Articles that have provoked thought and reflection

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Peter Foley
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Articles that have provoked thought and reflection

Post by Peter Foley » Sun Aug 07, 2016 7:55 pm

A number of financial articles published over the past couple years have caused me to rethink a strategy, consider some new strategy, or reaffirmed an existing strategy. Of the ones I have read the following three were most thought provoking for me.

Wade Pfau/Michael Kitces – Reducing Retirement Risk with a Rising Equity Glide-Path
My take: Rethink age in bonds and static AA approaches as one nears retirement.

Darrow Kirkpatrick – Six Retirement Withdrawal Strategies Evaluated
My take: There is more to rebalancing than I had thought.

Michael Kitces - Tax-Efficient Spending Strategies From Retirement Portfolios
My take: While there is no one size fits all strategy, mixing withdrawals from taxable with Roth conversions makes sense to many retirees with substantial tax deferred assets. “Substantial” is open to interpretation, but I have $1,000,000 or more in mind.

What articles have you read that struck a chord with you?

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cfs
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Re: Articles that have provoked thought and reflection

Post by cfs » Sun Aug 07, 2016 8:07 pm

Thanks.

Thank you shipmate Peter for asking the good questions. You already mentioned the one that I think about [and I have bookmarked the article for ready reference]. Reducing Retirement Risk with a Rising Equity Glide Path. Good luck with your retirements.

Thanks for reading.
~ Member of the Active Retired Force since 2014 ~

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Taylor Larimore
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Articles by Jack Bogle

Post by Taylor Larimore » Sun Aug 07, 2016 8:28 pm

What articles have you read that struck a chord with you?
Peter Foley:

Articles by our mentor, John Bogle, are among the very best. This is a link:

The Bogle eBlog

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

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Svensk Anga
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Re: Articles that have provoked thought and reflection

Post by Svensk Anga » Sun Aug 07, 2016 8:58 pm

Not an article but a very short book, Bill Bernstein's "Ages of the Investor" (55 pages). I had previously been dismissive of the safety first school of retirement planning, thinking it was excessively conservative. This brought me around to a different perspective when I was three years out from retirement. As a former 100% equities guy, I was uncomfortable with the whole fixed income space, but knew I should get more conservative. This when interest rates were low and "everyone knew" that rates had to rise and that bond funds' NAV would shortly start falling. Bill's idea that half of the dividends from equities could historically be counted on (in real terms) as "safe" money (confirmed in the Shiller data) plus his suggested TIPS ladder made a comfortable way for me to move toward liability matching. He also counseled moving more quickly from equities to bonds than the typical 1% per year glide path, should stocks advance quickly late in one's accumulation years. I went 5% per year while the market rebounded from the sub-prime crisis.

We retired with an equity allocation substantially lower than what we had held for the previous two decades. As we spend down the TIPS ladder, our equity allocation will probably rise. So we headed down the path advocated by Pfau/Kitces without having seen their paper.

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Peter Foley
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Re: Articles that have provoked thought and reflection

Post by Peter Foley » Sun Aug 07, 2016 11:13 pm

Svensk

I retired in May of 2012 having gone through the recession. I had done some rebalancing to equities as the market fell (not enough) and some rebalancing as the market recovered (too much). While I came out all right I was well aware that at my portfolio's lowest point I would have had to delay my planned retirement by a year or so. So as I approached my retirement date my AA became more conservative. It was 45/52/3 when I retired. (The 3% being a rental property I owned.) So I too went down the Pfau/Kitces path. In my case about a year or so before it was published. I have done rebalancing primarily through gifting equities and am at about 55/45 now. My sequence of returns has been favorable. My IPS has a 55% equities limit, so I'm staying the course for now.

While I find the argument for a rising equities glide path intriguing, I believe their most important contribution was to point out that many retirees should be conservative when they have the most at risk - their retirement date. Those that have to draw on their savings immediately have less ability to take risk.

