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

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

Post by garlandwhizzer » Fri May 29, 2020 12:42 pm

AlohaJoe wrote:

Imagine this: the year is 2020 and an previously unknown virus means your daughter is laid off and she joins the 20 million other people on unemployment. She suddenly can't make her mortgage payments and she's worried that she and your grand-daughter will lose their house. But you had "won the game". You set up a TIPS ladder that covered the "money you really need". What do you do? Tell your daughter that you don't care about her life and helping out your family messes up your carefully constructed "liability-matching portfolio"?

Of course not.

Thinking you know how much you need for the next three decades is a prime example of the end of history illusion. Retirement planning shouldn't be built on illusions.
1+

I believe this to be the main point. The level of uncertainty in one's anticipated income needs in the future is very high. You may think you've won the game when it turns out in fullness of time that you need a lot more money than anticipated rather suddenly. In that case you have not won the game and due to a long spell of TIPS ladder negative real portfolio return you may find yourself in a deep financial hole. The only thing that offers at least the illusion of having won the game is a TIPS ladder. Nominal bonds get killed in inflation. Future expenses are real, not nominal. Unlike nominal bonds, equity exposure offers some long term inflation protection. Long term TIPS currently have negative real yields and a long term TIPS ladder gradually and predictably loses its real value over time. As time passes your asset base declines more and more. This is one reason why IMO it may be unwise to completely quit playing the game. It is also the reason why you don't want all your nominal bonds in long duration. When you need substantial money unexpectedly in the future it's important to have a relatively stable bond principal value if you must sell bonds.

Garland Whizzer

Leesbro63
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Re: “WHEN YOU'VE WON the game, stop playing with the money you really need.”

Post by Leesbro63 » Fri May 29, 2020 12:50 pm

garlandwhizzer wrote:
Fri May 29, 2020 12:42 pm
AlohaJoe wrote:

Imagine this: the year is 2020 and an previously unknown virus means your daughter is laid off and she joins the 20 million other people on unemployment. She suddenly can't make her mortgage payments and she's worried that she and your grand-daughter will lose their house. But you had "won the game". You set up a TIPS ladder that covered the "money you really need". What do you do? Tell your daughter that you don't care about her life and helping out your family messes up your carefully constructed "liability-matching portfolio"?

Of course not.

Thinking you know how much you need for the next three decades is a prime example of the end of history illusion. Retirement planning shouldn't be built on illusions.
1+

I believe this to be the main point. The level of uncertainty in one's anticipated income needs in the future is very high. You may think you've won the game when it turns out in fullness of time that you need a lot more money than anticipated rather suddenly. In that case you have not won the game and due to a long spell of TIPS ladder negative real portfolio return you may find yourself in a deep financial hole. The only thing that offers at least the illusion of having won the game is a TIPS ladder. Nominal bonds get killed in inflation. Future expenses are real, not nominal. Unlike nominal bonds, equity exposure offers some long term inflation protection. Long term TIPS currently have negative real yields and a long term TIPS ladder gradually and predictably loses its real value over time. As time passes your asset base declines more and more. This is one reason why IMO it may be unwise to completely quit playing the game. It is also the reason why you don't want all your nominal bonds in long duration. When you need substantial money unexpectedly in the future it's important to have a relatively stable bond principal value if you must sell bonds.

Garland Whizzer
Not only that, but TIPS are subject to “taxflation” if held in a taxable account. If the big inflation that TIPS are bought to hedge against ever arrives, taxflation will make owning negative-yield TIPS even worse.

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willthrill81
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Re: “WHEN YOU'VE WON the game, stop playing with the money you really need.”

Post by willthrill81 » Fri May 29, 2020 12:52 pm

fatcoffeedrinker wrote:
Fri May 29, 2020 10:39 am
willthrill81 wrote:
Wed May 27, 2020 8:41 pm
Ben Mathew wrote:
Wed May 27, 2020 6:47 pm
willthrill81 wrote:
Wed May 27, 2020 5:24 pm
Now if you adhere to the 'need, willingness, and ability' notion of taking on stock risk, then you'd say that the investor with 50x shouldn't own any stocks or at least no more than a small portion of the portfolio. But in my experience, most very wealthy don't appear to agree with that idea at all and have a significant portion of their portfolio in volatile assets like stocks.
Applying the need vs ability principle, richer people have more ability to take on risk, but they also have less need. So the net effect is unclear. It's hard to say whether rich people should generally have a higher or lower percentage in stocks than poor people.
Most adherents to the notion 'need, willingness, and ability' say that you must have all three in order to invest in equities. As I noted above, I do not subscribe to this. In my view, 'need' is irrelevant. For instance, certain investors may need to invest in equities in order to help achieve their goals, but if they are unwilling to do so, they are at high risk of panic selling, thus defeating the purpose. And those with more than adequate portfolios may not 'need' to take on the risks of stocks, but they may wish to do so anyway for the benefit of others, such as charity.
In what situation would all three of them be true? It would seem that need and ability move in opposite directions.
Presumably, a young investor with a long investment horizon would likely have all three.
“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

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

Post by sycamore » Fri May 29, 2020 1:01 pm

willthrill81 wrote:
Fri May 29, 2020 12:52 pm
fatcoffeedrinker wrote:
Fri May 29, 2020 10:39 am
willthrill81 wrote:
Wed May 27, 2020 8:41 pm
Ben Mathew wrote:
Wed May 27, 2020 6:47 pm
willthrill81 wrote:
Wed May 27, 2020 5:24 pm
Now if you adhere to the 'need, willingness, and ability' notion of taking on stock risk, then you'd say that the investor with 50x shouldn't own any stocks or at least no more than a small portion of the portfolio. But in my experience, most very wealthy don't appear to agree with that idea at all and have a significant portion of their portfolio in volatile assets like stocks.
Applying the need vs ability principle, richer people have more ability to take on risk, but they also have less need. So the net effect is unclear. It's hard to say whether rich people should generally have a higher or lower percentage in stocks than poor people.
Most adherents to the notion 'need, willingness, and ability' say that you must have all three in order to invest in equities. As I noted above, I do not subscribe to this. In my view, 'need' is irrelevant. For instance, certain investors may need to invest in equities in order to help achieve their goals, but if they are unwilling to do so, they are at high risk of panic selling, thus defeating the purpose. And those with more than adequate portfolios may not 'need' to take on the risks of stocks, but they may wish to do so anyway for the benefit of others, such as charity.
In what situation would all three of them be true? It would seem that need and ability move in opposite directions.
Presumably, a young investor with a long investment horizon would likely have all three.
+1, assuming we're using the terminology per the wiki article https://www.bogleheads.org/wiki/Asset_a ... C_and_need, need and ability are about different things, not really on the same dimension.

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

Post by Horton » Fri May 29, 2020 4:02 pm

AlohaJoe wrote:
Thu May 28, 2020 9:54 am
tvubpwcisla wrote:
Thu May 28, 2020 6:48 am
I think Bill's point in all of this is that if you have enough money to make it through retirement, don't invest the entire farm in the market anymore. I don't agree with him; however, that doesn't make it a bad approach.
How do you know you how much is enough? Do you know how much your property taxes are going to go up over the next 30 years? Do you know how much dental expenses you'll have? (Dental isn't covered by Medicare.) Do you know what the out of pocket costs of your prescriptions will be when you are 85? Do you know what your state and federal taxes are going to be 30 years from now? Do you know what the sales tax is going to be? Do you know how much air conditioning you'll be using in 30 years? (Leaving aside arguments about climate change, people lose their sweat glands as they get older and need more air conditioning.) Do you know how much you'll be paying for services that you can no longer physically perform? I've never seen anyone even attempt to account for all those completely obvious things when building a liability-matched portfolio.

This isn't just theoretical. There are millions of people whose retirement is entirely, or largely, funded by Social Security, which adjusts just like TIPS do; it works exactly like a Liability-Matching Portfolio. And they constantly complain about all of these things in retirement eating into their monthly retirement incomes and forcing them to change their lifestyle.

The Liability-Matching Portfolio was popularized by William Bernstein whose advisory firm only takes people with at least $25 million in assets. It is easy to building a liability matching portfolio when doing so only takes 30% of your assets.
I'm not at sour as you are on the concept of LMP. Let's not let perfect be the enemy of the good. Most people go their entire lives receiving an income and (hopefully) learn how to live within their means. Most years that means spending less, which allows a person to build up savings for emergencies and save for longer term goals like retirement. But, in some years, a person may need to dip into the savings - to buy a car, replace a roof, send a child to college, pay medical bills, or whatever else. I view the concepts of the LMP and the funded ratio as an extension of thinking in terms of income rather than a pot of money.

That said, your points are well stated and I will even take it a bit further. For many BH's in the middle their lives with kids in the home, there is a risk to over save and miss opportunities to enjoy the fruits of our labor right now. There is also a risk of seeing our future through the lens of our present. For example, when I retire at age x, I will be able to do so many things (that I want to do now) - travel, hike, surf, etc. However, we may not be physically capable of doing these things in the future, or our spouse may not. My grandpa always used to say, "getting old isn't for pansies." My mother was extremely healthy in her mid-60's when she had a stroke following an outpatient procedure. She's healthy now, but unable to drive (the good news is that my parents won't ever need two cars again). A coworker is about to retire in a few months, but his wife needs a hip replacement. The list goes on.

I suggest that the key benefit of forecasting your future spending needs - whether to build an LMP or calculate a funded ratio - is to assess whether I am saving too much, not enough, or the right amount. That way, I can adjust my current lifestyle to what it needs to be. For most of America, that probably means spend less now. For most BH's, it may mean spend more now.

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

Post by TheTimeLord » Fri May 29, 2020 4:38 pm

garlandwhizzer wrote:
Fri May 29, 2020 12:42 pm
AlohaJoe wrote:

Imagine this: the year is 2020 and an previously unknown virus means your daughter is laid off and she joins the 20 million other people on unemployment. She suddenly can't make her mortgage payments and she's worried that she and your grand-daughter will lose their house. But you had "won the game". You set up a TIPS ladder that covered the "money you really need". What do you do? Tell your daughter that you don't care about her life and helping out your family messes up your carefully constructed "liability-matching portfolio"?

