Robert Merton on NewRetirement Podcast

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Horton
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Robert Merton on NewRetirement Podcast

Post by Horton » Fri Jun 29, 2018 7:23 pm

The NewRetirement podcast is relatively new, but Steve Chen has had an all-star lineup thus far - Bill Bernstein, Jonathan Clements, Allan Roth, Big ERN, Morgan Housel, and Chris Mamula

Continuing the trend, Robert Merton is the guest on today's episode. I got about half way through it on my drive home. Lots of good conversation about retirement income.

Enjoy! :sharebeer

https://dts.podtrac.com/redirect.mp3/au ... c72aac.mp3

P.S. - My podcast app downloaded the episode from the link above, but the transcript will likely be available soon here:

https://www.newretirement.com/retirement/topic/podcast/

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Re: Robert Merton on NewRetirement Podcast

Post by Artsdoctor » Fri Jun 29, 2018 7:54 pm

Thanks. Will be interested in listening. Merton has a very interesting personal and professional history, and that particular podcast is 90 minutes so hopefully will get into some of his past as well as present.

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Re: Robert Merton on NewRetirement Podcast

Post by nexesn » Fri Jun 29, 2018 9:07 pm

Horton wrote:
Fri Jun 29, 2018 7:23 pm
The NewRetirement podcast is relatively new, but Steve Chen has had an all-star lineup thus far - Bill Bernstein, Jonathan Clements, Allan Roth, Big ERN, Morgan Housel, and Chris Mamula

Continuing the trend, Robert Merton is the guest on today's episode. I got about half way through it on my drive home. Lots of good conversation about retirement income.

Enjoy! :sharebeer

https://dts.podtrac.com/redirect.mp3/au ... c72aac.mp3

P.S. - My podcast app downloaded the episode from the link above, but the transcript will likely be available soon here:

https://www.newretirement.com/retirement/topic/podcast/

Thanks. I'll have a listen. I have to say, he's quite a nice guy, and quite modest. I worked with him in one of my past careers. Unfortunately, his name and research is known for almost taking down markets, but he was never directly responsible for it.

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Re: Robert Merton on NewRetirement Podcast

Post by bobcat2 » Sat Jun 30, 2018 8:10 am

The part of the interview that stuck out to me was near the end when Chen attempted to summarize Merton's position on prudent retirement planning. Chen then asked Merton if he had it right. Merton responded that the summary was mostly right, but Chen's including Target Date Funds as part of sound retirement planning was way off course. Merton then spent about three minutes going over flaws with using TDFs, even though Merton himself has designed target date income funds for DFA. Merton went out of his way to point out that what is good about target date income funds is that they are not as bad as conventional TDFs.

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Re: Robert Merton on NewRetirement Podcast

Post by sleepysurf » Sat Jun 30, 2018 3:16 pm

Fascinating podcast!

Merton's comments about Target Date Income Funds vs. generic Target Date Retirement Funds were quite astute. I also loved his other perspectives...
  • Defined Contribution plans (401K, etc.) should emphasize cumulative "projected annual income" (a la "Pension or SPIA equivalency") as a more useful metric (for the masses) than just cumulative retirement portfolio value. Sounds like South Africa, and some other countries are farther along than the U.S. in that regard.
  • His argument in favor of Reverse Mortgages was also an eye-opener for me.
I plan to do more reading about him.
Retired 2017 | ~50/45/5 (partially sliced and diced) | Current WR 2.8%

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Re: Robert Merton on NewRetirement Podcast

Post by Artsdoctor » Sat Jun 30, 2018 7:49 pm

The interview was good. He made it very clear that he is focusing many of his recommendations on middle class and perhaps upper-middle class investors, and spends a reasonable amount of time discussing annuities and reverse mortgages. I think that using the reverse mortgage lever is still going to be hindered by fees and limits, but I'd like to think that tapping home equity will become easier over time. He is very concerned, appropriately, on how people will be managing their retirements with limited resources and knowledge, and is trying to come up solutions (such as annuities and reverse mortgages).

His idea of converting an investor's portfolio statement into an income statement is incredibly astute. People can see that their investment portfolios might be approaching $500,000 and be in awe, but have no idea how much income this will generate in retirement.

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Re: Robert Merton on NewRetirement Podcast

Post by gmaynardkrebs » Sat Jun 30, 2018 9:09 pm

I admire Merton for taking on this challenge. He's up against a Wall St. run system that profits enormously from telling people what they want to hear, instead of what they need to know. A mutual find company that sent the type monthly statement that he suggests would have few customers. Fortunately, many BHers are receptive to his message. I wish there were more.

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Re: Robert Merton on NewRetirement Podcast

Post by longinvest » Sat Jun 30, 2018 9:21 pm

A bit of history.

Long-Term Capital Management - Wikipedia
LTCM was founded in 1994 by John W. Meriwether, the former vice-chairman and head of bond trading at Salomon Brothers. Members of LTCM's board of directors included Myron S. Scholes and Robert C. Merton, who shared the 1997 Nobel Memorial Prize in Economic Sciences for a "new method to determine the value of derivatives".[3] Initially successful with annualized return of over 21% (after fees) in its first year, 43% in the second year and 41% in the third year, in 1998 it lost $4.6 billion in less than four months following the 1997 Asian financial crisis and 1998 Russian financial crisis, requiring financial intervention by the Federal Reserve, with the fund liquidating and dissolving in early 2000.
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Re: Robert Merton on NewRetirement Podcast

Post by bobcat2 » Sat Jun 30, 2018 9:40 pm

longinvest wrote:
Sat Jun 30, 2018 9:21 pm
A bit of history. ...

