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New Stolz article on SWR
Old 03-14-2009, 10:10 AM   #1
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New Stolz article on SWR

This month is another article about SWR from Richard Stolz:
http://www.fpajournal.org/CurrentIss...ewthLmittions/
It's sort of a review of rules of thumb.
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Old 03-14-2009, 11:00 AM   #2
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Good read, thanks...
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Old 03-14-2009, 01:57 PM   #3
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Interesting article. It's good to see planners thinking hard about these issues. It looks like "cash cushion" is a common technique for dealing with down markets. I assume there's been a lot of strategizing and backtesting to see how much cushion you need and when to access it. I don't know if there is a "rule of the thumb" approach.

I am bothered by this one line:
Quote:
While a cash cushion can do wonders to allow retired clients' income to weather bear markets, there is no escaping the need for a substantial equity exposure.
I think we've got people on this board who seem to be okay without equities. The Sharpe paper that was linked a few days ago seemed (if I read it correctly) to be much less certain that you have to have "substantial" equity exposure.
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Old 03-14-2009, 02:15 PM   #4
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Originally Posted by Independent View Post
Interesting article. It's good to see planners thinking hard about these issues. It looks like "cash cushion" is a common technique for dealing with down markets. I assume there's been a lot of strategizing and backtesting to see how much cushion you need and when to access it. I don't know if there is a "rule of the thumb" approach.

I am bothered by this one line: I think we've got people on this board who seem to be okay without equities. The Sharpe paper that was linked a few days ago seemed (if I read it correctly) to be much less certain that you have to have "substantial" equity exposure.
Just quoting from various studies or experts really doesn't help much. It is easy enough to understand the drivers of retirement survival. Choose some numbers, get some results, and if your numbers and algorithms make sense you have a robust guide.

As regards the Sharpe plan, so far no one has come forward with a source of stripped TIPS coupons. Unless these are available, there is no Sharpe Plan.

As far as others on the board who are "doing fine" with no equities, again be careful that you are understanding their full situation, that they are telling the full truth, that they have doing this for more than a few years, etc.

Some of our prominent bond meisters are really pensioners. They could just burn their investment paper, and though they may do less business with cruise lines, it wouldn't affect their survival.

Others are simply on a roll, which may or may not say much about long term survival.

I think a good retirement can be planned on nothing more than TIPS, but it is tricky because you run a fair amount of re-investment risk over time.

The Fed is able to suppress shorter term interest rates, even well below inflation. So using a 5 year CD ladder, while it looks very good right now, could look very different in other fairly common scenarios.

Uncertainty is a bummer isn't it?

Ha
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Old 03-14-2009, 03:53 PM   #5
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As regards the Sharpe plan, so far no one has come forward with a source of stripped TIPS coupons. Unless these are available, there is no Sharpe Plan.
Beat me to it.
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Old 03-14-2009, 05:25 PM   #6
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Interesting conclusion, pretty much in line with my thinking:

Quote:
But what about the planners themselves—have financial markets' recent behavior changed their own thinking about sustainable distribution rates? Has Bengen's basic analysis from 1994, even when only used as a basic starting point for an annually updated, client-specific annual distribution rate determination—been rendered obsolete? Or, for that matter, have all of the history-based investment return assumptions for various asset classes been called into question by recent events?

"Absolutely," says Elizabeth Jetton.

"I think that most of us think this is a 'black swan'"—that is, a high-impact anomaly beyond the scope of normal expectation. "Or is this the level of volatility that we're going to have to live with for a long time? I keep hoping for a new asset class," she jokes.

Stephen Barnes says he and his colleagues are "spending an inordinate amount of time rethinking our strategy. The issue going forward is, will we have different experiences than we have had for the last 30 years? My answer on that a tentative yes."
Translation: It may not be "different this time," but there's enough chance that it is that I wouldn't count on 4% today. (And especially not 18 months ago.)
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Old 03-14-2009, 09:02 PM   #7
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Originally Posted by ziggy29 View Post
Interesting conclusion, pretty much in line with my thinking:



Translation: It may not be "different this time," but there's enough chance that it is that I wouldn't count on 4% today. (And especially not 18 months ago.)
The truth is that no one is more clueless than a financial planner. Their job is not to be right, but to sound authoratative.

A bunch of financial planners trying to elucidate what to expect going forward is like a bunch of preachers telling us about the afterlife. They pretty much have to do it; after all it is their job description. But all of it is make believe.

Disclaimer: None of this applies to the excellent financial planners on this board. They really do walk on water.

Ha
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Old 03-15-2009, 12:39 AM   #8
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Disclaimer: None of this applies to the excellent financial planners on this board. They really do walk on water.

Ha
Don't know that I'd go THAT far, but at least our "advice" is worth what it costs!
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