Question about Bernstein's Stop Playing the Game

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Cheego
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Question about Bernstein's Stop Playing the Game

Post by Cheego »

My spouse and I are considering retirement at the end of next year, and in my head I continue to hear echoes of William Bernstein's comment "If you've won the game, stop playing." We're 51 years old, and in brokerage/retirement accounts, we currently have 66 times expenses using the last 7 years of spending reports. This also equals 40 times expenses using our dream-life-retirement spending plans inclusive of healthcare costs, LTC, and a comprehensive list of other expenses.

We've been cautious, low risk/return investors and have made some foolish investing mistakes along the way. I wish I could be a proud BH and say that our account balances are the result of strong compound interest, investment growth, and timely rebalancing. Instead, the balances are just the result of very good fortune, hard work, and living below our means for 25 years.

Our current AA is 30/60/10. I guess we are still playing the "game" to some extent.

I'm a big, big, big fan of Flexible Retirement Planner. Using a 3.3% inflation rate and 18% effective tax rate, FRP shows that we only need about 1.5% actual return (not real return) to get us through to age 95.

I don't want to turn this in to a humble brag post but, we might be close to the "win" to which Mr. Bernstein refers. When he says "stop playing", I wonder if this is in some sort of absolute term regarding asset allocation or if it's more a relative concept based on a retiree's past investing methods and allocations. So, what would an AA look like if we stopped playing?
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JoeRetire
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Re: Question about Bernstein's Stop Playing the Game

Post by JoeRetire »

Cheego wrote: Sun Oct 10, 2021 1:32 pmSo, what would an AA look like if we stopped playing?
0/0/100
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Re: Question about Bernstein's Stop Playing the Game

Post by carminered2019 »

I think Bernstein recommended to put 20x in FI and invest the rest in equities if you won the game. I am retired with the same age as you with 76x and got 20x in FI.
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Re: Question about Bernstein's Stop Playing the Game

Post by 59Gibson »

30/60/10 seems reasonable to me. Some will say you have the ability to take more risk, others will say you don't need to take any. Benjamin Graham advised all investors to stay within 25/75-75/25 range. Seems logical and timeless, but who knows.
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Re: Question about Bernstein's Stop Playing the Game

Post by Ed 2 »

Cheego wrote: Sun Oct 10, 2021 1:32 pm My spouse and I are considering retirement at the end of next year, and in my head I continue to hear echoes of William Bernstein's comment "If you've won the game, stop playing." We're 51 years old, and in brokerage/retirement accounts, we currently have 66 times expenses using the last 7 years of spending reports. This also equals 40 times expenses using our dream-life-retirement spending plans inclusive of healthcare costs, LTC, and a comprehensive list of other expenses.

We've been cautious, low risk/return investors and have made some foolish investing mistakes along the way. I wish I could be a proud BH and say that our account balances are the result of strong compound interest, investment growth, and timely rebalancing. Instead, the balances are just the result of very good fortune, hard work, and living below our means for 25 years.

Our current AA is 30/60/10. I guess we are still playing the "game" to some extent.

I'm a big, big, big fan of Flexible Retirement Planner. Using a 3.3% inflation rate and 18% effective tax rate, FRP shows that we only need about 1.5% actual return (not real return) to get us through to age 95.

I don't want to turn this in to a humble brag post but, we might be close to the "win" to which Mr. Bernstein refers. When he says "stop playing", I wonder if this is in some sort of absolute term regarding asset allocation or if it's more a relative concept based on a retiree's past investing methods and allocations. So, what would an AA look like if we stopped playing?
If you think your life will be short after you retire . Sure , “stop playing “. It seams every Sunday same question. I see more risk by holding cash and not exercising every day physically and we never “played “ , we invented over 25 years into world’s economy and will be investing and not playing.
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willthrill81
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Re: Question about Bernstein's Stop Playing the Game

Post by willthrill81 »

carminered2019 wrote: Sun Oct 10, 2021 1:42 pm I think Bernstein recommended to put 20x in FI and invest the rest in equities if you won the game.
I could be wrong, but I believe that he said 25x in fixed income and the rest in equities.

There are many serious problems with this notion of Bernstein's.

First, stocks are not 'a game', a roulette wheel, etc. They are ownership of very real companies making very real money, and the long-term expected return from owning them is positive.

Second, there is not a compelling historical case for an equity allocation lower than at least 20% if the remainder has been invested in bonds. The volatility of 0/100 has not been lower than 20/80. Further, safe withdrawal rates have been optimized with equity allocations around 70%. Retirees with 25x and a 0/100 have actually been at significantly greater risk of having insufficient portfolio withdrawals.

Third, most retirees don't know that they have 'won the game' until they're dead.

Fourth, many retirees have higher stock allocations than is likely to be necessary for them at least partly out of a desire to help their heirs and/or charity.

Fifth, a 25x portfolio that is wholly in bonds is more exposed to longevity risk than one with significant stock exposure.

Sixth, 'winning the game' should not necessarily mean that one should move heavily into fixed income. It could just as easily mean 'move heavily into stocks'. For instance, those with withdrawal rates of 2% or lower should be able to objectively tolerate any swings in stock movements with comparative ease and be able to leave behind a fortune for others in need. Regardless, if you have 'won the game', then your asset allocation going forward should not matter too much, assuming it's halfway reasonable.
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Re: Question about Bernstein's Stop Playing the Game

Post by 4nursebee »

I don't think Stop Playing the Game is a good life philosophy. It is a choice one can make, but not for me. Where would the world be if everyone that had "won" already quit?
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Re: Question about Bernstein's Stop Playing the Game

Post by jfave33 »

Winning the game to me means you can do what you like. You are so far ahead whatever you do doesn't really matter (within reason). You can go 100% equities if you want or 100% Fi.

It doesn't mean you need to stop playing but that you can. But stopping may mean you are worse off for it but you don't care because you have all you want.
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Re: Question about Bernstein's Stop Playing the Game

Post by Sandtrap »

Read “Liability Matching Portfolio” LMP in Bernstein’s (not the bears) “Ages of the Investor: Life Cycle Investing”
Also search the forum archives for “LMP”.

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Re: Question about Bernstein's Stop Playing the Game

Post by dbr »

As far as I can tell Bernstein only meant to advise people to not hold most of their assets in stocks if they don't need to. Probably to suggest that people take no more risk than necessary would be a more helpful way to put it. Of course for people approaching retirement and having enough money to do fine with a reasonable investment in stocks and bonds, holding everything in fixed income would be higher rather than lower risk, risk now meaning not having enough money, as you need more money to safely retire without stocks than you do to retire with a minimal allocation to stocks. If you want to put numbers on these things you can go run the various retirement spending calculators as broad estimates of what might happen. You can also read Bernstein and others in detail, as suggested above, but just delete the maxims.