Another bit of history. This time Robert Shiller writing in the Washington Post during the height of the Great Recession in late September, 2008.
Ideas matter. Maybe next time, we will listen more closely to financial theorists who think in abstract, general terms. Consider the Long-Term Capital Management debacle in 1998, when the Federal Reserve leaned on financial titans to rescue a massive hedge fund and stave off global fallout. Lots of people hold that the moral of the LCTM story was the failed thinking of two of the firm's founders, Robert Merton and Myron Scholes, both of whom were Nobel Prize-winning financial theorists. In fact, the collapse of LTCM was largely due to the overconfidence of bond trader John Meriwether and some of his other LTCM colleagues, who were gambling in the markets. The disgraced Merton has been working for the last decade trying to build better risk-management systems, mostly to little avail. Maybe he will be heard now. People still seem to want to trust businessmen who have made bundles and have a huge investment bank behind them, rather than listen to experts who are thinking about the fundamentals of risk management. We would have been better off this month if we'd been ignoring the former and listening to the latter.
Link to article - http://www.washingtonpost.com/wp-dyn/co ... 02838.html


Criticising Merton for LTCM and implying that you shouldn't listen to his advice now is like ignoring Jack Bogle because he was fired at Wellington for approving an extremely unwise merger while the head of Wellington.
Bogle was promoted to an assistant manager position in 1955 where he obtained a broader access to analyze the company and the investment department. Bogle demonstrated initiative and creativity by challenging the Wellington management to change its strategy of concentration on a single fund, and did his best to make his point in creating a new fund. Eventually he succeeded, and the new fund became a turning point in his career. After successfully climbing through the ranks, in 1970 he replaced Walter L. Morgan as chairman of Wellington, but was later fired for an "extremely unwise" merger that he approved. It was a poor decision that he considers his biggest mistake, stating, "The great thing about that mistake, which was shameful and inexcusable and a reflection of immaturity and confidence beyond what the facts justified, was that I learned a lot."
Link - https://en.wikipedia.org/wiki/John_C._Bogle

People make mistakes. Some learn from their mistakes; others don't. Both Merton and Bogle have demonstrated the capacity to learn from previous mistakes.

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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Re: Robert Merton on NewRetirement Podcast

Post by Artsdoctor » Sun Jul 01, 2018 2:16 pm

^ I agree, Bobcat. I can only imagine what it must have been like to win the Nobel Prize and have the LTCM debacle occurring in such close proximity. Talk about a roller coaster ride!

You don't have to agree with everything Merton says. There is no one who's infallible. Ideally, you pick and choose what multiple informed people might say and then decide for yourself how to apply that knowledge.

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Re: Robert Merton on NewRetirement Podcast

Post by Horton » Sun Jul 01, 2018 3:08 pm

Agree with the prior posters. I would encourage everyone to listen to Robert Merton's ideas on retirement income. I think it's clear that he has a deep desire to help people prepare for a secure retirement. He's also trying hard to train the best and the brightest via his courses at MIT to design meaningful solutions.

Regarding LTCM, I anticipate he would plead mea culpa...

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Re: Robert Merton on NewRetirement Podcast

Post by matjen » Sun Jul 01, 2018 4:09 pm

bobcat2 wrote:
Sat Jun 30, 2018 9:40 pm

People make mistakes. Some learn from their mistakes; others don't. Both Merton and Bogle have demonstrated the capacity to learn from previous mistakes.

BobK
+1 Well stated Bobk. I would add that Bogle lost a lot of money for a lot of people. The interesting thing about LTCM is that they gave almost all their investor money back plus profit (over objection I might add). Only a few insiders were still allowed in the fund. All the LTCM folks went to zero but not their investors. This isn't meant to degrade Bogle at all.
Last edited by matjen on Sun Jul 01, 2018 4:32 pm, edited 1 time in total.
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Re: Robert Merton on NewRetirement Podcast

Post by nedsaid » Sun Jul 01, 2018 4:28 pm

bobcat2 wrote:
Sat Jun 30, 2018 9:40 pm
longinvest wrote:
Sat Jun 30, 2018 9:21 pm
A bit of history. ...

Another bit of history. This time Robert Shiller writing in the Washington Post during the height of the Great Recession in late September, 2008.
Ideas matter. Maybe next time, we will listen more closely to financial theorists who think in abstract, general terms. Consider the Long-Term Capital Management debacle in 1998, when the Federal Reserve leaned on financial titans to rescue a massive hedge fund and stave off global fallout. Lots of people hold that the moral of the LCTM story was the failed thinking of two of the firm's founders, Robert Merton and Myron Scholes, both of whom were Nobel Prize-winning financial theorists. In fact, the collapse of LTCM was largely due to the overconfidence of bond trader John Meriwether and some of his other LTCM colleagues, who were gambling in the markets. The disgraced Merton has been working for the last decade trying to build better risk-management systems, mostly to little avail. Maybe he will be heard now. People still seem to want to trust businessmen who have made bundles and have a huge investment bank behind them, rather than listen to experts who are thinking about the fundamentals of risk management. We would have been better off this month if we'd been ignoring the former and listening to the latter.
Link to article - http://www.washingtonpost.com/wp-dyn/co ... 02838.html


Criticising Merton for LTCM and implying that you shouldn't listen to his advice now is like ignoring Jack Bogle because he was fired at Wellington for approving an extremely unwise merger while the head of Wellington.
Bogle was promoted to an assistant manager position in 1955 where he obtained a broader access to analyze the company and the investment department. Bogle demonstrated initiative and creativity by challenging the Wellington management to change its strategy of concentration on a single fund, and did his best to make his point in creating a new fund. Eventually he succeeded, and the new fund became a turning point in his career. After successfully climbing through the ranks, in 1970 he replaced Walter L. Morgan as chairman of Wellington, but was later fired for an "extremely unwise" merger that he approved. It was a poor decision that he considers his biggest mistake, stating, "The great thing about that mistake, which was shameful and inexcusable and a reflection of immaturity and confidence beyond what the facts justified, was that I learned a lot."
Link - https://en.wikipedia.org/wiki/John_C._Bogle

People make mistakes. Some learn from their mistakes; others don't. Both Merton and Bogle have demonstrated the capacity to learn from previous mistakes.

