William Bernstein-When you've won the game, why keep playing

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Will do good
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Re: William Bernstein-When you've won the game, why keep pla

Post by Will do good » Thu Mar 13, 2014 3:47 pm

Raybo wrote:I have 2%! Do I hear 1.9%? Going, going, gone...

Larry talks about the marginal utility of wealth. What about the marginal utility of time? Is retirement only about not running out of money? Surely, there is some trade-off between having enough money in case something far worse than has happened in the past 150 years occurs and enjoying one's life while the physically ability to do so still exists?

The trade-off appears to be at the end. That is, if I am willing to risk that the world as I know it won't come to an end before I die (i.e. I run out of money because the Uber-Great Depression-Deflation-Crash hits), then I can have a few years on the front end to do as I please.

Everyday someone delays retirement in order to save more money for retirement is a day of retirement lost. Does this not have a value, too?

'Winning the game" isn't just about having enough money. It is about being able to live without having to work for money, which in my world is "winning."
:sharebeer

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Re: William Bernstein-When you've won the game, why keep pla

Post by technovelist » Thu Mar 13, 2014 3:56 pm

Bill Bernstein wrote:Much as I'd have liked to have coined the phrase "four horsemen" (common shorthand for Four Horsemen of the Apocalypse), someone beat me to it by two millennia:

http://en.wikipedia.org/wiki/Four_Horse ... Apocalypse

Which I adapted in Deep Risk for my own purposes.

I'm not spiriting assets abroad; too difficult, legally risky, and low probability for a US citizen, as I pointed out in the booklet.

The only "easy" foreign assets are gold in a vault in Zurich or a villa in Rome. I'm not enough of a goldbug for the first, and as to the second, I hate owning real estate. :wink:

Bill
Weren't you the one who liked the HBPP fairly well? Yes, I see you were: http://www.efficientfrontier.com/ef/0adhoc/harry.htm

In that case, it shouldn't seem particularly weird to have gold in a reliable jurisdiction.
In theory, theory and practice are identical. In practice, they often differ.

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Re: William Bernstein-When you've won the game, why keep pla

Post by jeffyscott » Thu Mar 13, 2014 4:45 pm

packer16 wrote:An interesting question from this line of reasoning does a person risk aversion/tolerance change that much as one ages. For the folks that are greater than 50% bonds have they always been conservative, what for example is their highest equity allocation in accumulation.
Started out 75% equity, but the thing is the amount in stocks now is far more than the amount we had in stocks at 75%. What's riskier having 75% of $100,000 in stocks or having 40% of $500,000 in stocks? I'd say having $200K in stocks is riskier than having $75,000 no matter how many dollars are in bonds.
press on, regardless - John C. Bogle

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Re: William Bernstein-When you've won the game, why keep pla

Post by Browser » Thu Mar 13, 2014 7:39 pm

I don't know if anyone has taken Required Minimum Distributions into account when figuring out their withdrawal rate, but they should. We keep hearing these days that a safe withdrawal rate is probably about 3% real instead of the classic 4%, but Uncle Sam is going to make you take out closer to 4% at age 72 whether you like it or not, if your retirement portfolio is mostly in tax-deferred accounts, and you may have to increase that by more than the inflation rate each year.

For example, a retiree with $1M in tax deferred accounts at age 72 will have a RMD that year of about 3.9%. If we assume that inflation runs at 3% per year and the individual earns 5% annually on his portfolio, his RMD in real terms would actually increase a little more each year during his retirement. At age 90, he must take 9.12% from his portfolio to meet his RMD requirement; whereas, he would take a little less (8.88%) if he were merely maintaining the initial 3.9% real withdrawal rate.

This needs to be considered when determining the "sleep well" size of of one's retirement nestegg. It does little good to have a nice, fat nestegg if Uncle Sam is going to reward you by making you take larger required withdrawals that you had figured on.
We don't know where we are, or where we're going -- but we're making good time.

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Re: William Bernstein-When you've won the game, why keep pla

Post by Leesbro63 » Thu Mar 13, 2014 7:48 pm

Browser wrote:I don't know if anyone has taken Required Minimum Distributions into account when figuring out their withdrawal rate, but they should. We keep hearing these days that a safe withdrawal rate is probably about 3% real instead of the classic 4%, but Uncle Sam is going to make you take out closer to 4% at age 72 whether you like it or not, if your retirement portfolio is mostly in tax-deferred accounts, and you may have to increase that by more than the inflation rate each year.

For example, a retiree with $1M in tax deferred accounts at age 72 will have a RMD that year of about 3.9%. If we assume that inflation runs at 3% per year and the individual earns 5% annually on his portfolio, his RMD in real terms would actually increase a little more each year during his retirement. At age 90, he must take 9.12% from his portfolio to meet his RMD requirement; whereas, he would take a little less (8.88%) if he were merely maintaining the initial 3.9% real withdrawal rate.

This needs to be considered when determining the "sleep well" size of of one's retirement nestegg. It does little good to have a nice, fat nestegg if Uncle Sam is going to reward you by making you take larger required withdrawals that you had figured on.
It sounds like you are confusing "withdrawals" with "spending". RMD is just a tax issue and that's all. You need to account for a larger and larger portion of your tax-sheltered assets being taxed each year similar to health costs... slow but steady increase each year that has to be budgeted for. But just because you remove it from the tax-sheltered bucket doesn't mean it has to be consumed. It can immediately go into the taxable savings bucket instead, and your overall budget accounts for the slightly greater-than-last-year taxes due. (Or maybe other factors in your situation make your non-RMD income decrease so increasing taxes don't even happen.)

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Re: William Bernstein-When you've won the game, why keep pla

Post by ajcp » Thu Mar 13, 2014 7:49 pm

Browser wrote:I don't know if anyone has taken Required Minimum Distributions into account when figuring out their withdrawal rate, but they should. We keep hearing these days that a safe withdrawal rate is probably about 3% real instead of the classic 4%, but Uncle Sam is going to make you take out closer to 4% at age 72 whether you like it or not, if your retirement portfolio is mostly in tax-deferred accounts, and you may have to increase that by more than the inflation rate each year.

For example, a retiree with $1M in tax deferred accounts at age 72 will have a RMD that year of about 3.9%. If we assume that inflation runs at 3% per year and the individual earns 5% annually on his portfolio, his RMD in real terms would actually increase a little more each year during his retirement. At age 90, he must take 9.12% from his portfolio to meet his RMD requirement; whereas, he would take a little less (8.88%) if he were merely maintaining the initial 3.9% real withdrawal rate.

This needs to be considered when determining the "sleep well" size of of one's retirement nestegg. It does little good to have a nice, fat nestegg if Uncle Sam is going to reward you by making you take larger required withdrawals that you had figured on.
You may have to take 4% or more out of a tax deferred account, but that doesn't mean you have to spend 4% or more.

