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Author: intercst Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75539  
Subject: Wade Pfau: 3% is the new 4% SWR? Date: 3/1/2014 4:02 PM
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Somebody just sent me this CNN Money Magazine article touting Wade Pfau's "research".

http://money.cnn.com/2014/02/26/retirement/retirement-income...

Forget the 4% withdrawal rule

Almost every asset you can invest your nest egg in now looks expensive by historical standards. What's more, argues Wade Pfau, this has big implications for how you draw down from your savings the money you need to live on. If he's right, it throws one of the best-known retirement guidelines right out the window.

<snip>

"The probability that a 4% withdrawal rate will work in the future is much lower," he says. His new safe starting point: a 3% drawdown. That means that if you've saved $1 million, you're living on $30,000 a year before Social Security and any other sources of income you might have, not $40,000. Ouch.

<snip>


Here's a link to Pfau's "research" report.

http://corporate.morningstar.com/us/documents/targetmaturity...

From page 9 of the report:

Each scenario in the analysis is based on a 10,000-run Monte Carlo simulation. Taxes and Required Minimum Distributions (RMDs) from the portfolio are ignored. The analysis assumes a 1.0% fee, or negative alpha, that is deducted from the portfolio value annually. This fee is included to account for unavoidable retirement portfolio expenses paid by the investor (e.g., mutual fund fees, advisor fees, account fees, etc.) for investment management.

</snip>


Well, duh. I agree that you can only withdraw 3.00% if you're letting a financial advisor skim 1.00%, but why would you do that? You can put together a diversified portfolio at Vanguard for 0.10% in fees or less and take the 4% SWR you're entitled to.

intercst
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Author: inparadise Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74350 of 75539
Subject: Re: Wade Pfau: 3% is the new 4% SWR? Date: 3/1/2014 5:38 PM
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Well, duh. I agree that you can only withdraw 3.00% if you're letting a financial advisor skim 1.00%, but why would you do that? You can put together a diversified portfolio at Vanguard for 0.10% in fees or less and take the 4% SWR you're entitled to.

Or, you can pay the 1%, and get a return of almost 4% more than the Vanguard index fund equivalent, for a net gain of 3%. Some things are worth paying for. http://boards.fool.com/exactly-and-that-is-what-we-do-as-we-...

IP

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Author: BruceCM Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74352 of 75539
Subject: Re: Wade Pfau: 3% is the new 4% SWR? Date: 3/1/2014 6:45 PM
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Or you can hold 50 income securities and get a reliable and growing 4% income distribution into perpetuity with zero% expenses.

The new 3% sustainable withdrawal rate is really an example of the "we-make-this-stuff-up-as-we-go" investment management philosophy.

BruceM

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Author: intercst Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74353 of 75539
Subject: Re: Wade Pfau: 3% is the new 4% SWR? Date: 3/1/2014 7:27 PM
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inparadise analyzes,

Or, you can pay the 1%, and get a return of almost 4% more than the Vanguard index fund equivalent, for a net gain of 3%.

What kind of guarantee for a claim of superior performance is your financial advisor providing in exchange for the 1% fee?

Stocks and bonds go up and down in value, but the money you lose to fees & expenses is gone forever.

intercst

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Author: inparadise Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74354 of 75539
Subject: Re: Wade Pfau: 3% is the new 4% SWR? Date: 3/1/2014 7:33 PM
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Stocks and bonds go up and down in value, but the money you lose to fees & expenses is gone forever.

And the years he has done better for us is forever compounding in our account, making the funds available for any years where he doesn't beat the benchmark. Don't look to the stock market for guarantees. It's all about educated guesses.

IP,

willing to believe he will continue to do better for us, until he doesn't

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Author: intercst Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74356 of 75539
Subject: Re: Wade Pfau: 3% is the new 4% SWR? Date: 3/1/2014 9:40 PM
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inparadise writes,

Stocks and bonds go up and down in value, but the money you lose to fees & expenses is gone forever.

And the years he has done better for us is forever compounding in our account,

</snip>


Boy, I hear you on the compounding.

This is my 20th year in retirement. I've always been very careful to limit my exposure to fixed income securities (currently 94% stock, 6% fixed income) and of course, I've never let a financial advisor anywhere near my money.

After last year's run-up in the stock market, my withdrawal rate for 2014 has fallen below 1%. I guess you could say I'm living comfortably on the money I'm not paying a financial advisor.

intercst

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Author: DrTarr Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74360 of 75539
Subject: Re: Wade Pfau: 3% is the new 4% SWR? Date: 3/1/2014 11:25 PM
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The new 3% sustainable withdrawal rate is really an example of the "we-make-this-stuff-up-as-we-go" investment management philosophy.


"Hey Rocky, Watch me pull a SWR number out of my hat!"

(5.6%)/dT

That's my number!

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Author: Donna405 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74361 of 75539
Subject: Re: Wade Pfau: 3% is the new 4% SWR? Date: 3/1/2014 11:54 PM
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I am 69, and must start taking RMD's in 2015. Thus far, I have not touched my investments. This year, I plan to convert the remander of the stock in my SEP-IRA into my Roth and will pay the taxes, thus eliminating my need to sell any stocks for the RMD. Why? The stocks are good dividend payers and right now, I am reinvesting the divies.

Donna (who will not adhere to the 3% or 4% rule...I will only start collecting the dividends in cash, if the need be)

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Author: inparadise Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74362 of 75539
Subject: Re: Wade Pfau: 3% is the new 4% SWR? Date: 3/2/2014 7:52 AM
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After last year's run-up in the stock market, my withdrawal rate for 2014 has fallen below 1%. I guess you could say I'm living comfortably on the money I'm not paying a financial advisor.

intercst


I am happy for you. There are many ways to make things work. I just think it is foolish to do an auto rejection of ways that include higher fees when it is returns net of fees that we need to focus on. I think it is also much easier for those of us who will not be pushing the 4% SWR. Having a lower withdrawal rate gives us more room for error, a better chance to recover from a negative event. We can take more risks while at the same time we do not have to take more risks. It is a nice place to be, and frankly we would not be retiring now if we were not going to be comfortably under 4%.

Our FP has earned a larger share of our assets over time, as he proved his ability to bring the returns, but he still only has about 2/3 of our non-real estate assets. It's not an all or nothing proposition. Working with a large institution, he has certain tools available to him at no cost to us that we simply can not duplicate on our own, but some of our own investments are worth holding onto as well.

I just simply do not understand the knee jerk rejection of a whole category of investing, simply because of the fees involved.

