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Old 10-02-2012, 04:19 PM   #41
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I have an even more heretical view than Bernstein. IMHO retirement saving is to ensure income after you stop working, not to maximize your portfolio's value or to ride on the efficient frontier. Therefore, I have had annuity type products in my portfolio right from the beginning and given the chance to contribute to the UK SS system as well as the US system I took it against the advice of many friends who said I'd get a better return in the stock market.

So I'd like to see every one with something like TIAA-Traditional as the core of their portfolio right from the start. Once they have that they can add some equity spice.
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I predict I'll have $80k in guaranteed annual income when I turn 65, which is like $53k in today's dollars. That's from my TIAA-Traditional annuity, small DB plan, US and UK SS checks and rental income. I expect my equities and bonds to provide quite a lot on top of that, actually $50k at 4% return, but it will just get reinvested because with no mortgage my expenses are way less than $53k /year.
I'm simply not willing to buy an income stream at this point and lose access to the principal. I'm only 53 (almost), so I have a long time horizon. There aren't inflation adjusted SPIAs out there worth buying (they are not reasonably priced at the moment), and I'm not willing to buy a fixed rate one at my age. I'd rather try to live off a stock dividend income stream if I had to. I'm a year 2000 retiree, so I've already been through the ringer twice! So far I've managed to stay the course and blossom. It's OK if the future is not as bright. A 3.33% [not inflation adjusted] draw on my portfolio more than covers our income needs (I even set some of it aside for a rainy day fund). I have some cash buffers that let me ignore short term market volatility/events.

I think there are multiple approaches that work, and what matches a person's situation best depends on how early they retired, how high a withdrawal rate they need (that is, whether their portfolio is more than ample or marginal), whether the bulk of their retirement funds come from investments or they had some type of annuity/pension available in their retirement plan. It very much depends.

I'm not looking to max out on long term performance of the portfolio, but I am trying to hit a sweet spot between short-term volatility and inflation-adjusted return with a eye to a terminal value >>0. At the moment these seem to imply a range of AA of 50/50 to 40/60 stocks/bonds at least for the next couple of decades. As my needed portfolio survival period shortens my allocation will probably be adjusted.

If I live long enough I'll get to tap into my SS annuity .
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Old 10-02-2012, 04:39 PM   #42
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I'd rather have been Warren Beatty's hands.
If you are wanting to go all the way with adopting body parts, Warren must have a better part to channel.
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Old 10-02-2012, 04:40 PM   #43
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If you are wanting to go all the way with adopting body parts, Warren must have a better part to channel.
Yeah, I'd have gone with the better part, but I think it was in pitch darkness most of the time.
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Old 10-02-2012, 04:42 PM   #44
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Yeah, I'd have gone with the better part, but I think it was in pitch darkness most of the time.
You are speaking of his brain, right?
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Old 10-02-2012, 04:44 PM   #45
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i have been following a popular newsletter for 25 years and have been very happy with them for decades.

my entire life i followed the growth model but about 5 years ago we switched to their income and capital preservation model.

that model was about 30% equities but at this this point in time we are 100 various domestic and international bond funds.

we run about a 4% yield and have capital gains to boot as a few of the funds act and respond more like stocks then bonds.

as of right now if we were to retire this mix works for us as we will need about a 2% withdrawal or so.

the model may increase its equities holdings at some point so its not going to be all bonds forever.

the point is this model works for us because we will have other income coming in . if we didnt then i would have to increase risk to match but at this point as they say " if you already won the game why keep playing"

at this stage im trying to have as little risk as my income needs allow.
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Old 10-02-2012, 04:45 PM   #46
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You are speaking of his brain, right?
Yep. Now you have to guess if I'm talking about using the right brain or the left brain.

Good news: only about 4 more years of random puns are still in storage.
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Old 10-02-2012, 05:06 PM   #47
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I'd rather have been Warren Beatty's hands.
Hey, better watch out what you wish for - you never know what he is doing behind closed doors.

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Yep. Now you have to guess if I'm talking about using the right brain or the left brain.

Good news: only about 4 more years of random puns are still in storage.
With a young son, you are soon to learn many more.
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Old 10-02-2012, 05:43 PM   #48
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I thought the idea was to stick with your allocation, rebalance and ride out market crashes fluctuations. Those of us who did that in 2008/9 may have some mental scars, but came through without serious financial damage.

Bernstein seems to assume everyone was guilty of bailing out at/near the bottom and not getting back in. Sounds like his mental scars are pretty bad...
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We stayed in throughout the meltdown and even rebalanced a little behind the curve. Ironically, the discipline to hold on for me comes largely from not wanting to pay income taxes, and less due to pure investing discipline. Same thing I did throughout the 2000 dot.com bust, I rode it out mostly to avoid income taxes. Whatever works?
+1 I'll put a reasonable low cost equity/bond portfolio periodically rebalanced against this clown's approach any day of the week.

