Tuesday, April 16, 2013

Ameriks and Evensky on Retirement Income


Greetings after a long hiatus here at the Retirement Reseacher blog. A lot has changed since the last time I wrote. I'm no longer that "guy off in Japan" telling you how much you can spend in retirement, as one Yahoo! Finance reader once nervously noted. I'm now based out of suburban Philadelphia, working as a Professor of Retirement Income at The American College.  Making the move back to the US has been rather time-consuming, as I've needed to reestablish a life here. However, I'm starting to get caught up on things and will be able to get more active with blogging again. I have lots to talk about.

For today, I'd just like to draw your attention to this discussion of retirement income moderated by Christina Benz at Morningstar. It involves two of the leading figures in the retirement and financial planning world, John Ameriks of Vanguard and Harold Evensky. They make lots of good and worthwhile points in this 45 minute video.



14 comments:

  1. Thank you for posting this discussion, Wade. As always, it was very informative to this recent retiree. Keep them coming - I'm beginning to understand. By the way, you should be sleeping at 4:00 AM!
    Best regards, Gary Quigley, Lafayette, IN.

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    1. Thanks Gary, that 4:00am must still be calibrated to Tokyo Time. I wasn't up that early, don't worry!

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  2. Wade, I will keep my question in context to the video.
    What, based on your experience and expertise, is the long term rate of return on a portfolio that Mr.Ameriks and Mr. Evensky espouse?


    My thinking is, that rate of return would be between 4-8%. Would you agree? If my assumption of this rate of return is correct, or even close than why would one go through a lifetime of hand wringing, teeth knashing, when that amount of return can be easily achieved with an almost 100% guarantee, little to no risk, absolutely no market exposure and all the inherent volatility that comes with stock market investing?

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    1. I'm conservative about expected future returns. In nominal terms, your suggestions sounds reasonable.

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    2. David - can you explain where one can earn returns between 4% and 8%that can be easily achieved with an almost 100% guarantee, little to no risk, absolutely no market exposure and all the inherent volatility that comes with stock market investing?

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  3. I thought an interesting point made by Ameriks was how much of a portfolio's return advisor fees consumed. I watched Mr Evensky nod in agreement. So far, so good. I then checked the fee schedule on Evensky's website where it said the first $2m is subject to a 1% fee with undisclosed amounts thereafter. There was alos a lengthy list of additional fees on top of the AUM fee that a client could also be subject to.

    It is puzzling why Mr. Evensky would agree with Mr. Ameriks even though his own firm charges hefty fees.

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    1. Hi,

      Part of the answer is that we have to distinguish between different types of fees. Ameriks is talking about the fees for active management on mutual funds, which are largely wasted since beating the market persistently is not practical. While part of Evensky's fees may focus on active management type issues in relation to manager selection, financial planners can potentially provide a lot of other value for their fees such as getting an appropriate asset allocation, being coached not to panic after a market downturn, and getting advice about a lot of issues related to taxes, budgeting, etc. In those instances, planners can provide services and guide their clients to greater wealth which more than covers the costs of their fees.

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  4. Prior to leaving the financial advisory business for good in 2009, incidentally it is the American College that I acquired all my licenses, I looked into a salaried with bonus based on performance position for financial advisors. Only one existed that I was able to find and it was within the brokerage arm of a Credit Union. I left the industry, let all licenses expire, and now look at an industry that is flawed and to a large degree rigged against the American people. These two gentlemen, with all due respect and I do mean that, are simply bucket carriers for large Wall Street firms who benefit from the fact that Americans have been lead down the path of understanding, thinking that stock market investing is the way to "save" for retirement.

    Fee/commission structure in the financial industry is in no way, in my humble opinion, commensurate with what one receives in the way of service or more to the point, performance. IF an advisor would be paid a salary, and simply review a clients information and then simply give the client advice based on his/her experience it would remove all conflict of interest and client could either act on advisors advice or not. But, when you have an advisor that is paid a commission on the products he is "selling/advising", you now have a conflict of interest. Meaning I, the advisor, benefit directly on products I sell to my clients. No question, it raises an extreme amount of apprehension in the client in fear of being "sold".

    I think it incumbent on ALL who are responsible for "saving" for retirement on their own, which is most if not all of us, to educate themselves and become informed and understanding of money, markets and financial instruments that we have at our disposal. The two lasting areas of importance in our lives are our money and our bodies and I find it troubling that the majority of Americans are fat and broke!

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    1. Thanks for sharing. I thought your first post was a set-up for an annuity salespitch, but I see you went a different direction. Yes, there is a big problem with commissioned salespeople referring to themselves as financial advisors. I agree. I also have concerns about the societal shift from defined-benefit to defined-contribution. I hope to contribute to the efforts to educate people about how to manage in our defined-contribution world, which for most people means getting a diversified portfolio of low-cost funds. Of course there are other options such as starting businesses or owning real estate, but that requires a lot of extra effort and a specific skillset that many people don't have.

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  5. Thanks for the reply Wade. I am not selling anything and I apologize for hijacking your page to get my opinion heard.

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    1. Thanks for share video. its really great help to build income...

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  6. Wade--sorry to post on an oldish topic, but I recently ran across research on using an HECM Saver reverse mortgage as a risk management tool (Salter, et al), and was hoping to find some coverage on your blog about it (this was the only page on your site that comes up on a search for "reverse mortgage").

    I am very excited about this concept, as we are near retirement, have a lot of equity in our home, and it seems like having this "third bucket" will dramatically mitigate the risk of portfolio failure (especially since we don't care much about leaving a bunch of home equity to our heirs). Curious what you have to say or if you could provide links to other academic assessments of this.

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    1. This is a concept I really need to study more, and plan to do at some point, before I can offer any deep perspective. It does seem like a reasonable approach to reduce sequence risk.

      Be sure to also check two articles about this in the December 2013 Journal of Financial Planning. Gerald Wagner's "The 6.0 Percent Rule" and Pfeiffer, Salter, and Evensky have a second article on the topic (their first was in August 2012).

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    2. Thanks for the reply. I had already downloaded and lightly read both of the articles you mention, which seem to corroborate the idea (albeit I have no plans to withdraw above 4.5% for the time being!).

      I've also posted on this at Bogleheads but didn't get a single reply. I'll try again later, after some time has passed and there is more commentary on the subject.

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