocations for a longer time horizon) is based on investing a lump-sum amount with no further inflows or outflows. But when you are wi...

wade

At least since 1949, no country dropped below 2%.

wade

Wade, could you please explain how should one read the various symbols on the chart of the 19 countries by year? (Thanks in advance.) Bob, red dashes are the medians. The blue boxes show the interquartile range, the black dashed lines generally the full range of outcomes, except for any red pluses ...

wade

History suggests that over decades of time the relative growth rates of different countries evolve so I expect that U.S. financial markets are doing that, too. Dr. Pfau's 2010 analysis "An International Perspective on Safe Withdrawal Rates: The Demise of the 4 Percent Rule?" found: "...

wade

I've been looking at a chart at Paul Merriman's site. I'm sure others have seen this but I'm a newbie at this and I just saw it. It shows what happened during a 43 year period from 1970 to 2012. The account starts out at 1 million, takes a 4% draw 1970 and adds cpi each year after. It shows you wha...

wade

...(snip)... Consider the following diagram, which shows how the historical year-to-year changes in the sustainable withdrawal rate for new retirees are closely correlated with market return for that year. If the market goes up, new retirees enjoy having more wealth, but their sustainable withdrawa...

wade

Although it may look like a recency issue, I don't think it is. The problem with the 4% rule is that it was derived using data from a time where there was "anomalously" high returns of US stocks relative to the rest of the world. A few years back, there was a study published on the safe w...

wade

Question: If Pfau keeps changing his numbers every couple of years by issuing new reports, how good can his 30-year forecasts really be? Interesting discussion as always. But Homer, this is sort of my point. Things like the Trinity study have really engrained too much into our minds that there is a...

wade

Perhaps this is just an issue of risk capacity. Social Security income increases your risk capacity, because a drop in your portfolio will have less impact on your standard of living. As a result, one can behave more aggressively, which means spending at a higher rate and/or using a higher stock all...

wade

1210sda: As you are noting, the table does show a rapid plummeting in the withdrawal rate as the stock allocation increases. This is happening because the high market valuation level triggers lower future stock returns. Nonetheless, this new article shouldn't be taken as the last word on the subject...

wade

Thanks all for the nice comments. Keith, I'm glad to see it is easy to include images again. There was a time when it was necessary to create smaller images, as the software here wouldn't do that automatic resizing. Bob: The data is different for those two articles. For the figures here, the same as...

wade

umfundi,

That's a good idea for a figure!

I've written up a blog post to answer your question about what such a figure might look like:

http://wpfau.blogspot.com/2013/07/the-b ... ource.html

If someone would like to resize the images so they can be posted in the thread, it's alright with me. I'm just not patient enough to doit.

Wade

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