Bernstein: "If you've won the game, stop playing."

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Browser
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Bernstein: "If you've won the game, stop playing."

Post by Browser » Fri Apr 17, 2015 9:20 am

William Bernstein advises retirees and near-retirees to avoid investing in risky assets such as stocks, at least with money needed to provide an adequate income stream. Is anybody acting on this advice and what is your strategy?
In other words, once the game has been won by accumulating enough safe assets to retire on, it makes little sense to keep playing it, at least with the “number”: the pile of safe assets sufficient to directly provide or indirectly purchase an adequate lifetime income stream.

Bernstein, William J (2012-06-18). The Ages of the Investor: A Critical Look at Life-cycle Investing (Investing for Adults) (Kindle Locations 51-52). Efficient Frontier Publications. Kindle Edition.
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Re: Bernstein: "If you've won the game, stop playing."

Post by TomatoTomahto » Fri Apr 17, 2015 9:26 am

I can't say that it's based on his advice specifically, but we're shooting for 50/50 AA eventually, although we're 55/45 now. We could live on SS and pensions if we had to, so we are at liberty to have AA ranging from 20/80 to 80/20. 50/50 seems unlikely to create regret later.

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Re: Bernstein: "If you've won the game, stop playing."

Post by terran » Fri Apr 17, 2015 9:27 am

Perhaps this is the naivete of youth, but couldn't it be argued that if you've accumulated enough that you don't need the growth of stocks that you actually played the game too long? Why not say "once the game has been won by accumulating enough safe assets, put it all in FDIC insured bank accounts because it makes little sense to take the risk of bonds"?

*Edit* Sorry folks, I was actually trying to make a counter point, but I think people are taking the part in quotations as my argument -- I meant to point out what seemed to me to be the logical final conclusion from Bernstein's argument. :happy
Last edited by terran on Fri Apr 17, 2015 9:59 am, edited 2 times in total.

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Re: Bernstein: "If you've won the game, stop playing."

Post by TomatoTomahto » Fri Apr 17, 2015 9:34 am

terran wrote:Perhaps this is the naivete of youth, but couldn't it be argued that if you've accumulated enough that you don't need the growth of stocks that you actually played the game too long? Why not say "once the game has been won by accumulating enough safe assets, put it all in FDIC insured bank accounts because it makes little sense to take the risk of bonds"?
Some of us would like to have a few dollars left to give to charity or heirs. But yes, if all you're worried about is not running out of money, buy annuities from a selection of companies and build CD and TIPS ladders with the remainder.

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Re: Bernstein: "If you've won the game, stop playing."

Post by fsrph » Fri Apr 17, 2015 9:37 am

I am following his advice, sort of. Have enough to retire. I'm in my mid 50's and only hold 27% stocks. Use Wellesley, Target Retirement Income, some bond funds and CD's. I could have more if my stock allocation was higher and the stock market continued to advance. But I don't care. Enough is enough.

Where I don't follow Bernstein is in retirement most of expenses can be covered by SS and pension. If I understand him correctly, since expenses are already covered, I can have a stock heavy portfolio with the remainder of investments.

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Re: Bernstein: "If you've won the game, stop playing."

Post by bertilak » Fri Apr 17, 2015 9:37 am

terran wrote:Perhaps this is the naivete of youth, but couldn't it be argued that if you've accumulated enough that you don't need the growth of stocks that you actually played the game too long? Why not say "once the game has been won by accumulating enough safe assets, put it all in FDIC insured bank accounts because it makes little sense to take the risk of bonds"?
Three points:
  1. You need to account for inflation. If you don't meet all needs with an inflation-indexed annuity (unlikely that you will), you still need growth.
  2. Improve, instead of maintain life-style. Perhaps you want to go first class, if possible. Some extra growth my allow that.
  3. Uncertainty. Most calculations you use to see if you have "won the game" involve estimates and uncertainties. You want to push a little to reduce the impact of a scenario that is worse than the worst case scenario your calculations account for. For example, even indexed investments often have caps. Another example: your pension may go belly-up. Even though you are likely to recover from PBGC, how long will that take and will it be 100%?
All told, you don't want to completely stop playing. It helps your planning to have both a safe and a risky part of you portfolio so you can manage where and for how much you are still "in the game."
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Re: Bernstein: "If you've won the game, stop playing."

Post by Maynard F. Speer » Fri Apr 17, 2015 9:45 am

I'd always be asking: what if you're still around at 120? It's going to presumably become more common .. Retiring in your 60s, that's a long time to keep your capital from getting swallowed up by inflation

In principle my favourite portfolio is one you'd be as happy to have at 20 as at 120 .. Something like a risk parity or Ivy portfolio .. Or 1/3rd each: stocks, alternatives, cash/bonds .. I'm a big believer in avoiding drawdowns whether you're aggressively saving or living off dividend payments in Havana
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Re: Bernstein: "If you've won the game, stop playing."

