October 2022 Best of the Web

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Happy Halloween!  Volatile investment markets, rising interest rates, and high inflation continue to dominate financial news and be scary for many investors. I have some great resources to help you navigate these challenging times.

The Best

This month’s resources attempt to change perceptions of FIRE so that more people find FIRE principles accessible. I also highlight an important older book and share the announcement of a new one.

Finally, one of my favorite personal finance writers who has helped countless others with their money is nearing his own retirement. We’ll see what he is focusing on.

Enjoy the articles and the rest of your fall!

Plans Changing Yet?

Gregg Greenberg reports that the current Stock Slump has rich rethinking retirement. I want to disclose that I don’t love the conclusions that this article draws. I chose to lead off here because I think it is a fascinating look into the psyche of investors.

A few quotes jumped out at me:

“The report also revealed that almost half (42%) of high-net-worth investors are so worried about retirement security that they avoid thinking about it all together.”

And:

“As for those historically low rates, more than half (58%) of high-net-worth respondents recognized that those many years of depressed yields will make it difficult to generate an income off their savings, even now that rates have sprung higher.”

It is simultaneously shocking at first glance, yet not all that surprising with further thought that sentiments have shifted so much in less than a year. This is a great example of the psychology that accompanies every economic cycle.

The next selection is from Allan Roth. Even if you don’t implement the particular strategy he outlines, it is worth a read. 

Roth demonstrates that current realities are exactly opposite of the sentiments and fears of many high-net-worth investors surveyed in the first article. Roth writes The 4% Rule Just Became a Whole Lot Easier.

What’s Your Financial Time Horizon?

One way to stay the course and avoid allowing your emotions to fluctuate wildly with economic cycles is to follow Sarah Newcomb’s advice. She suggests Investing With a Mental Time Horizon.

Another is to limit the financial information you take in. Jonathan Clements who has spent a career creating such information notes that most of it is News You Can’t Use.

Retire Before Dad ponders How Our Perceptions of Time and Money Change as We Age.

Misconceptions About FIRE

Physician on FIRE addresses common misconceptions about FIRE. He lays out a compelling case In Defense of FIRE.

This month I had the opportunity to talk about FIRE at the Bogleheads Conference. I devoted the first half of my presentation to making similar arguments to those made in the post above.

Unfortunately, people’s first impressions of FIRE are often not good ones. I acknowledged this and addressed the elephant in the room in an attempt to persuade people to open their minds to giving FIRE concepts a closer look.

One particular message resonated with a number of people that I spoke with after my presentation. Applying FIRE principles can be a game changer for people getting a late start on retirement saving. Several people specifically asked if I had ever met anyone “in the wild” who had actually done this or if it was theoretical.

So I’ve been sharing the story of my friend Becky Heptig who blogs about her and her husband Steven’s turnaround from Broke at Age 50 to Retired at 63.

For more examples of these principles in action with people who had little to nothing saved by their 40’s and 50’s, check out the Australian blog Late Starter FIRE’s Late Starter to FI Series.

New Love For an Old Book

Helaine Olen profiled Vicki Robin and her book Your Money or Your Life: Why this 1992 personal finance book still has a cult following. (Darrow recommended this article that he read in the Washington Post. It may be behind a paywall, but hopefully this link will work for you.)

An Important New Book

Mike Piper recently announced that he has written a new book: After the Death of Your Spouse — Next Steps for Surviving Spouses.

My policy is generally to never recommend a book that I haven’t actually read. I am making an exception here because:

  • I have such respect for and confidence in Mike Piper’s work, 
  • This is a topic near to my heart, and 
  • I am confident this will be a valuable resource for those who need it.

Inflation in the News

As inflation remains high, Charlie Wells explains why I Bond Yields Are Set to Drop Next Month.

John Manganaro reports that inflation means those of you receiving Social Security benefits will be getting a raise next year to help offset higher prices. He writes Social Security COLA for 2023 Set at 8.7%.

