Mostly Voices [0:00]

A foolish consistency is the hobgoblin of little minds, adored by little statesmen and philosophers and divines. If a man does not keep pace with his companions, perhaps it is because he hears a different drummer. A different drummer.

Mostly Mary [0:19]

And now, coming to you from dead center on your dial, welcome to Risk Parity Radio, where we explore alternatives and asset allocations for the do-it-yourself investor. Broadcasting to you now from the comfort of his easy chair, here is your host, Frank Vasquez.

Mostly Uncle Frank [0:39]

Thank you, Mary, and welcome to Risk Parity Radio. If you have just stumbled in here, you will find that this podcast is kind of like a dive bar of personal finance and do-it-yourself investing. Expect the unexpected. It's a relatively small place. It's just me and Mary in here. And we only have a few mismatched bar stools and some easy chairs. We have no sponsors, we have no guests, and we have no expansion plans.

Mostly Voices [1:10]

I don't think I'd like another job.

Mostly Uncle Frank [1:14]

What we do have is a little free library of updated and unconflicted information for do-it-yourself investors. Now who's up for a trip to the library tomorrow? So please enjoy our mostly cold beer served in cans, and our coffee served in old chipped and cracked mugs, along with what our little free library has to offer. But now onward episode 324. Today on Risk Parity Radio, we're just gonna do what we seem to do best here, which is attend to your emails. Surely you can't be serious. I am serious, and don't call me Shirley.

Mostly Voices [2:11]

And so without further ado, here I go once again with the email.

Mostly Uncle Frank [2:15]

And, first off, First off, an email from Mark.

Mostly Voices [2:18]

All hail the commander of his majesty's Roman legions, the brave and noble Marcus Vindictus, who returns to Rome after winning a great victory over the Cretans at Sparta. Make that the Spartan that crept.

Mostly Mary [2:41]

And Mark writes, hello Frank and Mary, I hope all is well. Reminder that I remain a Patreon giver to the Father McKenna Center. Yes! I am documenting my post-retirement withdrawal rules in my investor policy statement, which are modeled after Frank's 3+1+1 structure. Below are the withdrawal policies in their current state. I would love your feedback on any improvements I can make. My goals for these policies：Stay true to Frank's intent to maximize utilization and encourage appropriate spending in retirement, not hoarding.

Mostly Voices [3:14]

Yes, cat, now I shall be ruler of the world.

Mostly Mary [3:18]

Recognize that the expenses in the 3% base slash dignity budget tend to have more fixed expenses with less discretion than the 1% comfort and 1% splurge budgets do and act accordingly. Well, you haven't got the knack of being idly rich.

Mostly Voices [3:34]

You see, you should do like me, just snooze and dream. Dream and snooze, the pleasures are unlimited.

Mostly Mary [3:46]

Some very slight risk reduction strategies to slightly mitigate the impact of withdrawals during a market turndown. Withdrawal policies. Standard annual withdrawal, three plus one plus one, 3% base dignity, 1% comfort and 1% splurge. For 3% base dignity, the dollar amount fixed in the first year and indexed for inflation minus 1% following Bengen rules with -1% inflation adjustment. Comfort 1% and splurge 1%, not fixed in the first year, not indexed for inflation or protected from market drops. Instead, draw a straight percentage of current portfolio value each year. Note for Frank, in the majority of cases where the market is doing well, I expect that this 2% withdrawal will grow larger than the inflation-indexed base slash dignity budget over time. Withdrawal Timing Withdraw the 3% base/dignity on January 1st of each year regardless of market conditions. If the market is within 10% of an all-time high, also withdraw the 1% comfort and 1% splurge proactively on January 1st of each year. If the market is more than 10% below the all-time high, do nothing on January 1st and instead withdraw from the comfort and splurge budgets as needed when expenses occur throughout the year. Do not attempt to constrain 1% comfort and 1% splurge expenses throughout the year. This is simply deferring the withdrawal and is not intended to eliminate the withdrawal. Unspent withdrawals. If the full 5% is not spent in any given year, do not reinvest.

Mostly Uncle Frank [5:20]

Keep the cash for future spending. Remember thou art mortal. Remember thou art mortal. Well, first off, thank you for being a donor to the Father McKenna Center.

Mostly Voices [5:36]

We few, we happy few, we band of brothers.

