“WHEN YOU'VE WON the game, stop playing with the money you really need.”

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CWRadio
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“WHEN YOU'VE WON the game, stop playing with the money you really need.”

Post by CWRadio »

William Bernstein is fond of saying “WHEN YOU'VE WON the game, stop playing with the money you really need.”
For example:
If you need $30,000 a year for 30 years you should have $900,000 in safe money.
My question is where do you put this safe money if it is in a IRA and don't want to play with it? Cash, Cds, bond, Money market funds, SPIA or bond funds, etc.
What about inflation?

Any suggestions? Thanks Paul
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luminous
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Re: “WHEN YOU'VE WON the game, stop playing with the money you really need.”

Post by luminous »

Cash will lose value over time to inflation, but the other options all sounds reasonable. Depends on your time horizon and how you’ll use the money if time.
50/20/30 US stock/international stock/bonds. Hope to semi-retire in 2022.
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Raybo
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Re: “WHEN YOU'VE WON the game, stop playing with the money you really need.”

Post by Raybo »

If your only worry in inflation, there are inflation-indexed bonds (TIPS) and I-Bonds (yearly purchase limit) which track inflation. I have half my "safe" money in them. My other half is in Total Bond Market.

You can use CDs, but they have to be managed, which I find is too much bother.

You might search the Wiki for Liability Matching (buying a TIPS ladder that comes due in the amount you project you need each year for 30 years).
No matter how long the hill, if you keep pedaling you'll eventually get up to the top.
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JoMoney
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Re: “WHEN YOU'VE WON the game, stop playing with the money you really need.”

Post by JoMoney »

TIPs are an option. A ladder of TIPS maturing over 1 through x number of years will get you an inflation index adjusted payout backed by the U.S. Government.
I'm not going to do that, but I do like to look at that for comparative purposes of what I could get "guaranteed" with my portfolio vs. expectations with a riskier portfolio that hopes to get something more. I also like to get immediate annuity quotes, to see what a nominal payout guaranteed for as long as I live would offer.
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Re: “WHEN YOU'VE WON the game, stop playing with the money you really need.”

Post by goingup »

CWRadio wrote: Wed May 27, 2020 8:28 am William Bernstein is fond of saying “WHEN YOU'VE WON the game, stop playing with the money you really need.”
For example:
If you need $30,000 a year for 30 years you should have $900,000 in safe money.
My question is where do you put this safe money if it is in a IRA and don't want to play with it? Cash, Cds, bond, Money market funds, SPIA or bond funds, etc.
What about inflation?

Any suggestions? Thanks Paul
According to a piece on The White Coat Investor, Dr. Bernstein suggests keeping 20-25 years of residual living expenses in TIPS, SPIAs, and short-term bonds. https://www.whitecoatinvestor.com/berns ... -the-game/
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Re: “WHEN YOU'VE WON the game, stop playing with the money you really need.”

Post by Nowizard »

We are in the category of having won the game. Inflation is approximately 2.3-2.4% over the past 20 years on average. If we average that level of return, analysis says we will be fine with a high level of certainty. Our approach is based on having a conservative portfolio. Most data show that a 20/80 stock/bond portfolio is going to perform better than 100% bonds and is as low as one needs to go with equities. A simple way to achieve that is with Total Bond Index and Total Stock Index. Though bond investment recommendations are all over the place, my view is that if you have won the game, not only focus on preservation but simplicity. Following the market and this site for entertainment and new knowledge are increasingly occurring rather than seeking information for the purpose of changing investments these days. With the confusion overall about whether the current market is unique, an anticipated downturn following a long bull market, one that is going to test March lows, etc., our approach is not so much staying the course as a dictum as staying the course because when confused, doing nothing will likely be either the best or worst thing you can do. I believe it is the best for our circumstances. Others will recommend bond ladders, TIPS, etc., also options.

Tim
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TomatoTomahto
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Re: “WHEN YOU'VE WON the game, stop playing with the money you really need.”

Post by TomatoTomahto »

CWRadio wrote: Wed May 27, 2020 8:28 amIf you need $30,000 a year for 30 years you should have $900,000 in safe money.
I would amend that to account for taxes in the $900,000 if it’s in non-Roth accounts.
Okay, I get it; I won't be political or controversial. The Earth is flat.
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Re: “WHEN YOU'VE WON the game, stop playing with the money you really need.”

Post by Wanderingwheelz »

Nowizard wrote: Wed May 27, 2020 8:46 am We are in the category of having won the game. Inflation is approximately 2.3-2.4% over the past 20 years on average. If we average that level of return, analysis says we will be fine with a high level of certainty. Our approach is based on having a conservative portfolio. Most data show that a 20/80 stock/bond portfolio is going to perform better than 100% bonds and is as low as one needs to go with equities. A simple way to achieve that is with Total Bond Index and Total Stock Index. Though bond investment recommendations are all over the place, my view is that if you have won the game, not only focus on preservation but simplicity. Following the market and this site for entertainment and new knowledge are increasingly occurring rather than seeking information for the purpose of changing investments these days. With the confusion overall about whether the current market is unique, an anticipated downturn following a long bull market, one that is going to test March lows, etc., our approach is not so much staying the course as a dictum as staying the course because when confused, doing nothing will likely be either the best or worst thing you can do. I believe it is the best for our circumstances. Others will recommend bond ladders, TIPS, etc., also options.

Tim
I agree with that Tim wrote, in the sense I’m here mainly to be entertained far more that I am looking for ideas that will improve my portfolio.

We are also in the category of having won the game, but we are still working and are 45/49 years old, so we are in no position to get very conservative with hopefully many prosperous years ahead of us. Since the classic 60/40 portfolio is one that’s widely accepted to be the industry standard for growth and income, that’s the one we are going to use for the duration. It’d also probably worth mentioning that my wife and I will receive someday hefty inheritances that will likely double what we’ve been able to save through our own hard work over the years. If that wasn’t the case, perhaps we’d be 50/50 since the downside risk would be slightly more tempered.
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Re: “WHEN YOU'VE WON the game, stop playing with the money you really need.”

