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The Single Biggest Risk in Retirement -- and How to Avoid It
Old 09-27-2014, 08:38 AM   #1
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The Single Biggest Risk in Retirement -- and How to Avoid It

A good article about why risk tolerance should probably change at/near retirement by most people:

The Single Biggest Risk in Retirement -- and How to Avoid It
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Old 09-27-2014, 10:02 AM   #2
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That is if you have to sell.

If you live from dividends (100 stock portfolio) plus SS you will end up with huge pile of money at 90. Of course that requires portfolio which is much larger than 1 million (number mentioned in article)

Some people don't think living pile of money for kids is their high priority...but that is another discussion.
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Old 09-27-2014, 10:24 AM   #3
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This is seemingly the polar opposite of retirement pundits like Kitces who say that NOT having equities for growth (not dividends) is a sure way to not make your assets last.

These articles are like movie reviews - you tend to align yourself with critics with similar 'tastes'.
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Old 09-27-2014, 11:30 AM   #4
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I read the article as one needs to balance the portfolio with bonds & dividend paying equities in retirement. I.e, reduce volatility. But that goes without saying. It'd be foolish to have 100% in any investment.

I think there are other major risks. Divorce, sustained market downturn, devastating law suits (no umbrella insurance), gambling addiction, ....
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Old 09-27-2014, 11:55 AM   #5
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The assumptions are that you stay 100% in equities in retirement. Very few folks do that... Most of us have diversity in the form of bonds/bond funds, real estate in the form of REITs or rental properties, etc...

They just chose some dramatic time period with a bad sequence of early returns. It didn't impact the saving model because the savings were low in the early years so the bad market didn't impact that much since there wasn't much to impact. Obviously, when you're withdrawing during a bad sequence - it starts from a high portfolio value, and the impact of the bad sequence is compounded by selling during a bad market.

I agree that the single biggest risk for most retirees counting on their savings is a bad sequence of returns early in the retirement.
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Old 09-27-2014, 11:59 AM   #6
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Close to useless article since the author doesn't get into specifics as to what steady and what volatile really mean.

Quote:
If you opt for volatile returns in retirement, you'll end up broke by age 90!
Bullsh!t. True if the sequence of returns is adverse - definitely not true if the sequence of returns is advantageous.
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Old 09-27-2014, 03:02 PM   #7
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Originally Posted by pb4uski View Post
Close to useless article since the author doesn't get into specifics as to what steady and what volatile really mean.

Bullsh!t. True if the sequence of returns is adverse - definitely not true if the sequence of returns is advantageous.
+1
Totally and completely useless. Comparing some undisclosed "volatile" investment with a seemingly fictional fund returning "steady returns."

Probably there are some good points to be made on this subject, but the author has made none of them.
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Old 09-30-2014, 02:38 PM   #8
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+1
Totally and completely useless. Comparing some undisclosed "volatile" investment with a seemingly fictional fund returning "steady returns."

Probably there are some good points to be made on this subject, but the author has made none of them.
+2
I'll never get the time back I spent reading that. I've always ranked TMF up there with CNBC as purveyors of financial porn.
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Old 09-30-2014, 03:17 PM   #9
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I look at it differently... in my view, the single biggest risk in retirement isn't "what might happen to my money in the market?", since I'm taking a balanced approach and am willing to cut back our lifestyle if needed. The biggest risk is "what big unknown EXPENSES may hit me that will wipe out my money quicker than the market and really impact my retirement" - and for me, number one is health expenses. That is more of an unknown than the market.
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Old 09-30-2014, 03:27 PM   #10
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Couldn't agree more. Odd, I just posted about all-over-the-board retirement healthcare cost estimates on another thread. How much should one budget for this? $5K annually? Less? More? You've got Fidelity's several estimates on the one hand, an $8K annual estimate from other sources. The AARP healthcare costs calculator is certainly interesting, but it's all really a guesstimate as far as I can tell. The above estimates all preclude LTC, btw.
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Old 09-30-2014, 04:06 PM   #11
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Couldn't agree more. Odd, I just posted about all-over-the-board retirement healthcare cost estimates on another thread. How much should one budget for this? $5K annually? Less? More? You've got Fidelity's several estimates on the one hand, an $8K annual estimate from other sources. The AARP healthcare costs calculator is certainly interesting, but it's all really a guesstimate as far as I can tell. The above estimates all preclude LTC, btw.
I noticed the same discrepancies with the Fidelity site. For our planning I use $5K per person, adjusted for inflation, for post Medicare expenses which seems to be reasonable based on posters here. If the costs were as high as the RIP projections, we would probably move outside the U.S. for retirement. But I think those are scare numbers to try to keep people saving and investing more which is in their best financial interest and not necessarily mine.
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Old 09-30-2014, 04:07 PM   #12
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The article is pretty much useless. I bought a MF subscription and doubt if I will renew it. They are into high priced momentum stocks big time. They tout their winners and never mention the big losers.
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Old 09-30-2014, 05:19 PM   #13
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I noticed the same discrepancies with the Fidelity site. For our planning I use $5K per person, adjusted for inflation, for post Medicare expenses which seems to be reasonable based on posters here. If the costs were as high as the RIP projections, we would probably move outside the U.S. for retirement. But I think those are scare numbers to try to keep people saving and investing more which is in their best financial interest and not necessarily mine.
Exactly--I've also read the "scare" projections are used to entice people to over save/invest with the financial services industry. The consensus here and on the BH site seems to be $5K healthcare spending per person on average after Medicare, but I guess I've been "scared" by some other recent high estimates I've read (I apologize but I can't remember where).

I do like the AARP retirement costs calculator as it uses a database of actual retiree claim experience, going back decades IIRC. It allows you to input any medical condition you have along with the state you intend to retire in. I was actually quite surprised at how much lower my costs were estimated if I retired in Oregon versus California (about 1/3 lower). Still, I am not relying on that calculator alone to project healthcare costs.
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Old 09-30-2014, 05:41 PM   #14
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The article is pretty much useless. I bought a MF subscription and doubt if I will renew it. They are into high priced momentum stocks big time. They tout their winners and never mention the big losers.
I think that TMF have squandered much of the good brand they used to have. Their irreverent and cheeky approach, combined with what used to be good information and education, made them stand apart from others. Now, many of their articles follow the, "Shock! Horror! There is a big crisis coming but you can avoid it if you subscribe to our newsletter!" formula.

It is very disappointing. I used to miss them but am now well over it (and them).
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Old 09-30-2014, 06:10 PM   #15
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The biggest risk is some exogenous unexpected event that throws our best plans for a loop.
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