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Unveiling the Retirement Myth

27985 Views 82 Replies 22 Participants Last post by  Racer
I wrote about Jim Otar's new book of this title on Saturday and he reports on my blog he's getting so many download requests he has to start charging $4 now (it was free for a green unprintable version). Even today, the article is topping the most popular online hits at the Post so it's probably worth it's own thread here in the Retirement forum. There's also a video interview with him. You can find all this stuff at one place:
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Jon, thanks for doing the article & video. I'm a big fan Jim Otar's: "Zone Strategy".

I'll try to keep the link above up-to-date with any videos and articles for easy access.

Below is Jim Otar's post in the Bogleheads Forum today:

Wow, I did not think I would get this much response. I am very pleased. Thank you for all your comments.

Yes, the hosting server is congested somewhat due to the overwhelming response. I apologize for that, but there is not much I can do about it. Here are some hints:

-Please download only once and save it on your computer. Then you can read it at anytime at your convenience.

-Please enter your correct name and address and e mail, in case I have to contact you. Once the book is printed, I will purge all this information. I just need it in case of errata.

-For those who are concerned about my business model: I truly appreciate your concern. However, you don't need to worry about me. I am very deep in the green zone, and the existence of these posts indicate that my "business" plan is working well. The only person who gets upset about these free downloads is my wife, but we have been together for 32 years and she is used to me by now (I hope).

- I have gotten an overwhelming download response, so I changed the rules slightly: The green download is free until end of August 31st, or for the first 5,000 (OK maybe a little more than that) successful downloads. After that it will be for a great sum of $3.99.

-It took me on and off 6 years to complete this book, I hope you all enjoy it.

Over and out,
Jim Otar
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As I report in my blog today, Otar is overwhelmed with download requests around the world for the book. The Bogleheads discussion mentioned by Graham above is also worth perusing: 40 posts and growing.
Thanks for the Saturday article Jon. Fortunately, I beat the rush and downloaded the book. But it is a bit hard on the eyes to stare at the screen for long.
I splurged on the $4 download. Worth every penny. I'm almost 100 pages in and so far most of what I thought about retirement savings has been turned upside down. And because Jim and I are engineers, it's written so I understand it!
Part 2 of my video interview with Jim was published today. He looks at why near-retirees should strongly consider offloading risk to insurance companies (through annuities or new GMWB products like Manulife Income Plus & comparable products at Desjardins and Sun Life Financial)

Great topic. Captures my feelings exactly. One question. Mr. Otar speaks about asset to return ratio on the video. Can someone explain? Thanks
The ratio is the "asset to withdrawal" ratio. If you have $100,000 and withdrawing $5,000 each year, indexed to CPI, then your asset to withdrawal ration is 20. ($100,000 / $5,000). It is the reciprocal of the initial withdrawal rate, in this case 5%.

In round numbers, for a 65-year old person, if your asset/withdrawal ratio is under 20, then you will likely run out of money -if you were to hold a portfolio- during retirement. The only sure way of having a lifelong income is purchasing a CPI- indexed life annuity.

Again in round numbers, for a 65-year person, if your asset/withdrawal ratio is over 30, then you do not need to buy any annuity, your portfolio is large enough to cover the three financial risks of retirement; longevity, market and inflation risks.

In between 20 and 30, you do need to export the risk - only as much as necessary- but still can hold some investment portfolio.
Hey Jim, just wanted to welcome you to the forum! I look forward to reading more of your postings.
Hey Jim, just wanted to welcome you to the forum! I look forward to reading more of your postings.
Hi Jim, thanks for posting.

The ratio method is a very helpful and quick indicator of your Zone.

The notion of matching an essential-income shortfall with a CPI indexed life annuity (pension) and nonessential-income needs with products/investments that provide more flexibility (and potential upside) is a safe and inherently sensible approach.

IMO, this is even a great approach for Green Zone clients if they are unsure about their ability to invest according to strict mechanical rules.

"Fear" and/or "Greed" can impact the way people behave at critical moments thus User-error is also a risk. From what I've seen, many people should export this risk as well.
Factoring in taxes

Thank you for explaining the ratio. It is a quick indicator of what can be withdrawn. In our case we have rrsp's and investments outside the rrsp's. When we withdraw money in retirement this ratio factors in taxes? Thanks
The entire 'ratio' thingie is lagging many many years...IOW, it is passe...Real-Passe.

FWF has discussed...fought...analyzed...provided anything and everything for any and every case get at the 'rite' answer... SWR is the 'Best' for this day and age. KISS is the name of the 'Game'.

Everybody's in Sales.

Check the threads at FWF re: SWR...and further indepth analysis are on the gummy site.

