"When you've won the game, stop playing"

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Go Blue 99
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Bernstein article:How to tell if your nest egg is big enough

Post by Go Blue 99 » Tue Jan 20, 2015 11:46 am

William Bernstein article from WSJ:

http://finance.yahoo.com/news/tell-reti ... 00668.html

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Re: Bernstein article:How to tell if your nest egg is big en

Post by livesoft » Tue Jan 20, 2015 12:13 pm

Thanks for the link as I had missed it. Wm Bernstein suggests in the article a max allocation to equities for a retiree's portfolio:
Both historical back testing and Monte Carlo analysis suggest that a 65-year-old with only 20 years of RLE in his nest egg should hold no more than 50% of his or her portfolio in equities; if you have 35 years of RLE, then up to 70% is probably safe; and if you have 50 years of RLE, then even an all-stock portfolio is reasonable—if you can stomach it.
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Re: Bernstein article:How to tell if your nest egg is big en

Post by Browser » Tue Jan 20, 2015 12:18 pm

A good rule of thumb is to have, at the very least, 25 years of RLE saved up to retire at 60, 20 years to retire at 65, and 17 years to retire at 70
Wonder where these figures come from in the article? He's estimating life expectancy to be 85 at age 60 and 65, and 87 at age 70.
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Re: Bernstein article:How to tell if your nest egg is big en

Post by victork » Tue Jan 20, 2015 12:30 pm

Thanks for the link.
It has me thinking.
Maybe I'll be happier with 35% stock than my current 40%.

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Re: Bernstein article:How to tell if your nest egg is big en

Post by Bill M » Tue Jan 20, 2015 1:43 pm

Browser wrote:
A good rule of thumb is to have, at the very least, 25 years of RLE saved up to retire at 60, 20 years to retire at 65, and 17 years to retire at 70
Wonder where these figures come from in the article? He's estimating life expectancy to be 85 at age 60 and 65, and 87 at age 70.
In the article RLE is "Residual Living Expenses" (not remaining life expectancy). So 25 years of RLE at 60 means a 4% withdrawal rate (where have we seen that number before), 20 years of RLE at 65 is a 5% rate, and 17 years of RLE at 70 is a 6% rate.

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Re: Bernstein article:How to tell if your nest egg is big en

Post by Browser » Tue Jan 20, 2015 1:57 pm

Bill M wrote:
Browser wrote:
A good rule of thumb is to have, at the very least, 25 years of RLE saved up to retire at 60, 20 years to retire at 65, and 17 years to retire at 70
Wonder where these figures come from in the article? He's estimating life expectancy to be 85 at age 60 and 65, and 87 at age 70.
In the article RLE is "Residual Living Expenses" (not remaining life expectancy). So 25 years of RLE at 60 means a 4% withdrawal rate (where have we seen that number before), 20 years of RLE at 65 is a 5% rate, and 17 years of RLE at 70 is a 6% rate.
Not sure you're looking it the same way as I am. I understood him to be saying that your RLE "portfolio" should be sufficient to fund your necessary living expenses for a given period of time -- those funds should be invested in "safe" assets. If there are any remaining funds in your total portfolio, you can optionally invest those in riskier assets. He's not talking about a SWR strategy at all. At age 60 to 65, he is saying that you should have an RLE portfolio sufficient to fund your living expenses until age 85, and at age 70 until age 87. Many people might think that you should have an RLE portfolio large enough to reach an older age. Otherwise, you might run out of RLE funds before you run out of you.
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Re: Bernstein article:How to tell if your nest egg is big en

Post by randomguy » Tue Jan 20, 2015 2:02 pm

Browser wrote:
A good rule of thumb is to have, at the very least, 25 years of RLE saved up to retire at 60, 20 years to retire at 65, and 17 years to retire at 70
Wonder where these figures come from in the article? He's estimating life expectancy to be 85 at age 60 and 65, and 87 at age 70.

Those numbers pretty much match the SS life expectancy tables for woman.

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Re: Bernstein article:How to tell if your nest egg is big en

Post by 555 » Tue Jan 20, 2015 4:45 pm

Go Blue 99 wrote:William Bernstein article from WSJ:

http://finance.yahoo.com/news/tell-reti ... 00668.html
The actual article:
http://www.wsj.com/articles/how-to-tell ... 1421726456

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"When you've won the game, stop playing"

Post by Taylor Larimore » Tue Jan 20, 2015 4:47 pm

[Thread merged into here, see below (page 2). -- admin LadyGeek]

Bogleheads:

Boglehead, author and advisor, Bill Bernstein, has a lengthy article in the Wall Street Journal today titled, How to Tell if Your Retirement Nest Egg Is Big Enough.

