The Financial Freedom Blog – October 2007 Home Page : The Financial Freedom Blog : October 2007

October 1, 2007 09:57 Why Retirements Fail

I’ve added an article to the “Retire Different!” section of the site entitled Why Retirements Fail.

Juicy Excerpt: The “Die Broke!” concept is a radical one. The idea is that you should not aim to have lots of wealth to pass along to your children or to charities when you die but to use up every last bit of your accumulated wealth during your own lifetime, except perhaps for a few dollars to cover funeral expenses. I don’t like. This idea is going to cause a lot of busted retirements.

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October 2, 2007 13:11 Spending on Food

I’ve added an article to the “The Turned-On Budget” section of the site entitled Spending on Food.

Juicy Excerpt: McDonalds prices can sound awfully low when your frame of reference is what you spend in sit-down restaurants. You should calculate how much you spend per person per meal on home-cooked meals. It is possible to get this number down to $2 or less, including drinks. It’s hard (but not impossible) to beat that at McDonalds.

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October 5, 2007 10:37 NYT Discovers P/E10

The biggest problem I face in trying to persuade middle-class investors of the benefits of following the Valuation-Informed Indexing approach to investing is the lack of experts endorsing this approach. Money questions are serious questions. People like to see serious people backing a money idea before taking action on it.

I’m cereal! I’m cereal!

Well, perhaps not.

I’m a guy who posts stuff on the internet. Numerous people have told me that my investing articles make a good bit of sense to them, but that they feel more comfortable going with what the “experts” say. Life is so unfair!

Well, today it’s nyeh, nyeh, nyeh to the naysayers! The New York Times says I’m right! So there, Big Shots!

I might forgive the Goons if they ask nice. Probably not, but I might. They certainly should feel free to make an attempt at asking nice.

The article is by a smart and dashing and kind and fascinating fellow named David Leonhardt and is entitled Remembering a Classic Investing Theory.

That title says precisely what needs to be said. Valuation-Informed Indexing is not some wild new concept I cooked up sitting in a room by myself thinking grand thoughts. Valuation-Informed Indexing is common sense. Common sense has been around for a long time. Common sense has stood the test of time. Common sense is here to stay.

People see the ideas driving Valuation-Informed Indexing as being new only because the time-tested ideas on how to invest successfully were “forgotten” over the course of the longest and strongest bull market ever seen in the history of the United States. There’s nothing new about the idea that stocks offer a poor long-term value proposition when they are wildly overpriced. What’s new is this crazy idea that took hold of the public imagination while prices were going up, up, up that stocks are always the best investment choice for the long run. That idea is both new and preposterous. I don’t care how many “experts” endorse it. Even a guy who posts stuff on the internet can see that it is a flat-out dumb idea.

Why is it that we forget the time-tested rules of investing when prices rise to unsustainable levels? It’s because we want to forget them. Investing is primarily an emotional endeavor and only secondarily a rational endeavor. We always forget the fundamentals of investing when prices get to the levels where they reside today. To some extent, we probably always will. Such is our fate down here in the Valley of Tears.

Please take a look at the historical stock-return data if you doubt what I am saying here. The last time prices got to the la-la land where they reside today (the mid-1960s), we forgot how painful it is to invest in stocks at these prices and paid the price for it. And the time before that when prices got to the levels where they reside today (the late 1920s), we forgot how painful it is to invest in stocks at these prices and paid the price for it. Some types of pain are so great that we block the memory of it out of our minds. If women remembered childbirth, the government of China wouldn’t have such a tough time enforcing its one-child-per-family law. You have to a large extent forgotten the pain you felt when the person who you thought for a time was the love of your life dumped you, right? You had to forget to be able to move on. You did what you had to do. No shame in that.

There are things you need to remember too, however. That’s the point of the bluntness of my writing in the investing area. It’s fine to block out the feelings you experienced from a painful experience. You don’t want to block out the lessons learned too or you will put yourself in circumstances in which you will likely experience that pain again. I like you. I don’t want to see you hurting. So I see it as my job to tell it the way it is, whether it causes you some pain to hear the words or not.

Lots of people are now in circumstances in which they are going to experience pain as a result of our collective decision to forget the significance of the P/E10 number. We all should be doing what we can to persuade those people to move to a safer place. Is that not what offering personal finance advice is all about? At its root, is this investing advice biz not a caring biz? I sure hope so. If caring about our fellow investors is not permitted, I think it would be fair to say that I (and the thousands of other fine people who built the Retire Early boards into what they once were) got on the wrong bus.

There is no rational justification for going with a high stock allocation when prices are where they are today. But some of us really, really, really want to believe otherwise. So we do things like using P/E1 as our guide to valuations rather than using P/E10, which is far more accurate. There are lots of people who are taken in by this rationalization. That doesn’t impress me. Rationalizations don’t pay the electric bill when it gets cold outside.

P/E10 is the tool recommended by Benjamin Graham in his classic text Security Analysis. P/E10 is the tool recommended by Robert Shiller, the foremost stock valuations expert alive today. P/E10 is the tool recommended by John Walter Russell, the best loved and best informed Numbers Guy in the Retire Early Community. P/E10 is a cool tool. P/E10 is where it’s at. P/E10 rocks!

Use P/E1 if you like. There’s nothing Farmer Hocus can do to stop you.

I’ll say this, though. P/E1 is the valuations assessment tool used by meanies and dummies and drones and people who dress funny. P/E 1 hurts people. Do you want to be a meanie? Do you want to be a dummy? Do you want to be a drone? Do you want to dress funny? Do you want to hurt people?

Obviously not. You wouldn’t be pursuing the wonderful dream of early financial freedom if you were that sort.

For you and millions like you, P/E1 is where it’s at. Please tell your friends.

And thank you, David Leonhardt, for bringing some sanity to the consideration of a topic that very, very, very, very, very much would benefit from some heavy doses of it.

P/E1 hurts people. Don’t forget. Don’t let your friends assess valuations using P/E1. Insist on P/E10, the better and more up-to-date (and yet also more classic!) valuation assessment tool.

Here’s the Executive Summary version: P/E1 stinks!; P/E10 rocks!

Who’s going to be the one to break the news to Bogle? More on This Topic

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October 8, 2007 08:27 “Time” Is Not a Four-Letter Word

Yes, I know now, traps are only set by me,
And I do not really need to be assured
That love is just a four-letter word.

— Dylan, “Love is Just a Four-Letter Word”

Love is not the answer. But love is not not the answer either.

Sentimentality is a mistake. So is cynicism.

Short-term timing doesn’t work. Long-term timing does. Which lie will end up having done greater harm to middle-class investors, the lie that used to be often told that short-term timing works or the lie that is often told today that long-term timing does not? We’ll see.

