JAMA article's health implications for asset allocation

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dodecahedron
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JAMA article's health implications for asset allocation

Post by dodecahedron » Thu Apr 05, 2018 10:17 am

I hope this thread is consistent with forum rules.

A recent Journal of American Medical Association article presented results of a lengthy and elaborate statistical analysis showing a strong association between sudden wealth losses and increased mortality in middle aged and older folks. The study used statistical techniques to adjust for a number of potentially confounding correlated variables.

It confirmed my impression that I did the right thing in choosing a very conservative equity allocation when I first became solely responsible for managing investments at the age of 59 after the unexpected death of my husband almost five years ago. In the fog of grief, I didn't really know what I was doing but I knew that I had more than enough for the modest life I envisioned (since we'd been saving for two but now there was only one of us), the standard asset allocation questionnaires did not resonate with me, I felt very overwhelmed and fragile, and I am content with the results (despite knowing that my net worth today would be substantially higher had I chosen a higher equity allocation.)

My original AA was substantially less than 20% in equities, about 5% in TIAA real estate, and the rest in fixed income, including some ibonds and TIPS. Most of my fixed income has been in liquid TIAA Trad, which has at least stayed ahead of inflation. I have also been "investing" in other things that will reduce exposure to inflation in my future living costs (e.g., removing swimming pool and eliminating its associated operating costs, getting low maintenance landscape design installed, reducing home energy costs including buying community solar panels). Also choosing to age in place in a home located in a community with many free and/or low cost awesome cultural and nature immersion experiences nearby with low cost public transit.

I have been allowing the percentage of equities to drift upwards by withdrawing only from fixed income (except for charitable donations which take the form of appreciated equities from my taxable account). Currently around 25% in equities. May eventually get to 40% but not in any hurry and don't plan to get there any time soon. This article renews my resolve to stay below 40%. Older folks with more than they need are often counseled to choose their asset allocations as if they were "investing for their heirs." I am not planning to do that.

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Re: JAMA article's health implications for asset allocation

Post by Call_Me_Op » Thu Apr 05, 2018 11:18 am

Dodec,

We are on the same page. I have long maintained that folks tend to underestimate the importance of the emotional aspect of investing. It is not so much a matter of dollars and sense. It is quality of life, and perhaps also length of life.
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein

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Re: JAMA article's health implications for asset allocation

Post by HueyLD » Thu Apr 05, 2018 12:20 pm

Call_Me_Op wrote:
Thu Apr 05, 2018 11:18 am
Dodec,

We are on the same page. I have long maintained that folks tend to underestimate the importance of the emotional aspect of investing. It is not so much a matter of dollars and sense. It is quality of life, and perhaps also length of life.
+1!!

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Re: JAMA article's health implications for asset allocation

Post by VictoriaF » Thu Apr 05, 2018 12:35 pm

dodecahedron,

I took a different route to get to the same destination as you. The guiding principle for my route were two key decisions for my finances after retirement:
(1) Delay taking Social Security until I turn 70 years old.
(2) Convert all my retirement accounts into Roth.

In order to assure that I can do (1) and (2), I kept a lot of cash. For a while it was just cash, later I started using CDs. But the result is the same: I do not depend on the stock market for my living expenses and Roth conversion taxes until I reach 70. After the age of 70, a combination of my pensions and Social Security will cover my minimum expenses, and my investments will help with extras.

Similarly to you, as I am using cash, my overall stock allocation is rising, but it's not a true Bogleheads AA, because I don't monitor it and don't rebalance.

If I depended on the market for my financial well-being, I would have been very stressed by the recent gyrations. As it stands, it's merely a curiosity and an opportunity to post in the "Stocks in Freefall" thread when I think of something clever.

Victoria
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Re: JAMA article's health implications for asset allocation

Post by Rajsx » Thu Apr 05, 2018 12:37 pm

dodecahedron wrote:
Thu Apr 05, 2018 10:17 am
I hope this thread is consistent with forum rules.

A recent Journal of American Medical Association article presented results of a lengthy and elaborate statistical analysis showing a strong association between sudden wealth losses and increased mortality in middle aged and older folks. The study used statistical techniques to adjust for a number of potentially confounding correlated variables.

It confirmed my impression that I did the right thing in choosing a very conservative equity allocation when I first became solely responsible for managing investments at the age of 59 after the unexpected death of my husband almost five years ago. In the fog of grief, I didn't really know what I was doing but I knew that I had more than enough for the modest life I envisioned (since we'd been saving for two but now there was only one of us), the standard asset allocation questionnaires did not resonate with me, I felt very overwhelmed and fragile, and I am content with the results (despite knowing that my net worth today would be substantially higher had I chosen a higher equity allocation.)

My original AA was substantially less than 20% in equities, about 5% in TIAA real estate, and the rest in fixed income, including some ibonds and TIPS. Most of my fixed income has been in liquid TIAA Trad, which has at least stayed ahead of inflation. I have also been "investing" in other things that will reduce exposure to inflation in my future living costs (e.g., removing swimming pool and eliminating its associated operating costs, getting low maintenance landscape design installed, reducing home energy costs including buying community solar panels). Also choosing to age in place in a home located in a community with many free and/or low cost awesome cultural and nature immersion experiences nearby with low cost public transit.