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Re: William Bernstein-When you've won the game, why keep pla

Post by dodecahedron » Thu Mar 13, 2014 7:53 pm

Browser wrote:I don't know if anyone has taken Required Minimum Distributions into account when figuring out their withdrawal rate, but they should. We keep hearing these days that a safe withdrawal rate is probably about 3% real instead of the classic 4%, but Uncle Sam is going to make you take out closer to 4% at age 72 whether you like it or not, if your retirement portfolio is mostly in tax-deferred accounts, and you may have to increase that by more than the inflation rate each year.

For example, a retiree with $1M in tax deferred accounts at age 72 will have a RMD that year of about 3.9%. If we assume that inflation runs at 3% per year and the individual earns 5% annually on his portfolio, his RMD in real terms would actually increase a little more each year during his retirement. At age 90, he must take 9.12% from his portfolio to meet his RMD requirement; whereas, he would take a little less (8.88%) if he were merely maintaining the initial 3.9% real withdrawal rate.

This needs to be considered when determining the "sleep well" size of of one's retirement nestegg. It does little good to have a nice, fat nestegg if Uncle Sam is going to reward you by making you take larger required withdrawals that you had figured on.
1) Uncle Sam is not making you "spend" your RMDs. You are perfectly free to reinvest part of your RMDs in a taxable account, where they can continue to grow.

2) Even if you do choose to *spend* your RMDs, if you have a more or less balanced mix of traditional, Roth, and taxable accounts, the 4% RMD you are required to take out of your IRA is likely to be far less than 4% of your overall portfolio.

3) I have a part-time job I enjoy and plan to do indefinitely. I have rolled all my traditional IRAs into the traditional 403b plan and will be exempt from RMDs for as long as I am working there, which could be well past 70 1/2. In the meantime, I am planning to systematically convert some of those traditional 403b assets to my Roth IRA (in years when it is good to do so, for whatever reason--e.g., if I am making major donations of appreciated assets to charity in a given year, that is a good year to convert some of my traditional retirement assets to Roth.)

So RMDs do not worry me much.

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Re: William Bernstein-When you've won the game, why keep pla

Post by MnD » Thu Mar 13, 2014 8:15 pm

Raybo wrote:I have 2%! Do I hear 1.9%? Going, going, gone...

Larry talks about the marginal utility of wealth. What about the marginal utility of time? Is retirement only about not running out of money? Surely, there is some trade-off between having enough money in case something far worse than has happened in the past 150 years occurs and enjoying one's life while the physically ability to do so still exists?

The trade-off appears to be at the end. That is, if I am willing to risk that the world as I know it won't come to an end before I die (i.e. I run out of money because the Uber-Great Depression-Deflation-Crash hits), then I can have a few years on the front end to do as I please.

Everyday someone delays retirement in order to save more money for retirement is a day of retirement lost. Does this not have a value, too?
'Winning the game" isn't just about having enough money. It is about being able to live without having to work for money, which in my world is "winning."
Exactly. I have no interest in being the richest man in the graveyard or the dementia ward. Or work many more years than currently planned to have "fortress" 50X spending coverage.
I know several people, including a couple that were very close to me that did the "just one more year" of work/saving to be "all set". And then they had health issues and ending up having no retirement whatsoever. I'd like to think I learned something from seeing that up close and personal.

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Re: William Bernstein-When you've won the game, why keep pla

Post by protagonist » Thu Mar 13, 2014 9:27 pm

MnD wrote:
Raybo wrote:I have 2%! Do I hear 1.9%? Going, going, gone...

Larry talks about the marginal utility of wealth. What about the marginal utility of time? Is retirement only about not running out of money? Surely, there is some trade-off between having enough money in case something far worse than has happened in the past 150 years occurs and enjoying one's life while the physically ability to do so still exists?

The trade-off appears to be at the end. That is, if I am willing to risk that the world as I know it won't come to an end before I die (i.e. I run out of money because the Uber-Great Depression-Deflation-Crash hits), then I can have a few years on the front end to do as I please.

Everyday someone delays retirement in order to save more money for retirement is a day of retirement lost. Does this not have a value, too?
'Winning the game" isn't just about having enough money. It is about being able to live without having to work for money, which in my world is "winning."
I completely agree. This is what I was trying to convey, but you put it very succinctly.

Everything is a gamble. If you gamble for more money, you are wasting time. I personally find time far more valuable than money. I have no idea how many decades, years, or days I will be healthy. That is why I retired early. I may be less rich, and my security if I make it to 90 or 100 might be slightly compromised (the future is largely a crapshoot no matter how you plan it), but the extra time I bought is worth its weight in gold.

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Re: William Bernstein-When you've won the game, why keep pla

Post by YDNAL » Fri Mar 14, 2014 2:25 am

jeffyscott wrote:
packer16 wrote:An interesting question from this line of reasoning does a person risk aversion/tolerance change that much as one ages. For the folks that are greater than 50% bonds have they always been conservative, what for example is their highest equity allocation in accumulation.
Started out 75% equity, but the thing is the amount in stocks now is far more than the amount we had in stocks at 75%. What's riskier having 75% of $100,000 in stocks or having 40% of $500,000 in stocks? I'd say having $200K in stocks is riskier than having $75,000 no matter how many dollars are in bonds. (my emphasis)
And, the risk has different impact at different stages of the investor's life, which is something that some just don't grasp, IMO.

To expand jeffyscott's illustration:
  • 1. A $35K Equity correction (50% of $70K), while young(er) and accumulating Assets, means 2 years in 401K max contributions for the accumulator and also presumably sufficient recovery time.
    2. A $100K Equity correction (50% of $200K), while old(er) and consuming, has a completely different meaning/impact.
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Re: William Bernstein-When you've won the game, why keep pla

Post by Cut-Throat » Fri Mar 14, 2014 11:53 am

protagonist wrote:Everything is a gamble. If you gamble for more money, you are wasting time. I personally find time far more valuable than money. I have no idea how many decades, years, or days I will be healthy. That is why I retired early. I may be less rich, and my security if I make it to 90 or 100 might be slightly compromised (the future is largely a crapshoot no matter how you plan it), but the extra time I bought is worth its weight in gold.
Exactly !.... And don't forget that life always ends badly, for everyone.

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Re: William Bernstein-When you've won the game, why keep pla

Post by packer16 » Fri Mar 14, 2014 1:05 pm

YDNAL wrote:
jeffyscott wrote:
packer16 wrote:An interesting question from this line of reasoning does a person risk aversion/tolerance change that much as one ages. For the folks that are greater than 50% bonds have they always been conservative, what for example is their highest equity allocation in accumulation.
Started out 75% equity, but the thing is the amount in stocks now is far more than the amount we had in stocks at 75%. What's riskier having 75% of $100,000 in stocks or having 40% of $500,000 in stocks? I'd say having $200K in stocks is riskier than having $75,000 no matter how many dollars are in bonds. (my emphasis)
And, the risk has different impact at different stages of the investor's life, which is something that some just don't grasp, IMO.

