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Post by wannabechef on Jan 11, 2021 23:28:34 GMT
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Post by steadyeddy on Jan 13, 2021 0:17:48 GMT
I am approaching retirement within a year or two... hopefully it will be voluntary.
I want to enter retirement with more like 40/60... and then ratchet up equities over time [this is purely based on very high current valuations of the stock market no matter what metric you use].
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galeno
Commander
KISS & STC
Posts: 221
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Post by galeno on Jan 21, 2021 21:48:46 GMT
I agree. Walk. Don't run into retirement. After a few years, when you feel more comfortable, you can run. If you wish. But when you get there, like us, you may prefer to just keep walking. I am approaching retirement within a year or two... hopefully it will be voluntary. I want to enter retirement with more like 40/60... and then ratchet up equities over time [this is purely based on very high current valuations of the stock market no matter what metric you use].
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Post by steadyeddy on Jan 21, 2021 23:00:17 GMT
I agree. Walk. Don't run into retirement. After a few years, when you feel more comfortable, you can run. If you wish. But when you get there, like us, you may prefer to just keep walking. I am approaching retirement within a year or two... hopefully it will be voluntary. I want to enter retirement with more like 40/60... and then ratchet up equities over time [this is purely based on very high current valuations of the stock market no matter what metric you use]. Good feedback, galeno!
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Post by retiredat48 on Jan 22, 2021 6:32:37 GMT
I am approaching retirement within a year or two... hopefully it will be voluntary. I want to enter retirement with more like 40/60... and then ratchet up equities over time [this is purely based on very high current valuations of the stock market no matter what metric you use]. Hi steady. When I retired in 1993, at age 48, I had available to me LT Corp bonds that yielded about 10%. I felt very comfortable with the bond allocation then, with maybe a 70/30 portfolio needing to last 40 years. Didn't hurt the monte carlo studies projections. However, if I were retiring today at age 48, no way I go 40/60, with the almost artificially low interest rates, across the duration spectrum. It is like central banks are bailing out the world economies, on the backs of bondholders. Very low rates; very high risk of NAV price declines if rates rise. Way too risky. Put another way, my 101 y/o mother-in-law, in an assisted living facility, has her money in CDs and short term Treasuries. She gets zilch in yield. Fortunately, she has enough to draw down principal to last to her age 122. She still worries, though. So steadyeddy, what kinds of investments do you see holding for that 60%?? To get above 2% yield entails lots of risk. I don't know what I would buy in the classic bond holding sense. Disclosure: During last year I have sold out of many of my standard-issue, vanilla bond funds. R48
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Post by steadyeddy on Jan 22, 2021 14:17:08 GMT
I am approaching retirement within a year or two... hopefully it will be voluntary. I want to enter retirement with more like 40/60... and then ratchet up equities over time [this is purely based on very high current valuations of the stock market no matter what metric you use]. Hi steady. When I retired in 1993, at age 48, I had available to me LT Corp bonds that yielded about 10%. I felt very comfortable with the bond allocation then, with maybe a 70/30 portfolio needing to last 40 years. Didn't hurt the monte carlo studies projections. However, if I were retiring today at age 48, no way I go 40/60, with the almost artificially low interest rates, across the duration spectrum. It is like central banks are bailing out the world economies, on the backs of bondholders. Very low rates; very high risk of NAV price declines if rates rise. Way too risky. Put another way, my 101 y/o mother-in-law, in an assisted living facility, has her money in CDs and short term Treasuries. She gets zilch in yield. Fortunately, she has enough to draw down principal to last to her age 122. She still worries, though. So steadyeddy, what kinds of investments do you see holding for that 60%?? To get above 2% yield entails lots of risk. I don't know what I would buy in the classic bond holding sense. Disclosure: During last year I have sold out of many of my standard-issue, vanilla bond funds. R48 R48 - My bond holdings are primarily high-quality corporate bonds in Wellesley, and maybe a smattering of IT bonds in Fidelity Puritan. While I agree that bond yields are abysmal, I do see a better relative yield in bonds compared to MM or CDs. I strongly believe in the "ballast" function hi-qual bonds provide. I am not prepared to increase equity allocation at this valuation levels... my theory is a few years before/after retirement I want to be super conservative. All the best.