I have been allowing the percentage of equities to drift upwards by withdrawing only from fixed income (except for charitable donations which take the form of appreciated equities from my taxable account). Currently around 25% in equities. May eventually get to 40% but not in any hurry and don't plan to get there any time soon. This article renews my resolve to stay below 40%. Older folks with more than they need are often counseled to choose their asset allocations as if they were "investing for their heirs." I am not planning to do that.
+2

I am at 40 to 50% equities, got "enough" & other things to do in life
We do not stop laughing because we grow old, we grow old because we stop laughing !!

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Re: JAMA article's health implications for asset allocation

Post by dodecahedron » Thu Apr 05, 2018 1:03 pm

VictoriaF wrote:
Thu Apr 05, 2018 12:35 pm
dodecahedron,

I took a different route to get to the same destination as you. The guiding principle for my route were two key decisions for my finances after retirement:
(1) Delay taking Social Security until I turn 70 years old.
(2) Convert all my retirement accounts into Roth.

In order to assure that I can do (1) and (2), I kept a lot of cash. For a while it was just cash, later I started using CDs. But the result is the same: I do not depend on the stock market for my living expenses and Roth conversion taxes until I reach 70. After the age of 70, a combination of my pensions and Social Security will cover my minimum expenses, and my investments will help with extras.
Somewhat analogous plans, but not entirely the same. Variations on a theme, tweaking due to different life circumstances. Great minds think alike? :wink:

My (1) is different from yours because my SS widow's benefits reach their max at my FRA (66) rather than at 70, so I will claim at 66. (Already claimed my own record benefits at 62, since that could be done without affecting my much higher widow's benefits.) My maximized widow's benefits and a small private pension should cover my routine minimum expenses.

My (2) is some additional Roth conversion but I do not have a goal of 100% Rothification of my retirement funds. At 64, I am already well over 50% in Roth and will selectively do more opportunistic Roth conversions but certainly not all. I am also continuing to work part-time and contribute all those earnings to Roth 403(b) and Roth IRA. Charitable donations are a significant share of my spending and QCDs after I reach 70 1/2 will be very tax efficient for me, which is one reason not to Roth convert all. In addition, I don't have LTC insurance so keeping some funds in tax deferred could be tax efficient if LTC expenses materialize. Charitable bequests from any funds remaining in my tax-deferred accounts at my death will also be tax efficient.
Last edited by dodecahedron on Thu Apr 05, 2018 1:14 pm, edited 2 times in total.

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Re: JAMA article's health implications for asset allocation

Post by dm200 » Thu Apr 05, 2018 1:06 pm

No statistician here - but association is not causation.

Maybe, for example, health problems and/or risks cause sudden asset loss (could be many reasons of the health problems)

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Re: JAMA article's health implications for asset allocation

Post by dodecahedron » Thu Apr 05, 2018 1:11 pm

dm200 wrote:
Thu Apr 05, 2018 1:06 pm
No statistician here - but association is not causation.

Maybe, for example, health problems and/or risks cause sudden asset loss (could be many reasons of the health problems)
Agree that association is not causation, but this was a long term (20 year) study in which they regularly checked in with people about their health status, behaviors, and financial status. Their statistical techniques attempted to take confounding variables into account. Having spent quite a bit of time around older folks stressing out about their finances during the dotcom crash and the subprime crash, the study's conclusions certainly seem plausible to me.

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Re: JAMA article's health implications for asset allocation

Post by quantAndHold » Thu Apr 05, 2018 1:42 pm

dodecahedron wrote:
Thu Apr 05, 2018 1:11 pm
dm200 wrote:
Thu Apr 05, 2018 1:06 pm
No statistician here - but association is not causation.

Maybe, for example, health problems and/or risks cause sudden asset loss (could be many reasons of the health problems)
Agree that association is not causation, but this was a long term (20 year) study in which they regularly checked in with people about their health status, behaviors, and financial status. Their statistical techniques attempted to take confounding variables into account. Having spent quite a bit of time around older folks stressing out about their finances during the dotcom crash and the subprime crash, the study's conclusions certainly seem plausible to me.
They also admit in their conclusion that while they tried to take the confounding variables into account, they aren’t certain they were successful. Given that nearly every major financial loss comes with other “confounding variables”, I’m not surprised.

Regardless, what this means for the investor is....probably nothing. Investment losses aren’t even in the top 10 reasons for personal bankruptcy (medical expenses account for 62%, followed by reduced income, job loss, debt, and divorce). Their criteria was either losing 75% of net worth, or net worth going to zero. It would be difficult for any Boglehead, regardless of asset allocation, to lose 75% of their net worth without one of the “confounding variables” being a major part of the story.

Choosing a conservative asset allocation is fine, and I think you’re probably doing the right thing. But this article isn’t a useful justification for a conservative AA. The fact that you have enough assets and are financially sophisticated enough to even have an asset allocation means that you’re probably not going to become one of their statistics anyway.

Sorry for the rant. I’ve been reading a lot recently about how we develop beliefs, decision making, and biased thinking. This is confirmation bias.

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Re: JAMA article's health implications for asset allocation

Post by celia » Thu Apr 05, 2018 1:57 pm

VictoriaF wrote:
Thu Apr 05, 2018 12:35 pm
I took a different route to get to the same destination as you. The guiding principle for my route were two key decisions for my finances after retirement:
(1) Delay taking Social Security until I turn 70 years old.
(2) Convert all my retirement accounts into Roth.