To expand jeffyscott's illustration:
  • 1. A $35K Equity correction (50% of $70K), while young(er) and accumulating Assets, means 2 years in 401K max contributions for the accumulator and also presumably sufficient recovery time.
    2. A $100K Equity correction (50% of $200K), while old(er) and consuming, has a completely different meaning/impact.
But are you actually consuming the equity if you have 5+ and some cases more living expenses in bonds?

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Re: William Bernstein-When you've won the game, why keep pla

Post by technovelist » Fri Mar 14, 2014 1:29 pm

protagonist wrote: Everything is a gamble. If you gamble for more money, you are wasting time. I personally find time far more valuable than money. I have no idea how many decades, years, or days I will be healthy. That is why I retired early. I may be less rich, and my security if I make it to 90 or 100 might be slightly compromised (the future is largely a crapshoot no matter how you plan it), but the extra time I bought is worth its weight in gold.
I know time can weigh on our hands, but what is its specific gravity? :confused
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Re: William Bernstein-When you've won the game, why keep pla

Post by YDNAL » Fri Mar 14, 2014 1:30 pm

packer16 wrote:
YDNAL wrote:
jeffyscott wrote:
packer16 wrote:An interesting question from this line of reasoning does a person risk aversion/tolerance change that much as one ages. For the folks that are greater than 50% bonds have they always been conservative, what for example is their highest equity allocation in accumulation.
Started out 75% equity, but the thing is the amount in stocks now is far more than the amount we had in stocks at 75%. What's riskier having 75% of $100,000 in stocks or having 40% of $500,000 in stocks? I'd say having $200K in stocks is riskier than having $75,000 no matter how many dollars are in bonds. (my emphasis)
And, the risk has different impact at different stages of the investor's life, which is something that some just don't grasp, IMO.

To expand jeffyscott's illustration:
  • 1. A $35K Equity correction (50% of $70K), while young(er) and accumulating Assets, means 2 years in 401K max contributions for the accumulator and also presumably sufficient recovery time.
    2. A $100K Equity correction (50% of $200K), while old(er) and consuming, has a completely different meaning/impact.
But are you actually consuming the equity if you have 5+ and some cases more living expenses in bonds?

Packer
You consume the *portfolio*, as allocated, and not some mystical [mental] bucket.

1. It takes 11 years, like 1999-2009, before Equities eventually provide some noticeable growth.

Code: Select all

Vanguard 500 Index Fund Investor Shares (VFINX)
Year	Total Return	$10,000 
1999	 21.07%	$12,107
2000	 -9.06%	$11,010
2001	-12.02%	 $9,687
2002	-22.15%	 $7,541
2003	 28.50%	 $9,690
2004	 10.74%	$10,731
2005	  4.77%	$11,243
2006	 15.64%	$13,001
2007	  5.39%	$13,702
2008	-37.02%	 $8,630
2009	 26.49%	$10,916
2. As you consume 5+ years from your mental Bond bucket, questions:
  • - Do you ever rebalance ?
    - Do you ever replace each of 5 years as you burn through them ?
    - How, and with what ?
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Re: William Bernstein-When you've won the game, why keep pla

Post by technovelist » Fri Mar 14, 2014 1:31 pm

Cut-Throat wrote:
protagonist wrote:Everything is a gamble. If you gamble for more money, you are wasting time. I personally find time far more valuable than money. I have no idea how many decades, years, or days I will be healthy. That is why I retired early. I may be less rich, and my security if I make it to 90 or 100 might be slightly compromised (the future is largely a crapshoot no matter how you plan it), but the extra time I bought is worth its weight in gold.
Exactly !.... And don't forget that life always ends badly, for everyone.
It ends for everyone, surely, but always badly? I guess we can't poll the participants to find out...
In theory, theory and practice are identical. In practice, they often differ.

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Re: William Bernstein-When you've won the game, why keep pla

Post by VictoriaF » Fri Mar 14, 2014 1:43 pm

technovelist wrote:
Cut-Throat wrote:And don't forget that life always ends badly, for everyone.
It ends for everyone, surely, but always badly? I guess we can't poll the participants to find out...
You could start a Bogleheads poll. This Forum has its ways of coming up with unexpected answers.

Victoria
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Re: William Bernstein-When you've won the game, why keep pla

Post by packer16 » Fri Mar 14, 2014 1:50 pm

YDNAL wrote:
packer16 wrote:
YDNAL wrote:
jeffyscott wrote:
packer16 wrote:An interesting question from this line of reasoning does a person risk aversion/tolerance change that much as one ages. For the folks that are greater than 50% bonds have they always been conservative, what for example is their highest equity allocation in accumulation.
Started out 75% equity, but the thing is the amount in stocks now is far more than the amount we had in stocks at 75%. What's riskier having 75% of $100,000 in stocks or having 40% of $500,000 in stocks? I'd say having $200K in stocks is riskier than having $75,000 no matter how many dollars are in bonds. (my emphasis)
And, the risk has different impact at different stages of the investor's life, which is something that some just don't grasp, IMO.

To expand jeffyscott's illustration:
  • 1. A $35K Equity correction (50% of $70K), while young(er) and accumulating Assets, means 2 years in 401K max contributions for the accumulator and also presumably sufficient recovery time.
    2. A $100K Equity correction (50% of $200K), while old(er) and consuming, has a completely different meaning/impact.
But are you actually consuming the equity if you have 5+ and some cases more living expenses in bonds?

Packer
You consume the *portfolio*, as allocated, and not some mystical [mental] bucket.

1. It takes 11 years, like 1999-2009, before Equities eventually provide some noticeable growth.

Code: Select all

Vanguard 500 Index Fund Investor Shares (VFINX)
Year	Total Return	$10,000 
1999	 21.07%	$12,107
2000	 -9.06%	$11,010
2001	-12.02%	 $9,687
2002	-22.15%	 $7,541
2003	 28.50%	 $9,690
2004	 10.74%	$10,731
2005	  4.77%	$11,243
2006	 15.64%	$13,001
2007	  5.39%	$13,702
2008	-37.02%	 $8,630
2009	 26.49%	$10,916
2. As you consume 5+ years from your mental Bond bucket, questions:
  • - Do you ever rebalance ?
    - Do you ever replace each of 5 years as you burn through them ?
    - How, and with what ?
I think if you include real estate and value funds in you risk (stocks) bucket you will get much more growth. Using 1999 for your start period and the SP500 includes high weights for tech names which subsequently cratered with no previous increase in value the 1990s. I have started to play with SWR of 5% using value and real estate funds. Here are some prelim results spreadsheets which appear promising:

https://drive.google.com/file/d/0B3RgbV ... sp=sharing

Packer
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Re: William Bernstein-When you've won the game, why keep pla

Post by Ken. » Fri Mar 14, 2014 5:09 pm

Rajsx wrote: " For the middle-aged, they're pretty risky. And for a retired person, they can be nuclear-level toxic ".

- It just dawned on me how sensible and true Bill's statements are ... i.e once you have saved 25 X yearly expenses.

