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Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.

Half Of People Near Retirement Have No Savings
" 29 percent of such households don’t have a pension."
What is surprising is that 71% do have a pension.

If I read the article correctly, I think it claims 29% of the 50% that don't have retirement savings also don't have pensions. The percentage of all households that don't have a pension could be even higher.
Yes, that is what I'm surprised about. 71% of those that don't have retirement savings have a pension. I think that number will decrease over the years.
If a person is 55 now and they started working at 20 - that was 1980. 401Ks started to become popular then and pensions were not.

Dex June 2015 in Fund Discussions
Half Of People Near Retirement Have No Savings
" 29 percent of such households don’t have a pension."
What is surprising is that 71% do have a pension.
If I read the article correctly, I think it claims 29% of the 50% that don't have retirement savings also don't have pensions. The percentage of all households that don't have a pension could be even higher.

bee June 2015 in Fund Discussions
Half Of People Near Retirement Have No Savings
Go here:
http://socialsecurityreport.org/half-of-people-near-retirement-have-no-savings/
Then click on the "read more" link

Mark June 2015 in Fund Discussions
Half Of People Near Retirement Have No Savings
MFO Members: Try This: Google article title "Half Of People Near Retirement Have No Savings" and see what happens.
Regards,
Ted

Ted June 2015 in Fund Discussions
Half Of People Near Retirement Have No Savings
FYI: Half of U.S. households headed by a person 55 and over haven't stashed away any retirement savings..
And while old-style pensions will help some of them put food on the table, 29 percent of such households don't have a pension.
Regards,
Ted
http://www.chicagotribune.com/business/yourmoney/ct-marksjarvis-0607-biz-20150605-column.html

Ted June 2015 in Fund Discussions
45 Year look back: A Seven Asset Allocation Pre / Post Retirement Performance
Hi Sven,
I too have access to Bill Sharpe's Financial Engines website. I elected not to mention it because of its likely limited access for many MFOers.
I have a true anecdotal story involving Sharpe and me. In the early 1990s I was planning retirement and consulted with advisors asking for Monte Carlo analyses to support their opinions. They thought I was nuts.
So I was motivated to do my own programming. I ran into some stumbling blocks and sought help from the academic world. Professor Sharp rescued me with great advice on Monte Carlo issues and Gene Fama sent me tons of data. Both professors were extremely generous, and both were friendly. It never hurts to ask for help.
I don't understand the reluctance of some MFOers to even explore the potential benefits that Monte Carlo offers. Open mindedness when investing is an essential element to enhance the odds of success.
Many thanks for your contribution.
Best Wishes.

MJG June 2015 in Fund Discussions
45 Year look back: A Seven Asset Allocation Pre / Post Retirement Performance
Hi rjb112,
Thank you for asking. You are the first person on MFO to specifically ask for a few Monte Carlo code addresses. Here are three that offer different user options.
My favorite because of its flexibility for my needs is from Flexible Retirement Planner. Here is a Link:
http://www.flexibleretirementplanner.com/wp/
The code I used for these submittals is from the Portfolio Visualizer website. It runs on my I-Pad and also offers some nifty other investor tools. Here is the Link:
https://www.portfoliovisualizer.com/monte-carlo-simulation
A third source that is the easiest input, but has the fewest user options is from MoneyChimp. This code requires that you estimate the mean and standard deviation returns from your pre- and post-retirement portfolios. Here is the Link:
http://www.moneychimp.com/articles/volatility/montecarlo.htm
My primary purpose for participating on the MFO Discussion Board is to be helpful to mutual fund investors. I’m way beyond salvation myself. So I’m extremely pleased that you requested this information. No trouble whatsoever.
Best Wishes.

MJG June 2015 in Fund Discussions
WealthTrack Encore: Guest: Charles Ellis: Fixing The Retirement Crisis
FYI: The good news is that Americans are living longer and spending more years in retirement than ever before. However, funding retirement is a fast approaching crisis. On this week’s WEALTHTRACK we have an exclusive interview with Financial Thought Leader and legendary investment consultant, Charles Ellis, who tackles America’s greatest domestic financial challenge in a new book, Falling Short: The Coming Retirement Crisis and What To Do About It.
Regards,
Ted
http://wealthtrack.com/recent-programs/ellis-fixing-the-retirement-crisis/
M*: 2015 Fee Study: Investors Are Driving Expense Ratios Down: (This is a relink in case you missed it the first time.)
http://wealthtrack.com/wp-content/uploads/2015/06/2015_fee_study.pdf