In order to assure that I can do (1) and (2), I kept a lot of cash. For a while it was just cash, later I started using CDs. But the result is the same: I do not depend on the stock market for my living expenses and Roth conversion taxes until I reach 70. After the age of 70, a combination of my pensions and Social Security will cover my minimum expenses, and my investments will help with extras.
VictoriaF, Your goals and methods do/did not have to rely on an asset allocation with a low equity allocation. We have the same goals and have converted most of our IRAs to Roth with a high equity allocation (one that many would think is too risky for our ages). We are comfortable with it, though, because we have pensions, like you do, that already cover our living expenses. SS at age 70 will just be another income stream that we can use for the extras we want to enjoy.

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Re: JAMA article's health implications for asset allocation

Post by mickeyd » Thu Apr 05, 2018 2:07 pm

Since cranking my AA from 60/40 to 45/45/10 a few years ago, along with beginning to take my pensions and SS (@70), my mental health (and sleep patterns) has been wonderful. Simplicity adjustments in my AA (cutting loose risky bets) has eased much of the volatility that the markets have been experiencing recemtly.
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Re: JAMA article's health implications for asset allocation

Post by celia » Thu Apr 05, 2018 2:15 pm

dodecahedron wrote:
Thu Apr 05, 2018 1:11 pm
dm200 wrote:
Thu Apr 05, 2018 1:06 pm
No statistician here - but association is not causation.

Maybe, for example, health problems and/or risks cause sudden asset loss (could be many reasons of the health problems)
Agree that association is not causation, but this was a long term (20 year) study in which they regularly checked in with people about their health status, behaviors, and financial status. Their statistical techniques attempted to take confounding variables into account. Having spent quite a bit of time around older folks stressing out about their finances during the dotcom crash and the subprime crash, the study's conclusions certainly seem plausible to me.
Dodeca, Don't forget that the majority of people are not Bogleheads. Most do not have enough being saved for retirement. In fact, when I was a volunteer TaxAide tax preparer, all of our clients, who were seniors, appeared to have very little in savings. They were living day-to-day. They couldn't afford a tax preparer. It's easy to meet people like that, who stress about their finances, just because they have very little in savings and/or income. This has nothing to do with asset allocation if they don't have any assets to allocate. (I didn't read the article yet.)

I am with dm200, who makes a good point. It is likely (in my opinion) that those seniors who have a health crisis and no medical insurance other than basic Medicare have to spend a good part of their savings on health care. If they spend a good chunk for health care, that, in itself, would cause them to worry. They probably see more upcoming health care expenses and likely can't get secondary health insurance if they didn't get it when they started Medicare.

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Re: JAMA article's health implications for asset allocation

Post by VictoriaF » Thu Apr 05, 2018 2:16 pm

celia wrote:
Thu Apr 05, 2018 1:57 pm
VictoriaF wrote:
Thu Apr 05, 2018 12:35 pm
I took a different route to get to the same destination as you. The guiding principle for my route were two key decisions for my finances after retirement:
(1) Delay taking Social Security until I turn 70 years old.
(2) Convert all my retirement accounts into Roth.

In order to assure that I can do (1) and (2), I kept a lot of cash. For a while it was just cash, later I started using CDs. But the result is the same: I do not depend on the stock market for my living expenses and Roth conversion taxes until I reach 70. After the age of 70, a combination of my pensions and Social Security will cover my minimum expenses, and my investments will help with extras.
VictoriaF, Your goals and methods do/did not have to rely on an asset allocation with a low equity allocation. We have the same goals and have converted most of our IRAs to Roth with a high equity allocation (one that many would think is too risky for our ages). We are comfortable with it, though, because we have pensions, like you do, that already cover our living expenses. SS at age 70 will just be another income stream that we can use for the extras we want to enjoy.
celia,

I am a student of Nassim Taleb, and the notion of the Black Swans is on the back of my mind in all my decisions. Anything can happen, with some probability. Any percent loss can happen, with some probability. For example, the study in the article referenced by dodecahedron used 75% loss. The U.S. market has never lost 75%, but it could. The essence of Black Swans is to focus not on the probability but on the impact.

I decided that running out of cash before I have reached the age of 70 would have a negative impact on my spending and planning. Thinking back, my biggest concern was that if I were losing "real money" I would curtail my spending at the time when my goal is to enjoy my life to the fullest. Even with cash reserves, I sometimes force myself to spend, because my long term habits of economizing and saving still hold me back. But if the pocket of money slated for my living expenses had declined with the market decline, I would have started spending less. Yes, I know that money is fungible and dividing money into pockets is a cognitive bias, but I chose a strategy that I knew would work for me in the long run. And it does work.

The mortality increase in the article referenced by dodecahedron was not necessarily because people lose access to food or healthcare. Much of it is psychological. And anticipating one's own psychology, and catering to one's psychology, is important for both physical and financial health.

And, of course, you and dodecahedron are using strategies consistent with your specific situations and your psychological requirements.

Victoria
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Re: JAMA article's health implications for asset allocation

Post by JBTX » Thu Apr 05, 2018 3:00 pm

What I am not clear on is how much they had to start with. 1/3 of study participants either had 75% wealth shock or went into “asset poverty”. That is a lot. I am guessing a lot of these people started out with modest sums. You start with $10,000 and lose most of it.

