tag:blogger.com,1999:blog-5465015914589377788.post6779921265352652659..comments2024-03-20T09:32:16.592-04:00Comments on Michael James on Money: A Retirement Income StrategyMichael Jameshttp://www.blogger.com/profile/10362529610470788243noreply@blogger.comBlogger39125tag:blogger.com,1999:blog-5465015914589377788.post-36329348176707823812019-02-07T20:22:12.730-05:002019-02-07T20:22:12.730-05:00@Garth: I didn't mean to sound offended. I j...@Garth: I didn't mean to sound offended. I just assume that most failures to communicate are the fault of the writer or speaker rather than the reader or listener. If you find any part of my strategy unclear and want more clarification, please ask.Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-29070839503523739342019-02-07T16:28:44.832-05:002019-02-07T16:28:44.832-05:00After re-reading the post, I now understand the st...After re-reading the post, I now understand the strategy. You described it very well. My apologies for my reading comprehension. :-)<br /><br />Thanks for doing what you do here.Garthhttps://www.blogger.com/profile/14367654772040176371noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-35928171634157088412019-02-07T15:20:37.506-05:002019-02-07T15:20:37.506-05:00@Garth: The bucket strategies seem to require deci...@Garth: The bucket strategies seem to require decisions of the type you describe, but my approach doesn't. If it seems like mine does require these decisions, then I haven't described it well enough. I have a spreadsheet that tells me exactly what to sell and buy.Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-59687864147313582372019-02-07T14:41:30.725-05:002019-02-07T14:41:30.725-05:00Fair enough. Still seems it requires some decisio...Fair enough. Still seems it requires some decisions after a downturn such as to how long to ride it out after a multi year drop in equities. In your hands it would not be a problem...not so for many others I would guess.Garthhttps://www.blogger.com/profile/14367654772040176371noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-51604091061285297172019-02-07T09:50:50.867-05:002019-02-07T09:50:50.867-05:00@Garth: I avoid calling my strategy a bucket appro...@Garth: I avoid calling my strategy a bucket approach because it differs from bucket approaches in an important way. Most bucket approaches involve active or rules-based decisions to avoid selling stocks when they are down. I don't do that. I use my total portfolio size and age to calculate a safe spending level each year, and then maintain 5 times this amount in cash/GICs. This does lead to selling less stock when prices drop because a lower total portfolio size leads to a lower safe spending level. However, if stocks stay fairly flat the year after the big drop, I'd be selling stocks to maintain my 5 years of spending in cash/GICs. With bucket approaches, they might try to ride out the whole downturn without selling any stock. This could work out well, but it could lead to very bad outcomes if stocks are down a long time.<br /><br />My approach more resembles a single balanced portfolio with a slowly rising fixed-income allocation as I age. The difference is that instead of trying to make up fixed-income percentages like my age in percent, I use 5 years of my spending as the target.Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-31662319993737740922019-02-07T09:09:18.763-05:002019-02-07T09:09:18.763-05:00Your 5 years of cash to weather bad markets is ess...Your 5 years of cash to weather bad markets is essentially what is known as a bucket approach. Some retirement experts (including Milevsky, Pfau, and Kitces) have reservations regarding buckets. Here is Kitces take...<br /><br />https://www.kitces.com/blog/managing-sequence-of-return-risk-with-bucket-strategies-vs-a-total-return-rebalancing-approach/<br /><br />Comments?Garthhttps://www.blogger.com/profile/14367654772040176371noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-32876171970619103412016-12-27T20:08:05.451-05:002016-12-27T20:08:05.451-05:00@Sumar: I'm sorry for the very long delay in p...@Sumar: I'm sorry for the very long delay in posting your thoughtful comment and replying. For some reason Google flagged it as spam, and I just rescued it.<br /><br />Your assumption is essentially correct, except that the CPI + 3% return doesn't apply to savings in the HISA. I adjust the spending level periodically based on how actual market returns have affected portfolio value.<br /><br />Your problem of a messy portfolio of expensive products is all to common. It took me a long time, but my portfolio now consists entirely of a cash buffer and 4 index ETFs.Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-56339162596425431032014-06-22T16:13:47.981-04:002014-06-22T16:13:47.981-04:00@Grant: The post you want is my review of Stocks ...@Grant: The post you want is my review of Stocks for the Long Run (3rd paragraph):<br /><br />http://www.michaeljamesonmoney.com/2014/01/stocks-for-long-run.htmlMichael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-56243677766176501772014-06-22T15:54:20.425-04:002014-06-22T15:54:20.425-04:00I really enjoy your posts. Thanks! With regard to ...I really enjoy your posts. Thanks! With regard to your choice of 5 years of cash reserve, I seem to remember a post (I think it was you), where you said that there had not been a period of more than 5 years and 6 months when the market had not regained it's previous high. I realize your approach here does not require previous highs to be reached in a particular time, but could you refer me to this particular post as I can't find it. I read many different numbers from 16 to 25 years in other articles for a full recovery, but don't know if they include reinvested dividends and are real or nominal numbers. Thanks.Grantnoreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-73322219628643900882014-02-22T15:04:42.356-05:002014-02-22T15:04:42.356-05:00@Richard: What I'm talking about in this post ...