Retirement

[PonoBill]

I'm retooling all my investments and my planning for (continued) retirement. For me that means spending a lot of time and effort on research into topics that I hate with a white hot passion. As usual, my plan to learn about things that I have no expertise, no education for, no insight or unique viewpoint about, and no knowledge of is to write articles that advise others.

Here's the first two. Understand that these should come with a government warning relating to their potential for major damage to your financial health.

http://www.ponostyle.com/the-retirement-trap/

http://www.ponostyle.com/taking-responsibility/

[maxsonic]

http://www.ponostyle.com/the-retirement-trap/

http://www.ponostyle.com/taking-responsibility/

PB, both are excellent articles...I am a fellow Boglehead / Vanguard Fan and am very much following the advice you provided.  One key along the way is to track progression towards the retirement "Magic Number"... do you need an Investment Advisor for that?  Hell No!  Buy a cheap book and figure it out yourself!  The one I bought was "Your Money Ratios"  by Charles Farrell: http://www.yourmoneyratios.com/

MAX

[stoneaxe]

Timely.....I've been doing some thinking about moving things around to get rid of fees.

[SUPcheat]

I have been with Vanguard forever.  Just kept adding to standard balanced Vanguard funds, didn't try to outsmart, out predict or out maneuver the market.  I put after tax savings in non-retirement money into Vanguard Inflation Protected Securities.

It works, pretty much just as the Bogle-Meister says, index funds, low fees, save like a robot, don't withdraw, max your retirement contributions, live below your means.  I won't be paying taxes for another five years or so, won't have to collect my SS until 70.  I was blessed that the markets started going up in the first few years of my retirement, my net worth has increased 30 percent since I retired in spite of spending money.  That's good because it is a good indicator that I can STAY retired.  I have heard of retired dentists who between themselves and their wives squandered their nut in retirement and actually had to go back to get relicensed and practice at some very advanced ages.

I have a good friend who has fancied himself a day trader, made a lot more money than me, is in investment clubs where everybody exchanges "hot tips."  I think he has gotten really scalped over the years, is still working probably until he is 70, and is still gambling.

[stoneaxe]

I have about 8-10 years left of working before I believe I'll be able to retire. We are already looking forward to a simpler life with a focus on time rather than material stuff. A small cottage near the water up here and maybe camp for 3-4 months down south to escape the worst of winter. I'll probably continue to dable and consult a bit here and there if my skills are still valuable enough. At the rate things are changing that may be questionable.

[SuppaTime]

I am in my second year of retirement, living off various investments. It is an interesting change to go from a reliable pay check to being subject to the vagaries of the financial markets. I have spent many 100's of hours on figuring out how to best go about this.

I am a skeptical scientist by training so I feel compelled to tear apart all the various financial advice one gets exposed to before accepting any of it. My observation is that there is a lot of valid wisdom out there, and a lot of questionable advice. And then there is a lot of stuff where nobody knows, but people act like they do.

The boglehead approach is interesting and the one we have mostly adopted. This is really a cult of sorts around Jack Bogle and his advent of low cost mutual funds, and his view that broad market indexing cannot be beat. There are many,  many nuances to these simple ideas all of which are argued endlessly. It is great fun if you are a geek and like challenging yourself in economics and financial theory.

A word on the blog - the 4% rule is a gross estimate of safe withdrawal rates, but it is based on many assumptions which may or may not apply to a particular investor, and is based on historical data which does not reflect modern financial conditions. Some simply discount the 4% to 3.3% (or less) and say that is OK. But it is still a gross approximation. There are other approaches to determining a safe rate (and method) of spending your investment, and many people use those at this point. 3% or 4% is a good way to plan for retirement, but upon retiring, one really needs to re-evaluate that in the context of anticipated life span, asset allocation, capital preservation, etc.

Leveraging is another interesting issue. For many people, it is more of a psychological choice rather than a rational one whether to pay off a mortgage. You may be far better off financially to not pay it off, but the devil is the details.

[PonoBill]

I have a number of other articles planned, it will be very beneficial to get the critical review of you folks. I've been motivated to analyze all the investments and advice we have been given over recent years since I'm simply not seeing much value in expert advice I paid for. I suspect it's something people really do have to do for themselves. The Wealth Management business seems to be taking far too big a slice of the retirement pie, and all the mutual funds that I've analyzed that I've been holding as a result of all that expert advice show no long term positive correlation between expense ratios and performance. 