Of course not.

Thinking you know how much you need for the next three decades is a prime example of the end of history illusion. Retirement planning shouldn't be built on illusions.
1+

I believe this to be the main point. The level of uncertainty in one's anticipated income needs in the future is very high. You may think you've won the game when it turns out in fullness of time that you need a lot more money than anticipated rather suddenly. In that case you have not won the game and due to a long spell of TIPS ladder negative real portfolio return you may find yourself in a deep financial hole. The only thing that offers at least the illusion of having won the game is a TIPS ladder. Nominal bonds get killed in inflation. Future expenses are real, not nominal. Unlike nominal bonds, equity exposure offers some long term inflation protection. Long term TIPS currently have negative real yields and a long term TIPS ladder gradually and predictably loses its real value over time. As time passes your asset base declines more and more. This is one reason why IMO it may be unwise to completely quit playing the game. It is also the reason why you don't want all your nominal bonds in long duration. When you need substantial money unexpectedly in the future it's important to have a relatively stable bond principal value if you must sell bonds.

Garland Whizzer
Who is recommending you completely quit playing the game? And why do some BH seem to paint a picture of people with LMP as skin of the teeth no buffer retirees? Sure you can come up with scenarios that make different types of plans fail but the way I hear LMP and "Won the game" strategies described here bear no resemblance to the implementation I hear people describe. I guess I need go to some meeting that begins "Hi, I am TheTimeLord and I love LMP, Winning The Game and Bond Tents because I am Secure Future Addict".
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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One Ping
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Re: “WHEN YOU'VE WON the game, stop playing with the money you really need.”

Post by One Ping » Fri May 29, 2020 6:15 pm

TheTimeLord wrote:
Fri May 29, 2020 4:38 pm
Who is recommending you completely quit playing the game? And why do some BH seem to paint a picture of people with LMP as skin of the teeth no buffer retirees? Sure you can come up with scenarios that make different types of plans fail but the way I hear LMP and "Won the game" strategies described here bear no resemblance to the implementation I hear people describe. I guess I need go to some meeting that begins "Hi, I am TheTimeLord and I love LMP, Winning The Game and Bond Tents because I am Secure Future Addict".
I agree, TimeLord. I have sort of the opposite view of a LMP from that of being a "skin of the teeth" scenario.

To me a LMP can (should?) be used if one has oversaved, or had success at investing, during the accumulation years and has far more than they might reasonably need for their chosen liabilities. In that case, why not set aside enough to cover reasonably foreseen expenses (I.e., liabilities) and then put together your risk portfolio to allow you to do more ... for family, charity, heirs, or whatever? You can design your risk portfolio for whatever risk level you feel comfortable with for money you don't expect to need. The point is you don't need it and, like any investment portfolio, you can pick a risk level you are comfortable with. 100% stock ... expect, or plan for, a 50% (or potentially larger drop) at the worst time. Don't like that much risk ... go for a 50/50 equity/fixed income split (or whatever) risk portfolio.

If you are concerned you might have to help family or friends, then that's a liability you have chosen to accept and you should consider it as such (part of your liability portfolio) when you are settting up your LMP. If assuming that liability leaves you with nothing for your risk portfolio, then you have your answer ... you haven't really "won the game," have you?
"Re-verify our range to target ... one ping only."

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

Post by marcopolo » Fri May 29, 2020 6:33 pm

One Ping wrote:
Fri May 29, 2020 6:15 pm
TheTimeLord wrote:
Fri May 29, 2020 4:38 pm
Who is recommending you completely quit playing the game? And why do some BH seem to paint a picture of people with LMP as skin of the teeth no buffer retirees? Sure you can come up with scenarios that make different types of plans fail but the way I hear LMP and "Won the game" strategies described here bear no resemblance to the implementation I hear people describe. I guess I need go to some meeting that begins "Hi, I am TheTimeLord and I love LMP, Winning The Game and Bond Tents because I am Secure Future Addict".
I agree, TimeLord. I have sort of the opposite view of a LMP from that of being a "skin of the teeth" scenario.

To me a LMP can (should?) be used if one has oversaved, or had success at investing, during the accumulation years and has far more than they might reasonably need for their chosen liabilities. In that case, why not set aside enough to cover reasonably foreseen expenses (I.e., liabilities) and then put together your risk portfolio to allow you to do more ... for family, charity, heirs, or whatever? You can design your risk portfolio for whatever risk level you feel comfortable with for money you don't expect to need. The point is you don't need it and, like any investment portfolio, you can pick a risk level you are comfortable with. 100% stock ... expect, or plan for, a 50% (or potentially larger drop) at the worst time. Don't like that much risk ... go for a 50/50 equity/fixed income split (or whatever) risk portfolio.

If you are concerned you might have to help family or friends, then that's a liability you have chosen to accept and you should consider it as such (part of your liability portfolio) when you are settting up your LMP. If assuming that liability leaves you with nothing for your risk portfolio, then you have your answer ... you haven't really "won the game," have you?

If you have enough such that you LMP in safe assets is only half you portfolio, and you put the other half (risk assets) in 100% equity, how is that really any different than a 50/50 balanced portfolio, with perhaps a rising glide path if you decide to only spend from the FI side. Just seems like mental accounting, fine if you it helps you to think about it that way, but functionally not materially different.

If you have that much excess money, it probably does not matter what approach you choose.
Once in a while you get shown the light, in the strangest of places if you look at it right.

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

Post by One Ping » Fri May 29, 2020 6:48 pm

marcopolo wrote:
Fri May 29, 2020 6:33 pm
One Ping wrote:
Fri May 29, 2020 6:15 pm
TheTimeLord wrote:
Fri May 29, 2020 4:38 pm
Who is recommending you completely quit playing the game? And why do some BH seem to paint a picture of people with LMP as skin of the teeth no buffer retirees? Sure you can come up with scenarios that make different types of plans fail but the way I hear LMP and "Won the game" strategies described here bear no resemblance to the implementation I hear people describe. I guess I need go to some meeting that begins "Hi, I am TheTimeLord and I love LMP, Winning The Game and Bond Tents because I am Secure Future Addict".
I agree, TimeLord. I have sort of the opposite view of a LMP from that of being a "skin of the teeth" scenario.

To me a LMP can (should?) be used if one has oversaved, or had success at investing, during the accumulation years and has far more than they might reasonably need for their chosen liabilities. In that case, why not set aside enough to cover reasonably foreseen expenses (I.e., liabilities) and then put together your risk portfolio to allow you to do more ... for family, charity, heirs, or whatever? You can design your risk portfolio for whatever risk level you feel comfortable with for money you don't expect to need. The point is you don't need it and, like any investment portfolio, you can pick a risk level you are comfortable with. 100% stock ... expect, or plan for, a 50% (or potentially larger drop) at the worst time. Don't like that much risk ... go for a 50/50 equity/fixed income split (or whatever) risk portfolio.

If you are concerned you might have to help family or friends, then that's a liability you have chosen to accept and you should consider it as such (part of your liability portfolio) when you are settting up your LMP. If assuming that liability leaves you with nothing for your risk portfolio, then you have your answer ... you haven't really "won the game," have you?
If you have enough such that you LMP in safe assets is only half you portfolio, and you put the other half (risk assets) in 100% equity, how is that really any different than a 50/50 balanced portfolio, with perhaps a rising glide path if you decide to only spend from the FI side. Just seems like mental accounting, fine if you it helps you to think about it that way, but functionally not materially different.
Basically I agree you, but so what? It appears to me you agree with me, too. You have to arrive at an asset allocation somehow, if mental accounting gives you a framework for doing that, what's the downside?
marcopolo wrote:
Fri May 29, 2020 6:33 pm
If you have that much excess money, it probably does not matter what approach you choose.
Exactly. If you don't, you haven't really "won the game."
"Re-verify our range to target ... one ping only."

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

Post by marcopolo » Fri May 29, 2020 7:18 pm

One Ping wrote:
Fri May 29, 2020 6:48 pm
marcopolo wrote:
Fri May 29, 2020 6:33 pm
One Ping wrote:
Fri May 29, 2020 6:15 pm
TheTimeLord wrote:
Fri May 29, 2020 4:38 pm
Who is recommending you completely quit playing the game? And why do some BH seem to paint a picture of people with LMP as skin of the teeth no buffer retirees? Sure you can come up with scenarios that make different types of plans fail but the way I hear LMP and "Won the game" strategies described here bear no resemblance to the implementation I hear people describe. I guess I need go to some meeting that begins "Hi, I am TheTimeLord and I love LMP, Winning The Game and Bond Tents because I am Secure Future Addict".
I agree, TimeLord. I have sort of the opposite view of a LMP from that of being a "skin of the teeth" scenario.

To me a LMP can (should?) be used if one has oversaved, or had success at investing, during the accumulation years and has far more than they might reasonably need for their chosen liabilities. In that case, why not set aside enough to cover reasonably foreseen expenses (I.e., liabilities) and then put together your risk portfolio to allow you to do more ... for family, charity, heirs, or whatever? You can design your risk portfolio for whatever risk level you feel comfortable with for money you don't expect to need. The point is you don't need it and, like any investment portfolio, you can pick a risk level you are comfortable with. 100% stock ... expect, or plan for, a 50% (or potentially larger drop) at the worst time. Don't like that much risk ... go for a 50/50 equity/fixed income split (or whatever) risk portfolio.

If you are concerned you might have to help family or friends, then that's a liability you have chosen to accept and you should consider it as such (part of your liability portfolio) when you are settting up your LMP. If assuming that liability leaves you with nothing for your risk portfolio, then you have your answer ... you haven't really "won the game," have you?
If you have enough such that you LMP in safe assets is only half you portfolio, and you put the other half (risk assets) in 100% equity, how is that really any different than a 50/50 balanced portfolio, with perhaps a rising glide path if you decide to only spend from the FI side. Just seems like mental accounting, fine if you it helps you to think about it that way, but functionally not materially different.
Basically I agree you, but so what? It appears to me you agree with me, too. You have to arrive at an asset allocation somehow, if mental accounting gives you a framework for doing that, what's the downside?
marcopolo wrote:
Fri May 29, 2020 6:33 pm
If you have that much excess money, it probably does not matter what approach you choose.
Exactly. If you don't, you haven't really "won the game."
My only point is that people sometimes seem to present LMP as some magical thing that somehow makes your retirment "safer". But, it is really just mentally shifting the same dollars around, and is not functionally any different.
Once in a while you get shown the light, in the strangest of places if you look at it right.

