IBT interview with Dr. Bill Bernstein

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TheTimeLord
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Re: IBT interview with Dr. Bill Bernstein

Post by TheTimeLord » Sat Oct 03, 2015 5:04 pm

Bill Bernstein wrote:Above a certain threshold, sure, money doesn't buy happiness; the data suggest that's somewhere around a family income of 100k per year, probably less for the average retiree. The median retiree will be subsisting well below that level.
I am missing something here. Since the median family income in the U.S is around $54,000, it seems like most retirees be would be able to maintain there lifestyles in retirement on far below $100,000/year not merely subsisting? Is this an expectations issue built into the survey? From what I have read here there seem to be a large number of retired BH living on around $40,000-$60,000/year very happily. Many have reported, since they are debt free, that SS is enough for their basic needs and they aren't really needing large amounts of the income from their portfolios. Those with pensions also seem even more so. Would it be the case if one was a saver they are already accustom to living on less than there actual income? I understand the dots you are presenting I am missing the connections. Thanks you for your patient explanations.
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Re: IBT interview with Dr. Bill Bernstein

Post by hoops777 » Sat Oct 03, 2015 5:45 pm

The 100,000 income is nuts.What pct of the population earns 100,000 ever in there lifetime?Most retired people can live a comfortable life on 50 to 60,000 unless they were in the top 25 pct of wage earners and lived an expensive lifestyle.
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Re: IBT interview with Dr. Bill Bernstein

Post by TheTimeLord » Sat Oct 03, 2015 6:09 pm

hoops777 wrote:The 100,000 income is nuts.What pct of the population earns 100,000 ever in there lifetime?Most retired people can live a comfortable life on 50 to 60,000 unless they were in the top 25 pct of wage earners and lived an expensive lifestyle.
I think initially he is introducing the fact that surveys suggest that having more than $100,000/year doesn't increase happiness which is all well and fine but sort of tangential. But then there is a linkage created between that number and what most retirees are going to live off of. Which is accurate. I am just not sure that information provides with any greater understanding of retirement and how people are at risk. As I remember from unscientific polls here, even with pensions and SS a majority of BH planned to live on 5 figure incomes. I wonder if this somehow ties into the unrealistic expectations many have for retirement based upon commercials of happy seniors cruising, playing golf and living on the beach in sort of an endless adult Disneyland fantasy?
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Re: IBT interview with Dr. Bill Bernstein

Post by LadyGeek » Sat Oct 03, 2015 6:42 pm

I think the key term here is median, which is not the same as average.
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Re: IBT interview with Dr. Bill Bernstein

Post by Bill Bernstein » Sat Oct 03, 2015 6:42 pm

Sorry to confuse people; the $100,000 figure is the inflection point for well-being, i.e., it's pretty well established that well-being increases with income up to $100,000, then flattens out.

I don't know how being retired affects that figure, but I suspect the inflection point may be a tad less for retirees.

But I'm willing to bet that, all else equal, the retiree with $60k of sustainable withdrawal will have significantly higher well-being than one with $30k.

Bill

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Re: IBT interview with Dr. Bill Bernstein

Post by BahamaMan » Sat Oct 03, 2015 6:46 pm

Bill Bernstein wrote:Sorry to confuse people; the $100,000 figure is the inflection point for well-being, i.e., it's pretty well established that well-being increases with income up to $100,000, then flattens out.

I don't know how being retired affects that figure, but I suspect the inflection point may be a tad less for retirees.

But I'm willing to bet that, all else equal, the retiree with $60k of sustainable withdrawal will have significantly higher well-being than one with $30k.

Bill
Yes, I pretty much agree with that.... Especially since a retiree does not have to save for retirement any more and can spend that savings. That is the big plus in being retired !

But a question. What did you mean that the Baby Boomers are "Toast"? ....