Post by Horton »

CWRadio wrote: Wed May 27, 2020 8:28 am For example:
If you need $30,000 a year for 30 years you should have $900,000 in safe money.
How much do you have?

If you need $0.9M and you have $2M+, then you have a lot of options.

If you need $0.9M and you have $0.9M, then I would recommend a SPIA, a safe allocation, or flexibility in your withdrawals.

If you need $0.9M and you have less than that...well, you need to keep working or spend less.
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Re: “WHEN YOU'VE WON the game, stop playing with the money you really need.”

Post by Sandtrap »

CWRadio wrote: Wed May 27, 2020 8:28 am William Bernstein is fond of saying “WHEN YOU'VE WON the game, stop playing with the money you really need.”
For example:
If you need $30,000 a year for 30 years you should have $900,000 in safe money.
My question is where do you put this safe money if it is in a IRA and don't want to play with it? Cash, Cds, bond, Money market funds, SPIA or bond funds, etc.
What about inflation?

Any suggestions? Thanks Paul
Yes.
Diversify your fixed allocation with these. (does not have be all of one thing)
Add physically held R/E income property, and other alternatives to taste.

How far beyond "winning the game" and the criteria that defines that "for you" determines a lot of the above.
So: if at age 65, Multiples of years retirement saved/invested: 25X, 40X, etc??

j :happy
Last edited by Sandtrap on Wed May 27, 2020 9:27 am, edited 1 time in total.
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Ben Mathew
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Re: “WHEN YOU'VE WON the game, stop playing with the money you really need.”

Post by Ben Mathew »

A TIPS ladder will be the safest investment. Pretty much no default risk or inflation risk. The inflation protection in TIPS is free or close to free, so it should be more widely used than it is.

Owning your home is another source of safety--it's protection against rent increases.
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Re: “WHEN YOU'VE WON the game, stop playing with the money you really need.”

Post by Clever_Username »

Stop playing, to me, doesn't mean not to invest it.

Let's say you're in your mid-40s (note: I wrote this before the recent post in this thread that has someone in that age group) and have reached 25X projected retirement expenses in savings. Let's say that, for whatever reason, you plan to continue working (this also avoids some arguments that don't affect the question at hand). In such a situation, I think we can all agree you still want to contribute to your 401(k) or equivalent and your IRA.

The question becomes asset allocation. There are three options: keep the same asset allocation, add more conservative assets, have a lower portion in conservative assets. The first states that your risk tolerance is as it was before; the second indicates that you want lower volatility to increase the probability of your portfolio meeting your needs when it becomes your source of finances; the last is probably for building a legacy.

I anticipate being in the second category. I'm in my 30s and my portfolio is already well past 25X my annual non-housing non-medical spending. If I stop contributing today (probably not, as my deduction for my paycheck coming in on Monday has probably already been processed anyway), and over the next handful of years I average 3.5% real return, I'll have well past 25X all expenses by the start of the year I turn 59.5. Some might say this is pretty close to winning the game. I don't know, maybe it is. I do plan to reevaluate my asset allocation in a few months maybe a year and review my notes from March, but at this point I think the likely thing is I keep my plan (I'm already at age in bonds, and some people say that's already on the conservative side).

Again, I don't think the message is don't invest. I think the message is that your risk tolerance changes after you've "won the game."
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Re: “WHEN YOU'VE WON the game, stop playing with the money you really need.”

Post by racy »

CWRadio wrote: Wed May 27, 2020 8:28 am ...My question is where do you put this safe money....What about inflation?
Any suggestions? Thanks Paul
I use Vanguard Short Term Investment Grade fund (VFSUX). I've tracked it's annual performance vs inflation (both CPI-U and CPI-W) since 2001. In a few years inflation was worse than the fund's total return & income, but usually the fund won out. Over the 19 years I've tracked, the average amount the fund beat inflation was 1.4 percentage points.
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Re: “WHEN YOU'VE WON the game, stop playing with the money you really need.”

Post by tvubpwcisla »

Sounds like a statement of fear. I'm not a big fan of that approach. You leave a lot of money on the table when you put that many resources underneath your mattress. It works for the investor, but not so much for your loved ones when you are gone.
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Re: “WHEN YOU'VE WON the game, stop playing with the money you really need.”

Post by geerhardusvos »

CWRadio wrote: Wed May 27, 2020 8:28 am William Bernstein is fond of saying “WHEN YOU'VE WON the game, stop playing with the money you really need.”
For example:
If you need $30,000 a year for 30 years you should have $900,000 in safe money.
My question is where do you put this safe money if it is in a IRA and don't want to play with it? Cash, Cds, bond, Money market funds, SPIA or bond funds, etc.
What about inflation?

Any suggestions? Thanks Paul
Whether you have 1 million or 10 million, I recommend never going lower than 50% equities. A 50/50 portfolio provides stability on the fixed side, but also wards off nasty inflation by giving the growth on the equity side. You actually substantially increase your risk of your portfolio longevity by lowering the equity portion below 50%.

I personally will never go lower than a 70/30. Best wishes!
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Re: “WHEN YOU'VE WON the game, stop playing with the money you really need.”

Post by TheTimeLord »

tvubpwcisla wrote: Wed May 27, 2020 9:23 am Sounds like a statement of fear. I'm not a big fan of that approach. You leave a lot of money on the table when you put that many resources underneath your mattress. It works for the investor, but not so much for your loved ones when you are gone.
This is the approach I use. It has worked very well for me. Currently have a rising glide path because of the approach.
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Re: “WHEN YOU'VE WON the game, stop playing with the money you really need.”

Post by TheTimeLord »

geerhardusvos wrote: Wed May 27, 2020 9:34 am
CWRadio wrote: Wed May 27, 2020 8:28 am William Bernstein is fond of saying “WHEN YOU'VE WON the game, stop playing with the money you really need.”
For example:
If you need $30,000 a year for 30 years you should have $900,000 in safe money.
My question is where do you put this safe money if it is in a IRA and don't want to play with it? Cash, Cds, bond, Money market funds, SPIA or bond funds, etc.
What about inflation?

