# any comment on this retirement plan?



## b_foot (Dec 16, 2010)

http://www.moneyville.ca/article/1258295--retire-early-plan-has-high-risk-of-failure

As title says ... much appreciated!


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## MoneyGal (Apr 24, 2009)

Depends hugely on their intended spending rate in retirement (and also whether they have financial legacy goals). If they want/need $90K inflation-protected income, they will need more than $2M in savings. If they can live on less - the article talks about "substantially scaling back" without putting numbers to that - then they should be fine. 

In general, I wouldn't say anything much different from the advisor they quoted. He had insight into their portfolio; we just have a very general overview. They sound unprepared not only because their asset base may not be sufficient, but also temperamentally and behaviourally (poor stock choices, indecision and hesitation, plus the self-reference to their "naive" plan). 

Short answer: $2 million sounds like a lot but really, for a 57- and 54-year-old, it isn't.


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## b_foot (Dec 16, 2010)

Would you go with couch potato portfolio to address their poor stock selection and naive plan?


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## MoneyGal (Apr 24, 2009)

Well, couch-potatoing it would only solve for poor stock selection, but does not a financial plan make (and may not be the right choice for them in any case).


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## Square Root (Jan 30, 2010)

They have done quite well to date but seem pretty young to be asking the newspaper for retirement help. MG's point about not being ready for retirement rings true. If they can save that much each year and put it into couch or any good dividend payors the will do very well. Retirement is so far off in their case and so many changes can happen family wise, health wise, etc.


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## Rusty O'Toole (Feb 1, 2012)

Not too young at all. The sooner you start the better. It must be heart breaking for a financial adviser to get as a new client a successful executive or professional 55 years old, who has been living the high life and has no savings, who expects to retire with the same standard of living at 65.

Starting now and investing a fixed sum each month in sound dividend stocks or the like, or Dollar Cost Averaging, will allow them to accumulate the largest number of shares. No one knows what the future will bring but they may be able to semi retire in 18 years or even less.


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## Sampson (Apr 3, 2009)

MoneyGal said:


> Short answer: $2 million sounds like a lot but really, for a 57- and 54-year-old, it isn't.


So my plan of $2M at 43 is a long shot? given my families decent record of longevity?

$90k/year seems quite high though. I wonder what the planner is smoking. If you sum their non-savings expenses, it amounts to under $35,000/year.

$2M for 30 years when withdrawl rates are 1.75% seems reasonable to me.


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## crazyjackcsa (Aug 8, 2010)

Everybody is different. I could retire today at the age of 32 on $2m. My expenses are simply low enough to do so. A simple mix of stocks and bonds should allow them to do so. Now if you never want to draw down the principal and index for inflation, things get harder, but not impossible.


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## doctrine (Sep 30, 2011)

Good thing real stock returns are 7%/year over the long run. They should easily be able to retire, so long as they're not buying RIM stock.


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## MoneyGal (Apr 24, 2009)

I should have been more explicit. It's all about the Wealth:Needs ratio. $2M is probably insufficient if you want just shy of $100K per year and the youngest person is 54. $2M is not insufficient if they want substantially less. I also don't understand why the planner assumed $90K - I wondered if the couple had no idea what they might want/need in retirement - or did they come up with that number?


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## MoneyGal (Apr 24, 2009)

doctrine said:


> Good thing real stock returns are 7%/year over the long run. They should easily be able to retire, so long as they're not buying RIM stock.


Stock returns *have been* 7% over the long run. Maybe.


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## Daniel A. (Mar 20, 2011)

At their age its good to plan and work towards the plan.
Many things can change for them as the time line is long people tend to firm up their plans as they get closer.


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## blin10 (Jun 27, 2011)

2mill not enough? go buy BCE like stocks and you'll make 110k/year from divis forever


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## b_foot (Dec 16, 2010)

I don't want to pretend we're not the couple in the article. 

I told the adviser 5% of $2M per year is $120K. I don't know how he came up with $90/year, perhaps it is the future value of $120K/year. As someone pointed out, our current expenses (2 kids will be in full time day care beginning next month -- which costs about $20K a year) are no where near $90K. $50K/year is probably sufficient for our *current* life style but may not be enough if we want to travel and perhaps stay half a year in the tropical after retirement. 