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Post by wannabechef on Jan 22, 2021 19:59:43 GMT
Very interesting thoughts from those who have or are preparing to retire. I am still in the accumulation phase at the moment which I must admit, feels a little easier compared to the asset drawdown phase. I look to draw from the wisdom of those who came before or are getting ready to venture on that journey to pull from. I have always suspected I would be comfortable with a 70/30 : stock/bond allocation given my comfort level with volatility. I keep hearing these fairy tales that you used to be able to get 5-7% in a CD or money market fund but don't think I've ever seen that in my adult lifetime, or have any faith that we will again for that matter.
I haven't seen anyone do a rundown in this forum yet but am curious for those that are retired how one structures withdrawals. Is this a dynamic process or static? The process just seems a little more mistifying when compared to accumulation.
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Post by Chahta on Jan 22, 2021 23:47:38 GMT
R48 and others. I have a proposition. Let's pick it apart. Looking at PIMIX and PTIAX, and I am sure there are others, as 2 income generators. There are many people that have bought into them an held for a long time, let's say 10 years. They are yielding 3.5-4%. If a person took the cash each month (selling no original shares) after buying in today, the price will do what it will do, goes up and down. At today's prices, after the going up and down it has returned to this level 8 or 9 times. No loss of capitol and decent income. Maybe scary for some. Seems like 40/60 could be reasonable. Some buy bonds for TR some for income. Not all funds have this track record. They both had a low of about 9-10% at todays price. That would represent a 6% loss (40/60 AA) of portfolio value assuming the stock side did nothing. Not that bad really. I would not chase yield using unknown quantities.
BTW R48, I am Gary1952 from M*.
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Post by Chahta on Jan 22, 2021 23:56:36 GMT
Very interesting thoughts from those who have or are preparing to retire. I am still in the accumulation phase at the moment which I must admit, feels a little easier compared to the asset drawdown phase. I look to draw from the wisdom of those who came before or are getting ready to venture on that journey to pull from. I have always suspected I would be comfortable with a 70/30 : stock/bond allocation given my comfort level with volatility. I keep hearing these fairy tales that you used to be able to get 5-7% in a CD or money market fund but don't think I've ever seen that in my adult lifetime, or have any faith that we will again for that matter. I haven't seen anyone do a rundown in this forum yet but am curious for those that are retired how one structures withdrawals. Is this a dynamic process or static? The process just seems a little more mystifying when compared to accumulation. I agree. Accumulation is much easier. It is called a "paycheck". I lived thru those 5-7% yields and mortgage rates were 15% when I was 27 years old. 70/30 is doable but for me I want 2 years in cash (part of it could be munis and there are others) to beat Sequence of Return risk.
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Post by rhythmmethod on Jan 23, 2021 2:18:20 GMT
R48 and others. I have a proposition. Let's pick it apart. Looking at PIMIX and PTIAX, and I am sure there are others, as 2 income generators. There are many people that have bought into them an held for a long time, let's say 10 years. They are yielding 3.5-4%. If a person took the cash each month (selling no original shares) after buying in today, the price will do what it will do, goes up and down. At today's prices, after the going up and down it has returned to this level 8 or 9 times. No loss of capitol and decent income. Maybe scary for some. Seems like 40/60 could be reasonable. Some buy bonds for TR some for income. Not all funds have this track record. They both had a low of about 9-10% at todays price. That would represent a 6% loss (40/60 AA) of portfolio value assuming the stock side did nothing. Not that bad really. I would not chase yield using unknown quantities. BTW R48, I am Gary1952 from M*. Yes, what @chahta said!