Any suggestions? Thanks Paul
Whether you have 1 million or 10 million, I recommend never going lower than 50% equities. A 50/50 portfolio provides stability on the fixed side, but also wards off nasty inflation by giving the growth on the equity side. You actually substantially increase your risk of your portfolio longevity by lowering the equity portion below 50%.

I personally will never go lower than a 70/30. Best wishes!
This approach specifies no specific AA just a specific amount to be held in safe assets which to me is more useful than arbitrary percentage allocations which seem to assume the risk of a given AA is the same for a $10,000 portfolio or $10,000,000 portfolio which of course it is not in dollar terms. And I personally prefer dollar terms because stores don't take payments in percentages.
IMHO, Investing should be about living the life you want, not avoiding the life you fear. | Run, You Clever Boy! [9085]
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Re: “WHEN YOU'VE WON the game, stop playing with the money you really need.”

Post by Jeff Albertson »

Bernstein discusses this in his 'Investing for Adults' series. The first book, 'The Ages of an Investor', gives advice depending on your current age. Deferring social security is high on his list if you are that age.
https://www.amazon.com/Ages-Investor-Cr ... 008CM2T2A/
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Re: “WHEN YOU'VE WON the game, stop playing with the money you really need.”

Post by KEotSK66 »

target retirement income might be an option for you
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Re: “WHEN YOU'VE WON the game, stop playing with the money you really need.”

Post by EnjoyIt »

CWRadio wrote: Wed May 27, 2020 8:28 am William Bernstein is fond of saying “WHEN YOU'VE WON the game, stop playing with the money you really need.”
For example:
If you need $30,000 a year for 30 years you should have $900,000 in safe money.
My question is where do you put this safe money if it is in a IRA and don't want to play with it? Cash, Cds, bond, Money market funds, SPIA or bond funds, etc.
What about inflation?

Any suggestions? Thanks Paul
The money you “really need” is where I think the discussion should be. One does not need to travel, eat out, have new clothes, new cars, etc. If I had to say, I can see “need” as being the very bare essentials so that one has shelter, medical care, food.

With that in mind I can understand keeping that amount in safe assets. Ideally eventually SS (Social Security) should be able to cover most if not all of the bare essentials.

Because SS as it stands today will cover all of our bare minimum expenses plus some luxuries, our IPS dictates decreasing our bond position at that time.

To answer your specific question of where to store that money. All of the above are great except I would not keep too much cash unless it is in some high yield savings accounts.
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Re: “WHEN YOU'VE WON the game, stop playing with the money you really need.”

Post by tomd37 »

I see a lot of different replies coming from people of many different ages and financial positions. At 83 my situation is very different than that of someone in their mid-60s or mid 40s and I adjust my asset allocation accordingly. I feel I have won the race and want to protect what I have.
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Re: “WHEN YOU'VE WON the game, stop playing with the money you really need.”

Post by Horton »

Ben Mathew wrote: Wed May 27, 2020 9:05 am A TIPS ladder will be the safest investment. Pretty much no default risk or inflation risk. The inflation protection in TIPS is free or close to free, so it should be more widely used than it is.

Owning your home is another source of safety--it's protection against rent increases.
It’s worth noting that a TIPS ladder doesn’t eliminate longevity risk though.

There isn’t a perfect solution, so diversification is probably best - delay SS, own your home, SPIAs, bonds (laddered, if desired), equities, etc.
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Re: “WHEN YOU'VE WON the game, stop playing with the money you really need.”

Post by JakeyLee »

I've recently come to grips with the notion that "I've won the game". Though I don't really feel all that victorious.

I've got some of the same concerns as OP. my solution is transitioning 50% of my tax deferred portfolio to Wellesly. I will keep the other half in the total market/S&P. Feels a little conservative for ME. But the reality is that I no longer need the risk.

My biggest first world problem is the near two years expenses I've accumulated. It sits in vanguard money market. I realize this is less than ideal. I might start chasing CDs or Ally, or both(?). I can't believe I've become this lazy... Or is it indifference? Thanks again for the reminder and motivation.
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Re: “WHEN YOU'VE WON the game, stop playing with the money you really need.”

Post by heartwood »

Having experienced a 7-figure loss in value during the 2008 financial crisis, I think I'm ready to stop playing. My fear relates to high or hyper inflation esp following the financing of the current crisis. I recall in the 70s and 80s we had several years of 10% +/- inflation. Salaries virtually doubled over a 10 year period. I seem to recall that stocks didn't do well in the early 80s, a double whammy.

https://www.usinflationcalculator.com/i ... ion-rates/

Would TIPS stand up to a repeat of that scenario?
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Re: “WHEN YOU'VE WON the game, stop playing with the money you really need.”

Post by SJIRon »

My approach as an age 59 recent retiree.
1) Delay SS until 70
2) TIPS ladder to age 85
3) Deferred Income Annuity starting age 85 (purchased in IRA as QLAC)
4) Small ROTH IRA with 100% stock which will not be touched until age 85
5) Anything left over can be kept in 100% stock (I use VT), because it's for things you don't really need.
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Re: “WHEN YOU'VE WON the game, stop playing with the money you really need.”

Post by Ben Mathew »

Horton wrote: Wed May 27, 2020 10:17 am
Ben Mathew wrote: Wed May 27, 2020 9:05 am A TIPS ladder will be the safest investment. Pretty much no default risk or inflation risk. The inflation protection in TIPS is free or close to free, so it should be more widely used than it is.

Owning your home is another source of safety--it's protection against rent increases.
It’s worth noting that a TIPS ladder doesn’t eliminate longevity risk though.

There isn’t a perfect solution, so diversification is probably best - delay SS, own your home, SPIAs, bonds (laddered, if desired), equities, etc.
Yes. Inflation adjusted SPIAs would have solved both longevity and inflation risk. But unfortunately they aren't available except indirectly by delaying social security. So maybe:

- TIPS ladder built out to say age 90 to fund consumption. Recognize that unexpected expenses can occur, so have a cushion. If the need is $30K per year, plan for $35K or $40K per year. Unused funds get invested back in the TIPS ladder for future years.

- A special TIPS bucket that pays out at age 90. The proceeds are used to buy SPIA to fund consumption from age 91 onwards. This provides a balance between longevity risk and inflation risk.