But, really, the expression is just hyperbole meant to underline a point. It isn't a game and you can't stop playing. The expression taken literally is not even wrong.
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Re: Question about Bernstein's Stop Playing the Game

Post by lws »

Start from now. The past is history.
What are your goals now?
What is your risk tolerance now?
Choose a comfortable AA and proceed.
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Re: Question about Bernstein's Stop Playing the Game

Post by jebmke »

4nursebee wrote: Sun Oct 10, 2021 2:00 pm I don't think Stop Playing the Game is a good life philosophy. It is a choice one can make, but not for me. Where would the world be if everyone that had "won" already quit?
There is always someone on the buy side for equity; the big institutional investors are going to "quit"
When you discover that you are riding a dead horse, the best strategy is to dismount.
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Re: Question about Bernstein's Stop Playing the Game

Post by JoeRetire »

4nursebee wrote: Sun Oct 10, 2021 2:00 pm I don't think Stop Playing the Game is a good life philosophy. It is a choice one can make, but not for me. Where would the world be if everyone that had "won" already quit?
Most people in the world don't win.
Just remember: it's not a lie if you believe it.
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Re: Question about Bernstein's Stop Playing the Game

Post by neurosphere »

4nursebee wrote: Sun Oct 10, 2021 2:00 pm I don't think Stop Playing the Game is a good life philosophy. It is a choice one can make, but not for me. Where would the world be if everyone that had "won" already quit?
Can you elaborate on your question of "where would the world be"?

"Stop playing the game" means that those who have amassed enough assets to retire decide they are fine with shifting to a higher bond allocation in order to preserve spending at the expense of a possibility for some relatively more spending. No one is quitting anything, and no one is harmed, right? In fact, I could argue it's better for the world for those with "enough" to let others have the rest.
If you have to ask "Is a Target Date fund right for me?", the answer is "Yes".
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Re: Question about Bernstein's Stop Playing the Game

Post by secondopinion »

willthrill81 wrote: Sun Oct 10, 2021 1:57 pm
carminered2019 wrote: Sun Oct 10, 2021 1:42 pm I think Bernstein recommended to put 20x in FI and invest the rest in equities if you won the game.
I could be wrong, but I believe that he said 25x in fixed income and the rest in equities.

There are many serious problems with this notion of Bernstein's.

First, stocks are not 'a game', a roulette wheel, etc. They are ownership of very real companies making very real money, and the long-term expected return from owning them is positive.

Second, there is not a compelling historical case for an equity allocation lower than at least 20% if the remainder has been invested in bonds. The volatility of 0/100 has not been lower than 20/80. Further, safe withdrawal rates have been optimized with equity allocations around 70%. Retirees with 25x and a 0/100 have actually been at significantly greater risk of having insufficient portfolio withdrawals.

Third, most retirees don't know that they have 'won the game' until they're dead.

Fourth, many retirees have higher stock allocations than is likely to be necessary for them at least partly out of a desire to help their heirs and/or charity.

Fifth, a 25x portfolio that is wholly in bonds is more exposed to longevity risk than one with significant stock exposure.

Sixth, 'winning the game' should not necessarily mean that one should move heavily into fixed income. It could just as easily mean 'move heavily into stocks'. For instance, those with withdrawal rates of 2% or lower should be able to objectively tolerate any swings in stock movements with comparative ease and be able to leave behind a fortune for others in need. Regardless, if you have 'won the game', then your asset allocation going forward should not matter too much, assuming it's halfway reasonable.
Agreed. The gambling notion is horrid; I sometimes receive snide remarks because I buy stocks and even enter option positions. Under similar logic, then insurance, buying food, and even living life is gambling. Life has probabilities and random variables, and this commands what the risk is. By taking risk, I hope to receive a gain; with options, I do consider my long-term prospective and enter accordingly. I do not care if I "lose to the house" with insurance; "beat the house" with insurance is not a good thing. Likewise, if one is writing put options and one is buying put options to hedge stock, it is hoped that the stock does well by both sides. It is not a gamble because we have merely split the risk on existing risk (I never enter option positions without holding such a prospective).

Second item, that is very true, especially if one is the "treasury-only" bond investor; you need to have stocks. To the fifth, I think 20% is probably too little of stock. 40% seems like a reason amount, but one can always have more (especially if they have more basis).

Third, however, I figure being alive is more important than having money when they die. But to the fourth, it is a good thing to focus on making dollars the most valuable; and such after-death goals might be very good.
Last edited by secondopinion on Sun Oct 10, 2021 3:30 pm, edited 1 time in total.
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Re: Question about Bernstein's Stop Playing the Game

Post by Svensk Anga »

Sandtrap wrote: Sun Oct 10, 2021 2:17 pm Read “Liability Matching Portfolio” LMP in Bernstein’s (not the bears) “Ages of the Investor: Life Cycle Investing”
Also search the forum archives for “LMP”.

j🌺
+1

You really need to read the source to understand the reasoning behind the slogan. The book is really a pamphlet of 55 pages and is all of $4.50 in the Kindle version. Are you willing to put that much into planning for your remaining years?

Bernstein recommends that you stop playing with money that you really need. That means funds to pay for food, shelter, healthcare. It is not meant to cover your entire retirement budget. The intent is to assure adequate means to support a decent lifestyle in the event of horrible returns or inflation. One can likely fund a good chunk of the money that one really needs via social security. For the rest, I bonds and TIPS will serve. (an inflation indexed annuity would be ideal, but these seem to be extinct.) Bernstein advises that half of the dividends from your stock portfolio can be counted on, in real terms, to fund your essential expenses, since this was as bad as it got during the Great Depression. Following Bernstein's advice, you need not abandon equities. In fact, he thinks if equites are yielding 2% and you need 1% from your portfolio, you could go with 100% equites, based on the idea of 50% of the dividend yield being "safe".

Funds for one's discretionary expenses can be invested as conservatively or as aggressively as one desires.