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Re: IBT interview with Dr. Bill Bernstein

Post by peppers » Sat Oct 03, 2015 6:55 pm

Dr. Bernstein

Thanks for the CRR study link, interesting reading.
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Re: IBT interview with Dr. Bill Bernstein

Post by dodecahedron » Sat Oct 03, 2015 7:15 pm

I am mystified by this:
VictoriaF wrote:
Bill Bernstein wrote:Really the question you're asking is, Do I rent or do I own? There’s a rough-and-ready number you should always keep in your head: 168. What's magic about 168? That’s the number of months in 14 years and that's the equivalency point between renting and owning. So look at the house and let's say you could rent for $2,000 a month. That means you shouldn’t pay much more than 168 times that: $336,000. So if you can get that place that you could rent for $2,000 a month for less than $336,000, you should buy it. If you can't, you should continue to think about renting. There's a lot of reasons to own a house but not as an investment.
Bill has just helped me to resolve a recent doubt. I have been renting all my life and much prefer it to owning. However, occasionally I re-examine my decisions in order not to miss something critical. Recently, I was contemplating buying a condominium with cash.

Bill's formula helps me to drop the idea and enjoy my preferred way of life. My rent is less than $2k, whereas 2-bedroom condominiums in my area are selling for $450k-$500k. PLUS assessment fees are $300-$400. My current arrangement is clearly superior.
I am glad Bill's "rough and ready" formula is helpful to you (and I would do exactly the same thing in your shoes! And don't forget that there are also property taxes on those condos!) but it seems to me a massive oversimplification for many folks.

For example, a retired married couple may want to buy rather than rent because home equity is a protected asset under Medicaid rules in many states. I know somebody living in the same area as Victoria who would be totally impoverished if she and her late husband had not owned a home at the time that her husband had to go into a nursing home ten years ago. She was required to spend down almost all their assets before Medicaid would contribute to any of his LTC costs but she (as the "community spouse") was allowed to continue living in their home (with a large amount of equity.) After his death, she pretty much had nothing but the home but due to the large amount of equity, she was able to get a HECM (reverse mortgage line of credit). Also, thanks to her income, she pays no property tax on her home. (Note that these rules about Medicaid assets differ from state to state.) In her case, the money they spent on their retirement home was by far the most valuable investment she and her late husband ever made.

Home equity also enjoys special protections in financial aid formulas. In many states, it is also a protected asset from various types of creditors (e.g., in lawsuits.)

To clarify what mystifies me, why is 14 years the "magic" rough and ready figure? There are so many potential variables! I am trying to figure out why the magic number works out to be 14 rather than 12 or 16 ... or 10 or 20? Presumably it is based on some set of assumptions about interest rates, expected inflation rates, after-tax rates of return on alternative places one could invest the money not spent on a home?

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Re: IBT interview with Dr. Bill Bernstein

Post by VictoriaF » Sun Oct 04, 2015 8:24 am

hoops777 wrote:The 100,000 income is nuts.What pct of the population earns 100,000 ever in there lifetime?Most retired people can live a comfortable life on 50 to 60,000 unless they were in the top 25 pct of wage earners and lived an expensive lifestyle.
The required income reflects where one lives and what he wants to do in retirement. If one wants to spend his retirement years in a low-cost-of-living area, less than $100k will do. If one dreams of retiring in a large city on the U.S. East or West Coat or to living in an ocean-front condominium in Florida, a much higher retirement income is needed. Even if you own your home outright a high-cost location inflicts high cost of living, and you want to live there because you want to participate in the lifestyle of that location, whatever the cost is.

Furthermore, Bill refers to the income for a couple; for a single person it could be a bit less.

Victoria
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Re: IBT interview with Dr. Bill Bernstein

Post by dodecahedron » Sun Oct 04, 2015 9:01 am

VictoriaF wrote:Even if you own your home outright a high-cost location inflicts high cost of living, and you want to live there because you want to participate in the lifestyle of that location, whatever the cost is.
I actually think it is possible for someone who owns their home outright to live quite well on a modest income (much less than $100K) in many high-cost locations. I have a number of elderly relatives and their friends living in several high-cost cities on the coasts who own their homes and many do quite well on quite modest incomes (MUCH less than $100K). It depends upon what one's tastes are (and what one's friends' tastes are.) High cost locations often offer many very inexpensive or free cultural events (public concerts, plays, public lectures), they have good libraries and museums, nice parks, and may also have very nice senior centers that offer free or low cost activities (yoga, tai chi, folk dancing, bridge, chess, wine-tastings, etc.) Many high cost cities are very walkable and have excellent public transit (and seniors get a 50 percent discount.) Also, yard sales and thrift shops in high cost areas can be places to pick up some extremely nice things for very little as high-income folks who are moving are eager to unload stuff they don't want to take to their next destination. A major key to making this work is senior citizen property tax breaks! (Some places are more generous to low and moderate income seniors than others.) Also a good MediGap policy. Their social lives are modest but happy: make a pitcher of iced tea or sangria and invite some friends over for a book discussion or to play bridge. Home maintenance costs can be an issue, but if you are "networked in" to your neighborhood, you can often find out from your neighbors about good handymen who charge relatively modest fees.