Jan Geiger has posted an article that I wrote about the personal finance implications of Dylan’s song (made popular by Joan Baez) at her web site. It’s entitled Time Is Not a Four-Letter Word.

Juicy Excerpt: The problem is that valuations went so high in the late 1990s that it is taking a long time for stocks to get back to the price levels where they again provide the usual annual real return of about 6.5 percent. We’ll get there, however, and, when we do, stock investing for the long term will be fun again.
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October 9, 2007 10:15 Saving and Investing Go Together Like a Horse and Carriage

I’ve added an article to the “Start Me Up” section of the site entitled Saving and Investing Go Together Like a Horse and Carriage.

Juicy Excerpt: Money works it’s way through our lives via a three-step process. We get hungry. We work. That’s trading our time for money. That’s earning. Eventually, we put aside a portion of what we earn to allow us to buy stuff not today but tomorrow. That’s saving. Then we figure out that by becoming more sophisticated about this business of putting aside a portion of what we earn, we can overcome the need to work earlier in life. That’s investing.

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October 10, 2007 10:19 The Lunch Hour

A lunch hour facilitates unstructured communication between co-workers. Since there is no requirement to talk about work during the lunch hour, the work-related conversations that develop are ones that develop because the workers are trying to figure something out between themselves. It is these sorts of conversations that generate the biggest advances.

There is a need for structured conversations to get done the tasks that must be completed. There is also a need for non-structured conversations to enable a business to achieve the sorts of breakthroughs that have even more value in the long-term.

How many times have you come up with a solution to a problem by letting it be and turning your attention to something else while you still continue to mull over the problem with a portion of your consciousness? When workers go home, they turn their mental energies entirely to other things. When they take a break for lunch, they still have part of their minds on the job. This is the sort of set-up that encourages people to think about things in a fresh way.

Many lunch hours of course produce nothing of value to the workplace. However, the few that are productive can be highly productive, productive enough to “pay for” the many that are not. There are different ways of thinking about problems. The lunch-hour way of thought pays long-term benefits that are hard to quantify but that are real all the same.

At least that is old Farmer Hocus’ take on the matter.
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October 11, 2007 08:55 Smart Vacations Recharge Your Batteries

I’ve added an article to the “The Self-Directed Life “section of the site entitled Smart Vacations Recharge Your Batteries.

Juicy Excerpt: A vacation should not be an exercise in hedonism. The goal is recreation. That is, re-creation, a creating again.

The thing that you are trying to re-create is your Life Plan. You want to become newly enthused, newly committed, newly determined.

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October 12, 2007 16:46 Forbes Fires Back at the Goons

The cover story for the October 15, 2007, issue of Forbes is entitled Anonymity and the Net: Anonymity Lets Creeps, Criminals and Malicious Mobs Run Wild. And there were some who argued that it was only old Farmer Hocus who was repulsed by the tactics employed by the Goons who have destroyed or greatly damaged five Retire Early boards in recent years!

Juicy Excerpt: Question the right of Net anonymity and you risk an unmitigated thrashing (anonymously, of course). So maybe we are asking for trouble when we dare to say that Internet anonymity is out of control…. It emboldens the mean-spirited and offers them a huge audience for spewing hatred and libel. Caustic cowards are free to one-up one another in invective and vitriol — haters who would tone it down if they had to identify themselves.

Here’s the text of an e-mail to the editor that I sent yesterday afternoon:

“I have directed years of my life energy to building up five discussion boards that helped tens of thousands of people learn what it takes to attain financial freedom early in life. I then watched each of them be destroyed by abusive posters employing tricks so nasty that most people to whom I tell the story find it hard to accept that the things I saw take place really did take place.

“The concern that making the internet civil will diminish our ability to engage in free speech is misguided. Threats of violence are not acts of speech, they are acts of intimidation. I considered many of the people who built the boards at which I posted to be personal friends. They opened their life stories and their budgets to examination by others. Their reward was to become the subjects of vicious smears.

“Abusive posters seek power, not free speech. I’ve seen thousands of fine people intimidated into silence in the name of free speech. The ugliness that I have seen advanced on the internet in the name of free speech sickens me.”
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October 15, 2007 08:49 The Scenario Surfer Is Here!

I’ve added a section to the site entitled “Scenario Surfer” to house the third calculator that John Walter Russell and I have developed together. The first article posted to the new section is entitled Portfolio Allocation Shocker — Timing Beats Rebalancing!

Juicy Excerpt: The Investor’s Scenario Surfer uses a random number generator to permit investors to test various portfolio allocation strategies without putting money at risk. The calculator tells the investor what annual return he would have received for each year of a hypothetical but realistic 30-year returns sequence, and permits him to make changes in his portfolio allocation at the beginning of each year. By comparing his results to the results that would have been obtained had he followed any of three rebalancing strategies, the investor can see with his own eyes the great benefits that generally follow from adoption of a valuation-informed asset allocation strategy.

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October 16, 2007 17:15 Integrity and Debt

If living an ethical life were easy, everyone would be doing it. People do things that they know to be wrong because they feel pressures to do so. In response to the pressures, they rationalize bad behavior.

Debt increases the pressure you feel to compromise your principles. Those who are free of debt are better able to live lives of integrity.

(Yes, I know it’s short. I thought that maybe this one would make up for the one entitled “The Terrible Truth About Cute Fuzzy Bunny,” which went on for a bit.) More on This Topic

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October 17, 2007 09:00 The Saving Marathon

Say that you were planning to run a marathon. How would you go about getting from where you are today to where you want to be on the morning of the race? You wouldn’t try to run 26 miles on the first day, and after failing to do so, try the same thing on the second day, continuing with that approach until you had managed to run 26 miles all in one stretch, would you?

If you did that, you would hate running so much by the end of the first week of training that you would give up the sport without having had a chance to discover its appeal. You don’t prepare to run 26 miles by trying to run 26 miles over and over again, each time failing to make much progress and becoming increasingly discouraged. Nor is it a good idea to prepare for your old age by trying to save all the money you need to finance an age-65 retirement over and over again, each time failing to make much progress and becoming increasingly discouraged.

There’s a better way.

A better way to prepare for a marathon is to aim today to run a distance that is manageable for you at whatever stage you are in now in your development as a runner. Perhaps you can run three miles. After becoming comfortable completing three-mile runs, you aim to master five-mile runs, and then seven-mile runs, and so on. You never lose sight of your ultimate goal of running 26 miles. But at each stage of the long journey you pursue smaller goals more appropriate to that time. You achieve a series of small successes, building on them one on top of the other, until one day the thought of a 26-mile run does not overwhelm you but inspires you.