ETA. I am retired and operating according to Bernstein's advice. I am now up to 76% equity. We have modest needs, a paid off house, and a near maximum SS benefit coming. I plan to claim at 70. Our LMP is dividends plus a bit of TIPS, I Bonds and total bond to fill the gap until 70. After 70, dividends plus SS fill the LMP requirement.
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Re: Question about Bernstein's Stop Playing the Game

Post by xxd091 »

Wife and I both retired at 57 many years ago -now both 75
Had won the game and have been 30/65/5 for many years
Probably 70/30 to 30/70 will do the business for most investors but stomach acid test and ability to sleep at night especially through stockmarket downturns determines where ones Asset Allocation actually lies
We are conservative investors so act accordingly
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Re: Question about Bernstein's Stop Playing the Game

Post by Sandtrap »

Svensk Anga wrote: Sun Oct 10, 2021 3:28 pm
Sandtrap wrote: Sun Oct 10, 2021 2:17 pm Read “Liability Matching Portfolio” LMP in Bernstein’s (not the bears) “Ages of the Investor: Life Cycle Investing”
Also search the forum archives for “LMP”.

j🌺
+1

You really need to read the source to understand the reasoning behind the slogan. The book is really a pamphlet of 55 pages and is all of $4.50 in the Kindle version. Are you willing to put that much into planning for your remaining years?

Bernstein recommends that you stop playing with money that you really need. That means funds to pay for food, shelter, healthcare. It is not meant to cover your entire retirement budget. The intent is to assure adequate means to support a decent lifestyle in the event of horrible returns or inflation. One can likely fund a good chunk of the money that one really needs via social security. For the rest, I bonds and TIPS will serve. (an inflation indexed annuity would be ideal, but these seem to be extinct.) Bernstein advises that half of the dividends from your stock portfolio can be counted on, in real terms, to fund your essential expenses, since this was as bad as it got during the Great Depression. Following Bernstein's advice, you need not abandon equities. In fact, he thinks if equites are yielding 2% and you need 1% from your portfolio, you could go with 100% equites, based on the idea of 50% of the dividend yield being "safe".

Funds for one's discretionary expenses can be invested as conservatively or as aggressively as one desires.

ETA. I am retired and operating according to Bernstein's advice. I am now up to 76% equity. We have modest needs, a paid off house, and a near maximum SS benefit coming. I plan to claim at 70. Our LMP is dividends plus a bit of TIPS, I Bonds and total bond to fill the gap until 70. After 70, dividends plus SS fill the LMP requirement.
+1
I have and have read all of Bernstein s publications.
It helps to understand his ideas in a larger context.
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Re: Question about Bernstein's Stop Playing the Game

Post by delamer »

Here’s a quite from Bernstein that explains his perspective:
Bernstein recommends a rule of thumb, based on annuity payouts and spending patterns late in life, that you should have 20-25 times your residual living expenses (after pensions/Social Security) invested solely in safe assets. No stocks at all. This should be in TIPS, SPIAs, and short-term bonds. If you have more than that, that's your “risk portfolio”, which he describes this way:

“Anything above that, you can invest in risky assets. That's your risk portfolio. If you dream about taking an around-the-world trip, and the risk portfolio does well, you can use it for that. If the risk portfolio doesn't do well, at least you're not pushing a shopping cart under an overpass.”
From: https://www.whitecoatinvestor.com/berns ... -the-game/
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Re: Question about Bernstein's Stop Playing the Game

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Cheego wrote: Sun Oct 10, 2021 1:32 pm My spouse and I are considering retirement at the end of next year, and in my head I continue to hear echoes of William Bernstein's comment "If you've won the game, stop playing." We're 51 years old, and in brokerage/retirement accounts, we currently have 66 times expenses using the last 7 years of spending reports. This also equals 40 times expenses using our dream-life-retirement spending plans inclusive of healthcare costs, LTC, and a comprehensive list of other expenses.

We've been cautious, low risk/return investors and have made some foolish investing mistakes along the way. I wish I could be a proud BH and say that our account balances are the result of strong compound interest, investment growth, and timely rebalancing. Instead, the balances are just the result of very good fortune, hard work, and living below our means for 25 years.

Our current AA is 30/60/10. I guess we are still playing the "game" to some extent.

I'm a big, big, big fan of Flexible Retirement Planner. Using a 3.3% inflation rate and 18% effective tax rate, FRP shows that we only need about 1.5% actual return (not real return) to get us through to age 95.

I don't want to turn this in to a humble brag post but, we might be close to the "win" to which Mr. Bernstein refers. When he says "stop playing", I wonder if this is in some sort of absolute term regarding asset allocation or if it's more a relative concept based on a retiree's past investing methods and allocations. So, what would an AA look like if we stopped playing?
You've already read Bernstein's Ages of the Investor?
With 66 times expenses, and with the right amount of fixed income/bond products, you are good to go.
But, from age 52 to 96 is a long retirement; that in itself is a big risk. Maybe a 44 rung non-rolling ladder of individual TIPS?
Is 30/60/10 stocks, bonds, and CDs? or stocks, bonds, and cash?
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Re: Question about Bernstein's Stop Playing the Game

Post by ChinchillaWhiplash »

Make sure your calculations are correct. Don’t forget to factor things in such as property tax, big ticket maintenance (furnace, roof, appliances, etc), replacement vehicle. You get the idea. Add in the expenses for things most people forget about when calculating your yearly expenses. If you have more than enough, just make sure your investments will at least come close to keeping up with inflation. More than likely you will still need some growth in the portfolio too. Things can happen in the future that could make your nest egg not big enough if it does not continue to grow. Prepare for the worst and if you have too much, well that is not a bad problem to have. Much better than not having enough.
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Re: Question about Bernstein's Stop Playing the Game

Post by solarcub »

Cheego wrote: Sun Oct 10, 2021 1:32 pm
Our current AA is 30/60/10. I guess we are still playing the "game" to some extent.
I think you already stopped playing. To me, playing the game is having a high allocation to stocks, and hoping to grow your nest egg a lot so that you can retire. You already have enough, which is good, and you already have a conservative allocation, so there is nothing to change.
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Re: Question about Bernstein's Stop Playing the Game

Post by whereskyle »

Cheego wrote: Sun Oct 10, 2021 1:32 pm My spouse and I are considering retirement at the end of next year, and in my head I continue to hear echoes of William Bernstein's comment "If you've won the game, stop playing." We're 51 years old, and in brokerage/retirement accounts, we currently have 66 times expenses using the last 7 years of spending reports. This also equals 40 times expenses using our dream-life-retirement spending plans inclusive of healthcare costs, LTC, and a comprehensive list of other expenses.

We've been cautious, low risk/return investors and have made some foolish investing mistakes along the way. I wish I could be a proud BH and say that our account balances are the result of strong compound interest, investment growth, and timely rebalancing. Instead, the balances are just the result of very good fortune, hard work, and living below our means for 25 years.

Our current AA is 30/60/10. I guess we are still playing the "game" to some extent.