Mostly Uncle Frank [5:42]

As most of you know, this podcast does not have any sponsors

Mostly Voices [5:47]

Forget about it and is intended to be

Mostly Uncle Frank [5:50]

an open source resource without any clubs, memberships or conflicts. Please accept my resignation. I don't want to belong to any club that will accept me as a member. But we do have a charity that we support. It is called the Father McKenna Center and it is a service organization that serves homeless and hungry people in Washington, DC and operates out of the basement of an old church that is no longer a parish. Full disclosure, I am on the board of the charity and am the current treasurer. But if you do make a donation to the charity, you get to go to the front of the email line. That's all I've got to offer you here. And you can do that in a couple of ways. You can go to the support page on our website at www.riskparityradio.com and sign up to be one of our patrons on Patreon like Mark has, in which case you make a monthly donation, or you can go directly to the Father McKenna Center website and make a donation there. In any event, if you do do that or you are a Patreon if you have done both, please identify yourself when you send in your email so I can flag it and move it to the front of the line. Yeah, baby, yeah! Now getting to your questions. I think your plans look fine here. If anything, they're probably more complicated than they need to be. Because here's what really happens instead of, for instance, thinking about a rate of inflation to raise your withdrawals on, you do it based on your actual inflation rate. And this is why ultimately what happens is you really make your withdrawals essentially match your expenses and keeping track of your expenses, not to the dollar, but to a reasonable degree and which categories they are in. What are your baseline living expenses? What are the things you spend on, but you don't necessarily have to? And then what are the fun or splurge things that you do? I think is important. And once you've done that for a few years, you may find, as we have, that our expenses are actually going down, even in nominal terms, largely because we're getting these children off our dole. Donate to the children's fund.

Mostly Voices [8:11]

Why? What have children ever done for me?

Mostly Uncle Frank [8:15]

But also because many weeks I'm practically housebound and don't spend much money. Dorothy mentioned specifically that it was her desire for you to go to confession. And I confess that I have no desire to confess to a boy that's just out of the seminary. Get off my lawn. So I would try to figure out what your personal inflation rate is by actual tracking of your expenses. Because the other thing you will find is if you are tax managing your accounts appropriately, your taxes should go down in retirement. Just stay away from those dividend and income strategies, particularly in taxable accounts or other things that throw off ordinary income or too much ordinary income, I should say. Not going to do it.

Mostly Voices [9:02]

Wouldn't be prudent at this juncture.

Mostly Uncle Frank [9:06]

In terms of taking cash out or when to take it out, The easiest solution is to actually have an allocation in your portfolio that is dedicated to cash, and whether that's 4% or 5% or whatever it is, which can include short-term bonds and I-bonds and all sorts of other things. But if you have that as an allocation, then it's always available to spend, essentially. And then you don't need to worry necessarily about taking out from a particular part of the portfolio. And that is actually the way we manage the sample golden ratio portfolio, that there's an allocation to cash in a money market fund. We just spend out of that all year long and then refill it the next year. And there you go. And if it didn't need to be refilled, we wouldn't refill it. Probably the more efficient way of managing these portfolios is to sell a little bit of the top performers in any given month, but I don't think that's necessarily necessary. Necessary? Is it necessary for me to drink my own urine? Probably not.

Mostly Voices [10:17]

No, but I do it anyway because it's sterile and I like the taste.

Mostly Uncle Frank [10:23]

To me, all of what you're saying boils down to is having a flexible cash allocation that could grow or shrink depending on what goes on in markets and the portfolios. And that works fine too, as long as it's not doubling or tripling or something like that. But that is always the problem of talking about this in theory, because in theory, you're looking at some kind of fixed withdrawal rate with some kind of growth in withdrawals, but those are untethered to actual living expenses, which tend to be lumpy, if you will. And this is especially true when you get to this kind of splurge money, because in our case, it's sort of like, all right, well, do we want to take a big fancy trip, or are we going to buy a new vehicle, or are we going to renovate part of our house? Those are kind of all kinds of things that are on various lists that we might plan for in any particular year. But I do think for a lot of people who have been diligent savers and having trouble spending money is psychologically helpful to be able to cabin off this 1% or whatever it is and say, okay, this money is available for some kind of a splurge this year. Let's figure out now what that's going to be. And then you take your guinea pig up to Machu Picchu and sacrifice it and look at its entrails and then you can figure it out from there. At least that's the way we do it. The gods have chosen. To Shiva Lava?

Mostly Voices [12:00]

To Shiva Lava. Okay, great.

