The Cordant Blog

What To Do With Your Intel Pension When You Retire?

by Isaac Presley, CFA on September 23, 2016

Recently on the blog we’ve looked at a few key decisions anyone retiring from Intel must make once they stop working. We saw how to generate a paycheck via a rebalancing process and learned how ‘withdrawal order’—a seemingly simple change—can have major ramifications on your ending wealth and the amount of taxes you end up paying. Another key decision those leaving Intel must make is what to do with their pension benefit.

We’ve outlined before how the Intel minimum pension plan works. But, here we want to break down the decision that comes at retirement: should you take the monthly pension income benefit or a lump sum withdrawal from the plan?

Like so many decisions with wealth management, this is an individual decision that must be made in light of one’s goals, objectives, other assets and income sources, and risk tolerance. There is no global rule. Option A or B isn’t always optimal. The monthly income isn’t the best choice in all cases and neither is the lump sum. There are advantages and disadvantages to either option. The key is making this decision in light of your personal situation.

The remainder of this post will highlight the key decision criteria to weigh when making the pension decision with the goal of optimizing the result for your specific situation.

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How much can I spend in retirement? Our Take on the 4% Rule

by Scott Gerlach, CFP on September 16, 2016

How much can I spend in retirement? For many, that’s the million-dollar question – literally.

The first step taken of any retirement planning should be developing a baseline financial plan, and understanding the appropriate withdrawal rate is paramount to this process. During the early stages of plan development for our clients, we often get questions about the 4% withdrawal rule and how it applies to their situation. The popular financial “rule of thumb” was the result of research done in 1994 by a financial planner and MIT grad, Bill Bengen, and produced what is now known as the 4% Withdrawal Rule.

Trying to do right by his clients, Mr. Bengen sought out to produce something that wasn’t yet available – a framework for providing guidance that was rooted in research and data. Here’s what he came up with – a “rule of thumb” that posits that retirees who withdraw 4% of their initial portfolio at retirement, and then adjust that amount for inflation, can sustain that spending amount for 30 years and not outlive their money. The research assumed the retirees’ portfolio consisted of an equal mix of stocks and bonds (S&P 500 & Intermediate Government Bonds) and was rebalanced annually. From there, he tested every rolling 30-year period dating back to 1926 to determine the maximum withdrawal rate that would survive all periods. For that time period, the worst-case scenario in U.S. history produced a 4.15% withdrawal rate. Thus, the 4% rule was born.

Words of caution - Oversimplification

When it comes time to make the decision on retirement, and answering the ultimate question of, “Do I have enough?”, using the 4% Rule to help answer that question is a decent starting point. However, for a variety of reasons, we caution against blindly accepting this rule and applying to your situation.

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Underperformance: Not a Bug, a Feature

by Isaac Presley, CFA on September 09, 2016
“Most lack the courage and stamina to stand apart from the herd and tolerate short-term underperformance to reap long-term rewards.” - Seth Klarman


Ask anyone off the street to name a great investor and chances are you'll hear Warren Buffett---often held up as the paragon of investing success. But what if I told you he spent more time underperforming the market than he did beating it?

According to Eric Crittenden at Longboard Asset Management this is exactly the case. Based on their research, over the last thirty years, Buffett's Berkshire Hathaway has underperformed the market a little more than half the time.

And it’s not just Buffett’s performance either that frequently lags. Crittenden found this same phenomenon among other successful investors.

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How 'Withdrawal Order' Can Increase Wealth and Reduce Taxes

by Isaac Presley, CFA on September 06, 2016

Last time we looked at how to generate a paycheck from your investment accounts. Getting money out of your portfolio is important, but just as important is knowing from which account to pull the funds as most retirees are going to have some mix of taxable, tax-deferred (IRA, 401(k), etc.), and tax-free (Roth IRA) accounts at retirement.

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How to Generate a Paycheck in Retirement (or After Leaving Intel)

by Isaac Presley, CFA on August 30, 2016

For many retiring from Intel, or simply leaving to pursue other opportunities, one of their primary questions is: how do I get a paycheck now that it’s not coming from Intel? I still need to pay bills, buy groceries, etc., so, how do I fund my bank account?

For most, it means a transition from accumulating assets (contributing to the 401k, deferring income from bonuses, etc.) to supporting your spending from the portfolio you've built. Getting a paycheck from your investments can be done in two ways: 1) By spending investment income (interest and dividends) as you earn it—called an Income Approach or, 2) Through a rebalancing process on your broadly diversified portfolio—known as a Total Return Approach.

The Income Approach is simple to setup and execute but has significant drawbacks. Let’s find out what they are and learn the key to generating a paycheck from your investments via a Total Return approach.

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What are Interest Rates Forecasting for Stocks?

by Isaac Presley, CFA on August 24, 2016

What are interest rates telling us about the current state of the economy? And, more importantly for investors, what are they telling us about the markets?

A few weeks back Ben Carlson had a good post addressing the first question. He asks what interest rates (specifically the spread between 2-year Treasury yields and 10-year Treasury yields) are telling us about the likelihood for a recession. Here's Ben:

The indicator most industry observers pay close attention to in terms of bonds and recessions is the spread between 2 year treasury yields and 10 year treasury yields, which you can see here: 


When the 10-year yield falls below that on 2-year treasuries it’s called an inverted yield curve, and Ben writes:

You can see that every single time that 10 year yields have fallen below 2 year yields it has preceded a recession (the shaded regions). This data only goes back to the late-1970s but is impressive nonetheless. 