I am not sure how the results of that subset would compare to someone who has 1 million or more and loses half of it in a downturn. Seems apples and oranges to me.

Did they try to adjust for the cause of the wealth hit? If someone has $20000 and has a health event that drains it all, perhaps it was the health event that caused the mortality and not the wealth hit?

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Re: JAMA article's health implications for asset allocation

Post by willthrill81 » Thu Apr 05, 2018 3:09 pm

Just to play 'devil's advocate' a little, I'm not sure if a 'more conservative' AA would truly be beneficial to an investor's mindset and health if it doesn't allow them to reach their financial goals. For instance, if I could reach my goals by just investing in TIAA Traditional, never seeing my balance drop from one day to the next, you had better believe that I would. But doing so would never allow me to reach my goals in my desired time frame.

As most things go, this is a balancing act.
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Re: JAMA article's health implications for asset allocation

Post by friar1610 » Thu Apr 05, 2018 3:16 pm

dodecahedron wrote:
Thu Apr 05, 2018 10:17 am

I have been allowing the percentage of equities to drift upwards by withdrawing only from fixed income (except for charitable donations which take the form of appreciated equities from my taxable account). Currently around 25% in equities. May eventually get to 40% but not in any hurry and don't plan to get there any time soon. This article renews my resolve to stay below 40%. Older folks with more than they need are often counseled to choose their asset allocations as if they were "investing for their heirs." I am not planning to do that.
My wife and I are in excellent shape financially; my pension and our SS (taken at 62) more than meet our needs. Many would say we can easily afford to go with a high equity allocation in the hopes of growing our nest egg for our children and charities. However, if I predecease her she will only get about 35% of my pension in survivor benefits and my SS as it is higher than hers. For that reason, I've chosen to keep our equity allocation on the conservative side (40-ish %). She doesn't need to deal with the negative aspects of a large stock market drop if it were to occur right after I pass on. (If it were me alone I'd probably go to 50/50 or 60/40 but I'm not so I won't.)

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Re: JAMA article's health implications for asset allocation

Post by Call_Me_Op » Thu Apr 05, 2018 5:19 pm

dm200 wrote:
Thu Apr 05, 2018 1:06 pm
No statistician here - but association is not causation.

Maybe, for example, health problems and/or risks cause sudden asset loss (could be many reasons of the health problems)
Is it not obvious that one's life savings losing a great deal of its value is very stressful? Is it not also obvious that stress negatively affects health? I don't think either of these associations is in question. Many of us have directly experienced both.
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein

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Re: JAMA article's health implications for asset allocation

Post by ram » Thu Apr 05, 2018 8:10 pm

quantAndHold wrote:
Thu Apr 05, 2018 1:42 pm
dodecahedron wrote:
Thu Apr 05, 2018 1:11 pm
dm200 wrote:
Thu Apr 05, 2018 1:06 pm
No statistician here - but association is not causation.
Investment losses aren’t even in the top 10 reasons for personal bankruptcy (medical expenses account for 62%, followed by reduced income, job loss, debt, and divorce).
The following well researched study refutes the claim about medical bankrupcties. These researchers reviewed hospitalizations and credit agency reports. The full article needs a subscription. But about 4% of bankruptcies were attributablete to medical expenses.
http://www.nejm.org/doi/full/10.1056/NEJMp1716604
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Re: JAMA article's health implications for asset allocation

Post by 2015 » Thu Apr 05, 2018 8:30 pm

HueyLD wrote:
Thu Apr 05, 2018 12:20 pm
Call_Me_Op wrote:
Thu Apr 05, 2018 11:18 am
Dodec,

We are on the same page. I have long maintained that folks tend to underestimate the importance of the emotional aspect of investing. It is not so much a matter of dollars and sense. It is quality of life, and perhaps also length of life.
+1!!
+2!
Although I'm much more interested in quality of life these days and length of life.

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Re: JAMA article's health implications for asset allocation

Post by Good Listener » Thu Apr 05, 2018 8:50 pm

This is interesting. I am 65, now retired, and at 50 stocks, 45 bonds and 5 cash. I am Rothifying all the IRA account I have over a few years at max tax rates as I expect rates of taxation to go way up down the road. I hope I'm wrong but with out debt I see no other way. I urge all listeners to read what VictoriaF and dodecahedron have written in this thread and others as they are smarter than all of us combined and I am an Ivy League post graduate guy who says this. ( frankly, not that that means anything anymore but it used to) :D

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Re: JAMA article's health implications for asset allocation

Post by House Blend » Fri Apr 06, 2018 8:59 am

Good Listener wrote:
Thu Apr 05, 2018 8:50 pm
I am 65, now retired, and at 50 stocks, 45 bonds and 5 cash. I am Rothifying all the IRA account I have over a few years at max tax rates as I expect rates of taxation to go way up down the road. I hope I'm wrong but with out debt I see no other way.
Unless you have or will have a pension or other (taxable) income stream in addition to SS, or can Roth convert at a 0% tax rate, it is a clear mistake to convert 100% of your tax-deferred assets to Roth.

The point is that if your only income sources in retirement are Roth withdrawals and your SS benefit, you will pay 0 income tax for the rest of your life. By Roth converting less, and having nonzero RMDs that are still tax-free, you would be better off.

