Allan Roth on "Richest Guy in the Graveyard"

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Allan Roth on "Richest Guy in the Graveyard"

Post by Fallible » Fri Feb 28, 2014 11:23 am

I just read Vanguard's interview with Boglehead Allan Roth and liked his perspective on the true role of our portfolios: "Money is stored energy that lets you determine what you want to do with the rest of your life," he said. In other words, the portfolio's purpose isn't to produce income, but to be consumed to fuel your life. "The goal isn't to be the richest guy in the graveyard."

Link: https://advisors.vanguard.com/VGApp/iip ... ealthLogic
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Re: Allan Roth on "Richest Guy in the Graveyard"

Post by jimkinny » Fri Feb 28, 2014 11:36 am

thanks for the link

I have learned a lot from reading Allan Roth. At the depth of the last market melt down he wrote something to the effect that he wished he could bottle the smell of fear and open that bottle when he had forgotten what it was like.

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Re: Allan Roth on "Richest Guy in the Graveyard"

Post by YDNAL » Fri Feb 28, 2014 11:37 am

Fallible wrote:I just read Vanguard's interview with Boglehead Allan Roth and liked his perspective on the true role of our portfolios: "Money is stored energy that lets you determine what you want to do with the rest of your life," he said. In other words, the portfolio's purpose isn't to produce income, but to be consumed to fuel your life. "The goal isn't to be the richest guy in the graveyard."

Link: https://advisors.vanguard.com/VGApp/iip ... ealthLogic
Basically, that means viewing the portfolio as *deferred compensation* to be consumed.

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Re: Allan Roth on "Richest Guy in the Graveyard"

Post by bengal22 » Fri Feb 28, 2014 11:55 am

"One area he walks clients through is the Roth versus traditional IRA and the Roth 401(k) versus traditional 401(k). The ability to convert from a pre-tax traditional IRA to a post-tax Roth IRA—and recharacterize back to where you started—opens all kinds of opportunities for managing risk around future tax rates and managing losses and gains, given the amount of time allowed to decide whether to recharacterize."


I thought I understood the benefits of converting traditional to Roth but what does he mean by "...recharacterize back to where you started ... given the amount of time allowed to decide whether to recharacterize." ?
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Re: Allan Roth on "Richest Guy in the Graveyard"

Post by rob » Fri Feb 28, 2014 12:09 pm

Puff piece full of platitudes that mean nothing... money is energy - what nonsense.

I wish the people that advocate a 2-3 fund index everything would explain how real working people are able to do that..... I have a dozen accounts in different artificial buckets (her roth, his 401k, her 403b, his trad ira, taxable, 529 plans e.t.c.) spread across various providers...... I own duplicate funds all over the place because of inability to rebalance or to counter stuff not available in a 401K plan e.t.c. For most of us it's a theoretical thought process not something we are able to do.

Short of actual real reform of all this stuff, it's not possible for most people to live with 2-3 funds. Neither of those will happen in the US because of vested interests.

Now... once you're retired, sure - rollover everything to a single provider would certainly help but you're still stuck with lots of buckets.
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Re: Allan Roth on "Richest Guy in the Graveyard"

Post by manwithnoname » Fri Feb 28, 2014 1:45 pm

bengal22 wrote:"One area he walks clients through is the Roth versus traditional IRA and the Roth 401(k) versus traditional 401(k). The ability to convert from a pre-tax traditional IRA to a post-tax Roth IRA—and recharacterize back to where you started—opens all kinds of opportunities for managing risk around future tax rates and managing losses and gains, given the amount of time allowed to decide whether to recharacterize."


I thought I understood the benefits of converting traditional to Roth but what does he mean by "...recharacterize back to where you started ... given the amount of time allowed to decide whether to recharacterize." ?
I think he is advocating roth conversions in multiple Roth accounts every year and then deciding by Oct 15 of the following year to recharacterize the losers to reduce taxes paid on the conversions. Of course, as every intelligent investor knows, stocks that suffer a short term loss frequently become long term growth investments which an investor will miss out on if he recharacterizes solely because there is a short term loss. Better strategy for roth conversions is to convert under valued assets into a roth and let them appreciate long term on a tax free basis for 20 or so years since no one can predict long term performance based on whether an investment declined over a period of 9 months. Another strategy is to transfer an asset which has incurred a loss to a roth and then replace it in the roth with a better performing investment which will be exempt from income tax.

