Hot Off the Web

WSJ ran a special section on retirement. A couple of stand-out articles are:

“The Retirement Lies We Tell Ourselves” discusses the quicksand upon which many build their retirement dreams. Examples include the false expectations of: working in retirement, the home as the safety net, living on 70-80% of pre-retirement income, getting an inheritance, the pension is safe, etc. While these are all theoretical possibilities, historical data on the frequency and extent of these occurrences does not does indicate that these elements provide a strong foundation for a retirement plan.

“Nest-Egg Maneuvers” reviews William Bengen’s article and book on an explicit mechanism that a financial planner can use the engage the client in the decision making process of how much to withdraw annually from the retirement nest-egg. The client is engaged in selecting the appropriate amounts of the constituent layers to build the retirement layer cake. The base layer of 4.15% withdrawal rate is associated with a 60:40 mix of stocks:bonds annual rebalancing 30 years in retirement inflation adjusted withdrawals. The up/down adjustments are made to the withdrawal rate as layers deviate from the base in: longevity, leaving an inheritance, probability of not exhausting nest-egg, more/less aggressive asset allocation, rebalancing frequency, above/below historical returns. The customization of withdrawal rates to each individual’s needs, making the explicit trade-off visible, will likely result in more appropriate outcomes for retirees.

“When the Boomers Go Marching Out” in the National Post talks about Prof. David Foot, author of “Boom, Bust & Echo: How to Profit from the Coming Demographic Shift”, walking the talk as he applies it to his own retirement transition. While it is not a retirement finance article, it is a model for retirement transition and it also discusses obstacles in pension laws to having a gradual transition via reduced hours of work and still accruing pension benefits. (An opportunity for advocacy!)

“When to pull the Tax-loss Trigger” in the Globe and Mail discusses what it calls the ”five rules of capital harvesting”. It is a timely topic as tax-year is coming to an end, and investors are considering when it makes sense to sell a losing investment ( to offset a gain or lost confidence in the investment story) and when it does not. It also reminds you about the superficial-loss rule (must wait 31 days to repurchase).

“John Authers: Investing insights that get inside your head”  cover the new field of “neurofinance tries to go inside the brain and understand why and how individual decisions are made, rather than – like behavioural scientists – make inferences from observed behaviour” . Successful investors find the right balance between fear and greed. Neurofinance  attempts to give investors the tools for self-knowledge.