Best of the Web 7/25/2022
Financial markets have been getting battered this year. This makes the common challenge of shifting from saving for retirement to spending from assets in retirement even harder. We’ll start with resources that may help ease your mind.
We’ll also explore the topic of burning out on stressful careers and alternative paths to retirement that can help you avoid this fate.
Resources explore the many conflicts of interest inherent in the financial industry. I’ll also share resources that will help give yourself the best chance at getting a fair shake.
I close out with a few articles that will help you use math to make better decisions with your investment and retirement withdrawal decisions….and a reminder that as much as we desire certainty, it is an illusion.
The Challenge of Shifting From Saver to Spender
A topic I’ve written and spoken about frequently is the challenge of making the shift from being a natural saver to spending down those savings in retirement.
Mr. Money Mustache sees this pattern among his friends as well. He offers a pep-talk and powerful reminder Why You’ll Probably Never Run Out of Money.
If you’re not convinced by a couple of FIRE bloggers, respected retirement researcher Michael Kitces shares Why Most Retirees Will Never Draw Down Their Retirement Portfolios.
One physician, Doc G, interviewed another, Jimmy Turner, on the Earn & Invest Podcast. They discussed The Cost of Burnout. A small amount of the conversation is specific to physicians, but I related to most of this important conversation as I think many others will as well.
The combination of frequent burnout on the path to financial independence with difficulty spending the money we work so hard to save and invest once we get there reinforce an idea I’ve long thought about, the need to Redefine Retirement.
I’m certainly not the only one questioning if there is a better way. Elle Hunt writes ‘A bigger paycheck? I’d rather watch the sunset!’: Is this the end of ambition?
Navigating the Financial Industry
Rick Ferri highlighted some of the conflicts of interest inherent to financial advice and why they exist on the Bogleheads on Investing Podcast: Michael Kitces and Nicole Boyson on the Investment Adviser Industry.
This next article is industry specific. I’m sharing it because I know this topic needs a spotlight shined on it after having witnessed it while helping my two sister-in-laws who are educators. I encourage you to share it with any educators in your life, who are likely getting a bad deal in their retirement plans.
It also does demonstrate a larger pattern of the massive conflicts of interest inherent to the financial industry which we all need to be aware of.
Melanie Waddell writes Equitable to Pay $50M for Misleading Teachers on Annuity Fees.
Getting a Fair Shake
In recent months, I’ve been critical of Vanguard on a number of fronts. Despite my critiques and willingness to share others’, I continue to hold almost all of my investments in Vanguard funds, housed at Vanguard.
The reasons why I choose to do so were the topic of a blog post that has been on my to-do list. Allan Roth summed up my thoughts, thus saving me the effort. He writes Why I’m Not Leaving Vanguard.
Since I began working towards CFP certification earlier this year, I’ve been paying closer attention to the financial advice space. One person who has impressed me with his dedication to helping educate both advisors and those needing advice is Cody Garrett.
He advocates paying directly for financial advice, the model I have long advocated for those that don’t want to or can’t do everything yourself. However, he also recognizes the challenge of finding those professionals.
He recently put together and is frequently updating this list of Advice Only Financial Planners and their specialties. If you are in search of financial advice, the list is a great place to start. (Note: I have no financial relationship with Cody or anyone on the list.)
Spreading the FIRE
I wrote the Choose FI book to transform the perception of FIRE from an extreme lifestyle to a set of solid principals that could be applied by anyone. I was, and continue to be, very proud of the book.
But I wrote at the time we published it that I had one regret about the finished book. In highlighting the early adopters and influencers, we may have reinforced who the stereotypical person pursuing FIRE is.
I’m excited to continue to see this movement grow as highlighted by Kimanzie Constable’s feature on Julien and Kiersten Saunders: They’re On a Mission to Bring FIRE to the Black Community. ‘It is Harder, But It Is Still Possible.’
Playing the Odds….
Ben Carlson highlights how stocks look better the longer you hold them, writing Stocks For the Long Run.
Nick Maggiulli reminds us that, despite the past few months, the market goes up in more periods than it goes down. Thus as we take money from investments in retirement, we should Sell Slowly.
But Certainty is An Illusion
The common theme throughout today’s articles, and life in general, is that we tend to focus on the wrong things in life. This is particularly true when we think about risk and tend to be driven by our biggest fears.
