"while local governments limit demand through zoning restrictions" Do you mean limit supply? I think there has been lots of demand, but local zoning condes limit how much affordable housing can be built.
Regarding Target Date funds, I think the biggest challenge is that the financial industry has put almost no effort into thinking about how people should invest and spend money in retirement, other than figuring out how to extract fees from them. Bill Bengen identified the sequence of returns risk in 1994. More recent work has been looking at dynamic spending models and idenitfying things like the "spending smile" where retirees spend a lot early on, spend less as they age, and then often spend more when they need help or have medical challenges in later years.
Personally, as we get close to retirement I am trying to make sure we have a fair amount of low-risk money available to cover things like delaying Social Security and managing sequence of returns risk in the first 5 years. But after that, the money needs to be allocated so there is real growth potential to fund another 20-30 years. That requires assets with a mix of durations to provide some certainty of what you can pull out this year and next year but still ahve something to pull out 25 years later. That requires matching different assets to different time frames. You can actually do that with Target Date funds by not thinking about the target date as the date for retirement, but instead looking at the glide path to see how it matches growth and spending time frames. So an account could potentially have several TDs with different target dates for different duration buckets.
Regarding risk - the US deregulated finance and then made it almost impossble to convict white collar crooks by requiring both the fraud or theft be shown and then also requiring proof that they did that intentionally. Poor people go to jail because the bag of cocaine is in the trunk of the car they are in - no intent needs to be shown, mere proof that it exists and could be deemed to be in their possession. Far fewer of them would go to jail if the required burden of proof matched white collar crime.
So we need basic regulation guardrails to provide large financial sector actors from blowing up and then make it easier to convict people who commit fraud, etc. Bail out the companies if they are systemtically important and then throw the executives in jail. There will be much less fraud and instability in the future. Bill Black referred over a thousand of people for prosecution in the S&L crisis and many of them went to jail. Just about the only white collar people who have gone to jail in the past 20 years were Martha Stewart and Michael Cohen. I don't count Bernie Madoff because he turned himself in and confessed when he knew the checks would bounce.
Cullen Roche just published this interesting white paper looking at the duration of various types of investments. He suggests that this can be paired with a bucket approach to retirement spending needs so that duration of financial assets can be roughl;y matched to timing of potential spending risks. Some if it is obvious, but it puts things like commodities vs equities vs T-bills into good perspective. https://www.pragcap.com/new-white-paper-all-duration-investing/
This duration analysis fits in well with how to use TD funds in retirement, but in a way unlike what the providers are currently offering them. If they are at the "income" end of the glide path, the TD duration will likely be between 5 and 10 years while their duration is 15-20 years during earning years with high equity allocations. Thinking about retirement in an initial 5 year chunk, an intermediate 10-15 year period, then an indeterminate time frame beyond 15-20 years would lead to selecting different duration assets to cover those time frames, The TD glide paths would work well to convert those long duration assets at retirement into shorter duration assets as people get further into retirement and the long time horizon shortens.
Gold at 28 years is interesting. It is probably one reason why Harry Browne's Permanent Portfolio has been fairly effective for people who will stick with it through thick and thin. The low correlation of gold with just about anything along with a long duration, means that it may be relatively close to Shannon's Demon if looked at over periods longer than 20 years.
Commodities with a duration of 41 years is further proof to just stay away from them unless you are a professional options and futures trader or you are buying and storing them for future generations. Presumably farmland and forest timber could fit into that for future generation investments - that is actually where wealth was preserved for thousands of years until the past two centuries.
Thanks for your comments on "nudging" and retirement savings.
Yes, I agree, if you don't use the correct defaults, you end up with suboptimal outcomes. For example, prior to the Pension Protection Act of 2006, those who deployed automatic features limited them to new hires, used a mode default pecentage of 2% of pay, a mode default investment of a Money Market, and did not apply automatic escalation. Generally, the adoption of automatic enrollment for new hires reduced the equity allocation percentage and the average contribution rate!