It's pretty easy to understand Bogle's approach, I think it's a reasonable start, but there's some refinement feasible, I don't think Mr. Bogle views it as a one-size-fits-all notion, and things change. After two months of reading books I don't like, about a subject that bores the crap out of me, I've come to believe that all of the Nobel Prize winning economists are correct, even though their theories contradict each other--or at least appear to. Markets are efficient and irrational at the same time.

Of course I've come to doubt the sagacity of the Nobel Prize committee. Regardless of your politics or your opinion of the performance of President Obama, one has to be thinking WTF??? about awarding the Nobel Peace prize to any US President in the first year of his administration. Especially one who was acting as Commander in Chief, fighting two wars at the time.

but there's more to retirement than investment.

[juandoe]

I am probably 20 years away from retirement so my timeline is a little different.  I am using the roboadvisors now.  Been with wealthfront for one year and will move one account to betterment.  They do charge .15 to .25 basis points but there are no other fees.  I can dump in little amounts at a time, big amounts, whatever. 

The reason I like it is the automation.  It automatically rebalances.  I don't have to figure out what to sell, what to buy etc.  I never forget to rebalance.  I don't have to optimize for taxes. 

They also offer tax loss harvesting.

Schwab has a new roboadvisor but they keep a 6-30% of your investment in cash.  Not what I am looking for in an investment.

Vanguard has a similar offering for advice but my cursory look did not interest me.

[SUPcheat]

I pored over the Wall Street Journal for years.  I loved the “Dartboard Portfolio”, which I gather took some heat from the professionals.  The WSJ would have people in the office choose stocks by throwing darts at a target with various stocks on it to establish a basket, and then compare it with the recommendations of highly regarded professional stock experts.  The dartboard portfolio most of the time outperformed the so called professionals. 

They also followed investments that tracked recent winners to find that portfolios that relied on past performance almost invariably resulted in losses over time.  Picking the “winners” of the future was based on luck rather than brains, prediction or vision.

Most pros are into invoking  excitation and churning because it is the constant flow of transactions that garner them their fees. They are mostly hawkers at the casino. Put on a pinstripe suit and preach manic optimism to pied piper the gamblers.

Our economic system is based on usury.  That generally means we need to always be in “growth” mode with some variation of inflation to keep things going.  It can’t deal with true deflation. It also seems to encourage these periodic asset bubbles that expand and burst to generate crises.

It also means that you are forced to gamble at some level because your money continues to depreciate if you don’t keep it in action in some segment of the markets.

Aside from the vagaries of human emotion and greed, most economics attempts to harness some version of stochastic and chaos theory.  That in essence more or less guarantees that predictability is nothing better than a not so educated guess.

Humans are relentlessly competitive and hierarchical creatures and they WANT winners and losers. Inveterate gamblers are willing to endure long term losses in order to feel the short term thrill of the chase. That will apparently never change.

It is very interesting to read the “Black Swan” books of Nassim Taleb.  He generally believes that most things economic are explained by basic stochastics and probability.  You will always have a few “winners” because they are predicted by probability, not skill.  He also talks about the gurus who “blow up’ taking a lot of their investors money with them.

Some of the self anointed brains of economics flatter themselves that they have “sure things” to 99 percent probability or better.  Long-Term Capital Management in the early 1990’s with it’s so called Nobel brain trust was a case in point, and demonstrated that a highly leveraged hedge fund in fact had the potential to reduce the whole economic system to ashes. Unfortunately, the near zero probability events that the models couldn’t handle actually occurred.

[goodfornothin]

Nice post.  It's simple, we can not live in an infinite paradigm with finite resources. We are running up against a wall, phosphorous is one major wall, cheap oil is another, and water. Water is going to be a biggy.  Our economy is a vapor trail, much like our resources. 