Passion Saving is an approach to money management in which you apply that sort of process to the task of becoming financially independent. You never make money choices with the aim of saving the huge amounts needed to become entirely free of the need to work for a living. You retire in stages, gaining increasingly greater levels of financial independence as you age. You save in your 20s, 30s, 40s, and 50s not for what it can do for you in your 60s, 70s, 80s, and 90s, but for what it can do for you in your 20s, 30s, 40s, and 50s.
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October 18, 2007 07:45 Why Is Scott Burns Afraid of Me?

Dallas Morning News Columnist Scott Burns is afraid of me. He shouldn’t be. I’ve been known to engage in a bit of excited barking from time to time, but I hardly ever bite. My sincere take, however, on a recent column of his is that he is indeed afraid of me and my message on what works re long-term investing.

I’ve put forward more than the usual number of words in this blog entry in hopes of sorting things out point by point. I hate to think of one of my favorite columnists greeting my reports on the latest findings of the Retire Early Community with any but the most positive of emotional reactions. Our work together should be building up people’s hopes, not their fears!

Burns discusses the Retire Early Community’s findings re safe withdrawal rates in the column he wrote that is dated October 11, 2007. That in itself is great news. We need to get more publicity for our findings.

There are millions of retirements that were constructed by people who relied on the Old School safe withdrawal rate findings (these findings are the foundation of 80 percent of what you read in the conventional media about using stocks in a retirement plan) in putting together their plans. A busted retirement is one of the worst life setbacks that a person can suffer. So it is critical that we get the word out far and wide that the methodology used in the Old School studies is analytically invalid and that the findings reported in those studies are nowhere even remotely in the neighborhood of the findings of the analytically valid New School studies.

I applaud Burns for writing the column. This is the second time he has written a column on the New School findings (I engaged in extensive e-mail correspondence with Burns in the months leading up to publication of the earlier column, which came out in July 2005), and that’s a good bit more than most others whom I have contacted on this matter have done. The very title of the column (“Rates of Withdrawal Add Up to Confusion”) points out how irresponsible it was for the site administrators of a number of the Retire Early boards to ban posting on the New School findings. If the Old School studies were so obviously correct as to justify a prohibition on questioning of the methodology used in them, we would not be seeing a leading journalist in the field referring to today’s understanding of the safe withdrawal rate topic as being characterized by “confusion.” During a time of mass confusion, free discussion of all points of view is critical. Listen up, Motley Fool! Listen up, Morningstar! Listen up, Early Retirement Forum!

So — Bravo, Scott Burns!

That said, the new column has its problems.

One, Burns fails to provide a link to the Retirement Risk Evaluator (see tab at left). The column creates several misleading impressions about what the New School studies say. Had Burns provided a link to the calculator, interested readers could have checked things out for themselves and become aware of the realities. What possible justification could there be for not providing a link (Burns has provided links to Old School studies and calculators on numerous occasions)?

Two, Burns says in the column that the “very vocal group on the internet” (that’s us!) that rejects the Old School claims “believes the 4 percent to 5 percent withdrawal rate is far too high most of the time.” False statement. When stocks are at moderate valuations, the infamous 4 percent number is too low, not too high. The 4 percent number is certainly too high today, but today’s valuation levels are hardly the norm.

This is a factual error that simply should not appear in a column published by a respected journalist. I have sent an e-mail to Burns directing his attention to this blog entry and requesting that he correct this false statement of what the advocates of the New School of SWR Analysis assert.

Three, Burns says that the safe withdrawal rate for a portfolio of 100 percent Treasury Inflation-Indexed Securities (TIPS) is 2.4 percent. Highly misleading claim. Burns needed to employ an unusual meaning for the term “safe withdrawal rate” to be able to make this claim. Calculated in the usual way, the safe withdrawal rate for an all-TIPS portfolio is about 4.5 percent. That is far better than the 2.9 number that applies for an 80-percent-stock portfolio.

Burns makes TIPS sound far less appealing than they are in reality by stating the number that applies for TIPS if the retiree is unwilling to see any drop in portfolio value over the first 30 years of his retirement. If the stock number were calculated that way, the safe withdrawal rate for an 80-percent-stock portfolio today would be 2.0 percent. Switching to TIPS doesn’t delay the coming of the day you can retire safely, it speeds it up.

Four, Burns describes the Old School’s 4 percent number as “a good rule of thumb.” The New School studies show that the safe withdrawal rate for an 80-percent stock portfolio in January 2000 was 2.0 percent. The Old School studies put the number at 4.0 percent. For someone with a portfolio of $1 million, that’s the difference between living on $20,000 for the last 30 years of her life and living on $40,000 for the last 30 years of her life. If a good rule of thumb is one that gets the number wrong by $20,000 per year for 30 years in a row, I’d hate to see what a poor rule of thumb would look like.

Computed accurately, the safe withdrawal rate is a number that varies from 2 percent to 9 percent. To describe 4 percent as “a good rule of thumb” because it happens to fall somewhere between the two extremes is madness. The analytically valid studies show that those retiring today with a high stock allocation and planning a 4 percent withdrawal are staking their futures on high-risk plans; the odds of long-term survival for these retirements is about 50 percent. Staking your entire life savings on a coin flip ain’t nobody’s idea of a safe way to go about retirement planning.

The words “safe” and “risky” are not synonyms, they are antonyms. Using the phrase “rule of thumb” to characterize a false claim does not transform it into an accurate claim.

I know of no field of endeavor other than investing in which, faced with a choice between reporting an accurate calculation of a number and an inaccurate one, a leading journalist in the field would twist himself into a pretzel to defend his continued promotion of the inaccurately calculated number. What possible constructive purpose is served by doing so?

Once the flaws of a methodology are uncovered and a new and more accurate methodology is developed, the old methodology should be cast aside. When a number is being reported for use in the planning of retirements, the number should be reported accurately. End of sentence, end of paragraph, end of chapter, end of story.

Burns once corrected Peter Lynch for reporting the safe withdrawal rate to be 7 percent, relying on the findings of the now discredited (but then state of the art) Old School studies to argue his case. Lynch graciously acknowledged his mistake and millions of investors were left better informed of the realities as a consequence. The shoe is now on the other foot for Scott Burns. I think it would be fair to say that he has responded with a good bit less grace to his discovery that he has made a similar kind of error in citing the Old School findings on numerous occasions.

The goal should be to bring investors up to speed on the latest discoveries, not to avoid having to acknowledge mistakes made in earlier days (I find no fault with Burns for citing the Old School studies in the days before he learned of the analytical errors committed by their authors — I agree with William Bernstein that there was a day when the Old School studies constituted “breakthrough research”).

