Last week I made my first stab at designing a retirement income strategy that adapts to portfolio performance . By allowing monthly income to vary we can overcome serious problems with the “4% rule” and rules of thumb about the percentage of bonds in your portfolio. Unfortunately, the monthly changes in income were too erratic. I now have a fix for this problem. I won’t repeat too much from the original post . I did experiments based on a 60-year old retiring at the start of the year 2000 with $1 million in today’s dollars. I designed a spending plan based on keeping 5 years’ worth of monthly spending in a high-interest savings account (HISA). I used a target life expectancy of 95 and assumed that all savings not in the HISA would be invested in the Canadian stock ETF XIU. (I don’t recommend such a concentration in Canadian stocks for a real portfolio.) Stocks were extremely volatile from 2000 to 2013 and the goal of this experiment was to design a retirement spending plan t...

“INT @21%” Hmm. That strange line appeared in my InvestorLine RRSP statement. It seemed to be related to my latest Norbert Gambit , which is a way to save money with currency exchanges. All have gone reasonably smoothly until recently when I was hit with a mystery interest charge. To exchange Canadian dollars for U.S. dollars, I have bought the exchange-traded fund DLR that trades in Canadian dollars and then sold the equivalent ETF DLR.U that trades in U.S. dollars. The idea is simple enough, but a mistake with some accounting generated an interest charge that shouldn’t be there. To make everything balance out, InvestorLine adds some extra transactions to the Norbert Gambit trades. I did the trades on a Monday. This means that the trades settled three days later on Thursday. So my account statement showed a buy of DLR units and a sell of DLR.U units. To balance things out, InvestorLine added a transfer out of DLR units and a transfer in of DLR.U units. Unfortunately, th...

I had a couple of popular posts this week judging by the number of comments: A New Market for Education A Retirement Income Strategy Here are my short takes and some weekend reading: Freakonomics reports on research into why women earn less than men. The finding that women seem less willing to compete for higher pay is consistent with my experience. Among the most competitive business people I know who have questionable morals and are willing to devote far more than 40 hours per week to their careers, the vast majority are men. The Blunt Bean Counter looks into investing in NFL football player Arian Foster. I suspect that fans will consistently overpay for shares of professional athletes. Owning a slice of a player might feel good but I doubt that it is likely to be a good investment. Big Cajun Man asks when you got your first credit card and discusses how attitudes toward credit cards have changed over generations. Where Does All My Money Go? interviews a legal e...

I find most rule-of-thumb strategies for drawing retirement income from savings very unsatisfying. We have things like the “4% rule” and using your age as a percentage for your bond allocation, but such one-size-fits-all rules can’t possibly fit everyone. Here I introduce my own candidate strategy for generating retirement income. Troubles with the 4% Rule The 4% rule says that when you start retirement you can calculate 4% of your initial savings and spend this much each year rising with inflation. So, if you have $1 million saved, you spend $40,000 in the first year and increase this amount by inflation every year. Of course, the main problem with this rule is the possibility of running out of money. If your investments perform poorly in the first few years, you just keep spending based on your initial savings even though your savings will start to dwindle quickly. A second problem is that everyone uses the same percentage regardless of how they invest their money. Supp...

Scott Adams (the Dilbert comic guy) described a very interesting idea for creating a type of marketplace for online teaching tools that would allow people to find the best materials for learning each individual subject. It would also allow highly-skilled developers of online courses to make money. I think some variant of this is likely to replace our current bricks and mortar method of teaching. But the transition won’t be easy. A critical component of online teaching tools that Adams didn’t mention is collecting student feedback in real time. Imagine if software could detect when a student looks tired or frustrated and could adapt the teaching style accordingly. This is what good tutors do and there is every reason to believe that a combination of a computer camera, microphone, and some great software could replicate some of this benefit. A problem that online teaching tools are certain to encounter once they become a bigger threat to the enormous business of bricks and morta...

This week I managed a post each day after Thanksgiving: Are Pensions Worth Zero? BlackRock Canada Launches New Mutual Funds Making Sense of Your CPP Statement of Contributions Here are my short takes and some weekend reading: Tom Bradley at Steadyhand gives us a sample of their improvements to disclosing mutual fund fees on client statements. One of the most financially enlightening things I do for friends and family is tell them how much they pay per month in investment fees (in dollars rather than percentages). For investors who get good advice for their money, this is just some interesting information. For other investors who get little for their money, the monthly cost is surprising and frustrating. Freakonomics performs a gruesome experiment sending fake pet remains to pet crematories to see what would come back. The crematories promise to send back just your pet’s remains, but in each case they sent back bone ash (even though the fake pets were just fur and hamb...

You’ve looked at your Canada Pension Plan statement of contributions and it says you could receive a certain monthly pension amount when you turn 65. What does this mean? What about inflation? Is this the amount I get if I never work again? The truth is that it is hard to understand future CPP payments in terms of dollar amounts. It’s much easier to understand it all when you think in percentages. Doug Runchey, who worked as a specialist in CPP for many years, definitely understands CPP better than I do. The challenge is to explain it clearly to others. Doug’s most recent post on understanding CPP statements of contributions and a much more detailed post on the math of calculating your CPP benefits have certainly helped me. After wading through the details, I find it easiest to think in terms of what percentage of the maximum CPP benefits I will get. Because CPP benefits are indexed (they rise with inflation), talking about dollar amounts gets confusing because the number...