I did two firecalc trials with a 900k portfolio (30k a year * 30 years), 30k initial withdrawal rate with 3% inflation and two different investment portfolios: 50/50 equities and LT bonds and 90% 5 year treasuries and 10% equities. The 50/50 mix has 1 failure and an average $1.2m ending portfolio. The more conservative alternative actually has 14 failures (out of 111 cycles) and an average ending portfolio of $.5 million..
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Old 10-02-2012, 05:44 PM   #49
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I'm simply not willing to buy an income stream at this point and lose access to the principal. I'm only 53 (almost), so I have a long time horizon. There aren't inflation adjusted SPIAs out there worth buying (they are not reasonably priced at the moment), and I'm not willing to buy a fixed rate one at my age. I'd rather try to live off a stock dividend income stream if I had to. I'm a year 2000 retiree, so I've already been through the ringer twice! So far I've managed to stay the course and blossom. It's OK if the future is not as bright. A 3.33% [not inflation adjusted] draw on my portfolio more than covers our income needs (I even set some of it aside for a rainy day fund). I have some cash buffers that let me ignore short term market volatility/events.

I think there are multiple approaches that work, and what matches a person's situation best depends on how early they retired, how high a withdrawal rate they need (that is, whether their portfolio is more than ample or marginal), whether the bulk of their retirement funds come from investments or they had some type of annuity/pension available in their retirement plan. It very much depends.

I'm not looking to max out on long term performance of the portfolio, but I am trying to hit a sweet spot between short-term volatility and inflation-adjusted return with a eye to a terminal value >>0. At the moment these seem to imply a range of AA of 50/50 to 40/60 stocks/bonds at least for the next couple of decades. As my needed portfolio survival period shortens my allocation will probably be adjusted.

If I live long enough I'll get to tap into my SS annuity .
A well reasoned approach that I agree with and follow as well. Only difference is that I decided to tap the SS annuity this year as I turn 62.
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Old 10-02-2012, 05:49 PM   #50
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I don't buy the argument that rich people will take less risk because they are rich. In fact, just the opposite. Wealthy people have a great deal more awareness of 1) how wealth can be lost from both inflation and asset price decline and 2) how wealth can increase from taking asset price risk.

Total aversion to equity-type risk is more likely from people who see their standard of living jeopardized by equity loss. They are at 4% withdrawal rates. In theory, historically, Bernstein's recommendation of TIPs and short term treasuries might work - in the 90's and 00's.
+1 In most cases the rich are self-made and got rich by taking calculated risks - why would they stop now?
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Old 10-02-2012, 07:00 PM   #51
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I'm simply not willing to buy an income stream at this point and lose access to the principal. I'm only 53 (almost), so I have a long time horizon. There aren't inflation adjusted SPIAs out there worth buying (they are not reasonably priced at the moment), and I'm not willing to buy a fixed rate one at my age. I'd rather try to live off a stock dividend income stream if I had to. I'm a year 2000 retiree, so I've already been through the ringer twice! So far I've managed to stay the course and blossom. It's OK if the future is not as bright. A 3.33% [not inflation adjusted] draw on my portfolio more than covers our income needs (I even set some of it aside for a rainy day fund). I have some cash buffers that let me ignore short term market volatility/events.

I think there are multiple approaches that work, and what matches a person's situation best depends on how early they retired, how high a withdrawal rate they need (that is, whether their portfolio is more than ample or marginal), whether the bulk of their retirement funds come from investments or they had some type of annuity/pension available in their retirement plan. It very much depends.

I'm not looking to max out on long term performance of the portfolio, but I am trying to hit a sweet spot between short-term volatility and inflation-adjusted return with a eye to a terminal value >>0. At the moment these seem to imply a range of AA of 50/50 to 40/60 stocks/bonds at least for the next couple of decades. As my needed portfolio survival period shortens my allocation will probably be adjusted.

If I live long enough I'll get to tap into my SS annuity .
I have the same approach as you to my invested portfolio, but I am arguing for a more conservative approach early on to provide an income stream in retirement that will supplement SS. My TIAA-Traditional has paid 7%, but it's now at 4.2% and I'll be glad of it when I retire. I'm a little strange as I can get SS from two countries, but one is from voluntary payments and I made the decision to pay extra tax to get the benefit. I have been doing that for 30 years and this year I can stop paying that voluntary tax as I have maxed out my pension benefit.

Right now my plan is to need 0% from my IRA, 403b, and after tax portfolio once all my stable income sources start....., there will be rollovers and RMDs of course.
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Old 10-02-2012, 07:50 PM   #52
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Putting 20-25 years worth of expenses into an asset class which is currently showing a negative real return does not work for us - when I FIRE next year DW will be 40 so the money will have to last for 50+ years. I'll keep a few years worth of expenses in cash/near cash/bonds to ride out any fluctuations in the cash flow from our real estate and equities and any major emergencies, but much more than that would increase our vulnerability to inflation - over the longer term, I worry more about inflation than I do about market volatility.