I'm a big, big, big fan of Flexible Retirement Planner. Using a 3.3% inflation rate and 18% effective tax rate, FRP shows that we only need about 1.5% actual return (not real return) to get us through to age 95.

I don't want to turn this in to a humble brag post but, we might be close to the "win" to which Mr. Bernstein refers. When he says "stop playing", I wonder if this is in some sort of absolute term regarding asset allocation or if it's more a relative concept based on a retiree's past investing methods and allocations. So, what would an AA look like if we stopped playing?
I think a 30% stock allocation is very close to a "stop playing" portfolio. It's just silly to move everything to cash when the federal reserve will do literally anything to fight deflation, including letting inflation run hot. The same rules apply as always. To judge your risk tolerance, take your equity position and cut it in half. If you're comfortable with a 15% drop, which, based on your numbers, it seems you should be, I say stay the course. I think "stop playing" typically refers to the importance of reducing heavy equity allocations in very large portfolios that don't need gains to reach realistic goals. 30% stocks seems like a great end point to hold forever. Vanguard certainly thinks so, as that's it's target-retirement-fund allocation. Heck, as far as we know, Jack was holding 50/50 when he left us, and he did not recommend playing with money.
"I am better off than he is – for he knows nothing and thinks that he knows. I neither know nor think that I know." - Socrates. "Nobody knows nothing." - Jack Bogle
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Re: Question about Bernstein's Stop Playing the Game

Post by J295 »

Cheego wrote: Sun Oct 10, 2021 1:32 pm …. When he says "stop playing", I wonder if this is in some sort of absolute term regarding asset allocation or if it's more a relative concept based on a retiree's past investing methods and allocations. So, what would an AA look like if we stopped playing?
“Retired” nine years ago at 53. To us the concept meant taking our foot off the accelerator. Went from 100% equity to 60% then glide path to current 50% equity.

Some would be more equity heavy due to the size of our nest egg. That’s ok as this works for us (and gives us the comfort level to reduce a (less volatile) nest egg with gifts to adult children).

Ymmv; after all that’s why it’s called “personal” finance.
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Re: Question about Bernstein's Stop Playing the Game

Post by Angst »

Svensk Anga wrote: Sun Oct 10, 2021 3:28 pm
Sandtrap wrote: Sun Oct 10, 2021 2:17 pm Read “Liability Matching Portfolio” LMP in Bernstein’s (not the bears) “Ages of the Investor: Life Cycle Investing”
Also search the forum archives for “LMP”.

j🌺
+1

You really need to read the source to understand the reasoning behind the slogan. The book is really a pamphlet of 55 pages and is all of $4.50 in the Kindle version. Are you willing to put that much into planning for your remaining years?

Bernstein recommends that you stop playing with money that you really need. That means funds to pay for food, shelter, healthcare. It is not meant to cover your entire retirement budget. The intent is to assure adequate means to support a decent lifestyle in the event of horrible returns or inflation. One can likely fund a good chunk of the money that one really needs via social security. For the rest, I bonds and TIPS will serve. (an inflation indexed annuity would be ideal, but these seem to be extinct.) Bernstein advises that half of the dividends from your stock portfolio can be counted on, in real terms, to fund your essential expenses, since this was as bad as it got during the Great Depression. Following Bernstein's advice, you need not abandon equities. In fact, he thinks if equities are yielding 2% and you need 1% from your portfolio, you could go with 100% equites, based on the idea of 50% of the dividend yield being "safe".

Funds for one's discretionary expenses can be invested as conservatively or as aggressively as one desires.

ETA. I am retired and operating according to Bernstein's advice. I am now up to 76% equity. We have modest needs, a paid off house, and a near maximum SS benefit coming. I plan to claim at 70. Our LMP is dividends plus a bit of TIPS, I Bonds and total bond to fill the gap until 70. After 70, dividends plus SS fill the LMP requirement.
(+1) +1

Yes, couldn't agree more.
SS and LMP for "food, shelter, healthcare"... the rest is gravy.
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Re: Question about Bernstein's Stop Playing the Game

Post by willthrill81 »

delamer wrote: Sun Oct 10, 2021 4:25 pm Here’s a quite from Bernstein that explains his perspective:
Bernstein recommends a rule of thumb, based on annuity payouts and spending patterns late in life, that you should have 20-25 times your residual living expenses (after pensions/Social Security) invested solely in safe assets. No stocks at all. This should be in TIPS, SPIAs, and short-term bonds. If you have more than that, that's your “risk portfolio”, which he describes this way:

“Anything above that, you can invest in risky assets. That's your risk portfolio. If you dream about taking an around-the-world trip, and the risk portfolio does well, you can use it for that. If the risk portfolio doesn't do well, at least you're not pushing a shopping cart under an overpass.”
From: https://www.whitecoatinvestor.com/berns ... -the-game/
Thanks for helping to bring clarity to the discussion.

There shouldn't be any disputing that such a recommendation is extremely conservative, so much so that I would call it recklessly conservative for those who don't have at least 5-10x to put into stocks, real estate, etc., for the 'risk portfolio'.

The "at least you're not pushing a shopping cart under an overpass" comment of his is utterly ridiculous.
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Re: Question about Bernstein's Stop Playing the Game

Post by One Ping »

willthrill81 wrote: Sun Oct 10, 2021 1:57 pm
carminered2019 wrote: Sun Oct 10, 2021 1:42 pm I think Bernstein recommended to put 20x in FI and invest the rest in equities if you won the game.
I could be wrong, but I believe that he said 25x in fixed income and the rest in equities.
Sounds good to me. So, if Pension + SS cover 100% of your living expenses, the 25X residual living expenses = $0. So the rest (i.e., 100%) is in equities, right?

Or am I missing something ...

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Re: Question about Bernstein's Stop Playing the Game

Post by willthrill81 »

One Ping wrote: Sun Oct 10, 2021 7:59 pm
willthrill81 wrote: Sun Oct 10, 2021 1:57 pm
carminered2019 wrote: Sun Oct 10, 2021 1:42 pm I think Bernstein recommended to put 20x in FI and invest the rest in equities if you won the game.
I could be wrong, but I believe that he said 25x in fixed income and the rest in equities.
Sounds good to me. So, if Pension + SS cover 100% of your living expenses, the 25X residual living expenses = $0. So the rest (i.e., 100%) is in equities, right?

Or am I missing something ...