If Burns for some reason thinks that the Old School numbers are not wrong, he should make his case rather than evading the point by suggesting that it okay to cite inaccurate numbers as a rule of thumb. If he understands that the Old School numbers are in error (my strong sense is that he does understand this to a large extent, but not perfectly), he should be citing only the New School numbers from this point forward and warning those of his readers who relied on his earlier endorsements of the Old School studies that they need to make changes to their retirement plans as a result of our findings.

The biggest problem with the rule-of-thumb argument is that it encourages a fundamental misconception of how stock investing works. Say that we did live in a world in which the safe withdrawal rate was a number that didn’t change that much from time to time, a world in which the number was stable enough that it would be reasonable to cite a single number at all times as a rough approximation of the true safe withdrawal rate. In such a world, the value proposition of stocks would also be stable. In such a world, long-term timing would not work. In such a world, changes in stock prices would not affect long-term returns. In such a world, the market would be efficient!

Scott Burns is implicitly endorsing the Efficient Market Theory when he says that the Old School numbers provide a rough approximation of the true safe withdrawal rate. Not good. It is belief in the Efficient Market Theory that got us into the mess we are in today. It is belief in the Efficient Market Theory that has caused so much confusion among middle-class investors as to how stock investing really works. It is belief in the Efficient Market Theory that has made it so difficult to engage in civil and reasoned conversations on the realities of long-term investing on internet discussion boards.

The rule-of-thumb argument is a loser. Ataloss raised it on our boards on numerous occasions. It never took us anyplace good. Scott Burns should disassociate himself from this loser of an argument before it does more harm to an even larger community of middle-class investors.

Do you want to hear my sincere take on the rule-of-thumb argument? Boo, baby! It’s a kerplooey take! Absolootingly bonkericious!

Five, Burns offers a caveat to his claim that the Old School studies provide a good rule of thumb by acknowledging that this is not so at times of extreme overvaluation. That’s good. That’s a step forward.

But he then fails to note that we are at times of extreme overvaluation today! His words sounds soothing. He suggests that the errors in the Old School studies are nothing too much to worry about today. But the reality is that, even with the drop in valuations we have seen since the late 1990s, we are still at one of the highest valuation levels ever seen in the history of the U.S. market.

This is so only when P/E10 or one of the other valid valuation assessment tools is used, of course. But what excuse is there to use valuation tools (like P/E1) that have been demonstrated to provide misleading indications when more accurate ones are available?

It’s worth noting here that Burns did not warn his readers of the dangers of the Old School studies in clear and compelling terms even in the days when stocks were at still higher valuations than those that apply today (the P/E10 value hit levels far above those experienced in the months before The Great Crash of 1929 back in January 2000 — that’s why stock prices remain frighteningly high today even after eight years of poor performance for this asset class). None of the other defenders of the Old School studies did either.

The damage done in earlier days is done and there’s no point in harping on it today. It would be nice, however, if the experts who were taken in by the Old School claims in the late 1990s would show a bit more humility and attempt to learn a lesson from the experience.

By continuing to defend the Old School studies as offering “a good rule of thumb” after having been taken in by their demonstrably false claims back at the height of the wild bull, Burns is compounding the damage that was done to his readers at the earlier time. Were the warnings that should have been put forward then put forward today, many could mitigate the damages they will ultimately suffer from having relied on these dangerous retirement studies and on Burns’ promotion of them.

Six, Burns concludes that: “So it all comes down to taking some amount of risk to earn a higher return.” Dubious and inappropriate conclusion. The suggestion here is that investors are likely to obtain a payoff for investing heavily in stocks even at today’s la-la land price levels. No! The risk premium is a negative number today (please see the Return Predictor tab at left).

It’s a perfectly reasonable idea to take on risk when there is compensation being paid for doing so. To take on extreme levels of risk (stocks are risker today than they have been at nearly any other time-period in the history of the U.S. market) in exchange for accepting a lower return (the certain return on TIPS handily beats the most likely return on stocks for the next 10 years) makes little sense.

Seven, Burns ignores the obvious strategic lesson of what the historical data says about safe withdrawal rates today. He suggests that the only choices available to us are to overinvest in stocks or to accept forever the lower returns available through safe asset classes like TIPS. Not so! The commonsense investor moves a portion of his assets out of stocks when prices get to the la-la land where they reside today and then moves them back when prices return to reasonable levels.

It is not my intent here to rag on Scott Burns. Burns has long been one of my favorite columnists and I really do think he is making an effort to raise a red flag by noting that there are people who find serious fault with the Old School studies. The words he uses to begin his discussion of the New School findings — “You should know…” — suggest that he is feeling pangs of conscience over the retirement advice he has put forward at earlier times. I can’t say that I am not frustrated that he has not put forward much stronger warnings at this late date, however.

It’s one thing for different investing experts to offer different viewpoints on different strategies. The safe withdrawal rate is the product of a mathematical calculation. There should be no disputes over what the numbers say. The data shows that the most important factor in the calculation is the valuation level that applies at the starting date of the retirement, and yet the Old School studies ignore this factor. It should not be hard for anyone who is aware of this to understand why those studies get the number seriously wrong.

When widely cited studies reporting a number that millions use to plan their retirements are found to be in error, that’s news that should be reported far and wide. Are the experts going to openly acknowledge the flaws of the Old School studies only after millions of retirements have actually gone bust and there is no good that can be done anymore for the many people who have been taken in by these demonstrably false claims?

I believe that it is because I bring these sorts of questions to the surface that Scott Burns (and a good number of other “experts,” to be sure) resort to word games to fend off my challenges to the now dominant take on how long-term stock investing works. This is why I conclude that Burns is afraid of me.

Burns sees the flaws in the Old School safe withdrawal rate studies, at least to some extent. He told me at one time that he thought I was generally right in my criticisms of those studies. So how is it that he manages to commit seven, count them seven, blunders in a single column? My guess is that it’s because he cannot quite bring himself to say in his column what the numbers are telling him is so.

The reason why the Old School studies report safe withdrawal rates so wildly off the mark from the numbers obtained by performing an analytically valid examination of the historical stock-return data is that the Old School methodology was concocted by people who believed in the Efficient Market Theory. That theory posits that stock prices are always right, that it is impossible for humans to let their emotions run away with them and cause prices to rise to absurdly high levels.

Uh, no. That’s not quite right. I get it that it is viewed in some quarters as rude to point this out. But come on, people’s retirements are at stake here! Do people not get this? Someone needs to report the obvious reality that the Efficient Market Theory emperor is wearing no clothes.

The historical stock-return data shows that stocks offer an incredible value proposition at low prices, a very strong value proposition at moderate prices, and a dubious value proposition at the sorts of prices that prevail today (today’s P/E10 level is 29, one of the highest on record). If the value proposition changes so markedly, how can it be argued that prices are always right? Different value propositions translate into different levels of “rightness.” Are we to believe that the market is always perfectly efficient but that at some times it is a good bit more efficient than at others? George Orwell, call your office!

