Wednesday, December 28, 2016

Publications, Peru, Piranhas and Machu Picchu

This is the week we traditionally review the past year. Personally, I had a pretty good one. Here are some of my 2016 personal accomplishments:

  • I caught two piranhas in the Amazon river in Peru with a fishing pole (literally, a pole) and ate them. They're pretty tasty.
  • I hiked to the Sun Gate above Machu Picchu, despite my concerns about altitude and the steep, wet stone path.
  • I published a paper co-authored with two of my children in a peer-reviewed academic journal.
  • Despite my intense acrophobia and to my daughter's amazement, I walked through the Amazon forest canopy along a swinging cable walkway. (She still can't believe I did it. Neither can I.)
  • I published my usual 50,000 words or so.

It was a pretty good year for an old guy.

I also blogged on several topics in 2016. The casual observer might assume my blog's goal is to educate people about retirement finance, but it's actually the opposite. I find that writing blog posts is the best way to educate myself. I spent a couple of months doing background research on reverse mortgages before posting about them, for example.

Here's a quick review of some things I learned in 2016.

First, I learned that the march to mobile devices continues unabated, so I redesigned my blog to be easier to read from smart phones. I test it with a nifty Google tool for mobile ease of use before publishing. I now put most links at the bottom of the post so people aren't tempted to jump to links until they've read the entire post.

I also learned from a reader that my email address had disappeared. It is now in the bio section of every post. You can reach me at

I started off 2016 with Why Retirees Go Broke. Bankruptcy is typically a result of spending shocks, not poor market returns.

What I Do When the Market Tumbles? Not much, because my portfolio equity allocation (about 45% equities) is set such that I am unlikely to lose more than I can stomach. I typically check my portfolio a couple of times a year.

2016: How I published a paper, ate a piranha and climbed past Machu Picchu.
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The upliftingly-named Death and Ruin is a post about the aforementioned paper I published under the same title with my kids. It explains the difference between absolute and conditional probabilities of death or depleting one's savings. What we really want to know is not the probability that we will die or go broke sometime during retirement, but those conditional probabilities given that we have reached a certain age: what is the probability that I will go broke or die given that I am now 77 years old, still alive and not already broke?

In Expense Risk in Retirement, I noted that the expense side of the retirement finance equation is at least as important as the income side and it's probably riskier. Despite this, most retirement plans focus heavily on the income side of the equation.

In Retirement Plan or Investment Plan?, I cautioned that any plan that only addresses asset allocation and withdrawals isn't a retirement plan – it's an investment plan. An investment plan is only one piece of the puzzle.

One of the most-read posts of 2016 was on the topic of health care costs in retirement. About Fidelity's Health Care Cost Estimate for Retirees considers AARP's statement that health care costs will consume most of the future Social Security benefits for some households.

Retirement Savings and Annual Spending, another highly-read post from 2016, discusses the frightening level of under-saving for retirement in the U.S. Not exactly news, but still quite important.

In addition to serving as a learning mechanism, blogging gives me an opportunity to think out loud. Back in May, I began perhaps my longest series of posts ever with A Model of Retirement Planning, Part 1, describing what I think a complete retirement plan should look like. It ended with Part 8 in July. I hope to turn this into a paper when it is completed to my satisfaction in 2016.

The Whoosh! of Exponential Retirement explains why retirement finances hit us like a high-speed train. Retirement finances begin at glacial speeds as we save a little in our 401(k) plan but they speed up exponentially over time and can blow by us like Usain Bolt in the final 10 meters. This post also contains the coolest GIF ever in a retirement blog (a low hurdle, I'll concede).

Exit Row Strategies describes one of my pet peeves and ties directly to The Whoosh! of Exponential Retirement – the idea that you can see bad things coming, like market crises, and just jump out of the way in time to avoid real pain.

Are your savings safe in bankruptcy? Is My Retirement Plan Protected? is a review of legal protections from creditors afforded different types of retirement plans.

I started a series of posts on reverse mortgages with The Mortgage is Dead; Long Live the (Reverse) Mortgage. Reverse mortgages have gained a great deal of popularity over the past couple of years. I fear that much of this is due to the unique current environment of low interest rates and a “quirk” in HECM reverse mortgage structure that can help retirees build more home equity credit than the market value of their home. I find reverse mortgages can be an extremely valuable retirement financing tool when used properly, but they aren't for everyone. The biggest risk is that a retiree will be forced to leave their home and trigger a loan call late in retirement after much of their equity is gone. For this and other reasons, I recommend they be used late in retirement and not at the beginning. I think “coordinated strategies” that essentially bet your home in the stock market are a particularly bad idea.

John Bogle has described the U.S. retirement system as a train wreck. I wrote Why the Retirement Train Wrecked as a brief history of retirement in the U.S. at the request of a University of Michigan business student. It was posted on his blog initially.

Trump, Monte Carlo and Insectivores is about overconfidence in computer technology and simulations in particular. That theme continues with Asset Allocation: Mike and the Robos. Computers don't magically improve retirement plans. That's a difficult confession for a computer scientist to make, but an accurate one.

So, there's 2016 at The Retirement Cafe´ in a nutshell. Here's hoping we both learn a lot more in 2016. I'll start by breaking down retirement into three phases in The Opening, the Middle Game and the Endgame.

Happy New Year!

You can fund your high-deductible insurance policy's Health Savings Account (HSA) directly from an IRA. You might want to do this because you don't have ready access to money to fund next year's HSA, or to transfer some cash tax-free out of your IRA and avoid required distributions on those funds when you turn 70-1/2. Consider doing this in January. It is literally a once in a lifetime deal.


Why Retirees Go Broke

What I Do When the Market Tumbles

Death and Ruin

Expense Risk in Retirement

Retirement Plan or Investment Plan?

About Fidelity's Health Care Cost Estimate for Retirees

Retirement Savings and Annual Spending

A Model of Retirement Planning, Part 1

The Whoosh! of Exponential Retirement

Is My Retirement Plan Protected?

Why the Retirement Train Wrecked

Trump, Monte Carlo and Insectivores

Asset Allocation: Mike and the Robos

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