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

Post by One Ping » Fri May 29, 2020 7:47 pm

marcopolo wrote:
Fri May 29, 2020 7:18 pm
One Ping wrote:
Fri May 29, 2020 6:48 pm
marcopolo wrote:
Fri May 29, 2020 6:33 pm
One Ping wrote:
Fri May 29, 2020 6:15 pm
TheTimeLord wrote:
Fri May 29, 2020 4:38 pm
Who is recommending you completely quit playing the game? And why do some BH seem to paint a picture of people with LMP as skin of the teeth no buffer retirees? Sure you can come up with scenarios that make different types of plans fail but the way I hear LMP and "Won the game" strategies described here bear no resemblance to the implementation I hear people describe. I guess I need go to some meeting that begins "Hi, I am TheTimeLord and I love LMP, Winning The Game and Bond Tents because I am Secure Future Addict".
I agree, TimeLord. I have sort of the opposite view of a LMP from that of being a "skin of the teeth" scenario.

To me a LMP can (should?) be used if one has oversaved, or had success at investing, during the accumulation years and has far more than they might reasonably need for their chosen liabilities. In that case, why not set aside enough to cover reasonably foreseen expenses (I.e., liabilities) and then put together your risk portfolio to allow you to do more ... for family, charity, heirs, or whatever? You can design your risk portfolio for whatever risk level you feel comfortable with for money you don't expect to need. The point is you don't need it and, like any investment portfolio, you can pick a risk level you are comfortable with. 100% stock ... expect, or plan for, a 50% (or potentially larger drop) at the worst time. Don't like that much risk ... go for a 50/50 equity/fixed income split (or whatever) risk portfolio.

If you are concerned you might have to help family or friends, then that's a liability you have chosen to accept and you should consider it as such (part of your liability portfolio) when you are settting up your LMP. If assuming that liability leaves you with nothing for your risk portfolio, then you have your answer ... you haven't really "won the game," have you?
If you have enough such that you LMP in safe assets is only half you portfolio, and you put the other half (risk assets) in 100% equity, how is that really any different than a 50/50 balanced portfolio, with perhaps a rising glide path if you decide to only spend from the FI side. Just seems like mental accounting, fine if you it helps you to think about it that way, but functionally not materially different.
Basically I agree you, but so what? It appears to me you agree with me, too. You have to arrive at an asset allocation somehow, if mental accounting gives you a framework for doing that, what's the downside?
marcopolo wrote:
Fri May 29, 2020 6:33 pm
If you have that much excess money, it probably does not matter what approach you choose.
Exactly. If you don't, you haven't really "won the game."
My only point is that people sometimes seem to present LMP as some magical thing that somehow makes your retirment "safer". But, it is really just mentally shifting the same dollars around, and is not functionally any different.
Meh, that may be true. I don't remember seeing magic in the definition of a LMP. :sharebeer

I think a LMP could be a useful construct for those, as you might say, less sophisticated investors who cannot apriori out of whole cloth divine what asset allocation they should choose. Protect what you need (safer fixed income instruments) / Feel free to risk what you don't need (equity).

ASIDE: I have a 69 YO former colleague and friend whose Pension + SS provide almost exactly for his living + discretionary expense needs. He has no need for a regular draw from his portfolio of several million to support his day-to-day liquidity needs. His concern is that, since he is self insuring for long-term care, he needs to be sure the funding is there for that eventuality, should it come to pass. After looking at LTC costs and inflation, combined with the income streams he will still have available, he estimated he would want ~$1M (real) set aside to cover that (potential) liability. That gives him a post-retirement asset allocation of ~75% stock / 25% fixed income. Seems reasonable in his case, if you know the mental accounting of how he got there. I would bet if you told someone (especially a Boglehead) your 69 YO retired friend had a 75% stock / 25% fixed income asset allocation (with a likely rising glide path), they would think he was crazy, or at least imprudent. It ain't necessarily so ...
"Re-verify our range to target ... one ping only."

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

Post by Horton » Fri May 29, 2020 7:51 pm

marcopolo wrote:
Fri May 29, 2020 7:18 pm
My only point is that people sometimes seem to present LMP as some magical thing that somehow makes your retirment "safer". But, it is really just mentally shifting the same dollars around, and is not functionally any different.
It’s a way of deductively building an asset allocation.

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

Post by marcopolo » Fri May 29, 2020 9:05 pm

One Ping wrote:
Fri May 29, 2020 7:47 pm
marcopolo wrote:
Fri May 29, 2020 7:18 pm
One Ping wrote:
Fri May 29, 2020 6:48 pm
marcopolo wrote:
Fri May 29, 2020 6:33 pm
One Ping wrote:
Fri May 29, 2020 6:15 pm

I agree, TimeLord. I have sort of the opposite view of a LMP from that of being a "skin of the teeth" scenario.

To me a LMP can (should?) be used if one has oversaved, or had success at investing, during the accumulation years and has far more than they might reasonably need for their chosen liabilities. In that case, why not set aside enough to cover reasonably foreseen expenses (I.e., liabilities) and then put together your risk portfolio to allow you to do more ... for family, charity, heirs, or whatever? You can design your risk portfolio for whatever risk level you feel comfortable with for money you don't expect to need. The point is you don't need it and, like any investment portfolio, you can pick a risk level you are comfortable with. 100% stock ... expect, or plan for, a 50% (or potentially larger drop) at the worst time. Don't like that much risk ... go for a 50/50 equity/fixed income split (or whatever) risk portfolio.

If you are concerned you might have to help family or friends, then that's a liability you have chosen to accept and you should consider it as such (part of your liability portfolio) when you are settting up your LMP. If assuming that liability leaves you with nothing for your risk portfolio, then you have your answer ... you haven't really "won the game," have you?
If you have enough such that you LMP in safe assets is only half you portfolio, and you put the other half (risk assets) in 100% equity, how is that really any different than a 50/50 balanced portfolio, with perhaps a rising glide path if you decide to only spend from the FI side. Just seems like mental accounting, fine if you it helps you to think about it that way, but functionally not materially different.
Basically I agree you, but so what? It appears to me you agree with me, too. You have to arrive at an asset allocation somehow, if mental accounting gives you a framework for doing that, what's the downside?
marcopolo wrote:
Fri May 29, 2020 6:33 pm
If you have that much excess money, it probably does not matter what approach you choose.
Exactly. If you don't, you haven't really "won the game."
My only point is that people sometimes seem to present LMP as some magical thing that somehow makes your retirment "safer". But, it is really just mentally shifting the same dollars around, and is not functionally any different.
Meh, that may be true. I don't remember seeing magic in the definition of a LMP. :sharebeer

I think a LMP could be a useful construct for those, as you might say, less sophisticated investors who cannot apriori out of whole cloth divine what asset allocation they should choose. Protect what you need (safer fixed income instruments) / Feel free to risk what you don't need (equity).

ASIDE: I have a 69 YO former colleague and friend whose Pension + SS provide almost exactly for his living + discretionary expense needs. He has no need for a regular draw from his portfolio of several million to support his day-to-day liquidity needs. His concern is that, since he is self insuring for long-term care, he needs to be sure the funding is there for that eventuality, should it come to pass. After looking at LTC costs and inflation, combined with the income streams he will still have available, he estimated he would want ~$1M (real) set aside to cover that (potential) liability. That gives him a post-retirement asset allocation of ~75% stock / 25% fixed income. Seems reasonable in his case, if you know the mental accounting of how he got there. I would bet if you told someone (especially a Boglehead) your 69 YO retired friend had a 75% stock / 25% fixed income asset allocation (with a likely rising glide path), they would think he was crazy, or at least imprudent. It ain't necessarily so ...
I think we are pretty much in agreement here.
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Re: “WHEN YOU'VE WON the game, stop playing with the money you really need.”

Post by marcopolo » Fri May 29, 2020 9:06 pm

Horton wrote:
Fri May 29, 2020 7:51 pm
marcopolo wrote:
Fri May 29, 2020 7:18 pm
My only point is that people sometimes seem to present LMP as some magical thing that somehow makes your retirment "safer". But, it is really just mentally shifting the same dollars around, and is not functionally any different.
It’s a way of deductively building an asset allocation.
Agreed.
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Re: “WHEN YOU'VE WON the game, stop playing with the money you really need.”

Post by Dandy » Fri May 29, 2020 9:22 pm

how is that (an LMP that results in a 50/50 allocation) really any different than a 50/50 balanced portfolio,

The difference is two fold:
1. The method used to get the final allocation. e.g. not guessing what allocation seems to fit a risk tolerance. Which is an educated guess at what allocation might equate to your risk tolerance, another educated guess on what investments to use. You determine the LMP assets first and the rest follows - a bottom up vs a top down.

2. The nature of the fixed income assigned to LMP is low risk vs just selecting a decent intermediate bond fund.

When I set up my LMP assets I had:
1. about 1/3 of my total Fixed Income in no loss of principal e.g. FDIC products, money markets
2. about 1/3 of my total Fixed Income in short term bond funds all or mostly with government guarantees

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

Post by TheTimeLord » Fri May 29, 2020 9:36 pm

marcopolo wrote:
Fri May 29, 2020 6:33 pm
One Ping wrote:
Fri May 29, 2020 6:15 pm
TheTimeLord wrote:
Fri May 29, 2020 4:38 pm
Who is recommending you completely quit playing the game? And why do some BH seem to paint a picture of people with LMP as skin of the teeth no buffer retirees? Sure you can come up with scenarios that make different types of plans fail but the way I hear LMP and "Won the game" strategies described here bear no resemblance to the implementation I hear people describe. I guess I need go to some meeting that begins "Hi, I am TheTimeLord and I love LMP, Winning The Game and Bond Tents because I am Secure Future Addict".
I agree, TimeLord. I have sort of the opposite view of a LMP from that of being a "skin of the teeth" scenario.

