What does "won the game stop playing" mean in practice?

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flyingaway
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Re: What does "won the game stop playing" mean in practice?

Post by flyingaway »

This thread is about what did the original statement mean, not about that any one of us thinks what is the best or better strategy.

Since the original statement author is still there, maybe we can ask him/her to clarify it.
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watchnerd
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Re: What does "won the game stop playing" mean in practice?

Post by watchnerd »

flyingaway wrote: Mon Apr 19, 2021 1:48 pm This thread is about what did the original statement mean, not about that any one of us thinks what is the best or better strategy.

Since the original statement author is still there, maybe we can ask him/her to clarify it.
Direct quote:
"If, at any point, a bull market pushes your portfolio over the LMP "magic number" of 20 to 25 your annual cash flow needs beyond social security and pensions, you've won the investing game. Why keep playing it? Start bailing. After you've put enough TIPS, plain vanilla Treasuries, and CDs into your mental LMP, you're free to start adding to your RP."
The intent seems pretty clear to me.

Agreeing or disagreeing with it is a different matter.
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Re: What does "won the game stop playing" mean in practice?

Post by willthrill81 »

goingup wrote: Sun Apr 18, 2021 9:43 am That phrase just doesn't resonate with me. It doesn't make much sense (to me).

As long as you invest (be it stocks or bonds) you are in the game. Most of us here will be in the game to our last breath. :wink:

Just because it's an oft-repeated saying doesn't mean it's wise.
:thumbsup :beer

It's not a game, and many will keep 'playing' for heirs and charity. Investing is not a a slot machine.
“Good and ill have not changed since yesteryear; nor are they one thing among Elves and Dwarves and another among Men.” J.R.R. Tolkien, The Lord of the Rings
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Re: What does "won the game stop playing" mean in practice?

Post by dbr »

watchnerd wrote: Mon Apr 19, 2021 1:56 pm
Direct quote:
"If, at any point, a bull market pushes your portfolio over the LMP "magic number" of 20 to 25 your annual cash flow needs beyond social security and pensions, you've won the investing game. Why keep playing it? Start bailing. After you've put enough TIPS, plain vanilla Treasuries, and CDs into your mental LMP, you're free to start adding to your RP."
I've not really studied Bernstein carefully and I remain confused if he means for people who have 25x to invest all of it in the above named assets. Where my problem comes from is that we don't believe 100% bond portfolios sustain 4% SWR. Part of the ambiguity is the wording "add to" your RP. I know part of what is going on here is that annual cash flow needs means money needed for essentials and that there is a "risk" portfolio for other money for "discretionary" needs. If you think of portfolios described by asset allocation between stocks and bonds and don't think of dividing up the portfolio you have to look carefully to see what is really meant.

Also, that quote above refers to a "mental LMP." Remember Bernstein is also the author of the actual LMP, either inflation indexed annuity or 30 year TIPS ladder. I get confused about an LMP that isn't really an LMP. The annuity idea and the TIPS ladder seem to me to make some sense for a person who wants to take that path. Of course one would probably not annuitize all one's assets, but absent a pension and Social Security it might be helpful. The TIPS ladder is not a bad idea if bought at a real interest rate of 2% and a payout of 4.4% inflation indexed. At at a real interest rate of 0% the payout is 3.3%, which might indicate some rethinking.

If you do have a spending need that is 70% necessary and 30% discretionary and you put the 25x necessary in bonds and 25x discretionary in stocks you end up at 70/30 and a 4% withdrawal rate. I am not sure I have seen Bernstein discuss investment portfolios understood by asset allocation and withdrawal rate, but that is my fault in not spending a lot of time understanding it. Certainly the annuity and TIPS ladder LMP comes about in order to avoid relying on withdrawal rate forecasting.
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Re: What does "won the game stop playing" mean in practice?

Post by DV Nayak »

BH+ wrote: Sun Apr 18, 2021 12:01 pm My take is that once I reach 40x annual expenses, I will change my asset allocation to 20/80 and keep it there indefinitely.

The 20% stock allocation is there to provide a buffer against inflation and (ever so slightly) participate in prosperity (avoiding FOMO).
I have exceeded 40x but my PF Has accumulated substantial LT gains due to buy and hold of haphazardly purchased combo of self-managed 42 holdings (mostly vanguard funds/ETFs,and some stocks) My current AA is 96% equities,2%muni bonds, 2%cash. The ER is 0.27.Correlates well with Wilshire 5000 index. I am caught between a ‘rock and a hard place’ of a soaring ‘glide path’. Furthermore DW and I both have good SS+pensions (we are in our mid seventies) Our RMDs cover annual expenses,charity giving, 529,gifts, and more! Mind you, I am not complaining, it’s a very pleasant dilemma to have . The point is even though’the game is over’ we need to continue to play it for the sake our children and grandchildren.Even if the market crashes big time we will survive but with substantially reduced legacy to pass on.
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MathWizard
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Re: What does "won the game stop playing" mean in practice?

Post by MathWizard »

flyingaway wrote: Mon Apr 19, 2021 1:48 pm This thread is about what did the original statement mean, not about that any one of us thinks what is the best or better strategy.

Since the original statement author is still there, maybe we can ask him/her to clarify it.
Op here:

I understood that it meant take less risk, but was unsure
what was really what the action should be to "take less risk".
Shift to all cash, shift to a high bond vs stocks asset allocation,
buy a SPIA?

To me, equities and bonds (or CDs or cash in a mattress) both have risks, they are just different risks.
By holding some of each, you diversify the risks (volatility vs. inflation and interest rate risk), and accept lower
expected return.

My current plan is just to shift my AA towards more bonds. With my current AA, I do have
more in bonds than needed for 25x base expenses - guaranteed income (like SS).