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stats
Lieutenant
Posts: 53
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Post by stats on Jan 31, 2021 0:09:13 GMT
Very interesting thoughts from those who have or are preparing to retire. I am still in the accumulation phase at the moment which I must admit, feels a little easier compared to the asset drawdown phase. I look to draw from the wisdom of those who came before or are getting ready to venture on that journey to pull from. I have always suspected I would be comfortable with a 70/30 : stock/bond allocation given my comfort level with volatility. I keep hearing these fairy tales that you used to be able to get 5-7% in a CD or money market fund but don't think I've ever seen that in my adult lifetime, or have any faith that we will again for that matter. I haven't seen anyone do a rundown in this forum yet but am curious for those that are retired how one structures withdrawals. Is this a dynamic process or static? The process just seems a little more mistifying when compared to accumulation. I retired in 2010 and my spouse retired in 1991 to raise our children. We need about 2.5% of our portfolio for living expenses. To this aim we take as much cash as we can from our portfolio without raising our marginal tax rate. We use our Taxable IRA’s to raise this cash. We currently have about 12% in cash, which amounts to about 4 years of income (Our goal is 5 years). We have also, converted about 10% of our taxable IRA into our Roth IRA. Reducing our Taxable IRAs helps us by lowering our RMDs, which start in about 5 years. Currently, our RMDs will put us in a higher tax rate. As I see it, you should (1) take cash from taxable IRA before taking cash from ROTH (2) keep your cash at about 5 years living expenses. (3) convert Taxable IRA to ROTH (4) never do anything that puts you in a higher tax rate. stats
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Post by Mustang on Feb 22, 2021 16:23:58 GMT
Hi steady. When I retired in 1993, at age 48, I had available to me LT Corp bonds that yielded about 10%. I felt very comfortable with the bond allocation then, with maybe a 70/30 portfolio needing to last 40 years. Didn't hurt the monte carlo studies projections. However, if I were retiring today at age 48, no way I go 40/60, with the almost artificially low interest rates, across the duration spectrum. It is like central banks are bailing out the world economies, on the backs of bondholders. Very low rates; very high risk of NAV price declines if rates rise. Way too risky. Put another way, my 101 y/o mother-in-law, in an assisted living facility, has her money in CDs and short term Treasuries. She gets zilch in yield. Fortunately, she has enough to draw down principal to last to her age 122. She still worries, though. So steadyeddy, what kinds of investments do you see holding for that 60%?? To get above 2% yield entails lots of risk. I don't know what I would buy in the classic bond holding sense. Disclosure: During last year I have sold out of many of my standard-issue, vanilla bond funds. R48 R48 - My bond holdings are primarily high-quality corporate bonds in Wellesley, and maybe a smattering of IT bonds in Fidelity Puritan. While I agree that bond yields are abysmal, I do see a better relative yield in bonds compared to MM or CDs. I strongly believe in the "ballast" function hi-qual bonds provide. I am not prepared to increase equity allocation at this valuation levels... my theory is a few years before/after retirement I want to be super conservative. All the best. All of my bond holdings are in balanced mutual funds. This isn't the same as holding separate bond and stock assets. It is the fund management team who decides, within a range, the proportion of stocks to bonds and whether holding treasuries or long term corporate bonds is best. They also decide whether it is better to hold growth stocks or value stock. Wellington was losing ground so it started buying growth stocks and Morningstar changed its stock holdings from value to blend. Its the same on the bond side. Treasuries, intermediates, long-terms change. When I look at the details in Morningstar one of my balanced funds was sitting on 7% cash which pays nothing yet its return last year was above 10%.
I look at asset allocation in general. I want my portfolio to be somewhere between 50-75% stock. There is a lot of analysis out there that says that allocation has the best long-term performance but it is the fund managers who make those decision. I don't. Right now Wellesley Income is 55% fixed income, not 60%. Wellington is 30% fixed income, not 40%. More importantly, Wellesley is 39% stock and Wellington is 66% stock. If the portfolio is half Wellington and half Wellesley then the overall stock allocation is around 53%. (This is just an example, my stock allocation is actually higher because of other funds.)
Comparing yields of bonds, CDs, etc. may be important to those who roll their own asset allocation but I'm not sure its that important to those of us who are in balanced funds. Our fund management teams take care of that. I'm more concerned with returns and volatility. Wellesley Income will average 1-2% points lower return than Wellington. I think it is a terrible investment for those still in the accumulation phase. But it is far less volatile than Wellington. It is a great investment for retirees. For example Wellington lost 22.3% in 2008. Wellesley lost 9.8%. Taking from Wellesley in 2008 would be less harmful for the portfolio's recovery than taking the same withdrawal from Wellington.