Erwin
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Re: Articles that have provoked thought and reflection

Post by Erwin » Mon Aug 08, 2016 12:44 am

Peter Foley wrote:A number of financial articles published over the past couple years have caused me to rethink a strategy, consider some new strategy, or reaffirmed an existing strategy. Of the ones I have read the following three were most thought provoking for me.

Wade Pfau/Michael Kitces – Reducing Retirement Risk with a Rising Equity Glide-Path
My take: Rethink age in bonds and static AA approaches as one nears retirement.

Darrow Kirkpatrick – Six Retirement Withdrawal Strategies Evaluated
My take: There is more to rebalancing than I had thought.

Michael Kitces - Tax-Efficient Spending Strategies From Retirement Portfolios
My take: While there is no one size fits all strategy, mixing withdrawals from taxable with Roth conversions makes sense to many retirees with substantial tax deferred assets. “Substantial” is open to interpretation, but I have $1,000,000 or more in mind.

What articles have you read that struck a chord with you?
By the way, Kirkpatrick wrote a subsequent article on retirement withdrawals. See:
http://www.caniretireyet.com/the-best-r ... ng-deeper/
Erwin

Dandy
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Re: Articles that have provoked thought and reflection

Post by Dandy » Mon Aug 08, 2016 7:22 am

Dr. Bernstein's liability matching "when you have won the game stop playing" ideas. While no retirement allocation or withdrawal strategy is without risk his suggestion of building such a portfolio from the bottom up based on actual withdrawals needed to fund retirement expenses was a game changer for me.

Once I did the calculations and had a "safe" portfolio that covered anticipated yearly retirement withdrawal need for 20+ years and a "risk" portfolio invested more aggressively for the "excess". I became very comfortable with my overall allocation, worried less about equity market volatility, and had a structure that was easier to explain to my spouse instead of just saying we are invested 42/58 and that should be good for us. For me implementation was having only 1/3 of my fixed income in intermediate bond funds and the 2/3 in short term bond funds and a CD ladder.

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Re: Articles that have provoked thought and reflection

Post by AlohaJoe » Mon Aug 08, 2016 8:25 am

"Are Americans Saving Optimally For Retirement?" by Scholz et al (They say yes.)
"Crash Beliefs From Investor Surveys" by Goetzmann et al (People overestimate the probability of crashes by 10x)
"Why Retirees Should Choose DIAs over SPIAs" by Wade Pfau (title is self explanatory)

2retire
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Re: Articles that have provoked thought and reflection

Post by 2retire » Mon Aug 08, 2016 8:47 am

Michael Kitces - The Ratcheting Safe Withdrawal Rate – A More Dominant Version Of The 4% Rule?
Reason: Made me think about significantly upping my withdraw rate so I don't end with two to four times as much as I started with at death.

Theoretical
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Re: Articles that have provoked thought and reflection

Post by Theoretical » Mon Aug 08, 2016 10:55 am

Bernstein's Deep Risk. It's a game-changer in terms of thinking about risk, both as a young investor and for a closer to retirement one. I think it's especially relevant because (official) inflation, especially sharp inflation since the mid-1980s just has not been a serious problem, so it's quite helpful to see a longer term view of risks.

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Peter Foley
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Re: Articles that have provoked thought and reflection

Post by Peter Foley » Mon Aug 08, 2016 1:12 pm

Here is a link to a thread about Liability Matching Portfolios.

viewtopic.php?t=120702

Also an interview with Morningstar where he talks about portfolios.

http://www.morningstar.com/cover/videoc ... ?id=670230

I agree this is thought provoking - a potential game changer in terms of risk tolerance and managing risk.