I just wanted to know if there was a more clear definition of "stop playing"
that what I understood. Essentially "Unknown Unknowns".

I appreciate all the responses.
flyingaway
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Re: What does "won the game stop playing" mean in practice?

Post by flyingaway »

In that case, after you won your game, stop playing with bitcoin, play golf instead.
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Re: What does "won the game stop playing" mean in practice?

Post by halfnine »

MathWizard wrote: Mon Apr 19, 2021 2:57 pm ...I just wanted to know if there was a more clear definition of "stop playing"
that what I understood. Essentially "Unknown Unknowns"...
To me it means diversifying beyond stocks and bonds and insuring (to some extent) against lower probability, high risk events. Gold, property, having assets domiciled elsewhere, foreign citizenships, etc.
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watchnerd
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Re: What does "won the game stop playing" mean in practice?

Post by watchnerd »

dbr wrote: Mon Apr 19, 2021 2:24 pm Certainly the annuity and TIPS ladder LMP comes about in order to avoid relying on withdrawal rate forecasting.
Some author I read (it might have been Kitces, or maybe Bernstein himself), described the spectrum as having "safety first" at one end and "probabilistic portfolios" / Monte Carlos at the other.

I think you can blend the two.

We're at 40x, but we don't put 20-25 years into our LMP ladder.

We cap it at a rolling 10 years into the future to provide an income floor / "bond tent" (barf) / rising equity glide path that we estimate is long enough to last through a bad bear without needing to withdraw from equities in a substantial way (i.e. 0-1% SWR).

But the opportunity cost for this is high, as we're earning near 0 real return on the LMP....and thus we don't want to "overbuy insurance".

The remaining 30x goes into the risk portfolio .

Alternatively, they could be described as the "proscriptive outcome" and "probabilistic outcome" ports.
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Re: What does "won the game stop playing" mean in practice?

Post by Pigeye Brewster »

MathWizard wrote: Mon Apr 19, 2021 2:57 pm Op here:

I understood that it meant take less risk, but was unsure
what was really what the action should be to "take less risk".
Shift to all cash, shift to a high bond vs stocks asset allocation,
buy a SPIA?

To me, equities and bonds (or CDs or cash in a mattress) both have risks, they are just different risks.
By holding some of each, you diversify the risks (volatility vs. inflation and interest rate risk), and accept lower
expected return.

My current plan is just to shift my AA towards more bonds. With my current AA, I do have
more in bonds than needed for 25x base expenses - guaranteed income (like SS).

I just wanted to know if there was a more clear definition of "stop playing"
that what I understood. Essentially "Unknown Unknowns".

I appreciate all the responses.
From a 2/17/2015 WSJ article by Bill Bernstein titled "How to Tell if Your Retirement Nest Egg is Big Enough":
Add up your basic annual expenses, and make sure to include taxes you'll owe on required and voluntary withdrawals on your retirement accounts and on the income and capital gains in your taxable assets. Then subtract your Social Security and, if you're lucky, pensions checks. This leaves you with your residual living expenses, or RLE.

If you need $70,000 a year to meet expenses and pay taxes - and if your Social Security and pension income amounts to $30,000 a year - you must come up with an RLE of $40,000. A good rule of thumb is to have, at the very least, 25 years of RLE saved up to retire at 60, 20 years to retire at 65, and 17 years to retire at 70 - or in this case $1 million, $800,000 and $680,000, respectively.
He later adds:
Both historical back testing and Monte Carlo analysis suggest that a 65-year-old with only 20 years of RLE in his nest egg should hold no more than 50% of his portfolio in equities; if you have 35 years of RLE, then up to 70% is probably safe; and if you have 50 years of RLE, then even an all-stock portfolio is probably safe if you can stomach it.
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Re: What does "won the game stop playing" mean in practice?

Post by sycamore »

watchnerd wrote: Mon Apr 19, 2021 3:31 pm ...
Some author I read (it might have been Kitces, or maybe Bernstein himself), described the spectrum as having "safety first" at one end and "probabilistic portfolios" / Monte Carlos at the other.
Side note: maybe you're thinking of Wade Pfau and Jeremy Cooper who had a paper back in 2014 called The Yin and Yang of retirement income philosophies. It discusses the spectrum from probability-based to safety-first.
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Re: What does "won the game stop playing" mean in practice?

Post by Samueul »

Pigeye Brewster wrote: Mon Apr 19, 2021 4:02 pm
MathWizard wrote: Mon Apr 19, 2021 2:57 pm Op here:

I understood that it meant take less risk, but was unsure
what was really what the action should be to "take less risk".
Shift to all cash, shift to a high bond vs stocks asset allocation,
buy a SPIA?

To me, equities and bonds (or CDs or cash in a mattress) both have risks, they are just different risks.
By holding some of each, you diversify the risks (volatility vs. inflation and interest rate risk), and accept lower
expected return.

My current plan is just to shift my AA towards more bonds. With my current AA, I do have
more in bonds than needed for 25x base expenses - guaranteed income (like SS).

I just wanted to know if there was a more clear definition of "stop playing"
that what I understood. Essentially "Unknown Unknowns".

I appreciate all the responses.
From a 2/17/2015 WSJ article by Bill Bernstein titled "How to Tell if Your Retirement Nest Egg is Big Enough":
Add up your basic annual expenses, and make sure to include taxes you'll owe on required and voluntary withdrawals on your retirement accounts and on the income and capital gains in your taxable assets. Then subtract your Social Security and, if you're lucky, pensions checks. This leaves you with your residual living expenses, or RLE.