I don't know what he means about opportunities for managing risk around future tax rates since the window for a roth recharacterization is so short (Oct 15th of the following year). Maybe he thinks that if Congress changes the laws like it did on Jan 1 of this year that taxpayers would have a 9 month window to decide if it would be tax efficient to undo a roth conversion. But recharacterizations negate the purpose of a roth conversion which is to reduce the amount of retirement benefits that will be taxed in retirement. If an investor recharacterizes 25% of each years conversions in order to harvest the tax loss, the amount of the roth account exempt from RMDs will be reduced by 25%. Of course, if each year the investor converts 2X the amount that he can afford to pay taxes on, he can recharacterize 50% of the amount converted to stay within an acceptable limit of taxation but this is a lot of work to do each to do each year for the sake of tax efficiency. If an investor consistently generates large losses in roth IRAs by the Oct 15 of the year following a roth conversions there is something wrong with investment selection.

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Re: Allan Roth on "Richest Guy in the Graveyard"

Post by afan » Fri Feb 28, 2014 2:14 pm

IF you have multiple accounts that you cannot combine, you can still have effectively the same investments in each one. I have separate retirement accounts, but total market index funds (from different providers) in all of them. The only problem is if you dont' have reasonable choices. It is still good advice, just out of reach for some people.

I also LOVE this
Roth's fee is not based on assets but on time. "It's the doctor model—you come back when you need help," he said. "That model is not right for most advisors." The model works for him as someone who is already financially secure.
It is what I have been saying about reasonable costs for financial advice. Most of the time you don't need any advice at all, so it is wasteful to pay for it. You should ask for advice, pay a fair fee for it, then not get charged again until you again ask for advice. This would be way cheaper. Of course, as he notes, it may be difficult for advisors to make a living like this, they would need a much larger supply of people seeking their advice. But this puts them in the same boat as other professionals. Not just doctors, but dentists, accountants, lawyers...

Where I could not disagree more
The goal isn't to be the richest guy in the graveyard
Yes, it is.

Or rather, to be as rich at death as you can be. There is no way I am going to be among the richest guys in the graveyard. I am never going to catch people like Buffett and Gates. But I certainly hope to continue accumulating through retirement. If I am spending down assets I will have done something very wrong. Crossing my fingers, but I hope it never comes to this.
Last edited by afan on Fri Feb 28, 2014 2:15 pm, edited 1 time in total.
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Re: Allan Roth on "Richest Guy in the Graveyard"

Post by letsgobobby » Fri Feb 28, 2014 2:15 pm

The biggest problem is the uncertainty. From here, I could live one minute or 60 years. It makes a big difference in planning.

Most Bogleheads are going to die with a lot of money, because we plan for 95-98% success rates and 2-4% SWRs. By definition most of the time won't be the worst case scenario.

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Re: Allan Roth on "Richest Guy in the Graveyard"

Post by technovelist » Fri Feb 28, 2014 2:18 pm

afan wrote: Where I could not disagree more
The goal isn't to be the richest guy in the graveyard
Yes, it is.

Or rather, to be as rich at death as you can be. There is no way I am going to be among the richest guys in the graveyard. I am never going to catch people like Buffett and Gates. But I certainly hope to continue accumulating through retirement. If I am spending down assets I will have done something very wrong. Crossing my fingers, but I hope it never comes to this.
Why does that mean you have done something wrong? I see nothing wrong with spending down assets, so long as you don't run out of money of course. Such an approach would rule out the use of SPIAs, which are probably the best way for people with relatively limited assets to make sure that they don't run out of money before they die.
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Re: Allan Roth on "Richest Guy in the Graveyard"

Post by midareff » Fri Feb 28, 2014 3:05 pm

"a tough message for people who have been saving for decades to suddenly be told it's okay to spend it down." It has been my hardest retirement transition to go from a 35% savings rate to decumulation. .. not that decumulation has been a reality the last several years. Seems like the more I take out the faster NAVs go up.

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Re: Allan Roth on "Richest Guy in the Graveyard"

Post by john94549 » Fri Feb 28, 2014 3:13 pm

letsgobobby wrote:
Most Bogleheads are going to die with a lot of money, because we plan for 95-98% success rates and 2-4% SWRs
My Mom (a true Boglehead, although unaware of it), had a negative SWR until the day she died, at 98 1/2. We kept saying "what are you saving it for?" Even with major in-home health care costs toward the end, she was very frugal.