To me a LMP can (should?) be used if one has oversaved, or had success at investing, during the accumulation years and has far more than they might reasonably need for their chosen liabilities. In that case, why not set aside enough to cover reasonably foreseen expenses (I.e., liabilities) and then put together your risk portfolio to allow you to do more ... for family, charity, heirs, or whatever? You can design your risk portfolio for whatever risk level you feel comfortable with for money you don't expect to need. The point is you don't need it and, like any investment portfolio, you can pick a risk level you are comfortable with. 100% stock ... expect, or plan for, a 50% (or potentially larger drop) at the worst time. Don't like that much risk ... go for a 50/50 equity/fixed income split (or whatever) risk portfolio.

If you are concerned you might have to help family or friends, then that's a liability you have chosen to accept and you should consider it as such (part of your liability portfolio) when you are settting up your LMP. If assuming that liability leaves you with nothing for your risk portfolio, then you have your answer ... you haven't really "won the game," have you?

If you have enough such that you LMP in safe assets is only half you portfolio, and you put the other half (risk assets) in 100% equity, how is that really any different than a 50/50 balanced portfolio, with perhaps a rising glide path if you decide to only spend from the FI side. Just seems like mental accounting, fine if you it helps you to think about it that way, but functionally not materially different.

If you have that much excess money, it probably does not matter what approach you choose.
I guess if you look at a single point in time that is true but not if you look at how it moves and evolves over time. It isn't mental accounting, it is in my opinion a more purposeful way of determining one's Fixed Income allocation.
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Re: “WHEN YOU'VE WON the game, stop playing with the money you really need.”

Post by TheTimeLord » Fri May 29, 2020 9:41 pm

marcopolo wrote:
Fri May 29, 2020 7:18 pm
One Ping wrote:
Fri May 29, 2020 6:48 pm
marcopolo wrote:
Fri May 29, 2020 6:33 pm
One Ping wrote:
Fri May 29, 2020 6:15 pm
TheTimeLord wrote:
Fri May 29, 2020 4:38 pm
Who is recommending you completely quit playing the game? And why do some BH seem to paint a picture of people with LMP as skin of the teeth no buffer retirees? Sure you can come up with scenarios that make different types of plans fail but the way I hear LMP and "Won the game" strategies described here bear no resemblance to the implementation I hear people describe. I guess I need go to some meeting that begins "Hi, I am TheTimeLord and I love LMP, Winning The Game and Bond Tents because I am Secure Future Addict".
I agree, TimeLord. I have sort of the opposite view of a LMP from that of being a "skin of the teeth" scenario.

To me a LMP can (should?) be used if one has oversaved, or had success at investing, during the accumulation years and has far more than they might reasonably need for their chosen liabilities. In that case, why not set aside enough to cover reasonably foreseen expenses (I.e., liabilities) and then put together your risk portfolio to allow you to do more ... for family, charity, heirs, or whatever? You can design your risk portfolio for whatever risk level you feel comfortable with for money you don't expect to need. The point is you don't need it and, like any investment portfolio, you can pick a risk level you are comfortable with. 100% stock ... expect, or plan for, a 50% (or potentially larger drop) at the worst time. Don't like that much risk ... go for a 50/50 equity/fixed income split (or whatever) risk portfolio.

If you are concerned you might have to help family or friends, then that's a liability you have chosen to accept and you should consider it as such (part of your liability portfolio) when you are settting up your LMP. If assuming that liability leaves you with nothing for your risk portfolio, then you have your answer ... you haven't really "won the game," have you?
If you have enough such that you LMP in safe assets is only half you portfolio, and you put the other half (risk assets) in 100% equity, how is that really any different than a 50/50 balanced portfolio, with perhaps a rising glide path if you decide to only spend from the FI side. Just seems like mental accounting, fine if you it helps you to think about it that way, but functionally not materially different.
Basically I agree you, but so what? It appears to me you agree with me, too. You have to arrive at an asset allocation somehow, if mental accounting gives you a framework for doing that, what's the downside?
marcopolo wrote:
Fri May 29, 2020 6:33 pm
If you have that much excess money, it probably does not matter what approach you choose.
Exactly. If you don't, you haven't really "won the game."
My only point is that people sometimes seem to present LMP as some magical thing that somehow makes your retirment "safer". But, it is really just mentally shifting the same dollars around, and is not functionally any different.
The difference is the fixed income allocation (and as a result the equity allocation) is selected using a purposeful calculation instead of just arbitrarily selecting a pair of percentages.
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Re: “WHEN YOU'VE WON the game, stop playing with the money you really need.”

Post by absolute zero » Sat May 30, 2020 12:12 am

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:
Not to be a downer, but there isn’t any actual evidence of Albert Einstein making that statement. The “quote” didn’t even begin to be referenced until decades after his death, and it’s never provided with any context. It’s just an internet piece of fluff that’s been circulated for years.

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

Post by absolute zero » Sat May 30, 2020 12:19 am

If you have enough money to put your remaining life spending entirely into cash/CDs/bonds and still be totally confident that you won’t outlive that money, then you worked a lot longer than you needed to.

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

Post by Harry Livermore » Sat May 30, 2020 5:27 am

absolute zero wrote:
Sat May 30, 2020 12:19 am

If you have enough money to put your remaining life spending entirely into cash/CDs/bonds and still be totally confident that you won’t outlive that money, then you worked a lot longer than you needed to.
Unless you enjoy what you do, and it's no longer about the money!
:sharebeer
I agree with the Time Lord. LMP seems like a handy way to arrive at your AA, versus just a rule of thumb. Estimating future expenses is a bit of a rabbit hole to me. Holy cow! I take a whack at it every once in a while...
Cheers

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

Post by tvubpwcisla » Sat May 30, 2020 5:46 am

absolute zero wrote:
Sat May 30, 2020 12:12 am
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:
Not to be a downer, but there isn’t any actual evidence of Albert Einstein making that statement. The “quote” didn’t even begin to be referenced until decades after his death, and it’s never provided with any context. It’s just an internet piece of fluff that’s been circulated for years.
You bring up a good point. For me; however, I am much more positive on compound interest. I love it!

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

Post by CULater » Sat May 30, 2020 5:52 am

You'll want to read some of the writings of Robert Merton on the topic of life-cycle investing. He, in fact, is a leading authority on the matter. He is an advisor to DFA, which offers some products directed at liability matching so you'll want to research their offerings and counsel in this area. You should also look into using TIPS funds to duration-match instead of using TIPS ladders. There are some logistical problems with TIPS ladders, such as how to handle the reinvestment of interest payments. I had a TIPS ladder for awhile and this drove me nuts. Duration-matching with TIPS funds seems like a better way to go. Also, try to read Boglehead threads involving Bobk or bobcat2, who is the single most knowledgeable and articulate person about LMP on the forum. I would disregard most of the "I do this" and "I do that" meanderings on many threads, since they mostly represent cocktail hour talk and not substantive information on the subject.
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Re: “WHEN YOU'VE WON the game, stop playing with the money you really need.”

Post by TomatoTomahto » Sat May 30, 2020 6:31 am

Dandy wrote:
Fri May 29, 2020 9:22 pm
how is that (an LMP that results in a 50/50 allocation) really any different than a 50/50 balanced portfolio,

The difference is two fold:
1. The method used to get the final allocation. e.g. not guessing what allocation seems to fit a risk tolerance. Which is an educated guess at what allocation might equate to your risk tolerance, another educated guess on what investments to use. You determine the LMP assets first and the rest follows - a bottom up vs a top down.

2. The nature of the fixed income assigned to LMP is low risk vs just selecting a decent intermediate bond fund.
And then there are the bozos on the bus to whom the most liberating component of a quasi-LMP is the lack of pencil sharpening involved. It seems to work just fine so far.

1. I have no idea what our future liabilities (in excess of cash flow) look like, and I’m too old to pretend. How did I select $3M? $2M seemed light and $4M seemed excessive. Extra assets offset the lack of rigor in the analysis of future liabilities, which seems a mug’s game to me. With a half dozen or more relatives who might need help, a crazy political/medical world, etc., how many decimal places should I calculate the future to? BHs always say “nobody know nothin’,” but that apparently only applies to the market, not future needs.

2. Maybe I’ll switch to a Bernstein approved TIPS fixed income portion eventually, but I’m in no rush.

Liberation is recognizing what’s enough, what’s sufficient, and that applies to analysis and precision as much as to money. It does mean that my DW has worked longer than necessary. The math says she could have retired years ago. But, she enjoys working, so why not?
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 tvubpwcisla » Sat May 30, 2020 7:09 am

I'm trying to follow this thread as best I can; however, it seems to be getting very complicated. Is there a way to dumb this down for beginner investors and simplify the strategy / recommendations. Why would you change your financial plan that got you to where you needed to go now that you achieve your numbers? Why wouldn't you keep things simple and stick to the plan that got you there?

:confused
Stay invested my friends.

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

Post by TomatoTomahto » Sat May 30, 2020 7:15 am

tvubpwcisla wrote:
Sat May 30, 2020 7:09 am
I'm trying to follow this thread as best I can; however, it seems to be getting very complicated. Is there a way to dumb this down for beginner investors and simplify the strategy / recommendations. Why would you change your financial plan that got you to where you needed to go now that you achieve your numbers? Why wouldn't you keep things simple and stick to the plan that got you there?

:confused
Nobody is saying that you can’t stick to the plan that got you there.

For some of us, having won the game means we no longer feel that we have to, and that we have the luxury of not playing by the same rules or parameters.

ETA: PS LMP, in any of the flavors, is not for beginning investors, unless you began with a few million.
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 Dandy » Sat May 30, 2020 7:35 am

Why would you change your financial plan that got you to where you needed to go now that you achieve your numbers? Why wouldn't you keep things simple and stick to the plan that got you there?
Many do. I viewed the allocation in the accumulation stage as the risk I needed to take to reach my "number" so I could retire comfortably. Once I reached that number my need for that level of risk no longer existed. In retirement I had no human capital so any significant losses couldn't be made up by contributions, company matches etc. And I was withdrawing money instead of adding to my nest egg.

