Kevin Knox

Comments:

• That article by John Rekenthaler really is excellent. I'm with you - and, for that matter, William Bernstein - in seeing no point in SPIAs (or any other type of annuity) when TIPS are not only easy to buy, default risk and hidden-fee free but also support a 4%+ spending rate with the all-important guaranteed inflation protection that annuities don't offer. My wife and I are also at 50:50, but instead of a TIPS ladder we use half each VTIP and VGSH along with 3 years of residual (after Social Security) living expenses in SGOV. Our equities are as plain vanilla as it gets: 80% VTI, 20% VXUS. The barbell of short-term 100% Treasury bond funds is something I learned about from Jonathan Clements, though of course he has a much higher equity allocation than we do. We went this route in part because the mechanics of actually spending the individual TIPS given that they're all in our IRAs and RMDs are quite awhile away for us were more complex than my wife felt comfortable with. The short (~3 year) duration of these funds allows us to truly take our risk almost entirely on the equity side, with the peace of mind of knowing that even in a rising interest rate environment we could raise cash in an emergency without losing much if any money. And of course we're agnostic as to whether inflation-indexed bonds will outperform nominals or vice versa. All that said, I envy the certainty and paycheck-like mechanics of what you've chosen and am sure it will serve you well in what I hope is a very long and happy retirement for both of you. I really enjoy your writing!

  Post: Laying Down a Floor

  Link to comment from September 14, 2024

• Dr. Peter Attia and others have been really emphasizing the critical importance of not just general strength training but in particular foot and (especially!) big toe strength in preventing falls. This article goes into somewhat granular detail but is at least worth a skim: https://www.humanlocomotion.com/the-human-locomotion-fall-prevention-protocol-how-to-create-a-customized-treatment-program-to-maintain-strength-and-agility-as-you-age/

  Post: Exercising Caution

  Link to comment from September 7, 2024

• "A Vanguard article that was published this spring I believe calculated that with expected bond returns in the near future a portfolio of 20-40% bonds would produce a healthy return with much less volatility." Actually, the most recent papers from both Vanguard and Morningstar recommend exactly the opposite: 20-40% equities: "For retirees with time horizons both shorter and longer than 30 years, portfolios with equity weightings of 20% to 40% also generally supported higher withdrawal rates than more equity-heavy portfolios." In a nutshell the reason for this is that intermediate-term bonds are paying 4-5% (and if you stick to Treasuries, which you certainly should there's no default risk), while equities are highly-valued by historical norms. https://www.morningstar.com/retirement/good-news-safe-withdrawal-rates

  Post: Exercising Caution

  Link to comment from September 7, 2024

• I really enjoyed your article! We have a lot in common,, starting with the fact that we live in a 55+ mobile home park in Tucson. I couldn't figure out which park you bought in (and respect that you may want to keep that private). We're in a smaller community than yours (Park West with about 150 homes) and know the mobile home community scene here pretty well. Because we don't have a second home we are what's called sun birds (or less appealingly but perhaps more accurately sweat birds) who flee Tucson in the summer. Pre-pandemic we had much success doing house/pet sits in places like Santa Fe and Boulder but more recently we end up paying for an AirBnB in such places to make sure we're at least gone for the worst summer months (June through August and ideally well into September). With less than 40K tied up in our mobile (that's now worth more like 90K) and $575 a month in lot rent (including some utilities, a lovely clubhouse with gym and year-round saltwater swimming pool) we can certainly afford the travel while still living cheaply. The problem long-term as I see it is that unlike mild four-seasons places (e.g. Prescott, Sierra Vista, Albuquerque) the summers here make fleeing a necessity for anyone who doesn't want to be trapped indoors for months on end or who is a hiker, owns a dog, etc. It's "have to leave" weather, not "it'd be nice to get away" as is the case when winter drags on a bit too long and you want (but don't actually need) a couple of weeks on the beach in February or March. There are expensive, deluxe 55+ places here (check out Hacienda at the Canyon, for example) with both indoor and outdoor pools, multiple restaurants, multiple levels of care available, indoor movie theaters and lecture series and such and we know older (~80+) people who live in them and because of the amenities feel no desire or need to leave even in summer. Perhaps we'll end up in a place like that at some point but for now we're able to live cheaply but decently and leave much of our nest egg untouched in case a costly CCRC is in our future.