BobK
If I fly on a commercial airliner and see that the pilot has a gray hair and a crew-cut, I am relieved. That means it is likely the pilot came from the military, saw some hairy situations, and has lots of flying experience in less than optimal situations. If I am looking for someone for advice, I want someone who knows what failure is and has learned from mistakes. Someone with a few battle scars.

I have commented on Mr. Bogle's less than perfect career, but less than perfect is a good thing and not a bad thing. It meant that he had the courage to try new things, taking the chance of failure. If you don't get criticized for making mistakes, chances are you haven't accomplished much in life. With success comes the occasional failure and the inevitable criticism. Thank goodness, Bogle made mistakes along the way, otherwise the index fund might never have been made available to the general public.

As far as Merton, I have looked at one of the presentations that Bob linked to in another thread. I like his concepts. The idea of thinking in terms of income rather than just "the number" is a good concept as what we all want is inflation adjusted income in retirement sufficient to maintain our lifestyles. My main comment on this is that you still need assets behind that income and that Merton's ideas while great still need work. Nothing is bulletproof but certainly some ideas are better than others. Pretty much, Professor Merton is telling us to think about retirement planning in a different way.
A fool and his money are good for business.

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Re: Robert Merton on NewRetirement Podcast

Post by gmaynardkrebs » Sun Jul 01, 2018 5:04 pm

I don't understand why Merton makes so little of a $500,000 nest egg. Put that amount in TIPS at age 60. If you live to be 100, that's at least $12,500/yr in real dollars. Added to Soc Security for someone who worked for 35-40 years, that's a significant retirement income. Hardly posh, but there are many working people who get by on less.

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Re: Robert Merton on NewRetirement Podcast

Post by bobcat2 » Sun Jul 01, 2018 6:22 pm

gmaynardkrebs wrote:
Sun Jul 01, 2018 5:04 pm
I don't understand why Merton makes so little of a $500,000 nest egg. Put that amount in TIPS at age 60. If you live to be 100, that's at least $12,500/yr in real dollars. Added to Soc Security for someone who worked for 35-40 years, that's a significant retirement income. Hardly posh, but there are many working people who get by on less.
I believe the point Merton was trying to make in that example is that people in general have trouble going from a pot of money to an income stream. Many people with a $500,000 pot retiring at age 60 think they are in great shape and would be surprised to find out it's only $16,000/year or so in safe retirement income. There's nothing wrong with $16,000/year, but until told they think they will have much more income per year than that.

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Last edited by bobcat2 on Sun Jul 01, 2018 6:26 pm, edited 1 time in total.
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Re: Robert Merton on NewRetirement Podcast

Post by munemaker » Sun Jul 01, 2018 6:26 pm

Robert Merton's interview, while interesting, does not seem slanted toward a Boglehead audience.

It is more toward the average wage earner who is clueless.

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Re: Robert Merton on NewRetirement Podcast

Post by Horton » Sun Jul 01, 2018 7:29 pm

munemaker wrote:
Sun Jul 01, 2018 6:26 pm
Robert Merton's interview, while interesting, does not seem slanted toward a Boglehead audience.

It is more toward the average wage earner who is clueless.
The Bogleheads aren’t interested in secure retirement income? :wink:

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Re: Robert Merton on NewRetirement Podcast

Post by nisiprius » Sun Jul 01, 2018 8:31 pm

bobcat2 wrote:
Sun Jul 01, 2018 6:22 pm
...Many people with a $500,000 pot retiring at age 60 think they are in great shape and would be surprised to find out it's only $16,000/year or so in safe retirement income. There's nothing wrong with $16,000/year, but until told they think they will have much more income per year than that...
It's not exactly the same situation, but I am reminded me of an incident in H. G. Wells' semi-autobiographical novel, The History of Mr. Polly. Mr. Polly inherits £350 and starts spending it pretty freely:
Figures are the most shocking things in the world. The prettiest little squiggles of black—looked at in the right light, and yet consider the blow they can give you upon the heart. You return from a little careless holiday abroad, and turn over the page of a newspaper, and against the name of that distant, vague-conceived railway in mortgages upon which you have embarked the bulk of your capital, you see instead of the familiar, persistent 95-6 (varying at most to 93 ex. div.) this slightly richer arrangement of marks: 76 1/2—78 1/2.

It is like the opening of a pit just under your feet!

So, too, Mr. Polly’s happy sense of limitless resources was obliterated suddenly by a vision of this tracery:

“298”

instead of the

“350”

he had come to regard as the fixed symbol of his affluence.
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: Robert Merton on NewRetirement Podcast

Post by munemaker » Sun Jul 01, 2018 8:51 pm

Horton wrote:
Sun Jul 01, 2018 7:29 pm
munemaker wrote:
Sun Jul 01, 2018 6:26 pm
Robert Merton's interview, while interesting, does not seem slanted toward a Boglehead audience.