Facing funding up to 30 years or more of retirement seemed daunting. What overall allocation would make sense to pretty much assure adequate funding for a long retirement? It seemed to make sense at some level to put the dollars I would probably need to fund such a retirement at very low risk. The rest, for me, is substantial so I still participate in growth, just not to the extent I did previously. Really it amounted to restructure about 2/3 of my fixed income. A nice 10 year bull market was surely beneficial. For me it gave me some rationality to my overall allocation and peace of mind.

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

Post by ball241 » Sat May 30, 2020 7:46 am

Much of this seems to depend on what rate you would need to withdrawal at in terms of portfolio size and risk tolerance. You certainly would want enough in safe short term governments/cash to meet withdrawal needs so you would not be pulling from stocks in a down market.

If the income in stock dividends and bond income was sufficient to meet spending needs with other streams pension or SS a more stock heavy allocation could make sense depending on risk tolerance. It all really depends on so many factors

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

Post by tvubpwcisla » Sat May 30, 2020 8:39 am

Dandy wrote:
Sat May 30, 2020 7:35 am
Why would you change your financial plan that got you to where you needed to go now that you achieve your numbers? Why wouldn't you keep things simple and stick to the plan that got you there?
Many do. I viewed the allocation in the accumulation stage as the risk I needed to take to reach my "number" so I could retire comfortably. Once I reached that number my need for that level of risk no longer existed. In retirement I had no human capital so any significant losses couldn't be made up by contributions, company matches etc. And I was withdrawing money instead of adding to my nest egg.

Facing funding up to 30 years or more of retirement seemed daunting. What overall allocation would make sense to pretty much assure adequate funding for a long retirement? It seemed to make sense at some level to put the dollars I would probably need to fund such a retirement at very low risk. The rest, for me, is substantial so I still participate in growth, just not to the extent I did previously. Really it amounted to restructure about 2/3 of my fixed income. A nice 10 year bull market was surely beneficial. For me it gave me some rationality to my overall allocation and peace of mind.
Would I be making an investing mistake in retirement to simply stay the course? In other words, don't change my plan, introduce, or adopt a Liability Matching Portfolio (LMP)? Are there any successful retirees without a LMP? Thanks for your feedback.

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

Post by TomatoTomahto » Sat May 30, 2020 8:52 am

tvubpwcisla wrote:
Sat May 30, 2020 8:39 am
Dandy wrote:
Sat May 30, 2020 7:35 am
Why would you change your financial plan that got you to where you needed to go now that you achieve your numbers? Why wouldn't you keep things simple and stick to the plan that got you there?
Many do. I viewed the allocation in the accumulation stage as the risk I needed to take to reach my "number" so I could retire comfortably. Once I reached that number my need for that level of risk no longer existed. In retirement I had no human capital so any significant losses couldn't be made up by contributions, company matches etc. And I was withdrawing money instead of adding to my nest egg.

Facing funding up to 30 years or more of retirement seemed daunting. What overall allocation would make sense to pretty much assure adequate funding for a long retirement? It seemed to make sense at some level to put the dollars I would probably need to fund such a retirement at very low risk. The rest, for me, is substantial so I still participate in growth, just not to the extent I did previously. Really it amounted to restructure about 2/3 of my fixed income. A nice 10 year bull market was surely beneficial. For me it gave me some rationality to my overall allocation and peace of mind.
Would I be making an investing mistake in retirement to simply stay the course? In other words, don't change my plan, introduce, or adopt a Liability Matching Portfolio (LMP)? Are there any successful retirees without a LMP? Thanks for your feedback.

:confused
I would say that the OVERWHELMING majority of successful retirees don’t have an LMP (nor probably have ever considered having one).
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 TheTimeLord » Sat May 30, 2020 9:11 am

tvubpwcisla wrote:
Sat May 30, 2020 7:09 am
I'm trying to follow this thread as best I can; however, it seems to be getting very complicated. Is there a way to dumb this down for beginner investors and simplify the strategy / recommendations. Why would you change your financial plan that got you to where you needed to go now that you achieve your numbers? Why wouldn't you keep things simple and stick to the plan that got you there?

:confused
Speaking in huge generalities, most consider the plan that got them there during their working years when they had time to recover from setbacks to be too risky for their retirement years, depending upon the age they retire, and adjust their AAs downward. So one way or another most won't end up sticking strictly to the plan that got them there. But what hopefully changes for people over their investing lives is that their portfolio grows and changes both their need and ability to take risk thus giving them options. For me the light bulb (incandescent) came on in early 2018 after a pullback and recovery when I looked at my portfolio balances and realized I had enough so why do I want to stress during a pullback in hopes of making incremental dollars I am very likely never to need. That is when I decided understanding the dollar amount of safe fixed income I needed to SWAN through virtually any market was going to be key in the remainder of my investing life.
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Re: “WHEN YOU'VE WON the game, stop playing with the money you really need.”

Post by TheTimeLord » Sat May 30, 2020 9:17 am

TomatoTomahto wrote:
Sat May 30, 2020 7:15 am
Nobody is saying that you can’t stick to the plan that got you there.

For some of us, having won the game means we no longer feel that we have to, and that we have the luxury of not playing by the same rules or parameters.

ETA: PS LMP, in any of the flavors, is not for beginning investors, unless you began with a few million.
Exactly, this is what gets missed in these discussion especially when people want to insist portfolio size doesn't matter. And considering we just exited a 10 year bull market there are a lot of people with this option. After all the market was up 31% in 2019 that alone should have turbo charged a lot of near retirees portfolios?
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Re: “WHEN YOU'VE WON the game, stop playing with the money you really need.”

Post by TheTimeLord » Sat May 30, 2020 9:23 am

tvubpwcisla wrote:
Sat May 30, 2020 8:39 am
Dandy wrote:
Sat May 30, 2020 7:35 am
Why would you change your financial plan that got you to where you needed to go now that you achieve your numbers? Why wouldn't you keep things simple and stick to the plan that got you there?
Many do. I viewed the allocation in the accumulation stage as the risk I needed to take to reach my "number" so I could retire comfortably. Once I reached that number my need for that level of risk no longer existed. In retirement I had no human capital so any significant losses couldn't be made up by contributions, company matches etc. And I was withdrawing money instead of adding to my nest egg.

Facing funding up to 30 years or more of retirement seemed daunting. What overall allocation would make sense to pretty much assure adequate funding for a long retirement? It seemed to make sense at some level to put the dollars I would probably need to fund such a retirement at very low risk. The rest, for me, is substantial so I still participate in growth, just not to the extent I did previously. Really it amounted to restructure about 2/3 of my fixed income. A nice 10 year bull market was surely beneficial. For me it gave me some rationality to my overall allocation and peace of mind.
Would I be making an investing mistake in retirement to simply stay the course? In other words, don't change my plan, introduce, or adopt a Liability Matching Portfolio (LMP)? Are there any successful retirees without a LMP? Thanks for your feedback.

:confused
Probably more without than with, if I was to hazard a guess. Although there are closet LMP folks who do it through matching basic expenses to SS.
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Re: “WHEN YOU'VE WON the game, stop playing with the money you really need.”

Post by tvubpwcisla » Sat May 30, 2020 9:28 am

TheTimeLord wrote:
Sat May 30, 2020 9:23 am
tvubpwcisla wrote:
Sat May 30, 2020 8:39 am
Dandy wrote:
Sat May 30, 2020 7:35 am
Why would you change your financial plan that got you to where you needed to go now that you achieve your numbers? Why wouldn't you keep things simple and stick to the plan that got you there?
Many do. I viewed the allocation in the accumulation stage as the risk I needed to take to reach my "number" so I could retire comfortably. Once I reached that number my need for that level of risk no longer existed. In retirement I had no human capital so any significant losses couldn't be made up by contributions, company matches etc. And I was withdrawing money instead of adding to my nest egg.

Facing funding up to 30 years or more of retirement seemed daunting. What overall allocation would make sense to pretty much assure adequate funding for a long retirement? It seemed to make sense at some level to put the dollars I would probably need to fund such a retirement at very low risk. The rest, for me, is substantial so I still participate in growth, just not to the extent I did previously. Really it amounted to restructure about 2/3 of my fixed income. A nice 10 year bull market was surely beneficial. For me it gave me some rationality to my overall allocation and peace of mind.
Would I be making an investing mistake in retirement to simply stay the course? In other words, don't change my plan, introduce, or adopt a Liability Matching Portfolio (LMP)? Are there any successful retirees without a LMP? Thanks for your feedback.

:confused
Probably more without than with, if I was to hazard a guess. Although there are closet LMP folks who do it through matching basic expenses to SS.
This is a good learning thread. Thanks for passing along all this information. I think it will help a lot of investors.
Stay invested my friends.

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

Post by randomguy » Sat May 30, 2020 9:52 am

TheTimeLord wrote:
Fri May 29, 2020 9:41 pm


The difference is the fixed income allocation (and as a result the equity allocation) is selected using a purposeful calculation instead of just arbitrarily selecting a pair of percentages.
And what do you do when that calculation puts out numbers that make zero sense? Does telling a 65 year old with 25x expenses to fo 0/100 and plan dying by 100 sound like a plan anyone should follow?

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

Post by tvubpwcisla » Sat May 30, 2020 10:05 am

randomguy wrote:
Sat May 30, 2020 9:52 am
TheTimeLord wrote:
Fri May 29, 2020 9:41 pm


The difference is the fixed income allocation (and as a result the equity allocation) is selected using a purposeful calculation instead of just arbitrarily selecting a pair of percentages.
And what do you do when that calculation puts out numbers that make zero sense? Does telling a 65 year old with 25x expenses to fo 0/100 and plan dying by 100 sound like a plan anyone should follow?
That investor would run out of money right? You have to keep at least some equity exposure?
Stay invested my friends.

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

Post by sean.mcgrath » Sat May 30, 2020 10:17 am

CyclingDuo wrote:
Wed May 27, 2020 11:08 am

You can see somewhat how spending (daily spend) changes based on age...
I find it difficult to get my head around your charts. Assuming two adults in a household (understood not always true, but just to get a picture), this implies that the average Older Gen X household is spending almost $150k per year. The overall median personal income is a bit over $30k, so about $85 per day pre-tax. Is this a difference between average and median? If so, median would be much better to use.