IP

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Author: ResN Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74363 of 75539
Subject: Re: Wade Pfau: 3% is the new 4% SWR? Date: 3/2/2014 8:17 AM
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From page 9 of the report:

Each scenario in the analysis is based on a 10,000-run Monte Carlo simulation. Taxes and Required Minimum Distributions (RMDs) from the portfolio are ignored. The analysis assumes a 1.0% fee, or negative alpha, that is deducted from the portfolio value annually. This fee is included to account for unavoidable retirement portfolio expenses paid by the investor (e.g., mutual fund fees, advisor fees, account fees, etc.) for investment management.

</snip>

Well, duh. I agree that you can only withdraw 3.00% if you're letting a financial advisor skim 1.00%, but why would you do that? You can put together a diversified portfolio at Vanguard for 0.10% in fees or less and take the 4% SWR you're entitled to.

intercst


I got banned from the Morningstar boards yesterday because I called Pfau out on this exact same issue. He responded by accusing me of lying about his data and his research. He claimed that he had never included a 1% annual fee in his calculations and that all of his calculations were based on "no fees" being included. He then stated that his results were actually worse than 3% if you counted fees. I was banned from the boards about 10 seconds after he posted his reply. He then spent the rest of the day praising his research. I'll confess, I did suggest that his 3% rule would become true due to his belief that everyone should pay a financial advisor a 1% annual fee for help with investing, because investing is so complex and stressful that most people need help. I then suggested that he should disclose how much money he gets from his speaking tours that are designed to scare retirees into thinking they can't do it themselves, plus what he gets in grants from the financial services industry at his university position. I get banned for simply telling the truth. Of course, Morningstar also has its head up the rear of the financial services industry, so I guess I shouldn't be surprised. Would someone please tell me what's so hard about putting your portfolio in 2 or 3 Vanguard funds, and only paying 99% less than Pfau's 1% annual fee. Of course, Pfau's 1% fee really isn't correct, because the financial advisors usually charge more and also put your money in funds that charge another .5% to 1%, making for a total of closer to 2% or more, thus leaving a person with a withdrawal rate of less than 2%.

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Author: ResN Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74364 of 75539
Subject: Re: Wade Pfau: 3% is the new 4% SWR? Date: 3/2/2014 8:22 AM
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IP, I think using a financial advisor makes sense if it makes sense to you. I'm not suggesting that only stupid people use financial advisors. I'm suggesting that virtually anyone can do as well or better over time by themselves as 99% of people do with advisors. If having a financial advisor helps you sleep at night and feel more secure, then by all means do so. Different strokes for different folks, but I think there should be truly full disclosure by the financial folks, who seem to specialize in hiding the truth when it comes to performance and fees, and the effect on long-term returns. Just saying.

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Author: Rayvt Big gold star, 5000 posts Top Favorite Fools Top Recommended Fools Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74365 of 75539
Subject: Re: Wade Pfau: 3% is the new 4% SWR? Date: 3/2/2014 8:43 AM
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This is my 20th year in retirement. I've always been very careful to limit my exposure to fixed income securities (currently 94% stock, 6% fixed income)

YAY!!! I thought I was the only one who kept nearly all stocks and very few fixed income. I'm only 7 years into retirement, though.

A couple of times I had an investment manager (*not* a FA, just essentially a private mutual fund) running some of my money, and I had to lie to them that I had 30% in bonds in other accounts, just to keep them from having a heart attack.

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Author: Rayvt Big gold star, 5000 posts Top Favorite Fools Top Recommended Fools Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74366 of 75539
Subject: Re: Wade Pfau: 3% is the new 4% SWR? Date: 3/2/2014 8:54 AM
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I just simply do not understand the knee jerk rejection of a whole category of investing, simply because of the fees involved.

Well, the knee jerk rejection is because almost 100% of FAs don't deliver on the implied promise of beating the index or benchmark.

"You can only outperform the index by diverging from it.
That almost always means losing correlation: your best times won't be at the same time as the best times for the market. You will underperform sometimes."

Almost all people who use a FA don't understand this, and will yank their money away when the FA inevitably has a year or two of underperformance.
The only type of FA that survives is the type that sticks close to the index -- which means that he does *not* add value, and therefore his fee is a deadweight loss.

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Author: ResN Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74367 of 75539
Subject: Re: Wade Pfau: 3% is the new 4% SWR? Date: 3/2/2014 9:48 AM
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Almost all people who use a FA don't understand this, and will yank their money away when the FA inevitably has a year or two of underperformance.
The only type of FA that survives is the type that sticks close to the index -- which means that he does *not* add value, and therefore his fee is a deadweight loss.


Yes, absolutely. Managers of stock mutual funds are under tremendous pressure to at least match the relevant market index, or get very close to it. Otherwise, many of the folks in the fund will move their money elsewhere. With a very small stock fund with little track record, it's possible to beat the market by picking a single stock that happens to do better than the index. On the other hand, who wants to invest in a mutual fund that has only been in existence for two years and only has $25M in it. Once a fund gets larger, the only way it can come close to matching the index is to actually match it by having the same basic holdings. If the manager can pick a sector to overweight, then he might beat the index by a little bit, but rarely by much. This is why smaller hotshot funds usually blow up after they get larger, because the manager actually begins to believe his own PR department that advertises him as an expert stock picker. Fees are everything when it comes to investing, particularly over time. I don't want a financial advisor to take as a fee 25% to 50% of what should have been my yearly withdrawal, leaving me with only half, and that's exactly what happens. Since most advisors won't even be around 10 years or 20 years down the road, there isn't a day where the client can truly look at the advisor's long-term record. What many folks don't realize is that most financial advisor (not all) are know little or nothing about investing. They use basic asset allocation charts, then invest the money in expensive mutual funds that kick back a part of the fund's expense ratio to the advisor who steered the client to the fund. Added to the 1% annual advisor fee, the so-called financial advisor sits back and gets rich, while his clients get lower returns and lower annual spending, or worse yet they overspend until they run out of money prior to death. It's a scam, plain and simple, at least most of the time. There are some decent advisors, but they are the ones who have very low fees and invest their client's money in low cost funds like Vanguard or many of Fidelity's funds. However, most advisors play on the clients' fears, which makes those advisors the scum of the earth in my opinion.

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Author: inparadise Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74369 of 75539
Subject: Re: Wade Pfau: 3% is the new 4% SWR? Date: 3/2/2014 10:07 AM
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A couple of times I had an investment manager (*not* a FA, just essentially a private mutual fund) running some of my money, and I had to lie to them that I had 30% in bonds in other accounts, just to keep them from having a heart attack.

