Saturday, September 27, 2014

Part IV: Puttin’ It In; Takin’ It Out – Jim’s Judaic Personal Financial Planning Distribution Strategy

Part IV: Puttin’ It In; Takin’ It Out –
Jim’s Judaic Personal Financial Planning Distribution Strategy or
Yada, Yada, Yada – So What Are You Doing for Yourself, Einstein?

A little song; a little dance; a little seltzer down the pants
Mary Tyler Moore Show’s Chuckles The Clown

  1. This is my own strategy (‘The Full Schwartzie’ or for some ‘The Full Of It Schwartzie’) . It shouldn’t be regarded as a recommendation for anyone else.
  2. Context is everything per the objective
  3. Income Preservation supersedes Capital Preservation & Growth per #1 above even at the expense of Capital Preservation & Growth even my perPETuation© legacy if it comes to that (other than my own dogs’ welfare provision being intact should I predecease).
  4. The IRS’ RMD (required minimum distribution) override: at age 69 per the requirement of RMD that amount must be withdrawn from all my retirement accounts (by age 70 ½ rules)– regardless if it would overfund the objective and the preference of drawing down taxable accounts prior to tax deferred accounts (retirement accounts)

With the above in mind, see below what it takes to recover capital and why therefore income preservation at the expense of capital growth overrides in my own personal approach in what follows. (see chart)

If You Lose:
Gain Required to Break Even:
Again, with the caveat per Professor Thomas Sowell (regardless of personal financial gurus) “there are no solutions only tradeoffs’ and as an old flame (Flash, Class & Sass) once stated to me, ‘there is no security. We can only learn to live with our ‘insecuriorities’ – my cascade/mayimfall approach to distribution for me:

#1 The Buffers

Then Pharaoh had a dream. Hew was standing near the Nile, when suddenly seven handsome, healthy-looking cows emerged from the Nile, and grazed in the mash grass. Then another seven ugly lean cows emerged from the Nile, and stood next to the cows already on the river bank. The ugly, lean cows ate up the seven handsome, fat cows..
Genesis 41:1-4

            (The seven fatted cows were consumed by the seven lean cows – the first evidence for The Adkins diet?)
            So Joseph wisely counseled to put away grain during the seven good years for the seven lean years and the Pharaoh (okay at the expense of Egypt but that’s another story) would survive, benefit and thrive.
            #1 (A) Joseph’s Buffer
First, recognizing that money is just a medium of exchange for goods and services and the medium can be devalued and discarded, still having 2++ years (even at the expense of the rate of return required to meet the goal) is my #1 set aside.
            Yes, money markets, cash, cd’s lower the rate of return and may jeopardize the goal – yet I question the impact of that assumption. First, one can take higher deductibles in their insurance coverage be it home, auto, long term care etc – which is an indirect rate of return potential. More importantly, regardless of the cavalier assertion of one’s ability to withstand down markets (which are inevitable), volatility (in particular fear on the downside) kills rate of return (again see table above). While there is FOMO (fear of opportunity loss) there is also loss due to the response to volatility that effects the required rate of return and a buffer can limit that whipsaw downside to the rest of the portfolio allowing one to endure a little better knowing their ‘grain’ put away – even if having put away two plus years of ‘cash’ goes against one’s cavalier grain. (It’s better than getting the chaff (shaft) from volatility.)

            #1 (B) Contingency Buffer - The Standby Reverse Mortgage Credit Line

            To add to Joseph’s Buffer, I anticipate as Standby Reverse Mortgage Credit Lines become more available and less costly, to eventually add this to the buffer (which may actually allow release of part of the Joseph’s buffer for higher yield) unless The MUZZLeum@Bet Kelev (my home) is declared a Hysterical K9 Judaic ‘Muse’um.

#2 The Matching – Gotta Oughts Nicetas with Phases (Go Go, Slow Go, No Go)

Who is rich? One who is happy with what one has, as it is said, 'When you eat what your hands have provided, you shall be happy and good will be yours.' [Psalms 128:2]
Rabbi Ben Zoma in Ethics of The Fathers

Don’t sacrifice what you need for what you don’t need as things not worth doing are not worth doing well
            The budgeting of gottas (fixed must requirements), oughtas (flexible but shoulds), and nicetas (luxuries – not required, additional levels per category in the oughtas,) is done for each of three phases (go go, slow go, and no go) to determine the amount of each objective phase to fund.
            (As a charter member of Hermits ‘R Us and restricted in travel due to ear challenges, I’ve been in slow go since my 30’s.)