Bill Bernstein's financial advising business serves folks with $25M in assets. Before he went into financial advising, he was a practicing physician, a relatively high income occupation. I have to wonder how much he actually knows about the quality of life that many seniors manage to have with far less income than $100K. A lot has to do with what you are used to and with your values and priorities.

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Re: IBT interview with Dr. Bill Bernstein

Post by VictoriaF » Sun Oct 04, 2015 9:12 am

dodecahedron wrote:
VictoriaF wrote:Even if you own your home outright a high-cost location inflicts high cost of living, and you want to live there because you want to participate in the lifestyle of that location, whatever the cost is.
I actually think it is possible for someone who owns their home outright to live quite well on a modest income (much less than $100K) in many high-cost locations. I have a number of elderly relatives and their friends living in several high-cost cities on the coasts who own their homes and many do quite well on quite modest incomes (MUCH less than $100K). It depends upon what one's tastes are (and what one's friends' tastes are.) ...
dodecahedron,

You are right that large cities offer many exciting free opportunities; this is one of the reasons I moved to the D.C. area. However, as you write, one's tastes, and particularly one friends' tastes, are critical. I am finding that I am spending more money than I initially thought was necessary.

Victoria
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Re: IBT interview with Dr. Bill Bernstein

Post by dodecahedron » Sun Oct 04, 2015 9:18 am

VictoriaF wrote:
dodecahedron,

You are right that large cities offer many exciting free opportunities; this is one of the reasons I moved to the D.C. area. However, as you write, one's tastes, and particularly one friends' tastes, are critical. I am finding that I am spending more money than I initially thought was necessary.

Victoria
I think one big difference between your situation and my relatives' situations is that they and their friends are living in the exact same communities where they have lived (on modest incomes) for decades. They know all the bargain places to shop and have adapted their lifestyles to their modest budgets over many years.

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Re: IBT interview with Dr. Bill Bernstein

Post by Kelly » Sun Oct 04, 2015 9:31 am

I'm always hoping BB will write more books. I've read all of his, many twice and 4 pillars more than that. Maybe we can talk him into another addition to the investing for adults series.

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Re: IBT interview with Dr. Bill Bernstein

Post by Artsdoctor » Sun Oct 04, 2015 10:33 am

Regarding the $100,000 mentioned, I do think that it really depends on where you live, what your interests are, and what "stage" you are in.

I cut back working nearly two ago and filled up my time with a lot of travel and entertainment locally. I know this sounds obvious, but when you're working, you're generally not spending money (you're earning it). The more free time you have, the more you have the potential for spending, especially early in retirement. You definitely have more time to search for the best "deals," but being active can translate into spending assets. It's been a learning experience for me.

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Re: IBT interview with Dr. Bill Bernstein

Post by Wildebeest » Sun Oct 04, 2015 11:42 am

Lack of knowledge has never kept me from expressing an opinion, so I will staunchly forge ahead:

I would expect that for the Boglehead household $60 K to $ 100 k per year would be optimal to live the happiest life in retirement.

If this would be money COLA 'd and in the form of an annuity such a SSI, pension, SPIA, it would cause increased happiness ( it would let one sleep better than if it would come from a SWR given to the vicissitudes of interest rates/ Bonds and especially stock market gyrations etc).

I would love to see more data as to if one is toast under a certain income number.