The Old School safe withdrawal rate studies are an outgrowth of the Efficient Market Theory. Any theory of stock investing that produces studies that generate retirement guidance so wildly off the mark as the Old School studies is a poor model. We need a model that makes sense, a model that works in the real world, a model that hangs together.

My guess (I can do no more than speculate on this point) is that Scott Burns understands that there is a lot about the Old School safe withdrawal rate studies that just does not add up. My further guess is that he is smart enough to see that, when the Old School studies go down, the Efficient Market Theory will be on its way to the trashbin of history too. So he understands that stating in clear and direct and simple and understandable terms that the Old School studies get the number wildly wrong is a big step for him or anyone else to take.

I am asking him to take that step. I am asking all who call themselves investing experts to take that step. That’s why I scare people. That’s why a number of the experts are afraid of me and my message.

Burns is right about the import of my request of him. I am indeed asking him to take a big step. I am not entirely unsympathetic with Burns for being afraid to go down the path that I urge him to go down. Perhaps it will help for me to make note of the biggest factor that persuaded me in earlier days that I had no choice but to go down that path.

I write for aspiring early retirees. I have posted on discussion boards at which thousands of aspiring early retirees were misled by Old School claims to construct retirement plans that have little chance of surviving 30 years (a retirement beginning in January 2000 that employs the infamous 4 percent rule stands a one in three chance of success, according to the historical stock-return data). I consider a good number of those people friends. I dont like to see my friends get hurt in such serious ways.

That’s why I have limited patience for the sorts of word games that Scott Burns plays in his recent column. This is personal for me. It’s personal in the sense that it is persons who get hurt by these mumbo jumbo word games. Either valuations affect long-term returns or they do not. The Old School studies make no adjustment for valuations. If valuations affect long-term returns (most of the big-name experts agree that they do; I do not know of anyone who has put forward a credible argument that they do not), the Old School studies get the number wrong. This entire controversy is just that simple and just that complicated.

Word games bore me. I write about this stuff not to show that I am capable of constructing more sophisticated word games than the next fellow. I do what I do to help steer people around the minefields that threaten to blow up their hopes of attaining long-term financial security. My aim is to tell it clear and clean and straight and true.

Do you care about your readers? Do you care about your friends? Do you care about living a life of integrity and creating a body of work that evidences the desire for integrity that guides your life decisions? These are the questions that all of today’s experts taking on this issue need to be asking themselves.

If you care, you don’t play word games. If you play word games, that choice says that you care more about maintaining your membership in “The Club” than you do about the financial futures of the people who read your stuff. Sooner or later, we all are put in circumstances that require us to choose one path or the other.

If you care about the people who are going to be hurt by the Old School claims, you will be able to overcome the temptation to play nonsense gibberish word games suggesting that the analytical errors in the Old School studies are not all so terribly bad. We understand that false claims about the safety of smoking are bad. We understand that false claims about the safety of toys are bad. Well, guess what? False claims about the safety of our retirement plans are bad too.

Scott Burns and I are both afraid of something. Scott Burns is afraid of what might happen if he points out that the Efficient Market Theory is a model for understanding how stock investing works that does not stand up to serious scrutiny. I am afraid of what might happen if I do not. More on This Topic

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October 19, 2007 12:39 Sex Is Overrated (Or So My Wife Often Observes)

I’ve added an article to the “The Self-Directed Life” section of the site entitled Sex Is Overrated (Or So My Wife Often Observes).

Juicy Excerpt: Forming a real connection with another human is a difficult business. It’s a hard sell getting people to buy what they need to buy to feel less lonely. But we all “get” sex. As marketing becomes more and more efficient, more and more of the pitches directed at us promise sexual intimacy to the millions in dire need of the real kind.

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October 22, 2007 10:50 About Our Unique Asset Allocation Calculator

I’ve added an article to the “Scenario Surfer” section of the site entitled About Our Unique Asset Allocation Calculator.

Juicy Excerpt: The risks of placing one’s confidence in the old model are so great that I feel compelled to speak out strongly against it. But I think that prudence demands that my advocacy of the new model be reined in by a certain measure of humility until enough smart people have studied it in depth for us to be sure that there are no big flaws in the thinking of the many Retire Early Community members who made contributions to its development.

We need more research based on the new Investing for Humans model to replace the research that was done under the old Efficient Market Theory model. While we are in a time of transition from the old model to the new one, caution (combined with an appropriate measure of excitement over our breakthrough findings) is advised.

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October 23, 2007 11:56 “We Will Not Compromise Our Principles in the Rest of Our Life Endeavors”

I’ve added Charlie’s Story to the Middle-Class Millionaires section of the site.

Juicy Excerpt: “Unfortunately I know first hand the pressure to do something unethical at a job to keep a paycheck coming in. As my wife and I get closer to debt freedom (thanks to a lot of great material read, namely your book Passion Saving and Tim Covell’s Rational Simplicity), we will not compromise our principles in the rest of our life endeavors.”

You should not be saving to finance an old age retirement. You should be saving to finance a good life in the here and now and in future days too. Saving is not a compartment of a life filled with lots of other stuff of generally more compelling appeal. Saving affects all aspects of life. Saving possesses compelling appeal to those who understand how it adds to the enjoyment of life in the here and now, just as spending does.

People sometimes say that I put more stress on motivating people to save than I do on putting forward suggestions as to where they can cut spending. I do not dispute this. I boast of it. Motivation is the most important aspect of the saving project, in my assessment.

My experience is that those who are motivated to save figure out how to do it. Each story is different, so there is not one set of detailed steps I can list that will work for all. What I can say is that the distinguishing factor in every case is motivation. Get motivated, and you cannot lose. Fail to get motivated and you cannot win. I’d like to see more money advisors place a good deal more emphasis on instilling motivation to save.

People do not become good savers because you show them that 26 dollars saved today will grow into 11 billion if only you leave it untouched for 8,500 years. No! People don’t care! They are not dumb! They hear what they have been told for decades now. They do not care. They do not care.

They care a little, not enough for it to inspire action. The full truth is that they care more about other stuff. What is it they care about? Getting a promotion. Figuring out their kids. Having fun. Getting their weight down. Getting their teeth fixed. They care about Life.

Show how saving influences success in life pursuits and you have the not-caring problem licked. You don’t have to do anything dishonest to make the case. Saving really does affect life success. You just have to stop talking about financing an old-age retirement and start talking about all the other wonderful things saving does to enhance the enjoyment of life.