If you need $70,000 a year to meet expenses and pay taxes - and if your Social Security and pension income amounts to $30,000 a year - you must come up with an RLE of $40,000. A good rule of thumb is to have, at the very least, 25 years of RLE saved up to retire at 60, 20 years to retire at 65, and 17 years to retire at 70 - or in this case $1 million, $800,000 and $680,000, respectively.
He later adds:
Both historical back testing and Monte Carlo analysis suggest that a 65-year-old with only 20 years of RLE in his nest egg should hold no more than 50% of his portfolio in equities; if you have 35 years of RLE, then up to 70% is probably safe; and if you have 50 years of RLE, then even an all-stock portfolio is probably safe if you can stomach it.
As a federal employee at 49 and 13 years until my projected retirement, if I follow this rational for RLE using today’s dollars I’m already exceeding my RLE (roughly $48000) by a few thousand dollars just with my Federal FERS pension and Social Security calculation. I’m having a hard time believing that is the case? I’m on track to have quite a bit more taking into account my TSP, Roth, and taxable. Does that mean I’m well on my way to “winning the game”?
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watchnerd
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Re: What does "won the game stop playing" mean in practice?

Post by watchnerd »

sycamore wrote: Mon Apr 19, 2021 7:32 pm
watchnerd wrote: Mon Apr 19, 2021 3:31 pm ...
Some author I read (it might have been Kitces, or maybe Bernstein himself), described the spectrum as having "safety first" at one end and "probabilistic portfolios" / Monte Carlos at the other.
Side note: maybe you're thinking of Wade Pfau and Jeremy Cooper who had a paper back in 2014 called The Yin and Yang of retirement income philosophies. It discusses the spectrum from probability-based to safety-first.
Thanks!

I probably read a paraphrase or reference to it elsewhere, as I would have remembered the ying yang.

But I'll give this a read!
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TPIR
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Re: What does "won the game stop playing" mean in practice?

Post by TPIR »

Is 0% real truly anti fragile?

30 year TIPS on paper but what if inflation definition gets recalibrated, what about the tax impact of the inflation adjustment

An annuity has firm risk even if you found an inflation adjusted one.

There’s a lack of diverse options that will give you a near guarantee of 0 nominal plus CPI every year for a decades plus period of time. That’s not new either. It’s the free market at work. There’s a reason there are so few inflation indexed products in the private market.

Antifragile is accepting some short term market risk along the way in a market economy to minimize long term risk. It might not be 50 or even 20% equities but there should be some exposure to productive private enterprise if you want to minimize longevity risk.

Different for everyone and will vary some based on estate goals although you’ll find perpetual withdrawal rates don’t differ as much as you’d think from shorter horizon withdrawal rates with a diversified portfolio.
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Re: What does "won the game stop playing" mean in practice?

Post by KlangFool »

TPIR wrote: Mon Apr 19, 2021 8:08 pm
Is 0% real truly anti fragile?
TPIR,

What do you mean by that statement?

A) If you meant that a person with 0% REAL requirement and put 100% into TIPS, the answer is no. Nothing is anti fragile if you keep all the eggs in one basket. Regardless what the basket is.

B) If the person with a portfolio large enough that 0% REAL RETURN can work and the person diversified his investment across CASH, US Stock, International Stock, US bond, and so on. The answer could be yes. The portfolio would be more than 30X annual expense. With a good sequence of returns, it would be 40X to 50X after the first few years.

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Re: What does "won the game stop playing" mean in practice?

Post by TPIR »

KlangFool wrote: Mon Apr 19, 2021 8:25 pm
TPIR wrote: Mon Apr 19, 2021 8:08 pm
Is 0% real truly anti fragile?
TPIR,

What do you mean by that statement?

A) If you meant that a person with 0% REAL requirement and put 100% into TIPS, the answer is no. Nothing is anti fragile if you keep all the eggs in one basket. Regardless what the basket is.

B) If the person with a portfolio large enough that 0% REAL RETURN can work and the person diversified his investment across CASH, US Stock, International Stock, US bond, and so on. The answer could be yes. The portfolio would be more than 30X annual expense. With a good sequence of returns, it would be 40X to 50X after the first few years.

KlangFool
A) where it was brought upthread where 30 year TIPS and a couple other currently non negative real yielding options were available to fit the bill. And B to the extent they target a fixed annual outcome vs a risk profile for long term outcome.

Too often retirees get caught in yield chasing / targeting rather than B you describe - risk targeting.
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Re: What does "won the game stop playing" mean in practice?

Post by KlangFool »

TPIR wrote: Mon Apr 19, 2021 9:35 pm
KlangFool wrote: Mon Apr 19, 2021 8:25 pm
TPIR wrote: Mon Apr 19, 2021 8:08 pm
Is 0% real truly anti fragile?
TPIR,

What do you mean by that statement?

A) If you meant that a person with 0% REAL requirement and put 100% into TIPS, the answer is no. Nothing is anti fragile if you keep all the eggs in one basket. Regardless what the basket is.

B) If the person with a portfolio large enough that 0% REAL RETURN can work and the person diversified his investment across CASH, US Stock, International Stock, US bond, and so on. The answer could be yes. The portfolio would be more than 30X annual expense. With a good sequence of returns, it would be 40X to 50X after the first few years.

KlangFool
A) where it was brought upthread where 30 year TIPS and a couple other currently non negative real yielding options were available to fit the bill. And B to the extent they target a fixed annual outcome vs a risk profile for long term outcome.

Too often retirees get caught in yield chasing / targeting rather than B you describe - risk targeting.
Thank you for the clarification.

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Re: What does "won the game stop playing" mean in practice?