Sure, your prediction of higher tax rates could come true, but it would require a drastic rewrite of the taxcode if the 0% tax bracket (aka the standard deduction) was taken away, and the rules governing taxability of SS were discarded. If the top tax bracket goes to 50%, or the 10% bracket becomes the 20% bracket, this has no bearing on someone whose only (reportable) gross income is a small RMD.

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Re: JAMA article's health implications for asset allocation

Post by cs412a » Fri Apr 06, 2018 11:14 pm

The article's major finding was that older individuals who experienced catastrophic financial setbacks were more likely to die compared to individuals who did not suffer these setbacks over a given time frame. This finding in itself doesn't seem surprising, but the authors were also able to determine how much more likely these deaths were (i.e., they found a hazard ratio of 1.5, with a 95% confidence interval of 1.36 to 1.67). The complex statistical analysis was performed to controlling for confounding effects due to other factors, which is important if you are trying to identify the relative contribution of a specific variable.

The article also stated that
Compared with those who had positive wealth without shock, those who had a negative wealth shock were more likely to be women, race/ethnicity other than non-Hispanic white, have lower levels household income and net worth, and have poor health (Table 1). These differences were even more extreme in the asset poverty group, the majority of whom were not married, not working, and had serious health conditions.
In other words, to live longer, you want to avoid catastrophic financial setbacks as you become older, which means that throughout your lifetime you should try to remain employed, try to achieve as high a level of household income and net worth as you can, and follow a healthy life-style (since these are the protective factors you can influence to a certain extent). In other words, individuals should try to save and invest as much as they can. The article doesn't specifically address the issue of asset allocation, but to increase net worth, a key protective factor, investors would do better to favor equities over fixed income when younger and adopt a more conservative approach as they approach retirement so that they are better able to maintain that higher net worth at a time when they have less financial resilience. Who knew?

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Re: JAMA article's health implications for asset allocation

Post by RadAudit » Sat Apr 07, 2018 7:00 pm

VictoriaF wrote:
Thu Apr 05, 2018 2:16 pm
The U.S. market has never lost 75%, but it could
I thought the US market (Dow) lost 90% over several years during the Depression. Could be wrong.
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Re: JAMA article's health implications for asset allocation

Post by Good Listener » Sat Apr 07, 2018 8:10 pm

House Blend wrote:
Fri Apr 06, 2018 8:59 am
Good Listener wrote:
Thu Apr 05, 2018 8:50 pm
I am 65, now retired, and at 50 stocks, 45 bonds and 5 cash. I am Rothifying all the IRA account I have over a few years at max tax rates as I expect rates of taxation to go way up down the road. I hope I'm wrong but with out debt I see no other way.
Unless you have or will have a pension or other (taxable) income stream in addition to SS, or can Roth convert at a 0% tax rate, it is a clear mistake to convert 100% of your tax-deferred assets to Roth.

The point is that if your only income sources in retirement are Roth withdrawals and your SS benefit, you will pay 0 income tax for the rest of your life. By Roth converting less, and having nonzero RMDs that are still tax-free, you would be better off.

Sure, your prediction of higher tax rates could come true, but it would require a drastic rewrite of the taxcode if the 0% tax bracket (aka the standard deduction) was taken away, and the rules governing taxability of SS were discarded. If the top tax bracket goes to 50%, or the 10% bracket becomes the 20% bracket, this has no bearing on someone whose only (reportable) gross income is a small RMD.
It all depends on circumstances. I am not in a zero bracket, in fact I am converting in the top bracket. But I don't need it and when I die, my daughter will get a large Roth IRA instead of a pretax traditional IRA subject to both estate tax and income tax. This focusing on conversions at zero percent rates ignores considerations that others go through as all circumstance differ. Current income taxes if you can afford them are not the sole driver for many of us.

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Re: JAMA article's health implications for asset allocation

Post by FreeAtLast » Sat Apr 07, 2018 8:45 pm

RadAudit wrote:
Sat Apr 07, 2018 7:00 pm
VictoriaF wrote:
Thu Apr 05, 2018 2:16 pm
The U.S. market has never lost 75%, but it could
I thought the US market (Dow) lost 90% over several years during the Depression. Could be wrong.
My historical data table taken from an old Bogleheads' thread states from 08/30/1929 to 05/31/1932 = negative 84.59% for the S&P 500. :(
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Re: JAMA article's health implications for asset allocation

Post by nisiprius » Sat Apr 07, 2018 8:54 pm

This confirms the findings in a draft paper that someone mentioned in the forum some years ago. I was looking for the posting that named the paper recently, and couldn't find it. I don't think this AMA paper is by the same author. I am very glad to see this one, especially from such an impeccable source.

It doesn't surprise me one bit. I think it is very important... and a good reason not to use "bonds first," glide paths that intentionally create rising stock allocation glide paths, or bucket strategies that result in the same thing.