Charlie is telling us about one of the wonderful things saving does for you. It gives you the power to stick to your guns when someone is trying to compromise you. This guy is witnessing his faith in a new approach to saving.

Your proper response is: “Tell it brother, tell the people!”

And then we all join in together and shout “Amen!” And the devil who has enticed us into mindless spending all these years tucks his long red tail between his legs and walks away defeated.

Good! I’ve spent a good bit of time talking things over with that fellow over the years but the truth is that I’ve always thought that there was something a little off about him.

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October 24, 2007 11:09 “Saving Doesn’t Have to Be Boring or Painful”

I remember Mohammad Fauzi Taib from the days some time back when he shared some of his thoughts on saving at the comments section of The Financial Freedom Blog. He now has his own blog, Owning My Own Life. In yesterday’s blog entry, he put forward some kind words re the site.

Juicy Excerpt: “I love reading through the articles and little tidbits on saving. The best part I learn is that saving doesn’t have to be boring or painful!…. Then again, I didn’t know you can save enough to retire young either. So, this site is pretty interesting and can really open up your mind about saving.”

I am a big believer in focusing on the basics. There’s an 80/20 rule that applies for just about any subject you try to master — 80 percent of the important lessons are contained in 20 percent of the material. The 20 percent is the fundamentals. If you master the fundamentals of a subject, the rest will come easy. If you fail to master the fundamentals, you can devote years of effort to reading the other 80 percent of the material and never make much progress.

My Big Huge Idea re saving is that saving is fun if you save to enhance your enjoyment of life in the here and now rather than to finance an old-age retirement. It’s one idea but it is an idea with implications that extend in dozens of directions. To enjoy saving changes everything. Enjoy saving and you’ll actually save. That makes all the difference.

I like hearing feedback from someone like Mohammed Fauzi because hearing him get excited about this stuff reminds me of the emotions I experienced when I was first exploring the Passion Saving concept. He says that he did not realize that it is possible to retire young. There are millions like that. It’s a very simple insight — everyone who works should give some consideration to this option. The incredible reality is that only a small percentage of workers ever give the idea serious thought.

We need to change that.

That’s the goal of this site. That’s the goal of my book. That’s the goal of the Retire Early boards.

It is of course fine if lots of people give the idea some thought and elect to continue working until age 65. So long as that’s a conscious choice, I of course have no problem with it. It troubles me, though, that so many are not even aware of the options available to them. This is unacceptable. Something must be done!

What I try to do is to put the idea before people in lots of different ways. It’s one simple idea but there are different ways in which the idea can be put to use in different people’s lives. If you talk about early retirement, some people get excited and some people hardly are even aware that you said something; some are just not turned on by that option. There’s another group that gets excited about the idea of paying off the mortgage and the feeling of security that comes with doing that. There’s another group that likes the idea of making a shift to work that pays less but that is more fulfilling.

What I sell at this site is freedom. That’s what saving is. Most people don’t get it that that is what saving is. So I try to focus on that point. Once that get it, there’s no turning back for them. The only reason why I don’t put up the same article every day is that freedom means a hundred different things to a hundred different people. We are always talking about the same thing, but yet we are always talking about something new.

The message of this site is a simple one — saving equals freedom. That’s the 20 percent that you must get to make sense of all the rest.

Once you get that, you can pick and choose between the other stuff. Some of it will appeal to you because it relates to your particular vision of what freedom means in the flesh-and-blood world. Some of it you can let pass as stuff that was written for people pursuing some other version of the saving/freedom dream.

We’ve connected with Mohammed Fauzi. He gets it. I thank you, Mohammed Fauzi, for devoting one of your blog entries to passing the simple but important message of this site along to some others who, like you, can benefit greatly from learning that saving equals freedom but who have not yet been exposed to that message in a way that connected. More on This Topic

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October 25, 2007 09:47 Scott Burns Distances Himself from the New School SWR Approach

The blog entry for last Thursday (Why Is Scott Burns Afraid of Me?) examined seven logic blunders committed in a recent Scott Burns column on the findings of The New School of Safe Withdrawal Rate Analysis (a school that arose from the discussions of the flaws of the Old School studies that have been ongoing at the various Retire Early boards for over five years now). Here is the text of an e-mail that I sent to Scott immediately after posting the blog entry:


“I hope things are going well with you.

“I was happy to see you write another column noting the Retire Early Community’s findings re the flaws of the Old School safe withdrawal rate studies. I did see a number of problems with the column, however.

“Here is a link to a blog entry I wrote examining the arguments put forward in the column in some depth:

“I ask that you correct the error in your reporting of the New School claims noted as Point Two in my blog entry.

“Please do not hesitate to contact me at any time you have questions about the New School claims, the Retirement Risk Evaluator calculator, or any of John Walter Russell’s research findings (at”

Scott e-mailed me a response that afternoon. He has not given me permission to post his response here. The response is three paragraphs long. It argues that I need to “view the issue more broadly.”

An argument is put forward that the safe withdrawal rate that Scott quoted for Treasury Inflation-Protected Securities (TIPS) includes an inflation adjustment. This is an irrelevant and undisputed point put forward presumably in response to my Point Three, that Scott compares apples to oranges in quoting the safe withdrawal rate that applies for TIPS for an investor who insists that his portfolio retain its full value at the end of 30 years while quoting the safe withdrawal rate that applies for stocks for an investor who is willing to see his portfolio value depleted to zero over the course of 30 years.

The e-mail also cites several experts who have put forward ideas for withdrawal strategies that can be used by investors seeking to avoid seeing their retirements go bust. We have discussed a number of these strategies during The Great Safe Withdrawal Rate Debate. I see value in some of the strategies that have been advanced. There’s a big flaw with the work done by these experts, however. Their work assumes the accuracy of the Old School studies. Thus, they incorporate the errors of those studies into their own discussions of withdrawal strategies. A withdrawal strategy that makes sense standing alone can become dangerous indeed when used in conjunction with an inaccurately calculated safe withdrawal rate.

Scott’s response e-mail does not address the need for the correction that I pointed out in Point Two of my earlier blog entry. Nor does it address my criticisms of Scott’s decision to continue to cite the demonstrably false Old School safe withdrawal rate claims as “a good rule of thumb.” My view is that only accurate numbers constitute a useful rule of thumb and that giving further endorsements to false retirement claims is irresponsible in the extreme, especially given how many people were taken in by the Old School claims in the years before the analytical errors in the Old School studies were discovered.

I do not agree with Scott that I should aim to view the issue more broadly. No! That’s precisely what I must not do!