That said, I do agree that an investor who is likely to panic and sell at the bottom may benefit from a different approach.
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Old 10-02-2012, 08:04 PM   #53
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Worst investing mistake? Not being born Warren's Buffett's son?
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But, but, but, I have read that Warren already decided to leave most of his estate to charity, and to give his descendants diddly squat. OK, that diddly squat may still be $10 million or some large sums, but it is not billions or tens of billion like people would think.
I realize these are humorous comments, but I've read Buffett's biography "The Snowball". You would have not wanted to be one of his kids. Even the family dog ran away from home.

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I'm simply not willing to buy an income stream at this point and lose access to the principal. I'm only 53 (almost), so I have a long time horizon. There aren't inflation adjusted SPIAs out there worth buying (they are not reasonably priced at the moment), and I'm not willing to buy a fixed rate one at my age.
I remember a decade ago when nobody would by an inflation-adjusted SPIA because they were capped at "only" 10%/year. We all knew that inflation was going to be a lot higher than that as soon as the economy recovered from the recession.

Heh... it's almost a decade ago that our portfolio hit rock bottom during the 2002 recession. I'd been ER'd for barely over four months back then and was already beginning to wonder if I'd made a horrible mistake.

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Putting 20-25 years worth of expenses into an asset class which is currently showing a negative real return does not work for us...
I believe that you've just described the concept of value investing.
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Old 10-02-2012, 08:56 PM   #54
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I realize these are humorous comments, but I've read Buffett's biography "The Snowball". You would have not wanted to be one of his kids. Even the family dog ran away from home.
But Bill Gates is too young to be my dad.
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Old 10-02-2012, 09:05 PM   #55
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A well reasoned approach that I agree with and follow as well. Only difference is that I decided to tap the SS annuity this year as I turn 62.
I'll probably wait till I'm 60 to make the decision on when to tap my SS annuity.

Well, actually, since DH is 4.5 years older, I suppose we might be looking at the issue a tad sooner.
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Old 10-02-2012, 09:18 PM   #56
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I have the same approach as you to my invested portfolio, but I am arguing for a more conservative approach early on to provide an income stream in retirement that will supplement SS. My TIAA-Traditional has paid 7%, but it's now at 4.2% and I'll be glad of it when I retire. I'm a little strange as I can get SS from two countries, but one is from voluntary payments and I made the decision to pay extra tax to get the benefit. I have been doing that for 30 years and this year I can stop paying that voluntary tax as I have maxed out my pension benefit.
Things worked out just the opposite for me. I was able to retire very early because I put some [not all] of my savings into company stock options that then grew over many years to dominate my net worth and ultimately grow large enough to retire early. I just hung on tight. I saved and invested in addition, but I didn't divest any of the company stock until I had more than enough to retire and that during my last working year. Why didn't I diversify earlier and start building safe asset streams? Because I was young enough to work a lot longer if I needed to. No financial advisor will ever tell you to do what I did. But that was my opportunity, and I took full advantage of it.

In fact, if I had held on even longer, not divested and diversified when I did, I would have had an even bigger nest egg because in spite of the dot.com bust my company continued to do well in the 2000s. But I had reached my goal and was ready to take on a new kind of life....

There are many paths.
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Old 10-02-2012, 09:38 PM   #57
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Things worked out just the opposite for me. I was able to retire very early because I put some [not all] of my savings into company stock options that then grew over many years to dominate my net worth and ultimately grow large enough to retire early. I just hung on tight. I saved and invested in addition, but I didn't divest any of the company stock until I had more than enough to retire and that during my last working year. Why didn't I diversify earlier and start building safe asset streams? Because I was young enough to work a lot longer if I needed to. No financial advisor will ever tell you to do what I did. But that was my opportunity, and I took full advantage of it.

In fact, if I had held on even longer, not divested and diversified when I did, I would have had an even bigger nest egg because in spite of the dot.com bust my company continued to do well in the 2000s. But I had reached my goal and was ready to take on a new kind of life....

There are many paths.
Yes there are many paths. The stock options in the company I was working for as I was contemplating ER went up in smoke as it went belly up. Fortunately I had diversified my retirement investments because of an experience many years earlier where another company I worked for also tanked taking its stock along. Many paths. Sometimes one gets lucky and sometimes not.
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Old 10-02-2012, 11:12 PM   #58
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I think 20 years is too high an allocation for non-equity part of the portfolio, at least for a person in their 40s or 50s. 2000-03 and 2008-09 periods were severe but market largely recovered within a few years, to the benefit of those that stuck with it or better yet jumped in at the bottoms. Sounds like good advice for an older retiree, though.
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Old 10-03-2012, 12:05 AM   #59
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No one has mentioned the "scary teeth woman" yet. IIRC, she has all of her millions in bonds, and gives out financial advice left and right on TV. I cannot remember her name, her show is on CNBC on Saturday nights. I'm having a mental block... I think it was those scary teeth... maybe best that I don't remember... keep my sanity... not have nightmares...
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Old 10-03-2012, 12:10 AM   #60
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I have not watched CNBC for a while, let alone on Sat nights. But I do not recall anyone with teeth like these, if that's what you meant.

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