Bill put in italics something I also think is very important for investors: "When you’ve won the game, stop playing".

I hope this link works:

http://www.wsj.com/articles/how-to-tell ... utologin=y

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

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Re: "When you've won the game, stop playing"

Post by mbres60 » Tue Jan 20, 2015 5:03 pm

Thank you, Taylor. I keep thinking the same thing but it is sometimes hard to "stop playing" because you never know what will be needed.

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Re: "When you've won the game, stop playing"

Post by LAlearning » Tue Jan 20, 2015 5:08 pm

The last paragraph says it all and is the key to the whole thing: Just Do It.

Also, my devils post (#666 :twisted: )
I know nothing!

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Re: "When you've won the game, stop playing"

Post by The Wizard » Tue Jan 20, 2015 5:10 pm

Investing is not a game and we're not playing.

Bill does have a new term in that article: RLE = residual living expenses.
Nonetheless, the key point should be: don't be overweight in equities as you approach retirement. 50% is a lot better than 75% or 80%. And 30% might be even better.
But 0% equities, IMO, is not...
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Re: Bernstein article:How to tell if your nest egg is big en

Post by CABob » Tue Jan 20, 2015 5:15 pm

Taylor has also initiated a conversation on this subject at viewtopic.php?f=10&t=156151&newpost=2342333
Bob

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Re: "When you've won the game, stop playing"

Post by CABob » Tue Jan 20, 2015 5:16 pm

There is another conversation started regarding this article at viewtopic.php?f=2&t=156119&p=2342349#p2342349
Bob

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Re: "When you've won the game, stop playing"

Post by Van » Tue Jan 20, 2015 5:30 pm

Thanks Taylor. I think this advice is not followed often enough, especially by those that might be letting an advisor guide their investments.

The quote ascribed to Warren Buffet is priceless.

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Re: Bernstein article:How to tell if your nest egg is big en

Post by abuss368 » Tue Jan 20, 2015 5:39 pm

That was a really good article.

Thank you fro sharing.
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Re: "When you've won the game, stop playing"

Post by toto238 » Tue Jan 20, 2015 6:00 pm

Some people have enough saved that they could be 90% stock or 90% bond, and since they're only withdrawing 2% or less from their retirement, they'll be perfectly fine either way. In fact, they could probably convert to 100% cash and CDs still be fine.

But some of those people may have the PREFERENCE to take risk. Given that their success rate is basically 100% either way, they may prefer the way that gives them a chance at leaving a bigger inheritance for loved ones or charities.

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Re: "When you've won the game, stop playing"

Post by FelixTheCat » Tue Jan 20, 2015 6:57 pm

Van wrote:The quote ascribed to Warren Buffet is priceless.
Agreed
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Re: "When you've won the game, stop playing"

Post by flyingaway » Tue Jan 20, 2015 7:15 pm

When you have won the game at the retirement (time), stop playing. Sounds good to me.

How about when you have won the game and are not interested in retiring any time soon? Do you continue playing, or stop playing?

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Re: "When you've won the game, stop playing"

Post by Scotttheking » Tue Jan 20, 2015 7:20 pm

How do you know you've won before the game is over?

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Re: "When you've won the game, stop playing"

Post by flyingaway » Tue Jan 20, 2015 7:30 pm

Having won the game means having enough for retirement, or having reached financial independence.

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Re: "When you've won the game, stop playing"

Post by keelerjr12 » Tue Jan 20, 2015 7:40 pm

I might've been the only one who got this, but I didn't take it as stop playing the game. Just scale back the bets (risk). I read the comments before the article and it seemed that people were implying to take all the chips off the table.

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Re: "When you've won the game, stop playing"

Post by SGM » Tue Jan 20, 2015 7:49 pm

Scotttheking wrote:How do you know you've won before the game is over?
It depends on the number of years of life expectancy and total income streams such as pensions and SS. I use life expectancy of 105 for spouse because of long lived parents. I don't care if we don't spend every penny we have. You could assume an inflation rate. The important thing pointed out in the article is that regular withdrawals without some fat in it can lead to running out of money early if there is a strong sustained downturn in the market. As I recall Bill had some examples in the WSJ piece.

I think if you spend any more time trying to get more precision you are just spending nervous energy. I would rather be accurate within limits then spend the time trying for meaningless precision.