- Delay social security. This is the only way to purchase an inflation adjusted annuity now. And the price is good, too (at typical life expectancies).

- Own the home. This protects against rent increases. The home equity can serve as an emergency fund of last resort.

- Purchase long term care insurance if feasible.

Of course, 100% bonds come at a high cost. Most people will have some risk tolerance and should hold equity as well. A fixed allocation throughout retirement years will provide maximum time diversification and therefore the lowest risk for a given expected return.
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Re: “WHEN YOU'VE WON the game, stop playing with the money you really need.”

Post by Ben Mathew »

heartwood wrote: Wed May 27, 2020 10:36 am Having experienced a 7-figure loss in value during the 2008 financial crisis, I think I'm ready to stop playing. My fear relates to high or hyper inflation esp following the financing of the current crisis. I recall in the 70s and 80s we had several years of 10% +/- inflation. Salaries virtually doubled over a 10 year period. I seem to recall that stocks didn't do well in the early 80s, a double whammy.

https://www.usinflationcalculator.com/i ... ion-rates/

Would TIPS stand up to a repeat of that scenario?
Yes, I think so. The federal government owns the printing press. Nothing is impossible, but the probability that they will default on their dollar denominated obligations is vanishingly small.
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Re: “WHEN YOU'VE WON the game, stop playing with the money you really need.”

Post by willthrill81 »

CWRadio wrote: Wed May 27, 2020 8:28 am William Bernstein is fond of saying “WHEN YOU'VE WON the game, stop playing with the money you really need.”
It sounds good, but it can lead to some recklessly conservative approaches (e.g. 25 years of expenses in fixed income). About the only situation where it makes some sense is for people who have far more wealth than they'll ever consume and so can afford to be recklessly conservative.

Many here, including us, will have all of the money that we really need from Social Security benefits alone.
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Re: “WHEN YOU'VE WON the game, stop playing with the money you really need.”

Post by CyclingDuo »

EnjoyIt wrote: Wed May 27, 2020 10:04 am
CWRadio wrote: Wed May 27, 2020 8:28 am William Bernstein is fond of saying “WHEN YOU'VE WON the game, stop playing with the money you really need.”
For example:
If you need $30,000 a year for 30 years you should have $900,000 in safe money.
My question is where do you put this safe money if it is in a IRA and don't want to play with it? Cash, Cds, bond, Money market funds, SPIA or bond funds, etc.
What about inflation?

Any suggestions? Thanks Paul
The money you “really need” is where I think the discussion should be. One does not need to travel, eat out, have new clothes, new cars, etc. If I had to say, I can see “need” as being the very bare essentials so that one has shelter, medical care, food.

With that in mind I can understand keeping that amount in safe assets. Ideally eventually SS (Social Security) should be able to cover most if not all of the bare essentials.

Because SS as it stands today will cover all of our bare minimum expenses plus some luxuries, our IPS dictates decreasing our bond position at that time.

To answer your specific question of where to store that money. All of the above are great except I would not keep too much cash unless it is in some high yield savings accounts.
There is not a shortage of strategies that could be utilized regarding needs, wants, variables when it comes to expenses and developing a liability matching portfolio.

We like to divide our eventual upcoming retirement period into three phases:

Go-Go years
Slow-Go years
No-Go years

The needs, wants, variables will be different within each phase. For example, travel will happen more in the Go-Go years. If in our plans we do indeed want to experience travel as part of our expenses, and the game has been won - why not set aside the money as part of your expenses to cover in your LMP? Once the Go-Go years are past, you can't get them back in terms of the body and mind being able and willing to travel as easily. So planning correctly and setting aside the funds to do that regardless of how the rest of the portfolio performs seems prudent (at least for us). The Slow-Go years will be the years where our spending bottoms - based on data we have read. Likewise, as you age and get into the No-Go years, the health care expenses may be much higher than the prior phases (see the spending smile article links below). Why not prepare for that as well?

Does it matter if travel is considered a need, want, or variable? Some might take comfort in having accounted for all of the possible expenses within in each phase of retirement so that their plans are met without any hassle.

Some might, as you suggest, only want to set aside enough in their LMP to cover the bare needs and adjust the rest of their spending based on a variable withdrawal rate that is dictated by how the rest of their investment portfolio performs. If they don't get to travel, so be it. If they do, so be it. That's too meandering for us, so we plan.

You can see somewhat how spending (daily spend) changes based on age...

Image

Image

Scott Burns writes about the retirement smile regarding spending here:

https://couchpotatoinvesting.com/the-re ... e-is-real/

David Blanchett wrote a PDF for Morningstar here regarding the spending smile in retirement:

https://www.morningstar.com/content/dam ... rement.pdf

Just based on reading research of what those who are retired and came before us, I don't find it out of the norm to at least consider what all of our expenses could be within each phase of retirement (Go-Go, Slow-Go, No-Go) to make sure that our needs/wants/variables are covered. That's one strategy that may or may not fit a household's plans. In spite of the flexibility to adapt by adding or cutting certain expenses, that is also a strategy for each individual to plan based on their asset allocation, desire and need to take risk, streams of income, as well as plans for heirs/legacy/charity.

CyclingDuo
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Re: “WHEN YOU'VE WON the game, stop playing with the money you really need.”

Post by Angst »

Ben Mathew wrote: Wed May 27, 2020 11:02 am
heartwood wrote: Wed May 27, 2020 10:36 am Having experienced a 7-figure loss in value during the 2008 financial crisis, I think I'm ready to stop playing. My fear relates to high or hyper inflation esp following the financing of the current crisis. I recall in the 70s and 80s we had several years of 10% +/- inflation. Salaries virtually doubled over a 10 year period. I seem to recall that stocks didn't do well in the early 80s, a double whammy.

https://www.usinflationcalculator.com/i ... ion-rates/

Would TIPS stand up to a repeat of that scenario?
Yes, I think so. The federal government owns the printing press. Nothing is impossible, but the probability that they will default on their dollar denominated obligations is vanishingly small.
Same here, although I want them kept in my Roth IRA
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Re: “WHEN YOU'VE WON the game, stop playing with the money you really need.”