Another site has Older Gen X with an average income a bit over $70k, with median around $50k. So ~$190 vs. ~$135 per day.

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

Post by TheTimeLord » Sat May 30, 2020 10:25 am

randomguy wrote:
Sat May 30, 2020 9:52 am
TheTimeLord wrote:
Fri May 29, 2020 9:41 pm


The difference is the fixed income allocation (and as a result the equity allocation) is selected using a purposeful calculation instead of just arbitrarily selecting a pair of percentages.
And what do you do when that calculation puts out numbers that make zero sense? Does telling a 65 year old with 25x expenses to fo 0/100 and plan dying by 100 sound like a plan anyone should follow?
I guess I would say 2 things. First as I remember Bernstein's advice it was 20x-25x so if you are someone who needs to be very literal I would say you would be looking at 20/80 for someone with 25x if you believe they have won the game. Second, to me at least, someone at 25x has not won the game so they need to keep playing given that 25x has a 95% success rate for a 30 year retirement even with equity exposure. So in my opinion a 65 year-old with 25x still has a need to take at least some risk so they could not or should not dedicate 100% of their portfolio to safe fixed income. But that is just my opinion, not some hard and fast rule or truth.

I will also point out that 25x is usually recommended for a 30 year retirement and you have specified a 35 year retirement in your example.
IMHO, Investing should be about living the life you want, not avoiding the life you fear. | Run, You Clever Boy! [9085]

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

Post by Dandy » Sat May 30, 2020 10:54 am

Thinking you know how much you need for the next three decades is a prime example of the end of history illusion.
retirement can last for 3 decades or more and there are surely going to be unexpected expenses that will occur. LMP isn't made to cover all possible expenses. If you have enough you can set aside a LMP to cover what you know are going to be expense needs. e.g. If your normal expenses are 80k and you only have SS income of 50k you know you are likely to need at least 30k per year. You could set aside 30k X 20 yrs or $600k in an LMP. The rest of your assets in your "risk" portfolio is there to cover the unknown. As Dr. Bernstein says the excess of LMP can be invested anyway you want --even 100% equities.

If, after setting up an LMP for known expenses, you feel the excess assets in your "risk" portfolio is too small -- then you don't have enough. LMP isn't for everyone.

Also, having an LMP doesn't mean you have to maintain it if circumstances change e.g. a family member needs financial help. I worry about my two adult children maintaining their jobs/house/retirement also. I don't feel my LMP assets are a problem. In fact, having it made us comfortable gifting them some "early inheritance" money each year - as long as that makes sense given our assets.

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

Post by EnjoyIt » Sat May 30, 2020 10:56 am

TheTimeLord wrote:
Sat May 30, 2020 9:23 am
tvubpwcisla wrote:
Sat May 30, 2020 8:39 am
Dandy wrote:
Sat May 30, 2020 7:35 am
Why would you change your financial plan that got you to where you needed to go now that you achieve your numbers? Why wouldn't you keep things simple and stick to the plan that got you there?
Many do. I viewed the allocation in the accumulation stage as the risk I needed to take to reach my "number" so I could retire comfortably. Once I reached that number my need for that level of risk no longer existed. In retirement I had no human capital so any significant losses couldn't be made up by contributions, company matches etc. And I was withdrawing money instead of adding to my nest egg.

Facing funding up to 30 years or more of retirement seemed daunting. What overall allocation would make sense to pretty much assure adequate funding for a long retirement? It seemed to make sense at some level to put the dollars I would probably need to fund such a retirement at very low risk. The rest, for me, is substantial so I still participate in growth, just not to the extent I did previously. Really it amounted to restructure about 2/3 of my fixed income. A nice 10 year bull market was surely beneficial. For me it gave me some rationality to my overall allocation and peace of mind.
Would I be making an investing mistake in retirement to simply stay the course? In other words, don't change my plan, introduce, or adopt a Liability Matching Portfolio (LMP)? Are there any successful retirees without a LMP? Thanks for your feedback.

:confused
Probably more without than with, if I was to hazard a guess. Although there are closet LMP folks who do it through matching basic expenses to SS.
This right here. ^^^^
Most people who retire find that SS covers most if not all their needs. If they were to do a LMP they should be 100% equities since SS is all they "need." I know with us, SS will cover 100% of our needs and a little bit of fun. Thing is we will retire well before collecting SS so we need to decide on how to manage our portfolio between retirement and SS. My parents retired and started collecting SS immediately. Their SS covers 100% of their needs and much of their fun. Their portfolio is still 60/40 which turns out to be pretty good considering they just lived through this recent bear market without may sleepless nights.

With the above in mind, people should have SS and then thee rest is 100% equities if they were to follow a LMP. This is probably not a good idea for most retirees.
A time to EVALUATE your jitters. | https://www.bogleheads.org/forum/viewtopic.php?f=10&t=79939&start=400#p5275418

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Taylor Larimore
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My experience with "When You Have Won The Game."

Post by Taylor Larimore » Sat May 30, 2020 11:10 am

William Bernstein is fond of saying “WHEN YOU'VE WON the game, stop playing with the money you really need.”
Bogleheads:

I can attest to the truth of this statement from actual experience:

The Florida Keys are filled with small tourist businesses. These were often started by retirees who sold their houses in Northern cities and used the money to move to the Keys and start a small business catering to tourists--expecting to use the profits for living expenses.

in 1950 Hurricane Donna struck the Keys and destroyed hundreds of tourist oriented small-businesses. Many received SBA disaster loans with long repayment terms.

In 1963 my first SBA assignment was to try and collect our many delinquent SBA loans in the Florida Keys. I soon learned that many of these delinquent borrowers were "snowbirds" who had sold their homes in northern cities and moved to the Florida Keys where they had once visited. With lots of money from the sale of their homes, many invested their life savings in small-businesses in the Keys. Insurance, if available, was expensive and many new business-owners did not buy it. Even if they did buy it, many inexperienced now business operators with our SBA loans were unprofitable and eventually closed their doors in bankruptcy. Hurricane Donna and poor management wiped them out.

Lesson learned: "When you've won the game, stop playing."

Best wishes.
Taylor
Jack Bogle's Words of Wisdom: "We can never be certain how our world will look tomorrow, and we know far less about how it will look a decade hence. But with intelligent asset allocation and sensible investment choices, we can be prepared for the inevitable bumps along the road, and should glide right through them."
"Simplicity is the master key to financial success." -- Jack Bogle

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

Post by Pinotage » Sat May 30, 2020 11:13 am

I think it would be good for me to do a slow read of this thread, and linked resources. A really slow read.

Even a causal skim of this discussion has prompted lots of Deep Thoughts.

Thoughts along the lines of:

- what are the true objectives of investing?
- how to gauge when you’ve achieved the above?
- then what?

The strategy so far has mostly been head down, eliminate debt, power save, invest as much as possible.

In a sense *not* considering the questions above makes the head-down approach easier.

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

Post by TheTimeLord » Sat May 30, 2020 11:16 am

EnjoyIt wrote:
Sat May 30, 2020 10:56 am
TheTimeLord wrote:
Sat May 30, 2020 9:23 am
tvubpwcisla wrote:
Sat May 30, 2020 8:39 am
Dandy wrote:
Sat May 30, 2020 7:35 am
Why would you change your financial plan that got you to where you needed to go now that you achieve your numbers? Why wouldn't you keep things simple and stick to the plan that got you there?
Many do. I viewed the allocation in the accumulation stage as the risk I needed to take to reach my "number" so I could retire comfortably. Once I reached that number my need for that level of risk no longer existed. In retirement I had no human capital so any significant losses couldn't be made up by contributions, company matches etc. And I was withdrawing money instead of adding to my nest egg.

Facing funding up to 30 years or more of retirement seemed daunting. What overall allocation would make sense to pretty much assure adequate funding for a long retirement? It seemed to make sense at some level to put the dollars I would probably need to fund such a retirement at very low risk. The rest, for me, is substantial so I still participate in growth, just not to the extent I did previously. Really it amounted to restructure about 2/3 of my fixed income. A nice 10 year bull market was surely beneficial. For me it gave me some rationality to my overall allocation and peace of mind.
Would I be making an investing mistake in retirement to simply stay the course? In other words, don't change my plan, introduce, or adopt a Liability Matching Portfolio (LMP)? Are there any successful retirees without a LMP? Thanks for your feedback.

:confused
Probably more without than with, if I was to hazard a guess. Although there are closet LMP folks who do it through matching basic expenses to SS.
This right here. ^^^^
Most people who retire find that SS covers most if not all their needs. If they were to do a LMP they should be 100% equities since SS is all they "need." I know with us, SS will cover 100% of our needs and a little bit of fun. Thing is we will retire well before collecting SS so we need to decide on how to manage our portfolio between retirement and SS. My parents retired and started collecting SS immediately. Their SS covers 100% of their needs and much of their fun. Their portfolio is still 60/40 which turns out to be pretty good considering they just lived through this recent bear market without may sleepless nights.

With the above in mind, people should have SS and then thee rest is 100% equities if they were to follow a LMP. This is probably not a good idea for most retirees.
I understand your point but the thought is a LMP establishes the floor dollar amount for your safe fixed income and then you can then invest the rest in whatever way you wish. I don't think there is a "right" answer here, just an approach that works for some.
IMHO, Investing should be about living the life you want, not avoiding the life you fear. | Run, You Clever Boy! [9085]

EnjoyIt
Posts: 4183
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Re: “WHEN YOU'VE WON the game, stop playing with the money you really need.”

Post by EnjoyIt » Sat May 30, 2020 11:31 am

TheTimeLord wrote:
Sat May 30, 2020 11:16 am
EnjoyIt wrote:
Sat May 30, 2020 10:56 am
TheTimeLord wrote:
Sat May 30, 2020 9:23 am
tvubpwcisla wrote:
Sat May 30, 2020 8:39 am
Dandy wrote:
Sat May 30, 2020 7:35 am


Many do. I viewed the allocation in the accumulation stage as the risk I needed to take to reach my "number" so I could retire comfortably. Once I reached that number my need for that level of risk no longer existed. In retirement I had no human capital so any significant losses couldn't be made up by contributions, company matches etc. And I was withdrawing money instead of adding to my nest egg.