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Re: "When you've won the game, stop playing"

Post by lack_ey » Tue Jan 20, 2015 7:50 pm

Scotttheking wrote:How do you know you've won before the game is over?
It's like real sports these days. You run the game state through the computers (statistical models, projections) and out pops the probability of winning!
keelerjr12 wrote:I might've been the only one who got this, but I didn't take it as stop playing the game. Just scale back the bets (risk). I read the comments before the article and it seemed that people were implying to take all the chips off the table.
Yes, the actual advice is just to scale back the risk by decreasing the equity stake. That phrasing isn't quite as nice or marketable, though.

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Re: "When you've won the game, stop playing"

Post by tennisplyr » Tue Jan 20, 2015 7:54 pm

Thanks for sharing Taylor. Am 65, retired and at 50/50 so I guess I'm fine.
Those who move forward with a happy spirit will find that things always work out.

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Re: "When you've won the game, stop playing"

Post by fsrph » Tue Jan 20, 2015 8:21 pm

Thanks for posting this Taylor. It sort of backs up how I've been thinking. I have more than my age in bonds. I consider CD's as part of my bond allocation. All CD's are 3%, thank you Penfed. I don't need to take on a more aggressive portfolio.

Francis
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Re: "When you've won the game, stop playing"

Post by Pizzasteve510 » Tue Jan 20, 2015 8:36 pm

toto238 wrote:Some people have enough saved that they could be 90% stock or 90% bond, and since they're only withdrawing 2% or less from their retirement, they'll be perfectly fine either way. In fact, they could probably convert to 100% cash and CDs still be fine.

But some of those people may have the PREFERENCE to take risk. Given that their success rate is basically 100% either way, they may prefer the way that gives them a chance at leaving a bigger inheritance for loved ones or charities.
+1 well said

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Re: "When you've won the game, stop playing"

Post by Derek Tinnin » Tue Jan 20, 2015 8:39 pm

You can't stop playing the game even if you want to (no place to hide with risk, just trade-offs). It has been and always will be a battle of preserving capital vs. preserving purchasing power. Did a retiree in 1933, who had 25 in RLE owning 100% T Bills feel pretty secure? Probably, especially considering the economic environment. How did they feel 19 years later after seeing a total real return of negative 47%? Not so good I bet. If I checked my data correctly, that roughly 2 decade negative return is the worst 20 year asset class performer on record. So what's worse, losing half your purchasing power over 20 years or half your capital in one year? Pick your poison, or...be reasonable and diversify. Just because you avoid stocks doesn't mean you can't lose half your money.

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Re: "When you've won the game, stop playing"

Post by dharrythomas » Tue Jan 20, 2015 8:44 pm

Thanks Taylor!

The reader comments insulting Bill Bernstein make me smile. I can remember thinking that I was as smart as some of the readers do. I don't know more, I've just got a better understanding of how little I actually know.

My father told me years ago that when I had enough saved to quit. I asked him, quit saving or quit work. His response was "Both!" (Of course, he dropped dead of a heart attack while he was negotiating the sale of his accounting practice. Everything is easier in theory than in practice.

Thanks again.

Harry

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Re: "When you've won the game, stop playing"

Post by mtheulen » Tue Jan 20, 2015 9:10 pm

Thanks Taylor
We all get so wound up with "blinders on", we do need to take a step back and re evaluate.I know after burning the calculator up this summer, I readjusted.Bernstein's article confirmed what I did was the right move. Thanks again!

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Re: "When you've won the game, stop playing"

Post by Random Musings » Tue Jan 20, 2015 9:36 pm

When I look at the chart for the "six" periods of sustained growth, the fifth one looks a little weak on the logarithmic scale and that perhaps the current leg up is really the 5th period. Of course, if another bear hits, perhaps we are still waiting for #5. Too early to tell in my book. But then again, I'm not a chartist.

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Re: "When you've won the game, stop playing"

Post by antiqueman » Tue Jan 20, 2015 9:37 pm

[quote="dharrythomas"]Thanks Taylor!

The reader comments insulting Bill Bernstein make me smile. I can remember thinking that I was as smart as some of the readers do. I don't know more, I've just got a better understanding of how little I actually know.



I agree . I know enough to know that I do not have anywhere near the "smarts" or understand investing or finance like Bill Bernstein .

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Re: "When you've won the game, stop playing"

Post by EarlyStart » Tue Jan 20, 2015 10:19 pm

The 25x annual expenses or 4% SWR is nothing new, but what if you retire much earlier? What about someone who retires at 40?


3% SWR? 2.5%? I've had trouble with backtesting and Monte Carlo simulations given the much longer period. Can anyone shed some light on this?