I was disappointed that there is data that further increasing income over $ 100 k /year correlates with increased happines.

http://www.google.com/url?sa=t&rct=j&q= ... gHgMUOGgtA

Personally I think it really depends where one lives ( see Huffington post map), what expectations one has ( entitlements), and if there are special needs. If we had $30 k /year in retirement we might move to Panama, Equador etc.

http://www.huffingtonpost.com/2014/07/1 ... 92194.html
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Re: IBT interview with Dr. Bill Bernstein

Post by hoops777 » Sun Oct 04, 2015 12:31 pm

If one owns their home,to need 100,000 income to live in a high cost of living area is just not accurate.Now,if you are going crazy on your discretionary spending that is another story.If you want to move from Iowa to S.F. and buy a house with a mortgage that of course changes things.
I do not see how it is possible to need a 100,000 income to live without a mortgage.By far the biggest game changer is the housing.Everything else is not THAT much different in costs in terms of neccesities.To need a 100,000 you are going to have a very high entertainment budget.
I live in the Bay Area.Looking at the paper today listing the recent sales,the average price for a 1800 sq ft single family home in my city is about $850,000.I also lived in Arizona for 3 years,about 10 years ago.The basic everyday items there were close in price to the Bay Area,a little less but not significant.I actually commuted back and forth for those 3 years.
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Re: IBT interview with Dr. Bill Bernstein

Post by Fallible » Sun Oct 04, 2015 1:21 pm

Kelly wrote:I'm always hoping BB will write more books. I've read all of his, many twice and 4 pillars more than that. Maybe we can talk him into another addition to the investing for adults series.
I agree, but for now would advise re-reading some of his books because when I've done that, I've found I either forgot some of his points or entirely missed them the first time around. With "The Four Pillars of Investing," for example, I zoomed through the "History" thinking I'd already read enough investment history and even wondered why he so strongly emphasized the importance of history ("...the lack of historical knowledge is the one that causes the most damage," he writes.) Then I re-read the book earlier this year and decided to concentrate on the history, this time appreciating more than ever that what happens in the past, especially in finance, will happen again and again, and now.
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Re: IBT interview with Dr. Bill Bernstein

Post by VictoriaF » Sun Oct 04, 2015 3:23 pm

Artsdoctor wrote:Regarding the $100,000 mentioned, I do think that it really depends on where you live, what your interests are, and what "stage" you are in.

I cut back working nearly two ago and filled up my time with a lot of travel and entertainment locally. I know this sounds obvious, but when you're working, you're generally not spending money (you're earning it). The more free time you have, the more you have the potential for spending, especially early in retirement. You definitely have more time to search for the best "deals," but being active can translate into spending assets. It's been a learning experience for me.
That's what's happening to me, too. Surprisingly, travel so far cost me much less than I budgeted, but the local expenses are higher. For example, I am taking an improvisation comedy class at $225 for five sessions. I like it so much that I have signed for Level 2 class. Then there is Level 3. And I will probably repeat some classes because it's just so much fun.

Victoria
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Re: IBT interview with Dr. Bill Bernstein

Post by peppers » Sun Oct 04, 2015 3:54 pm

VictoriaF wrote:
That's what's happening to me, too. Surprisingly, travel so far cost me much less than I budgeted, but the local expenses are higher. For example, I am taking an improvisation comedy class at $225 for five sessions. I like it so much that I have signed for Level 2 class. Then there is Level 3. And I will probably repeat some classes because it's just so much fun.

Victoria

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Re: IBT interview with Dr. Bill Bernstein

Post by mouth » Sun Oct 04, 2015 5:54 pm

VictoriaF wrote:
Artsdoctor wrote:Regarding the $100,000 mentioned, I do think that it really depends on where you live, what your interests are, and what "stage" you are in.

I cut back working nearly two ago and filled up my time with a lot of travel and entertainment locally. I know this sounds obvious, but when you're working, you're generally not spending money (you're earning it). The more free time you have, the more you have the potential for spending, especially early in retirement. You definitely have more time to search for the best "deals," but being active can translate into spending assets. It's been a learning experience for me.
That's what's happening to me, too. Surprisingly, travel so far cost me much less than I budgeted, but the local expenses are higher. For example, I am taking an improvisation comedy class at $225 for five sessions. I like it so much that I have signed for Level 2 class. Then there is Level 3. And I will probably repeat some classes because it's just so much fun.

Victoria
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Re: IBT interview with Dr. Bill Bernstein

Post by Mel Lindauer » Sun Oct 04, 2015 7:47 pm

VictoriaF wrote:
Artsdoctor wrote:Regarding the $100,000 mentioned, I do think that it really depends on where you live, what your interests are, and what "stage" you are in.