What we need help is what to invest in. I want to get rid of the guessing game and emotional involvement in stock picking. Would the Über–Tuber couch potato work?


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## blin10 (Jun 27, 2011)

if you "get rid of the guessing game and emotional involvement in stock picking" then you will not be getting higher income... with less risk comes less rewards, if you want to play it really safe then you're looking at 2-3% return tops and will not be anywhere close to 90k+


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## GoldStone (Mar 6, 2011)

Quote from the article:



> A financial calculator or a computer spreadsheet program would quickly show that $330,000, plus $4,000 a month for 18 years, would produce $2 million if the couple earned a return of 4.2 per cent, year in, and year out.


4.2% should be doable with a plain-vanilla couch potato.



b_foot said:


> Would the Über–Tuber couch potato work?


Yes, but I wouldn't recommend Über–Tuber to a new potato. It's way too complex. Keep it simple.


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## Four Pillars (Apr 5, 2009)

b_foot said:


> I don't want to pretend we're not the couple in the article.
> 
> I told the adviser 5% of $2M per year is $120K. I don't know how he came up with $90/year, perhaps it is the future value of $120K/year. As someone pointed out, our current expenses (2 kids will be in full time day care beginning next month -- which costs about $20K a year) are no where near $90K. $50K/year is probably sufficient for our *current* life style but may not be enough if we want to travel and perhaps stay half a year in the tropical after retirement.
> 
> What we need help is what to invest in. I want to get rid of the guessing game and emotional involvement in stock picking. Would the Über–Tuber couch potato work?


Instead of doing half-*** free options like a one-way analysis with a newspaper and posting on an internet forum - why don't you go and hire a good financial advisor who will spend the time and analysis to help you reach your goals?


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## MoneyGal (Apr 24, 2009)

What Mike said. You are trying to solve for too many things at once: investing style, investing plan, spending plan, retirement plan. These are all actually separate but intertwined issues. Given the stakes you've put on this discussion (i.e., movement now will affect your outcomes hugely over time and will make possible or impossible your desired course of action), it only makes sense to hire someone to do a substantial (not free) financial plan for you. 

On the other hand, solving your "'investing problem" -- choosing a style (passive? active? DIY? managed?) and getting that implemented for, say, a year, will be an amazing start and the process of figuring out your path. I wonder if the root of what you're grappling with is that you don't have a good decision-making process as a couple.


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## Four Pillars (Apr 5, 2009)

Another suggestion is to just focus on the investment side of things (as MG suggests). You are already doing extremely well with the saving - no financial planner will ask you to save more.

If you can figure out some type of investment strategy - either on your own or with an advisor, then just keep saving. Wait until you have more assets and are thinking of making a career move before paying for a detailed financial analysis.

There is nothing wrong with planning ahead, but I'm not a fan of detailed (and expensive) long range financial plans. Ie someone in their 20's shouldn't be paying much, if anything for analysis on their retirement income to state an extreme example.


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## Sampson (Apr 3, 2009)

b_foot said:


> As someone pointed out, our current expenses (2 kids will be in full time day care beginning next month -- which costs about $20K a year) are no where near $90K. $50K/year is probably sufficient for our *current* life style but may not be enough if we want to travel and perhaps stay half a year in the tropical after retirement.


The thing is that $20k/year will be gone in 10+ years when your kids are older, and during retirement.

It seems you need to, with your spouse, come up with retirement goals. Not how to get to retirement, but you need a vision of what you will do and how you will spend money during retirement. You allude to spending half a year in the tropics after retirement, if this is the concrete goals, set your financial targets to achieve those. I would be you don't need much money to rent a decent shack in a tropical country and just sit there.

Just as the the expenses have been laid out in the article, make a list of projected expenses during retirement, then figure out how much money is required to sustain that lifestyle, and add buffer (over-save, unless you don't mind going back to work as senior).


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## b_foot (Dec 16, 2010)

I am not totally against finding a financial advisor who would do a detail analysis on us. We know what we want and we know it is going to cost us between 50K to 90K a year. What we need though is an investment strategy to lead us to that path. 

What I'm afraid of is the advisor may not tell me anything more than I already know. 

The reason why I suggested passive couch potato strategy is because I'm already doing it on the two RESP accounts. I like it because it is straight forward.