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Re: Allan Roth on "Richest Guy in the Graveyard"

Post by freddie » Fri Feb 28, 2014 3:36 pm

Why would you want to be the richest guy in the graveyard? If I have 10 million net worth, I am not living on 20k so that my heirs get 50 million instead of 25 million when I die. Ideally I would die broke but that is far too aggressive for me. Something like 5-10 years of living expenses sounds about right. The only reason I can see to have more money is if you want to leave an IRA to your kids/grandkids.

afan wrote:
The goal isn't to be the richest guy in the graveyard
Yes, it is.

Or rather, to be as rich at death as you can be. There is no way I am going to be among the richest guys in the graveyard. I am never going to catch people like Buffett and Gates. But I certainly hope to continue accumulating through retirement. If I am spending down assets I will have done something very wrong. Crossing my fingers, but I hope it never comes to this.

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Re: Allan Roth on "Richest Guy in the Graveyard"

Post by letsgobobby » Fri Feb 28, 2014 3:51 pm

midareff wrote:"a tough message for people who have been saving for decades to suddenly be told it's okay to spend it down." It has been my hardest retirement transition to go from a 35% savings rate to decumulation. .. not that decumulation has been a reality the last several years. Seems like the more I take out the faster NAVs go up.
Probably much tougher mentally in 2008-09 than in 2010-11-12-13-14. Becoming a decumulator in a down market for a lifelong saver must be the hardest thing imaginable.

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Re: Allan Roth on "Richest Guy in the Graveyard"

Post by abuss368 » Fri Feb 28, 2014 4:02 pm

Indeed.

Thank you for sharing.
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Re: Allan Roth on "Richest Guy in the Graveyard"

Post by Allan Roth » Fri Feb 28, 2014 4:46 pm

Thanks for the kind words. A few comments:

Later in life, it's nearly impossible to get someone who has spent beyond their means to change behavior. While a bit easier, it's also very hard to get someone who has spent their whole life accumulating to suddenly have permission to start spending it down. I'm sure I will fall into that category as I'm sure most Bogleheads will as well (since investors tend to be savers).

Next, I've always said investing is simple but I've never said taxes were. Asset location is key after the asset allocation has been selected. A Roth conversion is essentially buying out the Government's share in ownership of an IRA. If one does multiple conversions and one or two of the investments (one investment per conversion) performs poorly, then the recharacterization (up to 22 months later if done right) is like hitting that undo button and making the government buy back their share at the original price.

Finally to the person who wants to die rich - I wish I were one of your kids!

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Re: Allan Roth on "Richest Guy in the Graveyard"

Post by rob » Fri Feb 28, 2014 4:59 pm

afan wrote:IF you have multiple accounts that you cannot combine, you can still have effectively the same investments in each one. I have separate retirement accounts, but total market index funds (from different providers) in all of them.
Not really.... In order to rebalance you need to add more funds to accts that have grown too far.... Then different accounts are different sizes, so you have to jump thru hoops to get into balance. Sometimes you cannot reach minimums on some funds (or they are closed or you cannot use cheaper admiral funds) and you have to make more compromises...... So if you use say 3 funds and have 6 accounts (which is easy for you and spouse) - you could end up with close to 18 funds..... It's nonsense. Sure you could use target funds... but since the largest of my buckets is taxable... that's not happening.

That all just using Vanguard only... then add 401K's that are locked in with limited options as you mention..... and it steps up a notch.
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Re: Allan Roth on "Richest Guy in the Graveyard"

Post by bhsince87 » Fri Feb 28, 2014 5:34 pm

Thank you for commenting Allan!

I am intrigued by the concept of re-characterization into a Roth. But I’m having trouble wrapping my head around it.

Is it just a partial conversion from a traditional IRA/401k into a Roth account, where the portion transferred is an asset that has depreciated?

As an example, say I have a fund in a tIRA which I bought for $10,000, but it has now fallen to $7,000. I transfer that specific fund into a Roth account, and pay the (say) 25% tax on the $7,000.

Originally, I sheltered $2,500, and now I’m paying $1,750 in taxes. So in effect, the government has subsidized $750 or 25%, of my loss.