I’ve been reflecting on this after watching this stunning avalanche video:
My personal approach to risk management is shaped by my love of the outdoors. One of our favorite family activities is scramble in a field of massive boulders a few blocks from our home.
I occasionally pause to think that at one point, each of these massive rocks, some the size of cars or even small houses, broke free from the mountain above and settled into the stable position it now sits in today. If you happened to be in the wrong place at the wrong time, no amount of knowledge, skill, or preparation could save you.
Yet we worry so much about the one in a million thing that we can’t control, when there is so much we can. We can know history and make better decisions based on probability. And we can almost always adjust when things don’t work out quite as expected.
That’s where our attention should be focused specifically as we plan our financial futures and generally as we try to live our best lives.
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[Chris Mamula used principles of traditional retirement planning, combined with creative lifestyle design, to retire from a career as a physical therapist at age 41. After poor experiences with the financial industry early in his professional life, he educated himself on investing and tax planning. Now he draws on his experience to write about wealth building, DIY investing, financial planning, early retirement, and lifestyle design at Can I Retire Yet? Chris has been featured on MarketWatch, Morningstar, U.S. News & World Report, and Business Insider. He is also the primary author of the book Choose FI: Your Blueprint to Financial Independence. You can reach him at firstname.lastname@example.org.]
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Hi Chris, Very helpful article and especially the challenge from shifting from saver to spender. Are familiar with the book “Nest Egg Care” by Tom Canfield? It is described on Firecalc’s Resource tab as “A Masters Thesis on FIRECalc.” The basic idea it discusses is how to maximize your safe withdraw rate so you can enjoy more now while you are alive. I thought it is very interesting and would be great to have your input.
I have not heard of that book. I’m hesitant to commit to reading/reviewing a book b/c it is a big time commitment and I have no idea who the author is, his credentials, etc. I could be convinced however. What did you find unique or interesting about his approach, background, etc?
Thank you for being open minded – I really appreciate it. The amount of financial planning information out there is overwhelming and so I completely understand your concerns. I will try to be brief and address your two main questions.
1) Tom Canfield’s background & credentials
“Tom earned an electrical engineering degree from Purdue University and an MBA from Harvard University. He enjoyed considerable success as an entrepreneur — and as a mentor for entrepreneurs. He founded and operated Equity Catalysts LLC and served as president and CEO of The Enterprise Corporation of Pittsburgh, which helped match start-up technology companies with angel investors and other resources. He also was adjunct professor of entrepreneurship at Carnegie Mellon University’s Graduate School of Industrial Administration (now the Tepper School of Business).”
I think Nest Egg Care is Tom’s first and only book. As mentioned previously, I learned about his book, when I was reading the FIREcalc website (which I heard about from one of Darrow’s blogs). His book is listed under the Resource Tab and referred to as “A Masters Thesis on FIRECalc.” He uses/references both FIRECalc and Vanguard’s retirement calculator in his book.
2) What did I find unique and interesting about his approach:
What I found unique – There is a lot of information available about how to save, invest, achieve financial independednce, etc. However, in “Nest Egg Care”, Tom mainly focuses on once you have your have your savings (nest egg) and are ready to retire, how to calculate, a safe spending rate (SSR) so you can enjoy more now while you are alive. He covers this process in detail and leads the reader through the key decisions to make. I feel it is a unique approach because he comes at it from a different perspective than many others. His focus is how to address the four (4) main uncertainties so you can have increased confidence with a SSR that allows you to “enjoy more now.”
Here is an excerpt from his website: “Find Your SAFE SPENDING RATE to Maximize the Joys of Retirement. I had no idea as to what I could spend. I was crazy wrong on how to invest. I really understand now. I’ve never enjoyed my money more. Terrific travel with friends. In 2017 and again in 2019 and 2020 I gave my children more than I ever thought I’d be comfortable in giving. Nothing’s better than that.”
What I found interesting – In 2014 Tom retired at age 70 and he is still practicing the concepts in his book. He also still provides regular updates via his blog that are all focused on various parts of his book (e.g., how to implement the concepts). I thought this is interesting because he does not stray into other topics and is actively following the concepts he originally outlined. For the last eight years, he has been sharing his actual data and experience in real-time via his blog. I have not seen anyone else do this in the consistent way that he has.
I hope the info above helps address your questions. Again, I really appreciate you considering looking at his website and the concepts in his book. Thank you!
P.S. Thank you for the great blog! Your writing is exceptional.
