Allison Schrager is an economist who’s studied negotiation, diversification, and also, the topic we’ll discuss in today’s episode, risk. She’ll explain risk using a lens that we haven’t seen someone use before…the eyes and actions of legal sex workers. To illustrate how people think about risk, she visited brothels, horse breeders, and, among others, poker players. We’ll discuss the many ways we miscalculate risk, how to make better decisions, and what happens when we evaluate the wrong types of risk.

And in our headlines segment, we’ll call up Madeline Hume from Morningstar. They’ve completed a report on the state of 529 college savings plans nationally, and Joe and Madeline will dive into the data. We’ll talk ab out the latest innovations in plans, plus shine a spotlight on some of the best and worst states to invest your hard-earned college money. Plus, we’ll look at one piece describing a shakeup in the online financial planning community that could spell trouble for industry leader Vanguard.

In our Haven Life Line segment, we’ll throw out the line to Jason, who has some questions for OG about risk parity. Would something like a a 50/50 split between stocks and long-term treasuries a good idea? What are the possible downsides?

After we spend some time giving advice to Jason we’ll tear open Chris’s letter, who has some social security questions. Considering the investments and pensions Chris and his wife already have on the table, would it make more sense to defer taking social security? We’ll give our thoughts, but if you’re looking for a more in depth conversation about social security you can check our our previous interview with Philip Moeller and Paul Solman.

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Show Notes:

Skillshare

Thanks to Skillshare for supporting Stacking Benjamins. Get TWO months of courses for free at Skillshare.com/SB.

Check out Skillshare

Simple Contacts

Thanks to Simple Contacts for supporting Stacking Benjamins. Save $20 on your first Simple Contacts order at http://www.simplecontacts.com/sb and use promo code: sb.

Check out Simple Contacts

<3:41> Headlines

• The $1.26T digital milestone that may spell trouble for Vanguard (Financial Planning)
• A big thanks to Madelyn Hume for spending some time with the basement today. You can find more on Morningstar’s 529 plan landscape at Morningstar.com.

<20:33> Allison Schrager

You can find Allison’s site here: AllisonSchrager.com

Looking for Allison’s book we talked about on the show? Click here to order through our independent bookseller parter, Powell’s: An Economist Walks Into A Brothel

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An Economist Walks into a Brothel: And Other Unexpected Places to Understand Risk

<41:44> Doug’s Trivia

• According to a Harris Poll and CareerBuilder survey, what is the number one reported time waster in the office?

<46:48> Haven Life Line

• Jason calls in with a question for OG. What are OG’s thoughts on risk parity investing? Is a 50/50 mix of stocks and long-term treasuries a good idea?

<54:15> Letter

Chris writes in with some questions on social security. You can read up on his letter below:

Hi guys, I promise that on the slim chance I learn anything I’ll keep it to myself.

I’m 58 with about $1.5M in invested assets (unfortunately almost 100% tax deferred) and want to retire by 60 with a plan to start off spending around $90K annually with a slow reduction to $65K (about what we spend now) by the time we’re around 75.

Since I know you’ll complain that’s not enough information……
• That $1.5M includes the $300K cash value of a pension that the numbers seem to indicate I should take as a lump sum (withdrawal rate < 6%)
• My employer provides retiree healthcare insurance to bridge us to Medicare
• We have enough term life insurance to replace the lesser of our two SS “incomes” through 80 years of age

My question is – Should factor in any sort of “opportunity loss” when doing my break-even analysis on claiming Social Security? Assuming the same spending (with or without) starting it earlier would keep more “nest egg” funds invested in those early years of retirement rather than being liquidated for expenses. When I do the math, it moves the sweet spot 4 years with a 3% opportunity loss and 8 years at 5%!!

Since I think we’ve saved enough to bridge the gap, and by waiting until 70 SS should pretty much cover our requirements (I’ll get $41K and Shell get $30K).

I’m likely going to wait regardless of your answer, but for someone more concerned with preserving their capital to support a higher spending but shorter planning horizon (less concerned with longevity risk) it could change an important decision.

Am I missing something?? What is the right way???

• Want to go a bit deeper on the Social Security question? Check out our previous discussion on Social Security with Philip Moeller and Paul Solman.

Join us Wednesday!