Do I have this right?
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Re: Allan Roth on "Richest Guy in the Graveyard"

Post by Allan Roth » Fri Feb 28, 2014 5:45 pm

rob wrote:
afan wrote:IF you have multiple accounts that you cannot combine, you can still have effectively the same investments in each one. I have separate retirement accounts, but total market index funds (from different providers) in all of them.
Not really.... In order to rebalance you need to add more funds to accts that have grown too far.... Then different accounts are different sizes, so you have to jump thru hoops to get into balance. Sometimes you cannot reach minimums on some funds (or they are closed or you cannot use cheaper admiral funds) and you have to make more compromises...... So if you use say 3 funds and have 6 accounts (which is easy for you and spouse) - you could end up with close to 18 funds..... It's nonsense. Sure you could use target funds... but since the largest of my buckets is taxable... that's not happening.

That all just using Vanguard only... then add 401K's that are locked in with limited options as you mention..... and it steps up a notch.
You could have a have the same 3 funds in all accounts. You may end up owing the same fund in multiple accounts but you could own only three funds. The problem comes in with tax legacy. For example, I started my indexing with S&P 500 funds since it was before Jack came out with the total stock fund. So rather than sell the S&P 500 and pay taxes, I buy an extended market index fund which is a completion fund of all US stocks not in the S&P 500. That adds to complexity. And because I think certain CDs bought directly from banks and credit unions are better than bonds, that adds to complexity. But the complexity is for a reason.

I typically move clients out of their 401Ks to simplify and get access to lower cost funds and greater simplicity. If still working, you may not have that option. There are many exceptions to rolling over funds to an IRA. I've seen really lousy 401Ks that have a legacy stable value contract with an insurance company that, as long as the rate stays high, is worth keeping. When it comes to Federal employees, I typically recommend rolling over non Thrift Savings Plan (TSP) assets into the TSP for access to even lower costs and especially the G fund which I'd kill to have access to.

Every situation is different but the goal of minimizing expenses and emotions and maximizing diversification and discipline remains constant. Taxes are an expense too.

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Re: Allan Roth on "Richest Guy in the Graveyard"

Post by Allan Roth » Fri Feb 28, 2014 5:52 pm

bhsince87 wrote:Thank you for commenting Allan!

I am intrigued by the concept of re-characterization into a Roth. But I’m having trouble wrapping my head around it.

Is it just a partial conversion from a traditional IRA/401k into a Roth account, where the portion transferred is an asset that has depreciated?

As an example, say I have a fund in a tIRA which I bought for $10,000, but it has now fallen to $7,000. I transfer that specific fund into a Roth account, and pay the (say) 25% tax on the $7,000.

Originally, I sheltered $2,500, and now I’m paying $1,750 in taxes. So in effect, the government has subsidized $750 or 25%, of my loss.

Do I have this right?
Not quite. At the 25% marginal tax bracket, if you convert $10K, you pay $2,500 in taxes - 25% to buy out the government's share. Then if the value drops from $10,000 to $7,000, you recharacterize making the government buy back it's 25% at the original price and get the $2,500 back. If you did 3 conversions and two went from $10K each to $13K, you don't recharacterize those. Only the one that lost value would be recharacterized.

WARNING - this is not simple so make sure you understand before doing.

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Re: Allan Roth on "Richest Guy in the Graveyard"

Post by Browser » Fri Feb 28, 2014 5:59 pm

Later in life, it's nearly impossible to get someone who has spent beyond their means to change behavior. While a bit easier, it's also very hard to get someone who has spent their whole life accumulating to suddenly have permission to start spending it down. I'm sure I will fall into that category as I'm sure most Bogleheads will as well (since investors tend to be savers).
Amen to that. I'm exactly in that camp. My brain has become rewired so that I take no pleasure at all in spending. Need a new car, can well afford it, but I just can't get that "new car" thrill. I just keep looking and looking and thinking and thinking. I feel really good when I drive back home in my old car thinking about all the money I didn't spend. If this keeps up I'll have really happy heirs who will be wondering why I lived like a monk.
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Re: Allan Roth on "Richest Guy in the Graveyard"

Post by bhsince87 » Fri Feb 28, 2014 6:06 pm

OK, now I think I’m getting it.

You’re “undoing” or reversing a previous traditional-to- Roth conversion, and sending the money back to a traditional account.

Thanks again for taking the time to help me understand this!
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Re: Allan Roth on "Richest Guy in the Graveyard"

Post by afan » Fri Feb 28, 2014 7:38 pm

Funny. Some people with $5M constantly chafe at limitations in their spending, and wish they had $10M. Some people with $10M feel the same way, and wish for $20M. Others, at each level of networth, cannot believe how much they have, or how little they need.

