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Old 04-23-2010, 03:14 PM   #21
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... the eventual market recovery.
I knew you were an optimist at heart!
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Old 04-23-2010, 03:17 PM   #22
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unclemick, I gotta admit I sometimes don’t understand your posts but feel I am missing something important.
My interpretation:

His psssst Wellesley yields close enough to 4% - sometimes with a little extra cap gain distribution. That takes care of him (plus all those Norwegian widows)!

No worry about the details. He is busy enjoying life, and has managed this way for several decades now.

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Old 04-23-2010, 03:49 PM   #23
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unclemick, I gotta admit I sometimes donít understand your posts but feel I am missing something important.
Me too. On the plus side it did make me look at that Norwegian Widow definition again:

Question On Retiring & Living Off Investments
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Old 04-23-2010, 04:00 PM   #24
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unclemick, I gotta admit I sometimes donít understand your posts but feel I am missing something important.
My interpretation is that we are making this too hard and life is to be lived in ER, not fretted over. None of us will live forever and most of us can alter our paths if things get hairy and the 4% constant doesn't look sustainable.

Personally, I get the feeling that Prof. Sharpe is getting set to start collecting fees for promoting annuities, but I am a suspicious bastard.
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Old 04-23-2010, 04:28 PM   #25
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My interpretation is that we are making this too hard and life is to be lived in ER, not fretted over. None of us will live forever and most of us can alter our paths if things get hairy and the 4% constant doesn't look sustainable.
This is something I certainly agree with and practice as hard as I can.
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Old 04-24-2010, 08:12 AM   #26
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He references funding a 4.46% withdrawal by buying an annual series of TIPS strips, such that one matures each year for 30 years. It requires a 2% real yield on the TIPS, which is not available now but has been for much of the time since TIPS have been issued, and even most of the time during which TIPS have been debated on this board. It also requires a more liquid market for TIPS strips, which IMO would come rapidly if this idea were widely publicized. Many individuals might not be able to understand it, but advisors should be able to.
I think it could be done without strips. You know the coupons from day one so it shouldn't be much trouble to back into a maturity schedule that gives you the annual cash flow you need using both income and principal. Early year cash flow would be dominated by interest from a 30 year portfolio and later years would be dominated by maturities.

Longevity risk is a concern. But even that could be mostly overcome by allocating sufficient excess capital to the 25-30 year maturity tranches (for purposes of creating a new ladder at that time). This exposes the retiree to reinvestment risk for retirement plans longer than 30 years but that can be smoothed over almost as many years as you want.

Other risks include taxation of inflation compensation, inflation tracking error, and probably a lagging standard of living during retirement (which is also the case with a strict adherence to FIRECalc methodology too).

I can certainly see moving to something similar over time for at least part of the portfolio. And I can see doing it under two separate scenarios. 1) As I age and my investment time horizon becomes more certain. 2) If my portfolio outperforms visa vie my withdrawal expectations, lock in that outperformance by moving excess capital into long-dated TIPS.
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Old 04-24-2010, 09:18 AM   #27
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My interpretation is that we are making this too hard and life is to be lived in ER, not fretted over. None of us will live forever and most of us can alter our paths if things get hairy and the 4% constant doesn't look sustainable.

Personally, I get the feeling that Prof. Sharpe is getting set to start collecting fees for promoting annuities, but I am a suspicious bastard.
If I'm reading the paper correctly, Sharpe doesn't address the risk generated by an uncertain date of death. Since the purpose of annuities is to insure that risk, I doubt that this paper is setting up some future annuity promotion.
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Old 04-24-2010, 02:33 PM   #28
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If I'm reading the paper correctly, Sharpe doesn't address the risk generated by an uncertain date of death. Since the purpose of annuities is to insure that risk, I doubt that this paper is setting up some future annuity promotion.
The paper's actually been out for a couple years-- I remember that Bob Dylan concert analogy.

Like Brewer, I suspect Sharpe is talking his book. The whole FinancialEngines premise is based on a retirement annuity. The company went public last month and now has to think short-term about its investors.

I've been a FE user for over a decade, and for the first couple years I had full run of the program. About 5-6 years ago they throttled back access to still allow parameters to be tweaked and forecasts to be obtained, but you had to pay to actually study asset allocations and compare funds. Now, however, you can't do anything in the program-- even changing your e-mail address or deleting your account-- without first coughing up $39.

So I find it very easy to believe that Sharpe is dusting off the old paperwork to find a way to monetize it...
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Old 04-24-2010, 02:48 PM   #29
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We actually discussed Sharpe's idea in some detail about a year ago in this thread
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Old 04-26-2010, 12:26 AM   #30
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I just don't really see the possibility of leaving too much money behind as a problem. People can leave the money to their children or to the charities of their choice.