One Ping
Yes, that's right, though I doubt that Bernstein would say that a 100% stock allocation in the risk portfolio would be prudent. I don't see an inherent problem with it though.
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dbr
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Re: Question about Bernstein's Stop Playing the Game

Post by dbr »

One Ping wrote: Sun Oct 10, 2021 7:59 pm
willthrill81 wrote: Sun Oct 10, 2021 1:57 pm
carminered2019 wrote: Sun Oct 10, 2021 1:42 pm I think Bernstein recommended to put 20x in FI and invest the rest in equities if you won the game.
I could be wrong, but I believe that he said 25x in fixed income and the rest in equities.
Sounds good to me. So, if Pension + SS cover 100% of your living expenses, the 25X residual living expenses = $0. So the rest (i.e., 100%) is in equities, right?

Or am I missing something ...

One Ping
Well, that would be the conclusion of a simple minded rule like that, but it might also be wise to contemplate whether of not you want the consequences of doing that. That doesn't mean it is crazy to decide to hold only stocks in a case like that, but one would hope one applies processes of thought, information, and logic to the decision. The starting point that you may be missing is that you know what you want, translated into what that implies for how one invests.

Doesn't Bernstein also offer some little bit ambiguous distinctions between what you "absolutely have to" spend and what spending is discretionary?
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Re: Question about Bernstein's Stop Playing the Game

Post by hudson »

willthrill81 wrote: Sun Oct 10, 2021 1:57 pm
carminered2019 wrote: Sun Oct 10, 2021 1:42 pm I think Bernstein recommended to put 20x in FI and invest the rest in equities if you won the game.
I could be wrong, but I believe that he said 25x in fixed income and the rest in equities.

There are many serious problems with this notion of Bernstein's.

First, stocks are not 'a game', a roulette wheel, etc. They are ownership of very real companies making very real money, and the long-term expected return from owning them is positive.

Second, there is not a compelling historical case for an equity allocation lower than at least 20% if the remainder has been invested in bonds. The volatility of 0/100 has not been lower than 20/80. Further, safe withdrawal rates have been optimized with equity allocations around 70%. Retirees with 25x and a 0/100 have actually been at significantly greater risk of having insufficient portfolio withdrawals.

Third, most retirees don't know that they have 'won the game' until they're dead.

Fourth, many retirees have higher stock allocations than is likely to be necessary for them at least partly out of a desire to help their heirs and/or charity.

Fifth, a 25x portfolio that is wholly in bonds is more exposed to longevity risk than one with significant stock exposure.

Sixth, 'winning the game' should not necessarily mean that one should move heavily into fixed income. It could just as easily mean 'move heavily into stocks'. For instance, those with withdrawal rates of 2% or lower should be able to objectively tolerate any swings in stock movements with comparative ease and be able to leave behind a fortune for others in need. Regardless, if you have 'won the game', then your asset allocation going forward should not matter too much, assuming it's halfway reasonable.
Your arguments are great arguments against the LMP. It's great to hear both sides of a discussion!
I think that W. Bernstein's LMP plan does make sense for some. Sure it's conservative. I've probably swallowed the hook.
Like you said, those with low withdrawal rates might not be good fits for an LMP. That might be a 70 year old with 50X expenses or someone with a good pension/social security payouts.
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Re: Question about Bernstein's Stop Playing the Game

Post by willthrill81 »

hudson wrote: Sun Oct 10, 2021 8:13 pm
willthrill81 wrote: Sun Oct 10, 2021 1:57 pm
carminered2019 wrote: Sun Oct 10, 2021 1:42 pm I think Bernstein recommended to put 20x in FI and invest the rest in equities if you won the game.
I could be wrong, but I believe that he said 25x in fixed income and the rest in equities.

There are many serious problems with this notion of Bernstein's.

First, stocks are not 'a game', a roulette wheel, etc. They are ownership of very real companies making very real money, and the long-term expected return from owning them is positive.

Second, there is not a compelling historical case for an equity allocation lower than at least 20% if the remainder has been invested in bonds. The volatility of 0/100 has not been lower than 20/80. Further, safe withdrawal rates have been optimized with equity allocations around 70%. Retirees with 25x and a 0/100 have actually been at significantly greater risk of having insufficient portfolio withdrawals.

Third, most retirees don't know that they have 'won the game' until they're dead.

Fourth, many retirees have higher stock allocations than is likely to be necessary for them at least partly out of a desire to help their heirs and/or charity.

Fifth, a 25x portfolio that is wholly in bonds is more exposed to longevity risk than one with significant stock exposure.

Sixth, 'winning the game' should not necessarily mean that one should move heavily into fixed income. It could just as easily mean 'move heavily into stocks'. For instance, those with withdrawal rates of 2% or lower should be able to objectively tolerate any swings in stock movements with comparative ease and be able to leave behind a fortune for others in need. Regardless, if you have 'won the game', then your asset allocation going forward should not matter too much, assuming it's halfway reasonable.
Your arguments are great arguments against the LMP. It's great to hear both sides of a discussion!
I think that W. Bernstein's LMP plan does make sense for some. Sure it's conservative. I've probably swallowed the hook.
Like you said, those with low withdrawal rates might not be good fits for an LMP. That might be someone with 50X expenses or someone with a good pension/social security payouts.
I'm actually not completely opposed to the LMP approach. It's a fine option for those with below average risk tolerance and who have enough assets to set up the LMP through well past their life expectancy and still have at least 20% of their total portfolio in their risk portfolio.
“Good and ill have not changed since yesteryear; nor are they one thing among Elves and Dwarves and another among Men.” J.R.R. Tolkien, The Lord of the Rings
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Re: Question about Bernstein's Stop Playing the Game

Post by Northern Flicker »

Please define 30/60/10. For me that would be 30% stock, 60% bonds, 10% real estate.

Yes, 100% nominal bonds is riskier than 20-25% stock 75-80% nominal bonds if all risks are considered.
Last edited by Northern Flicker on Sun Oct 10, 2021 11:38 pm, edited 1 time in total.
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Re: Question about Bernstein's Stop Playing the Game

Post by BolderBoy »

Cheego wrote: Sun Oct 10, 2021 1:32 pmSo, what would an AA look like if we stopped playing?
30/70. It is where I am and I don't feel I'm playing the game anymore.
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Re: Question about Bernstein's Stop Playing the Game

Post by simpletone »

I recently read: Rational Expectations: Asset Allocation for Investing Adults (Investing for Adults Book 4), by Bernstein which is excellent and he covers LMP in this book.

My take-away, was that your LMP should be in FI and cover 25x, in retirement, inclusive of Social Security, with consideration for inflation. His FI recommendations are very conservative as well.

OP, I might suggest reading this book. It has some good insights.