Sorry, but that is just plain stupid. Why would you bother obfuscating the state of your affairs?

Yes, I think all advisers are programmed to keep you as risk avoidant as possible, and I have had to re-educate our FP so that he can work within our goals. When he first suggested a low risk approach for our investments so that we didn't have an event that we could not recover from, I pointed out that we would not have to use all these funds at one point in time. Surely we could portion off some accounts to take more risk, funds that we would not need for 20-40 years.

As early as some of us are retiring, I think there is a need for multiple stages of investment strategy in retirement.

IP

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Author: inparadise Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74370 of 75539
Subject: Re: Wade Pfau: 3% is the new 4% SWR? Date: 3/2/2014 10:17 AM
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Almost all people who use a FA don't understand this, and will yank their money away when the FA inevitably has a year or two of underperformance.

And thus the hand holding phone calls. After the first few, when our FP called us with a state of the market call during one of the larger hits to the market, I told him not to waste his time calling us. We were happy to take the time to discuss something pertinent, but the fact that the market does not go up in a linear fashion was not an epiphany for us.

You are right in that just like the mortgage industry not all tools are appropriate for all people. That does not mean that those tools should be pulled for the people who know how to use them properly.

However, I think those that need babysitting in investing really do need a FA...those hand holding phone calls might get them to back off from the ledge. Wonder how many FAs kept people from pulling out a few years ago when so many were cashing in at lows. Me, I was buying more.

IP

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Author: inparadise Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74371 of 75539
Subject: Re: Wade Pfau: 3% is the new 4% SWR? Date: 3/2/2014 10:22 AM
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This is why smaller hotshot funds usually blow up after they get larger, because the manager actually begins to believe his own PR department that advertises him as an expert stock picker.

While I agree the funds that get wildly popular have a difficult time maintaining their returns when they get very large, it has little IMO to do with ego and much more to do with restrictions on how much of a company they can buy shares. Unless you are Warren Buffet with the ability to buy whole companies, a fund becomes forced to buy larger and larger companies, avoiding the smaller ones. The smaller are just too much work for the small amount they could invest without violating the fund's investing guidelines.

Just because one is good at juggling oranges does not mean they will do as well if forced to juggle bowling balls.

IP

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Author: bighairymike Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74372 of 75539
Subject: Re: Wade Pfau: 3% is the new 4% SWR? Date: 3/2/2014 10:31 AM
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I am 69, and must start taking RMD's in 2015. Thus far, I have not touched my investments. This year, I plan to convert the remander of the stock in my SEP-IRA into my Roth and will pay the taxes, thus eliminating my need to sell any stocks for the RMD. Why? The stocks are good dividend payers and right now, I am reinvesting the divies.

Donna (who will not adhere to the 3% or 4% rule...I will only start collecting the dividends in cash, if the need be)


-------------------------------

Donna, you should consider doing partial Roth Conversions over a number of years. That is the road I'm on. I convert enough each year to use up the 25% bracket. It is going to take me a long time but I figure paying uncle sugar 25% over a longer period is better than giving him 39% all at once. The effectiveness of this stragegy has a lot to do with how much other income you have. But it may be worth thinking about.

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Author: inparadise Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74373 of 75539
Subject: Re: Wade Pfau: 3% is the new 4% SWR? Date: 3/2/2014 11:10 AM
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I convert enough each year to use up the 25% bracket. It is going to take me a long time but I figure paying uncle sugar 25% over a longer period is better than giving him 39% all at once.

Mike,

How did you determine that doing Roth conversions through the 25% tax bracket was worth while? I used this to calculate RMD per 100,000, (http://apps.finra.org/Calcs/1/RMD), but having a tough time with all the factors involved in determining best strategy. Some problem areas involve:
- compounding of savings vs paying taxes now
- impact of higher income from conversions on things like FAFSA and ACA subsidy, capital gains taxes
- benefit of taking SS at 62 and investing, as opposed to FRA or 70. (http://www.sscalc.net/)

We still have time. DH will retire at 56 and we have a projected negligible need for income. It's pretty much a no brainer for us to do conversions up to the 15% income cap, and re-evaluate at 61 to see what next, but not so sure about 25% bracket.

Very much like having more control over what we pull out of tax deferred accounts, particularly as I will most likely survive DH and be stuck with RMDs as a single filer. Also have a couple of kids who will inherit whatever is left over, and find leaving that to them in Roth form very attractive.

IP

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Author: Rayvt Big gold star, 5000 posts Top Favorite Fools Top Recommended Fools Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74375 of 75539
Subject: Re: Wade Pfau: 3% is the new 4% SWR? Date: 3/2/2014 3:57 PM
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Sorry, but that is just plain stupid. Why would you bother obfuscating the state of your affairs?

1) Because the rest of my financial situation is none of their business. I've even run into one who wouldn't even answer a question I had about mortgages unless he first knew all the details of my entire financial picture.

2) Their compliance department may be extraordinarily lawsuit averse, and not want to take on a client that may (in the eyes of a future lawsuit) be put into an "inappropriate" investment.

3) Since I wanted them to invest that specific chunk of my money in thet specific way, they had no need to question my overall asset allocation.

4) They always want to have some percentage of my account in bonds, because they always want to have a defendable allocation in non-risky assets. They always want to treat my account as if it was my entire investment portfolio. I always have to tell them, "No, this is only a portion of my portfolio. Don't concern yourself about the rest, I have an adequate asset allocation overall, I'm just giving you the part that I want you to manage in this specific way."

I had one broker once send me a personal letter (not a form letter) from a VP expressing concern that all of my trades for the last 12 months were option trades, and that was pretty risky. I wrote them back and said, yes, that's why I opened the account with you, my intention was to isolate all my options to one account.

I can't fault them for wanting to make sure a new client wasn't unknowingly taking on a bad asset allocation. But, unlike the majority of clients, I have chosen my own asset allocation and am happy with it.

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Author: inparadise Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74376 of 75539
Subject: Re: Wade Pfau: 3% is the new 4% SWR? Date: 3/2/2014 4:06 PM
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I retract my statement then and submit an apology. I thought you were going to them for advice.

IP

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Author: bighairymike Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74377 of 75539
Subject: Re: Wade Pfau: 3% is the new 4% SWR? Date: 3/2/2014 9:50 PM
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How did you determine that doing Roth conversions through the 25% tax bracket was worth while? I used this to calculate RMD per 100,000, (http://apps.finra.org/Calcs/1/RMD), but having a tough time with all the factors involved in determining best strategy. - IP

------------------

Here is how I looked at it. YMMV.