Post by Taylor Larimore » Fri Apr 17, 2015 9:46 am

Once the game has been won by accumulating enough safe assets to retire on, it makes little sense to keep playing it, at least with the “number”: the pile of safe assets sufficient to directly provide or indirectly purchase an adequate lifetime income stream.
Bogleheads:

I am in retirement and I take the above quote by Dr. Bernstein very seriously.

Money I can't afford to lose is invested in diversified high-quality bonds (Total Bond Market and Short-Term TIPS).

My stock allocation is money I can afford to lose.

Best wishes.
Taylor
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Re: Bernstein: "If you've won the game, stop playing."

Post by bengal22 » Fri Apr 17, 2015 9:53 am

I agree with Taylor's comments above.

But, I think the concept of "winning the game" is nebulous at best. There is the winning that involves surviving, there is a winning that involves surviving with a certain level of frills, and there is a winning that involves fulfilling your dream of what retirement will look like. I am retired. I think I have won the game and can continue to live a life that looks just like it does now. But I still want to grow my portfolio so that I can take dream trips, drive nice cars, and help my children when I am gone. So because of that I have a 55/45 mix that hopefully will at least maintain my present net worth while I can enjoy to live life without constraints. So to me its not a black/white concept regarding winning the game.
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Re: Bernstein: "If you've won the game, stop playing."

Post by itstoomuch » Fri Apr 17, 2015 9:55 am

Trying too.

Wednesday, I had a holding shoot up 10%. I was lucky to have an extended hours and bought at the low. I sold it all in a midday trade which was the high for many hours. :moneybag
Thursday, had another holding do a +5%. Today AM, Friday, it's slightly below Wednesday trading; -5%. :oops:
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Re: Bernstein: "If you've won the game, stop playing."

Post by midareff » Fri Apr 17, 2015 9:56 am

terran wrote:Perhaps this is the naivete of youth, but couldn't it be argued that if you've accumulated enough that you don't need the growth of stocks that you actually played the game too long? Why not say "once the game has been won by accumulating enough safe assets, put it all in FDIC insured bank accounts because it makes little sense to take the risk of bonds"?
My personal belief is recently hyped "risk" of bonds is way overdone. Corporate America is not going to go away, and the treasury certainly isn't. As an example, if it takes 50% of your portfolio in bonds to give you enough funding for 20-25years of drawdown (assuming 3% inflation) and you put the other 50% in equities you have not only won the game but stopped playing as well.

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Re: Bernstein: "If you've won the game, stop playing."

Post by terran » Fri Apr 17, 2015 9:57 am

TomatoTomahto wrote: Some of us would like to have a few dollars left to give to charity or heirs. But yes, if all you're worried about is not running out of money, buy annuities from a selection of companies and build CD and TIPS ladders with the remainder.
bertilak wrote: Three points:
  1. You need to account for inflation. If you don't meet all needs with an inflation-indexed annuity (unlikely that you will), you still need growth.
  2. Improve, instead of maintain life-style. Perhaps you want to go first class, if possible. Some extra growth my allow that.
  3. Uncertainty. Most calculations you use to see if you have "won the game" involve estimates and uncertainties. You want to push a little to reduce the impact of a scenario that is worse than the worst case scenario your calculations account for. For example, even indexed investments often have caps. Another example: your pension may go belly-up. Even though you are likely to recover from PBGC, how long will that take and will it be 100%?
All told, you don't want to completely stop playing. It helps your planning to have both a safe and a risky part of you portfolio so you can manage where and for how much you are still "in the game."
Sorry, I was trying to make a counter-point. I wasn't saying you should drop out and actually put all your money in FDIC insured accounts. I was taking the Bernstein quote to what seemed to me the logical next step to make the point that maybe his advice is a little extreme. It seems to me that if you can afford to put all your money in bonds (or even the more extreme FDIC bank account) and still meet your goals, then by all means go for it, but perhaps if you've got enough for that, then you've actually accumulated more than you really needed in the first place?

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Re: Bernstein: "If you've won the game, stop playing."

Post by dbr » Fri Apr 17, 2015 9:57 am

Each individual has to think through his own situation. However, taking a general view, in the presence of Social Security, either some pensions or some annuities (inflation indexed or not) and a moderate asset allocation such as 50/50 stocks/bonds, one has effectively done what Mr. Bernstein is suggesting, so the whole thing seems to come across in my mind as no new news. I guess what is needed is some illustrations of the cases where this advice is actually needed to turn someone aside from a dangerous course that needs to be corrected. I don't think most people really need the advice, but I could be wrong. The operational language that excludes a very large class of retirees is the "If you have won the game . . ." condition. An interesting irony is that those who have failed to save and invest are just precisely completely dependent on SS and pensions and therefore have quit the game and have "followed" the advice in a perverse sense.

As an aside, even the (in)famous example of the Warren Buffet estate may not violate the principle as 10% of that estate arguably represents "at least with money needed . . . ."

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Re: Bernstein: "If you've won the game, stop playing."