My savings are close to the NUMBER, thanks to regular savings and recent Stock Market highs, and I have started re balancing into bonds.
I am 57 and plan to retire at 60 and had an AA of 50/50, but am thinking of going to 30 Stocks/70 Bonds, to play safe, and at the same time just enough to keep up with inflation.

I am curious to know what other forum members who are in similar situation are doing ? What does YOUR AA looks like/looked like when you are/were close to retirement ?
That statement rang true for me too. I'm within 5 years of having enough to retire and was 80/20. I rebalanced 66.6/33.3, and have a glide path to 60/40 for retirement. Another thing that influenced my AA decision was the fact that the utility of money decreases as it goes past being enough for what you need to what you want. The pleasure of a gain to buy things you want is less than the pain of a loss.

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Re: William Bernstein-When you've won the game, why keep pla

Post by rj49 » Fri Mar 14, 2014 6:54 pm

VictoriaF wrote:
technovelist wrote:
Cut-Throat wrote:And don't forget that life always ends badly, for everyone.
It ends for everyone, surely, but always badly? I guess we can't poll the participants to find out...
You could start a Bogleheads poll. This Forum has its ways of coming up with unexpected answers.

Victoria
A more important Boglehead question than end of life quality is whether or not to tip St. Peter for opening his pearly gates, and if so, how much. Or if the tip karma believers are correct, how little to tip the boat captain to Hades.

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Re: William Bernstein-When you've won the game, why keep pla

Post by VictoriaF » Fri Mar 14, 2014 7:37 pm

rj49 wrote:
VictoriaF wrote:
technovelist wrote:
Cut-Throat wrote:And don't forget that life always ends badly, for everyone.
It ends for everyone, surely, but always badly? I guess we can't poll the participants to find out...
You could start a Bogleheads poll. This Forum has its ways of coming up with unexpected answers.

Victoria
A more important Boglehead question than end of life quality is whether or not to tip St. Peter for opening his pearly gates, and if so, how much. Or if the tip karma believers are correct, how little to tip the boat captain to Hades.
We should ask St. Peter if he's a Boglehead, and if yes, what he thinks of tilting.

Victoria
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Re: William Bernstein-When you've won the game, why keep pla

Post by rnitz » Fri Mar 14, 2014 7:55 pm

VictoriaF wrote:
rj49 wrote:
VictoriaF wrote:
technovelist wrote:
Cut-Throat wrote:And don't forget that life always ends badly, for everyone.
It ends for everyone, surely, but always badly? I guess we can't poll the participants to find out...
You could start a Bogleheads poll. This Forum has its ways of coming up with unexpected answers.

Victoria
A more important Boglehead question than end of life quality is whether or not to tip St. Peter for opening his pearly gates, and if so, how much. Or if the tip karma believers are correct, how little to tip the boat captain to Hades.
We should ask St. Peter if he's a Boglehead, and if yes, what he thinks of tilting.

Victoria
Of course St. Peter's a Boglehead! And I've heard that tilting's a cardinal sin (at least according to St. Jack :wink: ).

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Re: William Bernstein-When you've won the game, why keep pla

Post by protagonist » Sat Mar 15, 2014 7:19 am

mitz wrote:


Of course St. Peter's a Boglehead! And I've heard that tilting's a cardinal sin (at least according to St. Jack :wink: ).
Not so sure. I have heard people say that Jesus Saves. But I never heard anybody claim that Peter Invests.

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Re: William Bernstein-When you've won the game, why keep pla

Post by burt » Sat Mar 15, 2014 6:38 pm

What a great thread.

To the OP: My situation is very close to yours. My plans are similar to yours.

To Bill Bernstein: Thank-you, for sharing your knowledge. Your statement “When you’ve won the game, why keep playing ?” is incorporated into my investment plan (verbatim).

I’ve read the statement “need, ability, and willingness to take risk”, but didn’t really know what it meant until recently. In my mind it means, if you’re loaded….gamble all you want. However, if your savings are needed for food, clothing and shelter, you better be damn careful. It’s one thing to lose the second home in Aspen, and an entirely different thing to lose your heat.

burt

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Re: William Bernstein-When you've won the game, why keep pla

Post by Random Musings » Sat Mar 15, 2014 9:03 pm

At least on this board, winning the game has different shades of meaning. But a large percentage of people outside of our little world won't even get to any of our definitions of winning.

RM
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Re: William Bernstein-When you've won the game, why keep pla

Post by MnD » Sun Mar 16, 2014 10:34 am

It depends a lot of what % of your expenses are dependent on withdrawals from investment net worth.
If the market dropped 50% on the day I retired at 70/30 AA, my total income (under a dynamic 4% of year end balance approach) would drop 15%.
That's no fun but it's certainly manageable. Fixed income would represent 11.5 years at a 4% burn rate.
Withdrawing that 4% all from fixed income would be a form of re-balancing so I don't see any big problem in doing that.

What I interpret "when you've won the game, why keep playing" as advising is to eliminate any possibility of growth in your financial profile.
DB pensions, social security and your residence real estate are highly unlikely to grow in real terms and could decline. No more career so no human capital growth.
With a potential 40-year horizon for early retirees, are people really ready to drop any growth potential from the last slice that could grow?
You also aren't de-risking your financial net worth slice of the pie by withdrawing from the "game". Some rolling 30-year real return sequences for bonds and notes have been horrible.

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Re: William Bernstein-When you've won the game, why keep pla

Post by Cut-Throat » Sun Mar 16, 2014 10:46 am

MnD wrote:It depends a lot of what % of your expenses are dependent on withdrawals from investment net worth.
If the market dropped 50% on the day I retired at 70/30 AA, my total income (under a dynamic 4% of year end balance approach) would drop 15%.
That's no fun but it's certainly manageable.
I'm amused when I see withdrawal rates of 2.5% on these forums. They've already decided to take a 40% drop from 4% and the market has not even dropped yet!

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Re: William Bernstein-When you've won the game, why keep pla

Post by Sidney » Sun Mar 16, 2014 10:51 am

Cut-Throat wrote:I'm amused when I see withdrawal rates of 2.5% on these forums. They've already decided to take a 40% drop from 4% and the market has not even dropped yet!
Or they have so much money (and/or other income) and nothing useful to spend it on.
I always wanted to be a procrastinator.

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Re: William Bernstein-When you've won the game, why keep pla

Post by Leesbro63 » Sun Mar 16, 2014 11:00 am

Sidney wrote:
Cut-Throat wrote:I'm amused when I see withdrawal rates of 2.5% on these forums. They've already decided to take a 40% drop from 4% and the market has not even dropped yet!
Or they have so much money (and/or other income) and nothing useful to spend it on.
Once the market drops, it will be a 4% withdrawal rate. Versus the people taking 4% now who will be looking at a 6-8% rate when (if) it drops.

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Re: William Bernstein-When you've won the game, why keep pla

Post by Leesbro63 » Sun Mar 16, 2014 11:02 am

Cut-Throat wrote: I'm amused when I see withdrawal rates of 2.5% on these forums. They've already decided to take a 40% drop from 4% and the market has not even dropped yet!
A while back Rick Ferri said that he encourages his clients to live off the dividends and interest (cash flow) from their portfolios. With a 60-40 to 40-60 portfolio, that's about 2.5% in today's world.