  Post: A New Kind of Heaven

  Link to comment from May 4, 2024

• Thanks for the excellent explanation of why gold prices have surged recently. The old "no inherent value"/no inherent rate of return canard really does need to be retired. As other commenters have pointed out, assets denominated in fiat currencies also have no inherent value - unlike physical gold. But more to the point, gold's value is in being a truly uncorrelated asset that, when held in judicious amounts, can buffer portfolios against sequence-of-returns risk. This comprehensive post on the excellent Portfolio Charts site shows just what this means to real-world retirement portfolios not only in the U.S. but globally. The author points out that as a standalone investment gold is literally the worst of all possible choices - but that in the right amounts it is an invaluable if not essential component of the best-performing (on a risk-adjusted basis) portfolios: https://portfoliocharts.com/2024/04/01/what-global-withdrawal-rates-teach-us-about-ideal-retirement-portfolios/

  Post: Shining Moment

  Link to comment from April 3, 2024

• Using the handy "Drawdowns" calculator on the "Portfolio Charts" website the worst historical drawdown for an 80% Total Stock Market/20% short-term Treasury portfolio was 44% - and recovery took 17 years. And as someone who retired in 2002, only 2 years into one of the worst two decade stretches of stock market returns in history, such statistics aren't just arcane history to me. So I'm with Dr. Bernstein and thus strongly against what seems to me to be a reckless blanket recommendation of a mere 5 years in safe assets. instead, following the good doctor's advice, I suggest allocating whatever amount to equities you can live with seeing lose half its value at any moment and not recovering for a decade. This is clearly all-but-essential for anyone in or near retirement, but arguably prudent for many much younger investors as well. I vividly recall how Bernstein completely changed his advice after many wealthy clients of his - all of whom had filled out detailed risk tolerance questionnaires and had lots of personal hand-holding - bailed on their equity-heavy portfolios en masse during the '08-09 market meltdown. It was only after that experience that Bernstein routinely prescribed liability matching portfolios equal to 25 years worth of residual living expenses and so on. Being greedy when others are fearful and vice versa is advice a real investing genius like Warren Buffett or Jonathan Clements (I'm not making fun here as I truly do believe you both merit the designation) is constitutionally capable of doing but many of the rest of us are made of weaker stuff.

  Post: Asking Myself

  Link to comment from March 16, 2024

• Thanks very much Mr. Clements for this wise and timely piece. I have to confess to being among the many who was seriously considering going all-in on a TIPS ladder after seeing them extolled as THE retirement solution by the likes of William Bernstein and Allan Roth, but after watching my wife's eyes glaze over when I explained how she'd manage such a portfolio in the likely event of me dying first I realized that our current simple portfolio is plenty to deal with - for both of us. I'm most grateful to you for your consistent championing of intelligent minimalism, which has led me to a "four fund" portfolio (half each short-term bond funds in the form of VTIP and VGSH (plus a Treasury money market fund with 3 years of residual living expenses), along with half globally-diversified equities in VTI and VEU) that I feel confident we can both live with and manage for whatever time is left to us. If nothing else, the 50:50 split between equities and fixed income along with equal amounts of nominal and inflation-protected bonds makes me feel like we're acknowledging that the future is unknown and positioned to survive most scenarios.

  Post: Comfort Has a Cost

  Link to comment from March 2, 2024

• Thanks for the thoughtful article, and I've also enjoyed the lively discussion in the comments. William Bernstein's name comes up a few times in these, and having both listened to his latest interview from the Bogleheads conference and read the newly-published revised edition of "4 Pillars of Investing" I agree with his argument that a TIPS ladder is far superior to annuities of any kind for most investors. Morningstar's John Reckenthaler has written about this a good deal of late, and IMHO this article by him, which discusses combining a TIPS ladder with a modest allocation to equities, ought to be required reading for anyone considering fixed immediate annuities. Yes a TIPS ladder requires more work to set up (though the tipsladder.com tool makes it do-able in an hour or so), but once in place there are zero worries about the things that any annuity investor has to be concerned with for the rest of their lives (namely inflation and the viability over several decades of the insurer to whom they've surrendered their life savings). https://www.morningstar.com/bonds/high-tips-yields-are-retirees-best-friend

  Post: An Annuity Instead?

