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Started By
Message
What is a good retirement? Proposed shift from Wealth focus to Income-Stream focus
Posted on 12/23/22 at 11:38 am
Posted on 12/23/22 at 11:38 am
LINK
Robert Merton, MIT Economics, Nobel Prize Winner (Beginning 12:00 mark)
Premise:
For Defined Contribution Plans
Refocus the risk on income, not wealth total
Primary focus on retirement wealth (pot of money) in DCs ignores impact on retirement income-stream, and this can create misinformation and a bad effect for people
Summary: DC Plans are measuring the wrong thing
From: How much is your account (de-emphasize the total value of the account)
To: What could the $ in your account buy in terms of retirement income (focus on: you need X income stream to live in retirement)
We are showing people the wrong number, and that has a bad effect.
For example:
You are 62
You have enough money to lock in your retirement income goal; you are happy with this and want safety and security with this income
Right thing to do is to buy bonds.
No matter what interest rates do (rise/bond price goes down but your income is stable, short or long-term bonds)
But because DCs focus on wealth total value, seeing interest rates rise (ie, bond value goes down), the value decline creates misinformation -- assumes income goes down. When, in fact, that is not true. Income is stable.
We are showing the wrong number, resulting in "I am richer" or "I am poorer". Green means good. Red means bad. You are better if green. However, the reality is that is not true.
Creates complexity in managing the money. Rules written about volatility of the value, not the income, of the account.
Relevance = how close are you to your retirement income stream and not the total pot of money
35:50 particularly interesting (DC world problem) - illustrates why past history of Mutual Funds returns are not reasonable to expect people to look at this data and predict any meaningful decision-making from this towards one's future retirement.
Asset allocation, risk
Have a rule: only give people meaningful information and actionable choices within their time and skills context. Most of information provided in DC plans are not meaningful for most investors.
Found this interesting!
Robert Merton, MIT Economics, Nobel Prize Winner (Beginning 12:00 mark)
Premise:
For Defined Contribution Plans
Refocus the risk on income, not wealth total
Primary focus on retirement wealth (pot of money) in DCs ignores impact on retirement income-stream, and this can create misinformation and a bad effect for people
Summary: DC Plans are measuring the wrong thing
From: How much is your account (de-emphasize the total value of the account)
To: What could the $ in your account buy in terms of retirement income (focus on: you need X income stream to live in retirement)
We are showing people the wrong number, and that has a bad effect.
For example:
You are 62
You have enough money to lock in your retirement income goal; you are happy with this and want safety and security with this income
Right thing to do is to buy bonds.
No matter what interest rates do (rise/bond price goes down but your income is stable, short or long-term bonds)
But because DCs focus on wealth total value, seeing interest rates rise (ie, bond value goes down), the value decline creates misinformation -- assumes income goes down. When, in fact, that is not true. Income is stable.
We are showing the wrong number, resulting in "I am richer" or "I am poorer". Green means good. Red means bad. You are better if green. However, the reality is that is not true.
Creates complexity in managing the money. Rules written about volatility of the value, not the income, of the account.
Relevance = how close are you to your retirement income stream and not the total pot of money
35:50 particularly interesting (DC world problem) - illustrates why past history of Mutual Funds returns are not reasonable to expect people to look at this data and predict any meaningful decision-making from this towards one's future retirement.
Asset allocation, risk
Have a rule: only give people meaningful information and actionable choices within their time and skills context. Most of information provided in DC plans are not meaningful for most investors.
Found this interesting!
5
Posted on 12/23/22 at 12:33 pm to Turf Taint
Luckily us millenials don’t have to worry about retirement because they’re just gonna shoot us when we can’t work anymore
Posted on 12/23/22 at 12:40 pm to el Gaucho
quote:
they’re just gonna shoot us when we can’t work anymore
When do you think that might be?
Posted on 12/23/22 at 1:07 pm to Jag_Warrior
2023
Or during Kamala’s 3rd term in 2030
Or during Kamala’s 3rd term in 2030
This post was edited on 12/23/22 at 1:08 pm
Posted on 12/23/22 at 1:23 pm to el Gaucho
quote:
Luckily us millenials don’t have to worry about retirement because they’re just gonna shoot us when we can’t work anymore
Can't wait for the memes.