Facing funding up to 30 years or more of retirement seemed daunting. What overall allocation would make sense to pretty much assure adequate funding for a long retirement? It seemed to make sense at some level to put the dollars I would probably need to fund such a retirement at very low risk. The rest, for me, is substantial so I still participate in growth, just not to the extent I did previously. Really it amounted to restructure about 2/3 of my fixed income. A nice 10 year bull market was surely beneficial. For me it gave me some rationality to my overall allocation and peace of mind.
Would I be making an investing mistake in retirement to simply stay the course? In other words, don't change my plan, introduce, or adopt a Liability Matching Portfolio (LMP)? Are there any successful retirees without a LMP? Thanks for your feedback.

:confused
Probably more without than with, if I was to hazard a guess. Although there are closet LMP folks who do it through matching basic expenses to SS.
This right here. ^^^^
Most people who retire find that SS covers most if not all their needs. If they were to do a LMP they should be 100% equities since SS is all they "need." I know with us, SS will cover 100% of our needs and a little bit of fun. Thing is we will retire well before collecting SS so we need to decide on how to manage our portfolio between retirement and SS. My parents retired and started collecting SS immediately. Their SS covers 100% of their needs and much of their fun. Their portfolio is still 60/40 which turns out to be pretty good considering they just lived through this recent bear market without may sleepless nights.

With the above in mind, people should have SS and then thee rest is 100% equities if they were to follow a LMP. This is probably not a good idea for most retirees.
I understand your point but the thought is a LMP establishes the floor dollar amount for your safe fixed income and then you can then invest the rest in whatever way you wish. I don't think there is a "right" answer here, just an approach that works for some.
Definitely no right answer as we all say, personal finance is personal. Everyone's risk tolerance is different. I think something we can all agree on is that very few retirees should be going into retirement at 100% equities. This should be reserved to those who truly understand what they are doing, why they are doing it and with a full understanding of their risk tolerance.

LMP is really no different than understanding one's risk and creating an AA that matches that risk. We like to say "money is fungible." If that is the case, buckets are really to help people understand their risk tolerance better. Some need them or want them, others do not.
A time to EVALUATE your jitters. | https://www.bogleheads.org/forum/viewtopic.php?f=10&t=79939&start=400#p5275418

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

Post by TheTimeLord » Sat May 30, 2020 11:41 am

tvubpwcisla wrote:
Sat May 30, 2020 9:28 am
TheTimeLord wrote:
Sat May 30, 2020 9:23 am
tvubpwcisla wrote:
Sat May 30, 2020 8:39 am
Dandy wrote:
Sat May 30, 2020 7:35 am
Why would you change your financial plan that got you to where you needed to go now that you achieve your numbers? Why wouldn't you keep things simple and stick to the plan that got you there?
Many do. I viewed the allocation in the accumulation stage as the risk I needed to take to reach my "number" so I could retire comfortably. Once I reached that number my need for that level of risk no longer existed. In retirement I had no human capital so any significant losses couldn't be made up by contributions, company matches etc. And I was withdrawing money instead of adding to my nest egg.

Facing funding up to 30 years or more of retirement seemed daunting. What overall allocation would make sense to pretty much assure adequate funding for a long retirement? It seemed to make sense at some level to put the dollars I would probably need to fund such a retirement at very low risk. The rest, for me, is substantial so I still participate in growth, just not to the extent I did previously. Really it amounted to restructure about 2/3 of my fixed income. A nice 10 year bull market was surely beneficial. For me it gave me some rationality to my overall allocation and peace of mind.
Would I be making an investing mistake in retirement to simply stay the course? In other words, don't change my plan, introduce, or adopt a Liability Matching Portfolio (LMP)? Are there any successful retirees without a LMP? Thanks for your feedback.

:confused
Probably more without than with, if I was to hazard a guess. Although there are closet LMP folks who do it through matching basic expenses to SS.
This is a good learning thread. Thanks for passing along all this information. I think it will help a lot of investors.
Tvubpwcisla, here are some numbers that might interest you.

Using my current implementation of Bernstein's "Won The Game" my AA is targeted to be X/Y, but if my portfolio stays at the exact same value it is today at full retirement age my targeted AA would be X+31/Y-31.
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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tvubpwcisla
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Re: “WHEN YOU'VE WON the game, stop playing with the money you really need.”

Post by tvubpwcisla » Sat May 30, 2020 11:44 am

EnjoyIt wrote:
Sat May 30, 2020 11:31 am
TheTimeLord wrote:
Sat May 30, 2020 11:16 am
EnjoyIt wrote:
Sat May 30, 2020 10:56 am
TheTimeLord wrote:
Sat May 30, 2020 9:23 am
tvubpwcisla wrote:
Sat May 30, 2020 8:39 am


Would I be making an investing mistake in retirement to simply stay the course? In other words, don't change my plan, introduce, or adopt a Liability Matching Portfolio (LMP)? Are there any successful retirees without a LMP? Thanks for your feedback.

:confused
Probably more without than with, if I was to hazard a guess. Although there are closet LMP folks who do it through matching basic expenses to SS.
This right here. ^^^^
Most people who retire find that SS covers most if not all their needs. If they were to do a LMP they should be 100% equities since SS is all they "need." I know with us, SS will cover 100% of our needs and a little bit of fun. Thing is we will retire well before collecting SS so we need to decide on how to manage our portfolio between retirement and SS. My parents retired and started collecting SS immediately. Their SS covers 100% of their needs and much of their fun. Their portfolio is still 60/40 which turns out to be pretty good considering they just lived through this recent bear market without may sleepless nights.

With the above in mind, people should have SS and then thee rest is 100% equities if they were to follow a LMP. This is probably not a good idea for most retirees.
I understand your point but the thought is a LMP establishes the floor dollar amount for your safe fixed income and then you can then invest the rest in whatever way you wish. I don't think there is a "right" answer here, just an approach that works for some.
Definitely no right answer as we all say, personal finance is personal. Everyone's risk tolerance is different. I think something we can all agree on is that very few retirees should be going into retirement at 100% equities. This should be reserved to those who truly understand what they are doing, why they are doing it and with a full understanding of their risk tolerance.

LMP is really no different than understanding one's risk and creating an AA that matches that risk. We like to say "money is fungible." If that is the case, buckets are really to help people understand their risk tolerance better. Some need them or want them, others do not.
If an investor does go into retirement with a 100% equity portfolio are they for sure going to fail or is a chance they could be successful? My second question would be, what is the most amount of equities a retiree should hold? Thank you.
Stay invested my friends.

EnjoyIt
Posts: 4183
Joined: Sun Dec 29, 2013 8:06 pm

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

Post by EnjoyIt » Sat May 30, 2020 11:52 am

tvubpwcisla wrote:
Sat May 30, 2020 11:44 am
EnjoyIt wrote:
Sat May 30, 2020 11:31 am
TheTimeLord wrote:
Sat May 30, 2020 11:16 am
EnjoyIt wrote:
Sat May 30, 2020 10:56 am
TheTimeLord wrote:
Sat May 30, 2020 9:23 am


Probably more without than with, if I was to hazard a guess. Although there are closet LMP folks who do it through matching basic expenses to SS.
This right here. ^^^^
Most people who retire find that SS covers most if not all their needs. If they were to do a LMP they should be 100% equities since SS is all they "need." I know with us, SS will cover 100% of our needs and a little bit of fun. Thing is we will retire well before collecting SS so we need to decide on how to manage our portfolio between retirement and SS. My parents retired and started collecting SS immediately. Their SS covers 100% of their needs and much of their fun. Their portfolio is still 60/40 which turns out to be pretty good considering they just lived through this recent bear market without may sleepless nights.

With the above in mind, people should have SS and then thee rest is 100% equities if they were to follow a LMP. This is probably not a good idea for most retirees.
I understand your point but the thought is a LMP establishes the floor dollar amount for your safe fixed income and then you can then invest the rest in whatever way you wish. I don't think there is a "right" answer here, just an approach that works for some.
Definitely no right answer as we all say, personal finance is personal. Everyone's risk tolerance is different. I think something we can all agree on is that very few retirees should be going into retirement at 100% equities. This should be reserved to those who truly understand what they are doing, why they are doing it and with a full understanding of their risk tolerance.

LMP is really no different than understanding one's risk and creating an AA that matches that risk. We like to say "money is fungible." If that is the case, buckets are really to help people understand their risk tolerance better. Some need them or want them, others do not.
If an investor does go into retirement with a 100% equity portfolio are they for sure going to fail or is a chance they could be successful? My second question would be, what is the most amount of equities a retiree should hold? Thank you.
Actually, going in 100% equities gives the highest percentage of success according to historical data. the problem lies when markets crash and don't recover quickly enough or markets crash and the investor panics which is why having "safe" assets are so valuable. As for your second question, what is the most amount of equities one should have in retirement? That is very personal question and can only be answered by the investor. My plan is 60% equities in early retirement with an adjustment to 70% once SS kicks in. There are members of this forum who have retired with 100% equities and I have seen members retiring with 20% equities. Unfortunately when the time comes you will need to make that decision for yourself. When in doubt you can hedge your bets and just go 50/50 and see how things go for a few years. You can always re-adjust in the future.

From my 100 foot view 40/60 - 60/40 appear to be a very common range around these parts.
A time to EVALUATE your jitters. | https://www.bogleheads.org/forum/viewtopic.php?f=10&t=79939&start=400#p5275418

User avatar
tvubpwcisla
Posts: 514
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Re: “WHEN YOU'VE WON the game, stop playing with the money you really need.”

Post by tvubpwcisla » Sat May 30, 2020 12:01 pm

EnjoyIt wrote:
Sat May 30, 2020 11:52 am
tvubpwcisla wrote:
Sat May 30, 2020 11:44 am
EnjoyIt wrote:
Sat May 30, 2020 11:31 am
TheTimeLord wrote:
Sat May 30, 2020 11:16 am
EnjoyIt wrote:
Sat May 30, 2020 10:56 am


This right here. ^^^^
Most people who retire find that SS covers most if not all their needs. If they were to do a LMP they should be 100% equities since SS is all they "need." I know with us, SS will cover 100% of our needs and a little bit of fun. Thing is we will retire well before collecting SS so we need to decide on how to manage our portfolio between retirement and SS. My parents retired and started collecting SS immediately. Their SS covers 100% of their needs and much of their fun. Their portfolio is still 60/40 which turns out to be pretty good considering they just lived through this recent bear market without may sleepless nights.