I spend money on things I need, and a few things I want, but I don't respond enough to the consumer culture to have much in the way of "wants". So I save and invest the rest. It is not a choice between self imposed poverty vs reasonable consumption. It is responsible frugality vs wasting money. I am not looking forward to spending the money I have saved. I am looking forward to saving more. I expect VTI dividends, and I suppose Social Security, to more than cover expenses. What should I do with the rest? Blow it on a lot of expensive junk I don't want? My 20 year old car runs just fine. Take lavish European trips when I would rather stay home? Plenty of things to do around the house. Go to movies in a theater when there are movies on TV for free?

Since I watch TV for free I see the commercials. I then wonder why anyone would buy the things they advertise. The vast majority of it I would not want if it were free.

I hope my kids are glad to get the money.
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Re: Allan Roth on "Richest Guy in the Graveyard"

Post by letsgobobby » Fri Feb 28, 2014 8:09 pm

afan wrote: I hope my kids are glad to get the money.
They will probably gladly spend it on all the stuff they see on TV.

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Re: Allan Roth on "Richest Guy in the Graveyard"

Post by dgdevil » Fri Feb 28, 2014 8:33 pm

afan wrote:
I hope my kids are glad to get the money.
Give it to 'em now. They might appreciate European trips, lavish or otherwise. Wealth can be wasted on seniors.

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Re: Allan Roth on "Richest Guy in the Graveyard"

Post by Fallible » Fri Feb 28, 2014 9:32 pm

Allan Roth wrote:Thanks for the kind words. A few comments:

Later in life, it's nearly impossible to get someone who has spent beyond their means to change behavior. While a bit easier, it's also very hard to get someone who has spent their whole life accumulating to suddenly have permission to start spending it down. I'm sure I will fall into that category as I'm sure most Bogleheads will as well (since investors tend to be savers)....
Allan, first of all, thanks for replying to the questions here. Second, it may be not only a mindset developed from long years of saving that makes the transition to decumulator difficult, but the underlying uncertainties in life that make it nearly impossible to truly know whether we've saved enough. Thus, we may save more out of fear of those uncertainties than of frugal habit. I know I did. But whatever drives our saving, your article nicely brought out the need to prepare to spend.
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Re: Allan Roth on "Richest Guy in the Graveyard"

Post by mnvalue » Sat Mar 01, 2014 12:25 am

rob wrote:I wish the people that advocate a 2-3 fund index everything would explain how real working people are able to do that..... I have a dozen accounts in different artificial buckets (her roth, his 401k, her 403b, his trad ira, taxable, 529 plans e.t.c.) spread across various providers...... I own duplicate funds all over the place because of inability to rebalance or to counter stuff not available in a 401K plan e.t.c.
You have 1500+ posts here, so this probably isn't necessary, but I'll say it anyway... I, for one, would be happy to try to help you, if you post your own thread using the suggested template: http://www.bogleheads.org/forum/viewtopic.php?t=6212

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Re: Allan Roth on "Richest Guy in the Graveyard"

Post by DonDraper » Sat Mar 01, 2014 7:08 am

I would like to be rich in the graveyard because that money will then transfer to my children.

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Re: Allan Roth on "Richest Guy in the Graveyard"

Post by Blues » Sat Mar 01, 2014 8:24 am

While I don't at all mind spending where necessary and enjoy spending on things that make DW (and myself) happy, I still find myself saving a good portion of my pension monthly.

I think that the benefit of saving and investing all those years before early retirement got us used to living (a fulfilling lifestyle) on less.

That said, I agree with the notion that money is a tool to be enjoyed and employed rather than amassed simply to become the richest guy in the graveyard...(taking into consideration any bequests).
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Re: Allan Roth on "Richest Guy in the Graveyard"

Post by Dandy » Sat Mar 01, 2014 8:49 am

I have found when you are a saver and have lived nicely but below your means for decades it is extremely hard to change. You have altered your financial DNA and still frame spending decisions in the accumulation mode. I know I could spend a lot more but have altered my lifestyle and dreams to the extent that I am happy with what I have. I don't crave a Lexus or Audi, a world cruise or country club member ship. A good bottle of wine and dinner with friends at a good restaurant leaves me smiling as does playing with grandchildren.

I hope to alter this accumulation mode DNA a bit but it remains a work in progress.