Post by Escapevelocity »

shess wrote: Sun Apr 18, 2021 10:48 am
As a specific example of stopping playing the game, a few years back I realized I was well past my reasonable retirement numbers. So I took some stock off the table and paid off my mortgage, and a few years later tried early retirement on for size. The stock I sold to pay down my mortgage has gone up 3x since that time, so on paper I've lost a fair bit. But I mostly don't care, because having that cash wouldn't solve any problems in my life, it would just be additional numbers in my portfolio. I already have the house I want, the cars I want, the vacations I want, ability to put the kids through school, etc. But if I had stuck with the mortgage and the stock had tanked, I'd probably still be working, and might have to tamp down on vacations and maybe work harder to talk the kids into cheaper school choices. The potential rewards weren't worth the risks.
Best answer yet. Only take risk to the degree that it will improve your ability to live the life you want. Think of that clown that lost $11B of his family wealth at Archegos Capital (family office hedge fund). He didn't have the sense or wisdom expressed above and now is probably going to be rubbing nickels together in his old age.
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Re: What does "won the game stop playing" mean in practice?

Post by anon3838 »

KlangFool wrote: Mon Apr 19, 2021 12:49 pm
1210sda wrote: Mon Apr 19, 2021 10:28 am Klang, thank you for the response.

As I said, not everyone will be able to fully fund their expenses with just the fixed income portion of their portfolio.

You are fortunate that your Residual Living Expenses are quite low at $15,000. Others may not be as fortunate.

Do you consider your portfolio to be a Liability Matching Portfolio?

What does your Fixed Income portfolio consist of?
1210sda,

<<You are fortunate that your Residual Living Expenses are quite low at $15,000. Others may not be as fortunate.>>

Whatever word that you could use, the word "fortunate" is probably the wrong word.

A) Most of my income peers choose to spend a lot more.

B) I choose to save 1 year of expense every year.

C) I was unemployed for more than 1 year a few times.

D) I lost 50% of my portfolio in Telecom Bust.

E) I have to move half across the world a few times to find employment.

This is the result of a lot of hard work and sacrifice across 20+ years. The word, "fortunate", just do not seen to be correct. Survive and thrive are probably more accurate.

KlangFool
+1
almostretired1965
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Re: What does "won the game stop playing" mean in practice?

Post by almostretired1965 »

So the way, I interpret it is to put yourself in a position where the risk of ever running out of money is close to zero. Operationally, the way I was planning to do that when I was expecting to work until close to 65, was to figure out roughly how much I would need on a monthly basis (including any expected tax liabilities) and purchase a fixed annuity that would cover the difference between the amount and social security. Whatever is left can be in whatever allocation I feel like at the time, say 60/40 or 100/0. This basically amounts to creating my own pension, albeit only partially inflation protected.

Today, with such low interest rates, this seems less attractive than what it was back in the 1990s when I first thought about it so I am unlikely to proceed. Instead, I just plan to make sure the bond portion of my portfolio does not drop below say 15-20x expenses. At the moment, this implies a maximum stock/bond allocation of around 80/20, which coincidentally is roughly where I am.
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Re: What does "won the game stop playing" mean in practice?

Post by watchnerd »

almostretired1965 wrote: Mon Apr 19, 2021 11:25 pm Instead, I just plan to make sure the bond portion of my portfolio does not drop below say 15-20x expenses. At the moment, this implies a maximum stock/bond allocation of around 80/20, which coincidentally is roughly where I am.
So your portfolio is 100x? :beer

Or is the 80% the bond.....? :sharebeer
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Wrench
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Re: What does "won the game stop playing" mean in practice?

Post by Wrench »

sycamore wrote: Mon Apr 19, 2021 7:32 pm
watchnerd wrote: Mon Apr 19, 2021 3:31 pm ...
Some author I read (it might have been Kitces, or maybe Bernstein himself), described the spectrum as having "safety first" at one end and "probabilistic portfolios" / Monte Carlos at the other.
Side note: maybe you're thinking of Wade Pfau and Jeremy Cooper who had a paper back in 2014 called The Yin and Yang of retirement income philosophies. It discusses the spectrum from probability-based to safety-first.
Thank you so much for this link! The article puts a number of approaches in perspective, and offers some guidance for finding one that fits each person based upon their risk tolerance, personal circumstances and overall approach to retirement. I particularly like Table 6:
"Table 6: Determining comfort with probability-based or safety-first
1. How does stock market volatility affect your sleeping patterns?
2. Are you particularly fearful about outliving your assets or having to reduce spending dramatically at higher ages?
3. Is your standard of living (as distinct from annual spending amounts) vulnerable to a large market decline? In other words,
do you have limited flexibility to reduce spending and still remain comfortable?
4. How funded is the retirement plan? Could you meet your goals without market risk, or is seeking upside integral to the
success of the plan?
5. Is it worth seeking greater upside potential when it exposes you to downside losses? How would you feel if your assets
doubled in value? What if they lost half their value?
6. How do bequest motives compare to spending goals?"

After reading it,I have a much better appreciation for my own approach, but also why/how others would be comfortable choosing a completely different approach.

Wrench
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Re: What does "won the game stop playing" mean in practice?

Post by Dude2 »

There are some good posts here if you use the search feature and go back through time, and the nugget of actionable wisdom is to investigate the work of Merton, for example, this paper, and put things into the perspective of how you are going to pay yourself income for the rest of your life. Once you've gotten that solved, ideally a TIPS ladder or combo with annuities, you've won the game. There's no need for wealthy people to take the same risks that non-wealthy people have to take. Get off of that train -- guarantee your safety. Above and beyond that, whatever other goals you have for charity for heirs, maybe that's money you keep on the train.
Then ’tis like the breath of an unfee’d lawyer.
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Re: What does "won the game stop playing" mean in practice?

