February 2019 Best of the Web

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February has come and nearly gone. It’s time to share the best articles we’ve found around the web from the past month.

We have a little something for everyone this month. We start with two heavy hitters in the retirement planning space questioning conventional wisdom around creating retirement income.

Our articles emphasize the importance of understanding the math of retirement planning, but then using it to play to your strengths and serve your personal wants and needs.

We close with a fascinating interview with an early retiree struggling to find contentment after achieving his professional and financial goals early in life.

Retirement Income and Spending

Sequence of returns risk is frequently discussed in retirement planning literature as a reason to be conservative with spending. In The Extraordinary Upside Potential of Sequence of Return Risk in Retirement, Michael Kitces points out that we need to have flexible spending rules to address the risk of spending too little in retirement.

Larry Swedroe asks Does the “Bucket Approach” Destroy Wealth? He then provides a compelling argument that it does.

Retirement Planning Simplified

Mike Piper writes A Rough, General-Purpose Retirement Plan, combining a lot of the best available thinking about retirement planning into a brief, general purpose framework.

Richard Quinn writes 10 retirement lessons from a retired retirement pro.

Personal Finance is Personal…

Personal finance is personal. Thus the “right” answer is the one that works for you.

Brent Sutherland has a different, but thought provoking, take on investing than what we usually write about on this site. He writes 5 Reasons Why Investing For Income Beats Investing For Growth.

Grant Sabatier shares my unpopular opinion among personal finance “experts.” He hates budgets. He writes I’m a Millennial Millionaire. This Is Why Budgets Don’t Work.

But Math Is Math

You can be creative and flexible with how you apply personal finance strategies to your situation. But the rules of math are inviolable. Thus, it is important that you understand them.

Big Ern writes The Yield Illusion: How Can a High Dividend Portfolio Exacerbate Sequence Risk?

Mike Piper writes Why Delaying Social Security Doesn’t Provide an 8% Return.

Allan Roth gives a fair analysis of the benefits, costs and risks of annuities with An Annuity Hater Revisits SPIAs.

Thought Provoking Interview

Stephen Dubner interviewed Domonique Foxworth, former NFL defensive back and president of the NFL player’s union, on the Freakonomics podcast. After retiring from football, Foxworth went on to obtain an MBA from Harvard and became C.O.O. of the NBA players’ union, only to quit shortly thereafter.

The first hour of the interview provides a fascinating look behind the scenes at the business of sports, but if you’re not a sports fan skip to the last half hour of the 90 minute conversation. It focuses on Foxworth’s struggles to balance ambition and contentment while trying to find happiness after having achieved financial and personal goals early in life.

Dubner’s expert interviewing skills combined with Foxworth’s willingness to be honest and candid creates a fascinating conversation that many early retirees will relate to. At least I did.

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  1. I use the Bucket Approach just like I’ve paid off my mortgage years ago even though I could have gotten a 3% fixed mortgage years ago. In both cases, I know that I could have invested more cash and increased my wealth over this period of time. But did I not do this because of ignorance (as Estrada/Larry suggests this is why people use the Bucket Approach). I did it because the psychological comfort of being able to easily keep my house and not selling at a loss gives me more comfort than earning that extra return on investment. At the end of the day, your assets are there to provide you with security/happiness and for me, sometimes physiological comfort is worth paying for.

    • Chris Mamula says

      I also paid off my mortgage in a sub-optimal (ie-FAST) way and don’t regret it. The key is whether you are making sub-optimal math decisions by choice (which is fine and our prerogative) or out of ignorance.

    • It is great having your house paid off. We turned around and got a reverse mortgage line of credit to cover potential future long term care costs. Could not imagine having a mortgage in retirement!

      • Chris Mamula says

        Agree, though many don’t.

        • Henry Hunter says

          Good evening, for me is all about making a plan and following it until retirement, some years will not go as plan but we can do it, just need to have some sort of discipline, that does not mean not enjoy life, you should enjoy life when you are young as well but with discipline. Also save money as much as you can and every dollars counts. Ask for guidance, ask questions. Be sure of things before making an important decision. We want to have 0 stress when we retire and peace of mind.

  2. Bruce Campbell says

    Thanks for all of the knowledge these papers have. I takes a long time to go thru them but it made me sit up and learn more. This was outstanding. (and also hard for us common folk to find such articles.

    • Chris Mamula says

      Thanks for the kind words Bruce. We do our best to find interesting content from a variety of well and less known authors.

  3. In Brent Sutherland’s article under section 4 – Improved Math, he refers to ” alternatively look to invest in assets that generate an 8% cash-on-cash rate of payout.” Anyone have any idea what assets he is referring to? Typically to generate yields that high you would have to invest in higher risk investments which would not be appropriate for a retirement portfolio.

    • Chris Mamula says

      That is not unreasonable for non-leveraged real estate, especially if applying some sweat equity such as finding deals, managing the property, doing fix up work, etc.

      See: In it, I asked real estate investor Chad Carson what would be a realistic return to expect on a RE deal, and he said he would not do a deal with < 6% cap rate. Understanding this is not passive. Agree that for those returns on a passive investment would have to take on far more risk.