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Re: Allan Roth on "Richest Guy in the Graveyard"

Post by Blues » Sat Mar 01, 2014 8:53 am

Dandy wrote:I have found when you are a saver and have lived nicely but below your means for decades it is extremely hard to change. You have altered your financial DNA and still frame spending decisions in the accumulation mode. I know I could spend a lot more but have altered my lifestyle and dreams to the extent that I am happy with what I have. I don't crave a Lexus or Audi, a world cruise or country club member ship. A good bottle of wine and dinner with friends at a good restaurant leaves me smiling...I hope to alter this accumulation mode DNA a bit but it remains a work in progress.
Well said, Dandy.
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Re: Allan Roth on "Richest Guy in the Graveyard"

Post by marbleous » Sat Mar 01, 2014 9:27 am

letsgobobby wrote:
afan wrote: I hope my kids are glad to get the money.
They will probably gladly spend it on all the stuff they see on TV.
All you have to do is minimize the amount of time your kids watch commercial TV.

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Re: Allan Roth on "Richest Guy in the Graveyard"

Post by manwithnoname » Sat Mar 01, 2014 10:19 am

marbleous wrote:
letsgobobby wrote:
afan wrote: I hope my kids are glad to get the money.
They will probably gladly spend it on all the stuff they see on TV.
All you have to do is minimize the amount of time your kids watch commercial TV.
LOL. TV is so 80's.

Kids don't watch TV because they are surfing the internet to find the stuff they want.

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Re: Allan Roth on "Richest Guy in the Graveyard"

Post by rustymutt » Sat Mar 01, 2014 10:22 am

bengal22 wrote:"One area he walks clients through is the Roth versus traditional IRA and the Roth 401(k) versus traditional 401(k). The ability to convert from a pre-tax traditional IRA to a post-tax Roth IRA—and recharacterize back to where you started—opens all kinds of opportunities for managing risk around future tax rates and managing losses and gains, given the amount of time allowed to decide whether to recharacterize."


I thought I understood the benefits of converting traditional to Roth but what does he mean by "...recharacterize back to where you started ... given the amount of time allowed to decide whether to recharacterize." ?
plus 1

I don't understand what he was trying to convey myself.
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Re: Allan Roth on "Richest Guy in the Graveyard"

Post by manwithnoname » Sat Mar 01, 2014 10:25 am

letsgobobby wrote:The biggest problem is the uncertainty. From here, I could live one minute or 60 years. It makes a big difference in planning.

Most Bogleheads are going to die with a lot of money, because we plan for 95-98% success rates and 2-4% SWRs. By definition most of the time won't be the worst case scenario.
What exactly is a 95-98% success rate?

How does one plan for such a success rate?

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Re: Allan Roth on "Richest Guy in the Graveyard"

Post by rustymutt » Sat Mar 01, 2014 10:32 am

I hope that my boys understand how difficult it is to accumulate money, manage it, and make work 100% for their future, and not the hear and now. It's just credit printed on paper. I hope they fall in love with Bolgehead principles in general. I hope they get jobs that mean something to them and they pour their hearts into it. Hard work is the principal that built most wealth, and it's hard work going forward that keeps it. We Americans who understand how privileged we're to live in this great nation. Allan, thanks for level headed, easy to grasp, articles.
I'm amazed at the wealth of Knowledge others gather, and share over a lifetime of learning. The mind is truly unique. It's nice when we use it!

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Re: Allan Roth on "Richest Guy in the Graveyard"

Post by Fallible » Sat Mar 01, 2014 12:04 pm

Blues wrote:While I don't at all mind spending where necessary and enjoy spending on things that make DW (and myself) happy, I still find myself saving a good portion of my pension monthly.

I think that the benefit of saving and investing all those years before early retirement got us used to living (a fulfilling lifestyle) on less.

That said, I agree with the notion that money is a tool to be enjoyed and employed rather than amassed simply to become the richest guy in the graveyard...(taking into consideration any bequests).
Ben Franklin would agree with you: "The use of money is all the advantage there is in having money." :happy
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Re: Allan Roth on "Richest Guy in the Graveyard"

Post by Toons » Sat Mar 01, 2014 12:11 pm

Fallible wrote:
Blues wrote:While I don't at all mind spending where necessary and enjoy spending on things that make DW (and myself) happy, I still find myself saving a good portion of my pension monthly.

I think that the benefit of saving and investing all those years before early retirement got us used to living (a fulfilling lifestyle) on less.

