Master thread for Washington DC Area Bogleheads

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SGM
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Re: Master thread for Washington DC Area Bogleheads

Post by SGM » Sun May 14, 2017 8:37 am

I am hoping to make the meeting. I may leave a little early for roast lamb and to see the dancers at St. Luke's in Potomac.

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bobcat2
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Calculating the Funded Ratio using real life annuity pricing

Post by bobcat2 » Mon May 22, 2017 8:59 am

At yesterday's meeting it was brought up that one can calculate the funded ratio for your retirement portfolio while working by dividing the size of your portfolio by the price of a deferred real (inflation-adjusted) life annuity with payouts at your desired retirement income level. The question that came up was where can I get the deferred life annuity price.

The answer is the website Immediateannuities.com. Link - https://www.immediateannuities.com/annu ... rs/?sce=hc

I went there this morning and asked for a quote for a 50 year old male that wants $30,000/year ($2,500/month) in real income starting in 15 years at his intended retirement age of 65. The quote was $377,135 with a payout rate of about 8%.

Assuming my hypothetical 50 year old has $320,405 in his portfolio, his funded ratio (FR) is the following.

FR = portfolio/PV(desired retirement income)*= 320,405/377,135= 0.85

*Where the present value (PV) of the desired retirement income is equal to the price of the deferred real life annuity for that level of income.

Our investor is in fairly good shape because he has 15 years to get the funded ratio up to 1.00 or more. He should continue to regularly monitor his progress by calculating the funded ratio at least on a trimester basis through the years.

For those at or in retirement they can calculate the funded ratio by pricing an immediate real annuity, aka an inflation-adjusted SPIA.

Best,
Bob
In finance risk is defined as uncertainty that is consequential (nontrivial). | The two main methods of dealing with financial risk are the matching of assets to goals & diversifying.

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dodecahedron
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Re: Master thread for Washington DC Area Bogleheads

Post by dodecahedron » Mon May 22, 2017 9:22 am

Back in March, there was post above stating that the four remaining meetings for 2017 would be held at Ballston Library, but clearly something changed those plans since yesterday's meeting was in Silver Spring. I am making plans to come to DC this summer and/or fall, are there any plans for a Ballston meeting?

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Re: Master thread for Washington DC Area Bogleheads

Post by bobcat2 » Mon May 22, 2017 9:35 am

dodecahedron wrote:Back in March, there was post above stating that the four remaining meetings for 2017 would be held at Ballston Library, but clearly something changed those plans since yesterday's meeting was in Silver Spring. I am making plans to come to DC this summer and/or fall, are there any plans for a Ballston meeting?
Our next meeting will be at the Ballston library on Sunday, July 16, from 3-5:30.

BobK
In finance risk is defined as uncertainty that is consequential (nontrivial). | The two main methods of dealing with financial risk are the matching of assets to goals & diversifying.

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VictoriaF
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Re: Calculating the Funded Ratio using real life annuity pricing

Post by VictoriaF » Tue May 23, 2017 11:28 am

bobcat2 wrote:At yesterday's meeting it was brought up that one can calculate the funded ratio for your retirement portfolio while working by dividing the size of your portfolio by the price of a deferred real (inflation-adjusted) life annuity with payouts at your desired retirement income level. The question that came up was where can I get the deferred life annuity price.

The answer is the website Immediateannuities.com. Link - https://www.immediateannuities.com/annu ... rs/?sce=hc
Bob,

Thank you for the presentation and the follow-up with annuity quotes. Very useful.

At the meeting I also had a question about buying TIPS. Right now I have some TIPS I have purchased in 2008-2009 at very good rates. But they are now expiring and I need to develop a new TIPS strategy.

I am and will be holding TIPS only in Roth IRAs, thus I am not concerned about taxes, only about the earnings.

If I understood your and David's comments correctly, the approach is as follows:
1. Assume life expectancy, e.g., 30 years.
2. Have a TIPS collection with the weighted average of 30 / 2 = 15 years.

