Craig Israelsen’s new article for Financial Planning on sequence risk is the most straightforward and clear explanation of what it means and why it matters that I have seen. I recommend it highly.
Sequence Risk
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Tag Archives: Retirement Income
The U.S. Retirement Crisis: Essential Reading and Resources
Lauren Foster of the CFA Institute asked Wade Pfau, Michael Kitces, David Blanchett and I to suggest some resources for advisors dealing with retirement. What we suggested and a lot of other good stuff are available here. I think it’s well worth your reading.
Math Suckage and Dave Ramsey
Dave Ramsey has added further evidence to the pile already in place attesting to how bad we are generally at math and probability. Sadly, he’s no better than the mass of us.
Let me hasten to emphasize up-front that Dave has done some fabulous work by helping many, many people to get out of debt, stay out of debt, budget effectively, live frugally and save aggressively. But when it comes to investing and to doing math, he is simply out of his depth. Let’s start with the backstory. Continue reading
The One Percent Doctrine
A number of years ago, during George W. Bush’s second term and by sheer happenstance, I ended up playing a round of golf with a Navy SEAL Commander (half the SEALs train here in San Diego). Obviously, much of his job was classified and he was very circumspect in what he shared. However, when I asked where or how I could become better informed about foreign policy, he recommended Ron Suskind’s book, The One Percent Doctrine.
The “one percent doctrine” (also called the “Cheney doctrine”) was established shortly after 9.11 in response to worries that Pakistani scientists were offering nuclear weapons expertise to Al Qaeda. Here’s the money quote from Vice President Dick Cheney: “If there’s a 1 percent chance that Pakistani scientists are helping al-Qaeda build or develop a nuclear weapon, we have to treat it as a certainty in terms of our response. It’s not about our analysis … It’s about our response.”
Thus in Cheney’s view and per subsequent policy, the war on terror required and empowered the Bush administration to act without the same level of evidence or analysis as might otherwise be necessary. Continue reading
Struggling With Clients
My newest column is now available from Research magazine. Here’s a taste.
As [The Wall Street Journal’s Jason] Zweig emphasized, we are all social animals. It is natural and inevitable for most people to measure their success and status against their peers, and advisors are people, too. Yet the advisor who loses business to the competitor proposing an unrealistic approach and envies him “has already lost the battle. [Warren] Buffett likes to say that companies get the shareholders they deserve. Ultimately, every advisor has to be reconciled to the perennial truth that you get the clients you deserve.”
Surely the best advisors will need to listen more carefully, to provide excellent advice and recommendations based upon the most thoughtful research, and to make their points in a way that resonates with clients both intellectually and emotionally. That’s far easier said than done, of course. Long-term financial and retirement planning is difficult business. As Dana Anspach sagely added, “It is hard to plan for something when you don’t want it to happen.” Indeed it is.
‘Burying the lead’ on investor mistakes
My latest “RetireMentor” column at MarketWatch is available here. A taste follows.
“[T]he discussion of investment performance (such as it was) in no way dealt with the most important issues of all—why we make such lousy investment decisions and how those lousy decisions impede and damage our financial health.”
‘Burying the lead’ on investor mistakes
Retirement Confidence Still Minimal
As I noted earlier in another context, the Employee Benefit Research Institute issued its 23rd annual Retirement Confidence Survey yesterday and it shows that despite some economic recovery, many Americans remain terrified of their retirement prospects. Continue reading
Unreasonable Expectations Highly Desired
I spend a significant amount of time talking and working with advisors of various sorts and most of them have a decent working knowledge of the retirement income literature and have a good sense of what the advantages and disadvantages of the various approaches are. In short, they generally know what ought to be done in most situations. But they struggle with recalcitrant clients and prospects and how to handle them. For example, their clients and prospects resist annuitized floors. They don’t delay Social Security. Continue reading
Not-So-Great Expectations
My latest piece for MarketWatch is available here. A taste:
Suppose a couple earning a combined $100,000 per year wishes to retire. They prepare their budget and conclude that they can live on $60,000 in retirement (note that whether their assets can sustain that level of spending is a separate and crucial question, one I will cover in my next article). The replacement research suggests that this couple will likely need around $80,000 to replicate their pre-retirement lifestyle. Can they really expect to live on 25% less than that?
Retirement: Winning the loser’s game
My latest piece for MarketWatch is now available. Here’s a taste:
This need to avoid investing errors is particularly relevant to retirement planning. More retirees use systematic portfolio withdrawals to provide needed income than any other strategy by a large margin . The common rule of thumb is the so called “4% rule,” which generally postulates that one should be able safely to withdraw an inflation-adjusted 4% from a diversified portfolio of between 50% – 75% stocks annually and have the portfolio last for 30 years to roughly a 90% – 95% certainty.
However, recent research (summarized here and here ), much of it by my RetireMentor colleague Wade Pfau , “suggests that the sustainable withdrawal rate for retirees in 2000 could be much closer to 2% than to the 4% safe withdrawal rate rule-of-thumb.” The problem is largely on account of ” sequence risk .”
Retirement: Winning the loser’s game
Above the Market 