Thanks for the detailed description. Here is my initial thought. It sounds like an interesting case study of one person’s particular approach. However, we can’t determine a generalizable “Safe Spending Rate” based on something like this, because it is essentially a case study, a study with a sample size where n=1.
Your safe spending rate is likely to be far different than his. That is great that he was able to spend freely and have great experiences in retirement. However, and Darrow has written about this on this site, there is a large element of luck of the sequence of returns when you retire. Anyone who retired in 2014 should have done very well, because markets did well. We did have significant downturns in 2018 and 2020, but both recovered very quickly. What we are experiencing now may be worse, but with nearly a decade of positive returns, it almost shouldn’t matter at this point because even with a generous withdrawal rate, the initial portfolio should have grown substantially.
Maybe someone who retired at the end of 2020 is going to have a much different experience. Only time will tell. The key thing to understand is that we shouldn’t extrapolate too detailed of lessons from one person’s experience.
That said, I’ll check out the blog and see if there is anything there that I think is worth exploring.
Thanks for responding. I copied a couple sections of your reply below and provided a little more information to help clarify a couple points.
“It sounds like an interesting case study of one person’s particular approach. However, we can’t determine a generalizable “Safe Spending Rate” based on something like this, because it is essentially a case study, a study with a sample size where n=1.”
No, I do not think that is accurate. Both FIRECalc and Vanguard’s retirement calculators are used by a lot of people. What this book covers is a detailed framework for how to work with those two resources. It is like the MMM blog you linked but I think this book provides more detail and templates for the DIY investor to consider. As just one example, his template for how to calculate the expense ratio for your portfolio is very simple and useful.
“Your safe spending rate is likely to be far different than his. That is great that he was able to spend freely and have great experiences in retirement. However, and Darrow has written about this on this site, there is a large element of luck of the sequence of returns when you retire.”
Yes, that is correct that my SSR, or anyone else’s, will be different as each situation has its own set of circumstances, timeline, etc. The framework he provides in his book is intended to help a DIY investor to know how to approach this complex issue and it uncertainties to arrive at their own SSR. Both FIRECalc and Vanguard’s retirement calculators stress the importance of sequence of returns, and this is covered extensively in the book as well.
“Maybe someone who retired at the end of 2020 is going to have a much different experience. Only time will tell. The key thing to understand is that we shouldn’t extrapolate too detailed of lessons from one person’s experience.”
Yes, with what we know today, it is very likely that someone retiring in 2020 will have a different experience than someone who retired in 2014. But as you say, only time will tell. However, as clarification, the book is not really a lesson from “one person’s experience.” As mentioned above, both FIRECalc and Vanguard’s retirement calculators are used by a lot of people and what this book covers are ways for DIY investors to use those two resources. Here is an excerpt from his website: “The result for many is a safer plan than they have currently constructed and also greater spending than they thought possible.”
Thank again for considering checking out the blog and book.
Curious, why do you think FIRE is harder for the black community? Is FIRE easier for other minority communities? I feel like the saving rate, investing, and discipline is universal.
So is having a stable two-parent household.
I would agree that the principals of FI are universal for all people. That was the premise of my book. However, I believe even more important than knowing what to do is first believing that you can actually do it. Otherwise you will never take action.
I can’t tell you how many physical therapists have reached out to me after hearing my story and told me they’ve related to me and I inspired them because I was a physical therapist. At first, that didn’t really make sense to me. My story is quite different than almost all of theirs. The biggest difference is I got through school with no debt, and most of them were starting 6-figures in the hole. Still, just having that commonality of a shared profession gives people something relatable and provides hope that if I can do it they can too. And because of that, many have done amazing things that I couldn’t even have imagined after having that motivation to get started.
In the black community, I think having those examples of success and inspiration are even more important. As abysmal as statistics are on saving, wealth accumulation, etc. in the general population, they are far worse in the black community.
Why is that? I think it’s complex. Part of the challenge faced by the black community compared to other minorities stems from systemic factors that are a result of our nation’s complex history: from slavery then segregation and other discriminatory practices that continue to manifest themselves in things like housing and education disparities to this day. Part is that people have bought into harmful narratives that lead to learned hopelessness. So many who could build wealth that can transform their lives and transform future generations don’t bother to try.
I find Julien and Kiersten’s story (featured in the article I shared) interesting and inspiring. So I am happy to share it for anyone who may see themselves in it and find hope that leads to taking similar actions in their own lives.
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