Post by YoungSisyphus »

Is there a dummy-proof guide to actually getting TIPS into my brokerage account (Fidelity)? I always read you use the Treasury site. When I go there I see there are sometimes auctions, and sometimes not. And even then I am not sure what the "auction" is. Do I fill an order instantly or is there a chance that I lose an auction? I wanted to investigate doing a 5 year TIPS ladder - where my 2020 purchase is for 2025 maturity. And I wanted to use 10k in my Roth IRA.

Is this so easy to do that there's just not information on it? :oops:
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Re: “WHEN YOU'VE WON the game, stop playing with the money you really need.”

Post by TomatoTomahto »

willthrill81 wrote: Wed May 27, 2020 11:06 am
CWRadio wrote: Wed May 27, 2020 8:28 am William Bernstein is fond of saying “WHEN YOU'VE WON the game, stop playing with the money you really need.”
It sounds good, but it can lead to some recklessly conservative approaches (e.g. 25 years of expenses in fixed income). About the only situation where it makes some sense is for people who have far more wealth than they'll ever consume and so can afford to be recklessly conservative.
Or, as in our case, it started off somewhat conservative in our quasi-LMP, but since each new dollar goes to equities, it becomes more aggressive over time.
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Re: “WHEN YOU'VE WON the game, stop playing with the money you really need.”

Post by Dandy »

I roughly follow Dr. Bernstein's idea. I use FDIC products, money markets and less risky short term bond funds (e.g. short term Treasury Index and Short Term Bond Index and in taxable Ltd Term Tax Exempt). I have enough to last until at least age 90. I'm 72. I liked this "bottom up approach vs trying to guess if 40/60 was to conservative or 60/40 was too aggressive. I ended up with about 45/55 overall.

I use these "safe" assets more as insurance than an ATM i.e. my withdrawals come from both risk and 'safe" assets unless equities have a bad drop. This tends to grow the "safe" assets which can be used for extending the years covered, offset inflation (since safer assets don't usually keep up with even modest inflation, investing, spending, charity or gifts.

The sense that our retirement funding is pretty much secured allows us to gift some"early inheritance to our children each year. It is great to see them get this money while they can really use it e.g. young children, mortgage and their own saving for retirement.

Actually, when I finally collected SS at age 70 our income almost equals our normal expenses. Rather than change the plan I decided to keep it in case I die first. In that case my wife will lose half my pension, her SS since mine is higher and she will be filing taxes as single vs joint. All of which will require a decent draw down close to what the "safe" assets will provide.
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Re: “WHEN YOU'VE WON the game, stop playing with the money you really need.”

Post by sycamore »

YoungSisyphus wrote: Wed May 27, 2020 11:13 am Is there a dummy-proof guide to actually getting TIPS into my brokerage account (Fidelity)? I always read you use the Treasury site. When I go there I see there are sometimes auctions, and sometimes not. And even then I am not sure what the "auction" is. Do I fill an order instantly or is there a chance that I lose an auction? I wanted to investigate doing a 5 year TIPS ladder - where my 2020 purchase is for 2025 maturity. And I wanted to use 10k in my Roth IRA.

Is this so easy to do that there's just not information on it? :oops:
I've not done it myself. Here's a thread about buying T-bills at a brokerage, might be worth looking into. That specific post indicates how to find the web page within Fidelity.

The general idea is you first check the auction schedule from the US Treasury (https://www.treasurydirect.gov/instit/i ... m?upcoming) and then check at the brokerage on the day of the announcement and indicate you want to buy. You'll get the rate as determined by the market (depends on how many people/institutions are interested in the specific auction). Currently there are "No scheduled TIPS offerings" so you'll have to wait for fresh TIPS. There's always the secondary market for TIPS...
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Re: “WHEN YOU'VE WON the game, stop playing with the money you really need.”

Post by TheTimeLord »

TomatoTomahto wrote: Wed May 27, 2020 12:49 pm
willthrill81 wrote: Wed May 27, 2020 11:06 am
CWRadio wrote: Wed May 27, 2020 8:28 am William Bernstein is fond of saying “WHEN YOU'VE WON the game, stop playing with the money you really need.”
It sounds good, but it can lead to some recklessly conservative approaches (e.g. 25 years of expenses in fixed income). About the only situation where it makes some sense is for people who have far more wealth than they'll ever consume and so can afford to be recklessly conservative.
Or, as in our case, it started off somewhat conservative in our quasi-LMP, but since each new dollar goes to equities, it becomes more aggressive over time.
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Re: “WHEN YOU'VE WON the game, stop playing with the money you really need.”

Post by garlandwhizzer »

I actually enjoy playing the game. Even if I could fully fund my expected retirement with a TIPS ladder which I believe to be the safest way to do it, I would continue to hold considerable equity. All so called safe fixed income assets other than TIPS including Treasuries are subject to considerable losses in the case of unforeseen and increasing inflation which is unlikely, I agree, but not out the question in a decade or two or three. Increased demand won't be a source of increasing future inflation in my view but it possible for governments to do so. I plan hold at least 50% equity until I'm near 80, about 60/40 now at 73. One reason apart from the fact that I'm not risk averse by nature is that expected returns on all safe bonds now are zero real until their maturity. I refuse to accept a zero real return for 100% of my portfolio regardless of how safe it is. That position is more risk averse than I am.

Two reasons to keep playing: to leave a legacy and to prepare for unexpected huge increases in needs for money in the future. I don't a there's a single person alive now who can accurately predict how much money they'll need annually in 10 or 15 years. A lot of unexpected bad things can happen--lawsuits, divorces, Alzheimers or other dementia, disabling strokes that necessitate round the clock care, accidents, sons or daughters who get into financial difficulties, theft, loss of residence and possessions in fire, etc,. In short when you quit playing the game, you're taking on the risk that your projections of future retirement income needs may be flawed. I believe that the goal should be to keep the portfolio making positive real returns and to do so long enough to provide for a serious overshoot in expected future financial needs even if you think you've won the game. Just my 2 cents worth. Others see it differently.

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Re: “WHEN YOU'VE WON the game, stop playing with the money you really need.”