It is more toward the average wage earner who is clueless.
The Bogleheads aren’t interested in secure retirement income? :wink:
Did you listen to the podcast?

He talks about publishing IRA and 401k returns in terms of potential income because people have trouble relating assets to income.

He talks about reverse mortgages on homes to give heirs money now.

He talks about people who don't have enough saved for retirement using annuities because the income is higher than the safe withdrawal rate.

That was pretty much a summary of the concepts presented. That's why I say this is more for the average Joe than for Bogleheads.

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Re: Robert Merton on NewRetirement Podcast

Post by TravelGeek » Sun Jul 01, 2018 8:57 pm

munemaker wrote:
Sun Jul 01, 2018 8:51 pm

That was pretty much a summary of the concepts presented. That's why I say this is more for the average Joe than for Bogleheads.
I listed to it. Yes, I think most BH members probably don’t need a lot of help mapping a pot of money to a monthly income stream. But the vast majority of the country isn’t a member here (and it isn’t the official BH podcast), so I thought it still was a good podcast episode that I might recommend to others (avg Joes and Janes).

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Re: Robert Merton on NewRetirement Podcast

Post by gmaynardkrebs » Sun Jul 01, 2018 9:07 pm

munemaker wrote:
Sun Jul 01, 2018 8:51 pm
Horton wrote:
Sun Jul 01, 2018 7:29 pm
munemaker wrote:
Sun Jul 01, 2018 6:26 pm
Robert Merton's interview, while interesting, does not seem slanted toward a Boglehead audience.

It is more toward the average wage earner who is clueless.
The Bogleheads aren’t interested in secure retirement income? :wink:
Did you listen to the podcast?

He talks about publishing IRA and 401k returns in terms of potential income because people have trouble relating assets to income.

He talks about reverse mortgages on homes to give heirs money now.

He talks about people who don't have enough saved for retirement using annuities because the income is higher than the safe withdrawal rate.

That was pretty much a summary of the concepts presented. That's why I say this is more for the average Joe than for Bogleheads.
Have Bogleheads discovered a surefire way to replicate Social Security? Defined benefit pensions? I think we face the exact same scenario as the "average Joe." Many here have tried to approximate the Merton approach using TIPS ladders. Many others seem focused on terminal wealth at retirement age, which is the erroneous approach that Merton is attempting to correct.
Last edited by gmaynardkrebs on Sun Jul 01, 2018 9:16 pm, edited 1 time in total.

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Re: Robert Merton on NewRetirement Podcast

Post by TTBG » Sun Jul 01, 2018 9:15 pm

I'm an average Jane who luckily stumbled across this forum pretty late in the game, so posts like this are more relevant/helpful to me than the "I only have 5 Million, is that enough?" posts. Thanks for posting it, Horton!

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Re: Robert Merton on NewRetirement Podcast

Post by 1210sda » Mon Jul 02, 2018 6:52 am

Horton wrote:
Fri Jun 29, 2018 7:23 pm
The NewRetirement podcast is relatively new, but Steve Chen has had an all-star lineup thus far - Bill Bernstein, Jonathan Clements, Allan Roth, Big ERN, Morgan Housel, and Chris Mamula

Continuing the trend, Robert Merton is the guest on today's episode. I got about half way through it on my drive home. Lots of good conversation about retirement income.

Enjoy! :sharebeer

https://dts.podtrac.com/redirect.mp3/au ... c72aac.mp3

P.S. - My podcast app downloaded the episode from the link above, but the transcript will likely be available soon here:

https://www.newretirement.com/retirement/topic/podcast/
Thanks for the links
1210

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Re: Robert Merton on NewRetirement Podcast

Post by KarenC » Mon Jul 02, 2018 9:02 am

nisiprius wrote:
Sun Jul 01, 2018 8:31 pm
It's not exactly the same situation, but I am reminded me of an incident in H. G. Wells' semi-autobiographical novel, The History of Mr. Polly. Mr. Polly inherits £350 and starts spending it pretty freely:
Figures are the most shocking things in the world. The prettiest little squiggles of black—looked at in the right light, and yet consider the blow they can give you upon the heart. You return from a little careless holiday abroad, and turn over the page of a newspaper, and against the name of that distant, vague-conceived railway in mortgages upon which you have embarked the bulk of your capital, you see instead of the familiar, persistent 95-6 (varying at most to 93 ex. div.) this slightly richer arrangement of marks: 76 1/2—78 1/2.

It is like the opening of a pit just under your feet!

So, too, Mr. Polly’s happy sense of limitless resources was obliterated suddenly by a vision of this tracery:

“298”

instead of the

“350”

he had come to regard as the fixed symbol of his affluence.
"How much you know is less important than how clearly you understand where the borders of your ignorance begin." — Jason Zweig

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Re: Robert Merton on NewRetirement Podcast

Post by munemaker » Mon Jul 02, 2018 9:29 am

gmaynardkrebs wrote:
Sun Jul 01, 2018 9:07 pm
munemaker wrote:
Sun Jul 01, 2018 8:51 pm
Horton wrote:
Sun Jul 01, 2018 7:29 pm
munemaker wrote:
Sun Jul 01, 2018 6:26 pm
Robert Merton's interview, while interesting, does not seem slanted toward a Boglehead audience.

It is more toward the average wage earner who is clueless.
The Bogleheads aren’t interested in secure retirement income? :wink:
Did you listen to the podcast?

He talks about publishing IRA and 401k returns in terms of potential income because people have trouble relating assets to income.

He talks about reverse mortgages on homes to give heirs money now.

He talks about people who don't have enough saved for retirement using annuities because the income is higher than the safe withdrawal rate.