1. Me or my heirs will sooner or later have to pay taxes on my IRA balance.

2. It might as well be now, since 25% seems like a pretty good rate. Rates are likely go up in the future given Uncle Sugars inability to control spending. Or at least I don't see them going down.

3. Taking some of it now will reduce future RMD's. I will still have RMD's at 70 1/2 but they will be smaller and with less potential tax implications.

4. Taking now before I start Social Security leaves more headroom in the 25% bracket. I will delay starting SS thus giving me a few more years to do the Roth conversions. This makes the eventual SS payments higher which make sesne for me because I am healthy and have longevity in my family.

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Author: Donna405 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74378 of 75539
Subject: Re: Wade Pfau: 3% is the new 4% SWR? Date: 3/3/2014 12:49 AM
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Hi, there. I already converted all but about $12,000, including cash, into my Roth a few years ago. Actually, it was accomplished in 2010, when I could split the conversion into tax years 2011 and 2012. Now, all I have left are cash and my one COP stock. So, there's little to convert, and I don't want to split the stock. Hopefully, my income will be such that I will remain in the 25% bracket. At least that's what it looks like now. In addition, I have a loss on some rental property I sold in 2013, of which I can only take $3,000 per year.

Donna

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Author: Hawkwin Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74380 of 75539
Subject: Re: Wade Pfau: 3% is the new 4% SWR? Date: 3/3/2014 9:22 AM
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Or you can hold 50 income securities and get a reliable and growing 4% income distribution into perpetuity with zero% expenses.

What income securit(y/ies) provides a reliable and growing income distribution forever with zero expeneses?

I would be willing to give you reliable but growing? Unless you are making much more than 4% and reinvesting the difference and if that is the case, reliability goes down significantly.

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Author: jgc123 Big gold star, 5000 posts Top Recommended Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74381 of 75539
Subject: Re: Wade Pfau: 3% is the new 4% SWR? Date: 3/3/2014 9:25 AM
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BruceM: "Or you can hold 50 income securities and get a reliable and growing 4% income distribution into perpetuity with zero% expenses."


Which 50 income securities would you recommend for a reliable and growing 4% income distribution into perpetuity with 0% expenses?

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Author: Hawkwin Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74382 of 75539
Subject: Re: Wade Pfau: 3% is the new 4% SWR? Date: 3/3/2014 9:30 AM
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1) Because the rest of my financial situation is none of their business. I've even run into one who wouldn't even answer a question I had about mortgages unless he first knew all the details of my entire financial picture.

2) Their compliance department may be extraordinarily lawsuit averse, and not want to take on a client that may (in the eyes of a future lawsuit) be put into an "inappropriate" investment.


You can blame FINRA and the SEC for this.

https://www.finra.org/Investors/ProtectYourself/BeforeYouInv...

http://www.finra.org/web/groups/industry/@ip/@reg/@notice/do...

Even unsolicited trades now face this level of scrutiny.

If you are making your own trades, why use full service advisor? Why not just use an online discount broker where you won't be asked as many questions? They will still require you give the information up front but they won't ask you on every trade to justify your purchase.

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Author: BruceCM Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74388 of 75539
Subject: Re: Wade Pfau: 3% is the new 4% SWR? Date: 3/3/2014 6:21 PM
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Donna

This year, I plan to convert the remander of the stock in my SEP-IRA into my Roth and will pay the taxes, thus eliminating my need to sell any stocks for the RMD. Why? The stocks are good dividend payers and right now, I am reinvesting the divies.

Note...there is no requirement that you withdraw the RMD from the IRA and go spend the money. In fact, an RMD doesn't have to change anything except your tax bill and where you are holding the stocks in question. Your allocation can remain unchanged after the RMD.

For example, lest say you have 500 shares of JNJ in your SEP that you are collecting dividends on and wish to continue doing so. For your RMD, you can calculate how many of the shares of JNJ equals your RMD...lets just say thats 80 shares of JNJ. So you can ask that your broker do an 'in-kind' transfer of these shares from the SEP to your taxable account. The amount of the transfer (your RMD) will be reported that year on the form 1099R, so you'll have to include it as income for the year as you normally will for an RMD, but your holdings of JNJ and the dividends it pays have not changed....although now the 80 shares of JNJ in your taxable account will get favorable tax treatment....in the SEP the JNJ dividends you withdrew were taxed as ordinary income.

BruceM

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Author: jgc123 Big gold star, 5000 posts Top Recommended Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74390 of 75539
Subject: Re: Wade Pfau: 3% is the new 4% SWR? Date: 3/3/2014 7:14 PM
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Your procedure appears to be similar to the one set up by my 92 year old father.

Most of his money is now in his main account but he also still has money in his IRA. His bills are paid with a combination of Social Security and dividends and interest from his main account. Near the end of the year I take the cash that has accumulated in his IRA and transfer that plus enough stocks to meet the requirements of his RMD into his main account. However, his yield on his main account is about 3.6%, not 4%, continuing to drop because his high yield munis expire and there is nothing comparable to replace them with.

I still don't how a person could safely yield 4% in this economic environment.

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Author: BruceCM Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74391 of 75539
Subject: Re: Wade Pfau: 3% is the new 4% SWR? Date: 3/4/2014 2:51 AM
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I still don't how a person could safely yield 4% in this economic environment.

By my count, over 100 stocks (C-corps, MLP units and REIT shares) from David Fish's list of Dividend Champions, Challengers and Contenders, are yielding 4% or more. And then there are preferred stock....

I haven't run any analysis to determine how many of these would be good candidates for long term dividend sustainability and growth. But there are quite a few here to analyze.

However, I completely agree....the pickins are much thinner today than they have been in the past!

BruceM

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Author: buzman Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74394 of 75539
Subject: Re: Wade Pfau: 3% is the new 4% SWR? Date: 3/4/2014 9:17 AM
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Capital gains spend just as well as dividends and interest.

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Author: reallyalldone Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74395 of 75539
Subject: Re: Wade Pfau: 3% is the new 4% SWR? Date: 3/4/2014 10:21 AM
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I still don't how a person could safely yield 4% in this economic environment.

Did something get lost in translation in this thread ? SWR doesn't mean yield. At some point, you will be spending capital.

The advisor fee thing somehow assumes people need their last nickel to live on. If there's not more than enough, I wouldn't be paying a fee.

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Author: intercst Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74396 of 75539
Subject: Re: Wade Pfau: 3% is the new 4% SWR? Date: 3/4/2014 2:02 PM
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buzman writes,

Capital gains spend just as well as dividends and interest.