Post by Fixmen » Fri Apr 17, 2015 10:01 am

I could see making the exact argument of Bernstein. Once you have enough such that you're portfolio is more than enough to support your life style then you can now afford to start taking on more risk. For example, if you have a portfolio of twice your "number" and equities lose 50% you'll still be just fine.

If you don't think of risk as just volatility, but rather view risk as the chance that you cannot pay your bills (loosely defined) then a big portfolio means you can add higher volatility asset classes. Obviously, this ignores the emotional tax that higher volatility can have, but that seem stress seems like a fair trade for a higher return if you ask me.

This not to say that you should be doubling down your bets each year in retirement, but I also don't think cashing out with annuity is the best advice either.

Point being, I've never liked Bernstein's advice on this since I don't think it's a one size fits all issue. People's "number" is a little more fluid and adaptable than this advice assumes.

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Re: Bernstein: "If you've won the game, stop playing."

Post by siamond » Fri Apr 17, 2015 10:04 am

Maynard F. Speer wrote:I'd always be asking: what if you're still around at 120? It's going to presumably become more common .. Retiring in your 60s, that's a long time to keep your capital from getting swallowed up by inflation

In principle my favourite portfolio is one you'd be as happy to have at 20 as at 120 .. Something like a risk parity or Ivy portfolio .. Or 1/3rd each: stocks, alternatives, cash/bonds .. I'm a big believer in avoiding drawdowns whether you're aggressively saving or living off dividend payments in Havana
Exactly. I didn't accumulate a nice portfolio to squander it over time. Dr Bernstein makes really clear in some other material he wrote that bonds ARE risky as a long-term investment (inflation risk, low returns), and then he comes up with this LMP/RP framework, suggesting to cover most of your expenses by a bond ladder... Hard to reconcile if you plan to live a few decades post retirement. Unless winning the game means an amount of money so large that you can indeed live off bonds for half a century, but then the point gets moot, you can do pretty much whatever you want... This framework makes very little sense to me.

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Re: Bernstein: "If you've won the game, stop playing."

Post by Grt2bOutdoors » Fri Apr 17, 2015 10:06 am

Intend to build a 20-25 year ladder of high quality fixed income securities, both nominal and TIPs representing difference between known and expected stream of payments and estimated expenses. Remainder of portfolio is intended to be held in highly diversified low cost equities portfolio composed of domestic and international equities.
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Re: Bernstein: "If you've won the game, stop playing."

Post by Grt2bOutdoors » Fri Apr 17, 2015 10:08 am

siamond wrote:
Maynard F. Speer wrote:I'd always be asking: what if you're still around at 120? It's going to presumably become more common .. Retiring in your 60s, that's a long time to keep your capital from getting swallowed up by inflation

In principle my favourite portfolio is one you'd be as happy to have at 20 as at 120 .. Something like a risk parity or Ivy portfolio .. Or 1/3rd each: stocks, alternatives, cash/bonds .. I'm a big believer in avoiding drawdowns whether you're aggressively saving or living off dividend payments in Havana
Exactly. I didn't accumulate a nice portfolio to squander it over time. Dr Bernstein makes really clear in some other material he wrote that bonds ARE risky as a long-term investment (inflation risk, low returns), and then he comes up with this LMP/RP framework, suggesting to cover most of your expenses by a bond ladder... Hard to reconcile if you plan to live a few decades post retirement. Unless winning the game means an amount of money so large that you can indeed live off bonds for half a century, but then the point gets moot, you can do pretty much whatever you want... This framework makes very little sense to me.
Most retirees will not live a few decades post retirement, especially if they retire at FRA of 66-67. A couple of decades should be expected, a few decades implies a longer life than current actuarial tables project.
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Re: Bernstein: "If you've won the game, stop playing."

Post by bigred77 » Fri Apr 17, 2015 10:09 am

I plan to utilize SPIA's when in retirement with a portion of my assets. I think that's prudent when one does not have a traditional pension.

I would like my AA in retirement to stay somewhere around 60/40 for my non-annuitized assets. In especially good years, I plan to consider skimming some off the top to buy another SPIA and reduce my withdrawals accordingly.

I don't think I would ever consider myself to have "won the game" unless I had enough assets that I could live very comfortably on just a 1-2 percent withdrawal rate. At that point I wouldn't even care because I'd probably sleep soundly with any reasonable AA.

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Re: Bernstein: "If you've won the game, stop playing."