Why dicker or tinker with 'Success'?
People have to be aware, and I expect this would be explained in Jim's book, that these quick rules of thumb have to be taken with a grain of salt. The "asset to withdrawal ratio" (the "4% withdrawal rule" by another name) doesn't consider real life situations. If everyone was 65, of normal health, and lived in a vacuum (no expectation of entitlement income, no outstanding loans, no part time retirement income, no desire to pass on an estate, no expectation of a future capital gain such as selling the cottage, no anticipation of a future cash call or special expenditure), then these rules of thumb might have a use.

The fact is, our life is not that simple... our capital is taxed in very different ways, and age is very important. For instance, our "A2W ratio" has to be much lower prior to age 60 and age 65 to accommodate CPP&OAS bridging, and of course, as we approach 85 and beyond, the A2W approaches the number 1 (one) since in our final year we (hopefully) withdraw the last and final dollars from our retirement next egg.

The only number worth knowing is your burger quotient (BQ).... that lifestyle (after tax/after inflation) which if followed, will (just) see you out to a certain age. It requires some computation because it includes the effect of income tax, its effect on the different forms of capital (reg/nonreg/equity/tfsa), other discontinuous financial entities such as loans, future lump sum cash infusions, pensions, entitlements, etc... however, this is a calculation that everyone needs to do.

It is your life and future well-being as well as your heir's... this is more important than applying a simplistic "4% withdrawal" or "asset to withdrawal ratio".

BTW... unless you are way up in the HNW stratosphere, if you expect your investment adviser to volunteer to do this, think again. This is an exercise you should be doing on your own.

A financial plan starts with your Visa bill(groceries/gas/etc) and works back from there. The industry wants you to be afraid of uncertainty... they would prefer that you stick to simplistic adages such "max your RRSP pre-retirement", 4% withdrawal rate post retirement, rather than getting involved with time-consuming analysis such as described above, which earns them no fee.


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Steve, your post sounds like you know what you are talking about...How did THAT come about?

The aim for the retirement planning process is to make so much money... and save so much money prior to retirement that it is impossible to spend it all in the 'golden-years'. There ain't no free-ride in this day and age...and it will get better as we move forward.

Never ever Trust a third party to provide a retirement plan in the best interest of the retiree. Everybody must Look After #1. Retirees are not exempt from the natural forces. How much Money is in the hands of the baby boomers? Is there an Opportunity? Yep, It is ALL about Money.

Some of us are well aware how the Vulture-Systems are designed for the financial guru UCSers peddling their magic formulas, news-letters, books, secrets, oujia boards, recycled secrets, just to list a few...

Deja vue...same ole stuff...some things do not change...
Check the threads at FWF re: SWR...and further indepth analysis are on the gummy site.
FWF? SWR? "gummy site"? What are those?
FWR (financial webring forum) Canadian based financial forum

Gummy's website Lots of tools/info/spreadsheets... definitely a 'must see'.

SWR -sustainable withdrawal rate
Just wanted to say "thank you" to Jim Otar. A huge amount of work went into this book and it was obviously a labour of love. As far as I am concerned, it is the most useful resource in preparing for retirement that I have found anywhere. I hope your sales go viral!

PS. It's become a hot topic over at the Early Retirement Forum too!
PS. It's become a hot topic over at the Early Retirement Forum too!
Which specific forum would that be? If you can, please share the URL. Thanks.
I am preparing for retirement and I have also found Jim's book very useful. If I were to rely solely on my financial advisor, I would never have encountered the princicples Jim is presenting.

I am most interested in SWR since outliving my retirement savings is my worst nightmare. I like the use of "aftcast" as it uses history as a model.

I just read today at the NYT ( another approach at arriving at a "safe" withdrawal rate:

"What he concluded was that the overall market’s price-earnings ratio — taking the current price for the Standard & Poor’s 500-stock index divided by the average inflation-adjusted earnings for the past 10 years before the date of withdrawal — was predictive enough to produce guidelines. Then he came up with the following suggestions for a portfolio of 60 percent stocks and 40 percent bonds meant to last through 30 years of retirement.

If the ratio was above 20, indicating that stocks were overvalued, than a 4.5 percent withdrawal rate was prudent given that the stock market was likely to fall. But if it was between 12 and 20 (the historical median is roughly 15.5), a 5 percent rate was safe, tested against every historical period for which data was available. And if it was under 12 — a level it almost got to earlier this year — a rate of 5.5 percent would work.

The most recent figure was 17.67, which suggests a 5 percent withdrawal rate for current retirees. It had been above 20 until October 2008.

Mr. Kitces gets his ratios from a set of data that the Yale professor Robert Shiller creates and stores on Yale’s Web site , at I’ve provided a link to that data (Mr. Kitces uses column K in the Excel spreadsheet there) and to all of the other research in this column in the online version of this story."

Does anybody have any other alternative approaches/guidelines to arriving at a SWR?
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