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Unveiling The Retirement Myth

Jim C. Otar · 1 HN comments
HN Books has aggregated all Hacker News stories and comments that mention "Unveiling The Retirement Myth" by Jim C. Otar.
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Amazon Summary
Here is a fresh look at lifelong retirement income planning, based on 109 years of market history. Extensive research shows that many of the fundamental concepts used in the current retirement planning practice are mostly useless. Myths and untruths about the importance of asset allocation, diversification, sustainable withdrawal rates, efficient frontier, time horizon are explained in detail. The futility of the prevailing Gaussian mindset in current investment planning is demonstrated with examples and case studies. The concept of Time Value of Fluctuations, non-Gaussian optimum asset allocation, the luck factor, reverse dollar cost averaging, warning signals of diminishing luck, various asset allocation, dedication and selection strategies are covered in detail. Finally, solutions for lifelong income, what works and what does not work are offered using numerous examples. The Zone; strategy that enables you to select and combine all income classes such as investment portfolios, life annuities, variable annuities with guaranteed withdrawal or guaranteed income in a Perfect Mix for guaranteed lifelong income.
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My first comment was based on the simplistic onboarding flow before being asked to login. I've poked around the site a little more and have additional comments.

The site is for folks that are ok with a probability of success. There are folks that want better guarantees, probably annuities. Wade Pfau, who has been researching retirement planning for 15+ years has a good description of the issues in his Retirement Planning Guidebook [0] which talks about his RISA model. Looks like he's now productized it at [1].

I looked at the asset allocation recommended over time, and I think that should be adjustable based on the users level of risk.

I like your guide concept, but the content feels pretty generic. I think any product in this space needs to have a big emphasis on educating the user about the issues. I would like to see this integrated into the calculator better. Maybe a report that lists the issues that the product handles, then customizes the list for this particular financial plan showing if and when in the plan the issue applies and gives further resources to learn about the issue. Order it by when, so the customer has a financial issue learning plan.

In the education theme, the product is making lots of unstated assumptions now, and it makes it hard to interpret the output. As my teachers (and probably your teachers as well) said, ALWAYS state your assumptions.

Another way you can make your product more usable is to figure out what the top questions your customers want to answer and then build guides to show them how your product answers that question. I see you've got a part time position open to figure out customer needs, this could make it easier to close a sale. It may be possible to go through the forums at various groups like Mr. Money Mustache, Bogleheads, etc to find common questions.

Speaking of education, the algorithm needs to be well documented. Otherwise it could be based on a random number generator for all I know. Is it based on historical market data? Or is it Monte-Carlo based? If it's MC, then what data is generated and how? Is the data different on each run, or is it the same MC data used for every run for all folks (essentially treated the same as generated historical data.) Jim Otar has some good comments about MC in his book "Unveiling the Retirement Myth" [2]. He's not a fan of most Monte Carlo data generators, but gives a set of tests that any good MC generator should pass. He's a fan of using historical data. Karsten (a retired economist) at Early Retirement Now [3] has done quite a bit of work on Safe Withdrawal Rates using historical data above and beyond what Began has done.

Have you used Financial Engines at all? It was around a dozen years or so ago much like what you are building that William Sharpe was involved in. They tried to partner with 401k providers to offer it as an upsell to large companies. I have an old 401k that still has it. They started as a tool for the DIY, but pivoted to managing your 401k for a percentage of assets.

A recommendation for you is to make the initial onboarding a big more clear as to what type of account and whose account it is for those that are married. Getting quality data here will help for the features I am going to suggest.

Some feature suggestions for you to think about that could be competitive differentiators:

1. Help estimate life insurance needs for folks. There are a number of approaches, income replacement and expense liability matching are a couple common ones. This is a feature that your competitors don't have and fits with the demographic you are targeting. There is a lot of opportunity for education in this area. There is the opportunity for referral income by referring folks that truly understand their insurance needs and are ready to buy.

2. Different forum communities have standardized formats for background data for asking questions. Make it easy to get your data in that format for asking a question. This would mean engaging more with those communities.

3. It looks like the plans go out to about 100 years old. Open Social Security uses five different mortality tables to estimate life expectancy or an entered age, which can tune a plan to meet someone's situation much better.

4. Forced early retirement. It's happened many times in the past and likely will again.

5. Divorce. This is a tough one, but it's fairly common these days, and throws a real monkey wrench in financial plans. The rules differ per state making it lots of work. Some have fairly clear rules that could be implemented, others are kinda up to the judge. Real World Divorce [4] may be usable as a survey to get a feel for the scope of the different rules.

I'd like to object to your statements "social security relevant (it's better for younger folks not to count on it)" and "it's tough to forecast how much younger folks should count on it, so we've left it out for now" It's really easy to handle this. Look at how Open Social Security handles it. There is a year and a reduction percentage. He fills in defaults from the Social Security Trustee report, since they are required to estimate it based on current law. For younger folks the year probably doesn't matter, since it will happen before they withdraw, just the percentage matters. This is an opportunity to educate folks rather than perpetuate the fear that it won't be there for them. For many of them it will probably be their largest income source in retirement even after the reduction.

I don't think the complexity of the questions that early retirees have like Roth conversion or 0% cap gains is any more complex than the buy a bigger house question. Look at the complexity of the NYTimes Buy vs Rent calculator [5]. I suspect the buy a bigger house is similarly complex when you really dig into it.

Happy to answer any other questions you have.

[0] https://www.amazon.com/Retirement-Planning-Guidebook-Navigat...

[1] https://risaprofile.com/risa-how-it-works/

[2] https://www.amazon.com/Unveiling-Retirement-Myth-Jim-Otar/dp...

[3] https://earlyretirementnow.com/safe-withdrawal-rate-series/

[4] http://realworlddivorce.com

[5] https://www.nytimes.com/interactive/2014/upshot/buy-rent-cal...

gerad
Wow, thanks so much for taking so much time to leave such detailed feedback! I'd love to chat more in real-time if you're willing. You can reach me at my hn username at livefortunately.com to schedule some time that works for you if you're interested.

Some selected responses.

| 1. Help estimate life insurance needs for folks.

Yes! This is completely on vision and part of why we founded the company (my co-founder is an actuary). We have plans to do a gap-analysis style life insurance recommendations - your needs decrease as your savings grow. He's written on right-sizing your insurance (though income replacement style) at the white coat investor [0].

| Have you used Financial Engines at all?

Yes! I actually worked (indirectly) with Bill Sharpe early in my career, and one of the founders of FE is an advisor of ours.

| Is it Monte-Carlo based? If it's MC, then what data is generated and how?

Yes. We license our simulations from the same place that many hedge funds and the insurance industry get theirs. It's the best in the business.

| Look at how Open Social Security handles it. There is a year and a reduction percentage. He fills in defaults from the Social Security Trustee report, since they are required to estimate it based on current law

I didn't know. Thank you, this is super helpful and informative.

| Open Social Security uses five different mortality tables... Forced early retirement.

Yes! This is also part of the core product vision. It's just a bit tricky in practice to communicate in the product, so we haven't incorporated it into the product yet. Will check out Open Social Security.

It seems like you really understand our vision. Again, I'd love to chat in real-time if you're willing - you have a lot of wonderful insight and I'd appreciate being able to discuss some of these things in more detail.

[0] https://www.whitecoatinvestor.com/layering-life-insurance-po...

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