It confirms an anecdotal observation from the late 1800s:
Samuel Butler wrote:A man can stand being told that he must submit to a severe surgical operation, or that he has some disease which will shortly kill him, or that he will be a cripple or blind for the rest of his life; dreadful as such tidings must be, we do not find that they unnerve the greater number of mankind; most men, indeed, go coolly enough even to be hanged, but the strongest quail before financial ruin, and the better men they are, the more complete, as a general rule, is their prostration. Suicide is a common consequence of money losses; it is rarely sought as a means of escape from bodily suffering. If we feel that we have a competence at our backs, so that we can die warm and quietly in our beds, with no need to worry about expense, we live our lives out to the dregs, no matter how excruciating our torments. Job probably felt the loss of his flocks and herds more than that of his wife and family, for he could enjoy his flocks and herds without his family, but not his family—not for long—if he had lost all his money. Loss of money indeed is not only the worst pain in itself, but it is the parent of all others. Let a man have been brought up to a moderate competence, and have no specially; then let his money be suddenly taken from him, and how long is his health likely to survive the change in all his little ways which loss of money will entail? How long again is the esteem and sympathy of friends likely to survive ruin? People may be very sorry for us, but their attitude towards us hitherto has been based upon the supposition that we were situated thus or thus in money matters; when this breaks down there must be a restatement of the social problem so far as we are concerned; we have been obtaining esteem under false pretences.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

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Re: JAMA article's health implications for asset allocation

Post by nisiprius » Sat Apr 07, 2018 9:00 pm

And this time, for some reason, I found the old article right away.

Bogleheads thread: How wealth shocks affect the health of the elderly

Conference paper, Hannes Schwandt, 2014: Wealth Shocks and Health Outcomes: Evidence from Stock Market Fluctuations
...I exploit the booms and busts in the US stock market as a natural experiment that generated considerable gains and losses in the wealth of stock-holding retirees. Using data from the Health and Retirement Study I construct wealth shocks as the interaction of stock holdings with stock market changes. These constructed wealth shocks are highly predictive of changes in reported wealth. And they strongly affect health outcomes. A 10% wealth shock leads to an improvement of 2-3% of a standard deviation in physical health, mental health and survival rates. Effects are heterogeneous across physical health conditions, with most pronounced effects for the incidence of high blood pressure, smaller effects for heart problems and no effects for arthritis, diabetes, lung diseases and cancer. The comparison with the cross-sectional relationship of wealth and health suggests that the estimated effects of wealth shocks are larger than the long-run wealth elasticity of health.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

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Re: JAMA article's health implications for asset allocation

Post by Dottie57 » Sat Apr 07, 2018 10:55 pm

VictoriaF wrote:
Thu Apr 05, 2018 12:35 pm
dodecahedron,

I took a different route to get to the same destination as you. The guiding principle for my route were two key decisions for my finances after retirement:
(1) Delay taking Social Security until I turn 70 years old.
(2) Convert all my retirement accounts into Roth.

In order to assure that I can do (1) and (2), I kept a lot of cash. For a while it was just cash, later I started using CDs. But the result is the same: I do not depend on the stock market for my living expenses and Roth conversion taxes until I reach 70. After the age of 70, a combination of my pensions and Social Security will cover my minimum expenses, and my investments will help with extras.

Similarly to you, as I am using cash, my overall stock allocation is rising, but it's not a true Bogleheads AA, because I don't monitor it and don't rebalance.

If I depended on the market for my financial well-being, I would have been very stressed by the recent gyrations. As it stands, it's merely a curiosity and an opportunity to post in the "Stocks in Freefall" thread when I think of something clever.

Victoria
I am very happy someone else is doing the same as I am. SS at 70. Bare minimum of expenses in cash/stable value/bonds. Should work out. I need about 20k a year with SS.

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Re: JAMA article's health implications for asset allocation

Post by House Blend » Sun Apr 08, 2018 10:02 am

Good Listener wrote:
Sat Apr 07, 2018 8:10 pm
House Blend wrote:
Fri Apr 06, 2018 8:59 am
Good Listener wrote:
Thu Apr 05, 2018 8:50 pm
I am 65, now retired, and at 50 stocks, 45 bonds and 5 cash. I am Rothifying all the IRA account I have over a few years at max tax rates as I expect rates of taxation to go way up down the road. I hope I'm wrong but with out debt I see no other way.
Unless you have or will have a pension or other (taxable) income stream in addition to SS, or can Roth convert at a 0% tax rate, it is a clear mistake to convert 100% of your tax-deferred assets to Roth.

The point is that if your only income sources in retirement are Roth withdrawals and your SS benefit, you will pay 0 income tax for the rest of your life. By Roth converting less, and having nonzero RMDs that are still tax-free, you would be better off.

Sure, your prediction of higher tax rates could come true, but it would require a drastic rewrite of the taxcode if the 0% tax bracket (aka the standard deduction) was taken away, and the rules governing taxability of SS were discarded. If the top tax bracket goes to 50%, or the 10% bracket becomes the 20% bracket, this has no bearing on someone whose only (reportable) gross income is a small RMD.
It all depends on circumstances. I am not in a zero bracket, in fact I am converting in the top bracket. But I don't need it and when I die, my daughter will get a large Roth IRA instead of a pretax traditional IRA subject to both estate tax and income tax. This focusing on conversions at zero percent rates ignores considerations that others go through as all circumstance differ. Current income taxes if you can afford them are not the sole driver for many of us.
I strongly agree with the bolded portions. The fact that the individual details matter is exactly what prompted me to respond in the first place.

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JAMA study - loss of assets associated with increased risk of death

Post by PhilosophyAndrew » Fri Apr 20, 2018 9:48 pm

[Thread merged into here, see below. --admin LadyGeek]

These results published 4/3/18 in JAMA suggest that really unsuccessful market timing — and other financial disasters — may be hazardous to one’s health.