Ted June 2015 in Fund Discussions
45 Year look back: A Seven Asset Allocation Pre / Post Retirement Performance
Hi Bee,
Thank you for reading my post and for the questions that it motivated.
I’ll try to address each and every one of them. If I inadvertently fail to do so, please ask again.
The portfolio that I postulated was a somewhat arbitrary attempt to capture the elusive and non-stationary Efficient Frontier that even its inventor, Harry Markowitz, doesn’t match in his investments.
For the record, it included a 30% commitment to US stocks and 10% equal allocations to Foreign Equities, US Small Cap Value, REIT, Treasury Bonds, Corporate Bonds, TIPs, and Short Term Corporate Bonds. I tried to make the portfolio rather generic in the spirit of Professor Israelsen’s recommendation.
This single attempt at a competitive portfolio does not directly reflect my portfolio which is slightly more nuanced and more numerous in holdings. My current portfolio contains both actively managed and passively managed products, although I am shifting resources in the passive direction and am attempting to simplify.
The portfolio that I tested does reflect some of my preferences and biases. I did not include any Commodities. I used Short Term Corporate Bonds as a Money Market equivalent.
The Portfolio Visualizer code option that I exercised used historical category return data to estimate future returns. A user can override that option with his own set of anticipated statistical returns. Since I deployed the historical data sets, the analysis results should be interpreted as the equivalent (minus the minor costs) of Index products.
The code makes inflation adjustments. An inflation model that incorporates historical data is a default option that I used. The user can override with his own statistical model if he so chooses. Portfolio rebalancing is done annually.
I do not believe that you can force the Portfolio Visualizer (it’s not my product) to specifically do a rising inflation rate. You can input a statistical representation of a higher mean inflation level with whatever standard deviation you deem appropriate. Now that’s hazardous duty and really getting into the weeds from a projection prospective.
Certainly costs are important, especially if future market returns are muted so that costs absorb a higher percentage of gross returns. That’s one of my motivators to increase my Index holdings.
One of the chief benefits of any respectable Monte Carlo code is that it permits rapid turnarounds for postulated what-if scenarios. By running a patch of these scenarios, a user can develop a feel for what is important and what is noise.
Since the codes use Monte Carlo methods, results are always displayed in probabilistic format. There are no guarantees that the likeliest events will happen. But for most folks, that should be the chosen route: take the most favorable odds. In the game of Blackjack, it’s not a good idea to hit when you hold a 17 hand. In roulette, its better to play a wheel with a single green zero and not with a wheel that contains both a single green zero and a double green zero.
Life is a series of challenges. Monte Carlo is an imperfect tool that can help to quantify the odds coupled to some of those challenges. Retirement decisions are one such task.
Thanks again for your interest and your questions.
Best Wishes.

MJG June 2015 in Fund Discussions
45 Year look back: A Seven Asset Allocation Pre / Post Retirement Performance
@MJG,
Thanks for chiming in.
You stated:
"As a third case, I invented an 8 category portfolio which was more heavily weighted to US equities including Small Cap Value, TIPS, and a replacement of the money market holding with a Short Term Corporate Bond position. All three portfolios were basically a 60/40 split between equities and fixed income products."
Are you re-balancing and how often? Have you personally implemented this portfolio for your own retirement and have you explored the cost (Fees, ER, trading costs, etc.)? Are you selecting active or passive investments? Are you able to simulate a rising rate environment?
Does your simulator provide a way to examine different inflation trend scenarios?
I believe that part of managing a well diversified portfolio is to be responsive to inflation trends, either rising or falling, as well as prolong periods of stagflation.

