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Scott Burns -- Longevity Risk
Old 01-08-2005, 03:17 PM   #1
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Scott Burns -- Longevity Risk

http://www.dallasnews.com/sharedcont...rns.3e30c.html

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Re: Scott Burns -- Longevity Risk
Old 01-08-2005, 08:30 PM   #2
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Re: Scott Burns -- Longevity Risk

The article's conclusion:

"The biggest single lever for increasing your personal safety is simple. Delay retirement. Work longer."

I'm guessing Scott's not a member of the ER club...

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Re: Scott Burns -- Longevity Risk
Old 01-09-2005, 01:36 AM   #3
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Re: Scott Burns -- Longevity Risk

Scott Burns: "We'll have to cope by planning more and saving more if we have the good fortune to expect a longer than average life."

Yes and no. I of course support the idea of planning more and saving more. But I don't entirely go along with the idea that an increased life expectancy means that we need to save all that much more.

Burns is looking at things from the standpoint of someone who is approaching retirement age, hasn't saved enough, and is looking for ways to make the numbers line up. For that person, working longer probably is a good choice. What Burns is focusing on is the reality that a few additional years of motivated saving make a surprisingly big difference. He is right about that.

Most aspiring early retirees are coming at things from a more positive perspective. We aren't desperate to make the numbers work by age 65. We expect them to line up a lot earlier. The reality that Burns is skipping over here is that, once the numbers line up, they pretty much line up forever. If you get to a point where you have a solid plan for having your money generate all the income you need to live on, it will continue to do that indefinitely. So long as you are not depleting your portfolio each year, a plan that works for 30 years will probably work for 60 years.

It takes more to craft a perpertual retirement plan than it does to craft a 30-year retirement plan. But not as much more as you would intuitively think. Even those who don't deplete their portfolios each year probably should include some slack to cover the possibility that they live far longer than they expect. But the extra number of dollars needed to cover this possibility need not be a large sum if the plan does not call for diminishing the portfolio value each year.
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Re: Scott Burns -- Longevity Risk
Old 01-09-2005, 02:48 AM   #4
 
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Re: Scott Burns -- Longevity Risk

I agree!

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Re: Scott Burns -- Longevity Risk
Old 01-09-2005, 06:04 AM   #5
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Re: Scott Burns -- Longevity Risk

"It takes more to craft a perpertual retirement plan than it does to craft a 30-year retirement plan. But not as much more as you would intuitively think. Even those who don't deplete their portfolios each year probably should include some slack to cover the possibility that they live far longer than they expect. But the extra number of dollars needed to cover this possibility need not be a large sum if the plan does not call for diminishing the portfolio value each year."[/quote]

I agree in general, but inflation is the threat that concerns me most, and longevity increases the exposure. I have been buying TIPs despite the current low coupon, but they are only a partial answer since my personal inflation rate may be weighted toward medical care. Also, I am somewhat concerned about manipulation of the CPI.
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Re: Scott Burns -- Longevity Risk
Old 01-09-2005, 07:46 AM   #6
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Re: Scott Burns -- Longevity Risk

Quote:
It takes more to craft a perpertual retirement plan than it does to craft a 30-year retirement plan. But not as much more as you would intuitively think. Even those who don't deplete their portfolios each year probably should include some slack to cover the possibility that they live far longer than they expect. But the extra number of dollars needed to cover this possibility need not be a large sum if the plan does not call for diminishing the portfolio value each year.
Actually, there's a whole web site devoted to these "perceptual" retirement plans.

http://www.retireearlyhomepage.com/laterhp.html

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Re: Scott Burns -- Longevity Risk
Old 01-09-2005, 07:49 AM   #7
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Re: Scott Burns -- Longevity Risk

Quote:
"It takes more to craft a perpertual retirement plan than it does to craft a 30-year retirement plan. But not as much more as you would intuitively think. Even those who don't deplete their portfolios each year probably should include some slack to cover the possibility that they live far longer than they expect. But the extra number of dollars needed to cover this possibility need not be a large sum if the plan does not call for diminishing the portfolio value each year."I agree in general, but inflation is the threat that concerns me most, and longevity increases the exposure. *I have been buying TIPs despite the current low coupon, but they are only a partial answer since my personal inflation rate may be weighted toward medical care. *Also, I am somewhat concerned about manipulation of the CPI.
TIPS are a poor solution for those worried about health care costs increasing at 15% to 20% per year.