Post by siamond » Fri Apr 17, 2015 10:11 am

Grt2bOutdoors wrote:
siamond wrote:
Maynard F. Speer wrote:I'd always be asking: what if you're still around at 120? It's going to presumably become more common .. Retiring in your 60s, that's a long time to keep your capital from getting swallowed up by inflation

In principle my favourite portfolio is one you'd be as happy to have at 20 as at 120 .. Something like a risk parity or Ivy portfolio .. Or 1/3rd each: stocks, alternatives, cash/bonds .. I'm a big believer in avoiding drawdowns whether you're aggressively saving or living off dividend payments in Havana
Exactly. I didn't accumulate a nice portfolio to squander it over time. Dr Bernstein makes really clear in some other material he wrote that bonds ARE risky as a long-term investment (inflation risk, low returns), and then he comes up with this LMP/RP framework, suggesting to cover most of your expenses by a bond ladder... Hard to reconcile if you plan to live a few decades post retirement. Unless winning the game means an amount of money so large that you can indeed live off bonds for half a century, but then the point gets moot, you can do pretty much whatever you want... This framework makes very little sense to me.
Most retirees will not live a few decades post retirement, especially if they retire at FRA of 66-67. A couple of decades should be expected, a few decades implies a longer life than current actuarial tables project.
Actuarial tables provide an AVERAGE. There is a large distribution around it. Also not everybody waits until 65+ to retire.

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Re: Bernstein: "If you've won the game, stop playing."

Post by The Wizard » Fri Apr 17, 2015 10:12 am

It's a cute sound bite quote, of course, but no, investing and money management are life-long activities, not something one quits.
Now it's true that we typically adjust our AA over time as we approach and exceed Financial Independence. But these AA adjustments are typically done in 5% or 10% increments, not from 80+% stocks to zero.

And this isn't just my opinion; take a look at what a Target Retirement fund does over time...
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Re: Bernstein: "If you've won the game, stop playing."

Post by dbr » Fri Apr 17, 2015 10:14 am

siamond wrote: Exactly. I didn't accumulate a nice portfolio to squander it over time. Dr Bernstein makes really clear in some other material he wrote that bonds ARE risky as a long-term investment (inflation risk, low returns), and then he comes up with this LMP/RP framework, suggesting to cover most of your expenses by a bond ladder... Hard to reconcile if you plan to live a few decades post retirement. Unless winning the game means an amount of money so large that you can indeed live off bonds for half a century, but then the point gets moot, you can do pretty much whatever you want... This framework makes very little sense to me.
The thing that jumped in my face about this whole concept is that anything other than inflation indexed annuities simply does not answer to the basic premise. The bond ladder thing just seems odd. (And, of course, only TIPS make any sense at all, if that is the approach taken.) It smacks of taking some kind of psychological comfort in mental accounting and denying the fungibility of money, though that may be an unfair comment. The suggestion of annuities is, of course, very old news and highly conventional in the area of financial analysis. It is a reason we have Social Security, for one thing.

I tend to agree that the point can easily become moot. Again, we need to work on some examples where a wrong course is being taken that could be corrected.

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Re: Bernstein: "If you've won the game, stop playing."

Post by dkturner » Fri Apr 17, 2015 10:15 am

What happens if you've won the game and, ten years into retirement, the rules of the game change? Example: Social Security becomes means tested and the formula says you don't need the SS benefits you have relied on for a significant portion of your living expenses.

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Re: Bernstein: "If you've won the game, stop playing."

Post by MossySF » Fri Apr 17, 2015 10:17 am

You can stop playing ... but sometimes the game sucks you back in against your will. And at that point, you might not longer have your baller skills.

It may be better to pile it on -- make it a blowoout -- since there's nobody on the other side to cry foul about your lack of sportsmanship in this game.

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Re: Bernstein: "If you've won the game, stop playing."

Post by rustymutt » Fri Apr 17, 2015 10:26 am

Every investor should have a written investment plan, and stick with it regardless of outside pressures.
This should be common place training in our educational system, but it's lacking horridly. Kids today don't even know what an algorithm is, yet alone a risk adjusted return, or inflation hedge.
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Re: Bernstein: "If you've won the game, stop playing."

Post by PeteD01 » Fri Apr 17, 2015 10:35 am

I am going to retire at 52 next month. My wife retired last month.
I am taking this very seriously and have changed my allocation from 90/10 stocks/bonds to approximately 35/25/40 TIAA Traditional/TREA/stocks.
I started to reallocate about two years ago, when I realized that we were about to "win the game".
I have also decided to annuitize all of it, in part due to the preferential tax treatment annuity income receives in Spain (our retirement destination).
This allocation will allow us to get by even if TREA/stocks go down to 25% of the initial value.
Down the road, a small pension and eventually SS will replace (or more than replace) the loss of income due to inflation from the TIAA Traditional.
The initial income will be about 20% higher than what we expect to spend and I plan to invest these funds in 80/20 stocks/bonds or something like that.
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Re: Bernstein: "If you've won the game, stop playing."

Post by The Wizard » Fri Apr 17, 2015 10:37 am

rustymutt wrote:Every investor should have a written investment plan, and stick with it regardless of outside pressures.
This should be common place training in our educational system, but it's lacking horridly. Kids today don't even know what an algorithm is, yet alone a risk adjusted return, or inflation hedge.
OK, but what if that written plan says that upon reaching Retirement Age, sell all stock and bond funds and put the proceeds in CDs?

A written plan and stopping game playing are different issues...
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Re: Bernstein: "If you've won the game, stop playing."