That said, I agree with the notion that money is a tool to be enjoyed and employed rather than amassed simply to become the richest guy in the graveyard...(taking into consideration any bequests).
Ben Franklin would agree with you: "The use of money is all the advantage there is in having money." :happy

+3 :happy
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee

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Re: Allan Roth on "Richest Guy in the Graveyard"

Post by hicabob » Sat Mar 01, 2014 12:49 pm

manwithnoname wrote:
letsgobobby wrote:The biggest problem is the uncertainty. From here, I could live one minute or 60 years. It makes a big difference in planning.

Most Bogleheads are going to die with a lot of money, because we plan for 95-98% success rates and 2-4% SWRs. By definition most of the time won't be the worst case scenario.
What exactly is a 95-98% success rate?

How does one plan for such a success rate?
Try going to firecalc.com, plug in your approximate numbers and the answer to your question will be self evident.

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Re: Allan Roth on "Richest Guy in the Graveyard"

Post by RadAudit » Sat Mar 01, 2014 12:54 pm

Thanks, Mr. Roth. Lot to think about. Lot of things to work on.
Fallible wrote:"The goal isn't to be the richest guy in the graveyard."
or the poorest surviving spouse sleeping under a bridge.

Sleeping under a bridge is what a 95% success rate looks like 5% of the time.

It's the task of plotting an acceptable path between those twin goals that's the challenge. Given the suggestions to spend more in retirement and the unknowns of life span, future market returns, and expenses, I've given up on the goal of leaving enough for the kids.
Last edited by RadAudit on Sat Mar 01, 2014 1:22 pm, edited 1 time in total.
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Re: Allan Roth on "Richest Guy in the Graveyard"

Post by manwithnoname » Sat Mar 01, 2014 1:15 pm

hicabob wrote:
manwithnoname wrote:
letsgobobby wrote:The biggest problem is the uncertainty. From here, I could live one minute or 60 years. It makes a big difference in planning.

Most Bogleheads are going to die with a lot of money, because we plan for 95-98% success rates and 2-4% SWRs. By definition most of the time won't be the worst case scenario.
What exactly is a 95-98% success rate?

How does one plan for such a success rate?
Try going to firecalc.com, plug in your approximate numbers and the answer to your question will be self evident.
LOL. I did that before I had 50% gains in equities and came up with 100% probability of success using 105 different calculations. Anyway I don't believe in Monte Carlo simulations.

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Re: Allan Roth on "Richest Guy in the Graveyard"

Post by hicabob » Sat Mar 01, 2014 1:22 pm

manwithnoname wrote:
hicabob wrote:
manwithnoname wrote:
letsgobobby wrote:The biggest problem is the uncertainty. From here, I could live one minute or 60 years. It makes a big difference in planning.

Most Bogleheads are going to die with a lot of money, because we plan for 95-98% success rates and 2-4% SWRs. By definition most of the time won't be the worst case scenario.
What exactly is a 95-98% success rate?

How does one plan for such a success rate?
Try going to firecalc.com, plug in your approximate numbers and the answer to your question will be self evident.
LOL. I did that before I had 50% gains in equities and came up with 100% probability of success using 105 different calculations. Anyway I don't believe in Monte Carlo simulations.

A functioning crystal ball would be nice - but barring that it would seem a statistical approach is the best we have.

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Re: Allan Roth on "Richest Guy in the Graveyard"

Post by J295 » Sat Mar 01, 2014 1:26 pm

Fallible -- Thanks for posting this.
Allan and the other posters -- Enjoyed the sharing.
All -- Carpe Diem.

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Re: Allan Roth on "Richest Guy in the Graveyard"

Post by manwithnoname » Sat Mar 01, 2014 1:27 pm

hicabob wrote:
manwithnoname wrote:
hicabob wrote:
manwithnoname wrote:
letsgobobby wrote:The biggest problem is the uncertainty. From here, I could live one minute or 60 years. It makes a big difference in planning.

Most Bogleheads are going to die with a lot of money, because we plan for 95-98% success rates and 2-4% SWRs. By definition most of the time won't be the worst case scenario.
What exactly is a 95-98% success rate?

How does one plan for such a success rate?
Try going to firecalc.com, plug in your approximate numbers and the answer to your question will be self evident.
LOL. I did that before I had 50% gains in equities and came up with 100% probability of success using 105 different calculations. Anyway I don't believe in Monte Carlo simulations.

A functioning crystal ball would be nice - but barring that it would seem a statistical approach is the best we have.
Not exactly.

better approach is to have 2X the assets you expect to spend in retirement.