Mostly Uncle Frank [12:10]

So all in all, what you've got here should work fine, but feel free to modify it as you go, because you may find that some of it is just not necessary or takes up too much bandwidth. Or you may find that there are other rules you wish to employ, but as long as you're within some guidelines here. And to me, spending up to 5% is actually a conservative spending plan, especially given the kinds of portfolios we plan to hold. And then the only questions you have are whether you need to layer in some other spending mechanism or short-term spending need, such as, for instance, creating some kind of bridge bond ladder between now and when you collect Social Security, which may or may not be necessary depending on where you are in life. Necessary? Or you may have college expenses like we did that we knew were going to go away after a few years. But those kind of things really are in volving tweaking and not your overall portfolio management plan or withdrawal strategy plan. It works. And this just reminds me of the discussion that we have from time to time about the differences between the concept of risk and uncertainty. I was just listening to, I think, Roger Whitney's podcast and they had on a guest who was talking about this in terms of the difference between something that's complicated and something that's complex. And these are analogous to saying a complicated thing is in a risky environment that you can plan and plot and deal with it that way, whereas a complex problem may be relatively simple but is more in that uncertainty environment where having detailed plans is not going to improve your performance and in fact may detract from it. and what you should be thinking about is what is a good rule of thumb that will keep me in the ballpark and cover lots of different situations. I think the better approach to that is actually contained in books like Risk Savvy by Gerd Gigerenzer, which deal with this topic. Nassim Taleb's idea of the difference between mediocre stan, which is a risk predictable environment, and extremistan, which is the uncertainty environment. and I think a lot of financial planning and plans that you hear about are actually misguided attempts to take complicated solutions to solve complex problems. And that includes all kinds of time segmentation plans involving buckets and pie cakes and all these things these guys talk about as if they're kind of magic formulas, which you really want to be doing. in financial planning is separating out those things that are complicated, like when to claim Social Security and how to navigate all these strange rules about when you can withdraw or add to something and the tax rules that go along with that. That's complicated. Mapping out your series of expenses for the next decade is also something that's probably more in the complicated realm when you're talking about children and other relatives and other things that you know about and just need to plan for. Like how much is your health insurance going to cost if you're paying for it out of pocket? But the long-term planning and portfolio construction is a complex issue that needs to be dealt with on a more broad-based focus or set of ideas in terms of things like overall allocations, to long-term investments that you do not know how they're going to perform in the short term. And so I think many financial plans and planners just have this concept backwards that they are planning all of these detailed things when they should be starting with, what is the overall long-term plan allocation of the portfolio in terms of rules of thumb? And then let's back down from that, the complex problem, into the complicated things that we can actually quantify and solve for with other tools and methods. But honestly, human nature and the way marketing works favors people that come up with complicated solutions with lots of buzzwords, categories, buckets, floors and ceilings and flower pots and ladders and hoses and all sorts of other labels that these folks put on things. Because only one thing counts in this life. Get them to sign on the line which is dotted. If you really understand these concepts, the difference between risk and uncertainty, the difference between complicated and complex, you'll realize that none of that is really moving the ball any, and it's just clouding the actual problem that you have in front of you to solve. Anyway, that's not really what you asked, but I'm rambling a bit because this topic is something I've been thinking about and studying for about 15 years or so or more ever since I read the Misbehavior of Markets by Benoit Mandelbrot, one of the mathematics behind all of What I've been describing actually comes from. But enough of my intellectual ranting.

Mostly Voices [17:54]

You are talking about the nonsensical ravings of a lunatic mind. And thank you for your email. Arlo Sky,

Mostly Uncle Frank [18:09]

second half. Second off, we have an email from Broken Jack.

Mostly Mary [18:21]

Here's Johnny! And Broken Jack writes, Frank, picture my case. You get to the age of 65 and have nowhere near the amount you need to retire. Would you consider taking whatever you have and buy a buy right high yield ETF to supplement Social Security income to fund retirement? It seems to me that when you need cash to pay your bills, now you'd care far less about long-term capital gains. It would make sense. What would you do in this situation besides working as a Walmart greeter?

Mostly Voices [18:51]

All work and no play makes Jack a dull boy.

Mostly Uncle Frank [18:56]

Well, first of all, I appreciate your predicament and thank you for writing in. I appreciate that while most of the people listening to this podcast are probably well saved or over saved and have a particular interest in investing, the reality of the world is that most people do not and many people are in your situation. And while we could all sit around and say, well, you should have done this or you should have done that, that's actually not very helpful and I don't think it's very fair. I have two disabled siblings in my family and have worked with a number of people who have struggled, particularly as they have gotten older, because they just don't have the resources that some of the rest of us do. And I think the answers and approaches for someone such as yourself are much different than for somebody who is dealing with a large portfolio they expect to live off of. because your best solutions are going to look different than somebody else's. So let's talk about your situation. The first main solution for you is to delay taking Social Security as long as possible. I know that might not be realistic because most people who take Social Security earlier do it because they have to. Maybe they've been downsized or something else has happened and they can't work anymore. But if you can still work, if you can still support yourself and delay taking Social Security as long as possible, you do get those automatic eight percent a year bumps up between full retirement age and age 70. Have you ever thought for a single solitary moment about my responsibilities to my employers?