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galeno
Commander
KISS & STC
Posts: 221
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Post by galeno on Feb 22, 2021 22:08:00 GMT
My wife and I have become "woke". Depending how we FEEL about the markets we are 40 to 60% "equity fluid". 5% in CASH. The rest in USD hedged investment grade bonds.
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Post by steadyeddy on Feb 22, 2021 22:17:13 GMT
R48 - My bond holdings are primarily high-quality corporate bonds in Wellesley, and maybe a smattering of IT bonds in Fidelity Puritan. While I agree that bond yields are abysmal, I do see a better relative yield in bonds compared to MM or CDs. I strongly believe in the "ballast" function hi-qual bonds provide. I am not prepared to increase equity allocation at this valuation levels... my theory is a few years before/after retirement I want to be super conservative. All the best. All of my bond holdings are in balanced mutual funds. This isn't the same as holding separate bond and stock assets. It is the fund management team who decides, within a range, the proportion of stocks to bonds and whether holding treasuries or long term corporate bonds is best. They also decide whether it is better to hold growth stocks or value stock. Wellington was losing ground so it started buying growth stocks and Morningstar changed its stock holdings from value to blend. Its the same on the bond side. Treasuries, intermediates, long-terms change. When I look at the details in Morningstar one of my balanced funds was sitting on 7% cash which pays nothing yet its return last year was above 10%.
I look at asset allocation in general. I want my portfolio to be somewhere between 50-75% stock. There is a lot of analysis out there that says that allocation has the best long-term performance but it is the fund managers who make those decision. I don't. Right now Wellesley Income is 55% fixed income, not 60%. Wellington is 30% fixed income, not 40%. More importantly, Wellesley is 39% stock and Wellington is 66% stock. If the portfolio is half Wellington and half Wellesley then the overall stock allocation is around 53%. (This is just an example, my stock allocation is actually higher because of other funds.)
Comparing yields of bonds, CDs, etc. may be important to those who roll their own asset allocation but I'm not sure its that important to those of us who are in balanced funds. Our fund management teams take care of that. I'm more concerned with returns and volatility. Wellesley Income will average 1-2% points lower return than Wellington. I think it is a terrible investment for those still in the accumulation phase. But it is far less volatile than Wellington. It is a great investment for retirees. For example Wellington lost 22.3% in 2008. Wellesley lost 9.8%. Taking from Wellesley in 2008 would be less harmful for the portfolio's recovery than taking the same withdrawal from Wellington.
Mustang, very good feedback. I am Wellesley heavy in my portfolio - as I am approaching retirement in a few years.
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hondo
Commander
Posts: 145
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Post by hondo on Feb 25, 2021 18:02:41 GMT
During our accumulation years we keep a 60/40 portfolio. We entered retirement at 40/60 and reduced downward to 30/70. Now deep into retirement, we have let it rise upward to 35/65 and I may let it rise up to 40/60 again. I feel that the longer we live, the less time our money will have to last, so we can afford to take a little more risk and leave more to our family, but the main goal is to have the money last as long as we do. I do not fear running out of money, since our pensions pay our living expenses. We use balanced funds except for some in high-yield corp. and high-yield tax-exempt bonds, since the balanced funds have very little in high-yield. We also have some CDs that I am moving to the balanced funds as they mature since the new CDs pay next to nothing.
Just another point of view.
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Post by steadyeddy on Feb 25, 2021 18:55:57 GMT
During our accumulation years we keep a 60/40 portfolio. We entered retirement at 40/60 and reduced downward to 30/70. Now deep into retirement, we have let it rise upward to 35/65 and I may let it rise up to 40/60 again. I feel that the longer we live, the less time our money will have to last, so we can afford to take a little more risk and leave more to our family, but the main goal is to have the money last as long as we do. I do not fear running out of money, since our pensions pay our living expenses. We use balanced funds except for some in high-yield corp. and high-yield tax-exempt bonds, since the balanced funds have very little in high-yield. We also have some CDs that I am moving to the balanced funds as they mature since the new CDs pay next to nothing. Just another point of view. hondo, good perspective. I am lowering my equity % these days and intend to enter retirement with a 40/60 portfolio, my thinking is along the same lines yours is.