Post by Lynette » Fri Apr 17, 2015 10:40 am

.....
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Re: Bernstein: "If you've won the game, stop playing."

Post by itstoomuch » Fri Apr 17, 2015 10:50 am

Browser wrote:William Bernstein advises retirees and near-retirees to avoid investing in risky assets such as stocks, at least with money needed to provide an adequate income stream. Is anybody acting on this advice and what is your strategy?
In other words, once the game has been won by accumulating enough safe assets to retire on, it makes little sense to keep playing it, at least with the “number”: the pile of safe assets sufficient to directly provide or indirectly purchase an adequate lifetime income stream.

Bernstein, William J (2012-06-18). The Ages of the Investor: A Critical Look at Life-cycle Investing (Investing for Adults) (Kindle Locations 51-52). Efficient Frontier Publications. Kindle Edition.
Aside from my earlier comment, More than half of our retirement investments are deferred annuities with stepups and guaranteed income withdrawals. The market could collapse and the income value of the annuities would still increase. The expected retirement income has become a non-issue. :happy

The hit for us will be in the unmanaged Index funds. The trading accounts would certainly take a downturn but I trade fairly frequently and take profits early and avoid losses. A 50% decrease in current value in our Index funds and Trading accounts would not appreciably hurt our future lifestyle at RMD. We are 65/68. :annoyed
GL :beer
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Re: Bernstein: "If you've won the game, stop playing."

Post by Van » Fri Apr 17, 2015 10:58 am

I'm very happy to say that I "have won the game", and my assets are therefore in a very conservative allocation.

That would be 80% bond funds, 15% stock funds and 5% cash.

Exactly one-half of the bond allocation is municipals. Some might argue that this is taking some unnecessary risk, and they could prove to be correct. The other one-half is equally divided between US government and corporate bonds.

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Re: Bernstein: "If you've won the game, stop playing."

Post by Van » Fri Apr 17, 2015 11:01 am

dkturner wrote:What happens if you've won the game and, ten years into retirement, the rules of the game change? Example: Social Security becomes means tested and the formula says you don't need the SS benefits you have relied on for a significant portion of your living expenses.
If you are counting on Social Securtity, I don't think you have won the game yet.

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Re: Bernstein: "If you've won the game, stop playing."

Post by dbr » Fri Apr 17, 2015 11:02 am

PeteD01 wrote:I am going to retire at 52 next month. My wife retired last month.
I am taking this very seriously and have changed my allocation from 90/10 stocks/bonds to approximately 35/25/40 TIAA Traditional/TREA/stocks.
I started to reallocate about two years ago, when I realized that we were about to "win the game".
I have also decided to annuitize all of it, in part due to the preferential tax treatment annuity income receives in Spain (our retirement destination).
This allocation will allow us to get by even if TREA/stocks go down to 25% of the initial value.
Down the road, a small pension and eventually SS will replace (or more than replace) the loss of income due to inflation from the TIAA Traditional.
The initial income will be about 20% higher than what we expect to spend and I plan to invest these funds in 80/20 stocks/bonds or something like that.
Is this an example of stop playing? . . . in that stock allocation will be reduced from 90% of the portfolio to 40% (I am not familiar with what the TREA investments really are and whether those investments actually constitute "not playing the game.). I guess the "annuitize all of it" is the part where we really do have an example of stop playing. It is consistent with my idea of what stop playing can mean. The idea that a pension and SS coming along are the plan for cases where an annuity is fixed rather than inflation indexed, not a small matter.

There will be a small allocation to actual funds. An issue here is that there does need to be a balance in liquid assets to deal with needs for lump sums and unexpected increases in expenses.

It is still hard to get past why anything other than a combination of SS, fixed or indexed annuities, and assets in a balanced portfolio in stocks and bonds would not be the "obvious" way to enter retirement without any special engineering of the situation.

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Re: Bernstein: "If you've won the game, stop playing."

Post by truenorth418 » Fri Apr 17, 2015 11:28 am

dbr wrote:
PeteD01 wrote:It is still hard to get past why anything other than a combination of SS, fixed or indexed annuities, and assets in a balanced portfolio in stocks and bonds would not be the "obvious" way to enter retirement without any special engineering of the situation.
When one retires at, say, age 50 (12-20 years before SS), looking forward to perhaps 45 more years of life (with all the inflation that might entail), and is living solely on their portfolio, I think a healthy allocation to stocks and an ability to adjust spending, especially early on, makes sense.

RetiredinKaty
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Re: Bernstein: "If you've won the game, stop playing."

Post by RetiredinKaty » Fri Apr 17, 2015 11:29 am

Browser asked
Is anybody acting on this advice and what is your strategy?
I was influenced by the advice. We are in our mid 60's and retired. My strategy is conventional, I believe. Based on the following facts: solid funding level, deferred primary social security, no pension, plan to buy an annuity but not for another decade, I have chosen an income class allocation with 1/3 in stock and a "fistful of TIPS" (to borrow a phrase from Dr. Bernstein).

dbr
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Re: Bernstein: "If you've won the game, stop playing."