Post by JVT »

Samueul wrote: Mon Apr 19, 2021 7:44 pm
Pigeye Brewster wrote: Mon Apr 19, 2021 4:02 pm
MathWizard wrote: Mon Apr 19, 2021 2:57 pm[...]
From a 2/17/2015 WSJ article by Bill Bernstein titled "How to Tell if Your Retirement Nest Egg is Big Enough":
Add up your basic annual expenses, and make sure to include taxes you'll owe on required and voluntary withdrawals on your retirement accounts and on the income and capital gains in your taxable assets. Then subtract your Social Security and, if you're lucky, pensions checks. This leaves you with your residual living expenses, or RLE.

If you need $70,000 a year to meet expenses and pay taxes - and if your Social Security and pension income amounts to $30,000 a year - you must come up with an RLE of $40,000. A good rule of thumb is to have, at the very least, 25 years of RLE saved up to retire at 60, 20 years to retire at 65, and 17 years to retire at 70 - or in this case $1 million, $800,000 and $680,000, respectively.
He later adds:
Both historical back testing and Monte Carlo analysis suggest that a 65-year-old with only 20 years of RLE in his nest egg should hold no more than 50% of his portfolio in equities; if you have 35 years of RLE, then up to 70% is probably safe; and if you have 50 years of RLE, then even an all-stock portfolio is probably safe if you can stomach it.
As a federal employee at 49 and 13 years until my projected retirement, if I follow this rational for RLE using today’s dollars I’m already exceeding my RLE (roughly $48000) by a few thousand dollars just with my Federal FERS pension and Social Security calculation. I’m having a hard time believing that is the case? I’m on track to have quite a bit more taking into account my TSP, Roth, and taxable. Does that mean I’m well on my way to “winning the game”?
Having a pension makes it much easier to 'win the game' by reducing the amount your portfolio has to support. The risk here is that you have not fully won as you are counting on 13 years of benefits assuming future work and no changes to the pension system. The other big factor is that if you have to make sure any reductions in saving don't increase your RLE to the point that the pension and social security are not enough to cover them. Cutting say 10k a year in savings and getting used to that in your base line budget would increase your RLE from 48k to 58k, at which point you would need to make sure your pensions + portfolio income still supports that withdrawal rate. Look into CoastFIRE.

As another fed in FERS, I tend to look only at the MRA + 10 vested balance and discount it over the years until retirement when the COLA's start rather than focusing on the full retirement age estimated benefit. While I might plan on working to retirement age, something could always come up. Once I get closer I will focus more on the full retirement age benefit, but I would be careful declaring that 'I won the game' until the benefits that you are currently vested with and could retire today with plus portfolio fully cover you RLE.
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Re: What does "won the game stop playing" mean in practice?

Post by deltaneutral83 »

To me it's taking risk (especially uncompensated risk like single stocks or some other speculation) off the table and simplifying. If you have reached your goal of 33x and that equals something like $2M, is it worth it to remain 100% equities to go for 15x more while risking 15x to the downside? Probably not, I guess its similar to sequence of returns. In nominal terms, if you have $2M, a $1M gain won't do you nearly as much good as a $1M loss will do you bad, especially if you're running out of human capital.

Many of the recognizable BH's have stated in their books about clients who have large NW's, say 8 figures, take too much risk (buying small businesses, single stocks, sketchy partnerships, etc.) at an age with minimal human capital only to lose a significant portion. I'm sure Bernstein has seen a client with $20M who wants $30-$40M take big risks only to then lose most of the nest egg which they will never get back with very little human capital left.
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Re: What does "won the game stop playing" mean in practice?

Post by 1210sda »

If someone has both a liability matching portfolio and a risk portfolio. And If the LMP is enough to cover their expenses so that they don't need to touch the RP, does the RP then avoid sequence of return risk?
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Re: What does "won the game stop playing" mean in practice?

Post by TomatoTomahto »

1210sda wrote: Tue Apr 20, 2021 1:05 pm If someone has both a liability matching portfolio and a risk portfolio. And If the LMP is enough to cover their expenses so that they don't need to touch the RP, does the RP then avoid sequence of return risk?
I guess, although the safe portfolio should probably suffice. I think of our RP as being for our heirs, but in a dire world it could also buffer us from SoR risk and such.
I get the FI part but not the RE part of FIRE.
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Re: What does "won the game stop playing" mean in practice?

Post by dbr »

1210sda wrote: Tue Apr 20, 2021 1:05 pm If someone has both a liability matching portfolio and a risk portfolio. And If the LMP is enough to cover their expenses so that they don't need to touch the RP, does the RP then avoid sequence of return risk?
No, an LMP is specifically intended to not have sequence of returns risk. An example is an annuity. There is no sequence of returns risk because there is no investment return involved that can have a sequence. A ladder of TIPS has no sequence of returns risk because the payout is set in stone when the assets are purchased. The payout is the face value of the bond redeemed each year, set in advance, and the payments from the real interest coupons, set in advance. In the case of TIPS that face value is inflation indexed by CPI and the coupon is paid as a percent of the increasing principal value of each bond. There is ex ante returns risk in both an annuity and a TIPS ladder in the sense that the investor is at the mercy of the prevailing interest rates when the annuity or bonds are purchased, but that is not the same thing at all as sequence of returns risk.

Since an LMP is relatively expensive to start with, a person who can cover all expenses with an LMP and also has money left over for a risk portfolio is a person who worked longer, spent less, and saved more than they needed to. Of course it is not irrational to retire with a reserve. My understanding of the original idea of the LMP is that one divides ones expected spending into necessary and discretionary spending and one makes sure one has the necessary spending covered by the LMP and then one can invest the rest of one's assets in a risk portfolio and withdraw discretionary spending from the risk portfolio. As with all withdrawals from risky assets both the expected return and the sequence of returns affects that.