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Post by Mustang on Feb 25, 2021 21:17:38 GMT
During our accumulation years we keep a 60/40 portfolio. We entered retirement at 40/60 and reduced downward to 30/70. Now deep into retirement, we have let it rise upward to 35/65 and I may let it rise up to 40/60 again. I feel that the longer we live, the less time our money will have to last, so we can afford to take a little more risk and leave more to our family, but the main goal is to have the money last as long as we do. I do not fear running out of money, since our pensions pay our living expenses. We use balanced funds except for some in high-yield corp. and high-yield tax-exempt bonds, since the balanced funds have very little in high-yield. We also have some CDs that I am moving to the balanced funds as they mature since the new CDs pay next to nothing. Just another point of view. All of us in retirement want our money to last as long as we do usually with a secondary goal of leaving something for our kids. As you might be aware I'm a big believer of balanced funds. You said your pensions pays your living expenses. From that comment I am assuming that any withdrawals are used for discretionary spending. I'm curious. What withdrawal strategy are you using? Since you are talking about yield it almost sounds like it is an income strategy (taking dividends and leaving behind the principle). I was also thinking you might be using a dynamic withdrawal strategy where a constant percent is multiplied time the previous end of year balance and the withdrawal increases and decreases with performance.
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stats
Lieutenant
Posts: 53
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Post by stats on Feb 26, 2021 20:46:04 GMT
As someone looking into retirement a decade ago, I was only swayed by Monte Carlo success rates greater than 95%. Retirement then was a scary unknown. At that time, I’m sure I would have ignored any article with a 50% success rate.
Like others in this thread note, we invested a little over 5% of our portfolio in 10% yielding US Savings Bonds and Long Term bond funds. Going into retirement it frustrated me that I could not replace those 10% bonds with anything nearing a similar rate. How lucky reired48 is to have had access to these safe investments.
Now looking back across 10 years of retirement, I can see how Kitces’ 50% success rate could be sufficient to convince one that retirement could be successful. But that is after going through one recession that started the year we retired. There was also, the 10 year bond rate big dropping from 6% (do I remember correctly, 2011) to about 1%. And many other crises talked on about for hours at a time. I suppose this is the Wall of Worry they talk about.
Basically, my point is that you will take something different from Kitces article depending on where you are in this adventure called life. Unfortunately, I don’t think it will help steddyeddy make a decision about retirement.
Best to all Stats
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hondo
Commander
Posts: 145
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Post by hondo on Feb 26, 2021 21:10:19 GMT
During our accumulation years we keep a 60/40 portfolio. We entered retirement at 40/60 and reduced downward to 30/70. Now deep into retirement, we have let it rise upward to 35/65 and I may let it rise up to 40/60 again. I feel that the longer we live, the less time our money will have to last, so we can afford to take a little more risk and leave more to our family, but the main goal is to have the money last as long as we do. I do not fear running out of money, since our pensions pay our living expenses. We use balanced funds except for some in high-yield corp. and high-yield tax-exempt bonds, since the balanced funds have very little in high-yield. We also have some CDs that I am moving to the balanced funds as they mature since the new CDs pay next to nothing. Just another point of view. All of us in retirement want our money to last as long as we do usually with a secondary goal of leaving something for our kids. As you might be aware I'm a big believer of balanced funds. You said your pensions pays your living expenses. From that comment I am assuming that any withdrawals are used for discretionary spending. I'm curious. What withdrawal strategy are you using? Since you are talking about yield it almost sounds like it is an income strategy (taking dividends and leaving behind the principle). I was also thinking you might be using a dynamic withdrawal strategy where a constant percent is multiplied time the previous end of year balance and the withdrawal increases and decreases with performance.