“Among US adults aged 51 years and older, loss of wealth over 2 years was associated with an increased risk of all-cause mortality. Further research is needed to better understand the possible mechanisms for this association and determine whether there is potential value for targeted interventions.”

https://jamanetwork.com/journals/jama/f ... le/2677445


Also see:

Sudden loss of wealth raises risk of earlier death, study shows

“People who suddenly lose most of their wealth die significantly younger than those who hang on to their assets, according to a large US study relating health to financial changes during middle and old age.”

https://www.ft.com/content/29074104-372 ... sktop=true

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Re: JAMA study - loss of assets associated with increased risk of death

Post by dodecahedron » Fri Apr 20, 2018 10:03 pm

PhilosophyAndrew wrote:
Fri Apr 20, 2018 9:48 pm
These results published 4/3/18 in JAMA suggest that really unsuccessful market timing — and other financial disasters — may be hazardous to one’s health.

“Among US adults aged 51 years and older, loss of wealth over 2 years was associated with an increased risk of all-cause mortality. Further research is needed to better understand the possible mechanisms for this association and determine whether there is potential value for targeted interventions.”

https://jamanetwork.com/journals/jama/f ... le/2677445
There is already a forum thread discussing this article here:

viewtopic.php?t=246196#p3865263

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Re: JAMA study - loss of assets associated with increased risk of death

Post by PhilosophyAndrew » Fri Apr 20, 2018 10:12 pm

Thanks for the link, and sorrry for the duplicate post.

Andy.

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Re: JAMA article's health implications for asset allocation

Post by golfCaddy » Fri Apr 20, 2018 10:39 pm

I didn't read the full study, but I wouldn't read too much into it, without a theory of causation. Does unemployment cause people to lose their savings and their health insurance?

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Re: JAMA article's health implications for asset allocation

Post by LadyGeek » Sat Apr 21, 2018 8:11 am

I merged PhilosophyAndrew's thread into here.

PhilosophyAndrew - It's not a big deal, don't worry about it.
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Re: JAMA article's health implications for asset allocation

Post by motorcyclesarecool » Sat Apr 21, 2018 9:01 am

To me, this is the strongest reason why bonds and why I will strongly consider annuitizing part of my AA once I retire. This is a huge argument for why one should stop playing if s/he has already won the game.
Understand that choosing an HDHP is very much a "red pill" approach. Most would rather pay higher premiums for a $20 copay per visit. They will think you weird for choosing an HSA.

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Re: JAMA article's health implications for asset allocation

Post by willthrill81 » Sat Apr 21, 2018 9:16 am

motorcyclesarecool wrote:
Sat Apr 21, 2018 9:01 am
To me, this is the strongest reason why bonds and why I will strongly consider annuitizing part of my AA once I retire. This is a huge argument for why one should stop playing if s/he has already won the game.
How do you know that you've 'won the game'?

When you stop playing the 'game', you might start losing it.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: JAMA article's health implications for asset allocation

Post by motorcyclesarecool » Sat Apr 21, 2018 10:20 am

If you don’t quit the game when you’re ahead, you might also start losing....

When a combination of pension, SS, and annuity income meets expenses, I’ve won. In other words, when I have enough savings to annuitize my living expenses beyond pension and social security.
Understand that choosing an HDHP is very much a "red pill" approach. Most would rather pay higher premiums for a $20 copay per visit. They will think you weird for choosing an HSA.

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Re: JAMA article's health implications for asset allocation

Post by willthrill81 » Sat Apr 21, 2018 10:26 am

motorcyclesarecool wrote:
Sat Apr 21, 2018 10:20 am
If you don’t quit the game when you’re ahead, you might also start losing....
Right. All roads carry risk.
motorcyclesarecool wrote:
Sat Apr 21, 2018 10:20 am
When a combination of pension, SS, and annuity income meets expenses, I’ve won. In other words, when I have enough savings to annuitize my living expenses beyond pension and social security.
By annuitizing a large portion of your portfolio, you are locking in about the 15th percentile of historic returns. Guarantees come with a price tag, and even then, they are not completely risk-less. Annuities can fail, as can pensions and SS.

This saying of Bernstein's is a quite risk-averse one and typically appeals to those with that mindset.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: JAMA article's health implications for asset allocation

Post by motorcyclesarecool » Sat Apr 21, 2018 11:07 am

This article gives some teeth to risk aversion. A 70% decline in my net worth today would be brutal, but not unrecoverable. A 70% decline in my first year of retirement would leave me devastated and filled with remorse for having taken too much risk.

I can diversify my annuities by purchasing at different companies, and while residing in different states.
Understand that choosing an HDHP is very much a "red pill" approach. Most would rather pay higher premiums for a $20 copay per visit. They will think you weird for choosing an HSA.

