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lowest risk does not grow the most money ,if that is someones goal . also the 28/72 model model also can become the one of the highest risk trying to draw 4% inflation adjusted as it failed way to many time frames already . out of 116 possible 30 year periods 28/72 failed to last through 19 of them already . if you live longer than 30 years it gets even worse.
i am not saying 28/72 is a bad allocation , it is not the best allocation for growing money nor is it a good allocation for trying to get a 4% out of , but it is fine if you drop the draw and take a pay cut from 4%. but remember meeting the draw is only one aspect , your balance left when you do is quite another .
you need money through life for large expenses , not every unexpected expense or unexpected spending fits nicely in to your monthly budget . long term care costs as well as living longer or home modifications to remain in your home all count on stuff not in the budget . you need a healthy balance besides meeting that draw rate .
60/40 through retirement has left you with more than you started 90% of the time frames . of course thirty years later that buys half of what it did but 28/72 drops the ball to many times in that area as well leaving much less left .
from 2000 to 2015 ,that time frame you love to put up , the lowest risk was 30 year treasury's and no equity's and it was also the highest return so posting that silly chart over and over means little as you can show no equity's would have been the better choice during that same period . .
FIRECalc looked at the 116 possible 30 year periods in the available data, starting with a portfolio of $1,000,000 and spending your specified amounts each year thereafter.
Here is how your portfolio would have fared in each of the 116 cycles. The lowest and highest portfolio balance at the end of your retirement was $-225,032 to $3,294,124, with an average at the end of $634,778. (Note: this is looking at all the possible periods; values are in terms of the dollars as of the beginning of the retirement period for each cycle.)
For our purposes, failure means the portfolio was depleted before the end of the 30 years. FIRECalc found that 19 cycles failed, for a success rate of 83.6%.
Last edited by mathjak107; 08-15-2016 at 02:04 AM..
keep in mind risk and volatility are not the same thing .
they mean different things .
28/72 may be less volatile as it reacts to normal market cycles but with so much in bonds there is a high risk that you will miss your savings goals over long periods of time . especially if bond rates start to rise again .
mitigating short term dips that are temporary with something that permanently reduces long term gains rarely is a better way or even logical unless you are risk averse .
Last edited by mathjak107; 08-15-2016 at 04:59 AM..
Hopefully you don't have a huge nest egg that you're dealing with there. Beware what can happen when you're taking on that much risk.
What is the source of the study?
Your numbers can be correct but I would be very much afraid of any allocation that had a lot of dollars in bond funds (individual bonds are different). I will agree that history shows bonds were good investments but I am not willing to assume they will be good going forward at these low interest rates.
I think you need 60% or more in stock for a long retirement. Having cash for the down market is also important.
it is a very conservative allocation . i would not draw more than 3.50% out of it as a max in retirement .. i would not use it for growth unless i was risk averse .
while it is bond heavy i am not a believer in just buy a total bond fund and forget about it .
i believe in bond diversification among all types of bond funds . if rates rise i would go to less interest rate sensitive bonds . especially if rates rise with inflation .
a total bond fund is a misnomer . there is little that is "total " about it .
it is missing way to many segments to be anywhere near "total"
Last edited by mathjak107; 08-19-2016 at 03:10 PM..
I'm at 80/20 stocks/bonds. I have a pretty long timeframe as I'm currently 38 so am in it for the long term. I have just enough in cash to cover my largest deductible.
Your numbers can be correct but I would be very much afraid of any allocation that had a lot of dollars in bond funds (individual bonds are different). I will agree that history shows bonds were good investments but I am not willing to assume they will be good going forward at these low interest rates.
I think you need 60% or more in stock for a long retirement. Having cash for the down market is also important.
ibbotson/morningstar is the source . but we also had an almost 40 year bull market in bonds with just a few speed bumps . anything with bonds did great . in fact from 2000 to 2015 you didn't need any equity's . you could have bought TLT and beat that portfolio .
28/72 model model also can become the one of the highest risk trying to draw 4% inflation adjusted as it failed way to many time frames already . out of 116 possible 30 year periods 28/72 failed to last through 19 of them already . if you live longer than 30 years it gets even worse.
To say that it "failed" is misleading. 4% is an arbitrary number. You can lower it if your nest egg drops below a certain level. I know that from 1966 onward you had to take out about 3.4% to retire comfortably with 28/72. Or you could just lower your 4% withdrawals after about 10 years.
What are you saying is the optimal allocation ratio with the least amount of failure years?
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