That was pretty much a summary of the concepts presented. That's why I say this is more for the average Joe than for Bogleheads.
Have Bogleheads discovered a surefire way to replicate Social Security? Defined benefit pensions? I think we face the exact same scenario as the "average Joe." Many here have tried to approximate the Merton approach using TIPS ladders. Many others seem focused on terminal wealth at retirement age, which is the erroneous approach that Merton is attempting to correct.
If you want guaranteed income, you can simply buy an annuity (which is almost a bad word on here).

I think his advice is excellent for those without a significant liquid assets or lack a knowledge of investing.

Most of us want to see regular reports of the value of our investments. Very few Bogleheads will be interested in reverse mortgages.

Most of us avoid annuities and a lot of us would have opted out of SS if we had a choice.

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Re: Robert Merton on NewRetirement Podcast

Post by DC3509 » Mon Jul 16, 2018 11:49 pm

I just came across this podcast today -- I thought it was excellent.

In particular, I was intrigued by his discussion of annuities -- not so much for myself, but for my parents who have modest assets, and really depend on social security (and who I fear my depend on Medicaid someday). I feel like there is very little discussion out there of how annuities can help or hurt people in this boat -- which is what Merton was trying to address. Would be interested in more opinions here.

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Re: Robert Merton on NewRetirement Podcast

Post by grok87 » Tue Jul 17, 2018 5:31 am

Thanks. I’m going to listen to it.
Keep calm and Boglehead on. KCBO.

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Re: Robert Merton on NewRetirement Podcast

Post by DC3509 » Tue Jul 17, 2018 7:15 am

I recommend it. I was just really struck on how he was trying to cobble together a system of retirement that would work for a lot of lower-income to middle-income retirees -- not necessarily BH, but I think his theories would actually intrigue this crowd more than the people they are designed to help because a lot of those people do not have the interest or abilities to master personal finance. He discusses reverse mortgages at length and gives excellent examples of situations where those are appropriate and why kids should not be talking their parents out of a reverse mortgage. The annuity discussion was also very interesting -- and I am someone who has generally not been a fan of annuities.

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Re: Robert Merton on NewRetirement Podcast

Post by The Wizard » Tue Jul 17, 2018 7:38 am

DC3509 wrote:
Mon Jul 16, 2018 11:49 pm
I just came across this podcast today -- I thought it was excellent.

In particular, I was intrigued by his discussion of annuities -- not so much for myself, but for my parents who have modest assets, and really depend on social security (and who I fear my depend on Medicaid someday). I feel like there is very little discussion out there of how annuities can help or hurt people in this boat -- which is what Merton was trying to address. Would be interested in more opinions here.
The dichotomy between Pensions and Immediate Annuties has always amused me.
People like pensions because they earned it, right?
But annuities have you giving your money to an evil insurance company and you can't get it back!

But corporate pensions in particular are increasingly bought from insurance companies, in other words, as annuities.
And sometimes the retiree has the option of a tax deferred lump sum or a lifetime monthly payment.
(I don't think military or government pensions offer the lump sum option.)

Anyhow, I focused on the monthly income metric per $100,000 my last 5-10 working years. Each further working year increased the monthly amount per $100k and also increased the number of $100k's in my 403(b).

Eventually, the time was right and I "pensionized" a hefty chunk of my 403(b) at start of retirement, age 63.
This was key in getting slightly higher net income in retirement than prior to it...
Attempted new signature...

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Re: Robert Merton on NewRetirement Podcast

Post by The Wizard » Tue Jul 17, 2018 7:45 am

As part of the pension/annuity dichotomy, it's amusing to ponder alternate statements using the two words.
For example:
1) I am someone who has generally not been a fan of annuities.
vs
2) I am someone who has generally not been a fan of pensions.

Do the two statements above reflect a consistent mindset?
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Re: Robert Merton on NewRetirement Podcast

Post by munemaker » Tue Jul 17, 2018 8:15 am

The Wizard wrote:
Tue Jul 17, 2018 7:38 am

People like pensions because they earned it, right?
But annuities have you giving your money to an evil insurance company and you can't get it back!
If you are receiving a pension worth a million dollars that is funded primarily by taxpayers, what's not to like?

If you are paying a fat sales commission to buy an annuity in the retail market, well, it is just not as satisfying.

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Re: Robert Merton on NewRetirement Podcast

Post by NotWhoYouThink » Tue Jul 17, 2018 8:29 am

Most of the comparisons I've seen here between a Megacorp or Government pension vs. the lump sum alternative, and a commercially available SPIA for the same lump sum amount, favor the pension. The spousal benefits available are better, and the commercial pension might consider your health while the employer pension will not. So the common conclusion is that if you are healthy and have a good chance of living a long life the employer pension is a good choice, if you have a life-shortening condition you might want the lump sum from the employer to leave more to you heirs.

But for most people, they don't want to have to worry about any of this, they just want a reliable stream of income, and they focus their thoughts and energy into other aspects of their lives. If they had a lump sum they might either hoard it or squander it, but they wouldn't want to calculate how and when to spend it the way people do here.

So sure, bogleheads want income, but many here like to tinker with it ourselves. For those that like to tinker in other ways, annuities have many advantages.

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Re: Robert Merton on NewRetirement Podcast

Post by The Wizard » Tue Jul 17, 2018 8:35 am

munemaker wrote:
Tue Jul 17, 2018 8:15 am
The Wizard wrote:
Tue Jul 17, 2018 7:38 am

People like pensions because they earned it, right?
But annuities have you giving your money to an evil insurance company and you can't get it back!
If you are receiving a pension worth a million dollars that is funded primarily by taxpayers, what's not to like?