Hello Mutang; At present, almost all of our withdrawals are reinvested into our taxable funds. Our RMDs are withdrawn proportionally from each IRA fund. The wife's is withdrawn quarterly and mine is withdrawn annually. This is set up with Vanguard and done automatically. The only catch is that when I do a QCD, I have to reset the automatic schedule. For some reason, when a QCD is done, it doesn't change the amount set up to be withdrawn on future dates. This would result in more than the RMD being withdrawn at years end. I guess I would have to say we use a total return strategy. As to yield, I was referring to the CD yields. We are getting out of CDs as they mature. Hondo
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Post by Mustang on Feb 27, 2021 0:33:48 GMT
RMDs are one of the dynamic withdrawal strategies. A divisor (the same as a percent) is used on the previous EOY balance to determine the amount if the RMD. It must be the QCD that is messing up the automatic distribution. I'm with American Funds and doing the same thing without a QCD. They calculate the gross amount, take out the taxes, and deposit the remainder in my checking account. We then manually invest that in a taxable account. We just changed years and everything went smoothly. Good luck on getting that fixed.
Back to your asset allocation, I have read a couple of articles lately about an upward glide slope for the stock portion of a portfolio. I personally think 35/65 is too tame. I even think 40/60 is too tame using a dynamic withdrawal method. They are specifically designed to protect the value of the portfolio by taking out less if the portfolio does poorly. I'm solely invested in a moderate-allocation fund in my traditional IRA which according to Morningstar is around 60% stock. And, since you are re-investing withdrawals, if you sell from your IRA when prices are down you are also buying in your taxable accounts with the prices are down.
P.S. That is just the opinion of someone who is still trying to figure things out. You have to do what fits your own risk tolerance.
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hondo
Commander
Posts: 145
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Post by hondo on Feb 27, 2021 19:57:57 GMT
Mustang: The QCD problem is really no big thing. Its just that when a person enters a dollar amount to be withdrawn from the IRA on a certain date, the Vanguard computer is going to withdraw that amount, no matter how many other withdrawals are made in the meantime. I suppose Vanguard can't change the set withdrawal without my permission. As said, its no problem. Just another item to take care of when making a QCD.
I must admit that I am not familiar the "dynamic withdrawal method", but you are correct that everyone must do what best fits their risk tolerance.
Just another point of view.
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Post by steelpony10 on Jul 23, 2021 20:35:22 GMT
Not everyone draws down. There is such a thing as income investing. Our portfolio value has increased since retirement due to favorable markets and income investing. Assuming you have limited means meaning you’re not a 1%er and/or no outside income, my first draw down question is would every retiree draw down in 2020 their regularly schedule amount because of their complete faith in markets, their own allocations and diversification, studies etc. or freeze up because their faith in themselves and studies is not complete. In other words most retirees wouldn’t follow a regular draw down plan? If so anything might work or not depending on future luck since there isn’t a real plan at all. Does a Monte Carlo simulation take into account (factor in) later life issues like assisted living and LTC when your monthly requirements might double or triple? If not why angst over anything short or long term you could be doomed anyway. Lol.
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Post by Mustang on Jul 30, 2021 12:35:38 GMT
Income investing is certainly an option but you need portfolios larger than mine to make it work. Researchers like Bengen (1994), the Trinity Study (1998), and others used historical data. Bengen's original study had 51 retirement periods. The Trinity Study had 55. From what I have read Monte Carlo is 10,000 computer generated scenarios some of which can be rather far out such as no return for a decade. Those that use it have talked about an 80% or even 70% probability of success as acceptable.
I personally don't care for Monte Carlo but rely more on Bengen, the Trinity Study, and Wade Pfau's 2018 update of the Trinity Study all of with rely on historic performance and all of which look at the initial safe withdrawal rate. That is the largest percentage that can be taken during the first year of retirement with the dollar amount adjusted for inflation each year after. That initial percentage is the worst case scenario. In Bengen's original study it was a 1968 retirement year. A 1929 stock market crash didn't kill the portfolio but inflation did. The often cited 4% Rule has a 4% initial withdrawal for a 30 year retirement period assuming a portfolio with at least 50% stocks. A portfolio with 75% stocks didn't last as long during the worst case scenario but on average had a 125% higher ending balance after 30 years. Because of that Bengen recommended the stock portion be between 50-75% stock. He never tested a 60/40 portfolio. People seem to extrapolate that from his statement.