High inflation means that contribution limits for retirement accounts are increasing. Tax brackets are also widening and we will have larger standard deductions. Karl Evers-Hillstrom shares what is changing with links to details that most concern you, writing IRS unveils record contribution levels for 401(k) plans to meet inflation.

Retiring Right

Jonathan Clements shares what he’s focusing on as his retirement gets closer, writing Retiring Right.

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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 chris@caniretireyet.com.]

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6 Comments

  1. The “IVY Portfolio” is down ~20% YTD as of 10/27/22 trailing the S&P.
    https://portfolioslab.com/portfolio/mebane-faber-ivy
    Making the transition from saving to spending is complicated and fraught with behavioral errors in the best of times. Wade Pfau wrote last year that only a 1/3rd of investors can follow a total return approach with 1/3 preferring to annuitize.
    https://www.fa-mag.com/news/equities-vs–annuities–wade-pfau-outlines-four-retirement-income-styles-64454.html

    I’m in the remaining 1/3 who went hard into alternatives the last 10 years before leaving the workforce because generating a reliable income is far easier to do with them than depending on selling shares from index funds.

    1. Thanks for chiming in JT.

      I assume you write this in reference to the conclusion of the 1st article. If so, I suppose that it depends what the “alternatives” are.

      I agree with you that many people have a hard time with the transition from saver to spender. An abundance of research shows that most retirees spend only portfolio, pension, SS, etc. INCOME only and rarely touch principal.

      If by alternatives, they were referring to annuitizing a portion of a portfolio with a plain vanilla single premium income annuity and it gives retirees the comfort to spend, than I support that alternative fully. But even at that, it doesn’t make a whole lot of sense to be feeling hopeless now when rates are rising if you didn’t feel that way a year ago when rates were in the gutter.

      The article did not define what they meant by alternatives, but my mind did not go to plain vanilla income annuities. Instead it went to complex variable or index annuities or other complex and expensive insurance products, private equity, etc. The alternatives I was picturing typically come with high fees, complexity, and subpar returns in the long run.

      I suppose as with everything, the devil is in the details, but I may have been unfair in my assumptions. Thanks for the thoughtful feedback and keeping me honest.

      Chris

      Best,
      Chris

  2. Yes, I was referring to the “Rich rethink” article☺
    My definition of “alternatives” is limited to rentals and individual dividend paying stocks. Some might not consider these to be alts at all. But they’re definitely not for everyone. Have held rentals since the 90’s and its been long periods of quiet punctuated by weeks or even months of second guessing my decisions.

    All the Best
    -JT-

    1. Appreciate the detail. This is consistent with what I see. Even if returns may ultimately be lower (dividend stocks vs. total return approach) or more work may be involved (privately owned R.E. vs. a passive paper portfolio) people are generally pretty comfortable spending income and not comfortable dipping into principal.

      If that’s the case, it makes sense to me, whatever we call it. In fact, it is similar to what my wife and I are doing in semi-retirement and living primarily off of her part-time work and my hobby business income while allowing our portfolio to grow.

      Cheers!
      Chris

  3. Thanks for the excellent updates Chris.

    Regarding “Financial Time Horizons” I think Cullen Roche is one of the most helpful and innovative thinkers in how to understand these issues in a way that makes it possible for investors to create portfolios that not only meet their needs over specific time periods but also minimize the chances of investor behavioral mistakes during times of market crisis and volatility.

    This paper by him takes the old “bucket” approach to investing to an entirely new level. I think his real-world examples of why layering of specific assets needed for various time frames in an investor’s life is far superior to all-in-one or target date funds in terms of both meeting needs and (perhaps more important) discouraging panic selling or FOMO buying are especially valuable for retirees (early or otherwise). A guy worth following IMHO, with excellent podcast and YouTube features. He’s among the very few next-gen folks I know of who both understand complex macroeconomic issues AND have the ability to distill them into clear, short, actionable advice.

    https://disciplinefunds.com/wp-content/uploads/2022/08/All-Duration-Investing-1.pdf

    1. Thanks for sharing Kevin. I follow Cullen on Twitter, but will have to dive a little deeper into his work.

      Best,
      Chris

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