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Re: Allan Roth on "Richest Guy in the Graveyard"

Post by afan » Sat Mar 01, 2014 7:17 pm

This implies a forecast that investment returns and inflation will not combine to reduce the real value of assets by more than 50%. This is a reasonably conservative forecast, but it is still a forecast. To estimate the risk that the real value of your assets could decline by more than 50%, then you can do a deterministic approach, or some sort of simulation.

But picking some number that represents a multiple of assets over projected expenses hardly relieves you of forecasting.

As noted above, saving means cutting the risk of sleeping under a bridge. Or less dramaticaly, having money for health care not covered by insurance. Losing your job and being out of work for a long time. More security against a real economic downturn. Not a brief recession like the last one, but a real Depression.

I suppose that in addition to having frugal parents, we established our spending patterns when we entered the working world. Instead of buying in an area typical of people at my work, we bought into a nice, but much less expensive neighborhood. Our neighbors and friends were a lot more likely to be teachers than doctors or lawyers. They have nice lives, nice homes, roofs over their heads, kids doing well. I cannot see that they are any less happy than my wealthies acquaintences. But they do not spend anything like my professional colleagues.

So far my kids are cheaper than I am. "A NEW shirt? Goodwill not good enough for you, your highness?" But they think I should spend more on myself. Some nonsense about my "station in life".
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Re: Allan Roth on "Richest Guy in the Graveyard"

Post by Fallible » Sun Mar 02, 2014 10:58 am

RadAudit wrote:Thanks, Mr. Roth. Lot to think about. Lot of things to work on.
Fallible wrote:"The goal isn't to be the richest guy in the graveyard."
or the poorest surviving spouse sleeping under a bridge. ...
Just to note that "Fallible wrote" it, but I was quoting Allan Roth's vivid line (although "sleeping under a bridge" is equally powerful).
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Re: Allan Roth on "Richest Guy in the Graveyard"

Post by letsgobobby » Sun Mar 02, 2014 11:25 am

RadAudit wrote:Thanks, Mr. Roth. Lot to think about. Lot of things to work on.
Fallible wrote:"The goal isn't to be the richest guy in the graveyard."
or the poorest surviving spouse sleeping under a bridge.

Sleeping under a bridge is what a 95% success rate looks like 5% of the time.

It's the task of plotting an acceptable path between those twin goals that's the challenge. Given the suggestions to spend more in retirement and the unknowns of life span, future market returns, and expenses, I've given up on the goal of leaving enough for the kids.
More likely as the money dwindled we would cut our expenses. I doubt many bogleheads will be sleeping under bridges even with a long period of subpar market returns.
Last edited by letsgobobby on Sun Mar 02, 2014 1:06 pm, edited 1 time in total.

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Re: Allan Roth on "Richest Guy in the Graveyard"

Post by Taylor Larimore » Sun Mar 02, 2014 12:00 pm

What exactly is a 95-98% success rate?
Manwithnoname:

It is a rate of withdrawal from a portfolio that will not run out of money during a certain period.

"Success rates" are usually based on past performance and there are no guarantees.

Best wishes
Taylor
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Re: Allan Roth on "Richest Guy in the Graveyard"

Post by freddie » Sun Mar 02, 2014 2:55 pm

That approach means you work an extra 5+ years to handle a situation that only comes up 5% of the time. You lower your risk of running out of money by making it a certainty that you will have less time to do what you want. Is that a worthwhile tradeoff? Depends what the failure case is. If means my vacation home is 2 blocks from the beach instead of on it, I can handle that risk. If it means I am eating alpo, I am saving more. And of course a lot depends on how you feel about your job.

manwithnoname wrote:
Not exactly.

better approach is to have 2X the assets you expect to spend in retirement.
Last edited by freddie on Sun Mar 02, 2014 5:42 pm, edited 1 time in total.

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Re: Allan Roth on "Richest Guy in the Graveyard"

Post by SGM » Sun Mar 02, 2014 4:32 pm

I am doing the same conversion thing again this year with three new Roths and may add a fourth. I have until October 2015 (September to be on the safe side) to recharacterize any of them. There are additional rules for reconverting the recharacterized assets. I will review Lange's book on Roths and/or the BH threads about recharacterization/reconverting timing if I end up recharacterizing. I think it is an excellent tax planning tool.

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Re: Allan Roth on "Richest Guy in the Graveyard"

Post by tj » Sun Mar 02, 2014 4:44 pm

DonDraper wrote:I would like to be rich in the graveyard because that money will then transfer to my children.

Wouldn't you rather enjoy the wealth with your children while you are alive?

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