Consider the following TIPS investments:
3. Vanguard Shrt-Term Infl-Prot Sec Idx Adm (VTAPX) (er = 0.07) --> x < 5 years (1-year return = 1.58%)
4. Vanguard Inflation-Protected Secs Inv (VIPSX) (er = 0.20) --> 7 years < x < 20 years (1-year return = 1.63%)
5. PIMCO 15+ Year US TIPS ETF (LTPZ) (er = 0.20) --> x > 15 years (1-year return = 2.69%)

6. Get a collection of (3), (4), and (5) such that the weighted average is 15 years.
7. Over time, buy and sell funds and ETFs in (6) to maintain the weighted duration corresponding to one's life expectancy.

Please let me know if this is an accurate representation of our discussion.

Thank you,
Victoria
WINNER of the 2015 Boglehead Contest. | Every joke has a bit of a joke. ... The rest is the truth. (Marat F)

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Re: Master thread for Washington DC Area Bogleheads

Post by bobcat2 » Thu May 25, 2017 12:06 pm

Hi Victoria,

I think you’ve got it, but I’ll put it in my own words.

There are two ways to get safe real (inflation-adjusted) income in retirement. One is real life annuities - SS, real pensions, and real commercial life annuities, and the other is real bonds – TIPS & I-bonds. IMO they are complements, not substitutes, for providing safe retirement income. The real life annuities have longevity protection, but provide inflexible income. The real bonds provide flexible income, but lack longevity protection.

Because of the lack of longevity protection here is how I handle my TIPS funds. I consider them safe flexible income above the safe income streams provided by my SS and pension benefits. I try to duration match my ST & LT TIPS funds to my IRA withdrawals from now until age 85. Age 85 is picked because that is approximately my life expectancy, and also the age at which you can last purchase life annuities.

If I get to 75 healthy, I intend to purchase a longevity annuity that begins payouts at age 85 for about a third of my annual withdrawals from the TIPS. I would then purchase another third at about age 80 if healthy, and the remaining third as I approach age 85. Beyond 85 I want longevity protection and I don’t want my future elderly self to be attempting to dynamically adjust TIPS allocations between funds. :wink:

The other way to use TIPS is to forego longevity protection thru annuitization, and estimate your age of death. In that case you would follow your plan. Here’s my advice for doing that.

Use two TIPS funds, not three, a ST fund & a LT fund. If you are making constant real withdrawals set the average duration of the combined two funds equal to the duration of the withdrawal time span. (This protects the withdrawals from the risk of changing interest rates.) If the withdrawals are for 30 years then the beginning duration of the liability is 15.

Lets say the current duration of the two funds is 22 and 2. The calculation for the beginning mix of the two funds to match the duration of the liabilities is the following:
22x + 2(1-x) = 15
x = 0.65 and (1-x) = 0.35
That is 65% of the TIPS assets should be in the LT fund and the remaining 35% in the ST fund.

This is a dynamic allocation between the two funds. For example, in two years the duration of the remaining liability will be 14, not 15. Also the duration of the funds will change over time as interest rates change and the fund managers adjust the mix of TIPS bonds in each fund. I would suggest that the calculation and re-balancing between the two TIPS funds be done on at least a quarterly or trimester basis.

You don’t need the third fund, the Vanguard intermediate TIPS fund. What I would do instead is have the first 12 months of withdrawals every year in the Vanguard Ultra-Short bond fund and have the TIPS funds allocated for all the remaining years. For example, in the first year of a 30 year plan, the amount of the first year withdrawals in the ultra-short fund, and the two TIPS funds duration matched for the remaining 29 years.

Also don’t forget that to keep the withdrawals constant in real terms, they need to be adjusted annually for inflation.

PM me if you have additional questions.

Best,
Bob
In finance risk is defined as uncertainty that is consequential (nontrivial). | The two main methods of dealing with financial risk are the matching of assets to goals & diversifying.

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VictoriaF
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Re: Master thread for Washington DC Area Bogleheads

Post by VictoriaF » Fri May 26, 2017 7:06 pm

Bob,

Thank you for an excellent review and recommendations! Now, I have to design my strategy for evolving from the current combination of income and assets to a combination of real annuities and real bonds.

Victoria
WINNER of the 2015 Boglehead Contest. | Every joke has a bit of a joke. ... The rest is the truth. (Marat F)

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Re: Master thread for Washington DC Area Bogleheads

Post by bobcat2 » Sun Aug 13, 2017 10:57 pm

Our next meeting will be Sunday, September 17, from 3-5 in the 2nd floor meeting room of the Ballston library.