If you are paying a fat sales commission to buy an annuity in the retail market, well, it is just not as satisfying.
SPIAs have fat sales commissions now?
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Re: Robert Merton on NewRetirement Podcast

Post by DC3509 » Tue Jul 17, 2018 9:17 am

NotWhoYouThink wrote:
Tue Jul 17, 2018 8:29 am
Most of the comparisons I've seen here between a Megacorp or Government pension vs. the lump sum alternative, and a commercially available SPIA for the same lump sum amount, favor the pension. The spousal benefits available are better, and the commercial pension might consider your health while the employer pension will not. So the common conclusion is that if you are healthy and have a good chance of living a long life the employer pension is a good choice, if you have a life-shortening condition you might want the lump sum from the employer to leave more to you heirs.

But for most people, they don't want to have to worry about any of this, they just want a reliable stream of income, and they focus their thoughts and energy into other aspects of their lives. If they had a lump sum they might either hoard it or squander it, but they wouldn't want to calculate how and when to spend it the way people do here.

So sure, bogleheads want income, but many here like to tinker with it ourselves. For those that like to tinker in other ways, annuities have many advantages.
Here are two practical issues --

1.) When you take the annuity from Megacorp, you usually have to make the decision pretty quickly (especially in a RIF type situation) -- yes, if you have been following your finances closely, had a good estimate of how much the monthly payout was versus an estimated lumpsum, then perhaps this isn't an issue. But I think a lot of people out there only have a very vague idea of what the pension translates into monthly income, and they have to make a quick decision that will impact the rest of their retirement. The lump sum can certainly feel safer in that circumstance.

2.) You usually can't partially annuitize. So you can take the lump sum, invest part of it, and annuitize some of it -- usually not available in Megacorp pension.

If you do partially annuitize -- let's say just a basic SPIA -- would you feel more confident then being aggressive with the remaining amount being invested? As long as the annuity plus social security covered basic expenses?

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Re: Robert Merton on NewRetirement Podcast

Post by The Wizard » Tue Jul 17, 2018 9:48 am

DC3509 wrote:
Tue Jul 17, 2018 9:17 am

...If you do partially annuitize -- let's say just a basic SPIA -- would you feel more confident then being aggressive with the remaining amount being invested? As long as the annuity plus social security covered basic expenses?
Yes indeed, regarding the remaining portfolio.
My annuities + age 70 SS will total well over $100k per year, easily double my basic expenses.

The need, willingness and ability to take risk apply to that remaining portfolio.
For now, I'm content to be around 60% stocks. Perhaps I'll let that drift upward as the market dictates, we'll see...
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Re: Robert Merton on NewRetirement Podcast

Post by DC3509 » Tue Jul 17, 2018 1:49 pm

The Wizard wrote:
Tue Jul 17, 2018 9:48 am
DC3509 wrote:
Tue Jul 17, 2018 9:17 am

...If you do partially annuitize -- let's say just a basic SPIA -- would you feel more confident then being aggressive with the remaining amount being invested? As long as the annuity plus social security covered basic expenses?
Yes indeed, regarding the remaining portfolio.
My annuities + age 70 SS will total well over $100k per year, easily double my basic expenses.

The need, willingness and ability to take risk apply to that remaining portfolio.
For now, I'm content to be around 60% stocks. Perhaps I'll let that drift upward as the market dictates, we'll see...
60% stock and what is the withdrawal rate?

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Re: Robert Merton on NewRetirement Podcast

Post by NotWhoYouThink » Tue Jul 17, 2018 2:24 pm

The Wizard wrote:
Tue Jul 17, 2018 7:45 am
As part of the pension/annuity dichotomy, it's amusing to ponder alternate statements using the two words.
For example:
1) I am someone who has generally not been a fan of annuities.
vs
2) I am someone who has generally not been a fan of pensions.

Do the two statements above reflect a consistent mindset?
They might, depending on how well the pension is funded/insured, and when the annuity is purchased sold.
A Fixed Indexed Annuity sold to a 40 year old who will plow tens of thousands of dollars into it over a 10-20 year period before annuitizing might be loaded with fees and terrible. A pension from a stable Megacorp or guaranteed by the federal government is pretty nice. They aren't the same thing, even though in either case they provide an income stream in retirement.

Pensions are approaching unicorn status, but most of us never had any choice in how they were funded, so we didn't bother to form opinions about it.

But to the point of the OP, if someone is saying that annuities are good for people who are not expert at or interested in financial calculations and risk management, that sounds about right. But those would be annuities funded at retirement from a lump sum earned over a career, right? Not expensive complicated products sold mid career?

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Re: Robert Merton on NewRetirement Podcast

Post by The Wizard » Tue Jul 17, 2018 2:30 pm

DC3509 wrote:
Tue Jul 17, 2018 1:49 pm
The Wizard wrote:
Tue Jul 17, 2018 9:48 am
DC3509 wrote:
Tue Jul 17, 2018 9:17 am

...If you do partially annuitize -- let's say just a basic SPIA -- would you feel more confident then being aggressive with the remaining amount being invested? As long as the annuity plus social security covered basic expenses?
Yes indeed, regarding the remaining portfolio.
My annuities + age 70 SS will total well over $100k per year, easily double my basic expenses.