Anyone has a recommendation on a fee-only advisor?


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## MoneyGal (Apr 24, 2009)

b_foot said:


> I am not totally against finding a financial advisor who would do a detail analysis on us. We know what we want and we know it is going to cost us between 50K to 90K a year. What we need though is an investment strategy to lead us to that path.
> 
> *What I'm afraid of is the advisor may not tell me anything more than I already know. *
> 
> ...


Hmmm. Putting together what's in the Moneyville article and what you've posted here, you've made some "horrible" investment choices and you have a relatively significant proportion of assets in a savings account, effectively earning nothing.

Also...a couch potato strategy is a good hedging strategy and may be appropriate for people who are not confident in making their own investment choices - but it does not, by itself, in any way guarantee that you'll get the returns you'll need to implement your plan. (Not that any strategy would, other than saving everything you need in real return bonds.)

So...what is it that you'd be afraid a fee-only advisor would tell you? One advisor has told you your plan is unrealistic. You've had a smattering of input here. What is it that you think someone is going to tell you that you don't know? What is it that you think you know, that is preventing you from implementing a coherent strategy?


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## Four Pillars (Apr 5, 2009)

And to add to MG's comment - what's wrong with having someone who knows what they are doing confirming that you know what you are doing?

To be honest, you don't sound like you know much about investing. If you don't want to hire someone, then at least do some reading and learn more. That info will help you whether you end up with an advisor or not.


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## b_foot (Dec 16, 2010)

MoneyGal said:


> Hmmm. Putting together what's in the Moneyville article and what you've posted here, you've made some "horrible" investment choices and you have a relatively significant proportion of assets in a savings account, effectively earning nothing.
> 
> Also...a couch potato strategy is a good hedging strategy and may be appropriate for people who are not confident in making their own investment choices - but it does not, by itself, in any way guarantee that you'll get the returns you'll need to implement your plan. (Not that any strategy would, other than saving everything you need in real return bonds.)
> 
> So...what is it that you'd be afraid a fee-only advisor would tell you? One advisor has told you your plan is unrealistic. You've had a smattering of input here. *What is it that you think someone is going to tell you that you don't know? What is it that you think you know, that is preventing you from implementing a coherent strategy?*


These are good questions. 

To attempt to answer the last questions .... I *think* any advisor would recommend a portion of money to go into bonds. Why throwing good money away when we know interest rate is at a historical low and any upward move will have a negative impact on bonds. 

After hearing so many inputs, I think the best bet is to get a financial advisor to go over our scenario one more time and suggest an investment strategy. Thanks


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## CanadianCapitalist (Mar 31, 2009)

Couple of comments:

I'm skeptical of the claim in the column that one reason for hiring an advisor is to help clients from buying at the top or selling at the bottom. 

I wonder why $48K in cash is not earning anything. You can park it in a high-interest savings account and at least earn something.


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## b_foot (Dec 16, 2010)

CanadianCapitalist said:


> Couple of comments:
> 
> I'm skeptical of the claim in the column that one reason for hiring an advisor is to help clients from buying at the top or selling at the bottom.
> 
> *I wonder why $48K in cash is not earning anything. You can park it in a high-interest savings account and at least earn something.*


The cash are parked at high interest savings account earning 2% interest. The plan has always been to invest this money.


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## blin10 (Jun 27, 2011)

may i ask which bank you use to get 2% ?



b_foot said:


> The cash are parked at high interest savings account earning 2% interest. The plan has always been to invest this money.


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## MoneyGal (Apr 24, 2009)

CanadianCapitalist said:


> Couple of comments:
> 
> *I'm skeptical of the claim in the column that one reason for hiring an advisor is to help clients from buying at the top or selling at the bottom. *
> 
> I wonder why $48K in cash is not earning anything. You can park it in a high-interest savings account and at least earn something.


Dollar-cost-averaging and/or periodic investing plus asset allocation and rebalancing back to a target - all of those things could be argued as a way to prevent clients from buying high/selling low.


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## the-royal-mail (Dec 11, 2009)

bfoot, go easy on the quoting.

Anyway, you seem fixated on an advisor as your miracle pill but I really don't think that is going to solve your problem. Most "advisors" these days are more like mutual fund salesman. Sure, they'll listen to what you are saying but if you follow the money you can see that it all ultimately leads back to their pocket in the form of fees.