Tentatively, a special guest will be making a presentation on Social Security and Social Security claiming strategies. The guest has co-authored several articles and papers on Social Security and best Social Security claiming strategies and last year testified before the US Senate Special Committee on Aging on the topic of “Maximizing Your Social Security Benefits: What You Need to Know”.

I'll have more to say about the meeting as plans become finalized in the next week or so.

BobK
In finance risk is defined as uncertainty that is consequential (nontrivial). | The two main methods of dealing with financial risk are the matching of assets to goals & diversifying.

Luv2Perform
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Re: Master thread for Washington DC Area Bogleheads

Post by Luv2Perform » Mon Aug 14, 2017 7:37 am

Is this the library on Quincy street, known as the Central library?

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VictoriaF
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Re: Master thread for Washington DC Area Bogleheads

Post by VictoriaF » Mon Aug 14, 2017 7:41 am

Luv2Perform wrote:
Mon Aug 14, 2017 7:37 am
Is this the library on Quincy street, known as the Central library?
Yes, it is. I am not Bob (obviously), but I have been attending most DC meetings.

Victoria
WINNER of the 2015 Boglehead Contest. | Every joke has a bit of a joke. ... The rest is the truth. (Marat F)

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Sunday Sept 17 meeting on Social Security claiming strategies

Post by bobcat2 » Fri Aug 18, 2017 3:38 pm

Our next meeting will be Sunday, September 17, from 3-5 in the 2nd floor meeting room of the Ballston library. Sita N. Slavov, professor of public policy and director of the public policy Ph.D. program at George Mason University, will be our guest speaker. Sita is also a faculty research fellow at the National Bureau of Economic Research (NBER) and a visiting scholar at the American Enterprise Institute (AEI).

Professor Slavov’s research focuses primarily on public finance and the economics of aging. In particular, in recent years she has co-authored several articles and papers on what are the optimal Social Security claiming strategies. Her presentation at our meeting will be on that topic.
Here are links to some of her papers on Social Security claiming strategies.

The Decision To Delay Social Security Benefits: Theory And Evidence
https://www.nber.org/programs/ag/rrc/rr ... Slavov.pdf

When Does It Pay to Delay Social Security? The Impact of Mortality, Interest Rates, and Program Rules
http://www.aei.org/files/2012/07/10/-sl ... 253206.pdf

Leaving Big Money on the Table: Arbitrage Opportunities in Delaying Social Security
http://web.stanford.edu/~gilaw/Arbitrag ... g%20SS.pdf

The Financial Feasibility of Delaying Social Security
https://siepr.stanford.edu/system/files ... 0Paper.pdf

Efficient Retirement Design – Policy Brief
http://siepr.stanford.edu/research/publ ... ent-design

Maximizing Your Social Security Benefits: What You Need to Know
Professor Slavov’s testimony before the US Senate Special Committee on Aging
https://www.aging.senate.gov/imo/media/ ... _14_16.pdf

Sita made a presentation at the Retirement Research Consortium annual conference in 2012 on Social Security claiming strategies. Here is a link to her presentation slides. I was at that presentation and thought it was excellent. It changed the way I approach Social Security claiming strategies.
https://www.nber.org/programs/ag/rrc/rr ... %203.3.pdf

Lastly, Sita said she is looking forward to going out to dinner with us after the meeting. :D

BobK
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Re: Sunday Sept 17 meeting on Social Security claiming strategies

Post by bobcat2 » Tue Aug 22, 2017 1:16 pm

In my post just before this one, the number of articles referenced on the topic of Social Security claiming may seem overwhelming to the reader. So for Sita Slavov's take on Social Security claiming I would suggest starting with the following two articles.

