My: the 10 commandments of retirement

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grok87
Posts: 9093
Joined: Tue Feb 27, 2007 9:00 pm

My: the 10 commandments of retirement

Post by grok87 » Tue Aug 21, 2018 11:00 am

...
https://www.marketwatch.com/story/the-1 ... yptr=yahoo
...
“” wrote: Remember that Social Security is designed to replace no more than 40% of preretirement income—and for many, that 40% is an overestimate, because the benefit calculation is skewed toward lower income Americans. In retirement, you’ll want some steady sources of income, and Social Security is probably the most secure. But recognize that it’s intended to be a minor part of your total income.
Thought this a good chance to plug the 3-legged stool approach. In this new environment of diminishing pensions, if you want to have 2/3 of your retirement income from safe inflation protected sources, one might consider a tips ladder/ long term tips fund to help match retirement liabilities.

The 3-legged stool approach to retirement planning
...
viewtopic.php?f=10&t=245377
...

Cheers,
Grok
RIP Mr. Bogle.

pkcrafter
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Re: My: the 10 commandments of retirement

Post by pkcrafter » Tue Aug 21, 2018 1:00 pm

grok87 wrote:
Tue Aug 21, 2018 11:00 am
...
https://www.marketwatch.com/story/the-1 ... yptr=yahoo
...
“” wrote: Remember that Social Security is designed to replace no more than 40% of preretirement income—and for many, that 40% is an overestimate, because the benefit calculation is skewed toward lower income Americans. In retirement, you’ll want some steady sources of income, and Social Security is probably the most secure. But recognize that it’s intended to be a minor part of your total income.
Thought this a good chance to plug the 3-legged stool approach. In this new environment of diminishing pensions, if you want to have 2/3 of your retirement income from safe inflation protected sources, one might consider a tips ladder/ long term tips fund to help match retirement liabilities.

The 3-legged stool approach to retirement planning
...
viewtopic.php?f=10&t=245377
...

Cheers,
Grok
Thanks Grok, haven't seen this mentioned in a long time. Unfortunately, that pension leg is getting knocked out for most investors. I guess it could be replaced by a SPIA, but that money comes from another leg.

Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.

Topic Author
grok87
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Joined: Tue Feb 27, 2007 9:00 pm

Re: My: the 10 commandments of retirement

Post by grok87 » Tue Aug 21, 2018 5:06 pm

pkcrafter wrote:
Tue Aug 21, 2018 1:00 pm
grok87 wrote:
Tue Aug 21, 2018 11:00 am
...
https://www.marketwatch.com/story/the-1 ... yptr=yahoo
...
“” wrote: Remember that Social Security is designed to replace no more than 40% of preretirement income—and for many, that 40% is an overestimate, because the benefit calculation is skewed toward lower income Americans. In retirement, you’ll want some steady sources of income, and Social Security is probably the most secure. But recognize that it’s intended to be a minor part of your total income.
Thought this a good chance to plug the 3-legged stool approach. In this new environment of diminishing pensions, if you want to have 2/3 of your retirement income from safe inflation protected sources, one might consider a tips ladder/ long term tips fund to help match retirement liabilities.

The 3-legged stool approach to retirement planning
...
viewtopic.php?f=10&t=245377
...

Cheers,
Grok
Thanks Grok, haven't seen this mentioned in a long time. Unfortunately, that pension leg is getting knocked out for most investors. I guess it could be replaced by a SPIA, but that money comes from another leg.

Paul
Another issue is there is not a competitive market for inflation adjusted annuities
RIP Mr. Bogle.

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DartThrower
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Re: My: the 10 commandments of retirement

Post by DartThrower » Wed Aug 22, 2018 1:16 pm

grok87 wrote:
Tue Aug 21, 2018 5:06 pm

Another issue is there is not a competitive market for inflation adjusted annuities
Why is this? Are these markets just not feasible? Robert Shiller has written much about products to mitigate financial risks that individuals face but nothing much ever comes out of it.

https://press.princeton.edu/titles/7479.html
Our patience will achieve more than our force. -Edmund Burke

Stonebr
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Re: My: the 10 commandments of retirement

Post by Stonebr » Wed Aug 22, 2018 4:24 pm

DartThrower wrote:
Wed Aug 22, 2018 1:16 pm
grok87 wrote:
Tue Aug 21, 2018 5:06 pm

Another issue is there is not a competitive market for inflation adjusted annuities
Why is this? Are these markets just not feasible? Robert Shiller has written much about products to mitigate financial risks that individuals face but nothing much ever comes out of it.

https://press.princeton.edu/titles/7479.html

With inflation-adjusted annuities TIPS (or derivatives based on them) are the only security out there that an insurer could really count on. TIPS have low yields, so the price of TIPS-backed annuities will always be high.