Your finances are your responsibility. I think CMF has seen another batch of newbies lately who seem to think that passive investing is some sort of goal to be reached by the age of 25 (to allow retirement before they're 30) and I'm afraid you might be missing the point of investing. Any "detail analysis" on your finances would and should be your own responsibility. Personal finance should never be a "set it and forget it" scenario.

My recommendation for you is to get your desires in check and spend some more time lurking and reading threads. I don't think an advisor is going to be the answer you think it will be.


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## MoneyGal (Apr 24, 2009)

b_foot said:


> T
> To attempt to answer the last questions .... I *think* any advisor would recommend a portion of money to go into bonds. Why throwing good money away when we know interest rate is at a historical low and any upward move will have a negative impact on bonds.


Test questions: what OTHER reason(s) might an advisor recommend bonds in a portfolio? Are bonds ever appropriate in a low-interest-rate environment? When are rates moving up, and by how much? What impact does a rate increase have on the other portions of a portfolio?


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## b_foot (Dec 16, 2010)

blin10 said:


> may i ask which bank you use to get 2% ?


ING children savings account.


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## b_foot (Dec 16, 2010)

agree, no one is going to know me better than financial advisor. What I'm looking for though is an investment strategy.


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## b_foot (Dec 16, 2010)

MoneyGal said:


> Test questions: what OTHER reason(s) might an advisor recommend bonds in a portfolio? Are bonds ever appropriate in a low-interest-rate environment? When are rates moving up, and by how much? What impact does a rate increase have on the other portions of a portfolio?


Wow a test ....  Short duration bonds might be the answer. Rising interest rate would have a negative impact on the cash flow as well as the maturity value (I don't know the term -- par?). Short term duration will reduce the interest rate risk impact. I can't think of a reason why bond value would go up unless interest rate is reduced further.


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## b_foot (Dec 16, 2010)

The article may not tell the whole story. 

Our current portfolio includes: canadian bank prefs (which pays between 5% to 8%), canadian bank/insurance common, some canadian resources common, US banks, US blue chip, US Tech, Foreign/US Telco, Pharmaceutical, RIM (yes, not a lot). They amounted to be about 190K.


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## Charlie (May 20, 2011)

Seems you're on track with everything except an investment strategy. I always find it funny when articles advise delaying retirement a couple of years when we're dealing with a twenty year horizon here!

If you were truly comfortable with your investment strategy, you wouldn't be posting so much here. So I'm guessing you're uncertain. No investment adviser will force you to buy bonds. They may recommend it, but you won't be forced. I'd suggest you put at least some of your money in a professionally managed account. You need a fairly modest return so get a portfolio that reflects that. You can't just pick good stocks, you need to design a proper portfolio. So you may need an investment adviser, not a financial adviser. If they suggest mutual funds with MER greater than 1.5 or borrowing to invest, steer clear. You can 'do it yourself' once you're confident you know what you're doing and have the discipline and inclination to do it.

But a paid off house, $300K and $50k/y investable at your age gives you tonnes of options. Well done! You'll be fine.


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## Homerhomer (Oct 18, 2010)

Charlie said:


> *Seems you're on track with everything except an investment strategy. *
> ............
> 
> But a paid off house, $300K and $50k/y investable at your age gives you tonnes of options. Well done! You'll be fine.


And the strategy is the easiest to correct, the hard parts like bringing sufficient revenues, having spending under control and saving quite a bit are already tackled, coming up with investment strategy should be the easiest part.

Congratulations indeed, most poeple I know (including yours truly) would be happy to be in your position.


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## Daniel A. (Mar 20, 2011)

Inflation the number one killer of everything we do, at one time one million dollars seemed like a lot.

In the early to mid seventies I earned around 10-12 thousand a year good money then.
In the eighties mid I earned around 30 thousand good money then.
In the nineties I was making around 60 thousand a good income by most standards.
From 2000 on I was pulling around 100 grand a year the last several years of work life more like 110 - 120 a year .

If at any time in my life you had told me that those numbers were possible and real I'd have told you you were crazy this my friends is inflation.
On balance I likely did better than most but the numbers don't lie.