I cut back working nearly two ago and filled up my time with a lot of travel and entertainment locally. I know this sounds obvious, but when you're working, you're generally not spending money (you're earning it). The more free time you have, the more you have the potential for spending, especially early in retirement. You definitely have more time to search for the best "deals," but being active can translate into spending assets. It's been a learning experience for me.
That's what's happening to me, too. Surprisingly, travel so far cost me much less than I budgeted, but the local expenses are higher. For example, I am taking an improvisation comedy class at $225 for five sessions. I like it so much that I have signed for Level 2 class. Then there is Level 3. And I will probably repeat some classes because it's just so much fun.

Victoria
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Re: IBT interview with Dr. Bill Bernstein

Post by VictoriaF » Sun Oct 04, 2015 9:00 pm

Mel Lindauer wrote:Perhaps after you finish Level 3, we'll book your act at some future Bogleheads event and pass the tip jar :moneybag .
But Mel, is not improvisation an anathema to staying the course? {laughing}

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Re: IBT interview with Dr. Bill Bernstein

Post by saurabh » Sun Oct 04, 2015 9:00 pm

VictoriaF wrote: In the past, in coastal cities, housing was appreciating faster than the US average and rents were rising faster than average, both of which were making the multiple higher than average. But it does not mean that the multiple will be higher going forward.
Victoria
I don't think broad rules of thumb like 14x/168-month work in the residential real estate market/ I think it is extremely useful as a quick first-cut assessment of whether renting is cheaper than buying, but one needs to look at the situation very carefully in one's local market. I rent an apartment in a town in Northern NJ very close to Manhattan. I got a decent deal on a 2-Br/2-Ba rental in late 2009. However after several consecutive years of 6-8% rent hikes, my annualized rent increase works out to just short of 7% over 6 years during a period when inflation was less than 2%. However, similar condos in my town continue to sell for 17x annual rent. I doubt we are every going to see the price/rent ratio come down to 14x in my area in the next decade, because it never even reached that low during 2009 which was the trough for the market. I think any one who plans to live in a particular area for 10 years or more should do a very careful assessment of renting vs. buying, particularly retirees who can least shoulder inflation risk. Low crime, top notch public school districts should probably see home values increase even faster than history because they aren't making too many of them and private school tuition continues to soar.

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Re: IBT interview with Dr. Bill Bernstein

Post by Fallible » Sun Oct 04, 2015 9:15 pm

VictoriaF wrote:... For example, I am taking an improvisation comedy class at $225 for five sessions. I like it so much that I have signed for Level 2 class. Then there is Level 3. And I will probably repeat some classes because it's just so much fun.
Victoria
Victoria, considering you are the renowned Boglehead wit, are you sure you shouldn't be teaching the classes? :)
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Re: IBT interview with Dr. Bill Bernstein

Post by burt » Sat Nov 07, 2015 7:26 pm

Bill Bernstein wrote:Here's how I'd synthesize the data from RCC, EBRI, etc. etc:

About a third, more or less, of retirees will have a satisfactory, or more than satisfactory, retirement.

The rest wil be divided between those who will have to "make do" and those who will be truly desperate. A not insignificant number of the latter will wind up homeless.

I admit that it's inelegant to average that all together as "toast." But I don't think that, as an average, it's too far from the truth.

Realize, also, that this isn't a static picture; over time, it's worsening; every year, the "at risk" portion of the RCC sample rises by around a percent per year.

Bill
Sorry for the late post.

Regarding:
"I admit that it's inelegant to average that all together as "toast." But I don't think that, as an average, it's too far from the truth."

By the numbers I see on this board I supposedly...barely... made the top 10% of retiree assets for my age.
Believe me it sure doesn’t feel like it.
My retirement years will be modest. Low cost of living area, used cars, small house, and travel within driving distance.