Actually, I think capital gains spend better since you get to decide when to realize them (and pay taxes).

Interest and dividends come every year whether you need the taxable income or not.

intercst

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Author: BruceCM Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74397 of 75539
Subject: Re: Wade Pfau: 3% is the new 4% SWR? Date: 3/4/2014 2:22 PM
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Capital gains spend just as well as dividends and interest.

You've got to have them first. No capital gain, no income?

All but 5 of my 62 income securities paid me the same or an increasing dividend during the downturn of 2007-2009.

And then there's the question of WHEN to sell to realize the capital gains.

No thanks

BruceM

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Author: intercst Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74398 of 75539
Subject: Re: Wade Pfau: 3% is the new 4% SWR? Date: 3/4/2014 2:53 PM
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BruceCM writes,

You've got to have them first. No capital gain, no income?

All but 5 of my 62 income securities paid me the same or an increasing dividend during the downturn of 2007-2009.

And then there's the question of WHEN to sell to realize the capital gains.

</snip>


If a company has a steadily growing business, it will increase in value over time.

No one who owns Berkshire Hathaway is upset because it doesn't pay a dividend, and some like me actually prefer it.

If you want to buy a new home or a boat, you can sell a few shares and realize a capital gain. Meanwhile the rest of your investment remains intact without the annual tax consequences of a dividend.

intercst

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Author: 2gifts Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74399 of 75539
Subject: Re: Wade Pfau: 3% is the new 4% SWR? Date: 3/4/2014 2:54 PM
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You've got to have them first. No capital gain, no income?


You can sell stocks that have dropped as well as those that have risen. What you need in this instance is cash, and you don't have to have a gain to get cash by selling a stock.

And then there's the question of WHEN to sell to realize the capital gains.

Why is timing an issue? You can choose when to sell, and by doing so, control your tax hit a bit better. And if your gains are long-term, they have a lower tax rate than dividends which are taxed as ordinary income.

I'm wondering if people are focused on generating the total income necessary from their portfolio only through dividends because the preference is to have something left at the end for heirs. Perhaps that is why this isn't making sense to me. DH and I do not care if we leave anything for the kids when we die, and so we definitely plan on spending from our portfolio in terms of both the income and the principal, but there will be enough principal to sustain us so it is not a problem to tap it during our lifetime.

And yes, I have taken into account that there will be down years as well as up years.

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Author: AmericanIdle Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74409 of 75539
Subject: Re: Wade Pfau: 3% is the new 4% SWR? Date: 3/6/2014 12:17 AM
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And if your gains are long-term, they have a lower tax rate than dividends which are taxed as ordinary income.

Qualified dividends are taxed by the same rules as LT Capital Gains.

AI

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Author: 2gifts Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74412 of 75539
Subject: Re: Wade Pfau: 3% is the new 4% SWR? Date: 3/6/2014 8:01 AM
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Qualified dividends are taxed by the same rules as LT Capital Gains.


Oops. Forgot about that, so thanks for the correction.

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Author: BruceCM Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74420 of 75539
Subject: Re: Wade Pfau: 3% is the new 4% SWR? Date: 3/6/2014 7:51 PM
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You can sell stocks that have dropped as well as those that have risen. What you need in this instance is cash, and you don't have to have a gain to get cash by selling a stock.

And if your have to sell in two successive down markets to generate cash?
Yes, you can keep multiple years of cash....but the more cash held, the greater the opportunity cost over time and probably a reduced survivability.

The principal reason the "4% SWR" doesn't work is because when the market isn't cooperating and you still have to withdraw 4%, you simply shorten portfolio survivability. And unlike institutional investers, which is where most of the 'investing science' comes from, the retiree can't infuse capital back into his retirement savings...unless, I suppose, he goes back to work.

I'm wondering if people are focused on generating the total income necessary from their portfolio only through dividends because the preference is to have something left at the end for heirs. Perhaps that is why this isn't making sense to me. DH and I do not care if we leave anything for the kids when we die, and so we definitely plan on spending from our portfolio in terms of both the income and the principal, but there will be enough principal to sustain us so it is not a problem to tap it during our lifetime.

I think that is a good and fair question. I mean, after all, we spent our adult lives saving...why would we suddenly quit doing that and start drawing down what we've saved and feel ok about doing it?

But as objective as I can be, capital preservation is NOT why I invest for income only. I do it because I don't have to concern myself with what to buy and sell, safe withdrawal rates and survivability. I dislike that arrangement. With an income approach, I don't have to be concerned with that. Yes, the income approach has its own set of risks and challenges....but they are risks and challenges I find easier to deal with.

And I agree with you....our kids need to figure it out just as we did, and our promising them a boatload of money (at least to them) when we bite the big one is not going to help them figure it out.

BruceM

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Author: reallyalldone Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74422 of 75539
Subject: Re: Wade Pfau: 3% is the new 4% SWR? Date: 3/6/2014 8:31 PM
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Have you actually used a calculator to get to the 4% SWR ? Like firecalc.com ? Have you read and understood it ?

Why do you say it doesn't work ?

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Author: synchronicityII Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74432 of 75539
Subject: Re: Wade Pfau: 3% is the new 4% SWR? Date: 3/8/2014 12:55 PM
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I'd read comments about Wade Pfau's research in other venues, as well as (IIRC) at least one other "well-respected" author in the arena, racheting down the 4% SWR. Their objections seemed to mainly be tied to "well, investments are overpriced and likely to perform worse going forward" (either lower absolute returns and/or higher volatility).

Well, duh. Yes, if you assume that stuff will do worse and/or be more volatile in the future than in the past, a 4% SWR won't work like it did in the past. Thank you Captain Obvious.

I also got a lecture from someone on another forum who was espousing a lower initial SWR that increased as one aged, something like the RMD rules (which they felt compelled to explain to me, because Lord Knows I don't understand RMDs [*eyeroll*]). Again, DUH, I tried to explain that the SWR is a quick "rule of thumb" used to guesstimate absolute asset amount needed for retirement, that although there's some sorta-sophisticated math behind arriving at that it's a general number based on a common retirement scenario (age 65ish, roughly 30 years assumed remaining lifespan, assume set amount needed for lifestyle of X and increase that for inflation to maintain the same lifestyle throughout lifespan). If one REALLY wanted to get more specific, there were other ways one could handle it. SWR is really just a "safe harbor" rule as it assumes a low probability of failure given a straight line pull of assets.