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Re: William Bernstein-When you've won the game, why keep pla

Post by Cut-Throat » Sun Mar 16, 2014 11:54 am

Leesbro63 wrote: Once the market drops, it will be a 4% withdrawal rate. Versus the people taking 4% now who will be looking at a 6-8% rate when (if) it drops.
Not if you use VPW..... Taking a Fixed inflation Adjusted Withdrawal Amount makes no sense. For the reason you stated.

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Re: William Bernstein-When you've won the game, why keep pla

Post by Leesbro63 » Sun Mar 16, 2014 12:18 pm

Cut-Throat wrote:
Leesbro63 wrote: Once the market drops, it will be a 4% withdrawal rate. Versus the people taking 4% now who will be looking at a 6-8% rate when (if) it drops.
Not if you use VPW..... Taking a Fixed inflation Adjusted Withdrawal Amount makes no sense. For the reason you stated.
Refresh my memory...what is VPW..."variable percentage withdrawal". In all honesty, I don't remember the details of that plan. But there is no free lunch. There must be trade offs to that too. Such as increased uncertainty from year to year as to what you can spend maybe? This might make sense for some. But for at least me, I'd prefer to take less in exchange for some certainty that I'll never have to decrease my lifestyle.

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Re: William Bernstein-When you've won the game, why keep pla

Post by SteveNet » Sun Mar 16, 2014 12:46 pm

Rajsx wrote: " For the middle-aged, they're pretty risky. And for a retired person, they can be nuclear-level toxic ".

- It just dawned on me how sensible and true Bill's statements are ... i.e once you have saved 25 X yearly expenses.

My savings are close to the NUMBER, thanks to regular savings and recent Stock Market highs, and I have started re balancing into bonds.
I am 57 and plan to retire at 60 and had an AA of 50/50, but am thinking of going to 30 Stocks/70 Bonds, to play safe, and at the same time just enough to keep up with inflation.

I am curious to know what other forum members who are in similar situation are doing ? What does YOUR AA looks like/looked like when you are/were close to retirement ?
In answering the question in the last line...

I retired at age 50, I'm age 60 now, I was always 100% in equity index funds.
As you mentioned given the stock market highs (and not having a crystal ball for the future) and my current age, I decided to sell half of the portfolio this year, and create a 5yr cd ladder which will become another 5 yr cd ladder till age 70. I have about 2x the needed expense per yr in each yr cd so the unused portion will go into another 5 yr cd.

That should take care of my expenses for the next 10 yrs, then I will take SS at age 70, my wife will take it at age 66 (non working spouse).
The amount of SS and pension we get at age 70 will be much more than we need currently even given inflation.
The 50% of my portfolio will still be invested in Roth and trad Ira (slowly converting to roth each yr). Also invested in Low cost index fund.
I don't see needing it, but it's nice to know it's there in case we do.

That was my way of dealing with the "Why keep playing the game"

Of course each person has to decide for themselves given their own situation when enough is enough and minimize the risk.
Being frugal is hard to learn, but once learned is hard to stop.

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Re: William Bernstein-When you've won the game, why keep pla

Post by gatorking » Sun Mar 16, 2014 12:49 pm

This episode of NPR's "Innovation Hub" explains why people keep playing: http://blogs.wgbh.org/innovation-hub/20 ... ain-money/

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Re: William Bernstein-When you've won the game, why keep pla

Post by Browser » Sun Mar 16, 2014 1:11 pm

If you're going to keep playing the game once you've retired (and your human capital has declined to virtually zero) then at least play it right.

As Dr. Bernstein points out in his e-book "Ages of the Investor," investing a lump sum in stocks and other risky assets up front eliminates "sequence risk". Specifically, this eliminates the risk that stocks will experience losses or very poor returns in the early years of spending down one's retirement portfolio, which can lead to an unrecoverable decline in the safe withdrawal rate and a corresponding decline in one's expected living standard during retirement.

The functional implementation of this approach in retirement is to initially allocate an appropriate percentage of one's total wealth (including portfolio value, and present value of social security, pensions, annuities) to stocks and then maintain that allocation as nearly as possible in a constant dollar amount during retirement, or at least as long as you require. A little back-of-the-envelope calculation will reveal that this requires you to either maintain the same exposure or increase the exposure to stocks (as a percentage of your total wealth) during retirement. This, of course, has been re-confirmed recently by Wade Pfau and Michael Kitces.

The "age in bonds" rule actually has it backwards. Following this rule front-loads your exposure to stocks and thereby to the risk of a negative sequence of returns. As an approximation to the lump sum approach, a retiree should at least strive to maintain a constant percentage exposure to stocks throughout retirement. To illustrate, the AIB rule would produce an average 17.5% stock exposure from age 65 to 100, frontloading that exposure from 35% initially declining to 0% at age 100. Instead, the investor would be better off setting stock exposure to 17.5%, or maybe 20%, and simply maintaining that percentage exposure. You get the same averaged exposure to stocks over time with lower sequence risk. Even better, he would be better off starting a 17.5% and then maintaining that exposure in dollar amount as long as possible (which would result in the percentage exposure actually increasing as a consequence of other assets such as bonds, and the PV of social security, pensions, and annuities being spent down.
We don't know where we are, or where we're going -- but we're making good time.

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Re: William Bernstein-When you've won the game, why keep pla

Post by Cut-Throat » Sun Mar 16, 2014 8:29 pm

Leesbro63 wrote:
Cut-Throat wrote:
Leesbro63 wrote: Once the market drops, it will be a 4% withdrawal rate. Versus the people taking 4% now who will be looking at a 6-8% rate when (if) it drops.
Not if you use VPW..... Taking a Fixed inflation Adjusted Withdrawal Amount makes no sense. For the reason you stated.
Refresh my memory...what is VPW..."variable percentage withdrawal". In all honesty, I don't remember the details of that plan. But there is no free lunch. There must be trade offs to that too. Such as increased uncertainty from year to year as to what you can spend maybe? This might make sense for some. But for at least me, I'd prefer to take less in exchange for some certainty that I'll never have to decrease my lifestyle.
There is not 'free lunch' but there is a much smarter lunch. You don't spend the same amount every year. I don't care who you are.
Some years you buy cars. Remodel the house etc. You should have a plan to spend less in a bear market. It's the reverse of buying low and selling high.