Get out of debt, get yourself some metals, stay liquid and wait.  The petro-dollar is about to fall on its face.  It will have repurcussions, and you will be staring into an abyss if you trust any bank or commodity trader to whisper sweet nothings.  There's a reason the Goldman boys consider you a muppet, just ask John corzine,,,he will whisper in your ear all night

[PonoBill]

A study I encountered in my effort to educate myself is the DALBAR ( http://grandwealth.com/files/DALBAR%20QAIB%202014.pdf ) which tracks the sad results of individual investors in trying to time the market based on their emotions. That sounds like the kind of thing people would say "I don't do that" but obviously most people do. I have a tough time believing the stock market and world capital markets are truly random, the inputs are knowable, but too big a number for analysis by anything short of a quantum computer, but I don't doubt that stochastic analysis is as effective as anything else in explaining behavior. Unfortunately every analysis based on statistics is backward-looking and has limited (maybe zero) relevance to the future. I guess I need that quantum computer.

In the meantime, I'm learning towards a two-tier strategy for most of my invested assets that minimizes cost and maximizes diversification of both stocks and bonds. And then a smaller chunk that I'll hedge with, essentially investing against the larger buy-and-hold strategy. We'll see how that goes. I understand that being a Walmart greeter is actually kind of fun.

In the larger sense the stuff I'm going to write about is only somewhat about money. I think I'm extremely good at retirement, so I'm going to write about that path. I just hope I don't fall prey to the Jim Fixx syndrome and fall dead as I finish the last installment.

[Subber]

.
In the larger sense the stuff I'm going to write about is only somewhat about money.
I think I'm extremely good at retirement, so I'm going to write about that path.

The money part is important but I'm looking forward to what you have to say about
how to "be good at retirement."

How long have you been "retired" so far?

[spookini]

The good thing about this thread is.. I now view the "When sharks attack us" thread as a feel-good pick-me-up. 

[TallDude]

My retirement plan has always been work till I die. My thinking is in order to have success at this approach, I needed to steer my career path into a profession of the old, architecture. I was and still occasionally am a builder. I watched my dad's body fall apart as a builder. I didn't want to follow that path. About 20 years ago I transitioned into the planning side of the business and ran separate drafting and custom home building companies simultaneously. At some point I figured I would close the construction side, and go 100% architecture. That hasn't completely happened, but it's mostly architecture at this point. I'm in my early 50's, but I'm still the kid on the block in this profession. I was recently at a design review meeting and I was the youngest person by at least 15 years having a project reviewed.
As for the basic's, no financial planner, have good health insurance, always bought at the absolute bottom and have never sold, no debt, work harder than I play, continually educate myself, probably read about as much I watch TV, I haven't seen a movie in close to 7 or 8 years now. I build my own homes and boards, I always finish what I start, never look back except when I driving, and spend all my non-paddling time and savings on my kids.
And, I married someone who works harder than I do, is way smarter than me, and has an actual retirement plan for us.
 
Seriously though, we have been talking about retirement for a long time, probably longer than our friends who are not self-employed and will see some sort of pension. I see a lot early retiree's getting bored out of their minds. I can't ever imagine myself having enough time to be bored.       

[sterbo]

They walk among us, and with a scowl or smile, bring us hope
One who so blessed -

"To be truly challenging, a voyage, like a life, must rest on a firm foundation of financial unrest. Otherwise, you are doomed to a routine traverse, the kind known to yachtsmen who play with their boats at sea... cruising, it is called. Voyaging belongs to seamen, and to the wanderers of the world who cannot, or will not, fit in. If you are contemplating a voyage and you have the means, abandon the venture until your fortunes change. Only then will you know what the sea is all about. "I've always wanted to sail to the south seas, but I can't afford it." What these men can't afford is not to go. They are enmeshed in the cancerous discipline of security. And in the worship of security we fling our lives beneath the wheels of routine - and before we know it our lives are gone. What does a man need - really need? A few pounds of food each day, heat and shelter, six feet to lie down in - and some form of working activity that will yield a sense of accomplishment. That's all - in the material sense, and we know it. But we are brainwashed by our economic system until we end up in a tomb beneath a pyramid of time payments, mortgages, preposterous gadgetry, playthings that divert our attention for the sheer idiocy of the charade. The years thunder by, the dreams of youth grow dim where they lie caked in dust on the shelves of patience. Before we know it, the tomb is sealed. Where, then, lies the answer? In choice. Which shall it be: bankruptcy of purse or bankruptcy of life?"

~Sterling Hayden