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Re: "When you've won the game, stop playing"

Post by trueblueky » Tue Jan 20, 2015 10:43 pm

There's a huge difference between these scenarios:

1) Your RLE is $20,000, you're 65, and your retirement account is $1 million. In this case, you've won the game, but need to avoid both a market meltdown and runaway inflation. The article mentions people who had the game won, but then lost it. The Packers can relate.

2) You've been retired 10 years and still haven't touched your $1 million retirement portfolio. In essence, your RLE is $0. The Patriots can relate.

There's a difference between a 12-point lead with two minutes left, and a 42-point lead with two minutes left. This article seems to be about protecting the 12-point lead.

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Re: "When you've won the game, stop playing"

Post by keanwood » Tue Jan 20, 2015 11:27 pm

..many Americans nearing retirement fleetingly acquired a nest egg adequate for later life.
I understand what this article is saying but I have some problems with it. It uses the term "won the game" as if that is a very specific dollar amount. I feel that it should be used as a range. Sure if you just barely have enough money to retire then yes absolutely go heavy into bonds/cash. But if you have plenty regardless of what the market does than staying heavy in stocks might be the right choice.

trueblueky wrote:There's a difference between a 12-point lead with two minutes left, and a 42-point lead with two minutes left. This article seems to be about protecting the 12-point lead.
^^This^^

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Re: "When you've won the game, stop playing"

Post by siamond » Tue Jan 20, 2015 11:39 pm

EarlyStart wrote:The 25x annual expenses or 4% SWR is nothing new, but what if you retire much earlier? What about someone who retires at 40?


3% SWR? 2.5%? I've had trouble with backtesting and Monte Carlo simulations given the much longer period. Can anyone shed some light on this?
Then it's a completely different ball game. First, the bond-centric strategies start showing severe flaws, inflation risk, lack of solid returns, this is toxic for a long-term portfolio. Next, at this age, you will likely end up finding some side-job(s) you enjoy if only to keep you busy, and add some $$ to the equation. Finally, if you stumble upon a really bad sequence of returns at the beginning of your early retirement, then you're still pretty young and adaptive, and you should be able to find some way to generate some extra cash while a severe crisis unfolds, strongly reducing the impact of withdrawals. So the theoretical math that could lead you to a 3% or 2.5% SWR conclusion would be very unrealistic, and actually downright misleading. My 2 cents. And by the way, I semi-retired at 52, and I am nowhere near 35x RLE savings, and my AA remains stock-heavy. Do I have some trepidations? Sure. But heck, I still feel adaptive enough...

This is the thing with what Dr Bernstein keeps repeating about his 'stop playing' and LMP mantra. This is really designed for a 65 to 70 years-old, definitely not an early retiree.

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Re: "When you've won the game, stop playing"

Post by Bill Bernstein » Tue Jan 20, 2015 11:59 pm

Thanks for all the kind words, and especially the sympathy. But it's not necessary; anyone writing for the Journal (which does not appear to be as well moderated as this board!) gets a little abuse.

I also appreciate the nuances above, most of which can't be addressed in 850 words. This piece was not aimed at the early retiree, who has to worry about inflation a whole lot more, nor the person who can survive on a 1.5% burn rate ("42 points ahead with 2 minutes left.")

And implicit in all this is that you're delaying SS until 70 and on top of that insulating yourself against inflation with a slug of TIPS and maybe an inflation adjusted annuity.

This piece *is* aimed at the 70 year old who needs a 4-6% burn rate who's 85% equity, which always happens in ebullient markets; I got more than one email from folks in that situation, very gratifying.

Bill

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Re: "When you've won the game, stop playing"

Post by HIinvestor » Wed Jan 21, 2015 12:39 am

Bill,
Thanks again for helping be one of the few voices of reason in the noise out there and having the guts to tell it like it is. There are many who can't believe a bull market will even turn into something less rosy and stand to lose A LOT, as you well pointed out.

We are slowly getting our cash invested--no point in staying in as much cash as we have. Good to remember not to put more in equities than we can afford to lose, in case things go south. Our S has only known bull markets and we may need to help bail him out as well, but since he's only in his 20s, he has a longer time horizon. ;)

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Re: "When you've won the game, stop playing"

Post by ERMD » Wed Jan 21, 2015 1:55 am

bill:

thanks for the article. i always though pascal's wager was silly and slightly condescending, the sort of thing you tell a 6-year-old so they don't put up a fight about going to church on sunday. i'd rather stay at home and watch cartoons!