Post by dbr » Fri Apr 17, 2015 11:34 am

truenorth418 wrote:
dbr wrote:
PeteD01 wrote:It is still hard to get past why anything other than a combination of SS, fixed or indexed annuities, and assets in a balanced portfolio in stocks and bonds would not be the "obvious" way to enter retirement without any special engineering of the situation.
When one retires at, say, age 50 (12-20 years before SS), looking forward to perhaps 45 more years of life (with all the inflation that might entail), and is living solely on their portfolio, I think a healthy allocation to stocks and an ability to adjust spending, especially early on, makes sense.
Indeed, and that is what a balanced portfolio means. "balance" = "healthy" in all things. Also, a retirement is not only today; it is the plan for the entire course. Eventually SS enters the income stream as does the opportunity to annuitize. There is not a large incentive to annuitize at age 50. There are people who have significant pensions at age 50, however. One thing that would indeed be problematic at such a young age would be trying to configure a bond ladder to match inflation adjusted liabilities for the next fifty years, that's for sure.

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Re: Bernstein: "If you've won the game, stop playing."

Post by dbr » Fri Apr 17, 2015 11:37 am

RetiredinKaty wrote:Browser asked
Is anybody acting on this advice and what is your strategy?
I was influenced by the advice. We are in our mid 60's and retired. My strategy is conventional, I believe. Based on the following facts: solid funding level, deferred primary social security, no pension, plan to buy an annuity but not for another decade, I have chosen an income class allocation with 1/3 in stock and a "fistful of TIPS" (to borrow a phrase from Dr. Bernstein).
Not based on the advice and I don't do bond ladders, but with a balance of income streams and conservative but not too conservative investments and with a notion of spending being under control, I would say that by nature one arrives at the same thing in effect but not in detail and certainly not with some concept of there being a game that one has stopped playing. I would say that if the definition of "game" is high risk investing with assets mostly in stocks, that strategy stopped existing long before retirement if it ever existed. (Well it did exist, I suppose, a long time ago when there wasn't enough money involved to even think that one was "investing" at all.)

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Re: Bernstein: "If you've won the game, stop playing."

Post by electronicpage » Fri Apr 17, 2015 11:42 am

The calculation part of the game is all very good, but essentially life can still throw us curve balls. We think we have enough for 25+ years, and then unforeseen medical expenses can change the game. Good long term care insurance is also part of a complete picture, and even that sometimes falls through. May your lives include a lot of GOOD curve balls as well...
sp

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Re: Bernstein: "If you've won the game, stop playing."

Post by Dandy » Fri Apr 17, 2015 11:48 am

I like Wm Bernstein's "bottom up" approach i.e. figuring out how much you need to fund retirement and keeping those assets "safe". I am fortunate to have more than enough which I think is almost required to follow his approach. I have enough assets in "safe" products e.g. CD ladder, savings acct, short term bonds etc to fund my estimated retirement expenses to age 90+.

I don't keep a separate "safe" portfolio and "risk" portfolios. I just periodically calc how many years I have that are "safe". ("safe" assets divided by yearly expenses) That will be my driver vs my overall asset allocation which stands at about 43% equities. If push comes to shove I won't use my "safe" assets to rebalance but will gladly use my "risk" assets for whatever I choose. e.g. I may use equity or intermediate bond assets to fund a year's expenses and extend by "safe" coverage another year or not.

Implementing this approach wasn't difficult for me and fortunately didn't change my overall allocation. It was just a rational way of looking at retirement funding and what assets made sense (at least to me). I have less concern about market volatility or interest rate moves. I also have a decent ability to ride out moderate with my "risk" assets.

No plan is perfect and no plan fits everyone's needs. Just like understanding the Boglehead approach to investing during the accumulation years gave me a rational approach to investing. This provided the same type of rationale for how to allocate assets in retirement. I still plan/need to review periodically our health, expenses and portfolio to make sure this approach continues to be one for me.

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Re: Bernstein: "If you've won the game, stop playing."

Post by joebh » Fri Apr 17, 2015 11:49 am

Grt2bOutdoors wrote:Most retirees will not live a few decades post retirement, especially if they retire at FRA of 66-67. A couple of decades should be expected, a few decades implies a longer life than current actuarial tables project.
Planning to die after a couple of decades doesn't seem like a wise plan to me.

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Re: Bernstein: "If you've won the game, stop playing."