(edit: went back and looked at my book notes, which states LMP should be 25x)
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Re: Question about Bernstein's Stop Playing the Game

Post by AnnetteLouisan »

I think quitting while one is ahead, aka going out on a high note, aka limiting ones downside risk potential, aka stopping playing the game when one has won, applies in all kinds of contests, from interviewing to dating to deciding when to leave a job. I consider it often regarding my career. As to the markets, there is much to be said for collecting ones chips, if it makes one feel more secure. Of what use is it to stay in if your expenses are covered and staying in makes you feel less secure.

(Please don’t roast me for my rank ignorance. I’m new, diligently educating myself in BH philosophy, and I “only” have $1.8 mil at 54, of which only 1.2 is a portfolio and of that, 600k is in banks. Had I found this site earlier I might have 7 mil by now and be living in Turks and Caicos. But among my acquaintances my $1.8 mil puts me a mere three steps down from Jesus.)
Last edited by AnnetteLouisan on Mon Oct 11, 2021 4:22 am, edited 3 times in total.
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Re: Question about Bernstein's Stop Playing the Game

Post by Copernicus »

delamer wrote: Sun Oct 10, 2021 4:25 pm Here’s a quite from Bernstein that explains his perspective:
Bernstein recommends a rule of thumb, based on annuity payouts and spending patterns late in life, that you should have 20-25 times your residual living expenses (after pensions/Social Security) invested solely in safe assets. No stocks at all. This should be in TIPS, SPIAs, and short-term bonds. If you have more than that, that's your “risk portfolio”, which he describes this way:

“Anything above that, you can invest in risky assets. That's your risk portfolio. If you dream about taking an around-the-world trip, and the risk portfolio does well, you can use it for that. If the risk portfolio doesn't do well, at least you're not pushing a shopping cart under an overpass.”
From: https://www.whitecoatinvestor.com/berns ... -the-game/
.

Implicit in Bernstein's commentary: At any age, and especially during retirement, the asset allocation should allow peaceful sleep during extended periods of market turmoil.

A spreadsheet has no emotions, so it can not give the final answer. It has to come from own experiences of going through 2-3 seriously rocky market
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Re: Question about Bernstein's Stop Playing the Game

Post by One Ping »

dbr wrote: Sun Oct 10, 2021 8:12 pm
One Ping wrote: Sun Oct 10, 2021 7:59 pm
willthrill81 wrote: Sun Oct 10, 2021 1:57 pm
carminered2019 wrote: Sun Oct 10, 2021 1:42 pm I think Bernstein recommended to put 20x in FI and invest the rest in equities if you won the game.
I could be wrong, but I believe that he said 25x in fixed income and the rest in equities.
Sounds good to me. So, if Pension + SS cover 100% of your living expenses, the 25X residual living expenses = $0. So the rest (i.e., 100%) is in equities, right?

Or am I missing something ...

One Ping
Well, that would be the conclusion of a simple minded rule like that, but it might also be wise to contemplate whether of not you want the consequences of doing that. That doesn't mean it is crazy to decide to hold only stocks in a case like that, but one would hope one applies processes of thought, information, and logic to the decision. The starting point that you may be missing is that you know what you want, translated into what that implies for how one invests.
What exactly does the highlighted phrase mean?

I'm retired. I know what my living expenses are. My income streams (pension + SS) are 120% of my living expenses. I know what bear markets are ... lived through 1987, 2000-2002, 2008-2009. I sleep very well at night. What, specifically, is it that I am missing?
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Re: Question about Bernstein's Stop Playing the Game

Post by Dandy »

Bernstein's recommendation was to have 20 to 25 years worth of expenses that need to be funded by your portfolio to be put in "safe" fixed income. The rest of your financial assets could be invested any way you want even 100% equities.

By safe fixed income it was more like FDIC products and short term bond funds -- he even said you might have to hold your nose because of the low returns.

His idea rang my bell when trying to decide how to invest in retirement. I put 20 years worth of drawdown needs as follows:
50% of my "safe" fixed income assets in FDIC products, money markets and some legacy EE bonds and 50% in short term bond funds e.g. short term bond index, short term treasury index and LTD term tax exempt funds.

I treat this "safe" portfolio as insurance vs like an ATM i.e. I withdraw from "safe" and "risk" assets unless equities have a bad year. I currently have enough "safe" assets to fund withdrawal needs to at least age 90 - I'm almost 74.

A caution might be wise with those with very early retirement ages. Most times authors assume at least age 60. Not sure what Bernstein's ideas on this aspect are.
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Re: Question about Bernstein's Stop Playing the Game

Post by dbr »

One Ping wrote: Sun Oct 10, 2021 11:34 pm
dbr wrote: Sun Oct 10, 2021 8:12 pm
One Ping wrote: Sun Oct 10, 2021 7:59 pm
willthrill81 wrote: Sun Oct 10, 2021 1:57 pm
carminered2019 wrote: Sun Oct 10, 2021 1:42 pm I think Bernstein recommended to put 20x in FI and invest the rest in equities if you won the game.
I could be wrong, but I believe that he said 25x in fixed income and the rest in equities.
Sounds good to me. So, if Pension + SS cover 100% of your living expenses, the 25X residual living expenses = $0. So the rest (i.e., 100%) is in equities, right?

Or am I missing something ...

One Ping
Well, that would be the conclusion of a simple minded rule like that, but it might also be wise to contemplate whether of not you want the consequences of doing that. That doesn't mean it is crazy to decide to hold only stocks in a case like that, but one would hope one applies processes of thought, information, and logic to the decision. The starting point that you may be missing is that you know what you want, translated into what that implies for how one invests.
What exactly does the highlighted phrase mean?

I'm retired. I know what my living expenses are. My income streams (pension + SS) are 120% of my living expenses. I know what bear markets are ... lived through 1987, 2000-2002, 2008-2009. I sleep very well at night. What, specifically, is it that I am missing?
What is the objective for your investment assets that you have no need of to support spending? Do you want to invest that at 100% to hope for the largest possible estate at death? Do you want to invest that at minimal risk so that there is no chance of losses in those assets? Do you have heirs for whom you want to grow a large but uncertain legacy or are there places you would like a highly certain amount of money to go? Do you have an interest in gifting money to anyone now? Have you estimated possible costs for end of life care and in what way do you want to provide for that? If you have more money than you have to spend are there opportunities to spend more that you would reconsider, and if so how would you invest to support that? Expenses can change with circumstances. Possibly the reserve to meet such possibilities is fine in equities, just as long as you are comfortable with the risk?

