Winning the Game

BY ALL ACCOUNTS, I’ve won the game. I know the income my family needs to live our desired lifestyle. I have an inflation-adjusted Navy pension in my future. I have two children and two GI Bills, one for each child. My house is paid off and I’m debt-free. Combine all of this with the 4% rule, and it seems I have enough to produce our desired income for the rest of my life. I have “won the game.”

William Bernstein. Recently, noted investment manager, neurologist and author Bill Bernstein recommends that—once you’ve won the game—you should stop playing. What exactly does that mean? Bernstein suggests you dramatically reduce the risk you are taking with your retirement portfolio. To him, there’s no sense in taking risk you don’t need to take.

Easier Said Than Done. Although his advice makes sense, I find it hard to implement. First, I won the game by playing. I’m used to playing. I like playing. I want to play more. I’m only 42 and too young to stop playing. If I stop playing, I’ll be bored.

Maybe I Have Stopped Playing. As I mentioned, I have an inflation-adjusted military pension coming my way. The pension has no principal left over after my wife and I die, but it is a government guaranteed, inflation-adjusted source of income. What exactly does Bernstein mean when he says “stop playing”?

How to Tell You’ve Won the Game. In a 2015 article that Bernstein wrote for The Wall Street Journal, he said, “You’ve won when you’ve acquired enough assets to provide your basic living expenses for the rest of your life.” Simple enough. My military pension, investments and Social Security seem to meet this requirement. I guess I’ve won.

How to Stop Playing. To stop playing, you reduce the risk you’re taking with your retirement portfolio. Once you’ve accumulated enough to support your retirement, Bernstein suggests you purchase a TIPS ladder. TIPS are Treasury Inflation Protected Securities, government-issued bonds that increase in value along with inflation, while also paying a little interest on top of that. You can create a TIPS ladder by buying individual bonds at TreasuryDirect.gov.

For example, if you needed $40,000 per year for your basic expenses, you might take five years of required spending—or $200,000—and buy five $40,000 TIPS, with one maturing in each of the next five years. When one matures, you’d use that money for your expenses for the next year. At the same time, you’d purchase another $40,000 bond that matures five years from now. Rinse, wash and repeat.

If you didn’t want to buy individual bonds and were okay with the small fees they charge, you could likely get the same effect by investing $200,000 in Vanguard Group’s short-term inflation-protected bond fund or a similar low-cost offering at another investment firm. Bernstein doesn’t recommend this, because of the fees.

Apparently, I’ve Stopped Playing. I’ve decided my inflation-adjusted military pension is the equivalent of a TIPS ladder, which means I’m no longer playing, even if a part of me still is. Got a decent-size Social Security check in your future? Maybe part of you isn’t playing, either.

Joel M. Schofer, MD, MBA, is a Commander with the U.S. Navy’s Medical Corps. His previous articles were Getting Used and The $121,500 Room. The views expressed in this article are those of the author and do not necessarily reflect the official policy or position of the Department of the Navy, Department of Defense or the United States Government.

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