bee June 2015 in Fund Discussions
45 Year look back: A Seven Asset Allocation Pre / Post Retirement Performance
Hi Bee,
Thanks for the reference to Dr. Craig Israelsen’s paper on the performance of portfolio asset mix options.
Based on precisely past performance data, he made a case for his equally divided 7 category portfolio.
Since I used the word “precisely”, and from my earlier submittals, you can easily guess where I’m headed with this post.
Israelsen’s work has a major shortcoming when using it for planning purposes. The results are perfectly tied to the exact schedule of returns recorded by past markets. They allow for no wiggle room. To expect identical results in the future requires that the order of returns must be precisely replicated. The chances of that happening are virtually zero.
The sequence of returns in any investment is significant to end wealth and portfolio survival. I’m sorry but once again, this uncertainty of the sequencing of future returns points to the use of Monte Carlo simulations to examine various portfolio options.
Although I favor the Flexible Retirement Planner for many Monte Carlo investment issues, I used the Portfolio Visualizer (PV) code to run a few sample cases because of convenience. I can run the PV version on my I-pad.
I examined 3 portfolios assuming a 1M dollar initial value with a 5.5% annual drawdown that was adjusted for inflation. To replicate Israelsen’s work as closely as possible, I assumed a 25-year retirement period. My analyses used the historical category returns formatted in a manner for random selections.
As a baseline, I inputted a simple 4 category portfolio with the standard 50/10/30/10 mix of US Equities, Foreign Equities, US Bond, and Money Market holdings. As a second portfolio, I duplicated the Israelsen 7 category portfolio that is equally divided. As a third case, I invented an 8 category portfolio which was more heavily weighted to US equities including Small Cap Value, TIPS, and a replacement of the money market holding with a Short Term Corporate Bond position. All three portfolios were basically a 60/40 split between equities and fixed income products.
I let the Portfolio Visualizer loose on all three portfolios.
The baseline portfolio had a median end wealth of 2.66M dollars with a survival probability of 83%. I’m not a happy warrior at that survival probability.
The Israelsen portfolio had a median end wealth of 3.73M dollars with an improve survival rate of 90%. So far, Israelsen wins.
But that winning record didn’t last beyond a single alternative option. The portfolio that I assembled had a median end wealth of 4.45M dollars with a much more attractive likelihood of survival at the 96% level. Note that I make no claims that my portfolio is optimum, but it is an improvement over the Israelsen construction.
This is yet another illustration of the powerful impact that Monte Carlo calculations can make when stress testing a portfolio designed for a long-term retirement period. The inputs are completed in minutes, the results are displayed in seconds, and a limitless set of what-if scenarios can be explored in a half-hour.
I urge all MFOers to become familiar with Monte Carlo tools. Your own analyses are superior to those reported by many financial advisors.
Best Wishes.

MJG June 2015 in Fund Discussions
With regrets...Mr. John L. Keeley, Jr (Keeley Funds) passed away
Sorry to hear about Mr. Keeley's passing. I believe he was 75. Just another reminder to enjoy life to its fullest in our retirement.

Junkster June 2015 in Fund Discussions
45 Year look back: A Seven Asset Allocation Pre / Post Retirement Performance
"The challenge of asset allocation now is no longer having too few ingredients to consider but rather selecting among an ever increasing array of sector-specific mutual funds and exotic ETFs"
A Seven Asset Portfolio out performed all other asset allocations, both prior to and during retirement.
This would consist of:
-large-cap U.S. stock
-small-cap U.S. stock
-non-U.S. developed-market stock
-real estate
-commodities
-U.S. bonds
-cash
-in equal proportions, rebalanced annually.

and,
"The second part of this analysis compares three allocation models when used in a retirement portfolio — which is very sensitive to timing of returns, particularly large losses. This analysis assumed an initial nest egg balance of $250,000 — quite comfortable back in 1970, although fairly modest now — with an initial withdrawal rate of 5% (or $12,500 in year one) and an annual cost of living adjustment of 3%. Thus, the second-year withdrawal was 3% larger (or $12,875), and so on each year. The superior approach, however — with a median ending balance of over $2.1 million — is the model using seven different asset classes."

For retirees facing the future headwinds of rising rates this study found that:
-during the inflationary periods of the 1970s, the seven-asset model had considerably better performance as a retirement portfolio — finishing with a balance of $2,086,863 for the 1970 to 1994 period, while the 60/40 model ended up at $1,090,081. The pattern recurs in the first four 25-year periods.
-an asset allocation model that has a large commitment to U.S. bonds (such as the classic 60/40 portfolio) may be at risk because if interest rates rise, bond returns will likely be far lower than over the past three decades.
-that a more broadly diversified portfolio is prudent — both in the accumulation years and in the retirement years.
Source:
which-asset-allocation-mix-outperforms?