Don't get me wrong. If you have no concern for the risk then allocating all that money to equities is fine. But you asked what more there is to the story and I am making a suggestion that a person think about what they want from the money.
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Re: Question about Bernstein's Stop Playing the Game

Post by Dennisl »

Logistically, when does one stop playing the game? Lets say that you're 80/20 and you hit your FI number. Once you cash out your equities and pay taxes, you're no longer at your number. I'm interested in the different types of glide paths people use. TIA.
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Re: Question about Bernstein's Stop Playing the Game

Post by One Ping »

dbr wrote: Mon Oct 11, 2021 8:37 am
One Ping wrote: Sun Oct 10, 2021 11:34 pm
dbr wrote: Sun Oct 10, 2021 8:12 pm
One Ping wrote: Sun Oct 10, 2021 7:59 pm
willthrill81 wrote: Sun Oct 10, 2021 1:57 pm
I could be wrong, but I believe that he said 25x in fixed income and the rest in equities.
Sounds good to me. So, if Pension + SS cover 100% of your living expenses, the 25X residual living expenses = $0. So the rest (i.e., 100%) is in equities, right?

Or am I missing something ...

One Ping
Well, that would be the conclusion of a simple minded rule like that, but it might also be wise to contemplate whether of not you want the consequences of doing that. That doesn't mean it is crazy to decide to hold only stocks in a case like that, but one would hope one applies processes of thought, information, and logic to the decision. The starting point that you may be missing is that you know what you want, translated into what that implies for how one invests.
What exactly does the highlighted phrase mean?

I'm retired. I know what my living expenses are. My income streams (pension + SS) are 120% of my living expenses. I know what bear markets are ... lived through 1987, 2000-2002, 2008-2009. I sleep very well at night. What, specifically, is it that I am missing?
What is the objective for your investment assets that you have no need of to support spending? Do you want to invest that at 100% to hope for the largest possible estate at death? Do you want to invest that at minimal risk so that there is no chance of losses in those assets? Do you have heirs for whom you want to grow a large but uncertain legacy or are there places you would like a highly certain amount of money to go? Do you have an interest in gifting money to anyone now? Have you estimated possible costs for end of life care and in what way do you want to provide for that? If you have more money than you have to spend are there opportunities to spend more that you would reconsider, and if so how would you invest to support that? Expenses can change with circumstances. Possibly the reserve to meet such possibilities is fine in equities, just as long as you are comfortable with the risk?

Don't get me wrong. If you have no concern for the risk then allocating all that money to equities is fine. But you asked what more there is to the story and I am making a suggestion that a person think about what they want from the money.
Ah! Fair enough ...

So, your point is that in the case I described above, while the retirement 'game' may have been won, another 'game' has actually begun (e.g., gifts to heirs or charities, legacy, LTC self-insure, etc.) so investment goals should be tailored to the new 'game.' In that sense, you never really 'stop playing the game.'

For example, if the goal is legacy inheritance to grandchildren, with a time horizon of perhaps 60 years, 100% in equities might be appropriate. If, on the other hand, the objective is to provide for self-insurance for LTC, perhaps something more conservative would be more appropriate.

In this latter case, to a certain extent you allocations could depend on portfolio size. If your LTC self-insurance requirement amounts to only 20% of your 'un-needed' portfolio, perhaps reserve that amount in 'safer' assets and leave the remainder in equities to serve the legacy objective(s). In some sense, this is treading awfully close to a LMP approach.

Thanks,
One Ping
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Re: Question about Bernstein's Stop Playing the Game

Post by dbr »

One Ping wrote: Mon Oct 11, 2021 12:43 pm
Ah! Fair enough ...

So, your point is that in the case I described above, while the retirement 'game' may have been won, another 'game' has actually begun (e.g., gifts to heirs or charities, legacy, LTC self-insure, etc.) so investment goals should be tailored to the new 'game.' In that sense, you never really 'stop playing the game.'

For example, if the goal is legacy inheritance to grandchildren, with a time horizon of perhaps 60 years, 100% in equities might be appropriate. If, on the other hand, the objective is to provide for self-insurance for LTC, perhaps something more conservative would be more appropriate.

In this latter case, to a certain extent you allocations could depend on portfolio size. If your LTC self-insurance requirement amounts to only 20% of your 'un-needed' portfolio, perhaps reserve that amount in 'safer' assets and leave the remainder in equities to serve the legacy objective(s). In some sense, this is treading awfully close to a LMP approach.

Thanks,
One Ping
Yes, all of that is the point I would make.
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Re: Question about Bernstein's Stop Playing the Game

Post by delamer »

Dennisl wrote: Mon Oct 11, 2021 12:12 pm Logistically, when does one stop playing the game? Lets say that you're 80/20 and you hit your FI number. Once you cash out your equities and pay taxes, you're no longer at your number. I'm interested in the different types of glide paths people use. TIA.
If your number doesn’t include taxes, then it isn’t your number.

Taxes are an expense, just like food and shelter.
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dbr
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Re: Question about Bernstein's Stop Playing the Game

Post by dbr »

Dennisl wrote: Mon Oct 11, 2021 12:12 pm Logistically, when does one stop playing the game? Lets say that you're 80/20 and you hit your FI number. Once you cash out your equities and pay taxes, you're no longer at your number. I'm interested in the different types of glide paths people use. TIA.
Why would you cash out your equities? For sustaining withdrawals from a long term portfolio 60/40 is pretty often an optimum allocation. You would not pay taxes just to rebalance/reallocate, for example do it in tax deferred accounts or by controlling contributions and withdrawals. A person might well be 60/40 for some time before retirement. I'm not sure everyone agrees with Bernstein that equities are so risky as to be poison for retirees, at least not at reasonable asset allocations. The biggest problem with high equity allocations at "safe" spending levels is that one ends up with too much wealth unspent. Annuities, bond ladders, etc. make income more predictable but not necessarily more, certainly not if inflation is considered.

In any cases taxes are part of expected expenses.

If you want something like a TIPS ladder advanced planning is helpful.
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Re: Question about Bernstein's Stop Playing the Game

Post by Wrench »

One Ping wrote: Mon Oct 11, 2021 12:43 pm
dbr wrote: Mon Oct 11, 2021 8:37 am
One Ping wrote: Sun Oct 10, 2021 11:34 pm
dbr wrote: Sun Oct 10, 2021 8:12 pm
One Ping wrote: Sun Oct 10, 2021 7:59 pm
Sounds good to me. So, if Pension + SS cover 100% of your living expenses, the 25X residual living expenses = $0. So the rest (i.e., 100%) is in equities, right?

Or am I missing something ...

One Ping
Well, that would be the conclusion of a simple minded rule like that, but it might also be wise to contemplate whether of not you want the consequences of doing that. That doesn't mean it is crazy to decide to hold only stocks in a case like that, but one would hope one applies processes of thought, information, and logic to the decision. The starting point that you may be missing is that you know what you want, translated into what that implies for how one invests.
What exactly does the highlighted phrase mean?