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Re: JAMA article's health implications for asset allocation

Post by willthrill81 » Sat Apr 21, 2018 11:21 am

motorcyclesarecool wrote:
Sat Apr 21, 2018 11:07 am
This article gives some teeth to risk aversion. A 70% decline in my net worth today would be brutal, but not unrecoverable. A 70% decline in my first year of retirement would leave me devastated and filled with remorse for having taken too much risk.
Who is recommending that retirees have 100% of their portfolio in stocks? The only time I've heard of that is when someone had a very low withdrawal rate, like 2%.
motorcyclesarecool wrote:
Sat Apr 21, 2018 11:07 am
I can diversify my annuities by purchasing at different companies, and while residing in different states.
Yes, you can diversify the risk across companies, but how can you reside in different states?
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: JAMA article's health implications for asset allocation

Post by Dottie57 » Sat Apr 21, 2018 11:33 am

Good Listener wrote:
Thu Apr 05, 2018 8:50 pm
This is interesting. I am 65, now retired, and at 50 stocks, 45 bonds and 5 cash. I am Rothifying all the IRA account I have over a few years at max tax rates as I expect rates of taxation to go way up down the road. I hope I'm wrong but with out debt I see no other way. I urge all listeners to read what VictoriaF and dodecahedron have written in this thread and others as they are smarter than all of us combined and I am an Ivy League post graduate guy who says this. ( frankly, not that that means anything anymore but it used to) :D

I know I wish I had a bigger stock pile of cash in retirement. But I did not quite understand how valuable it could be. I have enough to convert my tIRA, but not the larger 401k.

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Re: JAMA article's health implications for asset allocation

Post by mariezzz » Sat Apr 21, 2018 12:05 pm

dodecahedron wrote:
Thu Apr 05, 2018 1:11 pm
dm200 wrote:
Thu Apr 05, 2018 1:06 pm
No statistician here - but association is not causation.

Maybe, for example, health problems and/or risks cause sudden asset loss (could be many reasons of the health problems)
Agree that association is not causation, but this was a long term (20 year) study in which they regularly checked in with people about their health status, behaviors, and financial status. Their statistical techniques attempted to take confounding variables into account. Having spent quite a bit of time around older folks stressing out about their finances during the dotcom crash and the subprime crash, the study's conclusions certainly seem plausible to me.
The fact that it's a long term study doesn't change the reality that association is not causation.

The fact that some people become stressed during periods of downturn doesn't mean that everyone does. There is a lot of evidence that stress can cause negative outcomes (there are also many correlational studies, that don't establish a causal relationship), so if someone experiences downturns as stressful, that can have a negative health outcome.

People empower themselves when they learn to frame situations differently.

When the market turned downward (10%) recently, I reminded myself that it's a temporary blip (the 2008 blip was the largest drop in a long time, but still, if you had simply ridden it out, you would have been fine by now). I also reminded myself that the market went up quite a bit over the last few years. Then I figured out where the 10% market downturn put me in terms of where I would have been last year without the strong market gains. It put me back under 3 months. So all I was losing was (unexpected) gains. I didn't fixate on the 10% loss.

Admittedly, when you are new to investing and invest a large chunk in a short time, then see the market drop 10%, that is a difficult situation. Still, reminding yourself that you made the commitment to invest for the long term, and reviewing the market's historical loss & gain pattern, can help offset anxiety. The lesson here is to choose a risk position you can live with, save at a young age & keep saving (so you have a long time to let your money grow), and if you don't trust yourself to weather downturns, have a fee-only advisor who you consult with before making dramatic changes that don't follow your investment policy statement. (also: low fee, index investments; keep strategy fairly simple.)

I think being educated about market fluctuations and historical patterns is the best way to avoid stress caused by downturns. I viewed the recent downturn as an opportunity to acquire equity. My equity position is usually around 78%; I made it slightly higher by shifting bonds & cash into equity). I'll offset that over the next few months by moving new retirement money a little more heavily into cash or bond positions. (Yes, that amounts to market timing with a very small percentage of my retirement money.)

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Re: JAMA article's health implications for asset allocation

Post by alamander » Sat Apr 21, 2018 1:41 pm

willthrill81 wrote:
Thu Apr 05, 2018 3:09 pm
Just to play 'devil's advocate' a little, I'm not sure if a 'more conservative' AA would truly be beneficial to an investor's mindset and health if it doesn't allow them to reach their financial goals. For instance, if I could reach my goals by just investing in TIAA Traditional, never seeing my balance drop from one day to the next, you had better believe that I would. But doing so would never allow me to reach my goals in my desired time frame.

As most things go, this is a balancing act.
It was TIAA Traditional that let me sleep at night during the Great Recession...
- Alamander

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Re: JAMA article's health implications for asset allocation

Post by JPH » Sat Apr 21, 2018 3:34 pm

dodecahedron wrote:
Thu Apr 05, 2018 1:11 pm
dm200 wrote:
Thu Apr 05, 2018 1:06 pm
No statistician here - but association is not causation.

Maybe, for example, health problems and/or risks cause sudden asset loss (could be many reasons of the health problems)
Agree that association is not causation, but this was a long term (20 year) study in which they regularly checked in with people about their health status, behaviors, and financial status. Their statistical techniques attempted to take confounding variables into account. Having spent quite a bit of time around older folks stressing out about their finances during the dotcom crash and the subprime crash, the study's conclusions certainly seem plausible to me.
It was a prospective study, which is a lot stronger than a cross sectional study in isolating a cause and effect relationship. The risk factor and outcome are not assessed at the same point in time. They did include people that were experiencing poverty as baseline, which does seem like a possible limitation. I read only the abstract so don't know if the addressed this in the analysis.
While the moments do summersaults into eternity | Cling to their coattails and beg them to stay - Townes Van Zandt

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