One should note that at present real interest rates a 30 year TIPS ladder can payback 3.3% withdrawal rate in real dollars, which is expensive. At 2% real interest such a ladder pays back 4.4% real.

There is confusion that I don't understand at all that people, maybe even Bernstein (but I'm not sure), think just piling away some multiple of spending in fixed income, cash in particular, is an LMP. That really makes no sense compared to a true risk free matching of guaranteed withdrawal income to timing of spending. A pile of fixed income that is not matched by maturity for redemption, or better, by careful duration matching, does not do what the LMP idea needs.
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Re: What does "won the game stop playing" mean in practice?

Post by watchnerd »

dbr wrote: Tue Apr 20, 2021 1:51 pmAt 2% real interest such a ladder pays back 4.4% real.
That would be awesome.

But it does not exist at present.
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Re: What does "won the game stop playing" mean in practice?

Post by watchnerd »

dbr wrote: Tue Apr 20, 2021 1:51 pm and saved more than they needed to.
I thought living beneath your means was a good thing on Boglehead world?

Now it's bad?

And I thought deferred consumption was just that....deferred.

i.e. there is optionality to spend later
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Re: What does "won the game stop playing" mean in practice?

Post by dbr »

watchnerd wrote: Tue Apr 20, 2021 2:34 pm
dbr wrote: Tue Apr 20, 2021 1:51 pmAt 2% real interest such a ladder pays back 4.4% real.
That would be awesome.

But it does not exist at present.
I think a hang up here is that when that sort of rate is available you can suggest all sorts of things that make sense that don't make much sense now. I think 1.5% real gets you the infamous 4% withdrawal rate.

I might be mistaken but I think there was a brief time when I bonds could be bought in unlimited amounts at 3% real interest.

What amazes me about all the bond conversation in this forum recently is that squirming around trying to find one horrible rate rather than another horrible rate makes no sense when basically savers are just severely hurt by any of the rates.

Then there was a time when my father gave his grandchildren 10 year 10% CDs just before interest rates started their long decline and inflation died away. Of course at the same time stocks skyrocketed, but a CD is a CD.
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Re: What does "won the game stop playing" mean in practice?

Post by dbr »

watchnerd wrote: Tue Apr 20, 2021 2:38 pm
dbr wrote: Tue Apr 20, 2021 1:51 pm and saved more than they needed to.
I thought living beneath your means was a good thing on Boglehead world?

Now it's bad?

And I thought deferred consumption was just that....deferred.

i.e. there is optionality to spend later
I'm stating a fact, not making a judgement.
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Re: What does "won the game stop playing" mean in practice?

Post by watchnerd »

dbr wrote: Tue Apr 20, 2021 2:44 pm

I'm stating a fact, not making a judgement.
It's not a fact, it's a hypothetical without empirical applicability.

For practical purposes, it's impossible to get the consumption / savings balance exactly right.

The real-world choice is between undersaving, then going broke in retirement.

Or oversaving, and not going broke.
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Re: What does "won the game stop playing" mean in practice?

Post by dbr »

watchnerd wrote: Tue Apr 20, 2021 2:49 pm
dbr wrote: Tue Apr 20, 2021 2:44 pm

I'm stating a fact, not making a judgement.
It's not a fact, it's a hypothetical without empirical applicability.

For practical purposes, it's impossible to get the consumption / savings balance exactly right.

The real-world choice is between undersaving, then going broke in retirement.

Or oversaving, and not going broke.
OK
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Re: What does "won the game stop playing" mean in practice?

Post by watchnerd »

dbr wrote: Tue Apr 20, 2021 2:43 pm I think a hang up here is that when that sort of rate is available you can suggest all sorts of things that make sense that don't make much sense now. I think 1.5% real gets you the infamous 4% withdrawal rate..
SWR is for probabilistic strategies.

LMP is not a probabilistic strategy.

I don't know why you're trying to mix the two.

SWR could apply to the Risk Portfolio.
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Re: What does "won the game stop playing" mean in practice?

Post by dbr »

watchnerd wrote: Tue Apr 20, 2021 2:52 pm
dbr wrote: Tue Apr 20, 2021 2:43 pm I think a hang up here is that when that sort of rate is available you can suggest all sorts of things that make sense that don't make much sense now. I think 1.5% real gets you the infamous 4% withdrawal rate..
SWR is for probabilistic strategies.

LMP is not a probabilistic strategy.

I don't know why you're trying to mix the two.

SWR could apply to the Risk Portfolio.
I think that is what I said -- at least it is certainly the way I see it.

Oh, I see the problem. Let me rephrase: At 1.5% real a TIPS ladder would allow a certain 30 year payout of 4% of the initially invested funds, real dollars with the funds certainly exhausted at the end. All of this is from a spreadsheet I once worked out, which could also be mistaken, but it does give 3.3% at 0% real, which is correct. One could compare that to an inflation indexed annuity with the difference that an annuity is life certain while the LMP ladder is still a bet on longevity.
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Re: What does "won the game stop playing" mean in practice?

Post by shess »

flyingaway wrote: Mon Apr 19, 2021 3:14 pm In that case, after you won your game, stop playing with bitcoin, play golf instead.
I like this one. There are a lot of threads on here about eking out an additional .1% in yield on your HYSA, or using credit cards to pay property taxes to generate spend, or the advantages of SMA index-tracking accounts, or using share-lending programs to generate a little more revenue. I'm not saying any of those threads are wrong-headed, just that they are often spending effort and adding risk to "improve" things, and at some point, maybe that's not a great goal.