The need, willingness and ability to take risk apply to that remaining portfolio.
For now, I'm content to be around 60% stocks. Perhaps I'll let that drift upward as the market dictates, we'll see...
60% stock and what is the withdrawal rate?
With any luck starting in 2020, my withdrawal rate could be zero.
I'll have RMDs on that tax deferred account, of course, but it will likely be excess income that will get reinvested.
That's unless I decide to buy a boat or something similar...
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Re: Robert Merton on NewRetirement Podcast

Post by The Wizard » Tue Jul 17, 2018 2:36 pm

NotWhoYouThink wrote:
Tue Jul 17, 2018 2:24 pm
The Wizard wrote:
Tue Jul 17, 2018 7:45 am
As part of the pension/annuity dichotomy, it's amusing to ponder alternate statements using the two words.
For example:
1) I am someone who has generally not been a fan of annuities.
vs
2) I am someone who has generally not been a fan of pensions.

Do the two statements above reflect a consistent mindset?
They might, depending on how well the pension is funded/insured, and when the annuity is purchased sold.
A Fixed Indexed Annuity sold to a 40 year old who will plow tens of thousands of dollars into it over a 10-20 year period before annuitizing might be loaded with fees and terrible. A pension from a stable Megacorp or guaranteed by the federal government is pretty nice. They aren't the same thing, even though in either case they provide an income stream in retirement.

Pensions are approaching unicorn status, but most of us never had any choice in how they were funded, so we didn't bother to form opinions about it.

But to the point of the OP, if someone is saying that annuities are good for people who are not expert at or interested in financial calculations and risk management, that sounds about right. But those would be annuities funded at retirement from a lump sum earned over a career, right? Not expensive complicated products sold mid career?
A fixed indexed annuity would be a terrible idea; no disagreement from me there.

I'm talking about a Single Premium Immediate Annuity purchased at start of retirement or thereabouts. In my case, I dealt with TIAA both during my accumulation years and now during retirement, so one stop shopping, so to speak, as regards optional annuitization...
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Re: Robert Merton on NewRetirement Podcast

Post by thx1138 » Tue Jul 17, 2018 5:10 pm

The Wizard wrote:
Tue Jul 17, 2018 7:45 am
As part of the pension/annuity dichotomy, it's amusing to ponder alternate statements using the two words.
For example:
1) I am someone who has generally not been a fan of annuities.
vs
2) I am someone who has generally not been a fan of pensions.

Do the two statements above reflect a consistent mindset?
Definitely differences between them. I’d consider an annuity that I purchase near retirement. I have control over that choice and its features. It doesn’t affect my employment choices or mobility. My exposure to failure of the annuity is for the relatively short duration from purchase to death.

A pension sounds nice in theory but I have no interest in acquiring one via employment. Restricts mobility and thus earnings. Have to put up with whatever insanity employer comes up with or walk away. Subject to involuntary termination reducing or completely eliminating “earned” benefits. Exposure to failure is from first employment to death, potentially 60 years or more. “Guarantee” can involve a hair cut. No thanks! Glad these are going away to be honest.

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Re: Robert Merton on NewRetirement Podcast

Post by thx1138 » Tue Jul 17, 2018 5:13 pm

NotWhoYouThink wrote:
Tue Jul 17, 2018 2:24 pm
But to the point of the OP, if someone is saying that annuities are good for people who are not expert at or interested in financial calculations and risk management, that sounds about right. But those would be annuities funded at retirement from a lump sum earned over a career, right? Not expensive complicated products sold mid career?
This is being discussed right now in potential 401k legislation. Being future legislation of course can’t discuss in any depth (and no point in doing so of course). But the idea of annuitization of DC plans is slowly making its way to the mainstream...

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Re: Robert Merton on NewRetirement Podcast

Post by Nords » Sun Jul 22, 2018 12:26 am

The Wizard wrote:
Tue Jul 17, 2018 7:38 am
But corporate pensions in particular are increasingly bought from insurance companies, in other words, as annuities.
And sometimes the retiree has the option of a tax deferred lump sum or a lifetime monthly payment.
(I don't think military or government pensions offer the lump sum option.)
I can't speak to federal pensions, but the military's new Blended Retirement System offers a lump-sum option. The discount rate is big enough to make the Dept of Defense the equivalent of the nation's largest payday lender. It's so bad that even the DoD actuaries made a point of writing a letter to Congress asking them to remove that feature from the BRS.

For those of us old enough to remember the military's REDUX Career Status Bonus, the BRS lump-sum pension is even worse.
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Re: Robert Merton on NewRetirement Podcast

Post by The Wizard » Sun Jul 22, 2018 8:50 am

thx1138 wrote:
Tue Jul 17, 2018 5:10 pm
The Wizard wrote:
Tue Jul 17, 2018 7:45 am
As part of the pension/annuity dichotomy, it's amusing to ponder alternate statements using the two words.
For example:
1) I am someone who has generally not been a fan of annuities.
vs
2) I am someone who has generally not been a fan of pensions.

Do the two statements above reflect a consistent mindset?
Definitely differences between them. I’d consider an annuity that I purchase near retirement. I have control over that choice and its features. It doesn’t affect my employment choices or mobility. My exposure to failure of the annuity is for the relatively short duration from purchase to death.

A pension sounds nice in theory but I have no interest in acquiring one via employment. Restricts mobility and thus earnings. Have to put up with whatever insanity employer comes up with or walk away. Subject to involuntary termination reducing or completely eliminating “earned” benefits. Exposure to failure is from first employment to death, potentially 60 years or more. “Guarantee” can involve a hair cut. No thanks! Glad these are going away to be honest.
Now that's an interesting spin we don't see too often.

Now it's true that with my 403(b), I owned 100% of my own contributions from day one and 100% of my employer contributions after five years (I think it's even sooner nowadays).
So I was incrementally accruing even if I changed jobs every four years.