Further, you need to be mindful of the liquidity needs of your participants. My employer-sponsored plan adopted 21st Century plan loan functionality in the 1990's to ensure liquidity among those living paycheck to paycheck, and those in debt,and others who were not creditworthy.
But, we benefits weenies learned. For example, in 2007, the plan at my firm added automatic features and phased in that change over five years. They used perennial automatic enrollment and escalation.
So, in April 2007, the default was 3% of pay, and they enrolled everyone who was not contributing at least 3% of pay, immediately increasing enrollment from ~75% to 95+% of eligibles. They also added 1% automatic escalation for those at 3%. The Qualified Default Investment Alternative was a Target Date Model, a no cost, fully transparent allocation across the Core investment options - using a glide path and landing point that mimicked target date funds. The timing for the defaults was the first payday in April, coincident with the common effective date for any merit pay increases (so the increase in deferrals had less of an impact on take home pay).
Then, in 2008, they did it again - as they adopted a perennially-applied backsweep and automatic enrollment. By the time the phase in was completed, in 2011, the default was 6% of pay, and the 1% automatic escalation was applied for anyone not contributing 12% of pay or more.
By 2011, 95+% of eligibles were contributing, and the percentage of eligibles receiving the full employer financial support increased from 59% to 95+%.
Yes, retirement savings nudges, DONE RIGHT, with respect for those who need liquidity, are successful.
Connect with me on Linked In https://www.linkedin.com/in/jack-towarnicky-5878787/ if you would like a copy of that article. It includes data from 2007 - 2013 documenting our automatic features journey. Futher, it includes a comparison of automatic features and voluntary enrollment - where you can see, for yourself, a real time comparison that documents just how superior automatic features are when it comes to retirement savings!
So seriously….. people get into the sex worker trade because of their father????
i met one woman where it was a family business. her mother not her father though. and she was proud.
"while local governments limit demand through zoning restrictions" Do you mean limit supply? I think there has been lots of demand, but local zoning condes limit how much affordable housing can be built.
Regarding Target Date funds, I think the biggest challenge is that the financial industry has put almost no effort into thinking about how people should invest and spend money in retirement, other than figuring out how to extract fees from them. Bill Bengen identified the sequence of returns risk in 1994. More recent work has been looking at dynamic spending models and idenitfying things like the "spending smile" where retirees spend a lot early on, spend less as they age, and then often spend more when they need help or have medical challenges in later years.
Personally, as we get close to retirement I am trying to make sure we have a fair amount of low-risk money available to cover things like delaying Social Security and managing sequence of returns risk in the first 5 years. But after that, the money needs to be allocated so there is real growth potential to fund another 20-30 years. That requires assets with a mix of durations to provide some certainty of what you can pull out this year and next year but still ahve something to pull out 25 years later. That requires matching different assets to different time frames. You can actually do that with Target Date funds by not thinking about the target date as the date for retirement, but instead looking at the glide path to see how it matches growth and spending time frames. So an account could potentially have several TDs with different target dates for different duration buckets.
Regarding risk - the US deregulated finance and then made it almost impossble to convict white collar crooks by requiring both the fraud or theft be shown and then also requiring proof that they did that intentionally. Poor people go to jail because the bag of cocaine is in the trunk of the car they are in - no intent needs to be shown, mere proof that it exists and could be deemed to be in their possession. Far fewer of them would go to jail if the required burden of proof matched white collar crime.
So we need basic regulation guardrails to provide large financial sector actors from blowing up and then make it easier to convict people who commit fraud, etc. Bail out the companies if they are systemtically important and then throw the executives in jail. There will be much less fraud and instability in the future. Bill Black referred over a thousand of people for prosecution in the S&L crisis and many of them went to jail. Just about the only white collar people who have gone to jail in the past 20 years were Martha Stewart and Michael Cohen. I don't count Bernie Madoff because he turned himself in and confessed when he knew the checks would bounce.
