I apologize for the lengthy surprise interruption of posts at The Retirement Cafe. The disruption was the result of personal issues that are now largely resolved, so I can resume blogging. I will, however, be changing the focus of the posts somewhat. Previously, Retirement Cafe posts focused almost exclusively on retirement planning issues. Now that I have reached a later phase of retirement that began in 2005, I am experiencing a lot of practical issues related to my retirement strategy that I didn't quite foresee. For example, I should have created backup options for my Two-Step Authentica ..read more

Well-read retirees will no doubt recognize the terms "Safety First" and "sustainable withdrawal rates (SWR)". "Safety First" refers to a retirement-spending strategy in which retirees first cover their essential retirement spending needs with assets that have no stock market risk and only then invest in a risky portfolio. SWR or "the probabilist school" as it is sometimes referred includes a strategy primarily based on stock market returns to fund both essential and non-essential retirement spending. The 4% Rule is a probabilist strategy. The Safety First school is based on well-established Li ..read more

Staying home and social-distancing is a pain but it does have an upside. It creates an opportunity to catch up on reading and perhaps gain a new perspective. The following are some excellent columns and one video that may help pass some of that time profitably. The video is a nine-minute YouTube explanation of a key economic issue, opportunity cost. It uses a Boston College football game as an example and features Nobel prize winners Robert Solow and Paul Samuelson. I was also sent a link to Known Unknowns, which author Allison Schrager describes as "a newsletter that is coming to terms with ..read more

Do I believe there is an unacceptable risk that during my retirement the economy will not look like the recent past but will suffer from a major disruption (a pandemic, 70s-style low stock returns and high inflation, a depression, etc.) that should be considered in my retirement plan? When planning for retirement, we traditionally assume that the future will look a lot like the past. That isn't a great assumption but it often seems like the only guideline we have. One of the problems with this approach is recency bias, the human tendency to overemphasize more recent data. Boomers who lived th ..read more

I recently received an email from a retired couple I work with noting that the market had fallen 20% at that point and asking what they should do. The wife admitted that she was beginning to feel a bit anxious. "You actually don't need to do anything", I replied. "The market is down 20% but your portfolio is only down about 6% because a lot of your portfolio is in I Bonds and TIPS bonds. The annuity we purchased isn't subject to market risk, either, nor are your Social Security benefits, and those two pay most of your living expenses. The remainder is a small draw from your portfolio. So you ..read more

Happy Holidays to you and yours. Here are just a few thoughts I want to share at year's end. First, I would direct you to the post I wrote this time last year, My Year-End Review and Planning Regime, about steps you might want to take for a year-end review. As I warned then, don't bother being overly precise with your adjustments. This isn't an exact science. I recall one reader whose adviser was suggesting she sell stocks and incur taxes just to correct an asset allocation by a percentage point or two. The process isn't that precise. It's impossible to know with any accuracy what your asset ..read more

I wish I could convince more of you, retirees and advisers, to give lifetime income annuities strong consideration for your retirement income plan. They solve a lot of problems from eliminating longevity risk to reducing your portfolio's sequence-of-returns risk. Purchasing a single-premium income annuity (SPIA) is the single most efficient way to maximize retirement income. According to Wade Pfau's Retirement Researcher Dashboard, a 65-year old couple with $100,000 today could spend about $5,750 annually from a life-only SPIA, $4,900 from a TIPS ladder, or $3,000 using the "4% Rule."[1] Of c ..read more

It seems like hardly a week goes by without someone emailing me to ask, "who is the pinko-Commie wealth-confiscator who created RMDs and why do I have to disturb my nest egg and pay taxes on it?" or something to that effect. With my contemporaries approaching the key age of 70½ (well, more accurately the contemporaries of my imaginary much older sister), maybe it's time for one more post on required minimum distributions (RMDs). In case you bail on this post after a couple of paragraphs, there are two very important things to know before you go. First, you are required to pay required minimum ..read more

About 10 years ago, in the course of a conversation with two retirement researchers whom I greatly respect, someone mentioned the 4% Rule. One of those researchers said, "William Bengen did great work showing us that sequence risk exists but trying to turn it into a retirement plan was a huge mistake." Bengen's work gave us the 4% Rule, derived from the so-called probability of ruin. Probability of ruin, or p(ruin) for short, is the estimated probability that a retiree spending a fixed real dollar amount from a volatile portfolio will outlive her portfolio. Somehow, despite its many shortcomi ..read more

During my employee orientation at America Online in 1997, that day-long tradition of assaulting new hires with mundane and mind-numbing facts that are immediately forgotten, I was warned that AOL employees were constantly under threat of phishing attacks, though they weren't called that, and I admit that I didn't really understand the explanation. By close of business the following day I had developed a full appreciation of the threat because I had unwisely clicked on a link in an Instant Message and unwittingly handed my employee login credentials to a hacker, something I had been told not t ..read more