I'm a software engineer, and I can often make a system use less memory, or less CPU, or less bandwidth, or run faster, etc. Over the years, I often found myself having to talk down other engineers who were gleefully embarking on such projects, with no need to do so. It's easy to say "I can make this 5% better", but doing so has real costs in effort and complexity, and often real wisdom is not in knowing a ton of optimization techniques, the real wisdom is in understanding where your goals are and what level of effort they warrant (and, perhaps, whether your goals involve an unreasonable effort and should be modified). If your program already does the job fast enough, then making it faster has limited utility versus the effort required, and maybe you'd be better off doing something else which has more utility.

(Don't get me wrong - software these days just frustrates me so much!)
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Re: What does "won the game stop playing" mean in practice?

Post by 1210sda »

watchnerd wrote: Tue Apr 20, 2021 2:49 pm
dbr wrote: Tue Apr 20, 2021 2:44 pm

I'm stating a fact, not making a judgement.
It's not a fact, it's a hypothetical without empirical applicability.

For practical purposes, it's impossible to get the consumption / savings balance exactly right.

The real-world choice is between undersaving, then going broke in retirement.

Or oversaving, and not going broke.
Well said.

I guess in a perfect world one could get the balance exactly right. I don't live there.
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Re: What does "won the game stop playing" mean in practice?

Post by Freefun »

To me it means I can live comfortably with my AA while adjusting my expenses / withdrawal rate based on market conditions.
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Re: What does "won the game stop playing" mean in practice?

Post by GG1273 »

tiburblium wrote: Sun Apr 18, 2021 9:42 am
retired@50 wrote: Sun Apr 18, 2021 9:34 am I always interpreted that phrase to mean something like "Buy some US Treasury bonds and possibly one or more SPIAs."

In other words, convert your game winnings to guaranteed or extremely safe sources of income so a market downturn won't affect your lifestyle.

Regards,
Do people really feel “safer” selling stocks and buying bonds in 2021?
I think it is relative.
Say you have a big percentage in 500 index or the Growth Index
and you balanced it out a bit into
Wellington or Wellesley or Balanced Index (or all 3!)
Would that be a safer strategy than selling stocks and buying bonds in 2021?

"historically" Wellington and Wellesley are super funds - not too big on the upside and not too big on the downside

would that change the all or nothing of moving from stocks to bonds?
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Re: What does "won the game stop playing" mean in practice?

Post by KlangFool »

1210sda wrote: Tue Apr 20, 2021 1:05 pm If someone has both a liability matching portfolio and a risk portfolio. And If the LMP is enough to cover their expenses so that they don't need to touch the RP, does the RP then avoid sequence of return risk?
1210sda,

I would like you to give some examples of portfolio size as to what do you mean by that. In practical term, the portfolio would be big enough: 30X to 40X, Hence, as long as someone is using a reasonable AA from 70/30 to 30/70, it will work.

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Re: What does "won the game stop playing" mean in practice?

Post by watchnerd »

KlangFool wrote: Tue Apr 20, 2021 7:42 pm
1210sda wrote: Tue Apr 20, 2021 1:05 pm If someone has both a liability matching portfolio and a risk portfolio. And If the LMP is enough to cover their expenses so that they don't need to touch the RP, does the RP then avoid sequence of return risk?
1210sda,

I would like you to give some examples of portfolio size as to what do you mean by that. In practical term, the portfolio would be big enough: 30X to 40X, Hence, as long as someone is using a reasonable AA from 70/30 to 30/70, it will work.

KlangFool
We have both Risk Portfolio and LMP. We add another rung to the LMP ladder for every year that we work.

The combined total of the two is currently 40x.

Given our savings rate (2 years of saving per 1 year of work), it will be 50x by our early retirement date in 2025.
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Re: What does "won the game stop playing" mean in practice?

Post by KlangFool »

watchnerd wrote: Tue Apr 20, 2021 7:57 pm
KlangFool wrote: Tue Apr 20, 2021 7:42 pm
1210sda wrote: Tue Apr 20, 2021 1:05 pm If someone has both a liability matching portfolio and a risk portfolio. And If the LMP is enough to cover their expenses so that they don't need to touch the RP, does the RP then avoid sequence of return risk?
1210sda,

I would like you to give some examples of portfolio size as to what do you mean by that. In practical term, the portfolio would be big enough: 30X to 40X, Hence, as long as someone is using a reasonable AA from 70/30 to 30/70, it will work.

KlangFool
We have both Risk Portfolio and LMP. We add another rung to the LMP ladder for every year that we work.

The combined total of the two is currently 40x.

Given our savings rate (2 years of saving per 1 year of work), it will be 50x by our early retirement date in 2025.
Then, in all practical term, as long as you do not have an extreme portfolio with 100% stock or 100% bond, it will work fine. And, if you (40X to 50X) have problem with your retirement, it is no longer a money/financial problem.

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Re: What does "won the game stop playing" mean in practice?

Post by DSBH »

MathWizard wrote: Sun Apr 18, 2021 9:28 am I've often seen answers include the recommendation "When you've won the game, stop playing."

What does this mean in practice?

Without some specific action to take, the recommendation is of no use.
Interesting question. For myself, it means at a high level 3 things:

1) Set up an AA target,
2) Set up a withdrawal plan (including SS, Pension and/or whichever is applicable in your situation),
3) No need to tinker with either 1) or 2) whatever happens in/to the market (other than re-balancing) absent some major laws (tax?) changes.

You may still need to potentially do estate planning, ROTH conversions etc. but that's not the same as "playing the game" imho.
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Re: What does "won the game stop playing" mean in practice?