  Link to comment from December 30, 2023

• Thank-you for this wise and timely post Mr. Clements! Not only do I resonate with your desire for simplicity, I appreciate (and need to learn from) your careful, measured approach to implementing portfolio changes. Why rush the transition from your tilted, slice-and-dice portfolio to VT when international, small and value could be poised for a comeback (based on valuations)? My situation is different from yours - I'm older (67) fully-retired and have a very modest nest egg and even more frugal lifestyle than your admirably balanced one (we live on $3500-4000 a month). With my 60 year old wife still on an ACA plan we have to manage our taxable income carefully in order to qualify for subsidies so no Roth conversions for us. We own just 4 ETFs: VTI and VXUS (70:30) for equities, and equal amounts of two short-term Treasury ETFs (Schwab's SCHO and Vanguard's VTIP short-term TIPS ETF). Lacking the ability let alone the willingness to take the kind of risks you happily embrace we're 50:50 stocks:bonds, with a couple of years of living expenses in a Treasury money market account. After years of following the conventional advice to keep bonds in tax-deferred accounts and total-market equity funds in taxable I realized that with our modest assets we'd be better served by having the same portfolio in all three accounts (two IRA's and a taxable joint). It makes rebalancing a snap (If we can't handle what we have then cognitive decline really has set in!) and will also make dealing with RMD's a non-issue when they kick in for me a few years down the road. Whatever appreciation I have for value of elegant minimalism and simplicity in investing - not to mention appropriate humility about the markets and investing - is largely due to your work over these many years Mr. Clements. Thank you.

  Post: Happily Ever After

  Link to comment from December 16, 2023

• Yes I've looked into it and thanks to readily-available tools (tipsladder.com especially) it takes all of about 45 minutes to set up a 30 year ladder. Bernstein himself answers your question (from his October Bogleheads interview): "So, there’s basically two ways to defease your retirement expenses with TIPS. One is simply to buy TIPS that mature in every single year that you’re going to be retired. That’s not quite possible because there’s a gap between 2034 and 2039. There are no TIPS that mature then. Now, you can buy an excess amount of them in 2033 and in 2040, which pretty much does the same trick. And of course, you really don’t have to own TIPS for all 25 of those years. You can skip years a couple of years in between the TIPS so you only have to own maybe six or seven or eight of them, but that’s still a lot of work. The other way to do this is to buy a mix of TIPS funds. So, let’s say you think that your retirement is going to last 30 years. Well, you want the average maturity of your TIPS funds to average out to about 15 years. Half of that, alright. So, you would buy a bit of a 20-year fund and there’s only one and unfortunately that’s offered by PIMCO, and it’s got a 20-basis point expense. So that’s just a little steep. Then you could buy a short-term TIPS fund for a couple of basis points – there are a couple of ETFs that do that – and you mix and match those two and you try to average out, weight out the maturities to 15 years. And then of course you have to rebalance that once every couple of years to keep the maturity right. So, neither way is perfect. Either way requires a little bit of work. I prefer the ladder because that’s fire and forget. You buy it, you lay it in, and even if you develop dementia, you can tell your executors and your kids, “hey, this is how you pay my expenses when these TIPS mature.” And they don’t have to do anything except collect the principal when they mature." I don't see any way that this solution isn't vastly superior to a collection of non-inflation adjusted annuities whose value erodes over time due to inflation while one has to worry about the solvency of the issuers as long as you live. As for the "what if you live more than 30 years" question, you're just covering essential living expenses with TIPS, which frees you up to take plenty of risk with equities, as John Rekenthaler has shown: https://www.morningstar.com/bonds/high-tips-yields-are-retirees-best-friend

  Post: Retirement Roulette

  Link to comment from November 25, 2023