Since a lot of people plan to do that with a substantial portion of their money anyhow, I don't see this as a big problem needing academic study.
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Old 04-26-2010, 12:49 AM   #31
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I just don't really see the possibility of leaving too much money behind as a problem.
Leaving money per se is not the problem. The problem is having no way to create safety other than to underspend what one might otherwise be able to spend during life.

Ha
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Old 04-26-2010, 04:38 PM   #32
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None of us will live forever

Uh Oooooh....... If that's the case, I need to make some changes to my spreadsheet!
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Old 04-26-2010, 04:45 PM   #33
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Leaving money per se is not the problem. The problem is having no way to create safety other than to underspend what one might otherwise be able to spend during life.

Ha
Exactly Ha......

Even if you wait until some period of favorable market performance to increase spending, you may be spending money that would be needed to get you through an upcoming Great Depression II.

Not knowing what market performance will be tomorrow or how long I'll live makes this whole issue of FIRE planning one huge pita. I hate this uncertainty business.

Think I'll go down to the pub and watch the Blackhawks playoff game with the boys tonight. That'll keep my mind off this unpredictable future crap!
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Old 04-26-2010, 07:31 PM   #34
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Of all the things I worry about, dieing with too much money ranks somewhere right above being too healthy and having too much fun.
LOL, I think you might want to rephrase that because God or Allah could grant your wish tomorrow.

As for the the original article, it's kind of worthless. So what spending rule does he advocate? Some endowment use the x% of average trailing 3 years of market value of portfolio. If he had said something to that effect, at least it would have been start. Otherwise, the article was a lot of words to say I don't know.
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Old 04-26-2010, 07:42 PM   #35
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because God or Allah could grant your wish tomorrow.
From the Department of Redundancy Department.

Turkish: Allah) is the standard Arabic word for God
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Old 04-26-2010, 07:47 PM   #36
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Leaving money per se is not the problem. The problem is having no way to create safety other than to underspend what one might otherwise be able to spend during life.

Ha
My father decided that God screwed up on this very point: to wit, my father thought God should have designed the human brain so that a chip was planted at the base of the brain. The chip would be wired to your checking account and would allow you to go $5,000 into debt (my dad concluded this back when $5,000 was real money) and then kill you. That way you could have a little fun on the way out, but you would never find yourself out living your money!
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Old 04-26-2010, 07:52 PM   #37
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Well I agree with Sharpe that accumulating surpluses is wasteful. And I agree with Ha that we'd all enjoy a better standard of living if such surpluses could be avoided. But until someone derives a truly effective and reasonably low cost way of converting assets into an inflation adjusted annuity, I think I'll simply enjoy my surpluses knowing they provide me with restful nights while I'm alive and will ease the burdens of the less fortunate once I'm gone.
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Old 04-26-2010, 11:11 PM   #38
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Think I'll go down to the pub and watch the Blackhawks playoff game with the boys tonight. That'll keep my mind off this unpredictable future crap!
OK.... In the hours since I posted the above, I've been to the pub, consumed several Guinness and the Blackhawks won their series with Nashville. More importantly, I'm still FIRE'd. Next I'll try getting through tomorrow without having my FIRE portfolio get too big or too small.....

Some of you folks are making this way too complicated.
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Old 04-27-2010, 06:27 AM   #39
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OK.... In the hours since I posted the above, I've been to the pub, consumed several Guinness and the Blackhawks won their series with Nashville.
I'm looking forward to the Capitals against the Blackhawks - that way I can't lose.
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Old 04-27-2010, 09:22 AM   #40
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....As for the the original article, it's kind of worthless. ...
Bogle started the [I
First Index Investment Trust[/I] on December 31, 1975...
I think these articles, especially by people with his fame, serve a purpose. They prod the financial industry to create instruments that meet the need, and may even give the first creators the backup they need to sell the idea to management.

From wikipedia (Index fund - Wikipedia, the free encyclopedia)
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John Bogle graduated from Princeton University in 1951, where his senior thesis was titled: "Mutual Funds can make no claims to superiority over the Market Averages." Bogle wrote that his inspiration for starting an index fund came from three sources, all of which confirmed his 1951 research: Paul Samuelson's 1974 paper, "Challenge to Judgment", Charles Ellis' 1975 study, "The Loser's Game," and Al Ehrbar's 1975 Fortune magazine article on indexing. Bogle founded The Vanguard Group in 1974; it is now the largest mutual fund company in the United States as of 2009.

Bogle started the First Index Investment Trust on December 31, 1975...
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