I then got a lecture about how an increasing percentage is more efficient across various years because yadda yadda yadda. I started to get into the concepts about how some people might want to spend more money (inflation adjusted or whatever) at age 65 than at age 85 because hey, probably a bit healthier/better able to do things at the one age than the other, about how the goal of retirement might not be to spend every last penny, about how the option to spend more than an "inflation adjusted" amount if portfolios return better than a "worst case" example is always available, and so on. I then was rebuked about how "so, you people who espouse 4% SWR don't even REALLY mean it", which showed that the whole point of SWR was missed. (It's a SAFE withdrawal rate, people!)

Most of the "research" knocking the 4% SWR seems focused on "well, sure, 4% MIGHT work, but if you assume worse assumptions than it's more likely it won't, so use a lower starting percentage". Gee, thanks for the tremendous insight. All of the "it's not the most optimal way to spend your retirement money" shows that people don't get what an SWR rule is aimed at.

Alternatively "if your investments do better, you can take out more in subsequent years than just an inflation adjusted amount". REALLY?!?! Wow, that idea NEVER OCCURRED TO ME! Gee, if my investments took off or I won the lottery at age 66, I'd NEVER think to increase my spending above the rate of inflation! Thank you for that! *eyeroll*

All that said...I work in the financial services industry. There are a LOT of people who can't grok much of the math needed to plan well (much less understand the interplay of the tax laws and whatnot). For them, paying a fee for a financial planner to help them makes sense. It's also not JUST about math and retirement planning - for many people estate planning (not just "estate tax" issues, which almost nobody reading this board will have to deal with at the federal level but maybe at the state) is an issue, understanding the tax laws well, transferring assets to children, all that is important and is not in most people's bailiwick. I get that there are many financial advisers out there who aren't great at it either, but at least some of them may be able to work with some sort of "Planning Department" and access the expertise to assist people with issues. Yes, you can (and probably should) have your own attorneys/accountants to work with, especially if you're approaching the level of, say, having to worry about federal estate taxes (that's 8 digit net worth, NOT counting the 2 after the decimal point).

As with everything, the question becomes "is the fee/price worth it for the service/benefit I'm receiving?" As Health Ledger's Joker character said in the movie The Dark Knight: "if you're good at something, never do it for free". I could probably learn to fix my own car if I invested the time/effort into it, and it's probably not THAT hard, but it's not the best use of my time so I pay a mechanic to do so. Of course, I try and find one I can trust and who charges a reasonable amount.

Long winded rant. TL/DR version - a lot of articles about retirement are complex ways of saying "if things change, 4% won't work". Duh. Financial advisors charge fees and some products have fees, so if you can "do it yourself" it's better, but a lot of people aren't great at "do-it-yourself" so financial advisers make sense. Normal caveat - like car mechanics, there are a lot out there who charge too much and deliver too little and seem more interested in enriching themselves than helping you for a fair price.

Disclosure - as noted, I work in financial services, specifically for an insurance company. Insurance companies offer products and services, many of which have various fees. One could claim I'm "biased" in favor of such products and services given where I work. My comments would remain, for ANY financial product/service/advice/whatever, to do research yourself as much as you can, consult with varying people to learn more about offerings from various sources, and then choose the path that best fits your needs given your skillset and commitment. This may be largely a do-it-yourself approach, or may involve paying others in various ways. The fact that something "has a fee" does not necessarily make it "bad", but obviously does make that a cost that should provide a commensurate benefit in your planning. I wouldn't pay an accountant a bunch of money to do a 1040EZ for me, but I likely would pay them a fair amount to prepare my 1040 if it was somewhat complex. Your funds, your choices.

-synchronicity, long winded

Circular 230 Disclaimer - none of this is tax advice, I'm not your attorney, talk to your own and don't think telling the IRS "I read something posted on the intermawebz" is going to help you if they audit you.

Additional disclaimer - all comments in this post are mine alone and do not reflect any opinion or view of my employer. Any of teh stoopid posted above reflects my own dumbedness. I take full responsibility for being a clueless dolt at least part of the time.

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Author: Goofyhoofy Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74435 of 75539
Subject: Re: Wade Pfau: 3% is the new 4% SWR? Date: 3/8/2014 9:14 PM
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Most of the "research" knocking the 4% SWR seems focused on "well, sure, 4% MIGHT work, but if you assume worse assumptions than it's more likely it won't, so use a lower starting percentage". Gee, thanks for the tremendous insight.

The SWR, as you noted, is a "rule of thumb", but it's a pretty big rule. It's a post-facto simulation of the worst case scenario since the beginning of, well, almost the 20th century - including the Great Depression, World War II, the OPEC Oil Embargo, and all the other political and economic events of the century.

And you'd still be standing.

OF COURSE if you assume the future will be worse than the worst that has happened in the past 100 years, then any assumptions are verklempt.

TL/DR version - a lot of articles about retirement are complex ways of saying "if things change, 4% won't work". Duh

Yes. Exactly.

Financial advisors charge fees and some products have fees, so if you can "do it yourself" it's better, but a lot of people aren't great at "do-it-yourself" so financial advisers make sense. Normal caveat - like car mechanics, there are a lot out there who charge too much and deliver too little and seem more interested in enriching themselves than helping you for a fair price.

Given "average" performance by the current crop of financial advisors, and given the "average" person on the street, is there some level of assets or age or anything where using a paid advisor makes more sense? Or less sense?

I also don't advocate the "put it all in an index fund and see what happens", but my experience with advisors has been less than thrilling, too. (Just returned from another of those "free steak dinner" seminars; the guy advocates a propriety fund with a 2.75% annual (plus his own 1% override), non-traded REITS (similar fee structure) and annuities. I mean, geeze, he's almost at 4% out of the box! Gotta pay for those steaks somehow, I guess. ;)
 


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Author: culcha Big gold star, 5000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74437 of 75539
Subject: Re: Wade Pfau: 3% is the new 4% SWR? Date: 3/8/2014 10:59 PM
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Just returned from another of those "free steak dinner" seminars; the guy advocates a propriety fund with a 2.75% annual (plus his own 1% override), non-traded REITS (similar fee structure) and annuities. I mean, geeze, he's almost at 4% out of the box! Gotta pay for those steaks somehow, I guess. ;)

I've received a lot of those invitations. But I've always thrown them away. I always supposed that they took your contact information and then harassed you like crazy. I really don't want to get on their email or phone list. But is it actually safe to attend these things? (I mean, safe as long you don't buy what they're selling)

culcha

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Author: synchronicityII Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74438 of 75539
Subject: Re: Wade Pfau: 3% is the new 4% SWR? Date: 3/8/2014 11:14 PM
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Given "average" performance by the current crop of financial advisors, and given the "average" person on the street, is there some level of assets or age or anything where using a paid advisor makes more sense? Or less sense?