Cullen Roche just published this interesting white paper looking at the duration of various types of investments. He suggests that this can be paired with a bucket approach to retirement spending needs so that duration of financial assets can be roughl;y matched to timing of potential spending risks. Some if it is obvious, but it puts things like commodities vs equities vs T-bills into good perspective. https://www.pragcap.com/new-white-paper-all-duration-investing/
This duration analysis fits in well with how to use TD funds in retirement, but in a way unlike what the providers are currently offering them. If they are at the "income" end of the glide path, the TD duration will likely be between 5 and 10 years while their duration is 15-20 years during earning years with high equity allocations. Thinking about retirement in an initial 5 year chunk, an intermediate 10-15 year period, then an indeterminate time frame beyond 15-20 years would lead to selecting different duration assets to cover those time frames, The TD glide paths would work well to convert those long duration assets at retirement into shorter duration assets as people get further into retirement and the long time horizon shortens.
Gold at 28 years is interesting. It is probably one reason why Harry Browne's Permanent Portfolio has been fairly effective for people who will stick with it through thick and thin. The low correlation of gold with just about anything along with a long duration, means that it may be relatively close to Shannon's Demon if looked at over periods longer than 20 years.
Commodities with a duration of 41 years is further proof to just stay away from them unless you are a professional options and futures trader or you are buying and storing them for future generations. Presumably farmland and forest timber could fit into that for future generation investments - that is actually where wealth was preserved for thousands of years until the past two centuries.
I had never heard that target date funds might be picking out suboptimal bond funds. Do you have any further info on that? Interesting stuff.
Thanks for your comments on "nudging" and retirement savings.
Yes, I agree, if you don't use the correct defaults, you end up with suboptimal outcomes. For example, prior to the Pension Protection Act of 2006, those who deployed automatic features limited them to new hires, used a mode default pecentage of 2% of pay, a mode default investment of a Money Market, and did not apply automatic escalation. Generally, the adoption of automatic enrollment for new hires reduced the equity allocation percentage and the average contribution rate!
Further, you need to be mindful of the liquidity needs of your participants. My employer-sponsored plan adopted 21st Century plan loan functionality in the 1990's to ensure liquidity among those living paycheck to paycheck, and those in debt,and others who were not creditworthy.
But, we benefits weenies learned. For example, in 2007, the plan at my firm added automatic features and phased in that change over five years. They used perennial automatic enrollment and escalation.
So, in April 2007, the default was 3% of pay, and they enrolled everyone who was not contributing at least 3% of pay, immediately increasing enrollment from ~75% to 95+% of eligibles. They also added 1% automatic escalation for those at 3%. The Qualified Default Investment Alternative was a Target Date Model, a no cost, fully transparent allocation across the Core investment options - using a glide path and landing point that mimicked target date funds. The timing for the defaults was the first payday in April, coincident with the common effective date for any merit pay increases (so the increase in deferrals had less of an impact on take home pay).
Then, in 2008, they did it again - as they adopted a perennially-applied backsweep and automatic enrollment. By the time the phase in was completed, in 2011, the default was 6% of pay, and the 1% automatic escalation was applied for anyone not contributing 12% of pay or more.
By 2011, 95+% of eligibles were contributing, and the percentage of eligibles receiving the full employer financial support increased from 59% to 95+%.
Yes, retirement savings nudges, DONE RIGHT, with respect for those who need liquidity, are successful.
See: https://www.proquest.com/openview/beab61aa4d8d3659cd9dafab151796c1/1?pq-origsite=gscholar&cbl=4616
Connect with me on Linked In https://www.linkedin.com/in/jack-towarnicky-5878787/ if you would like a copy of that article. It includes data from 2007 - 2013 documenting our automatic features journey. Futher, it includes a comparison of automatic features and voluntary enrollment - where you can see, for yourself, a real time comparison that documents just how superior automatic features are when it comes to retirement savings!