When Clients Work Past 70, RMDs Are Still Required — And Begrudged Gary brings up a great point, When I was working (late 60s until around 2000) the standard line was: “
Defer income while you’re in a high bracket and pay a lower tax rate on it after you’re retired and earning less.” That may have happened in my case - but I’m not so sure. For one, back when that
creed was in vogue Social Security wasn’t considered taxable income. Today at least a portion of it is
if you also receive a pension and exceed a certain level of income:
“Congress passed and President Reagan signed into law the 1983 Amendments. Under the '83 Amendments, up to one-half of the value of the Social Security benefit was made potentially taxable income.”
https://www.ssa.gov/history/taxationofbenefits.html.
A pension (with cola) has pushed me over 20+
years into a higher tax bracket than I expected when working. The
% taken doesn’t seem appreciably lower than during the working
years. In addition, Michigan also levied an income tax on pensions - previously exempt.
I think when it comes to this kind of dynamic (figuring out what tax bracket you’ll be in 30
years down the road) you’re best to play it safe. No one really knows. I’m not sure using a Roth at an early age is the answer. Might be. But if, as a seasoned investor, you can play the percentages and convert a
portion into an asset you think is undervalued - it’s worth paying those taxes a few
years earlier than you might have otherwise and doing the conversion (in stages over several
years).
BTW - Roths aren’t subject to RMD. What’s not to like?
When Clients Work Past 70, RMDs Are Still Required — And Begrudged I always thought when earnings were put into a 401K or IRA ect. ect. the taxes that were avoided where usually higher (say 28%) rate then taxes would be on an RMD because the withdrawal is usually in a lower bracket (say 10% ideal would be zero). Is this not true? Also RMD's come from the whole pool not just the last years investment. Main point is to do your investment over as many years as possible. Just what am I missing?
Social Security Should Buy Stocks, Like Norway Does To be honest, it's a terrible idea. Imagine what it would be like for someone in government to regulate Microsoft, Exxon and Amazon when the entire country's Social Security depends on their stocks performing well. It creates massive conflicts of interest. Norway is a tiny country with not much of a stock market--and interestingly a number of its biggest companies are oil companies. So divesting from oil creates less conflicts for regulators. You couldn't do that here. Not to mention the fact that during the worst bear markets in U.S. history it took many years for investors in the market to fully recover. It's a stupid, stupid idea.
When Clients Work Past 70, RMDs Are Still Required — And Begrudged Hi
@bee, Nice to hear from you.
My dense brain required two readings to grasp all of this. Spot-on, except the very last couple sentences aren’t quite computing for me. (“This is why ...”)
If I may restate your observations, I believe you’re highlighting the fact that when we invest in tax deferred accounts
we are also investing on behalf of the government. That’s because eventually Uncle Sam does get to tax our contribution
and in addition any growth on that contribution that has accrued over the
years. As you note - your success and that of the government’s rise or fall together.
Overall the government may be seen to be riding on our backs and sharing in (what ought to be) our long term investment success. I continue to like Roth IRAs for the reason being you get to keep whatever you’ve earned over the
years. And, if someone wants to roll the dice and do a later life Roth conversion into an asset they think has been unjustly beaten down and stands to rebound - than BINGO - you get to keep 100% of your winnings.
Jeremy Grantham: This Bull Market Will Not End With A Massive Pullback: Text & Video Presentation
Maxing Out A 401(k) Is Surprisingly Rare — But May Be Easier Than You Think When the median household income is around $60k, how can you expect a high % of people maxing out 401(k)s? $18k would be 30% going to retirement savings - just not going to happen.
I agree with JoJo on this. Criticizing low-income workers for not maxing-out is reminiscent of Wilbur Ross wondering why all those unpaid government workers didn’t simply obtain a loan. :)
Couple thoughts: The IRS allows a generous
catch-up provision during a worker’s later
years if they failed to max out in early
years. I learned of it accidentally through an “overheard” conversation at work. It proved a great way to make up for my lackluster contributions earlier. Folks nearing retirement (age 50+) should look into it. Think it depends on your employer’s willingness to allow it.
https://www.kiplinger.com/article/retirement/T047-C001-S001-the-rules-for-making-ira-401-k-catch-up-contributi.htmlSecond thought: It’s hard to tell exactly what % of one’s disposable income maxing out would take. Remember the tax deferral one receives when contributing at work. When I was working, a buck contributed was costing something like 75 cents out of pocket - give or take.
On the other hand, if you include all the
other taxes we pay in addition to income tax (sales tax, car & boat licensing fees, property tax, phone tax, gas tax, tax on alcoholic beverages & tobacco, social security tax, etc) than your disposable income is really much lower than first appears. That would make maxing out a really onerous option for lower wage workers. Heck, it could easily take 30% or even 40% of their disposable income.
Do TDF do their jobs
Huh?
https://finance.yahoo.com/news/warren-buffett-target-date-funds-arent-way-go-175409855.htmlhttps://mutualfundobserver.com/discuss/discussion/40833/target-date-funds-buffettYahoo Finance reader Greg Woodruff from Bakersfield, California asked Warren Buffett, the CEO Berkshire Hathaway (BRK-A, BRK-B), if target date funds are really adding value.
“No, probably not,” Buffett said during a wide-ranging interview with Yahoo Finance’s Andy Serwer. “The S&P 500 Index Fund is the one to use. That’s the one I used in that bet I made for ten years. It’s the one I’ve told the trustee for my wife to put 90% of the funds I leave her in to.”
Also, the idea with target date funds is to use them for substantially all of your assets. If you don't, you're working against the glide path which is designed for your overall portfolio.