In general, if you're reading a financial website and making intelligent comments on the investment part of it, using a financial adviser strictly for investing and paying a fee to manage most of your investments probably doesn't make a whole lot of sense. You're already far above "average" in knowledge compared to most "person[s] on the street".

That said, it might make sense if you have a SO who is not into investing the way you are, so you want continuity and management for them. Or, of course, if you just don't want to deal with most of it personally for whatever reason. I'm assuming that most people who post on this board obviously DO want to deal with it personally, but "most" is not "all", even here. (I'd say the best advisors from an investment standpoint don't necessarily just "invest money to beat indices" but rather have a decent amount of knowledge and can offer insight into current situations, basically help to reduce volatility while maintaining certain returns. But even in that those advisors are probably fairly rare.)

Where it really makes sense if they can give you access to some investment choices you wouldn't have otherwise, or if they can give you advice/insight/expertise into other areas where your knowledge is lacking. They might be able to help you in retirement planning -- although again, if you "get" most of investing you can probably do the math and the other stuff quite well for retirement. A more experienced financial advisor who's actually helped a bunch of people through retirement may have some insights on the entire process from many prior and current clients that you may not, so there's that, and that knowledge may be helpful and worth paying for. It depends.

If you're above a Certain Level of assets or income (probably north of 250K income so you have NII surtax issues nowadays, and at least in the "several MM net worth" range as you may have state level estate tax issues and likely are thinking more about transferring assets efficiently to heirs/charity moreso than just "do I have enough to support me til I die"), they may be able to help you with tax planning and/or estate planning, as they might have access to considerable resources in those areas that you don't have knowledge about (either personally or though their company). Again with the "it depends".

If you already get efficient frontier and the like, then you're unlikely to get a whole lot of help from most "financial advisors" solely on the investment side. As we know, many such advisors work for companies where they get paid primarily on commission for product sales and/or may get extra comp on AUM if clients invest in the "in-house" mutual funds. So, you have to separate the wheat from the chaff. That said, if the person is good enough in other areas and the in-house mutual funds include choices that work for you overall, maybe you're willing to pay a few extra bp of expense ratio as payment for the help they give you.

Is that of any use, or just more rambling?

-synchronicity

PS- planning example I've posted elsewhere in the past - Roth conversion effectively paired with a CLAT. If you have to look up what it is...well, that's the sort of thing that MIGHT make a financial advisor worth it to you. Or not, if your situation would never call for that. I'm just mentioning something that most people posting here probably don't know about to show it's not just about investment IRR.

PPS- circular 230 disclaimer: I'm an idiot and you should ignore everything I say, talk to your own advisors, the IRS doesn't care what I say.

PPPS- other disclaimer, I'm not promoting or recommending any particular company/client/individual, nor am I denigrating any company/client/individual. Everyone has their own goals and objectives and knowledge levels and all that. Different companies offer different products and services. Individual advisors range from very good and knowledgeable to notsomuch, and from extremely ethical and concerned about client needs to notsomuch. It's just like any other arena.

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Author: inparadise Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74439 of 75539
Subject: Re: Wade Pfau: 3% is the new 4% SWR? Date: 3/9/2014 7:20 AM
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Just returned from another of those "free steak dinner" seminars; the guy advocates a propriety fund with a 2.75% annual (plus his own 1% override), non-traded REITS (similar fee structure) and annuities. I mean, geeze, he's almost at 4% out of the box! Gotta pay for those steaks somehow, I guess. ;)
...
I've received a lot of those invitations. But I've always thrown them away. I always supposed that they took your contact information and then harassed you like crazy. I really don't want to get on their email or phone list.


Anyone who has to sell their services via these bribes is either so new that they have no client base or so bad that no one will refer them. I confess, I've never been to one of these dinners though, having the impression they were more about selling you annuities than developing a long term investing relationship with you. We found our FP via referral from two neighbors who had been using him for several years, and were very happy with the results from the changes he had made to their portfolios. He takes new clients by referral only, way too busy to do the rubber chicken dinners.

I know how to invest, started well before joining TMF in '99, but don't want the hassle of doing it anymore, or the fights with DH that resulted from our very different risk tolerances. I of course still keep track of what's going on and make sure that we are getting acceptable returns net of fees for the current market, and still have about 1/3 of our assets that I manage. It's not a perfect relationship with the FP... what relationship ever is... and I wish he were more willing or capable of thinking outside the box. Now sometimes I have two people to convince that a strategy I want is a better way to go, but at least he usually catches on faster and helps me to convince DH. And the perks and convenience he provides for no additional fee are pretty darned nice. He's already working with our 19 year old, who has gotten the savings/investing bug by watching his Roth jump up in value. It's smart as heck on his part, developing his next generation of clients while putting a non-financial hook in current clients.

So yes, somethings are worth paying for, and happily for the past three years he's earned the extra money to pay for himself.

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Author: 2gifts Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74440 of 75539
Subject: Re: Wade Pfau: 3% is the new 4% SWR? Date: 3/9/2014 9:34 AM
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I've received a lot of those invitations. But I've always thrown them away. I always supposed that they took your contact information and then harassed you like crazy. I really don't want to get on their email or phone list. But is it actually safe to attend these things? (I mean, safe as long you don't buy what they're selling)

We've attended a bunch of those as it has helped DH to have a better understanding of the investing world. He tends to glaze over when I talk about finances, and he absorbs more from those presentations, so they serve a useful purpose for us. I also find that I can generally learn at least one thing from them, or confirm my knowledge in something.

They are definitely looking for new clients, and typically ask you to make an appointment if you are interested at the end. If not, it ends right there, and most of them are pretty upfront about not feeling offended if you don't want to make an appointment because they don't want to waste either their time or your time.

I've never been harassed afterwards by any of these folks, and I have taken them up on a few of the individual appointments where they analyze your assets and investments, and come back with recommendations and a plan they'd like to put into place.

I have found that the ones that call themselves "Financial Planners" are much more likely to be selling annuities, but the ones that are clearly brokers working for a large brokerage tend to want to put you into stocks and sometimes their proprietary funds.

We haven't been to one of these in a while, but they have proven useful to us just because they have really helped to get DH to understand more about finances.