Yes, “toast” is a good description.

burt

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Re: IBT interview with Dr. Bill Bernstein

Post by fortyofforty » Sat Nov 07, 2015 10:16 pm

Thanks for the link, Mel, and I'm not surprised by Dr. Bernstein's plug of the Bogleheads. For those of you who haven't had the pleasure of meeting Bill Bernstein, he was most gracious and patient with the countless Bogleheads who peppered him with many questions at the last conference. Dr. Bernstein took the time to meet with Bogleheads and discuss at length many investing issues, even over breakfast, lunch or dinner. He always seemed to have a smile and kind word for people he met during the event. I've got "The Intelligent Asset Allocator" in my queue of books to reread, since it's been too many years since I first read it. It's signed by the author, now, though. :D
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Re: IBT interview with Dr. Bill Bernstein

Post by abuss368 » Sat Nov 07, 2015 10:43 pm

itstoomuch wrote:Mom made it to 98 with a pacemaker. Dad is 96 last week with 4 bypasses, 2 stints. MIL is 96 this week without medical devices. And these parents came of age in WWIi, and a civil war. We may make it past our cohorts' mean mortality age. :oops:
Well said.
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Re: IBT interview with Dr. Bill Bernstein

Post by cfaboy » Sun Nov 08, 2015 8:57 am

To Victoria's point on real estate, several points:

1) As some have pointed out: diversification for liability purposes is nothing to sneeze about. Nor is the recommendation (Talmud, as I recall) referred to by Bernstein: 1/3 business (stocks); 1/3 land (real estate); and 1/3 liquid (cash).
2) I struggled with this dilemma for years: could have bought a smallish house in DC area (NoVA/Bethesda, MD) for 300K in the late 1990s; spent over 800K to buy similar in 2013. I've moved back and forth to DC over the years and watched with dismay at the steady rise. Jobs, jobs, Jobs. Bernstein once said that in some real estate markets (can't remember whether he referred specifically to DC), you are competing with some of the highest earners on the planet. One of the biggest financial mistakes I've made was not pulling the trigger (know, hindsight is 20/20).
3) When you buy real estate, don't forget that you control its cash flow rights. They can accrue to you (imputed rent) or you can move elsewhere-- or down the street -- and rent the property out. Not sure 14 or 15 or whatever ratio should be determining if you plan to hold the property for a long time.
4) Transaction costs for landlords have dropped: I and friends have used zillow and similar to rent properties quickly and without an agent. Cellphones and internet mean long-distance maintenance is doable, esp. with a friend in the area for emergencies.
4) Peace of mind to have a variable cost become mostly (with partial exception of taxes and maintenance) become a fixed cost. Imagine for a retiree this would be especially attractive.
5) Beware of seeking evidence confirming pre-existing beliefs. I did same and it cost me.

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Re: IBT interview with Dr. Bill Bernstein

Post by dbr » Sun Nov 08, 2015 11:11 am

Of all the boomers I know the one's whose retirements are "toast" have the problems they have not because they did not pay attention to investing but because they are mentally ill, drug and alcohol addicts, abandoned in grisly divorces (mother abandoned while pregnant with three other children and no job), have suffered serious debilitating illnesses or injuries, have lost spouses to early deaths, are immigrants from countries where they have lost everything including nearly their lives, and so on. Even all these people are managing somehow through determination, help from friends, and because even the US does have some reasonable network of social services for people in trouble. Surviving in a nursing home on nothing but Medicare/Medicaid and Social Security may be "toast" but it isn't about investing.

itstoomuch
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Re: IBT interview with Dr. Bill Bernstein

Post by itstoomuch » Sun Nov 08, 2015 1:54 pm

Many people who take advice from BH, will be toast. :oops:
YMMV
Rev012718; 4 Incm stream buckets: SS+pension; dfr'd GLWB VA & FI anntys, by time & $$ laddered; Discretionary; Rentals. LTCi. Own, not asset. Tax TBT%. Early SS. FundRatio (FR) >1.1 67/70yo

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burt
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Re: IBT interview with Dr. Bill Bernstein

Post by burt » Sun Nov 08, 2015 7:02 pm

dbr wrote:Of all the boomers I know the one's whose retirements are "toast" have the problems they have not because they did not pay attention to investing but because they are mentally ill, drug and alcohol addicts, abandoned in grisly divorces (mother abandoned while pregnant with three other children and no job), have suffered serious debilitating illnesses or injuries, have lost spouses to early deaths, are immigrants from countries where they have lost everything including nearly their lives, and so on. Even all these people are managing somehow through determination, help from friends, and because even the US does have some reasonable network of social services for people in trouble. Surviving in a nursing home on nothing but Medicare/Medicaid and Social Security may be "toast" but it isn't about investing.

"Surviving in a nursing home on nothing but Medicare/Medicaid and Social Security may be "toast" but it isn't about investing."

Investing is the least of my worries when considering Deep Risk.

burt

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