Mostly Voices [20:44]

Has it ever occurred to you that I have agreed to look after the Overlook Hotel until May the 1st. Does it matter to you at all that the owners have placed their complete confidence and trust in me and that I have signed a letter of agreement, a contract, in which I have accepted that responsibility? You have the slightest idea what a moral and ethical principle is, do you? The next thing you have to look at are your baseline living expenses.

Mostly Uncle Frank [21:16]

and particularly where and how you live. The truth is that most middle class Americans do not have enough liquid assets to retire with, especially before they start taking Social Security, because most of their wealth, the extent they have it, is tied up in their residences, in their houses. And having that much wealth tied up in your residence or house, I don't know if this applies to you or not, But I'm just saying it because it's a common situation. It's bad from two different perspectives. First, you don't have the liquidity. You can't eat shingles. And then second, that house actually represents a large expense to be dealt with and may be a hazard as you get older and are unable to take care of it. And so to the extent you are thinking of downsizing or can downsize, it is better to do that sooner rather than later because that may free up some of your resources for investing and for living on. Okay, now as to the investments and here's where we have to deal with a hard truth. And the hard truth is this：there are no magic button investments that you get to push once you get to be a certain age if you find yourself behind in what you had intended. And unfortunately, I see this pattern over and over again with older people who get to age 50 or 60 and say, well, I don't think I've saved enough. Therefore, now I need to go find some magic buttons, some financial advisor who's going to make my money go faster by picking these magical things that do things. The truth is those don't exist. And a buy right high yield ETF is not going to preserve your money any better than investing in a similar portfolio of the same underlying asset plus some cash. The problem with those things is they tend to decay over time. and we are on version 3.0 of these things. The first ones came out in the 1980s. There was another round in the early 2000s that came out. They were popular then. Now we are on the third leg of them. They're more efficient than they used to be, but they still suffer from the same problems over time, which is that they decay in value. They're basically cannibalizing themselves. And what happens with them is after they've decayed for a decade or a little longer, they typically tend to get closed. I know they're very popular right now, especially the infernal Jeppy.

Mostly Voices [24:09]

So if we purchase the 24-piece set, the mini sailboat is included? That's correct, sir.

Mostly Uncle Frank [24:17]

But I don't expect that to have a different fate than all the other ones that have gone before. If you want to hear about another one of those kinds of funds that's been around a little longer, QYLD that we've talked about before, go back to episodes 89 and 154 and look at the links to those in the show notes. Because what you'll see is that for all of these things, if you take whatever the underlying investment is and add some short-term bonds to it, that is going to be a better portfolio than whatever this complicated buy, write, thingamabob is going to be. Forget about it.

Mostly Voices [24:57]

I believe we've also talked about some of this in episodes 215,

Mostly Uncle Frank [25:02]

229, 298, and episode 300, if you want to check those out as well. So no, unfortunately, I don't think you're going to solve your problem simply by picking a magical investment like that. I think over time you'd be better off constructing something like one of the portfolios we tend to talk about here that looks something like a golden butterfly or a golden ratio. Or if you want a one fund solution, I would go look at the Vanguard Wellington Fund, which has a very long history and is very stable. Now, none of those things are going to get you lots and lots of money out of them. If you are looking for that, then I would start looking at single premium immediate annuities. Because if it's just you as a single person and just pulling up a quote on immediateannuities.com, at age 65, a 65-year-old male can get a single premium immediate annuity that pays about 7. 45% as a payout rate, which is money you can just spend right away and have for the rest of your life. Now, that's not adjusted for inflation, but you could also look at ones that adjust 1%, 2%, or 3% in the future. But all of those would be better solutions for getting a large income out of the money you have than trying to buy investments that do that, because that would be contractually guaranteed money. But what this is going to force you to do, and I'm afraid you're gonna have to do anyway, is really look seriously on your living expenses. particularly housing, and see whether there's any way you can reduce those. I also don't know what state you're in or county, but you may have other benefits, for instance, reduced property taxes, reduced utility bills, or other kinds of benefits that you can take advantage of as an older person. I think a lot of people just aren't aware that those things exist, but unfortunately they are different in every jurisdiction because a lot of them are run by either local counties or states and they're not at a federal level. But I would be looking at every program that applies to somebody who's over age 65 and seeing whether it applies to you or whether you can take advantage of it by making some adjustments. So I think there's a lot of things you can do and this doesn't necessarily need to be something bleak. Jack?