Post by geerhardusvos »

TheTimeLord wrote: Wed May 27, 2020 9:43 am
geerhardusvos wrote: Wed May 27, 2020 9:34 am
CWRadio wrote: Wed May 27, 2020 8:28 am William Bernstein is fond of saying “WHEN YOU'VE WON the game, stop playing with the money you really need.”
For example:
If you need $30,000 a year for 30 years you should have $900,000 in safe money.
My question is where do you put this safe money if it is in a IRA and don't want to play with it? Cash, Cds, bond, Money market funds, SPIA or bond funds, etc.
What about inflation?

Any suggestions? Thanks Paul
Whether you have 1 million or 10 million, I recommend never going lower than 50% equities. A 50/50 portfolio provides stability on the fixed side, but also wards off nasty inflation by giving the growth on the equity side. You actually substantially increase your risk of your portfolio longevity by lowering the equity portion below 50%.

I personally will never go lower than a 70/30. Best wishes!
This approach specifies no specific AA just a specific amount to be held in safe assets which to me is more useful than arbitrary percentage allocations which seem to assume the risk of a given AA is the same for a $10,000 portfolio or $10,000,000 portfolio which of course it is not in dollar terms. And I personally prefer dollar terms because stores don't take payments in percentages.
The longevity of a portfolio, especially when thinking about timelines greater than 50 years, it’s very helpful to consider percentages between fixed income and equities in the portfolio. If you’ve won the game, keep some/all the winnings that you’ll need over a given timeframe in fairly safe assets. If you want these assets to last longer than 50 years, then ensure that you have some growth opportunities. Risk is a very personalized thing, but that’s typically expressed in a percentage between stocks and bonds or other assets. Just because someone has 100 X more than I do, doesn’t mean that our risk profile is substantially different. I don’t like the mentality of stop playing when you’ve won, because sometimes in order to make sure you’re still a winner decades from now, you still need to play some.
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Re: “WHEN YOU'VE WON the game, stop playing with the money you really need.”

Post by tvubpwcisla »

Albert Einstein said, “Compound interest is the eighth wonder of the world. He who understands it, earns it; he who doesn't, pays it.”

The 8th wonder of the world, compound interest, really starts to take shape when you get to that point of having enough to retire. I can't imagine pulling the funds out of the market and missing out on all those gains after the game has been won. Isn't that the time to really embrace all those years of investing and let the compound interest work to your advantage? Yikes!

:shock:
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Re: “WHEN YOU'VE WON the game, stop playing with the money you really need.”

Post by protagonist »

I hadn't read Bernstein's views on this, but that is exactly what I do. I keep what I need, plus a buffer, in ultrasafe investments that should (theoretically) keep up with inflation, and treat the rest as gambling money that I leave in low-cost index funds. It keeps me from worrying when the market tanks as it did recently, and theoretically thus insures a happy retirement.
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Re: “WHEN YOU'VE WON the game, stop playing with the money you really need.”

Post by TheTimeLord »

geerhardusvos wrote: Wed May 27, 2020 2:21 pm
TheTimeLord wrote: Wed May 27, 2020 9:43 am
geerhardusvos wrote: Wed May 27, 2020 9:34 am
CWRadio wrote: Wed May 27, 2020 8:28 am William Bernstein is fond of saying “WHEN YOU'VE WON the game, stop playing with the money you really need.”
For example:
If you need $30,000 a year for 30 years you should have $900,000 in safe money.
My question is where do you put this safe money if it is in a IRA and don't want to play with it? Cash, Cds, bond, Money market funds, SPIA or bond funds, etc.
What about inflation?

Any suggestions? Thanks Paul
Whether you have 1 million or 10 million, I recommend never going lower than 50% equities. A 50/50 portfolio provides stability on the fixed side, but also wards off nasty inflation by giving the growth on the equity side. You actually substantially increase your risk of your portfolio longevity by lowering the equity portion below 50%.

I personally will never go lower than a 70/30. Best wishes!
This approach specifies no specific AA just a specific amount to be held in safe assets which to me is more useful than arbitrary percentage allocations which seem to assume the risk of a given AA is the same for a $10,000 portfolio or $10,000,000 portfolio which of course it is not in dollar terms. And I personally prefer dollar terms because stores don't take payments in percentages.
The longevity of a portfolio, especially when thinking about timelines greater than 50 years, it’s very helpful to consider percentages between fixed income and equities in the portfolio. If you’ve won the game, keep some/all the winnings that you’ll need over a given timeframe in fairly safe assets. If you want these assets to last longer than 50 years, then ensure that you have some growth opportunities. Risk is a very personalized thing, but that’s typically expressed in a percentage between stocks and bonds or other assets. Just because someone has 100 X more than I do, doesn’t mean that our risk profile is substantially different. I don’t like the mentality of stop playing when you’ve won, because sometimes in order to make sure you’re still a winner decades from now, you still need to play some.
Percentages are fine, especially in the accumulation phase but they don't show risk until you use them to calculate dollars. IMHO size of portfolio matters a lot. Not sure I have a clue what the real world risk difference is between 100/0 and 70/30 for a $10,000 portfolio because the reality is at that level of savings you are still dependent having a job to survive and neither allocation will provide you significant more protection from a 50% pullback. That is not to say a $10,000 is not important or not a lot of money just that the amount of protection $5,000 provides as opposed $6,500 is not hugely different in real world terms and means maintaining or finding employment is imperative. The advice probably is slightly misstated and likely should be "Stop playing with the money you need to live". I think most people who follow this strategy implement it with well over the 20x-25x they put in safe assets and continue to play the game with the remainder. It is just they decided to take some off the table to insure their ability to cover a basic lifestyle (self defined) for a significant number of years regardless of what the market does.
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Re: “WHEN YOU'VE WON the game, stop playing with the money you really need.”

Post by 7eight9 »

tvubpwcisla wrote: Wed May 27, 2020 2:26 pm Albert Einstein said, “Compound interest is the eighth wonder of the world. He who understands it, earns it; he who doesn't, pays it.”