Post by PeteD01 » Fri Apr 17, 2015 11:50 am

dbr wrote:
PeteD01 wrote:I am going to retire at 52 next month. My wife retired last month.
I am taking this very seriously and have changed my allocation from 90/10 stocks/bonds to approximately 35/25/40 TIAA Traditional/TREA/stocks.
I started to reallocate about two years ago, when I realized that we were about to "win the game".
I have also decided to annuitize all of it, in part due to the preferential tax treatment annuity income receives in Spain (our retirement destination).
This allocation will allow us to get by even if TREA/stocks go down to 25% of the initial value.
Down the road, a small pension and eventually SS will replace (or more than replace) the loss of income due to inflation from the TIAA Traditional.
The initial income will be about 20% higher than what we expect to spend and I plan to invest these funds in 80/20 stocks/bonds or something like that.
Is this an example of stop playing? . . . in that stock allocation will be reduced from 90% of the portfolio to 40% (I am not familiar with what the TREA investments really are and whether those investments actually constitute "not playing the game.). I guess the "annuitize all of it" is the part where we really do have an example of stop playing. It is consistent with my idea of what stop playing can mean. The idea that a pension and SS coming along are the plan for cases where an annuity is fixed rather than inflation indexed, not a small matter.

There will be a small allocation to actual funds. An issue here is that there does need to be a balance in liquid assets to deal with needs for lump sums and unexpected increases in expenses.

It is still hard to get past why anything other than a combination of SS, fixed or indexed annuities, and assets in a balanced portfolio in stocks and bonds would not be the "obvious" way to enter retirement without any special engineering of the situation.

Well, I also payed off a mortgage instead of investing and I can assure you that selling hundreds of thousands of $$ worth of stock funds to buy TIAA Trad and TREA certainly felt like stopping to play the game to me.
And, if I understand him correctly, Bernstein doesn't advocate annuitizing (not inflation adjusted) more than what is needed to match liabilities.
I also subscribe to the idea that successful investing is mainly risk management and seeing that my risk of not reaching my savings goals was trending towards zero compelled me to take a lot of the chips off the table - no need to take those risks anymore.
The whole thing really went against my inclinations (particularly the fixed annuity part...) but reading Bernstein helped me to decide that it was the right way for us to approach the problem and I am now comfortable with it.
(TREA is TIAA Real Estate Account; we are selling our house and will rent going forward and TREA is going to be our real estate exposure)

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Re: Bernstein: "If you've won the game, stop playing."

Post by Castanea_d. » Fri Apr 17, 2015 11:51 am

When I first encountered this concept in one of Bernstein's books and thought about it for a while, it was liberating. I realized that yes, we have “won the game.” Much of that depends on SS, which as others have said is not altogether reliable. I like another Bernstein suggestion that one might calculate based on about 75% or 80% of what SS currently says you will get, and even under those terms, we have still “won.”

His statement is a bit of a "sound bite," and needs the context that he provides in his books. I think that his idea is to encourage people that are getting along into their 50's and 60's and 70's to think twice about continuing with an aggressive portfolio to avoid the risk of having enough, then (after a crash) not having enough when they could have dialed it down somewhat.

I am still working because I enjoy my job, and we are still saving/investing, with the same AA as before. The two changes in perspective: the money that is in our liability matched portfolio (as Bernstein calls it) is not available for rebalancing (I see that Dandy just said this, too). And the “risk” assets (mostly equities) are more for the benefit of others – heirs, charitable causes, etc. – though also a margin of safety against inflation.

Electronicpage is right about the "curve balls."

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Re: Bernstein: "If you've won the game, stop playing."

Post by rustymutt » Fri Apr 17, 2015 11:52 am

The Wizard wrote:
rustymutt wrote:Every investor should have a written investment plan, and stick with it regardless of outside pressures.
This should be common place training in our educational system, but it's lacking horridly. Kids today don't even know what an algorithm is, yet alone a risk adjusted return, or inflation hedge.
OK, but what if that written plan says that upon reaching Retirement Age, sell all stock and bond funds and put the proceeds in CDs?

A written plan and stopping game playing are different issues...
First off I don't consider investing a game, period. That said,
hey if that's your plan go for it. But you'd be hard press to stay on top of inflation with CD current offerings. I'm quite flexible with my written investment plan and change it if I think it's in my best interest to do so. :sharebeer
I'm amazed at the wealth of Knowledge others gather, and share over a lifetime of learning. The mind is truly unique. It's nice when we use it!

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Re: Bernstein: "If you've won the game, stop playing."

Post by longinvest » Fri Apr 17, 2015 12:01 pm

Call me conservative, but for me investing is not a game, so I can't technically stop playing. (I agree with Rusty on this).

Risk, in my life, is ever present. I do buy insurance contracts (house, car, disability, ...), but insurance doesn't cover every possibility. I just don't know the future. I could get a terminal medical diagnosis a few years from now giving me just a few more years to live; I don't want to bear the risk of having all my investments in stocks if they happened to be in a prolonged bear market at that point in time. I could also live for a very long time, so I can't afford the risk of my investments losing purchase power to inflation over time due to insufficient bond yields.

So, I hold a balanced portfolio. I will not go into 100% bonds or 100% stocks at any time. I will never play or gamble with my investments; I will keep investing prudently. As our philosophy says: I will stay the course.
Last edited by longinvest on Fri Apr 17, 2015 12:09 pm, edited 1 time in total.
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Re: Bernstein: "If you've won the game, stop playing."

