The New Math of Retirement Spending and Investing
Money For the Rest of Us
J. David Stein
4.5 • 1.4K Ratings
🗓️ 6 January 2021
⏱️ 31 minutes
🧾️ Download transcript
Summary
How should individuals invest and spend in retirement with interest rates so low, stock valuations high, and inflation uncertain. Why retirement managed payout funds and income replacement funds failed.
Topics covered include:
- How managed payout and income replacement funds compare to immediate annuities
- Why Vanguard and Fidelity changed the objective of their retiree focused income replacement and managed payout funds
- How fixed annuities work
- How retirees should combine annuities with multi-asset class portfolios to ensure a successful retirement
- Why the 4% retirement spending rule is not appropriate for all investors all of the time.
- Why inflation is the biggest determinant of how much retirees can spend
- Why is there so much controversy over the current and future inflation rate
Thanks to Mint Mobile and Truebill for sponsoring the episode.
Show Note Links
Vanguard Throws in the Towel on Its Managed Payout Fund by Daren Fonda—Barron's
Generating Retirement Income Isn’t Easy, Even for Vanguard by Reshma Kapadia—Barron's
Today's Best Multi-Year Guaranteed Annuities (MYGAs)—ImmediateAnnuities.com
Opinion: The inventor of the ‘4% rule’ just changed it Brett Arends—MarketWatch
The Price of Tomorrow: Why Deflation is the Key to an Abundant Future by Jeff Booth
Alternate Inflation Charts—John Williams' Shadow Government Statistics
Americans Are Richer Than We Think by By Phil Gramm and John F. Early—The Wall Street Journal
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Transcript
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| 0:00.0 | Welcome to Money for the rest of us. This is a personal finance show on money, how it works, how to invest it and how to live without worrying about it. |
| 0:10.0 | I'm your host David Stein today is episode 326. It's titled The New Math of Retirement |
| 0:16.6 | Spending and Investing. A new member of Money for the Rest of Us Plus recently posted on the forums about monthly income plans, managed |
| 0:27.3 | payout funds, income replacement funds, target retirement funds, versus immediate annuities. |
| 0:35.0 | She's planning on retiring in two years. |
| 0:38.0 | She's a conservative investor, feels like she doesn't have much of a cushion when it comes to her savings and is looking at all of these |
| 0:46.1 | options and isn't quite sure which, if any, are appropriate for her investing. |
| 0:53.0 | I'll admit I had to look up what a monthly income plan is, |
| 0:58.0 | or a managed payout fund, an income replacement fund. |
| 1:04.0 | They sound like marketing terms created by the investment advisory industry, and to some extent |
| 1:10.1 | they are. |
| 1:11.6 | We're going to look at the new math of retirement investing and spending in this |
| 1:17.4 | episode. What's new about it? Interest rates are very, very low and that's starting to have an impact. |
| 1:26.0 | A number of listeners participate in the U.S. Federal Government's Thrift Savings Plan. One of the options in that plan is the G fund. |
| 1:37.3 | This is a fixed income fund, but it's unique in that its yield is based on the average interest rate on all the Treasury bonds |
| 1:47.2 | outstanding with maturity's four years or more. |
| 1:51.8 | That's what investors in this fund get and the share price of the fund doesn't |
| 1:56.0 | fluctuate as interest rates change. Now they don't get the capital appreciation when interest rates fall, but they also don't lose money if interest rates rise. |
| 2:07.0 | But now the yield on that fund is only 0.9%. That's what the fund earned in 2020. It didn't even beat inflation. That's a very |
| 2:20.7 | different environment. That's just one fund. |
| 2:24.0 | Another thing we face with the new math of retirement investing and spending is stock market |
| 2:28.9 | valuations are extremely high. And inflation is unknown and there isn't even agreement on whether we are |
... |
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