Suppose an insurance company wanted to back an inflation-adjusted annuity with something other than TIPS. What would they use? Real estate? Stocks? Commodities? What? Then hyperinflation comes along, they lose the company, and their CEO has to testify in front of Congress.
"have more than thou showest, | speak less than thou knowest" -- The Fool in King Lear

Topic Author
grok87
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Joined: Tue Feb 27, 2007 9:00 pm

Re: My: the 10 commandments of retirement

Post by grok87 » Wed Aug 22, 2018 4:29 pm

Stonebr wrote:
Wed Aug 22, 2018 4:24 pm
DartThrower wrote:
Wed Aug 22, 2018 1:16 pm
grok87 wrote:
Tue Aug 21, 2018 5:06 pm

Another issue is there is not a competitive market for inflation adjusted annuities
Why is this? Are these markets just not feasible? Robert Shiller has written much about products to mitigate financial risks that individuals face but nothing much ever comes out of it.

https://press.princeton.edu/titles/7479.html

With inflation-adjusted annuities TIPS (or derivatives based on them) are the only security out there that an insurer could really count on. TIPS have low yields, so the price of TIPS-backed annuities will always be high.

Suppose an insurance company wanted to back an inflation-adjusted annuity with something other than TIPS. What would they use? Real estate? Stocks? Commodities? What? Then hyperinflation comes along, they lose the company, and their CEO has to testify in front of Congress.
Yup.

It is very annoying.

So my plan is to build a 30 year tips ladder to self-insure the first half of retirement. Then after 15 years or so I plan to liquidate the tips ladder and buy an inflation adjusted annuity. Maybe there will be better products by then. All in tax advantaged accounts.
RIP Mr. Bogle.

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willthrill81
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Location: USA

Re: My: the 10 commandments of retirement

Post by willthrill81 » Wed Aug 22, 2018 5:12 pm

Stonebr wrote:
Wed Aug 22, 2018 4:24 pm
DartThrower wrote:
Wed Aug 22, 2018 1:16 pm
grok87 wrote:
Tue Aug 21, 2018 5:06 pm

Another issue is there is not a competitive market for inflation adjusted annuities
Why is this? Are these markets just not feasible? Robert Shiller has written much about products to mitigate financial risks that individuals face but nothing much ever comes out of it.

https://press.princeton.edu/titles/7479.html

With inflation-adjusted annuities TIPS (or derivatives based on them) are the only security out there that an insurer could really count on. TIPS have low yields, so the price of TIPS-backed annuities will always be high.

Suppose an insurance company wanted to back an inflation-adjusted annuity with something other than TIPS. What would they use? Real estate? Stocks? Commodities? What? Then hyperinflation comes along, they lose the company, and their CEO has to testify in front of Congress.
I'm not so sure. The U.S. has never experienced true hyperinflation. The highest rate on record was 17.8% back in 1917, and it's rarely been above 10%. It could, of course, happen in the future, but if it did, I think that insurance companies failing to make contractual payments and state guaranty associations also failing to step in would be relatively low on the list of the country's worries at that point, along with investors in general.
“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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CyclingDuo
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Re: My: the 10 commandments of retirement

Post by CyclingDuo » Wed Aug 22, 2018 5:30 pm

willthrill81 wrote:
Wed Aug 22, 2018 5:12 pm
Stonebr wrote:
Wed Aug 22, 2018 4:24 pm
DartThrower wrote:
Wed Aug 22, 2018 1:16 pm
grok87 wrote:
Tue Aug 21, 2018 5:06 pm

Another issue is there is not a competitive market for inflation adjusted annuities
Why is this? Are these markets just not feasible? Robert Shiller has written much about products to mitigate financial risks that individuals face but nothing much ever comes out of it.

https://press.princeton.edu/titles/7479.html

With inflation-adjusted annuities TIPS (or derivatives based on them) are the only security out there that an insurer could really count on. TIPS have low yields, so the price of TIPS-backed annuities will always be high.

Suppose an insurance company wanted to back an inflation-adjusted annuity with something other than TIPS. What would they use? Real estate? Stocks? Commodities? What? Then hyperinflation comes along, they lose the company, and their CEO has to testify in front of Congress.
I'm not so sure. The U.S. has never experienced true hyperinflation. The highest rate on record was 17.8% back in 1917, and it's rarely been above 10%. It could, of course, happen in the future, but if it did, I think that insurance companies failing to make contractual payments and state guaranty associations also failing to step in would be relatively low on the list of the country's worries at that point, along with investors in general.
Art Cashin was freaking out about the possibility of hyperinflation back in 2012 :mrgreen: : https://www.businessinsider.com/hyperin ... 3b-2012-10

I've got a wheelbarrow or two, but we don't eat very each much bread. :beer

Amazing what the litany of worries have been in the past decade or two and the amount of prognostications along the way.
"Everywhere is within walking distance if you have the time." ~ Steven Wright

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