But with pensions, I think there's a minimum duration (20 years?) before you get anything. So if you change jobs every 10-15 years, you qualify for zero pension?
Correct me if I'm wrong.

There are exceptions, I think, for moving between public school systems in the same state, unsure about police/fire departments in same state...
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Re: Robert Merton on NewRetirement Podcast

Post by thx1138 » Sun Jul 22, 2018 10:28 am

The Wizard wrote:
Sun Jul 22, 2018 8:50 am
But with pensions, I think there's a minimum duration (20 years?) before you get anything. So if you change jobs every 10-15 years, you qualify for zero pension?
Correct me if I'm wrong.

There are exceptions, I think, for moving between public school systems in the same state, unsure about police/fire departments in same state...
According to this article:

http://www.governing.com/topics/mgmt/go ... efits.html

Median for teachers is 24 years. Median for police/fire is 18. Some are very long, Ohio teachers need 35 years to get anything! Not surpisingly the trend is for increasing time in service requirements for any benefit at all.

Indeed there are certain ways to move within a system and maintain time in service credit but the pool of jobs is pretty small you can trade between. To me it is a huge idiosyncratic risk to assume your city/county/state government or megacorp is going to be a healthy working environment with reasonable salary advancement for 20+ years. Certainly it must depend somewhat on the profession though whether portability trumps defined benefits.

What we really need is portability of 401k with reasonable annuitization options. That seems a tricky nut to crack.

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Re: Robert Merton on NewRetirement Podcast

Post by Always passive » Sun Jul 22, 2018 10:46 am

Listened the entire podcast. Loved it!
We all here talk about Total Return as the yardstick to judge performance. It seems to me that Merton would disagree if in retirement. Right?

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Re: Robert Merton on NewRetirement Podcast

Post by texasdiver » Mon Jul 23, 2018 12:45 pm

thx1138 wrote:
Sun Jul 22, 2018 10:28 am
The Wizard wrote:
Sun Jul 22, 2018 8:50 am
But with pensions, I think there's a minimum duration (20 years?) before you get anything. So if you change jobs every 10-15 years, you qualify for zero pension?
Correct me if I'm wrong.

There are exceptions, I think, for moving between public school systems in the same state, unsure about police/fire departments in same state...
According to this article:

http://www.governing.com/topics/mgmt/go ... efits.html

Median for teachers is 24 years. Median for police/fire is 18. Some are very long, Ohio teachers need 35 years to get anything! Not surpisingly the trend is for increasing time in service requirements for any benefit at all.

Indeed there are certain ways to move within a system and maintain time in service credit but the pool of jobs is pretty small you can trade between. To me it is a huge idiosyncratic risk to assume your city/county/state government or megacorp is going to be a healthy working environment with reasonable salary advancement for 20+ years. Certainly it must depend somewhat on the profession though whether portability trumps defined benefits.

What we really need is portability of 401k with reasonable annuitization options. That seems a tricky nut to crack.
Wow. In the 2 states that I’ve taught in (TX and WA) the pension vesting period is 5 years. Nothing like 18 or 24 or 35. And if you leave before 5 years you can take your contributions with you.
thx1138 wrote:
Sun Jul 22, 2018 10:28 am
[quote="The Wizard" post_id=4031308 time=<a href="tel:1532267456">1532267456</a> user_id=18250]
But with pensions, I think there's a minimum duration (20 years?) before you get anything. So if you change jobs every 10-15 years, you qualify for zero pension?
Correct me if I'm wrong.

There are exceptions, I think, for moving between public school systems in the same state, unsure about police/fire departments in same state...
According to this article:

http://www.governing.com/topics/mgmt/go ... efits.html

Median for teachers is 24 years. Median for police/fire is 18. Some are very long, Ohio teachers need 35 years to get anything! Not surpisingly the trend is for increasing time in service requirements for any benefit at all.

Indeed there are certain ways to move within a system and maintain time in service credit but the pool of jobs is pretty small you can trade between. To me it is a huge idiosyncratic risk to assume your city/county/state government or megacorp is going to be a healthy working environment with reasonable salary advancement for 20+ years. Certainly it must depend somewhat on the profession though whether portability trumps defined benefits.

What we really need is portability of 401k with reasonable annuitization options. That seems a tricky nut to crack.
[/quote]

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Re: Robert Merton on NewRetirement Podcast

Post by texasdiver » Mon Jul 23, 2018 12:46 pm

thx1138 wrote:
Sun Jul 22, 2018 10:28 am
The Wizard wrote:
Sun Jul 22, 2018 8:50 am
But with pensions, I think there's a minimum duration (20 years?) before you get anything. So if you change jobs every 10-15 years, you qualify for zero pension?
Correct me if I'm wrong.

There are exceptions, I think, for moving between public school systems in the same state, unsure about police/fire departments in same state...
According to this article:

http://www.governing.com/topics/mgmt/go ... efits.html

Median for teachers is 24 years. Median for police/fire is 18. Some are very long, Ohio teachers need 35 years to get anything! Not surpisingly the trend is for increasing time in service requirements for any benefit at all.

Indeed there are certain ways to move within a system and maintain time in service credit but the pool of jobs is pretty small you can trade between. To me it is a huge idiosyncratic risk to assume your city/county/state government or megacorp is going to be a healthy working environment with reasonable salary advancement for 20+ years. Certainly it must depend somewhat on the profession though whether portability trumps defined benefits.

What we really need is portability of 401k with reasonable annuitization options. That seems a tricky nut to crack.
Wow. In the 2 states that I’ve taught in (TX and WA) the pension vesting period is 5 years. Nothing like 18 or 24 or 35. And if you leave before 5 years you can take your contributions with you.

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