"Pink hair, don't shoot"
Posted on 12/23/22 at 2:52 pm to Turf Taint
Someone's been plagiarizing Bogleheads. Most of that is common knowledge if someone is not concerned about leaving wealth to heirs, etc. There are many different ways to use assets to generate income. The PDO year end special distribution dropped > $24k of income in my Roth this week that is tax free, plus normal monthly distribution, but people don't want to hear about buying leveraged income funds on here, much less when they are on sale at 10 - 12% discount to NAV per unit, or price drop from $21 to $13 per unit.
Posted on 12/23/22 at 3:25 pm to tirebiter
quote:
Most of that is common knowledge if someone is not concerned about leaving wealth to heirs, etc.
Sounds like a leveraged incomes fund broker who did not hit targets this year
Coincidence I’m sure
Kidding
Posted on 12/23/22 at 3:28 pm to el Gaucho
quote:
millenials
quote:
when we can’t work anymore
ironic pentameter
Posted on 12/23/22 at 3:50 pm to Most Points Win
quote:
Sounds like a leveraged incomes fund broker who did not hit targets this year
Coincidence I’m sure
Kidding
Nah, more like when fixed income opportunities present be opportunistic, most aren't going to buy CEF's due to the leverage and prospective volatility, yet there have been some nice fixed income opps this year. Still holding TIPS from the 2008 November fire sale with 2.25% - 2.50% coupons + inflation factor, there haven't been new issues with those fixed rates in well over 10 years. Maintaining 60% equity exposure.
Posted on 12/23/22 at 10:39 pm to Jag_Warrior
quote:
quote:
they’re just gonna shoot us when we can’t work anymore
When do you think that might be?
Posted on 12/23/22 at 10:42 pm to Turf Taint
us RE guys have said this forever and ever.
once your passive income equals or exceeds your expenses you are technically RETIRED.
all this i have XYZ in this account means nothing if not properly allocated to passive cash flow to support you where you do not have to work anymore.
once your passive income equals or exceeds your expenses you are technically RETIRED.
all this i have XYZ in this account means nothing if not properly allocated to passive cash flow to support you where you do not have to work anymore.
Posted on 12/23/22 at 11:32 pm to Turf Taint
I think most try to stash away and when it’s time to retire, get an annuity set up to generate a stable cash flow with their balance of growth
Posted on 12/24/22 at 4:44 pm to el Gaucho
When you can't or because you won't?
Posted on 12/25/22 at 9:53 am to kywildcatfanone
quote:
When you can't or because you won't?
pay no mind to gaucho. his whole account is basically a troll account. basically every post is a shite post. i am shocked admins have not banned him.
Posted on 12/25/22 at 1:36 pm to tirebiter
quote:Are we accusing an Economist who won the Nobel prize 30 years ago for his work on models for option pricing that are still used today (Black–Scholes model) of plagiarizing an internet message board?
Someone's been plagiarizing Bogleheads.
Posted on 12/25/22 at 9:44 pm to buckeye_vol
quote:
Are we accusing an Economist who won the Nobel prize 30 years ago for his work on models for option pricing that are still used today (Black–Scholes model) of plagiarizing an internet message board?
I giggled when I read "plagiarized" too.
Posted on 12/26/22 at 10:52 am to tirebiter
I am a High Dividends Opportunity member. I live off of income produced and my SS. I can actually save money each year…and swan.
Posted on 12/26/22 at 7:12 pm to natsoundup
quote:
High Dividends Opportunity
Any info on this?
Posted on 12/27/22 at 1:21 am to Turf Taint
Mr. Taint, is this thread not contrary to the other one you posted about beating 90% of professionals?
Posted on 12/27/22 at 3:31 pm to tirebiter
quote:
The PDO year end special distribution dropped > $24k of income in my Roth this week that is tax free, plus normal monthly distribution, but people don't want to hear about buying leveraged income funds on here, much less when they are on sale at 10 - 12% discount to NAV per unit, or price drop from $21 to $13 per unit.
Sigh.
Do you understand how ROC distributions work?
PDO paid you $.96 and the price fell $1.18. Congrats?
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