Monday, October 13, 2014

Our Retirement System and Some Odds and Ends

I am un-retiring for the next month or so to attend some conferences. I'll be taking my first "business trip" in ten years this week. I hope they're more fun than I remember. I'll let you know.

On Wednesday, I will be joining MarketWatch Senior Columnist and Retirement Weekly Editor, Robert Powell, who will moderate a panel discussion in New York on retirement income. Wade Pfau, Joe Tomlinson and I will be on the panel. (Wade and Joe are brilliant retirement planners; I'm the token retiree.) For more information or to RSVP, please email by Monday, Oct. 13th, i.e., today.

On October 23rd, I will speak at the RIIA Conference in Charlotte on retirement planning from the retiree's perspective. I'll be doing a webinar on sequence of returns risk in November.

My regular stream-of-consciousness posts on retirement planning for the unwealthy may be somewhat disrupted for a few weeks (if it is possible to disrupt stream-of-consciousness), so here are a couple of links you might find interesting.

The New York Times printed a piece this morning on the retirement system in the Netherlands entitled, No Smoke, No Mirrors: The Dutch Pension Plan that I found interesting.

It's interesting to compare and contrast this with an older piece in the Times by Teresa Ghilarducci on the American retirement system entitled, Our Ridiculous Approach to Retirement. These won't help your individual retirement planning except to the extent that they provide global context, but I find them interesting.

Wade Pfau's excellent blog recently mentioned a Journal of Finance paper by Gordon Irlam. Irlam uses dynamic programming to explore dynamic asset allocation. The paper is rather dense, in other words, not targeted to do-it-yourself planners, but he has a Java-based asset allocation tool at that you might want to play with. If you do, please let me know what you think by commenting below. I'll be playing with it more after I wade through the paper sufficiently.


  1. Dirk, I tried Irlam's calculator. I entered accurate info, and got back the suggested advice to re-allocate to 75% stocks (!) and 25% bonds. Sorry, that's not happening; I'm 66 and feel exposed enough at 50/50 (I do have some annuity flooring).
    I get a lot of good ideas from your blog, so I hope you won't be gone too long.

  2. Thanks for reporting those results. Hopefully some other readers will pass along their results, as well. I'll post my feedback after I've thoroughly reviewed the process.

    I promise to post some interesting and useful stuff over the next few weeks. It's nice to feel missed! Thanks for writing.

  3. I've read the paper and played with web site. I'm already retired, so I didn't review the "get my number" section. But the paper implies a method for not only determining asset allocation, but also, a recommendation for withdrawals.

    That said, to get the most from the website, one needs to click on the "Advanced" box in each section in order to provide details that help with the analysis. The website is there for financial planners, but there are plenty of other websites that provide similar analysis with better detailed results - although the charts are intriguing.

    I do not see how a planner can counsel a client using this web site alone. There is insufficient detail to account for streams of income, and it is unclear if all streams of income assume a COLA. One-off events such as a large purchase or proceeds from a sale don't seem to be accommodated.

    Finally, the software doesn't suggest withdrawals from specific accounts, only a general withdrawal amount - I guess this is the point where the planner uses skills to advise the client.

    For someone who does it himself/herself, the website provides a detailed asset allocation recommendation (use the Advanced tab!), but life event details don't appear to be supported, and detailed withdrawal plans are not available.


    1. I agree with all of your statements, but in fairness, the website isn't intended to be a general planning tool for all aspects of retirement finance. It is intended to optimize asset allocations.

      Do you find the spending and asset allocations it recommended appropriate for your situation?

      Thanks for the feedback!

  4. Dirk,
    The asset allocation seems reasonable, and generally matches what I have done for myself (although I maintain a 55-45 equity/bond allocation rather than the 75-25 suggested).

    Spending suggestion seems really high - compared to what I do spend. But perhaps the site is telling me I can spend more than I think I can ;-)


    1. 75% seems a lot higher than 55% to me.

      I spoke to Gordon about the spending recommendation, as I saw the same thing. That is a spending recommendation for your first year and it is high because the calculator doesn't want you to end up with a lot of money when you die. It's maximizing your consumption while you're alive.

      A better indicator of annual spending over time comes from the graph of the probability density function for annual consumption. You'll probably see a spike nearer to what you can actually spend.