The 8th wonder of the world, compound interest, really starts to take shape when you get to that point of having enough to retire. I can't imagine pulling the funds out of the market and missing out on all those gains after the game has been won. Isn't that the time to really embrace all those years of investing and let the compound interest work to your advantage? Yikes!

:shock:
From my understand that alleged Albert Einstein quote is an urban legend.
https://www.snopes.com/fact-check/compound-interest/

If memory serves correct Japanese equity investors circa 1989 would have been well served by heeding Dr. Berstein's advice.
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Re: “WHEN YOU'VE WON the game, stop playing with the money you really need.”

Post by TheTimeLord »

7eight9 wrote: Wed May 27, 2020 2:39 pm
tvubpwcisla wrote: Wed May 27, 2020 2:26 pm Albert Einstein said, “Compound interest is the eighth wonder of the world. He who understands it, earns it; he who doesn't, pays it.”

The 8th wonder of the world, compound interest, really starts to take shape when you get to that point of having enough to retire. I can't imagine pulling the funds out of the market and missing out on all those gains after the game has been won. Isn't that the time to really embrace all those years of investing and let the compound interest work to your advantage? Yikes!

:shock:
From my understand that alleged Albert Einstein quote is an urban legend.
https://www.snopes.com/fact-check/compound-interest/

If memory serves correct Japanese equity investors circa 1989 would have been well served by heeding Dr. Berstein's advice.
There is a natural divide between those who seek to maximize their gains and those who seek to manage their risk. And I am okay with that.
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bigskyguy
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Re: “WHEN YOU'VE WON the game, stop playing with the money you really need.”

Post by bigskyguy »

Ben Mathew wrote: Wed May 27, 2020 10:56 am
Horton wrote: Wed May 27, 2020 10:17 am
Ben Mathew wrote: Wed May 27, 2020 9:05 am A TIPS ladder will be the safest investment. Pretty much no default risk or inflation risk. The inflation protection in TIPS is free or close to free, so it should be more widely used than it is.

Owning your home is another source of safety--it's protection against rent increases.
It’s worth noting that a TIPS ladder doesn’t eliminate longevity risk though.

There isn’t a perfect solution, so diversification is probably best - delay SS, own your home, SPIAs, bonds (laddered, if desired), equities, etc.
Yes. Inflation adjusted SPIAs would have solved both longevity and inflation risk. But unfortunately they aren't available except indirectly by delaying social security. So maybe:

- TIPS ladder built out to say age 90 to fund consumption. Recognize that unexpected expenses can occur, so have a cushion. If the need is $30K per year, plan for $35K or $40K per year. Unused funds get invested back in the TIPS ladder for future years.

- A special TIPS bucket that pays out at age 90. The proceeds are used to buy SPIA to fund consumption from age 91 onwards. This provides a balance between longevity risk and inflation risk.

- Delay social security. This is the only way to purchase an inflation adjusted annuity now. And the price is good, too (at typical life expectancies).

- Own the home. This protects against rent increases. The home equity can serve as an emergency fund of last resort.

- Purchase long term care insurance if feasible.

Of course, 100% bonds come at a high cost. Most people will have some risk tolerance and should hold equity as well. A fixed allocation throughout retirement years will provide maximum time diversification and therefore the lowest risk for a given expected return.
Your approach is identical to ours. Nicely outlined. I will say that getting there (actually building the TIPS ladder, sequestering funds for a late in life SPIA, etc.) took some time, but now we are set for the indefinite future. What's left over is a luxury, and we treat it as such.
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Re: “WHEN YOU'VE WON the game, stop playing with the money you really need.”

Post by rich126 »

If I was married/involved with someone who had anything close to my savings/assets I would be in extremely good shape. Unfortunately that isn't true so things are a bit tougher but not terrible.

If we wait until 67 and get social security, the combined amount plus a small pension should cover most expenses. I'm hoping to bridge the time from 60 to 67 with higher withdraws from savings and then a much lower amount at 67. Or basically set aside 30% of savings for that gap and then withdraw 3-4% from the remaining 70% at 67.

I personally want to avoid the big loss but I think putting everything in TIPS or a SPIA isn't wise especially with the SPIA not being COLA. And having some %, even if it is only 20% in the market is still wise. I do agree with others about having an annuity starting at 80 or so in case you do live to a very old age.

At least it is a pleasant problem to have.
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Re: “WHEN YOU'VE WON the game, stop playing with the money you really need.”

Post by Engaging in sloth »

If you won the game CD's are the best bet. Bonds can drop in value. Look what happened in March- TIPS dropped in value...CD's don't. For example if you had $11,000 in TIPS they dropped to $10,000. I would not call that safe. My CD's continued compounding interest. If TIPS do return slightly more supposedly, it is not worth the lack of sleep during huge market drops IMHO.
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Re: “WHEN YOU'VE WON the game, stop playing with the money you really need.”

Post by TomatoTomahto »

tvubpwcisla wrote: Wed May 27, 2020 2:26 pm Albert Einstein said, “Compound interest is the eighth wonder of the world. He who understands it, earns it; he who doesn't, pays it.”

The 8th wonder of the world, compound interest, really starts to take shape when you get to that point of having enough to retire. I can't imagine pulling the funds out of the market and missing out on all those gains after the game has been won. Isn't that the time to really embrace all those years of investing and let the compound interest work to your advantage? Yikes!

:shock:
I think one of the differences between responders in this thread is what is “having won the game mean?” I mean you’re up 5-1 with 20 seconds left in a hockey game, not you’re up by 3 points in a football game at halftime.

I admit to $3M in fixed income plus an undisclosed amount $X in equities. Two possible scenarios: equity market goes along well enough to double my equities vs Great Depression kind of 90% loss in equities.

I would feel better with $3M in fixed income and .1X in equities than risk having what, .2X or .3X? Sleeping well at night has value.
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Re: “WHEN YOU'VE WON the game, stop playing with the money you really need.”

Post by tvubpwcisla »

TomatoTomahto wrote: Wed May 27, 2020 3:35 pm
tvubpwcisla wrote: Wed May 27, 2020 2:26 pm Albert Einstein said, “Compound interest is the eighth wonder of the world. He who understands it, earns it; he who doesn't, pays it.”