There are many investing experts today who view the safe withdrawal rate issue “broadly.” They focus their attention on every possible issue except the one that matters most — whether the numbers generated by the Old School studies are accurate or not. The inaccuracy of the Old School studies is the narrow point that I hit on again and again and again and again. I think it would be fair to say that my terrier-like tenacity on this point has been largely responsible for us generating so many mind-blowing insights as a result of our explorations into a topic that one community member observed on first impression sounds like it is something that would be of little concern outside the bounds of “an economists’ tea party.”

There are lots of people better qualified than I am to drill down on all sorts of peripheral issues. My “expertise” is in the commonsense area. I am the guy who looked at the fact that the Old School studies include no adjustment for valuations, observed that lots of big names like John Bogle and William Bernstein say that valuations affect long-term returns as a matter of “mathematical certainty,” and asked: “How can the Old School studies possibly be right given that they ignore so critical a factor?”

The obvious answer to any clear-thinking person is that the Old School studies cannot possibly be right. Oh, what I would give for a clear-thinking investing expert with the pull needed to get a front-page article reporting on our findings on the front page of the Wall Street Journal!

The Old School studies get the number wildly wrong. This error is likely going to result in millions of busted retirements in days to come, in the event that stocks perform in the future anything at all as they always have in the past. Our effort to prevent this tragedy from playing out slow-motion style in front of our eyes requires that we maintain a laser-like focus on the narrow question of the accuracy or lack thereof of the Old School studies — we don’t want to debate peripheral issues, we want to save retirements!

Investing is primarily an emotional endeavor and only secondarily a rational one. But imagine for a moment that we lived in an alternate universe in which stock investing was a rational endeavor and in which the Efficient Market Theory was a reasonable model for understanding how stock investing really works. What would the reaction be in that alternate universe to the post that I put forward on the morning of May 13, 2002, The Post Heard ‘Round the World?

The reaction would have been: “Hocus, man, you saved our necks! Holy smokes, here we are putting together early retirement plans and using these goofy Old School studies that generate numbers from Bonkersville! Thanks, man, thanks big bunches! Can you imagine the doo-doo we would have found ourselves covered in if you hadn’t taken time out of your day to help us discover the realities re this one! I mean it, man — thanks again!”

If you have not checked the Post Archives yourself, you’ll have to take my word for it re this one but the reality is that that is not the sole reaction that the words of that famous post generated. We did hear those sorts of comments from a good percentage of the community that congregated at the Motley Fool board in the days when it was the most exciting discussion board on Planet Internet. We also saw another kind of response from a group of Goon Posters led by John Greaney, the author of one of the Old School studies. I think it would be fair to say that Greaney and his defenders take what can fairly be described as “a broad view” of what the historical data says in claiming to this day (like Scott Burns and a good number of others) that the Old School studies provide us with “a good rule of thumb.” Many experts’ good rule of thumb is a million middle-class retirees’ death sentence.

The entire point of making reference to the historical stock-return data to gain a sense of how stocks may perform in the future is that the historical data provides us with objective information. I think it would be fair to interpret the phrase “taking a broad view” as being code language for freeing ourselves of the need that would ordinarily apply to report the numbers accurately. I do not want to be so liberated! I want my readers to learn what the data really says! I want others to report the numbers accurately too so that their readers too can learn what the data really says!

The data says that the safe withdrawal rate today for a high-stock-allocation portfolio is 2.8 percent. The discredited Old School studies say 4 percent. Scott Burns says (implicitly, this is not a real quote): “Close enough for most investing experts!” I say “No!” I say that investors planning their retirements should be told the real numbers, the accurate numbers, the valuation-adjusted numbers.

I do not object to the idea of using the safe withdrawal rate number as a rule of thumb. Where I differ with Scott Burns is that I say that we should use the New School numbers, the accurate numbers, the valuation-adjusted numbers, as the rule of thumb. I say that we should throw the Old School numbers in the trashbin of history before they do more financial harm to even more unfortunate aspiring retirees.

There would be no controversy over any of this were investing primarily a rational endeavor. It is Scott Burns who gave us our most important clue as to why so many experts see it as critical to take “a broad view” when considering whether to report that the Old School studies get the number wrong. He told us in a column from July 2005 that the reason why we have heard so little in the conventional media about the New School findings is that: “It is information most people don’t want to hear.”

Bingo! That’s the Scott Burns I love. That’s the real turtle soup and not the mock. That’s a guy telling his readers what they need to hear instead of what some of them might want to hear him say.

It is information most don’t want to hear.

If you have money invested in stocks today and those words don’t cause you to break into a sweat, you need to give this matter another think.

It is information most don’t want to hear.

We don’t tell people the realities because it would upset them too much. The experts take their lead from the most highly emotional of their followers. Those who cannot rein in their emotions call the tune for all the rest of us. We are told what they can bear to hear.

It is information most don’t want to hear.

So we don’t dare to report that studies that people use to plan retirements get the numbers wrong. We take “a broad view” of these matters. Millions suffer busted retirements. But it’s no biggie. We don’t say anymore that the Old School studies report accurately what the historical data says. We’re up to date and with it. What we say now is that they provide “a good rule of thumb.” That’s progress, no?

It’s a very limited sort of progress. It’s a word game.

We’re in a fix, people. We need to hear the truth about how stock investing really works in the long run but the sort of people now widely cited as experts are not the sort of people who are well-motivated to say things that would bring on the sort of abuse that is sure to follow in the wake of fully honest and fully informed reports of what the historical data says re safe withdrawal rates. Maybe after a million retirements have gone under it will be safe to report what is safe. Not now, not now. We need to be patient.

We need a new type of investing expert. We need Scott Burns and the others that do what he does. They add real value on lots of questions. But they do not possess what it takes to deal with the emotional side of the investing project, which appears to be the most important side. We need to get experts in place who will see that it is precisely because it is information most don’t want to hear that we all most need to hear it. It is the things that we are in denial about today that do us the most harm down the road a stretch. An expert possessing a different sort of skills set than that possessed by Scott Burns would have jumped on the safe withdrawal rate story on the day when he learned that the Old School studies get the number wildly wrong and that this is information most don’t want to hear.

I am a Scott Burns fan. I am a William Bernstein fan. I am a John Bogle fan. I am a Jonathan Clements fan.

I am a fan of the hundreds of thousands of aspiring early retirees who have been done serious financial harm by the demonstrably false claims of the Old School studies in recent years too.

My take is that I shouldn’t have to choose between being fans of the “experts” and being fans of their readers. I long for a day when Burns and Bernstein and Bogle and Clements are able to find it in their hearts to take a less broad view of this question and report accurately (with no hedging whatsoever!) what the historical data says about safe withdrawal rates. I long for the day when we are told those things that we very much do not want to hear because we need to hear them before we spend another day invested in stocks whether we like the idea of hearing them or not.