Post by almostretired1965 »

watchnerd wrote: Tue Apr 20, 2021 12:05 am
almostretired1965 wrote: Mon Apr 19, 2021 11:25 pm Instead, I just plan to make sure the bond portion of my portfolio does not drop below say 15-20x expenses. At the moment, this implies a maximum stock/bond allocation of around 80/20, which coincidentally is roughly where I am.
So your portfolio is 100x? :beer

Or is the 80% the bond.....? :sharebeer
It is 100x. As my DW noted shortly after we started going out, I'm a cheap date .....
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Re: What does "won the game stop playing" mean in practice?

Post by marcopolo »

humblecoder wrote: Sun Apr 18, 2021 10:01 am
goingup wrote: Sun Apr 18, 2021 9:43 am That phrase just doesn't resonate with me. It doesn't make much sense (to me).

As long as you invest (be it stocks or bonds) you are in the game. Most of us here will be in the game to our last breath. :wink:

Just because it's an oft-repeated saying doesn't mean it's wise.
I respectfully disagree.

If you have met your financial goals, then it makes sense to lower your risk since you don't need to take any more chances. That is a spirit of the saying, and I think it is wise.

Consider a football analogy. If you are on offense, you are winning, and you can run out the clock by taking a knee, why would you still throw for touchdown passes and risk an interception returned for a touchdown? Just take the knee and take your win.
That is fine within the last minute or so of a game
Taking a knee at the start of the 4th quarter is usually not how most teams approach the rest of the game. But, more conservative play calling (more runs, less long throws) is a better strategy.

When retiring with what most would consider "enough" many will have more than a 1/4 of their life left to live. A lot of things can happen during that time. Seems too early for most people to "take a knee". More conservative play calling (more conservative AA) seems a better approach.
The game is a long way from over.
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Re: What does "won the game stop playing" mean in practice?

Post by Finridge »

CurlyDave wrote: Sun Apr 18, 2021 10:52 am
goingup wrote: Sun Apr 18, 2021 9:43 am That phrase just doesn't resonate with me. It doesn't make much sense (to me).

As long as you invest (be it stocks or bonds) you are in the game. Most of us here will be in the game to our last breath. :wink:

Just because it's an oft-repeated saying doesn't mean it's wise.
Here is true wisdom.

As long as I am alive and have any money of my own I have an AA and am "in the game". If I switch to all cash and store it under my mattress, all I am doing is assuring I will lose to any inflation at all.

What investment today produces 0% real, after taxes?

Why should I abandon the strategy that produced a nice nest egg over a lifetime of investing for one guaranteed to cut into that nest egg? If I get out of the game, the only question is whether inflation will chew it up quickly or slowly.
Agreed. For me, "winning the game" will mean retiring from my day job while not changing my asset allocation.

I really like William Bernstein's books. His "Four Pillars of Investing" is one of the most useful and informative books on investing that I know, and I make a point to revisit it every year or two. But this notion of "winning the game" and retiring from the investing field--that is one of the points that does not ring true for me.
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Re: What does "won the game stop playing" mean in practice?

Post by cableguy »

The answer is different for each person. A man can have $100M in the bank and have more problems than you can imagine. He can't sleep at night. He's sick. His family has problems and many of them don't talk to him. Did he "win" the game? Another man worked 3 jobs for 30 years and has $800K to his name. He gardens, plays with his 8 grandchildren, and is constantly surrounded by the love his family. Did he "win" the game?

Its an inside job...
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Re: What does "won the game stop playing" mean in practice?

Post by humblecoder »

marcopolo wrote: Tue Apr 20, 2021 10:12 pm
humblecoder wrote: Sun Apr 18, 2021 10:01 am
goingup wrote: Sun Apr 18, 2021 9:43 am That phrase just doesn't resonate with me. It doesn't make much sense (to me).

As long as you invest (be it stocks or bonds) you are in the game. Most of us here will be in the game to our last breath. :wink:

Just because it's an oft-repeated saying doesn't mean it's wise.
I respectfully disagree.

If you have met your financial goals, then it makes sense to lower your risk since you don't need to take any more chances. That is a spirit of the saying, and I think it is wise.

Consider a football analogy. If you are on offense, you are winning, and you can run out the clock by taking a knee, why would you still throw for touchdown passes and risk an interception returned for a touchdown? Just take the knee and take your win.
That is fine within the last minute or so of a game
Taking a knee at the start of the 4th quarter is usually not how most teams approach the rest of the game. But, more conservative play calling (more runs, less long throws) is a better strategy.

When retiring with what most would consider "enough" many will have more than a 1/4 of their life left to live. A lot of things can happen during that time. Seems too early for most people to "take a knee". More conservative play calling (more conservative AA) seems a better approach.
The game is a long way from over.
Yes that is the problem with analogies. Sometimes they are more directional than literal. I think you understand the spirit of what I am saying.

If you ignore the analogy for a second and re-read the statement that I wrote above it...

If you have met your financial goals, then it makes sense to lower your risk since you don't need to take any more chances. That is a spirit of the saying, and I think it is wise.

...and you compare it to what you wrote...

More conservative play calling (more conservative AA) seems a better approach.

...I don't see any material difference in what we are saying. :beer
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Re: What does "won the game stop playing" mean in practice?

Post by TomatoTomahto »

Once again, I am amazed at the BH posters who can say that they are 15x, 33x, 25x, etc. Am I the only bozo on the bus who doesn't have a sufficiently clear idea of what x is to decide how many of them I have?

I can pretty well guess what our spend will be next year. I have some idea of the year after that and maybe one more year. What we will spend 10 years from now, or even if I will be alive, who knows?

I guess if one has an idea of what x is, and is convinced that it's accurate, one can then believe that a proportion between asset classes can be determined in some rational way. I will sit in the back with the bozos and stick to my plan: $3M+ in safe assets, the rest in equities, and figure out withdrawals as our life unfolds.
I get the FI part but not the RE part of FIRE.
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