Suppose the glide path for your age says you should be 50/50 stocks/bonds and you have 10% in the tdf and 90% in equity funds. Then your mix is 95/5. What's the point of using the tdf? If you want to control the portfolio allocation yourself, it's easier to work with fixed allocation funds than with ones that "glide".
Who is this guy? His arguments against target date funds are lame.
It's easy enough to find out
who this guy is:
... He has also written on portfolio risk management for Barron’s Financial Weekly. Additionally, he assists in the management of the investment portfolio of the Community Foundation of Sarasota County.
Dr. Stepleman holds a Ph.D. in Mathematics from the University of Maryland and a B.S. in Physics from the State University of New York at Stony Brook. He has taught at the University of Virginia and Rutgers University. He also spent 20 years at Exxon Research and Engineering Company and seven years with the RCA David Sarnoff Research Center. ...
Some of his arguments do seem lame. For example, on the one hand lamenting that there's not agreement on what a "correct" glide path is; on the other complaining about "one size fits all". There isn't agreement on a correct glide path precisely because one size doesn't fit all. Different glide paths are offered because what is correct for one person is not correct for another.
Some of his points IMHO not lame at all. "Research by Wade Pfau and Michael Kitces suggests a more optimal glide path ramps down even more severely to 10 percent stocks at retirement and then starts increasing the stock holding gradually to 50 percent. Their research indicates this glide path can provide better protection against sequence of return and longevity risks."
Of course I would think this part had substance. I have to. I said the same thing two days ago:
https://mutualfundobserver.com/discuss/discussion/comment/111071/#Comment_111071
Maxing Out A 401(k) Is Surprisingly Rare — But May Be Easier Than You Think When we were in our savings years my wife had a 403b, and we both had IRAs. Neither of us had access to any other savings mode other than (of course) Social Security. We both maxed out our IRAs,and my wife maxed out her 403b (converted to an IRA after her retirement). Any additional spare funds were put into either American Funds or American Century, with no load.
Like Investor, we maxed out whatever was available to us.
Do TDF do their jobs If this guy got paid to write article, he will write. It's an occupation...
They simulated a common glide path strategy over 141 years and found that an investor using a 50 percent stock and 50 percent bond allocation, and regularly rebalancing, would likely have had better results than the target-date fund.
Not even a statement of fact. Giving Research Affiliates a bad name in the process. No link to actual study. We don't know if there was such a study. 141 years - F me! Regular balancing - how regularly? Totally idiotic.
Anyone from Research Affiliates reading?
Taleb Was Right. We’re Still Fooled by Randomness FYI: In his 2001 book “Fooled by Randomness,” author and fund manager Nassim Nicholas Taleb argued that chance plays a largely unacknowledged role in success, particularly in the finance industry. A new study of the returns generated by fund managers suggests that even the minority able to beat their benchmarks are lucky rather than good — and maybe not even that lucky.
Analysts at S&P Global examined the returns of more than 2,400 investors based in the U.S. Unsurprisingly to anyone who has followed the active-versus-passive debate in recent
years, less than a third were able to beat their benchmarks in the three
years to September 2015 on an annualized basis and once fees are taken into account.
Regards,
Ted
https://www.bloomberg.com/opinion/articles/2019-03-05/s-p-fund-manager-study-shows-luck-a-big-factor-in-outperformance
How did HSGFX manage to lose .77% today? @hank I don't deserve your admiration. The cynic in me always prompts me to think no one really knows anything, and reversion to the mean is the norm. I always maintained, I couldn't find anything wrong with Hussman's ANALysis, but his trading desk who didn't really know how to hedge. Option decay when market moving against you will definitely turn returns negative from fully hedged position. However, KNOWING that fact, WTF did you not hedge a little less? Full hedged means your return should be close to 0% and not several points below it.
So basically HSGFX became a "Bear fund", and after giving him plenty time to fix his problem I sold, because I thought I have as much probability of hedging my bets by just investing part of my portfolio in a short fund instead.
Regarding why I haven't been much active these days, I'm trying to sorta determine my priorities. I find working in the IT sector with nincompoops totally humiliating, and after all these
years after having long recognized I made bad career choice I am too old for a change. Suffering through it I realized is causing me a lot of stress and causing me to lose my sense of humor. So my inactivity on MFO has as much to do with the fact total time I spend at computer outside work has reduced by 90%. I switched to Macs from PCs making sure I don't "work from home" anymore. I have one princess in college and another who will be in a couple of
years. Just trying to spend more time with the family, something I never really did before given my wife is 1000 times worse than me when it comes to bringing work home.
However, I promise one day I will surprise you with a fund :-)
David Snowball's March Commentary Is Now Available Question for Charles.
For trying to answer question "was it worth it" you provided returns of indices over 10 years, and also over full market cycle, i.e. around 12 years beginning 2007. However, for the "best" performing funds, why not provide market cycle returns? It will be good to see if these "best" performing funds were also "worth it" over the full market cycle, no?
Under the assumption any given period(s) over which data is compared to reach any desirable/undesirable conclusion, it is important to know if people should even bother to pick individual funds or just invest in an index.
Just my 2 cents.
How did HSGFX manage to lose .77% today? Why would it be any different than the last 10 years or so?
Only EM for Foreign Exposure @msf. Thanks very much for making me aware of a new set of funds to research. Particularly the Grandeur Peaks one. That one has held up better than all of the other ones in the family that have had a few disappointing
years. I always appreciate the ideas here on the board. I would also add MIOPX to your list which has about 30% in EM and is available no load at Schwab and other brokerages.
How did HSGFX manage to lose .77% today? Yes, well even his hedging is sub-par. I owned HSGFX many years ago, but didn't keep it for very long. Not a fan of Hussman. His execution is poor.
Best of luck with this one.
