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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 withdrawals after about 10 years.
What are you saying is the optimal allocation ratio with the least amount of failure periods? 40% stocks?
the allocation for the least amount of failures depends on draw rate and length of time .
for 30 years at 4% it is 50/50.. for 40 years 75/25 for 3.50% it is 28/72
the whole idea of a safe withdrawal rate is it has to pass a stress test so YOU SHOULD NOT HAVE TO LOWER IT . every allocation and time frame has it's own draw rate that meets the test of time . is regardless of draw rate , it does not have to be 4% .
would you take a job off the bat knowing there are high odds you will be given a pay cut at that company if there were better choices ? i know i wouldn't.
the idea is to sustain a high enough chance of success so the odds are pretty good that you at least are starting out with a good plan .
many people can't adjust downward .adjusting downward is based on how much discretionary spending you have . if pretty much everything is a need and not a want there is nothing to cut .
unexpected expenses and emergency's need buffering as well .
the idea of having a plan that met the worst cases to date is everything else we do in life as humans builds slack in to that plan .
life expectancy adds safety to it since most of us will not live 30 years , normal retiree spending patterns add safety . a plan does no good if you hit 30 years and have a buck left so balance is critical too .
that high success rate is only 3.50% with 28/72 . it has already failed to hold up to 4% to many times .
it is fine at 3.50% , i do not recommend it at 4% .
for comparison the difference between 3 and 4% is a 25% pay cut . the difference between 50/50 and 28/72 is a 12.50% raise in pay under standardized stress testng .
you allocate to what you need to draw or who you are investing for . if it was just legacy money you wanted because a pension covers it all a 28/72 allocation would be a poor choice .
if all you need is 3.50% or less and legacy money is not that crucial 28/72 is fine .
at 4% it drops the ball .
to contstantly shoot out out chart with 28/72 is ridiculous when you know nothing about someones needs .
Last edited by mathjak107; 08-20-2016 at 02:57 AM..
28/72 is for people whose brains are wired to fear the stock market. You want low risk? That was the lowest risk from 1970 to 2010. Moving forward I would expect more allocation to stocks to be the lower risk allocation. The lowest risk allocation is at least better than an annuity. That's not saying much. I'm 72% in stocks.
great , but they should know the risks and down falls that go with that choice . just posting it and making it appear like the perfect portfolio every time something is discussed is the wrong thing to do.
stop with the annuity . this has nothing to do with that choice .
when you keep cherry picking the 2000-2015 time frame as your example you are picking a time when owning zero stocks and just a 30 year bond would have been the best choice .
showing 4% draw down from your model for a full 30 years not 15 years would have shown over 20 times you would have not only had no balance left if you went beyond 30 years but you would have not made it 30 years .
just arbitrarily posting charts and numbers is meaningless without putting things in to context
Last edited by mathjak107; 08-21-2016 at 02:49 AM..
From 1970 to 2010 the lowest risk allocation was 28/72 according to Ibbotson.
lowest risk for what is my point . certainly not the lowest risk for trying to sustain a retirement drawing 4% inflation adjusted . certainly not the lowest risk for those expecting a longer than 30 year retirement and certainly not lowest risk for those looking to attain certain savings goals over their accumulation stage .
it is simply a nice conservative portfolio for someone risk averse , as longs as interest rates on bonds don't reverse ! it may then be one of the higher risk models.
the drag of bonds in that case may stall out any gains the momentum in stocks is able to muster .
in today's uncharted waters the days of buy and die with a fixed model of stocks and bonds that pays no attention to things around it may not be the best way to go .
in the past you could have done that with a 45 year old bull market in bonds , that only had a few speed bumps on the way down . bond rates heading back up eventually will have the opposite effect on that bond heavy model . .
Last edited by mathjak107; 08-21-2016 at 05:03 AM..
If you work for the government then you don't need any money in bonds or stocks, you'll get a nice retirement at 50 or 55.
If you are healthy and don't intend to stop working at 70 or 75 then you have a different perspective than someone who is a fat fack who's going to take early Social Security at 62.
Health matters. What also matters is how hard you worked to save money during your working life. What also matters is how well you manage your own retirement money.
Age DOESN'T matter.
Well considering the vast majority of us did not work for the government or will work until we are 75 I stand by my statement that of course age matters when deciding your allocation for the vast majority of us. You want to use the exceptions to the norm to make a blanket statement that age does not matter. That's nonsense.
As another poster said accurately risk tolerance is also a huge factor. But most of us were a Hell of lot more risk tolerant when we were 35 then we are a year before retirement. That's just common sense,
Approximately 50% in stock mutual funds
50% cash, accumulating since 2009, waiting for market to crash so I can buy more stock funds.
Do you have any idea how much money you have lost waiting for the right time to get back into the market? I see this and it never stops amazing me. Vanguard Total Stock Market Index (VTI) returned 7.5 % over the last 10 years, and yes that included the crash of '08. Since '09 the figure is obviously much much higher. Your cash investment, if you are lucky, returned 1%. We had several huge years since '09, what on Earth were you waiting for?
I am 22. I have around 25k in my 401k and 25k in my roth ira. Nearly 95% is in some sort of stock. Should I switch to 70% bonds?
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