Random Walker
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Re: Articles that have provoked thought and reflection

Post by Random Walker » Mon Aug 08, 2016 2:41 pm

Roger Gibson on Multi Asset Class Investing. What matters is the portfolio as a whole. Mhow an asset class contributes to a portfolio depends on expected returns, volatility, correlations. This short paper basically summarizes a whole book by the author.

http://www.amcham-shanghai.org/amchampo ... esting.pdf


Dave

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celia
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Re: Articles that have provoked thought and reflection

Post by celia » Mon Aug 08, 2016 3:13 pm

I recently ran across an article titled: "Is 70 Too Late to Claim Social Security?"
http://money.cnn.com/2016/07/24/investi ... index.html

Although DH and I are waiting until 70 to collect the max (and taking spousal benefits meanwhile), it gave me pause to re-consider our situation because of the value of money that is not needed but collected starting before age 70 and invested (compounded) will likely be more than the age-70 monthly benefit invested over the same remaining time period. Their example uses an age 66 FRA monthly benefit of $1,000:
For example, if you receive a pension that can cover your retirement expenses and you claim early, you could invest your $750 per month in Social Security income rather than spend it. If you did that and earned a hypothetical 6% annually, then you could end up with a portfolio valued at $422,966 at age 85 and $616,758 at age 90. Waiting and investing your $1,320 per month in the same investment produces a nest egg worth only $368,693 at age 85 and $582,686 at age 90.
Since we are now just a few years short of 70, the breakeven point for us starting now vs age 70, will be in our early 90s. So it is now a matter of "risk vs reward" calculation for us.
A dollar in Roth is worth more than a dollar in a taxable account. A dollar in taxable is worth more than a dollar in a tax-deferred account.

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cfs
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Re: Articles that have provoked thought and reflection

Post by cfs » Mon Aug 08, 2016 6:15 pm

Thanks.

Thanks to our shipmate Celia for the link to that great article about Social Security [should be required reading for future retirees].

And now we return to normal programming with "Articles that have provoked thought and reflection."

Thanks for reading.
~ Member of the Active Retired Force since 2014 ~

Dandy
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Re: Articles that have provoked thought and reflection

Post by Dandy » Mon Aug 08, 2016 10:45 pm

For me almost guaranteed higher inflation adjusted income from age 70 on for the higher earner and spouse is a better idea than hoping you invest the earlier SS monies and hope you average 6%. 2 hopes too many.

Sure if you have pensions that cover your expenses the need to wait to age 70 is less -- unless perhaps the spouse that earned the pension dies first and the surviving spouse receives much less, and/or the non cola pension doesn't keep pace with high inflation and/or the company's pension plan is so underfunded that they reduce benefits.

I think the break even point is the wrong metric, especially for married retirees. I think it should be lower income for 4 or 8 years vs higher inflation adjusted "guaranteed" income for about 20 years. I believe the odds are one spouse will live beyond the break even point.

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Re: Articles that have provoked thought and reflection

Post by carolinaman » Tue Aug 09, 2016 6:55 am

Great question. You mentioned 2 of my favorite financial authors: Kirkpatrick and Kitces. I cannot point to one or two articles that are my favorites but two articles I really liked were:
Kirkpatrick: 10 Tips for More Accurate Retirement Calculations
Kitces: Understanding Sequence of Return Risk - Safe Withdrawal Rates, Bear Market Crashes, and Bad Decades

heyyou
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Re: Articles that have provoked thought and reflection

Post by heyyou » Tue Aug 09, 2016 11:05 am

Michael McClung's book Living Off Your Money

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Dutch
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Re: Articles that have provoked thought and reflection

Post by Dutch » Tue Aug 09, 2016 12:13 pm

Peter Foley wrote:Wade Pfau/Michael Kitces – Reducing Retirement Risk with a Rising Equity Glide-Path
My take: Rethink age in bonds and static AA approaches as one nears retirement.
I read somewhere there was a flaw in the study that invalidates the conclusion. Maybe somebody can confirm or deny this.