Next, he correctly points out that just because something is a reliable historical indicator, to expect it to work in the future, there must be a sound, fundamental explanation of why. Again from Ben:

In this case there is a logical reason for using the yield curve as an economic signal. Bond yield spreads are typically used to gauge the health of the economy. Wider spreads between long-term and short-term bonds lead to an upward sloping yield curve, which can indicate healthy economic prospects — most likely higher growth and inflation in the future. Narrower spreads lead to a flatter or even negatively sloped yield curve, which can indicate poor economic prospects — most likely lower growth and inflation.


His accurate conclusion is that we should pay attention to this indicator. We aren't yet at an inverted yield curve with the current spread around .80%, but, with the spread falling, it is worth watching.

However, I was left wondering about the second question. What do interest rates and the yield curve mean for the markets (as opposed to the economy) going forward? If an inverted yield curve means a recession, that’s probably pretty bad for stocks, right? Well, not quite. Let’s take a look.

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Stick with It: The Key to Factor Investing (Or Any Investing Strategy)

by Isaac Presley, CFA on August 16, 2016

In a series of articles about factor investing we’ve defined what we mean by factor investing, we listed the factors and examined their performance, and last time we examined how a strategy can still work when everyone knows about it. The next question we get is, if a strategy works, why doesn’t everyone do it? Why doesn’t everyone earn a factor premium?

This is a great question to ask about any investing strategy and the answer is twofold: First, some people remain skeptical about systematic investing strategies in general. Many continue to think, no doubt encouraged by the plentiful marketing dollars of Wall Street, that traditional stock picking is the only way to outperform. Next, even those pursuing an evidenced-based strategy don’t tend to stick with it over time. This includes both individual and institutional investors.

Unknown or secret strategies aren’t plentiful. There isn’t some holy grail of investing to be found that magically delivers alpha (i.e., outperformance). What matters is having enough confidence in your strategy that you can stick with it through various market cycles. As Brendan Mullooly of Mullooly Asset Management recently wrote, “If your investment strategy is based upon strong evidence (I hope it is!), you need to hang in there.”

But, sticking with your strategy can be difficult as earning a premium over other investors requires being different than other investors. This can be painful, especially when a strategy is out of favor. And just because everyone knows about a strategy, it doesn’t make it easy to get the premium. Phil Huber, the Chief Investment Officer for Huber Financial Advisors, puts it like this: “An unfortunate truism in our industry is that investors tend to abandon ship on an asset class or strategy right around the same time they should be piling into it.”

It’s easy to make the claim that investors don’t stick with their strategy, and this probably makes intuitive sense, but are there any data to back this up?

Let’s take a look at a few examples from both individual and professional investors. Then we will conclude with a few ideas on how, as investors, we can stick with our strategy.

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Taking Action Now Costs Less Than Being Forced To Later [Announcing an Upcoming Retirement Transition Seminar]

by Isaac Presley, CFA on August 08, 2016

"Avoiding a problem with foresight and good design is a cheap, highly leveraged way to do your work.

Extinguishing a problem before it gets expensive and difficult is almost as good, and far better than paying a premium when there's an emergency.

Fretting about an impending problem, worrying about it, imagining the implications of it... all of this is worthless.

Action is almost always cheaper now than it is later." ~Seth Godin on Problems


This spring Intel announced and began executing on a plan to reduce as much as ten percent of its workforce. For most, the rapidity of this round of layoffs was jarring. Mike Rogoway, writing in the Oregonian, paints the following scene:

It happened, typically, in one of Intel's windowless conference rooms, at the end of a long table under droning white fluorescent light. A supervisor arrived, along with someone from human resources.

We've got some bad news, they'd say: You're being laid off. They would pass paperwork across the table and tell you it's time to go. Right then. You might have passed a friend on the way out, pausing just long enough to share the news before handing over your Intel badge and walking out the door, for good.


In hearing from and talking with many people dealing with the layoffs or voluntary separation packages, one thing was common: the speed at which the layoffs were announced and the pace at which Intel required a decision be made was challenging. It made for a stressful period with inadequate time to plan—there wasn't much warning.

What’s more, according to the Oregonian these layoffs fell disproportionately on older workers. Many of these people likely considered retirement still a few years off but now they were left with uncertainty. Can I afford to retire now? Can I afford to work less or take a lower paying position?

When it comes to preparing for the future, and knowing where you stand, action now is better than action later.

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Factor Investing: No Secret, So Will It Continue to Work?

by Isaac Presley, CFA on August 04, 2016

“More investors don't copy our model because our model is too simple. Most people believe you can't be an expert if it's too simple." ~Charlie Munger when asked why more investors hadn't copied Berkshire Hathaway's approach to investing[1]


Value and other forms of factor investing aren’t new. They’ve been around for a while now and are widely documented in the academic research. So, if systematic investing based on these factors isn’t a novel concept to any attentive observer, how can the strategies still work?

For anyone considering factor strategies this is a good question to ask and one Cliff Asness, the founder and CIO at investment firm AQR, addressed in the September 2015 issue of Institutional Investor with an article titled How Can a Strategy Still Work If Everyone Knows About It?”

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Getting Comfortable with Being Uncomfortable

by Isaac Presley, CFA on July 26, 2016

Investing well, like any significant endeavor, requires some level of pain to succeed.

In a recent article Brad Stulberg, a writer for Outside Magazine and Runner’s World shared the advice he received from his marathon coach. To succeed as a marathoner, he “would need to learn how to be comfortable with being uncomfortable.” Stulberg says he, “didn’t know it at the time, but that skill, cultivated through running, would help me as much, if not more, off the road as it would on it.”

The importance of developing the discipline to press on when things are painful, and to execute on what’s right in front of you, goes beyond running. This trait carries over to accomplishing anything difficult in life and being a successful investor as well.

With investing the “pain” tends to come from two areas: 1) Paying attention to the fundamentals (i.e., the “boring” stuff) which is required to minimize errors, and 2) being different from other investors. Let’s take a look at each.

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