Two million today may sound like a lot but given my history of work and wages who can say.


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## My Own Advisor (Sep 24, 2012)

$2 million is plenty to retire on IMO but I guess everyone spends their money differently.


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## MoneyGal (Apr 24, 2009)

My Own Advisor said:


> $2 million is plenty to retire on IMO but I guess everyone spends their money differently.


$2M / $90K per year will last for just over 22 years with NO inflation and NO provision for bear markets (and also no accounting for CPP and OAS, neither of which would be available at the desired early retirement dates for this couple). 

If $2M is to last for the rest of the couples' lifetime, how long might it need to last? What is the chance that a couple, aged 54 and 57, will have at least one member alive after 22 years (ages 76 and 79)? Canadian life expectancy data (i.e., the Canadian life tables) tells us *there is a greater than 90% chance that at least one spouse will be alive after 22 years*. (I don't think the advisor consulted by Moneyville contemplated longevity risk.)

Statements like "$2M is plenty to retire on" are too simplistic, especially when "retirement" is to begin at age 54.


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## Young&Ambitious (Aug 11, 2010)

There is also the $300,000 house that will have been paid off for which a reverse mortgage can be done if required in late retirement. This value should *hopefully* keep up with inflation.


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## MoneyGal (Apr 24, 2009)

Yes, and how many more years would $300K last? Just over 3. What are the chances at least one member of the couple will be alive after 25 years? Also right about 90%. Which isn't surprising, as at ages 79 and 82, they are still under the age of the average life expectancy for a Canadian couple at age 65 today. (And we keep adding to life expectancy every year, for what that's worth.)

I'm sincerely not trying to be all doom and gloom: but the risk of having enough money to last 22 years (25 if you mortgage the house down to zero) when you have a life expectancy that *exceeds* 22 years *on average* - well, let's just say it's risky.


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## Sampson (Apr 3, 2009)

But MoneyGal,

Your 22 year draw down assumes there is 0 return on the $2M? I don't know what the odds are that the portfolio will have positive returns sufficient to maintain the lifestyle for >22 years, but surely you have not accounted for an expected real return of a few percentage points?

The longevity, inflation, sequence of returns and other risks are obviously important, hence your cautionary points are understandable.

One thing the OP hasn't seemed to consider is whether one could spend $90k (inflation adjusted or otherwise) all the way through retirement. I'm guessing even if seniors 75 and older had access to the capital, the desire to spend will be greatly reduced as one gets older.


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## GoldStone (Mar 6, 2011)

Fearless prediction: they are not going to spend anywhere close to 90K in retirement.

They spend substantially less now. They are typical savers, living well below their means. Frugal living becomes a second nature. I think it's unlikely they will loosen the purse strings in retirement.


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## MoneyGal (Apr 24, 2009)

I agree with both of your guys (I assume you are both guys). Most people reduce their spending as they age, and it is rational to plan for that. 

My issue is not with the real-world application of this plan. (BTW my approach was extremely simplistic - I didn't account for inflation, volatility or equity returns. I should have said as much to be clear. For some reason I erased the sentence that I originally typed out about that.) I am pretty sure this couple will be fine in reality. 

My issue is with blanket statements like "$2M [in a stock/bond portfolio] is enough for retirement." It might be. It might not be. If the couple spends $90K all the way through (highly unlikely) it probably is not enough. It's worth contemplating what the risks to a straight-line plan like that might be. I guess I just have extra time on my hands.


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## Sampson (Apr 3, 2009)

MoneyGal said:


> My issue is with blanket statements like "$2M [in a stock/bond portfolio] is enough for retirement." It might be. It might not be.


This is fair enough. Wasn't sure if you actually thought that the $2M is insufficient to cut it. Planning over any extended period becomes near impossible.


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## HackNSlash (Apr 3, 2009)

b_foot, I was in the same situation about a year ago when I was trying to figure out how to invest properly for an early retirement. Since then, I've done a ton of research, found a financial advisor and am now reasonably confident that I should be able to pull if off in a few years. Shoot me PM. We can compare notes.


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## b_foot (Dec 16, 2010)

Thanks for all the replies. I know clearly what the gaps are toward our retirement plan. We don't spend any where near 90K now, I don't imagine we will spend 90K in retirement. Thanks!


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