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Author: Rayvt Big gold star, 5000 posts Top Favorite Fools Top Recommended Fools Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74441 of 75539
Subject: Re: Wade Pfau: 3% is the new 4% SWR? Date: 3/9/2014 9:38 AM
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I've received a lot of those invitations. But I've always thrown them away. I always supposed that they took your contact information and then harassed you like crazy. I really don't want to get on their email or phone list. But is it actually safe to attend these things? (I mean, safe as long you don't buy what they're selling)

We've never had any problem with them bugging you. I get many more phone calls from "Card Member Services" than from FAs. So from that standpoint it's safe to go.

The big problem is that the presentation they put on is very enticing. It's easy to get sucked in.

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Author: Goofyhoofy Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74442 of 75539
Subject: Re: Wade Pfau: 3% is the new 4% SWR? Date: 3/9/2014 10:04 AM
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We've attended a bunch of those as it has helped DH to have a better understanding of the investing world. He tends to glaze over when I talk about finances, and he absorbs more from those presentations, so they serve a useful purpose for us. I also find that I can generally learn at least one thing from them, or confirm my knowledge in something.
They are definitely looking for new clients, and typically ask you to make an appointment if you are interested at the end. If not, it ends right there, and most of them are pretty upfront about not feeling offended if you don't want to make an appointment because they don't want to waste either their time or your time.
I've never been harassed afterwards by any of these folks, and I have taken them up on a few of the individual appointments where they analyze your assets and investments, and come back with recommendations and a plan they'd like to put into place.
I have found that the ones that call themselves "Financial Planners" are much more likely to be selling annuities, but the ones that are clearly brokers working for a large brokerage tend to want to put you into stocks and sometimes their proprietary funds.


We've been to four over the past decade; we've skipped another half dozen "invitations."

One of them was a complete scam. we actually went to the followup invitation, where he told us he had an investment so "sure fire" it would guarantee 8-10% a year - but no, he couldn't tell us exactly what it is, had no literature, it was a "trust me" thing. About a year later the Madoff scandal broke, and I always wondered if he was bundling to send money to Bernie.

We recently went to one where the guy sonsoring it said "Here's my speaker" and then sat down. We never heard from him again the entire night, and while he was "happy" to do a "free" evaluation (which we accepted) he called to say he was taking it to a "specialist" because we had much higher assets than most he deals with, and then... we never heard from him again.

Two of them have been pretty good presentations. Nobody tried to strong arm us into buying anything right then and there. One we left and never thought about again. The most recent one was an excellent motivational speech. Not only did we get a lovely dinner at Ruth's Chris Steak House, Mrs. Goofy won a $25 gift certificate (also at Ruth's Chris), I won a financial investing book, and we both won a candy bar (yum! Dark Chocolate!)

Yes, we signed up for a "follow up", which was held at their very nice, and very expensive offices. And while the strategies they offered made some sense, the fees attached were absurd, and we declined the offer of another follow-up. ((The first meeting was generic/inspirational, the second was information gathering, the third was to be "recommendations.")

[Nutshell: separate assets into three baskets: no risk, some risk, risk. their recommendations for no-risk included a special proprietary fund (no risk? really?). Some risk was mostly non-traded REITs paying 6-8%. And risk was stock annuities. Oops, think I got #1 and #3 backward, but don't want to retype. Heh.)

Anyway, I've had no problem with being harassed. I too have found some value in exposing Mrs. Goofy to financial instruments and ideas. However I will say that even with our agreement going in that "we're not buying anything" there is still a temptation to "buy something". It's only because I know how absurd their fees are that I am able to firmly say "no."

There's also the trust issue to get past. You're meeting these people for the first time, and have no measure of them. If it were Sync at the front of the room it would be quite different, I'm sure.

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Author: thebobdog Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74444 of 75539
Subject: Re: Wade Pfau: 3% is the new 4% SWR? Date: 3/9/2014 11:55 AM
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Anyone who has to sell their services via these bribes is either so new that they have no client base or so bad that no one will refer them. I confess, I've never been to one of these dinners though, having the impression they were more about selling you annuities than developing a long term investing relationship with you.

Actually, dinner seminars are popular because they are one of the most effective ways to get more clients. If they didn't work, the financial services industry wouldn't use them. Conversion rates from attendees are pretty high and the ROIs tend to be high.

Every advisor has his or her own business goals and ways of building a business. Every client has their own way of planing for their future and finding advice.

Bob

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Author: culcha Big gold star, 5000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74445 of 75539
Subject: Re: Wade Pfau: 3% is the new 4% SWR? Date: 3/9/2014 1:20 PM
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The big problem is that the presentation they put on is very enticing. It's easy to get sucked in.

This is indeed a big problem. I can't go with DW to these things -- we could use a free meal, but if they do an enticing spiel, that's really dangerous, as she is completely financially naive, and a is sucker for snake-oil salesmen and con men of all kinds. She would certainly listen to them over anything I would say.

culcha

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Author: inparadise Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74446 of 75539
Subject: Re: Wade Pfau: 3% is the new 4% SWR? Date: 3/9/2014 1:35 PM
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Anyone who has to sell their services via these bribes is either so new that they have no client base or so bad that no one will refer them. I confess, I've never been to one of these dinners though, having the impression they were more about selling you annuities than developing a long term investing relationship with you.
...
Actually, dinner seminars are popular because they are one of the most effective ways to get more clients. If they didn't work, the financial services industry wouldn't use them.


I didn't say they weren't effective for the service industry, I question why you would want to use someone who needed this approach to build clients rather than via referrals. It's like in real estate...open houses are staffed by junior agents looking to get buyers to represent...they are almost never used with the expectation of selling that particular home and rarely staffed by an experienced agent. They won't waste their time that way.

IP

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Author: 2gifts Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74448 of 75539
Subject: Re: Wade Pfau: 3% is the new 4% SWR? Date: 3/9/2014 2:00 PM
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I didn't say they weren't effective for the service industry, I question why you would want to use someone who needed this approach to build clients rather than via referrals. It's like in real estate...open houses are staffed by junior agents looking to get buyers to represent...they are almost never used with the expectation of selling that particular home and rarely staffed by an experienced agent. They won't waste their time that way.


Actually, I am using someone I met through one of those seminars, but we didn't start to use him until years after the seminar and after test-driving someone else first.

The big reason these guys do this is because they are building their business, and this reaches a lot of pre-screened prospects quickly. Since they are building their business, referrals may not yet be plentiful because they have to start somewhere.

I wouldn't discount someone just because they like to cast a wide net.

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Author: spinning Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 74468 of 75539
Subject: Re: Wade Pfau: 3% is the new 4% SWR? Date: 3/10/2014 8:45 AM
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It's a post-facto simulation of the worst case scenario

And you'd still be standing.


95% of the time.

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