I'm retired. I know what my living expenses are. My income streams (pension + SS) are 120% of my living expenses. I know what bear markets are ... lived through 1987, 2000-2002, 2008-2009. I sleep very well at night. What, specifically, is it that I am missing?
What is the objective for your investment assets that you have no need of to support spending? Do you want to invest that at 100% to hope for the largest possible estate at death? Do you want to invest that at minimal risk so that there is no chance of losses in those assets? Do you have heirs for whom you want to grow a large but uncertain legacy or are there places you would like a highly certain amount of money to go? Do you have an interest in gifting money to anyone now? Have you estimated possible costs for end of life care and in what way do you want to provide for that? If you have more money than you have to spend are there opportunities to spend more that you would reconsider, and if so how would you invest to support that? Expenses can change with circumstances. Possibly the reserve to meet such possibilities is fine in equities, just as long as you are comfortable with the risk?

Don't get me wrong. If you have no concern for the risk then allocating all that money to equities is fine. But you asked what more there is to the story and I am making a suggestion that a person think about what they want from the money.
Ah! Fair enough ...

So, your point is that in the case I described above, while the retirement 'game' may have been won, another 'game' has actually begun (e.g., gifts to heirs or charities, legacy, LTC self-insure, etc.) so investment goals should be tailored to the new 'game.' In that sense, you never really 'stop playing the game.'

For example, if the goal is legacy inheritance to grandchildren, with a time horizon of perhaps 60 years, 100% in equities might be appropriate. If, on the other hand, the objective is to provide for self-insurance for LTC, perhaps something more conservative would be more appropriate.

In this latter case, to a certain extent you allocations could depend on portfolio size. If your LTC self-insurance requirement amounts to only 20% of your 'un-needed' portfolio, perhaps reserve that amount in 'safer' assets and leave the remainder in equities to serve the legacy objective(s). In some sense, this is treading awfully close to a LMP approach.

Thanks,
One Ping
One Ping - yes. We are in a similar situation to you. SS, inflation adjusted annuity, and amortized withdrawals from a stable value fund will cover ~125% or our retirement expenses. I have been doing Roth conversions now (before 70) and investing that in 100% stocks. That will be a legacy for my children/grandchildren. The remaining IRA monies (in the high 6 figure/low 7 figure range) will cover long term care needs if required. It is invested conservatively with asset allocation of ~ 35/65. If not needed or if it grows enough, we will gift some of it to family/charity while we are still living.

Wrench
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Re: Question about Bernstein's Stop Playing the Game

Post by Northern Flicker »

It does not make sense to account for SPIAs as a present value lump sum asset only to assess its adequacy as 20-25x the income one needs from it. The income from the SPIA is known. Just subtract it from expenses as one would do with SS or a pension payout when calculating residual expenses to cover with 20-25x in safe fixed income.
My postings are my opinion, and never should be construed as a recommendation to buy, sell, or hold any particular investment.
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Cheego
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Re: Question about Bernstein's Stop Playing the Game

Post by Cheego »

Just wanted to say thanks to everyone who offered constructive comments to my post... especially Sandtrap, Neurosphere, and Svensk Anga.

It's all much appreciated!
Finridge
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Re: Question about Bernstein's Stop Playing the Game

Post by Finridge »

A helpful experiment I did in getting comfortable with what the proper asset allocation was for me was to use cFIREsim.com to backtest different asset allocations. I was focusing on different mixes of stocks and bonds. But then, just for kicks I backtested an allocation consisting of 100% cash. At even moderate time horizons (like 5-10 years) this is usually the riskiest AA of any, posing a greater risk then 100/0 or 0/100 and anything in between. And over longer time horizons it was uniformly the riskiest AA. With an all cash AA, between spending and inflation, the portfolio just goes down down down. I found this to be eye-opening.

And over longer time horizons, high stock AA's, even 100/0 did really well, often outperforming more mixed allocations, and this was especially the case if you used a conservative "safe withdrawal rate" (for example, if you used a SFR of 3% or 2% instead of the "standard" 4%. That is to say, that if you have a lower than normal SWR, an all-cash AA is not at all unreasonable.

But understand how backtesting works and what its limitations are. Nobody ever knows what the future will bring...
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Re: Question about Bernstein's Stop Playing the Game

Post by Valuethinker »

carminered2019 wrote: Sun Oct 10, 2021 1:42 pm I think Bernstein recommended to put 20x in FI and invest the rest in equities if you won the game. I am retired with the same age as you with 76x and got 20x in FI.
Unexpected inflation could then kill an investor's chances of success.

The prudent investor needs a mix of: equities, inflation linked bonds (ibonds and TIPS), fixed income.

Past data shows a portfolio which was 20% equities and 80% bonds had both a higher return and lower volatility than a 100% bond portfolio. It was dominant in the risk-return space (in the jargon) and therefore closer to "the efficient frontier".

Something like 40% bonds, 40% TIPS/ ibonds, 20% equities is probably optimal (maybe 50% bonds).
Last edited by Valuethinker on Wed Oct 13, 2021 4:41 am, edited 1 time in total.
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Re: Question about Bernstein's Stop Playing the Game

Post by Valuethinker »

Finridge wrote: Wed Oct 13, 2021 1:15 am A helpful experiment I did in getting comfortable with what the proper asset allocation was for me was to use cFIREsim.com to backtest different asset allocations. I was focusing on different mixes of stocks and bonds. But then, just for kicks I backtested an allocation consisting of 100% cash. At even moderate time horizons (like 5-10 years) this is usually the riskiest AA of any, posing a greater risk then 100/0 or 0/100 and anything in between. And over longer time horizons it was uniformly the riskiest AA. With an all cash AA, between spending and inflation, the portfolio just goes down down down. I found this to be eye-opening.

And over longer time horizons, high stock AA's, even 100/0 did really well, often outperforming more mixed allocations, and this was especially the case if you used a conservative "safe withdrawal rate" (for example, if you used a SFR of 3% or 2% instead of the "standard" 4%. That is to say, that if you have a lower than normal SWR, an all-cash AA is not at all unreasonable.

But understand how backtesting works and what its limitations are. Nobody ever knows what the future will bring...
An all cash asset allocation is very exposed to unexpected inflation.

That said, it probably outperformed bonds and equities over the 1966-1980 period ie the longest period of sustained inflation in peacetime in US history. (TIPS & ibonds didn't exist in that time period-- TIPS date from 1998, not sure re ibonds).
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