The Trinity Study authors suggested a 5% initial withdrawal was acceptable if inflation was kept under control because 17 of the 18 retirement periods that did not last 30 years occurred during the high inflation years. All of these studies showed that different initial withdrawal rates were necessary for different retirement periods, for example 3% for 40 years, 4% for 30 years, 5% for 20 years and 6% for 15. The initial withdrawal depends entirely upon the length of the retirement payout period. 30 years is mostly used because it takes a 65 year old retiree to 95.
These are historically worst case withdrawals. Michael Kitces has written that in the vast majority of retirement periods these initial withdrawals leave considerable wealth behind. Most of the 30 year retirement periods would have allowed a 6.5% or 7% initial withdrawal. Some even 10%. The problem is that we cannot see the future. He has written about a method to ratchet up withdrawals depending on portfolio performance if you are using a fixed withdrawal method such as the 4% Rule.
If you have a lot of discretionary spending and have the flexibility to cut back if necessary then I can see how a predicted 50% Monte Carlo success is OK since 70/80% is normally considered acceptable. But dynamic withdrawal methods do require cuts in spending when the market is down. That is much easier to do if the retiree has a pension, social security, or other annuity paying this fixed living expenses.
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Post by retiredat48 on Jul 30, 2021 15:43:07 GMT
Mustang...are you familiar with the retirement study works of JAMES OTAR??
If not, I can give you some links. (His main study can be downloaded for free...sometime $5)
He is perhaps my top guru in this theme.
R48
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Post by Mustang on Jul 31, 2021 1:06:33 GMT
Mustang...are you familiar with the retirement study works of JAMES OTAR?? If not, I can give you some links. (His main study can be downloaded for free...sometime $5) He is perhaps my top guru in this theme. R48 No but if you post a link I will be glad to read it. I'm going to search on his name now.
It is general in nature but I tend to agree with his lessons. .......1. Watch for emotions in planning assumptions .......2. Recognize the flaws of Monte Carlo simulations. (I have read of other more glaring ones than those listed here.) .......3. Forget the 10 best market days and understand the worst. (I agree that stock investing isn't for me that is why I pick managed asset allocation funds.) .......4. Where one retires in the Market Cycle is luck - plain and simple.
In the end they tried to sell me an annuity. I already have one. I already have paid the high fees which help build my financial advisor's new house. Fees so high that 100% invested in S&P 500 index fund for 20 years did not even increase the cash value an average of 6% per year. It's not that I hate annuities. This one is a variable annuity with all the bells and whistles. Only in this low yield environment does it have potential. One of the bells is a 6% withdrawal without annuitizing. This will assist in paying for a nursing home should that be needed and it keeps the guaranteed minimum death benefit intact which my wife will invest to use for herself or bequeath to our children. (Note: We already have pensions and social security for stable income. Others may need an annuity but get one with less fees.)
I thought the chart comparing portfolio longevity to the P/E ratio was interesting. By using a 6% initial withdrawal I thought he might be manipulating the data (like Guyton-Klinger's gaurdrail method) but the worst cases for portfolio life seems to line up well with other analysis that I've read. His guidelines definitely do. .......1. If the IWR (Initial Withdrawal Rate) is larger than 6%, portfolio life will be short (Historically a portfolio 75% stock lasted 30 years 59% of the time; 50% stock 46% of the time.)
.......2. However, if the IWR is near sustainable (between 3.5% and 4%), the data is too scattered for a reliable formula to estimate the portfolio life; (includes high inflation years) and .......3. Assuming the IWR is below sustainable, i.e., under 3.5%, then you have –in effect- an accumulation portfolio, and it should provide lifelong income.
By too scattered for a reliable formula to estimate portfolio life he is definitely talking about a predictive tool because we know that historically a 4% initial withdraw will support a 30-year payout period and that if inflation is kept low a 5% initial withdraw is highly likely to. I suspect the reason that its unreliable is that looking at a P/E ratio of the SP500 is looking at only part of a mixed stock/bond portfolio.
What I've read so far I've found to be interesting but not very useful. Of course the article was written by those using him to sell something. It appears that Otar started around the same time as Bengen. Like Bengen he came from outside the financial planning field and like Bengen was highly skeptical of the methods used at the time (basically averages) for financial planning. retirementincomejournal.com/article/in-the-green-zone-with-jim-otar/
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