// z
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Re: "When you've won the game, stop playing"

Post by obgyn65 » Wed Jan 21, 2015 2:54 am

I have won the game. I don't play. Turning 50 this year, retiring from my full time position.
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Re: "When you've won the game, stop playing"

Post by RadAudit » Wed Jan 21, 2015 8:12 am

Bill Bernstein wrote:This piece *is* aimed at the 70 year old who needs a 4-6% burn rate who's 85% equity, which always happens in ebullient markets;
That's a dangerous position to be in. Thanks for the heads up
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Re: "When you've won the game, stop playing"

Post by Blues » Wed Jan 21, 2015 8:28 am

Dr. Bill's approach to risk management has been a tremendous help over the years with both our understanding and approach to investing as well as the results thereof. We are happily in the "won the game" category and have been able to reduce equity exposure to a very comfortable level which allows us to sleep at night without any second guessing due to the vagaries and resultant fluctuations of the market.

Thank you, sir. :beer
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Re: "When you've won the game, stop playing"

Post by Blues » Wed Jan 21, 2015 8:34 am

trueblueky wrote:There's a huge difference between these scenarios:

1) Your RLE is $20,000, you're 65, and your retirement account is $1 million. In this case, you've won the game, but need to avoid both a market meltdown and runaway inflation. The article mentions people who had the game won, but then lost it. The Packers can relate.

2) You've been retired 10 years and still haven't touched your $1 million retirement portfolio. In essence, your RLE is $0. The Patriots can relate.

There's a difference between a 12-point lead with two minutes left, and a 42-point lead with two minutes left. This article seems to be about protecting the 12-point lead.
I like your analogy. :sharebeer The Packers' loss proved the old adage that just because something seems extremely improbable doesn't mean it can't or won't happen.

When one has worked hard to amass a portfolio of a certain size (and perhaps larger) it might be time to take necessary caution and remember another adage stating that both bulls and bears make money but pigs get slaughtered.
“Tactics without strategy is the noise before defeat.” - Sun Tzu | "Everybody has a plan until they get punched in the mouth." - Mike Tyson

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Re: "When you've won the game, stop playing"

Post by tennisplyr » Wed Jan 21, 2015 8:38 am

Sure greed is often at play here but also there are significant numbers of people who will try to get that "little extra large" safety net. Why, because they've been scared into doing it.
Those who move forward with a happy spirit will find that things always work out.

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Re: "When you've won the game, stop playing"

Post by 1210sda » Wed Jan 21, 2015 8:42 am

Bill Bernstein wrote: This piece was not aimed at the early retiree, who has to worry about inflation a whole lot more, nor the person who can survive on a 1.5% burn rate ("42 points ahead with 2 minutes left.")
Dr. Bill,

What is the approach for this individual? Does the AA matter that much for this retiree?
1210

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Re: Bernstein article:How to tell if your nest egg is big en

Post by carolinaman » Wed Jan 21, 2015 8:43 am

Excellent article and great advice from Dr. Bernstein. I also like the quote from Paschal, so true and applicable to many aspects of life. Thanks for sharing.

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Re: "When you've won the game, stop playing"

Post by richard » Wed Jan 21, 2015 9:05 am

1210sda wrote:
Bill Bernstein wrote: This piece was not aimed at the early retiree, who has to worry about inflation a whole lot more, nor the person who can survive on a 1.5% burn rate ("42 points ahead with 2 minutes left.")
Dr. Bill,

What is the approach for this individual? Does the AA matter that much for this retiree?
1210
Backtesting and simulations show that just about any reasonable AA and time frame work.

For example, try http://www.firecalc.com and https://retirementplans.vanguard.com/VG ... ggCalc.jsf

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Re: "When you've won the game, stop playing"

Post by stemikger » Wed Jan 21, 2015 9:09 am

Thank you Taylor and Dr. Bernstein!
Choose Simplicity ~ Stay the Course!! ~ Press on Regardless!!!

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Re: "When you've won the game, stop playing"

Post by smpatel » Wed Jan 21, 2015 9:23 am

It is a catchy phrase!

Passively owning and supporting business is a risk not a game! Passing the ownership to your loved ones when you die is legacy/inheritance not a game.

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Re: "When you've won the game, stop playing"

Post by dbr » Wed Jan 21, 2015 9:35 am

Dr. Bernstein is addressing legitimate concerns but I am not so sure the rhetoric is really that appropriate. I don't think it is a game and for sure you can't quit, at least not in a manner any of us would want to seriously contemplate. I suppose the expression might serve the purpose of calling attention to the discussion, which is not a bad thing.

As a post above states, it is about understanding risk in various dimensions and avoiding risks that don't make sense while making good judgements about risks that do make sense.

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