Post by Grt2bOutdoors » Fri Apr 17, 2015 12:09 pm

joebh wrote:
Grt2bOutdoors wrote:Most retirees will not live a few decades post retirement, especially if they retire at FRA of 66-67. A couple of decades should be expected, a few decades implies a longer life than current actuarial tables project.
Planning to die after a couple of decades doesn't seem like a wise plan to me.
Unfortunately, life is not a cookie-cutter pattern, there will be outcomes that are below average, just like there will be outcomes that are above average. You can make plans, and God can laugh.........
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Re: Bernstein: "If you've won the game, stop playing."

Post by Dandy » Fri Apr 17, 2015 12:35 pm

Did you ever hear of an analogy? I think Wm Bernstein is a respected investment person who takes investments seriously. He uses "game" as a reasonable analogy to having reached "your number". It's ok if you don't agree with he approach but it seems odd that offense seems to be taken when he uses the term "game". Do you seriously think he thinks retirement investing is a game?

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Re: Bernstein: "If you've won the game, stop playing."

Post by gasdoc » Fri Apr 17, 2015 12:36 pm

I say, "Stay the course," with some sort of balanced portfolio that remains diversified. There is no guarantee that bonds will always be the safe territory it has been in the past. If, for whatever reason, bonds were to tank, it would nice to have some gains from stocks to counter that drop. Diversification gives you potential gains without additional risk.

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Re: Bernstein: "If you've won the game, stop playing."

Post by longinvest » Fri Apr 17, 2015 1:56 pm

I have a lot of respect for Dr. Bernstein, and I know that he was using an analogy. But, his analogy matches a philosophy where money invested for the long term can be gambled in the stock market (using passive index funds, of course; not real gambling in individual stocks). It then becomes important to stop playing with this money when the time to use it is near.

I have a different philosophy. I believe that I don't exactly know when my invested money will really be needed. I have a plan for its use, but I know that life could intervene. Therefore, I don't assume that I can ever gamble it all in the stock market, or preserve it all in the bond/cash market.
Bogleheads investment philosophy | Lifelong Portfolio: 25% each of (domestic/international)stocks/(nominal/inflation-indexed)bonds | VCN/VXC/VLB/ZRR

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Re: Bernstein: "If you've won the game, stop playing."

Post by joebh » Fri Apr 17, 2015 1:58 pm

Grt2bOutdoors wrote:
joebh wrote:
Grt2bOutdoors wrote:Most retirees will not live a few decades post retirement, especially if they retire at FRA of 66-67. A couple of decades should be expected, a few decades implies a longer life than current actuarial tables project.
Planning to die after a couple of decades doesn't seem like a wise plan to me.
Unfortunately, life is not a cookie-cutter pattern, there will be outcomes that are below average, just like there will be outcomes that are above average. You can make plans, and God can laugh.........
Yup. I believe in planning for the event where a cruel God says "you will live longer than most" and laughs at me.

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Maynard F. Speer
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Re: Bernstein: "If you've won the game, stop playing."

Post by Maynard F. Speer » Fri Apr 17, 2015 2:35 pm

Putting my sci-fi hat on .. with ageing populations (and presumably slowdown in many sectors), you can bet Biotech will be offering some great perks for those with money in old age ..

A new head of hair, blood transfusions to get fresh stem cells into the body (apparently it virtually reverses ageing in mice), mind-controlled exoskeletons (should the worst happen) .. And if you've got a nice large investment portfolio left behind, you can always donate it to a gorilla sanctuary - they could sure use it
"Economics is a method rather than a doctrine, an apparatus of the mind, a technique of thinking, which helps its possessor to draw correct conclusions." - John Maynard Keynes

hoops777
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Re: Bernstein: "If you've won the game, stop playing."

Post by hoops777 » Fri Apr 17, 2015 4:13 pm

I believe there are people out there who THINK they have won the game because they THINK stocks will give give them a nice 8 to 10 pct return going forward.You have not won anything until you have all your worst case scenarios,within reason,covered,and the younger you are when you retire the more at risk you are.Expect the unexpected.Just look at the b.s you get everyday in your emails or see online about stocks and various investments.I saw one today an almost guaranteed 12 pct return investing in these dividend growth stocks if you use this guys research.99.9 pct of the world has never heard of the Bogleheads.....would probably think they were bobbleheads :D
K.I.S.S........so easy to say so difficult to do.

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Re: Bernstein: "If you've won the game, stop playing."

Post by kolea » Fri Apr 17, 2015 9:45 pm

Browser wrote:William Bernstein advises retirees and near-retirees to avoid investing in risky assets such as stocks, at least with money needed to provide an adequate income stream. Is anybody acting on this advice and what is your strategy?
I am not acting on his advice. I view bonds as just as risky to my retirement as stocks. Inflation, unforeseen events that upset my carefully laid plans make Dr. Bernstein's advice unsound, IMO. I am staying the course. The game is not over until we are six feet under.
Kolea (pron. ko-lay-uh). Golden plover.

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