Here’s the text of the reply to Scot’ts e-mail that I sent last Thursday:


“I’m grateful for your response.

“Is it okay with you if I post the words of your response in a future blog entry?

“Have you looked at the Retirement Risk Evaluator (the New School SWR calculator at my site)? If you do, I think you will see that the New School research is in general very good news for stock investors. At today’s valuations, it shows a SWR for a high-stock-allocation portfolio of only 3 percent. At lower valuations, however, it shows SWRs a good bit higher than 4 percent. One of the reasons why I believe it is so critical that investors (especially those nearing retirement) be warned of the dangers of high stock allocations today is so that they will preserve the funds needed to invest heavily in stocks when the long-term value proposition has improved.

“As I noted in my blog entry and even more so in the article that I wrote about your SWR column from July 2005, I think you have done a service in bringing this matter to the attention of a good number of investors. I feel strongly that there is a need for more to be done. But I appreciate that you have done more than most others.”

Scott responded to this e-mail on Monday night. I will report on his response in next Thursday’s blog entry.

On Saturday I learned of a discussion board at which Scott answers questions put to him by readers of his column. I put up a post letting people who visit there know of The Retirement Risk Evaluator. One of the Greaney Goons put up an abusive post. I reported the abusive post. Scott took down both my post and the abusive post.

Here are the words of a post that I put to The Little Stinkers board after learning of this:

“It’s not just a clear message to me, GW. It’s a clear message to everyone.

“Burns is not superman. Burns is not able to offer a coherent defense of the Old School methodology. No one else has been able to do it for over five years and now we see with clarity that he’s not able to do it either.

“The remaining step is for us to help him get over his fear of acknowledging the obvious reality — the Old School studies are a con. When that is widely and clearly understood, the Efficient Market Theory is history. Any investing “theory” that puts millions of retirements at risk of going bust is an investing “theory” soon due to be replaced.

“I’m not afraid to say that today. Scott Burns is. Who do you think is going to change his views as we see stocks either experience a Big Price Drop or continue for a long time forward to offer a poor long-term value proposition? Events are going to leave Burns (and lots of other investing “experts”, to be sure) with no option but to get over their fears and acknowledge the obvious reality that the Old School methodology is analytically invalid (and all the rest that follows from acknowledging that too, of course).

“And then the real fireworks (the good kind!) begin!”

Scott is right that the New School findings are information that some (I have serious doubts as to whether it can be said that this is so of most investors — my strong impression is that the Normals greatly outnumber the Goons, but that the Goons are able to make use of their far greater intensity to poison the efforts of the Normals to have reasoned and civil discussions of the investing realities among themselves) do not want to hear. I think he is wrong as wrong can be to conclude that that justifies those of us who have gained reputations as “experts” (I am not sure that any of us really qualify — please see my blog entry for June 15, 2007, entitled “John Bogle Started Out as a Little Boy” re this point) servicing this want.

Our job is to tell it like it is. Our telling of the straight story about how long-term stock investing works should be tempered by compassion and warmth and a sense of humor and an encouraging tone, to be sure. But telling it like it is re all this is the only possible way to go in this newfangled sort of investing expert’s sincere assessment.

I appreciate Scott’s willingness to participate in a bit of back and forth on the safe withdrawal rate topic. I take that as a positive sign. I am willfully continuing to see the glass as half full, despite all the craziness engaged in by Scott and a good number of others. I urge you to do the same — after warning your friends of the dangers of the Old School safe withdrawal rate claims, if you please! More on This Topic

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October 26, 2007 04:00 Part One of Rob’s Interview on the Money, Mission and Meaning Podcast

Mark Michael Lewis, host of the Money, Mission and Meaning podcast, recently completed an hour-long interview with me about my book Passion Saving: The Path to Plentiful Free Time and Soul-Satisfying Work. Part One of the interview is now available for your listening pleasure.

Juicy Excerpt: I want to say straight out that I think you’ve accomplished something radical with your idea of Passion Saving. From my perspective, you’ve really created not just another ‘how to’ money book, where you show people how to invest, or a motivational book that just has people do the things they already know to do. You actually offer a whole new way of thinking about saving money that taps into our human psychology and desire. Now, I am going to have you highlight each of the key ideas in Passion Saving for my listeners so that they can have their minds blown like mine was.

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October 29, 2007 14:32 A Good Retirement Is a Busy Retirement

Too many view retirement as a time for preparing to die. Those who retire with exciting plans for new things they can do with their lives do not have problems with their spouses as a result of the life change. If anything, the change gives them new stories to tell and allows them to explore a different side of their personality, making the marriage stronger.

When age 65 was chosen as the normal retirement age, most who were 65 were in failing health. This is not so today. So it makes no sense for most to be planning to do little work in retirement. It makes perfect sense for retirees to want to avoid paid work if they no longer need the money. But there are all sorts of hobbies that can be taken up and important volunteer work that needs to be done and new businesses that can be started not for the money they are likely to bring in but for the fulfillment that comes from running them.

A successful retiree is one who is as busy or even busier than he or she was in his or her pre-retirement years. The idea is to escape paycheck dependence, not to escape the good feeling of being actively involved in exciting life projects.

SWR Update: Mohammad Fauzi Taib lets the defenders of the Old School safe-withdrawal-rate (SWR) studies have it with both barrels in his Owning My Own Life blog dated October 26, 2007. He says: “They’re like an ass hee-hawing, making so much noise but they don’t realize they’re just making stupid noises.” I can only add that stupid noises often in time become transformed into busted retirements. Or so the historical stock-return data indicates.
More on This Topic

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October 30, 2007 10:40 All You Need to Know About Stock Price Changes

I’ve added an article to the “Scenario Surfer” section of the site entitled All You Need to Know About Stock Price Changes.

Juicy Excerpt: My web site is the new kid on the block. The good people at Google World tend not to give lots of points to the new kid on the block. They employ all sorts of nefarious schemes to keep mention of the articles at this site buried in the results handed back to searchers looking for information on saving or investing or career growth. Drats! Curses! Life is so unfair!

There are some exceptions to the usual rule, however. Enter a search for the term “P/E10” and you will find articles from my site sitting there right at the top of the pile. It shouldn’t be that way!

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October 31, 2007 11:31 Why Stocks Crashed

I’ve added an article to the “Stock Drunk section of the site entitled Why Stocks Crashed.

Juicy Excerpt: Stock prices are at a level today that virtually assures that people will be asking in days to come why stocks crashed. When the price crash comes, we will all be caught up in whatever disaster it is that is being widely cited as the cause of the stock price crash. I thought it would be better to write my explanation of why stocks crashed now, when I can think more clearly about the factors that made the upcoming (who knows when!) price drop inevitable.

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September 2007 << >> November 2007