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Re: William Bernstein-When you've won the game, why keep pla

Post by Leesbro63 » Sun Mar 16, 2014 8:34 pm

Cut-Throat wrote:
Leesbro63 wrote:
Cut-Throat wrote:
Leesbro63 wrote: Once the market drops, it will be a 4% withdrawal rate. Versus the people taking 4% now who will be looking at a 6-8% rate when (if) it drops.
Not if you use VPW..... Taking a Fixed inflation Adjusted Withdrawal Amount makes no sense. For the reason you stated.
Refresh my memory...what is VPW..."variable percentage withdrawal". In all honesty, I don't remember the details of that plan. But there is no free lunch. There must be trade offs to that too. Such as increased uncertainty from year to year as to what you can spend maybe? This might make sense for some. But for at least me, I'd prefer to take less in exchange for some certainty that I'll never have to decrease my lifestyle.
There is not 'free lunch' but there is a much smarter lunch. You don't spend the same amount every year. I don't care who you are.
Some years you buy cars. Remodel the house etc. You should have a plan to spend less in a bear market. It's the reverse of buying low and selling high.
But if you maintain a 2.5% SWR, you don't have to spend less in bear markets. But I get your point that the risk profile of a different type plan might allow you to spend more in good years versus just a rigid, meager 2.5% SWR each year.

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Re: William Bernstein-When you've won the game, why keep pla

Post by convert949 » Mon Mar 17, 2014 7:57 am

Browser wrote:I
The "age in bonds" rule actually has it backwards. Following this rule front-loads your exposure to stocks and thereby to the risk of a negative sequence of returns. As an approximation to the lump sum approach, a retiree should at least strive to maintain a constant percentage exposure to stocks throughout retirement. To illustrate, the AIB rule would produce an average 17.5% stock exposure from age 65 to 100, frontloading that exposure from 35% initially declining to 0% at age 100. Instead, the investor would be better off setting stock exposure to 17.5%, or maybe 20%, and simply maintaining that percentage exposure. You get the same averaged exposure to stocks over time with lower sequence risk. Even better, he would be better off starting a 17.5% and then maintaining that exposure in dollar amount as long as possible (which would result in the percentage exposure actually increasing as a consequence of other assets such as bonds, and the PV of social security, pensions, and annuities being spent down.
Having heard Dr. Pfau explain this at last year's Boglehead Conference, at first I thought how counterintuitive it was. Then remembering my own experience, i.e. selling my company and becoming fully invested in November of 2007, as they say... "I represent that remark" Luckily for me, I held on and am back on firm footing today. Hind site being 20/20, my takeaway was that had I had the chance to do it over, I would probably take Wade's advice. Also, in my case, it would also dovetail perfectly with Bills advice not to continue to play the game once you've won as the fixed income portion of my portfolio would approximate the 25x expenses.

Turning 65 this year, I am considering modifying my IPS along these lines. My only hesitation is the tax implications... :annoyed

Regards to all,

Bob

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Re: William Bernstein-When you've won the game, why keep pla

Post by Sidney » Mon Mar 17, 2014 8:00 am

Cut-Throat wrote:There is not 'free lunch' but there is a much smarter lunch. You don't spend the same amount every year. I don't care who you are.
Some years you buy cars. Remodel the house etc. You should have a plan to spend less in a bear market. It's the reverse of buying low and selling high.
Actually, we spent more during 2009. Prices for contractors for remodel were very low -- lower than pre-recession and lower than now.
I always wanted to be a procrastinator.

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Re: William Bernstein-When you've won the game, why keep pla

Post by Cut-Throat » Mon Mar 17, 2014 8:33 am

Sidney wrote:
Cut-Throat wrote:There is not 'free lunch' but there is a much smarter lunch. You don't spend the same amount every year. I don't care who you are.
Some years you buy cars. Remodel the house etc. You should have a plan to spend less in a bear market. It's the reverse of buying low and selling high.
Actually, we spent more during 2009. Prices for contractors for remodel were very low -- lower than pre-recession and lower than now.
I agree, certain expenditures are cheaper in bear markets.

What I should have said instead of 'spend' was to 'withdraw less from the market' during a bear. My withdrawal amount does equal my spending amount.

I'll withdraw more from the market during up market years. In other words 'taking a profit' and less during bear markets.

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Re: William Bernstein-When you've won the game, why keep pla

Post by 1210sda » Wed Mar 19, 2014 11:01 am

Browser wrote: As Dr. Bernstein points out in his e-book "Ages of the Investor," investing a lump sum in stocks and other risky assets up front eliminates "sequence risk"..
I believe this is true as long as there are no "withdrawals from or additions to" the portfolio.

Once you start retirement, there likely will be withdrawals from the portfolio.

I do agree, however, with the concept of lower exposure to equities at the start of retirement. If a portfolio has an 80% allocation to equities, then a 40% drop similar to what we had in 2007-2008 at the start of retirement would reduce the portfolio by 32% (if fixed income is held constant). If you only had a 30% allocation to equities, then the portfolio would be reduced by just 12%.

If the allocation was reversed and the 2007-2008 returns were experienced later in retirement, then the effect of retirement would not be as harsh.

Having said that, it might be emotionally difficult to start with lower equity exposure and increase it as you age.
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Re: William Bernstein-When you've won the game, why keep pla

Post by Browser » Wed Mar 19, 2014 11:52 am

1210sda wrote:
Browser wrote: As Dr. Bernstein points out in his e-book "Ages of the Investor," investing a lump sum in stocks and other risky assets up front eliminates "sequence risk"..
I believe this is true as long as there are no "withdrawals from or additions to" the portfolio.

Once you start retirement, there likely will be withdrawals from the portfolio.

I do agree, however, with the concept of lower exposure to equities at the start of retirement. If a portfolio has an 80% allocation to equities, then a 40% drop similar to what we had in 2007-2008 at the start of retirement would reduce the portfolio by 32% (if fixed income is held constant). If you only had a 30% allocation to equities, then the portfolio would be reduced by just 12%.

If the allocation was reversed and the 2007-2008 returns were experienced later in retirement, then the effect of retirement would not be as harsh.

Having said that, it might be emotionally difficult to start with lower equity exposure and increase it as you age.
1210
It's not necessary to make withdrawals from the stock portion of the portfolio initially. Some advocate a "bonds first" approach in which fixed income assets are drawn down first and only stock dividends are harvested. This would result in the dollar amount in equities being relatively constant, while the equity allocation would rise as a percentage of the portfolio as other assets are drawn down. I'm personally uncomfortable with this approach, so I prefer to maintain a constant percentage equity allocation. As you point out, this approach is not invulnerable to sequence risk, but it is less vulnerable than the age-in-bonds allocation approach. I've run some backtesting and it was clear to me, at least for the periods I selected, that the constant allocation approach had a higher survival probability than age-in-bonds over a 30-year horizon.
We don't know where we are, or where we're going -- but we're making good time.

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Re: William Bernstein-When you've won the game, why keep pla

Post by Rodc » Wed Mar 19, 2014 12:26 pm

Browser wrote:If you're going to keep playing the game once you've retired (and your human capital has declined to virtually zero) then at least play it right.

As Dr. Bernstein points out in his e-book "Ages of the Investor," investing a lump sum in stocks and other risky assets up front eliminates "sequence risk". Specifically, this eliminates the risk that stocks will experience losses or very poor returns in the early years of spending down one's retirement portfolio, which can lead to an unrecoverable decline in the safe withdrawal rate and a corresponding decline in one's expected living standard during retirement.

