Some Random Off-the-MapThoughts On Retirement Spending

I've been thinking about the topic of retirement spending lately…but not about the obvious stuff.  For the obvious stuff, I feel like I have successfully worked through enough of what I believe to be a decent percentage of the "cannon" on retirement finance over the last five years. That cannon ranges from research by the academics over the last 20 years to advice, papers, and marketing materials by practitioners to various flavors of opinion -- and sometimes some pretty solid research -- by retirees that write or blog on the subject.  There is, it seems, no shortage of research and opinions on this topic (often, but not always, about "safe withdrawal rates").  There is also, unfortunately, no real crisp "answer" yet to the problem because it was, is, and will continue to be a fairly open ended non-solvable problem (whether the spending is fixed or dynamic, "safe" or otherwise) because it depends on way too many other things. 

But that "mainstream obvious stuff" is neither here nor there.  What I have noticed, and what I want to post about, is that I feel like there seems to be a little bit of a divergence between what I see in the literature of retirement finance on spending and withdrawal rates and the real experience of it in real life by real retirees. 

Book Review - Can I Retire Yet by Darrow Kirkpatrick

Can I Retire Yet?: How to Make the Biggest Financial Decision of the Rest of Your Life.  Paperback
by Darrow Kirkpatrick. Publisher: StructureByDesign; 274 pages

It would be a bit of an understatement to say that I wish I had had a chance to read this book seven years ago. Back then I went into an early retirement blindly ignorant of the math and risks of early retirement. Over the intervening years I have gone down a pretty long road by (among other things) reading books and research papers (a lot of them), looking at blogs, playing with calculators, talking with advisors, paying for good planning, paying for bad planning, financial modeling myself, building my own retirement tools and software and simulators from scratch, digging up and testing as much of the underlying math of retirement that I could stomach (and doing a little catch-up on some old math skills along the way), back-testing various investment and retirement models, and even engaging in some correspondence with a fair number of leading academic researchers and bloggers in the current world of retirement finance. Now, I think (I hope) I have a healthier sense of humility and respect for the risk I took which was quite a bit bigger than I realized when I started. This is something I could have achieved a little sooner with some of the help offered by Mr. Kirkpatrick in his new book. In the end, I find that many of my own self-realized conclusions and what Mr. Kirpatrick offers in the book have a very, very significant overlap (not 100% but that's maybe a quibble beyond the domain of the book).

Weekend Links

Weekend Links

New Whitepaper by Newfound Research on Tactical Fixed Income

Newfound Research has a new (or revised) whitepaper out on the concept of tactical fixed income.  Ignore for the moment that their mutual fund that expresses this idea is down > 5% since the beginning of 2015 (expected yield is around 3%), I think that what they are trying to say about risk-managed systematic investing in fixed income is worth listening to.

Weekend Links - Retirement Finance, Alt Risk, Markets

What Would It Have Felt Like in 2009 With a Fixed Withdrawal - Part 2 (3% spend)

This is a follow on to my last post on having a fixed withdrawal in retirement as one is going through a market crash like 2008-09. This post has the same assumptions and the same process, except this time I use a fixed 3% spend rather than 4%.  This is not at all what I meant by adaptive retirement planning but the least one could say is that considering a lower spend is a step in the right direction.  The same setup applies:  57 years old in 2004 with $1M invested in a 60/40 low cost fund except now with a $30k spend rate rather than 40.  We look to see what happens to the effective spend rate month by month as the portfolio varies (from things like spending, inflation and market changes). In addition, each year we calculate a forward-looking fail rate using montecarlo and aftcast simulators using the new info available in any given new year (age, longevity and portfolio will have changed).

What Would A 4% Fixed Withdrawal Actually Have Felt Like In 2009?

Let's be clear, I am a committed partisan of adaptive retirement plans.  Sticking to a fixed, deterministic plan in the face of an often aggressively changing universe strikes me as flirting with one of the many definitions of insanity.  Yet the literature of retirement finance has a seemingly inexhaustible supply of commentators that continue to say that 4% or even 5% (or more) constant inflation adjusted spending will "probably" be ok based on, well, whatever.  But these commentators are usually men and women, more often than not academics or institutional practitioners, that still get a paycheck. Their research is math-rich, vaguely abstracted, and cool to the touch. That's why I generally trust the retired people to write about retirement finance, people like Darrow Kirkpatrick or Dirk Cotton or KenSteiner. They have skin in the game.  It is also why I wanted to run this little sketch on how constant spending might actually feel to a retired guy during a really bad time i.e., let's let the plan NOT adapt and see what happens scrolling forward one month at a time through something like 2008 and 2009.

Weekend Links: Retirement Finance, Markets, Alt Risk