#3 Sequencing Distribution Between Taxable & Tax Deferred Accounts

            Taxable accounts (overridden by the RMD requirement at age 70 ½ though I’ll start at age 69) will be exhausted first though limited by to Obama’s 2.3% surtax once thresholds on investment income are reached. The withdrawal amount from taxable accounts is offset by the fact that tax deferred account distributions are not subject to the 2.3% surcharge but these tax deferred distributions from retirements plans still go into the base for the threshold for the surcharge on investment income (pushing taxable account withdrawals into the 2.3% surcharge).

#4 Running The Numbers

            Per retirement phase, I shall annually rerun the numbers both deterministically (average rate of return) and by Monte Carlo on amount of goal, duration and most importantly longevity using Given both my parents passed on (graduated before 61), gut wise, I’m reducing the resultant longevity number probably much to the delight of the small animal veterinarian community as well as the so called personal financial planning business and its personal financial planning pornography cheerleading media. That said the reduction in longevity is countered by an increase in my longevity given ‘the good die young.’
            Given the aforementioned, the critical other number is the after tax rate of return, therefore, required at the 85%, 90% and 95% probability of funding levels.

#5 Rules For My Distribution

  • All distributions (be it taxable or tax deferred accounts) will be sweep into money markets for either distribution, replenishing (see Joseph’s buffer), and or rebalancing
  • Given an increase in the stock markets, the distribution will be bumped up by inflation (maxed at 4%) if needed.
  • Given a decrease in the market – there will be no inflation bump to distribution

#6 Allocation (What You Have All Been Impatient For)

            Again subject to the above cascade #1 thru #5 above and three different calculations (yes, I’ll still do a go go (which means I’m in no go denial) phase and the intersecting gotta, oughta, nicetas levels   (save the Joseph’s buffer and or inclusion of a future reverse mortgage standby credit line in the gotta level) – here are the funding generic tools I’m using:

Gottas (includes social security to offset if still available):
  • Income funds or income etfs
  • REIT etf
  • Oil & Gas MLP’s (if not castrated by future government actions)
  • Balanced funds and or increasing dividend etfs
  • Go anywhere bond fund – ok here goes there is only one I’ll use Loomis Bond Fund as long as Dan Fuss is running it. No Fuss no bother with Loomis thereafter.
  • If reverse mortgage standby not utilized and if there is a shortfall in this category – then utilization of reverse mortgage annuity.
  • And ‘surprise surprise’ (as Gomer Pyle would say) with a gigantic IF attached– no load fixed and or variable annuities

These annuities must have no load or very low loads – no commissions etc. (On might call Low Load Insurance for available no load annuities) Secondly, the companies must be strong and S&P ratings etc don’t mean bubkes (look it up) to me. Better to have a low risky asset to surplus ratio and very high risk based capital ratio. In addition, the annuities would be laddered to minimize interest rate risk – buying them equally over at least a 3 year period. An alternative if one has a large gain in a low volatility mutual fund traded as a stock like Berkshire Hathaway or Markel – is over time, if the stock continues to rise by a new 10%+ - take 10%+ sale proceeds and place them into income or balanced funds essentially creating one’s own variable annuity – of course, without the guarantee. (Note considering these insurance actuarial “”geniuses”” history with long term care pricing, disability insurance debacles, and the 80’s crash value life insurance and insurers – that is why diversifying insurers and laddering is my personal approach).


  • Health mutual funds or ETFs
  • Energy mutual funds or ETFs
  • Minimum 3 Focused Value Mutual Funds which ironically creates a certain diversification


            I am not funding to this level in my distribution planning. Why? – I have nicetas – vacations  every day 365 days a year given being in company of my black standard male poodle Simcha and yes, even Her Royal Highness my black standard female poodle Goodie (who lately has become a more benign ruler to her subject me, her Duke of Dog.

            In any event, each year annually, I shall rebalance

#7 Withdrawal Rate

            Rather than 2.5%, 4%, “Omaha Omaha” (as Peyton Manning would bark) or ‘Moses, Moses’ (as Torah would state), if all the above funds the goal per all the overrides and criteria given the required probability of success I’ve previously stated being accomplished– then the percentage question is a moot point.
            Prepare the ground, context is everything, and hopefully the percentage withdrawal question is necessary.
            If additional withdrawal is needed, at that point I’ll determine whether it is 4%, 4.5%, 5% using the PE10 rules though it is all contingent, per Ecclesiates ‘all is ephemeral,’ and subject to change --- especially if I’m wearing Depends™ due to ‘seltzer down the pants.’

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