The functional implementation of this approach in retirement is to initially allocate an appropriate percentage of one's total wealth (including portfolio value, and present value of social security, pensions, annuities) to stocks and then maintain that allocation as nearly as possible in a constant dollar amount during retirement, or at least as long as you require. A little back-of-the-envelope calculation will reveal that this requires you to either maintain the same exposure or increase the exposure to stocks (as a percentage of your total wealth) during retirement. This, of course, has been re-confirmed recently by Wade Pfau and Michael Kitces.

The "age in bonds" rule actually has it backwards. Following this rule front-loads your exposure to stocks and thereby to the risk of a negative sequence of returns. As an approximation to the lump sum approach, a retiree should at least strive to maintain a constant percentage exposure to stocks throughout retirement. To illustrate, the AIB rule would produce an average 17.5% stock exposure from age 65 to 100, frontloading that exposure from 35% initially declining to 0% at age 100. Instead, the investor would be better off setting stock exposure to 17.5%, or maybe 20%, and simply maintaining that percentage exposure. You get the same averaged exposure to stocks over time with lower sequence risk. Even better, he would be better off starting a 17.5% and then maintaining that exposure in dollar amount as long as possible (which would result in the percentage exposure actually increasing as a consequence of other assets such as bonds, and the PV of social security, pensions, and annuities being spent down.
The bold is false.

FWIW: here is the paper http://papers.ssrn.com/sol3/papers.cfm? ... id=2324930

I suggest these results do not say what most seem to think they say, including the author.

First, given their "market expectations data" their 4% and 5% withdrawal rates are so high that the failure rates are such that all allocations are crazy bad. The best is a success rate (for 4%, worse of course for 5%) of 74%, starting 30% moving to 80%. But 50/50 is also 74% (I guess rising allocation wins by a fraction of a percent). The differences in "legacy shortfall is only a couple of percent, well below the level of the accuracy of their methodology. Given the huge failure rates and the various associated near identical metric values their results are pretty well non-useful, though the data clearly show no meaningful difference between static 50/50 and a rising allocation that averages 50/50.

Given their "historical returns" things are better, at least at the 4% withdrawal rate, but the benefit of rising allocations is tiny, it is below the level of noise of what one can learn from a Monte Carlo simulation. For example they show a max success rate of 95% going from 30% to 70%. But a fixed 50/50 gives a success rate of 94%. The difference is just noise.

They show some results that suggest when rising stock allocation fails it fails a little less badly, a couple of percent, at least at the 5th percentile level, but the difference is again way less than the accuracy of their Monte Carlo simulation. At the median you do better with the constant 50/50.

The max sustainable rate at the 10% failure rate is a dead heat 4.4% vs 4.3%, the difference way below the accuracy available in their simulation.

If they did a proper analysis with error bars or confidence intervals it would be clear they have shown there is no value whatsoever in rising stock allocations.

Also, it should be noted that no one likely ever would actually implement either of these strategies. Real people in a down market stop spending so much; they don't blindly stick to a spending plan as their portfolio crashes. These are really nothing more and nothing less than ways to roughly estimate what level of spending a portfolio of stocks and bonds might generate in the future.

And everyone comes to precisely the same answer if they look at historical data (either directly or indirectly by using Monte Carlo with parameters chosen from a look at history): you can take out about 4%, maybe a shade more or less depending on just how sure you want to be, over a very broad middle range of stock/bond allocations.

If you assume the future will be worse than the historical record, well, you get a little less than suggested by the historical record. No surprise there.
We live a world with knowledge of the future markets has less than one significant figure. And people will still and always demand answers to three significant digits.

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Re: William Bernstein-When you've won the game, why keep pla

Post by 1210sda » Wed Mar 19, 2014 1:07 pm

Browser wrote:
1210sda wrote:
Browser wrote: As Dr. Bernstein points out in his e-book "Ages of the Investor," investing a lump sum in stocks and other risky assets up front eliminates "sequence risk"..
I believe this is true as long as there are no "withdrawals from or additions to" the portfolio.

Once you start retirement, there likely will be withdrawals from the portfolio.

I do agree, however, with the concept of lower exposure to equities at the start of retirement. If a portfolio has an 80% allocation to equities, then a 40% drop similar to what we had in 2007-2008 at the start of retirement would reduce the portfolio by 32% (if fixed income is held constant). If you only had a 30% allocation to equities, then the portfolio would be reduced by just 12%.

If the allocation was reversed and the 2007-2008 returns were experienced later in retirement, then the effect of retirement would not be as harsh.

Having said that, it might be emotionally difficult to start with lower equity exposure and increase it as you age.
1210
It's not necessary to make withdrawals from the stock portion of the portfolio initially. Some advocate a "bonds first" approach in which fixed income assets are drawn down first and only stock dividends are harvested. This would result in the dollar amount in equities being relatively constant, while the equity allocation would rise as a percentage of the portfolio as other assets are drawn down. I'm personally uncomfortable with this approach, so I prefer to maintain a constant percentage equity allocation. As you point out, this approach is not invulnerable to sequence risk, but it is less vulnerable than the age-in-bonds allocation approach. I've run some backtesting and it was clear to me, at least for the periods I selected, that the constant allocation approach had a higher survival probability than age-in-bonds over a 30-year horizon.
Thanks for your response.
I too am not enamored with age in bonds.

BTW, I guess if one has a constant percent equity allocation, then they also have a constant percent fixed income allocation....assuming there are only two asset classes. I'm ok with this.

My portfolio becomes more complicated because I'm in my RMD phase and because of my Asset Location. (Fixed in IRA and Equities in taxable). My w/d's from my IRA reduce my fixed allocation and the recent performance of the stock market increases my equity allocation. It requires me to pay much attention to rebalancing.

I'm not complaining, just expressing my self in writing to see if it still makes sense.
1210

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Re: William Bernstein-When you've won the game, why keep pla

Post by freddie » Wed Mar 19, 2014 1:23 pm

And what is wrong with being at 6-8% after the markets have fallen? The SWR of 4% factors in that the market might crash the day after you retire. It is a pretty conservative number. If you willing to cut spending to 2.5%-3% if it turns out that you have a bear market a year after retiring, going with 5-6% is pretty reasonable.

If you don't mind having a big pile of cash when you die, 2.5% is fine. But it also means you could have stopped working 5+ years earlier if you wanted to.

Leesbro63 wrote:
Sidney wrote:
Cut-Throat wrote:I'm amused when I see withdrawal rates of 2.5% on these forums. They've already decided to take a 40% drop from 4% and the market has not even dropped yet!
Or they have so much money (and/or other income) and nothing useful to spend it on.
Once the market drops, it will be a 4% withdrawal rate. Versus the people taking 4% now who will be looking at a 6-8% rate when (if) it drops.