bee June 2015 in Fund Discussions
FPA Perennial Fund, Inc. (changing its name and closing to new investors for a couple of months)
This is not a trivial change, but it appears (to me) to be a pretty fundamental re-do:
http://www.fpafunds.com/docs/fund-announcements/2015-06-04-perennial-press-release-final.pdf?sfvrsn=2lease-final.pdf?sfvrsn=2
1. New manager change, plus an alteration from 2 managers to one manager. Eric Ende, as he transitions toward retirement, will move entirely away from this fund and yet remain with Source Capital for awhile, the CEF-equivalent of Perennial which presumably will retain its SC/MC quality mandate. Gregory Herr will pass the baton to Mr. Nathan and focus exclusively on his Paramount charge, which he currently co-manages.
2. Perennial will become US Value and morph, after temporary closure, to an all-cap posture. That this new mandate will result in significant portfolio change is apparent from their press release:
"FPA Perennial Fund will close to new investors on June 15, 2015, as the portfolio manager change will result in significant long-term capital gains. FPA expects to reopen the Fund to new investors in October, following the portfolio transition."
So, congratulations, Perennial holders, the role this MF plays in your portfolio has just been changed for you.

heezsafe June 2015 in Fund Discussions
David's June Commentary
Hi Old Joe,
You're on target when you suggest that all retirement portfolio withdrawal requirements should be based on the amounts needed to supplement the total of all other retiree income sources.
That's exactly the way all such calculations are completed. Not to worry, that's the way they have always been made.
Best Wishes.

MJG June 2015 in Fund Discussions
David's June Commentary
Hi Davidrmoran,
You raise important questions with regard to a retirement cash cushion requirement. How much is needed? How was that level determined? What fraction of a retirement portfolio should be protection money in the form of near-term cash equivalents?
I retired twenty years ago, and at that time I was exposed to several professional retirement expert estimates. Yesteryears typical number hovered around two years worth of the planned withdrawal rate. Does four years near-term cash provide additional protection benefits?
This is another example of the benefits of Monte Carlo simulations to scope the issues. There is little need to rely on rules-of-thumb or instincts or opinion.
Since the retirement decision is so far in my rearview mirror, I really don’t want to spend too much time doing real work. Therefore, I only did 4 simulations to illustrate the tradeoffs. These took about 5 minutes to complete using the Portfolio Vizualizer Monte Carlo tool. If the subject is of paramount significance for you, a more comprehensive set of calculations is likely warranted.
I assumed a 30 year retirement time horizon with drawdowns at the 4.5% and 5.5% portfolio levels. I used the programs Historical Returns and Historical Inflation options. I postulated a simple portfolio mix with an asset allocation of 40% US equities, 10% International Equities, 30% or 40% Bond, and either 20% or 10% cash. That’s a 4 calculation matrix with a 50/50 split between equities and fixed income sources.
Obviously, end wealth was always higher (like a factor of 2) for the lower 4.5% withdrawal schedule. End wealth was higher for the 2 year cash reserve portfolio. Portfolio survival was marginally higher for the 2 year cash reserve portfolio. At the 2 year cash asset allocation, portfolio survival was 88% for the 4.5% drawdown rate, and dropped to 70% at the higher 5.5% withdrawal rate.
The 2 year cash cushion wins by both end wealth and survival measures.
These sample simulations suggest that you need not concern yourself with a 4 year cash reserve. Although it certainly would increase the comfort zone for any retiree, it is likely an unnecessary luxury. It seems like an arbitrary number. Portfolio asset allocation is always a top-tier investment decision, especially so during retirement.
I suggest you try a few Monte Carlo cases yourself to confirm and expand my brief findings.
Best Wishes.
EDIT: For completeness, here is the Link to the Monte Carlo code that I used in the reported calculations:
https://www.portfoliovisualizer.com/monte-carlo-simulation