I keep 10% to 15% of my portfolio in drug stocks to hedge against rising health insurance and medical costs.

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Re: Scott Burns -- Longevity Risk
Old 01-09-2005, 08:28 AM   #8
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Re: Scott Burns -- Longevity Risk

Vanguard's health care fund out performed for many
years but I think RTM is rearing its ugly head. I am
afraid that Gov regulation is going to suck the life
out of the health care industry. Many will argue that
more regulation rather than less is needed but
I say don't shoot the goose.

Cheers,

Charlie

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Re: Scott Burns -- Longevity Risk
Old 01-09-2005, 08:34 AM   #9
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Re: Scott Burns -- Longevity Risk

Quote:
Vanguard's health care fund out performed for many
years but I think RTM is rearing its ugly head. *I am
afraid that Gov regulation is going to suck the life
out of the health care industry.
*Many will argue that
more regulation rather than less is needed but
I say don't shoot the goose. *

Cheers,

Charlie
More gov't regulation might just save the drug industry.

Imagine how many billions of dollars in legal costs Merck could have saved if the FDA pulled Vioxx before they poisoned 200,000 people?

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Re: Scott Burns -- Longevity Risk
Old 01-09-2005, 10:19 AM   #10
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Re: Scott Burns -- Longevity Risk

Quote:
Vanguard's health care fund out performed for many
years but I think RTM is rearing its ugly head. *I am
afraid that Gov regulation is going to suck the life
out of the health care industry. *Many will argue that
more regulation rather than less is needed but
I say don't shoot the goose. *

Cheers,

Charlie

Even if drug prices get squeezed by regulation, there are still plenty of other sectors of healthcare that will do well. I think that anyine who owned shares of the health insurers in the past few years would tell you that it has been a good ride. There are also an increasing number of companies out there that make money by controlling costs. For example, one of my largest positions is PLMD. They do disease management for diabetics and COPD patients eligible for Medicare. It isn't hard for them to demonstrate that they have saved the program hundreds of millions of dollars, all the while making money for shareholders hand over fist.

Intercst, I know you have a big chunk of Pfizer. Do you think this is a good time to be buying drug stocks? What do you think is likely to happen in this market?
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Re: Scott Burns -- Longevity Risk
Old 01-09-2005, 10:35 AM   #11
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Re: Scott Burns -- Longevity Risk

I have no immediate plans to sell my Eli Lilly or Glaxo - bought back in the Hilary Clinton days - divs plus div growth. No plans to buy Vg Health - but often peek at their top ten for ideas.
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Re: Scott Burns -- Longevity Risk
Old 01-09-2005, 10:47 AM   #12
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Re: Scott Burns -- Longevity Risk

"TIPS are a poor solution for those worried about health care costs increasing at 15% to 20% per year.

I keep 10% to 15% of my portfolio in drug stocks to hedge against rising health insurance and medical costs."
intercst[/quote]

Intercst - I agree TIPS may not be sufficient. However, I have no confidence that the health sector as a whole will profit from present trends and I view it as a near certainty that if medical inflation continues to rage, government will intervene to bring down margins. I don't doubt that there will be winners and losers- I just doubt my ability to correctly identify the winners over the long term.

My strategy - Live healthy, stay insured & buy TIPS.
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Re: Scott Burns -- Longevity Risk
Old 01-09-2005, 11:54 AM   #13
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Re: Scott Burns -- Longevity Risk

Quote:


Even if drug prices get squeezed by regulation, there are still plenty of other sectors of healthcare that will do well. *I think that anyine who owned shares of the health insurers in the past few years would tell you that it has been a good ride. *There are also an increasing number of companies out there that make money by controlling costs. *For example, one of my largest positions is PLMD. *They do disease management for diabetics and COPD patients eligible for Medicare. *It isn't hard for them to demonstrate that they have saved the program hundreds of millions of dollars, all the while making money for shareholders hand over fist.

Intercst, I know you have a big chunk of Pfizer. *Do you think this is a good time to be buying drug stocks? *What do you think is likely to happen in this market?
I think Pfizer is the strongest and most diversified pick in the group.

The only thing that's going to stand in the way of the drug companies is if millions of senior citizens break out in good health.

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