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Re: William Bernstein-When you've won the game, why keep pla

Post by scone » Wed Mar 19, 2014 1:30 pm

In theory, I've made my number, as Dr. Bernstein defines it, but I stay invested because I don't know what the future holds in terms of taxes and inflation. I'd rather tuck away a little bit more in case my current guesses are wrong.
"My bond allocation is the amount of money that I cannot afford to lose." -- Taylor Larimore

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Re: William Bernstein-When you've won the game, why keep pla

Post by midareff » Wed Mar 19, 2014 1:32 pm

Browser wrote:I don't know if anyone has taken Required Minimum Distributions into account when figuring out their withdrawal rate, but they should. We keep hearing these days that a safe withdrawal rate is probably about 3% real instead of the classic 4%, but Uncle Sam is going to make you take out closer to 4% at age 72 whether you like it or not, if your retirement portfolio is mostly in tax-deferred accounts, and you may have to increase that by more than the inflation rate each year.

For example, a retiree with $1M in tax deferred accounts at age 72 will have a RMD that year of about 3.9%. If we assume that inflation runs at 3% per year and the individual earns 5% annually on his portfolio, his RMD in real terms would actually increase a little more each year during his retirement. At age 90, he must take 9.12% from his portfolio to meet his RMD requirement; whereas, he would take a little less (8.88%) if he were merely maintaining the initial 3.9% real withdrawal rate.

This needs to be considered when determining the "sleep well" size of of one's retirement nestegg. It does little good to have a nice, fat nestegg if Uncle Sam is going to reward you by making you take larger required withdrawals that you had figured on.

I did a spreadsheet using a CPI-U of 3% just for the sake of simplicity.... and annual portfolio growth of 3% (unadjusted for CPI). I used a starting drawdown of 2.5% year one with 3% increases each year thereafter as I had to use something. Since I have a 3% annual cola for life on pension and with the assumption of SS adjusted by that 3% CPI-U, everything looked just fine for the next 25+ years. At that point the invested $$ was almost the same as today. Since I think it is realistic for "some" portfolio growth over CPI-U in the next 25 years I see little to worry about .. at least for me/us.

Actually, it strikes me that there are simply too many variables; from life expectancy, CPI-U, stock market returns, Fed Interest rates and thereby bond returns, and so forth to calculate anything to hang a hat on other than something pretty conservative. ... but what does that mean? I remember my Dad selling out of the stock market to by long term CD's at 17 and 18% when I was in college. I though I got a stellar deal on my first house mortgage at 8.75% .... I have one now at 3.0%. There is only one sure thing.... that is... NOBODY KNOWS!

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Re: William Bernstein-When you've won the game, why keep pla

Post by Leesbro63 » Wed Mar 19, 2014 2:40 pm

freddie wrote:And what is wrong with being at 6-8% after the markets have fallen? The SWR of 4% factors in that the market might crash the day after you retire. It is a pretty conservative number. If you willing to cut spending to 2.5%-3% if it turns out that you have a bear market a year after retiring, going with 5-6% is pretty reasonable.
While that's true, the guy retiring in 2009 can make the case that his SWR should be 6-8% since it WOULD HAVE been worth 25-50% more (assuming 60-40 to 40-60 allocation) a year before. This is where SWR "science" breaks down. And where valuations matter. In the real world, it's a bit of common sense that valuations are high now so maybe a bit less than a 4% SWR makes sense. And in 2009 valuations were low so maybe a bit more could have made sense. Although you'd have to have had brass parts to have taken MORE than 4% as everything was crashing and burning around you.

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Cut-Throat
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Re: William Bernstein-When you've won the game, why keep pla

Post by Cut-Throat » Wed Mar 19, 2014 6:49 pm

Leesbro63 wrote: While that's true, the guy retiring in 2009 can make the case that his SWR should be 6-8% since it WOULD HAVE been worth 25-50% more (assuming 60-40 to 40-60 allocation) a year before. This is where SWR "science" breaks down. And where valuations matter. In the real world, it's a bit of common sense that valuations are high now so maybe a bit less than a 4% SWR makes sense. And in 2009 valuations were low so maybe a bit more could have made sense. Although you'd have to have had brass parts to have taken MORE than 4% as everything was crashing and burning around you.
And this is why a Fixed WR makes little sense. You don't have to have 'brass parts' to follow VPW, it reacts like your instincts. Which is correct in the withdrawal phase. Not so much in the accumulation stage.

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Re: William Bernstein-When you've won the game, why keep pla

Post by Browser » Wed Mar 19, 2014 7:31 pm

Cut-Throat wrote:
Leesbro63 wrote: While that's true, the guy retiring in 2009 can make the case that his SWR should be 6-8% since it WOULD HAVE been worth 25-50% more (assuming 60-40 to 40-60 allocation) a year before. This is where SWR "science" breaks down. And where valuations matter. In the real world, it's a bit of common sense that valuations are high now so maybe a bit less than a 4% SWR makes sense. And in 2009 valuations were low so maybe a bit more could have made sense. Although you'd have to have had brass parts to have taken MORE than 4% as everything was crashing and burning around you.
And this is why a Fixed WR makes little sense. You don't have to have 'brass parts' to follow VPW, it reacts like your instincts. Which is correct in the withdrawal phase. Not so much in the accumulation stage.
Basically, a fixed real WR is a little like gambling. If your portfolio takes a hit, you actually have to increase your real withdrawal percentage in order to stay on track. Extreme example: say you start with a real 4% rate on a $1M portfolio which is $40K. Your portfolio drops by 50% to $500K and inflation is zero. Now a $40K withdrawal is actually 8% real, and it will have to stay above 4% real for an unpredictably long period of time. Nobody ever followed a strategy like this who was reasonably sane, and nobody ever will. The only place it ever happened was in the backtest lab, and no animals were injured.
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Re: William Bernstein-When you've won the game, why keep pla

Post by azanon » Thu Mar 20, 2014 2:10 pm

I'm not there yet (middle-aged), but if I were going to follow a fixed withdrawal, I'd probably go with 4%, but recalculated annually based on the adjusted portfolio value, instead of inflation adjusting the original portfolio. I mean, why would there be any relevance to what the original portfolio amount was especially once you're several years down the line? And ok, sure, you'd get "swings" with my approach, but for most people, your portfolio wouldn't be the sum total of your income stream. Most everyone would have Social Security and, in my case, a pension as well. So, with a 50/50 portfolio, that's only covering half of the income stream, then that's 25% of the flow that's adjusting year-to-year, with the other 75% unchanging.

Even Vanguard's aggressive Managed Payout Fund uses a formula that readjusts based on the updated portfolio amount. So I agree, what sane person would implement a withdrawal strategy that actually has a chance of the portfolio pot going to 0? I'd much rather be rich in the graveyard.

And let me add, those swings are exactly how a smart person invests anyway. You take out less when the prices are low, and you eat well and spend when you're getting a great price for your shares.

Been itching to buy that Lexus? Is there a better time than now for liquidating your US stock fund that has been on a tear for 5-6 years? Do it now, not after it crashes later this year. I'm digressing......

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