With the above in mind, people should have SS and then thee rest is 100% equities if they were to follow a LMP. This is probably not a good idea for most retirees.
I understand your point but the thought is a LMP establishes the floor dollar amount for your safe fixed income and then you can then invest the rest in whatever way you wish. I don't think there is a "right" answer here, just an approach that works for some.
Definitely no right answer as we all say, personal finance is personal. Everyone's risk tolerance is different. I think something we can all agree on is that very few retirees should be going into retirement at 100% equities. This should be reserved to those who truly understand what they are doing, why they are doing it and with a full understanding of their risk tolerance.

LMP is really no different than understanding one's risk and creating an AA that matches that risk. We like to say "money is fungible." If that is the case, buckets are really to help people understand their risk tolerance better. Some need them or want them, others do not.
If an investor does go into retirement with a 100% equity portfolio are they for sure going to fail or is a chance they could be successful? My second question would be, what is the most amount of equities a retiree should hold? Thank you.
Actually, going in 100% equities gives the highest percentage of success according to historical data. the problem lies when markets crash and don't recover quickly enough or markets crash and the investor panics which is why having "safe" assets are so valuable. As for your second question, what is the most amount of equities one should have in retirement? That is very personal question and can only be answered by the investor. My plan is 60% equities in early retirement with an adjustment to 70% once SS kicks in. There are members of this forum who have retired with 100% equities and I have seen members retiring with 20% equities. Unfortunately when the time comes you will need to make that decision for yourself. When in doubt you can hedge your bets and just go 50/50 and see how things go for a few years. You can always re-adjust in the future.

From my 100 foot view 40/60 - 60/40 appear to be a very common range around these parts.
Thanks! Those percentages sound very reasonable. I also like how you are going to increase your equity percentage once your SS kicks in.

:sharebeer
Stay invested my friends.

marcopolo
Posts: 3067
Joined: Sat Dec 03, 2016 10:22 am

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

Post by marcopolo » Sat May 30, 2020 12:02 pm

TheTimeLord wrote:
Fri May 29, 2020 9:41 pm
marcopolo wrote:
Fri May 29, 2020 7:18 pm
One Ping wrote:
Fri May 29, 2020 6:48 pm
marcopolo wrote:
Fri May 29, 2020 6:33 pm
One Ping wrote:
Fri May 29, 2020 6:15 pm

I agree, TimeLord. I have sort of the opposite view of a LMP from that of being a "skin of the teeth" scenario.

To me a LMP can (should?) be used if one has oversaved, or had success at investing, during the accumulation years and has far more than they might reasonably need for their chosen liabilities. In that case, why not set aside enough to cover reasonably foreseen expenses (I.e., liabilities) and then put together your risk portfolio to allow you to do more ... for family, charity, heirs, or whatever? You can design your risk portfolio for whatever risk level you feel comfortable with for money you don't expect to need. The point is you don't need it and, like any investment portfolio, you can pick a risk level you are comfortable with. 100% stock ... expect, or plan for, a 50% (or potentially larger drop) at the worst time. Don't like that much risk ... go for a 50/50 equity/fixed income split (or whatever) risk portfolio.

If you are concerned you might have to help family or friends, then that's a liability you have chosen to accept and you should consider it as such (part of your liability portfolio) when you are settting up your LMP. If assuming that liability leaves you with nothing for your risk portfolio, then you have your answer ... you haven't really "won the game," have you?
If you have enough such that you LMP in safe assets is only half you portfolio, and you put the other half (risk assets) in 100% equity, how is that really any different than a 50/50 balanced portfolio, with perhaps a rising glide path if you decide to only spend from the FI side. Just seems like mental accounting, fine if you it helps you to think about it that way, but functionally not materially different.
Basically I agree you, but so what? It appears to me you agree with me, too. You have to arrive at an asset allocation somehow, if mental accounting gives you a framework for doing that, what's the downside?
marcopolo wrote:
Fri May 29, 2020 6:33 pm
If you have that much excess money, it probably does not matter what approach you choose.
Exactly. If you don't, you haven't really "won the game."
My only point is that people sometimes seem to present LMP as some magical thing that somehow makes your retirment "safer". But, it is really just mentally shifting the same dollars around, and is not functionally any different.
The difference is the fixed income allocation (and as a result the equity allocation) is selected using a purposeful calculation instead of just arbitrarily selecting a pair of percentages.
That seems a bit cavalier, I would think people give a little more thought to selecting their percentages.

It's not like LMP does not require guess work as well, like how long you plan to live.

Bernstein says 20-25 years in safe assets, that doesn't sound arbitrary to you?

I have no beef against LMP, I just don't see it as some panacea some make it out to be. It is recommended when you have way more than you need. In that case pretty much any approach works.
Once in a while you get shown the light, in the strangest of places if you look at it right.

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TheTimeLord
Posts: 7752
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Re: “WHEN YOU'VE WON the game, stop playing with the money you really need.”

Post by TheTimeLord » Sat May 30, 2020 12:20 pm

marcopolo wrote:
Sat May 30, 2020 12:02 pm
TheTimeLord wrote:
Fri May 29, 2020 9:41 pm
marcopolo wrote:
Fri May 29, 2020 7:18 pm
One Ping wrote:
Fri May 29, 2020 6:48 pm
marcopolo wrote:
Fri May 29, 2020 6:33 pm

If you have enough such that you LMP in safe assets is only half you portfolio, and you put the other half (risk assets) in 100% equity, how is that really any different than a 50/50 balanced portfolio, with perhaps a rising glide path if you decide to only spend from the FI side. Just seems like mental accounting, fine if you it helps you to think about it that way, but functionally not materially different.
Basically I agree you, but so what? It appears to me you agree with me, too. You have to arrive at an asset allocation somehow, if mental accounting gives you a framework for doing that, what's the downside?
marcopolo wrote:
Fri May 29, 2020 6:33 pm
If you have that much excess money, it probably does not matter what approach you choose.
Exactly. If you don't, you haven't really "won the game."
My only point is that people sometimes seem to present LMP as some magical thing that somehow makes your retirment "safer". But, it is really just mentally shifting the same dollars around, and is not functionally any different.
The difference is the fixed income allocation (and as a result the equity allocation) is selected using a purposeful calculation instead of just arbitrarily selecting a pair of percentages.
That seems a bit cavalier, I would think people give a little more thought to selecting their percentages.

It's not like LMP does not require guess work as well, like how long you plan to live.

Bernstein says 20-25 years in safe assets, that doesn't sound arbitrary to you?

I have no beef against LMP, I just don't see it as some panacea some make it out to be. It is recommended when you have way more than you need. In that case pretty much any approach works.
I usually hear risk tolerance as the driver for selecting and a percentage based AA which is too esoteric and hard to determine for me, plus not tied to anything financial. I like to use something that at least gives me the illusion of being related to what I am trying to accomplish. Yes, 20x-25x is arbitrary as is the standard 30 years many use to justify retiring with 25x, especially considering I believe the average retirement lasts 16 years.
IMHO, Investing should be about living the life you want, not avoiding the life you fear. | Run, You Clever Boy! [9085]

smitcat
Posts: 5901
Joined: Mon Nov 07, 2016 10:51 am

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

Post by smitcat » Sat May 30, 2020 12:30 pm

TheTimeLord wrote:
Fri May 29, 2020 9:41 pm
marcopolo wrote:
Fri May 29, 2020 7:18 pm
One Ping wrote:
Fri May 29, 2020 6:48 pm
marcopolo wrote:
Fri May 29, 2020 6:33 pm
One Ping wrote:
Fri May 29, 2020 6:15 pm

I agree, TimeLord. I have sort of the opposite view of a LMP from that of being a "skin of the teeth" scenario.

To me a LMP can (should?) be used if one has oversaved, or had success at investing, during the accumulation years and has far more than they might reasonably need for their chosen liabilities. In that case, why not set aside enough to cover reasonably foreseen expenses (I.e., liabilities) and then put together your risk portfolio to allow you to do more ... for family, charity, heirs, or whatever? You can design your risk portfolio for whatever risk level you feel comfortable with for money you don't expect to need. The point is you don't need it and, like any investment portfolio, you can pick a risk level you are comfortable with. 100% stock ... expect, or plan for, a 50% (or potentially larger drop) at the worst time. Don't like that much risk ... go for a 50/50 equity/fixed income split (or whatever) risk portfolio.

If you are concerned you might have to help family or friends, then that's a liability you have chosen to accept and you should consider it as such (part of your liability portfolio) when you are settting up your LMP. If assuming that liability leaves you with nothing for your risk portfolio, then you have your answer ... you haven't really "won the game," have you?
If you have enough such that you LMP in safe assets is only half you portfolio, and you put the other half (risk assets) in 100% equity, how is that really any different than a 50/50 balanced portfolio, with perhaps a rising glide path if you decide to only spend from the FI side. Just seems like mental accounting, fine if you it helps you to think about it that way, but functionally not materially different.
Basically I agree you, but so what? It appears to me you agree with me, too. You have to arrive at an asset allocation somehow, if mental accounting gives you a framework for doing that, what's the downside?
marcopolo wrote:
Fri May 29, 2020 6:33 pm
If you have that much excess money, it probably does not matter what approach you choose.
Exactly. If you don't, you haven't really "won the game."
My only point is that people sometimes seem to present LMP as some magical thing that somehow makes your retirment "safer". But, it is really just mentally shifting the same dollars around, and is not functionally any different.
The difference is the fixed income allocation (and as a result the equity allocation) is selected using a purposeful calculation instead of just arbitrarily selecting a pair of percentages.
"The difference is the fixed income allocation (and as a result the equity allocation) is selected using a purposeful calculation instead of just arbitrarily selecting a pair of percentages."
Agreed - over time we have adopted the same view and are very comfortable with this approach.

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