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Book report: "Work Less, Live More"
Nords 11-11-2005, 12:02 AM | Post #159414 | 
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This subject combines Bogle's philosophy & Vanguard funds with early retirement, a topic near & dear to my heart. It's a compromise that even Dr. Bernstein could live with.

Bob Clyatt, a frequent poster at early-retirement.org, has distilled the best of the board and added his personal research to ER. Nolo is shipping the book now and he's also donating copies to libraries. I'm adding a copy to the Hawaii state library.

The book discusses lifestyle issues & questions with a bit of investing theory. Heavy number-crunching is limited to the appendices and isn't necessary to enjoy the stories. Bob fully retired over four years ago but began to realize that (1) he was concerned about his ER portfolio survival and (2) he still felt like working. His compromise has been "early semi-retirement" with as much work as he wants, interrupted by family time & long vacations. He doesn't work for a specific length of time or a certain amount of money, just enough to sleep well at night. It's more of an avocation-- part of his "work" is researching & writing this book, drawn from the experiences of those who have fully ER'd as well as those who have compromised or even gone back to full-time employment.

He points out that it doesn't take as much as you'd expect to ER, and many do it on the mid-six figures. While most people ER because they don't like their current employment or because they want to do other things, for many the full ER decision may be complicated by lifestyle compromises-- low-cost living areas, cashing in the home equity, and living frugally. Some make a barebones portfolio go farther by living abroad. Other couples have earned dual incomes for two or three decades and retire comfortably with paid-off mortgages, kids, plenty of travel, & luxury entertainment. The two biggest challenges are affordable healthcare and beating inflation. Lifestyles are as varied as the ERs, and boredom is more a pre-retirement fear than an ER affliction. He doesn't tell you what to do all day, but he shows you that it's not a problem.

His research on portfolios and safe withdrawal rates is an unexpected bonus. He studies a variety of "rational investing portfolios" by building on Bernstein & Bogle with extensive backtesting from a DFA advisor. The portfolios are evenly split between stocks & bonds but prefer a tilt toward smaller caps, value, and international. Additional classes can be added to the mix (REITs, commodities) or not-- it could be as simple as just buying Vanguard Wellington. Most of the investments are index mutual funds (especially Vanguard) or low-fee ETFs. The most diversified RIP (16 asset classes) returned 9.5% annually over 16 years with less than 8% volatility. (The biggest problem with the backtesting is finding appropriate long-term performance data for the more exotic asset classes.) Simpler portfolios have been backtested for much longer with lower volatility than the S&P500 or even a 60/40 S&P500/T-bill mix. Of course Wellington goes back to the 1920s.

His SWR approach improves greatly on today's calculators. While most of the calculators are designed to adjust withdrawals for inflation, none of them allow the user to vary the withdrawal rate. We'd like to feel comfortable about taking out a little more money in good years or to know how much to tighten our belts in down years. If nothing else, we'd like to rebalance by selling off winning stocks in bull markets or by drawing down bonds in bear markets. Bob's compromise is to combine the RIP techniques with a reduced SWR during down years. He used the DFA Matrix Book's 78-year returns and Ibbotson's Treasury data to test rolling periods from 1927 to today. It started with an initial withdrawal rate between 4-5% and raised that amount annually by the previous year's CPI. In years of down markets, spending was limited to 95% of the previous year's withdrawal but picked back up in the year that the markets recovered. While many studies argue that a safe withdrawal rate should be 2-3%, a rational investing portfolio with this withdrawal method produced survivable SWRs of 4-4.5% for decades. A 4% SWR survived 40 years with 100% success. Of course this success rate is tempered by referring to Bernstein's "Calculator from Hell" articles.

RIP & 95% SWR are important concepts, but they don't get in the way of the stories. Many people have met the same ER challenges that others are struggling with, and a great lifestyle costs less than you'd think. This book bridges the planning gap between Young Dreamers & full-time ER.

Originally posted in thread: 45136
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