The 8th wonder of the world, compound interest, really starts to take shape when you get to that point of having enough to retire. I can't imagine pulling the funds out of the market and missing out on all those gains after the game has been won. Isn't that the time to really embrace all those years of investing and let the compound interest work to your advantage? Yikes!

:shock:
I think one of the differences between responders in this thread is what is “having won the game mean?” I mean you’re up 5-1 with 20 seconds left in a hockey game, not you’re up by 3 points in a football game at halftime.

I admit to $3M in fixed income plus an undisclosed amount $X in equities. Two possible scenarios: equity market goes along well enough to double my equities vs Great Depression kind of 90% loss in equities.

I would feel better with $3M in fixed income and .1X in equities than risk having what, .2X or .3X? Sleeping well at night has value.
That's a really good analogy! I can see both sides for sure. There is no rate of return percentage or price tag that you can put on peace of mind and sleeping well at night.

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Re: “WHEN YOU'VE WON the game, stop playing with the money you really need.”

Post by 7eight9 »

TomatoTomahto wrote: Wed May 27, 2020 3:35 pm
tvubpwcisla wrote: Wed May 27, 2020 2:26 pm Albert Einstein said, “Compound interest is the eighth wonder of the world. He who understands it, earns it; he who doesn't, pays it.”

The 8th wonder of the world, compound interest, really starts to take shape when you get to that point of having enough to retire. I can't imagine pulling the funds out of the market and missing out on all those gains after the game has been won. Isn't that the time to really embrace all those years of investing and let the compound interest work to your advantage? Yikes!

:shock:
I think one of the differences between responders in this thread is what is “having won the game mean?” I mean you’re up 5-1 with 20 seconds left in a hockey game, not you’re up by 3 points in a football game at halftime.

I admit to $3M in fixed income plus an undisclosed amount $X in equities. Two possible scenarios: equity market goes along well enough to double my equities vs Great Depression kind of 90% loss in equities.

I would feel better with $3M in fixed income and .1X in equities than risk having what, .2X or .3X? Sleeping well at night has value.
What if you are up 28-3 with just over a quarter left to go? Have you won the game? :happy

Patriots' Super Bowl turnaround: Sport's greatest comeback?
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Dandy
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Re: “WHEN YOU'VE WON the game, stop playing with the money you really need.”

Post by Dandy »

A lot depends on an individual's circumstances as to whether they "won the game". The key is not only the size of the portfolio but also the size of the yearly draw down and how you withdraw. Do you use the "safe" assets as an ATM by only withdrawing from those assets? (and likely have a rising equity allocation). Or do you view the "safe" assets more as insurance and withdraw from both risk and safe assets most of the time.

If your draw down 2% or less of your portfolio to fund or supplement your retirement income needs and you are at least in your 60's I'm guessing you have won the game. If you have, you can try the 4% approach or you can follow the "Safe" and "Rest" and either will most likely preserve the "win". I sleep well with the latter and my heirs should be fine.
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Re: “WHEN YOU'VE WON the game, stop playing with the money you really need.”

Post by geerhardusvos »

TheTimeLord wrote: Wed May 27, 2020 2:36 pm
geerhardusvos wrote: Wed May 27, 2020 2:21 pm
TheTimeLord wrote: Wed May 27, 2020 9:43 am
geerhardusvos wrote: Wed May 27, 2020 9:34 am
CWRadio wrote: Wed May 27, 2020 8:28 am William Bernstein is fond of saying “WHEN YOU'VE WON the game, stop playing with the money you really need.”
For example:
If you need $30,000 a year for 30 years you should have $900,000 in safe money.
My question is where do you put this safe money if it is in a IRA and don't want to play with it? Cash, Cds, bond, Money market funds, SPIA or bond funds, etc.
What about inflation?

Any suggestions? Thanks Paul
Whether you have 1 million or 10 million, I recommend never going lower than 50% equities. A 50/50 portfolio provides stability on the fixed side, but also wards off nasty inflation by giving the growth on the equity side. You actually substantially increase your risk of your portfolio longevity by lowering the equity portion below 50%.

I personally will never go lower than a 70/30. Best wishes!
This approach specifies no specific AA just a specific amount to be held in safe assets which to me is more useful than arbitrary percentage allocations which seem to assume the risk of a given AA is the same for a $10,000 portfolio or $10,000,000 portfolio which of course it is not in dollar terms. And I personally prefer dollar terms because stores don't take payments in percentages.
The longevity of a portfolio, especially when thinking about timelines greater than 50 years, it’s very helpful to consider percentages between fixed income and equities in the portfolio. If you’ve won the game, keep some/all the winnings that you’ll need over a given timeframe in fairly safe assets. If you want these assets to last longer than 50 years, then ensure that you have some growth opportunities. Risk is a very personalized thing, but that’s typically expressed in a percentage between stocks and bonds or other assets. Just because someone has 100 X more than I do, doesn’t mean that our risk profile is substantially different. I don’t like the mentality of stop playing when you’ve won, because sometimes in order to make sure you’re still a winner decades from now, you still need to play some.
Percentages are fine, especially in the accumulation phase but they don't show risk until you use them to calculate dollars. IMHO size of portfolio matters a lot. Not sure I have a clue what the real world risk difference is between 100/0 and 70/30 for a $10,000 portfolio because the reality is at that level of savings you are still dependent having a job to survive and neither allocation will provide you significant more protection from a 50% pullback. That is not to say a $10,000 is not important or not a lot of money just that the amount of protection $5,000 provides as opposed $6,500 is not hugely different in real world terms and means maintaining or finding employment is imperative. The advice probably is slightly misstated and likely should be "Stop playing with the money you need to live". I think most people who follow this strategy implement it with well over the 20x-25x they put in safe assets and continue to play the game with the remainder. It is just they decided to take some off the table to insure their ability to cover a basic lifestyle (self defined) for a significant number of years regardless of what the market does.
You’re still not hitting on the clear fact that you take on more risk by having less equities when wanting a portfolio to last for a very long time. Derisking doesn’t always mean “100% safe assets” and “fixed income” - It’s not always that simple

Even Warren Buffett would put his wife in a 50/50 portfolio... with $250M
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