MJG June 2015 in Fund Discussions
David Snowball's June Commentary Has Arrived
With apologies to OJ, Jerry and the others, Ted was the first to note that David's June Commentary was posted. I'm afraid my initial tongue-in-cheek remark may have been inappropriate or misinterpreted. It was intended to induce others to read this excellent commentary.
I'm a bit surprised at the seeming surprise David's cautionary market outlook seems to have generated. Regular readers of his monthly commentaries know that he has long voiced skepticism (I think well founded) ) about the durability of the bull market and valuations in general. If you also read Ed Studzinski's regular comments, he makes David look like a lotus eating optimist. (As most here know, Ed co-managed the Oakmark Equity and Income Fund for many years, turning out impressive results.)
I don't think MFO participants have been completely "in the dark" on the valuation issue or to the fact that stock markets can and sometimes do drop precipitously (25+% overnight) or flounder for incredibly long periods, as measured in years or decades. That's the risk you take for being in equities. If you read JohnChism's thread about "Bullish or Bearish" you'll find some of the same concerns David has recently raised - though certainly not as thoroughly explored or eloquently stated as only David can do.
To refresh readers' memories, I've clipped a few morsels from some of David's Commentaries dating back to November, 2013. Please read the commentaries in full, as they are easily retrievable on the MFO website. Apologies to David if, in pulling these out of context, I altered the meaning, omitted pertinent context, or changed the emphasis of any. There was no intent to do so.
Regards
-
November 1, 2013: "... a market that tacks on 29% in a year makes it easy to think of investing as fun and funny again. Now if only that popular sentiment could be reconciled with the fact that a bunch of very disciplined, very successful managers are quietly selling down their stocks and building their cash reserves again."
December 1, 2013: "Small investors and great institutions alike are partaking in one of the market’s perennial ceremonies: placing your investments atop an ever-taller pile of dried kindling and split logs. All of the folks who hated stocks when they were cheap are desperate to buy them now that they’re expensive...We have one word for you: Don’t."
January 1, 2014: If you’re looking for a shortcut to finding absolute value investors today, it’s a safe bet you’ll find them atop the “%age portfolio (invested in) cash” list ...They are, in short, the guys you’re now railing against"
February 1, 2014: "It makes you wonder how ready we are for the inevitable sharp correction that many are predicting and few are expecting."
March 1, 2014: "It’s not a question of whether it’s coming. It’s just a question of whether you’ve been preparing intelligently."
April 1, 2014: "Some (money managers) ... are calling the alarm; others stoically endure that leaden feeling in the pit of their stomachs that comes from knowing they’ve seen this show before and it never ends well."
June 1, 2014: ... all of this risk-chasing means that it’s Time to Worry About Stock Market Bubbles."
September 1, 2014: "Somewhere in the background, Putin threatens war, the market threatens a swoon, horrible diseases spread, politicians debate who among them is the most dysfunctional ..."
February 1, 2015: "The good folks at Leuthold foresee a market decline of 30%, likely some time in 2015 or 2016 and likely sooner rather than later. Professor Studzinski suspects that they’re starry-eyed optimists."
April 1, 2015: "(Sooner) ... Or later. That is, the stock market is going to crash. I don’t really know when. Okay, fine: I haven’t got an earthly clue. Then again, neither does anyone else."
May 1, 2015: "For investors too summer holds promise, for days away and for markets unhinged. Perhaps thinking a bit ahead while the hinges remain intact might be a prudent course ..."

Thanks Hank, not because I don't respect him, but I rarely have read any of David's monthly commentaries. So are you saying he is a persistent prophet of pessimism???
I sure would have hated to have missed 2014 as that year pretty much sealed my retirement.

Junkster June 2015 in Fund Discussions
States Tackle America’s Retirement-Savings Shortfall
Oh, great, a snotty comeback from you; productive. It is not I who is kneejerk and does not give serious thoughtfulness to gradations and modulations of approaches. As I implied, tell us your thoughtful and substantiated philosophies about fluoride, seatbelts/helmets, taxes, vaccination, and all similar. Or rather, and more on point, is there no point to strong and effective incentives/disincentives for retirement saving via the workplace, do you think? What would you do to vigorously encourage better retirement planning? Just leave it alone and let it be? --- because freedom? Sow and reap, etc. Or is it that you do not think this is a problem that needs addressing? Freedom? Try to be contributory here and not just reactionary.

davidrmoran May 2015 in Fund Discussions
States Tackle America’s Retirement-Savings Shortfall
Kind of agree with davidmoran. Too many ppl WILL NOT set up their own retirement fund or plan, no matter how easy the mechanics of it are made. Recent example: low-mid-income couple with blinders on, enough income to invest for the long haul (rather than trade stocks short-term), always declared their retirement was in their property. It finally sold, for 75% less than they had anticipated. They will be through the proceeds by the time they are 70, at which point they will have only S.S.
That story is repeated over and over, even among college-educated folks who exercise business savvy in other matters and hunt for bargains. They simply WILL NOT.

InformalEconomist May 2015 in Fund Discussions
States Tackle America’s Retirement-Savings Shortfall
>> If employees want a retirement vehicle, they could do it on their own versus waiting for the company. If the employee is not interested, then it doesn't matter?
Because why, freedom?
The whole point is that it matters regardless. People know, but don't do. Anything that is 'enforces' extra-strong encouragement (default must be opted out of, for example) is gonna help. Anything expansive like Wash state and Illinois is gonna help.

davidrmoran May 2015 in Fund Discussions