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siamond
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Re: Articles that have provoked thought and reflection

Post by siamond » Tue Aug 09, 2016 12:26 pm

Theoretical wrote:Bernstein's Deep Risk. It's a game-changer in terms of thinking about risk, both as a young investor and for a closer to retirement one. I think it's especially relevant because (official) inflation, especially sharp inflation since the mid-1980s just has not been a serious problem, so it's quite helpful to see a longer term view of risks.
+1

More recently, I would list the Mad Fientist article about paying zero taxes in retirement. A variation of what Kitces explained (but I read Mad Fientist first). I came to it through Go Curry Cracker (e.g. this write-up).

The best blogger BY FAR in my mind is Philosophical Economics. Too many excellent articles to list. And finally somebody who produces truly original research.

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Johnnie
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Re: Articles that have provoked thought and reflection

Post by Johnnie » Tue Aug 09, 2016 2:09 pm

Two by Paul Merriman changed my life and may have saved my retirement.

- How to invest like a rich guy http://www.marketwatch.com/story/rich-i ... 2014-06-18
- The Ultimate Buy-and-Hold Portfolio http://paulmerriman.com/ultimate-buy-ho ... tegy-2015/

From the first:
Even though lots of high-income people remain wary of stocks and real estate because of the 2008 debacle, by and large there's a big difference in attitudes between the wealthy and the not-so-wealthy.

Investing in real estate requires more than the ability to make a down payment and pay the mortgage. It requires faith in the legitimacy of property laws and the legal system. It requires faith that your property won't be taken from you illegally.

Likewise, when you invest in stocks you need faith that the country's financial system and economy will continue to function so that productive uses of capital are rewarded.

Stated another way, when you invest in stocks and real estate, you are being an optimist.
That got me primed to accept the truth of buy-and-hold. The "how-to" article caught my imagination and triggered action. More than one road to Dublin as some say. 8-)
"I know nothing."

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Re: Articles that have provoked thought and reflection

Post by MarkNYC » Tue Aug 09, 2016 3:16 pm

Even though it was back in 2009, the article's insights have stayed with me, and a certain prominent TV financial guru might benefit by reading it: "Bond Funds vs Individual Bonds" by Litman Gregory Investment Research Team.

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bobcat2
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Applying life-cycle economics: Article that provoked thought and reflection

Post by bobcat2 » Tue Aug 09, 2016 7:09 pm

Applying life-cycle economics by Robert Merton

An eight page guide on how to integrate the accumulation and payout phases of retirement planning. Much good advice is crammed into this brochure. One piece of particularly good advice is where Merton discusses level 2 safe income and discusses why it need not be a TIPS bond ladder.

Merton first discusses Level 1 safest retirement income that consists of Social Security and real life annuity(s) income streams. Level 2 nearly as safe income consists of TIPS income where the duration of the TIPS are matched to the duration of the liabilities (annual spending). This income is more flexible than the level 1 safe income but, unlike SS and real life annuities, does not address longevity risk. Merton then goes on to discuss how TIPS bond funds can be used to duration match the liabilities just as well as a TIPS bond ladder. In other words, the liability matching of a TIPS bond ladder is the same as the liability matching of TIPS funds whose weighted average duration is the same as the duration of the TIPS ladder. What is important is that the duration of the TIPS assets, whether TIPS bond ladder or combination of TIPS funds, match the duration of the liabilities.

Here's Merton briefly discussing this duration matching retirement income strategy.
Level 2 type income, like a fixed-time annuity, provides a periodic payout of inflation-protected income, for a fixed time horizon. As a likely default the horizon may be set at the life expectancy of the participant as of the time of retirement. The assets assigned to level 2 income are invested in an inflation-indexed fixed-income portfolio (two TIPS funds) that is duration-matched to the targeted stream of payments, in the same process and in the same funds (plus a shorter duration fund) that are used for the ‘risk-free’ asset replication of the conservative income goal in the Managed DC plan in the accumulation period.
This is on the 5th page (page # 68).
Link - http://www.nestpensions.org.uk/schemewe ... cs,PDF.pdf

BobK
In finance risk is defined as uncertainty that is consequential (nontrivial). | The two main methods of dealing with financial risk are the matching of assets to goals & diversifying.

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