Before getting into the retirement lies he provides very transparent information on a dividend based portfolio.
Lie number 1 was "You will need multi-millions of dollars to retire 'comfortably'" which of course is good timing after I tried to explore a reader's comment about needing $2 million. His point here seems to be you can't spend more than what comes in. This is true of course so then what is comfortable? One person's idea of comfortable could easily require millions. He goes on to say "it's more about how much you spend" so if that is true (and I agree it is) then I am not sure any lie was debunked. This is good reminder about living within your means and again, I agree.
Lie number 2 was "Social Security will not be around for those over 50 when you retire." I don't see this one very often. I don't believe it will be around for people under 50 at least not the way we now know it. I have said many times that I, in my mid 40s, expect nothing which is the more conservative planning approach. If I am wrong then maybe I'll be able to get a sweet grille like Gator (Will Ferrell in the movie The Other Guys).Lie number 3 was "Medicare will not be available for those approaching retirement" which again I've not read that people approaching retirement are in jeopardy.
Lie number 4 was "Keep a much smaller % of cash invested in equities." I'm not sure that the advisor community says this anymore, Bogle does however, but he is correct that people tend to become too conservative with their asset allocations. If you're 60 and either of your parents are alive then you need to plan on being around long enough for even "normal" inflation to eat away at your purchasing power.
Lie number 5 was "The 4% withdrawal rule is the best to follow." Obviously I believe in not exceeding 4%. His argument here is that he says he believes in the die broke philosophy. He talks about not wanting to eat saltines and then leave it all to the kids. How much someone does or does not leave to their heirs is a personal decision with no wrong answer so no quibble there. As a stark example the risk to the die broke scenario could thought of as planning at 70 to die broke at 95 and somehow being quite fit well past 100.
Also I may have missed it but this idea would seem to conflict with not spending more than what comes in. It looks like he believes in just spending the dividends so in theory he would never be broke. He is a very prolific writer and so I am sure this is addressed somewhere else in his posts.
Lie number 6 was "Annuities "guarantee" money for life." I don't care for annuities either. I was picked on about this a few weeks ago to the point of someone doubting my integrity but I simply don't believe in relying on an insurance company in this way.
Lie number 7 was "Stocks are too risky in retirement." This seems like a repeat of number 4 and I agree people often become too conservative.
Lie number 8 was "Make sure you have a professional advisor to 'help' you." Managing a portfolio requires time and a certain amount of understanding of markets and human behavior. Almost anyone can learn these things for themselves and manage their own portfolios. Not everyone wants to spend the time. Someone who does not want to spend the time should hire some help. An advisor can be a big help even if all they do is prevent clients from succumbing to their own behavioral flaws.
I tend to believe a portfolio needs time devoted to it but that does not have to mean hiring someone. Assuming Regarded Solutions is a do-it-yourselfer he is someone who wants to spend the time on his portfolio. This blog is written in part because I expect very few of the people reading it will ever hire me or anyone else to manage their money.
Lie number 9 was "Make sure you leave enough for the kids." This is a repeat from above and to be blunt I'm not sure the industry says this. I've worked at two buyside firms and at both the approach was along the lines of "what are your thoughts about leaving money to your kids or anyone else" and then the plan is built with that wish in mind.
I know people who view how much they leave to their children is a measure of their value as people and at the other extreme I know very wealthy people who believe the obligation ends once college is paid for and think it is crazy to leave anything to children. An advisor who questions that, as opposed to simply trying to execute the client's wishes, will have one less client. And of course an advisor may need to deliver bad news on this front but that is not the same thing as questioning the intention.
Lie number 10 was "Retirement is an outdated idea, work forever." I'm not sure this is a lie foisted upon an unsuspecting public by the financial services industry as I have been reading comments along these lines on my blog and in other places for many years. Recently I talked about one line of comments though that believes there is some sort of conspiracy to train us into believing we need to work longer and won't get the social security benefits we think we have coming.
Like a couple of things above, the manner in which we "retire" is very subjective. I could argue that I am retired now. I work from home doing things that I love doing and that I hope to do for a very long time. My personal belief is that working is a better way to stay mentally sharp for longer. Based on what I can tell Regarded Solutions stays very busy. I have no idea if the investment writing pays him anything but it is a vocation.
As for the potential financial benefit from working I've written about this many times in the context of trying to relieve some of the income burden that would otherwise be place on the portfolio. To his first point if your idea of comfortable can't quite be covered by the dividend income (I believe he is a dividend investor) then maybe another $500 or $1000 from some part time work could bridge the gap to "comfortable."
I agree with most of the ideas spelled out in the article, the common sense notion was very good but it is not clear to me that too many lies were actually debunked.
2 comments:
#1. The more millions you have accumulated for retirement the more comfortable your retirement years will be. This is a no brainer.
#9. It would be a colossal mistake to "not leave plenty for the kids". Only by doing that can you be assured you will have enough to your end days and not be a pauper for years before your end days. "It is bad enough to be old, but to be old and poor would be a catastrophe." Whether you give the balance to your children or charity is another matter but it would be most wise to plan to leave a pile.
There a 'respectable' theory, i.e., advanced by academics that SPIAs have a place in everyones retirement portfolio, especially 'longevity insurance' ie a deferred annuity that only pays off when you reach a certain age, e.g., 85. I think it makes sense.
Also, if you accept some variation of the 4% rule (3% 4% 5%) and you are above that number then basically you are taking a real risk, albeit possibly a small one, that you will run out of money. And that risk will keep you awake at night possibly (it would me, thats for sure) So in that case its a worthwhile idea to investigate annuitizing (low fee immediate.. not a variable hi fee one) a part of your portfolio just to cover your necessary expenses.
The author of the original SA post you refer to is correct, it's insurance. but he's incorrect in that its not just getting your money back with a little bt of interest. If you live past 85 then you gain tremendous benefite from the insurance not paid to those who didnt.
Theres another school of thought that advises you to maintain a regular portfolio as Rog would manage, until as such time as it is depleted to the point where it will barely buy you an annuity to cover all your expenses. Hopefully that never happens but if it does then thats the time to use the insurance to guarantee your income.
No im not an insurance salesman, I just want to worry less
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