@Richard: What I'm talking about in this post is trying to determine a safe spending rate in retirement. There isn't necessarily the same thing as the minimum forced withdrawal from a RRIF. I can certainly imagine a case where a retiree might determine that it is safe to spend $30,000 per year from his or her portfolio, but is forced to withdraw $40,000 from a RRIF. This just means that the retiree should save some of the RRIF withdrawal to spend in a future year. Just because CRA forces you to withdraw money from a RRIF doesn't make it safe to spend it all.Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-56005970390747334392014-02-22T14:50:46.083-05:002014-02-22T14:50:46.083-05:00Hi Michael;
I just don't see how the CRA will...Hi Michael;<br /><br />I just don't see how the CRA will permit a 4% withdrawal rate unless someone has a lot of their funds in non-registered accounts. The CRA wants their taxes back and mandates the minimum withdrawal rates as of 71 years of wisdom. At 65, if you convert to a RIF, you will get the 4%<br /><br />https://www.woodgundy.cibc.com/wg/reference-library/topics/retirement-planning/rrsp-maturity-options/rrif-minimal-withdrawal.html<br /><br />So the 4% rule may be applicable to the USA (I do not know their tax laws) but the CRA has other ideas for us.<br /><br /><br />RIchard<br />Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-89139971202623280402013-11-18T23:49:58.932-05:002013-11-18T23:49:58.932-05:00thanks nice info!thanks nice info!Anonymoushttps://www.blogger.com/profile/03247503447176974728noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-17956345325741805592013-11-07T11:58:36.870-05:002013-11-07T11:58:36.870-05:00There's no guarantee in any investment strateg...There's no guarantee in any investment strategy but living solely off the distributions of solid companies that have long track records of increasing their payouts far beyond inflation is extremely safe in my view. Of course, this is a hands on style that requires periodic monitoring and adjustments should any companies freeze or trim their dividends.Bernienoreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-77642123881570012472013-11-07T11:28:17.721-05:002013-11-07T11:28:17.721-05:00@Bernie: Who's to say that the current crop o...@Bernie: Who's to say that the current crop of stocks that meet your criteria will continue to deliver in the future? Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-63766468483190633682013-11-07T11:16:05.654-05:002013-11-07T11:16:05.654-05:00Why not go 100% CDN, US & Int'l low beta, ...Why not go 100% CDN, US & Int'l low beta, blue chip dividend growth stocks that increase their payouts regularly (and exceed inflation) and count your pension, OAS & CPP as the fixed income portion of your portfolio.Bernienoreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-50767680789185004772013-10-28T10:28:35.976-04:002013-10-28T10:28:35.976-04:00I think purchasing an annuity can be a good idea, ...I think purchasing an annuity can be a good idea, particularly later in life when one is looking put one's retirement funding on auto pilot. Deferring CPP payments until age 70 would be one way to do this, at least in part.Jim Turnbullhttps://www.blogger.com/profile/16141660549510415017noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-36181702039397292062013-10-25T14:53:27.028-04:002013-10-25T14:53:27.028-04:00The following comment from S.P. seems to have disa...The following comment from S.P. seems to have disappeared. Perhaps the commenter deleted it. In any case, I'll answer.<br /><br />"I assume your strategy is essentially an annuity calculation based on the remaining years to 95 with a possible minimum 15 with the amount of money you have at the time of recaliberation of the monthly spending amount and a CPI + 3% as a return. My problem is that over the years my portfolio has become so messy (all mutual funds; CAD & US too, for having lived there for a while) and probably expensive. I have to sort this out but am afraid to start while life goes by."<br /><br />You're right that I'm doing an annuity calculation. It gets a little complicated by the fact that I'm only assuming that the stocks grow at inflation + 3% (the HISA grows at inflation + 0%). So the stocks will run out early and then the HISA will run out. I need to find the monthly payment that keeps payments constant for both phases.<br /><br />Sorting out your portfolio can be daunting. It makes sense to take your time and think things through. There is nothing wrong with choosing a desired portfolio mix and then taking your time getting there. I made a decision to change my own portfolio several years ago. I changed the worst parts of it first, and I'm not completely done changing it yet -- I still have one individual stock.Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-52386272895827549922013-10-25T14:43:36.815-04:002013-10-25T14:43:36.815-04:00@Blitzer68: I haven't considered your approac...@Blitzer68: I haven't considered your approach of splitting expenses into fixed costs and discretionary spending in any detail. I was thinking it might make sense to buy an annutity to set a floor on income which I think is similar to what you're talking about. The problem right now is that interest rates are so low relative to inflation that annuities are quite expensive. Whether this will change much in the future I don't know.Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-1250283385786784652013-10-25T14:30:15.127-04:002013-10-25T14:30:15.127-04:00A great post once again. Well done. It makes a lot...A great post once again. Well done. It makes a lot of sense to have x years of living expenses in fixed income to smooth out income and provide protection against poor stock returns, where x changes depending on your risk tolerance. <br /><br />Another way to look at asset allocation in retirement would be to think about your fixed costs (e.g. food, clothing, shelter) separately from discretionary spending (e.g eating out, travel), where the asset allocation for fixed costs is safer than an asset allocation for discretionary spending. Have you considered this approach?<br /><br />Cheers,Jim Turnbullhttps://www.blogger.com/profile/16141660549510415017noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-18642367313619961372013-10-25T13:24:29.302-04:002013-10-25T13:24:29.302-04:00I assume your strategy is essentially an annuity c...I assume your strategy is essentially an annuity calculation based on the remaining years to 95 with a possible minimum 15 with the amount of money you have at the time of recaliberation of the monthly spending amount and a CPI + 3% as a return. My problem is that over the years my portfolio has become so messy (all mutual funds; CAD & US too, for having lived there for a while) and probably expensive. I have to sort this out but am afraid to start while life goes by. Sumar Patelnoreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-10037292581504004942013-10-24T14:39:12.978-04:002013-10-24T14:39:12.978-04:00Using an after-tax income of 71k (shelter costs ne...Using an after-tax income of 71k (shelter costs need to come out of this), a die-broke strategy @ last age 95, and 3% real return, withdrawals average 4.6% (range 4.2% - 5%, median 4.5%) in the first 20 years.<br /><br />I've noticed this may be a bit high, so we would need to consider withdrawals as an absolute maximum, and be prepared to be flexible (cut spending, earn income, etc.) if the plan ever starts to look shakey. Or lower the annual spend, or work a year or two longer.<br /><br />I guess it's obvious I've thought about this quite a bit. This is good catharsis!Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-25557746547381433402013-10-24T14:12:32.552-04:002013-10-24T14:12:32.552-04:00@L.S.: You can't go too far wrong following La...@L.S.: You can't go too far wrong following Larry Swedroe's advice on bond allocation. What I couldn't tell from your plan was how large the withdrawals from your nest egg will be. I understand that they will change over time. If that means they will bounce between 1% and 3% of your portfolio each year, then you have a large margin of safety. If they bounce between 6% and 10%, then you'll likely run out of money. No matter what percentages you choose, you'll need to stay on top of whether you're draining your portfolio too fast. If you're destined to have to cut spending, it's better to do a small cut early on than to do it catastrophically later in life.<br /><br />Thanks for the kind words. I try.Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-43019392196731194092013-10-24T13:56:26.342-04:002013-10-24T13:56:26.342-04:00I am planning my retirement with my partner in a y...I am planning my retirement with my partner in a year or two. I worked up a cashflow spreadsheet which includes all sources of income (investment returns, pension, cpp, oas, misc) several of which occur at very different times (largely because there's a significant age difference between us). Assuming (for now) a goal of maintaining a constant annual income, this tells me how much I need to withdraw from my portfolio each year, and this amount (which for safety I consider a maximum) varies quite a bit over the years.<br /><br />Then I use Larry Swedroe's guideline (you covered this 2008-03-06) to work out the amount that "should" be invested in bonds for each 20 year period. I can use that to work out a bond allocation (actually, I take 3/4 of this, since it seems quite conservative--eg, comparedd to your own 3-5 year rule of thumb--and we're flexible and not particularly risk-averse). The bond allocation of course changes over the years, so I'd occasionally adjust it. We'd make our withdrawals from the overall portfolio to rebalance it (so not setting up any separate funds).<br /><br />That's the plan! whaddayathink?<br /><br />(ps, thanks for all the awesome posts!)<br /><br />L.S.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-38896821138085548042013-10-24T09:55:46.552-04:002013-10-24T09:55:46.552-04:00@Mark: Yep, it's a trade-off between opportun...@Mark: Yep, it's a trade-off between opportunity cost and the possibility of sickening sales of stocks when they are way down in price. I'm not sure what you mean by income here; your only income is whatever you draw from your portfolio.<br /><br />I have tried to estimate expenses in retirement but I come up with a wide range depending on how much traveling I do.Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.comtag:blogger.com,1999:blog-5465015914589377788.post-64362692683434640272013-10-24T09:45:14.726-04:002013-10-24T09:45:14.726-04:00@Potato: It sounds like your approach would respo...@Potato: It sounds like your approach would respond more slowly to changes in portfolio value. This would smooth out changes in spending, but as you say it might respond too slowly. We'd need to define precisely how it works and try some simulations to get a better idea.Michael Jameshttps://www.blogger.com/profile/10362529610470788243noreply@blogger.com