[It’s a pleasure to introduce Laur (Lauren) Davidson today. Laur is a senior at the University of Pennsylvania majoring in English and Communications. She wants to build a portfolio as a freelance writer and agreed to write a guest post for us – perfect timing because the ERN family is on vacation this week! The post is on a very timely topic: student loans and how they threaten even the parents’ finances if they cosigned their kids’ private student loans. Take it over from here, Laur!]
Half of Parent Cosigners Facing a Shaky Retirement
By Laur Davidson, a soon-to-be graduated freelance writer for hire
The sheer magnitude of the mountainous $1.4 trillion of debt weighing down 44 million Americans is rightfully grabbing headlines as a looming financial crisis. The devastating economic and social impact of student loan debt on borrowers, their families, the communities in which they live and the nation is well documented. Less known, but no less devastating is the impact student loan debt is having on well-intentioned parents who are suffering financially for having helped their students by cosigning their private educational loans. With the number of students unable to repay their private loans increasing each year, more and more parents are having to rethink their retirement plans.
Welcome back to our Safe Withdrawal Rate Series! Last week’s post on Sequence of Return Risk (SRR) got too long and I had to defer some more fun facts to this week’s post. Again, to set the stage, I can’t stress enough how important Sequence of Return Risk is for retirement savers. In fact, after doing all this research on safe withdrawal rates (start series here, and also check out our SSRN research paper) if someone asked me for the top three reasons a retirement withdrawal strategy fails I’d go with:
Sequence of Return Risk,
Sequence of Return Risk,
and let’s not forget that pesky Sequence of Return Risk!
Huh? Isn’t that lame? Surely, low average returns throughout retirement ought to be included in that list, right? Or even top that list, right? That’s what I thought, too. Until I looked at the data! Let’s get rolling and look at some more SRR fun facts.Read More »
This is a long overdue post considering how much we’ve written about safe withdrawal rates already. Sequence of Return Risk, sometimes also called Sequence Risk, is the scourge of early retirement. Or any retirement for that matter. So, here we go, finally, we have a designated post on this topic for our Safe Withdrawal Rate series (check here to go to the first post and also make sure you download Big Ern’s SSRN working paper on the topic).
Besides, in case you haven’t heard it, yours truly, Big Ern, was asked by Jonathan and Brad at ChooseFI to be an occasional contributor to their awesome Financial Independence podcast. Specifically, I’ll be the in-house expert on everything related to safe withdrawal rates. And that’s alongside an A-plus-rated team of experts: real estate guru Coach Carson, tax expert The Wealthy Accountant, and business guru Alan Donegan from PopUp Business School! How awesome is that? Because Sequence of Return Risk is something we’ll cover in the podcast soon as part of a crowdsourced case study, I thought it would be a good time to have a go-to reference post on the topic here on our blog. So, once again, make sure you head over to the ChooseFI podcast:
This issue is as old as personal finance itself: What should an investor do with a large windfall, say, a bonus, gift, inheritance, etc.? Invest it all at once as one big lump sum or should we “ease into the market” and invest the cash in multiple installments? The latter is called Dollar Cost Averaging (DCA). This is a popular topic in the personal finance world and many of you might have read about it. JL Collins had a blog post on why he doesn’t like DCA and Vanguard has a nice study with extensive simulations showing that, on average, the lump sum investment pretty handily beats DCA. The intuition for that result is pretty straightforward: equities go up on average, so if you sit on your hands and voluntarily delay your investments you will have lower returns on average.
End of story! End of story? Not so fast! Even if you’re familiar with the subject already, please keep reading because we’ll have a new spin on this old topic. Spoiler alert: we propose a way dollar cost averaging will reduce risk and have the same average return as the lump-sum investment!Read More »
Every six to seven weeks, we go through a tense week in the stock market. A bunch of very smart central bankers meet in Washington D.C. to decide on the path of U.S. monetary policy. Just like this week! U.S. monetary policy is determined by an elite group of Federal Reserve officials; the Federal Open Market Committee (FOMC). It has 8 scheduled meetings per year and the schedule is pre-announced for everyone to see. And the meetings are scary for the stock market. If by scary you mean scary profitable!Read More »