The first is the policy brief by her frequent co-author John Shoven of Stanford which has an overview of what he and Sita have discovered in terms of best strategies for SS claiming.
Here is a link to the policy brief. - http://siepr.stanford.edu/sites/default ... mvp2_0.pdf

The second article is the booklet, Efficient Retirement Design, co-authored by Shoven and Slavov.
Here is a link to the booklet in pdf form. I suggest downloading the booklet because the booklet on line is in a somewhat awkward format in my opinion. The button to download the booklet is underneath the graph at the beginning of the following linked page.
Link - http://docplayer.net/5675214-Efficient- ... _full_text

Here is one of the key takeaways from the booklet. (See page 20.)
To put it in technical terms, the adjustments are actuarially fair if Social Security benefits have the same expected present value regardless of when they are commenced. Obviously, actuarial fairness depends on life expectancy and interest rates. This is why we believe that the conventional wisdom – that Social Security benefit adjustments are actuarially fair – no longer holds. The commencement age adjustments
may have been actuarially fair for single people at some time in the past
, but today’s longer life expectancies and extremely low interest rates make deferral actuarially advantageous.
BobK
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Re: Master thread for Washington DC Area Bogleheads

Post by bobcat2 » Sat Sep 16, 2017 1:44 pm

Our next meeting will be this coming Sunday, September 17, 3:00-5:00, in the second floor meeting room at the Arlington, VA Central Library, 1015 N. Quincy Street, Arlington, VA 22201. The second floor meeting room is on the south side of the library, just to the left of the glass enclosed quiet reading room. The library has a free parking lot for patrons behind the building and free parking in a garage below the building.

The library is between the Virginia Square and Ballston stations on the Metro Orange Line. From Virginia Square, walk four blocks west (left, away from Washington) on Fairfax Drive, turn right on N. Quincy, and go one block to the library. From Ballston, walk three blocks east (right, towards Washington) on Fairfax Drive, turn left on N. Quincy, and go one block to the library. The library is on the east side of N. Quincy Street.

BobK
In finance risk is defined as uncertainty that is consequential (nontrivial). | The two main methods of dealing with financial risk are the matching of assets to goals & diversifying.

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Next meeting Sunday, November 19, from 5-7

Post by bobcat2 » Mon Nov 13, 2017 10:14 am

Our next meeting will be this coming Sunday, November 19, from 5:00-7:00, in the second floor meeting room at the Arlington, VA Central Library, 1015 N. Quincy Street, Arlington, VA 22201. Note the time change to 5-7 instead of the usual 3-5. Also, if some of us want to go to dinner as a group, we need to decide if we want to go before or after the meeting. Please post in this thread about dinner timing, and not by sending emails to all 271 members of the group at the local DC area Vanguard Diehards (Bogleheads) site.

David Grabiner will be making a presentation at the meeting, which will probably run about 40 minutes. Here's the title and brief abstract.

Simplify! How to Think About Financial Decisions
Should you make extra mortgage payments, or invest the money? When should you take Social Security? Is a high-deductible health plan a good deal? Should you hold your bonds in a 401(k) or Roth IRA? These decisions, and many others, can often be simplified, by making comparisons which look at one factor at a time. If you can create a comparison of options with similar risk, you can choose the option with higher expected return. Even when you cannot simplify all the way, making a fair comparison which is as simple as possible will help you work out the decisions.
The second floor meeting room is on the south side of the library, just to the left of the glass enclosed quiet reading room. The library has a free parking lot for patrons behind the building and free parking in a garage below the building.

The library is between the Virginia Square and Ballston stations on the Metro Orange Line. From Virginia Square, walk four blocks west (left, away from Washington) on Fairfax Drive, turn right on N. Quincy, and go one block to the library. From Ballston, walk three blocks east (right, towards Washington) on Fairfax Drive, turn left on N. Quincy, and go one block to the library. The library is on the east side of N. Quincy Street.

BobK
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Re: Master thread for Washington DC Area Bogleheads

Post by grabiner » Mon Nov 13, 2017 11:18 pm

I would prefer dinner after the meeting rather than before. Since I am speaking (likely an hour with questions), I would like to use the hour before the meeting to go over my presentation.
David Grabiner

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Re: Master thread for Washington DC Area Bogleheads

Post by bobcat2 » Sat Nov 18, 2017 2:12 pm

David et al.,

Looks like we eat after the meeting. :)

BobK
In finance risk is defined as uncertainty that is consequential (nontrivial). | The two main methods of dealing with financial risk are the matching of assets to goals & diversifying.

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