Here are my posts for the past two weeks: So Stocks are Overvalued – Then What? Your Retirement Income Blueprint Here are some short takes and some weekend reading: Jason Zweig calls gold “a pet rock.” Mr. Money Mustache brings us some clear thinking on whether to rent or buy your home. My Own Advisor finds confusion in the advice on how to create retirement income from your portfolio after retirement. There could be a problem with incentives here. By the time you’re 15 or so years into retirement and realize your plan isn’t working, it’s too late for you, and your advisor is probably long retired. You’re essentially relying on advisors’ integrity because they have little economic incentive to make sure your income lasts long enough. Boomer and Echo find the Financial Planning Standards Council’s projected stock and bond returns to be very low once you factor in the typical fat fees in Canada. After-inflation returns are low enough without giving a big chunk of th...

Retirement advisor Daryl Diamond says that many financial advisors can help people accumulate wealth during their working years, but when it comes to planning how to create income during retirement, “advisors who are proficient in this area are not all that easy to find.” His book Your Retirement Income Blueprint lays out his “six-step plan to design and build a secure retirement.” I found this book very helpful in discussing the important issues to consider when creating retirement income. I believe it will help me to better plan my own retirement. However, there were a number of specific areas where I disagree with Diamond. I have already written about the biggest of these, that he advocates withdrawal rates that are too high ; I won’t say more about this issue here. For me, the best part of this book is the discussion of RRSP withdrawal strategies. Common tax advice is to defer taxes as long as possible, which means draining non-registered savings and TFSAs until you’re fo...

Much virtual ink is going into articles on whether stock markets are currently overvalued. Let’s suppose you know for certain that they are 25% overvalued. What should you do? The natural answer is to sell all stocks. If we knew the markets were going to have a sudden correction soon to erase the 25% overvaluation, the correct next move would be to sell all stocks and short the markets. Of course, we can’t know this. What if stock markets correct slowly over the next two decades? Suppose that the companies making up the world’s stock markets have business performance that outperforms inflation by 5% per year for the next 20 years. Suppose further that stock prices beat inflation by around 4% per year over that time so that the 25% overvaluation is erased after two decades. Is selling still the right call? The answer to that question is no. If I knew for certain my stocks would beat inflation by about 4% per year for the next 20 years, I’d be thrilled to hold them. It’s ...

Here are my posts for the past two weeks: Pound Foolish 4% Rule Experiments Using Longevity Statistics Another Take on Retirement Withdrawal Strategies Here are some short takes and some weekend reading: Jason Zweig puts the Chinese government’s attempts to control their stock market into historical context. A good quote: “The Chinese government regards markets as clay that can be molded. Instead, markets are like water: They always find their own level, no matter who or what tries to control them.” Dan Hallett brings us a thoughtful critique of robo-advisors and a look at their future. Canadian Couch Potato beats up on Tony Robbins’ All-Season Portfolio. Okay, “beats up” is a little strong. He says it’s not really much different from a balanced portfolio. Canadian Couch Potato also has a new white paper discussing how to calculate your portfolio’s return . Preet Banerjee explains credit card balance protection insurance in his latest Drawing Conclusions video. ...

I’ve long argued that we need to account for inflation with our retirement income plans. Many disagree arguing that we spend less as we get older. Retirement income planner, Daryl Diamond, argues that both extremes are wrong in his book Your Retirement Income Blueprint . He plans for retirement income purchasing power to drop by 25% at age 75. I don’t see much sense in arguments that we can plan retirement spending based on constant dollars. Even at 2% inflation, why should we expect a retiree to want to spend 10% less only 5 years into retirement? An elderly couple in my extended family have seen inflation triple prices since they retired. They are struggling with trying to live on only one-third of their former consumption. Daryl Diamond says “retirement income projections that do not adjust at all for inflation or that are fully indexed through retirement are both in error.” He indexes spending plans up to age 75, then drops spending by 25%, and resumes indexing thereafte...

The well-known 4% rule for retirement spending comes from a 1994 paper by financial planner William Bengen called Determining Withdrawal Rates Using Historical Data . Some time ago I repeated his experiments adding in the effect of portfolio fees . This time I include mortality tables so we can see the effect of retiring at different ages instead of using Bengen’s target of a 30-year retirement. Bengen’s model was to choose a fixed withdrawal rate at the start of retirement and increase the dollar amount by inflation each year regardless of how your portfolio performs. There’s a lot to be said for adjusting your spending based on portfolio returns, but Bengen’s goal was to find a safe withdrawal rate where you wouldn’t have to cut spending. He found that for stock allocations from 50% to 75%, a starting withdrawal rate of 4% (assuming no portfolio costs) was safe for a 30-year retirement. Here I use mortality statistics from the Society of Actuaries to better model longevity an...

In her book, Pound Foolish , Helaine Olen fulfills her promise of her sub-title Exposing the Dark Side of the Personal Finance Industry . It’s important to approach all big financial decisions carefully, and Olen shows us what awaits the unwary. Olen takes well-aimed shots at big names such as Jim Cramer and Robert Kiyosaki. She says Suze Orman “has gone from selling subpar pancakes to peddling financial platitudes.” But the book isn’t just a set of amusing quotes. Olen digs into how these people make money and how their words are at odds with their actions. The author covers the many problems with the financial advice industry. One of the more profitable financial products for advisors to sell is the variable annuity. On the subject of mandating a fiduciary standard, one former branch chief for the SEC said “if you need to act in the customers’ best interest, you can’t sell this crap.” The most interesting part of the book in my estimation was the detailed reporting on the...

Here are my posts for the past two weeks: Guilt-Free Spending Through Planning I Don’t Want to Go into Debt for This Here are some short takes and some weekend reading: Jason Zweig explains why you’re paying too much in financial advisor fees. He says we should be paying fees for service rather than paying a percentage of our assets. Another article from Zweig clearly explains why you should be skeptical of investment strategies that worked in the past . Canadian Mortgage Trends report that one form of 100% mortgage financing will no longer be available after the end of June, but that combining an unsecured line of credit with a mortgage to get 100% financing will still be possible. John Robertson at Blessed by the Potato reviews the book Wealthing Like Rabbits . He was pleasantly surprised, but did find some problems. Boomer and Echo explain how customer loyalty programs have evolved to collect ever more information about us. Big Cajun Man offers some signs tha...