Mostly Voices [27:43]

How do you like it?

Mostly Uncle Frank [27:51]

How do you like it? But I do think you should get away from the idea that you're going to solve these issues by choosing some kind of magic investment that you pull off the shelf, whether it's a buy right fund or something else like that, because that's not likely to be a good long-term solution for you. But I'm glad you're brave enough to have written in here and talk about this, because I think personal finance podcasts and a lot of other things tend to focus on people who are relatively oversaved. And a lot of times the things we're talking about are not real problems. because people are not spending that much money anyway, and so it's more of a preference than anything else. What you have a situation is what I would deem a real problem for real people in the real world that happens more often than we want to talk about. And these are problems that the financial services industry frankly does not deal with because they can't make any profit off of it, and then they are left Solving easy problems for people that are over saved.

Mostly Voices [29:08]

That is exactly the kinds of clients they want to have because then they can take their cut as well as have them spend 3% or less or some piddling amount of money. My straw reaches across the room and starts to drink your milkshake. I drink your milkshake. I drink it up.

Mostly Uncle Frank [29:36]

So I hope you found some of what I've said to be useful. It's difficult since I don't know your overall situation. There is a nice group that you might join if you're on Facebook. It's called Catching Up to Five. And the purpose of that group is to assist people in their 50s and 60s who may not have saved as much as they would have liked to, and what are they going to do? And I think you'll find a lot of people there in similar situations and some good discussions of these things like, when do we take Social Security and how do we manage those kinds of issues as opposed to these portfolio construction things for people who really don't have big problems.

Mostly Voices [30:17]

Why does Rice play Texas? Hopefully that helps at least a little bit.

Mostly Uncle Frank [30:23]

And thank you for your email.

Mostly Voices [30:28]

We choose to go to the moon in this decade and do the other thing, not because they are easy, but because they are hard. Last off.

Mostly Uncle Frank [30:40]

Last off, we have an email from Gus.

Mostly Voices [30:44]

Hello, and welcome to the Los Pollos Hermanos family. My name is Gustavo, but you can call me Gus. And Gus writes? Hi, Frank.

Mostly Mary [30:56]

I just thought I'd point out that the bond exposure in ticker RSBT is intended to track broad-based US fixed income similar to ticker AGG and not just Treasuries. Thanks to you and Mary for your contributions to the DIY investing community. Best, Gus.

Mostly Uncle Frank [31:11]

Well, what can I say, Gus?

Mostly Voices [31:16]

You are correct, sir, yes!

Mostly Uncle Frank [31:20]

And thank you for bringing that to my attention. Yes, I was under the erroneous impression that RSBT was using treasuries as its bond base. Wrong! But I see that I was in error. Right? Wrong! For those of you who don't know what that is, that is one of these new ETFs. from Corey Hoffstein and the idea of return stacking, and that one combines bonds and managed futures. And I believe we've talked about that in episodes 255 and 291, if you want to check those out. And so thank you for your correction and thank you for your email.

Mostly Voices [31:58]

You need somebody watching your back at all times.

Mostly Uncle Frank [32:02]

But now I see our signal is beginning to fade. If you have comments or questions for me, please send them to frank@riskparityradio.com that email is frank@riskparityradio.com or if you go to the website www.riskparityradio.com and put your message into the contact form and I'll get it that way. If you haven't had a chance to do it, please go to your favorite podcast provider and like, subscribe, give me some stars, a follow, a view. That would be great. M'kay? Thank you once again for tuning in. This is Frank Vasquez with Risk Parity Radio. Signing off. Girl, why you little?

Mostly Voices [32:46]

No, no, go easy on the wee one. His father's gonna go crazy and chop them all into haggis. What's haggis? Boy, you read my thoughts. You've got the shinin'. Shh, you wanna get sued? Now look, boy, if your dad goes gaga, you just use that shin of yours to call me and I'll come a runnin', but don't be readin' my mind between four and five. That's Willy's time. Hello, children. I bring you love. It's a monster. Kill it. Kill it. It's not a monster. It's Mr. Burns. Oh, it's Mr. Burns. Kill it!

Mostly Mary [33:28]

Kill it! The Risk Parity Radio Show is hosted by Frank Vasquez. The content provided is for entertainment and informational purposes only and does not constitute financial, investment, tax, or legal advice. Please consult with your own advisors before taking any actions based on any information you have heard here, making sure to take into account your own personal circumstances.