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What I find particularly salient is the chart showing how much of a nest egg one needs to sustain annual burn rates ranging from $20k-$100k over retirement spans ranging from 35 to 65 years.
Important Notes: this article says nothing about investment returns and that's on purpose. It also doesn't address the issue of wanting to leave investments to heirs -- it is strictly about spending for a person (or a couple) for a period of time, with no consideration of receiving SS benefits or bequeathing an estate. They outline their reasons for not addressing these things.
just for fun i ran their zero percent equities asset base through firecalc to see how they would have done for real , had retirees in the past actually went by their values .
while i agree most of us won't live 30 years in retirement the odds are very different for a couple where the odds of one of them living to 90 is almost 50% .
so would i adopt a plan based on the fact we won't live that long ? not me! ... since the ramifications of living and being broke are far worse than dying i fully intend to plan around one of us making it that far and with the highest chance of success as i can . .
but anyway , trying to pull 40k for 30 years from 1,2000,00 million with no equities failed quite a bit
it failed 18 cycles already for an 84% success rate .
going out to 35 years the 1.40 million they show , failed 16 cycles so far and had an 85% success rate .
going out 40 years failed 14 cycles with 1.60 million .
I think you're assuming a retirement that starts at 65. Lots of people are retiring earlier; my current retirement horizon spans 37 years. I personally will always have an equity allocation.
well that was the authors point about life expectancy being excessively planned for.
but unless we know which side of the statistic we are on it is either us that lives or us that dies . i will plan for living .
i got give that authors article a thumbs down . to much risk of outliving your money or being forced to take a pay cut . my opinion is unless you want to add even more cash to those amounts needed there is still to much risk . terrible inefficient use of money saved .
The blog owner doesn't agree with that approach, the author of the article that was included is using that approach. I noticed they have a not insubstantial real estate allocation, so in essence they have closer to a 40/60 split when real estate is included. They've also increased the nest egg minimum by 20% to account for inflation and longer horizon.
For a 35 year retirement span, spending a starting amount of $40,000/year, that chart indicates $1.4MM would be needed in the nest egg. They are not counting social security, but they do note that the average person gets about $16,220/year in SS benefits and that should cover inflation increases.
I ran the numbers in firecalc assuming yearly investment expenses of .25%., with a starting portfolio of $1.4MM and spending $40K per year for 35 years.
A minimum equity allocation of just over 15% is needed to provide a success rate of 98.2%.
I consider that a very low equity allocation as I think most people would. The article author claims an equity allocation of 6.51%, and 27.94% in real estate, with the rest in bonds/money market.
The withdrawal rate on $1.4MM to get $40K per year in their chart is 3.5%.
Last edited by lottamoxie; 05-11-2018 at 02:28 PM..
"As for me, I’ll stick with the approach I describe here on the blog and in The Simple Path to Wealth. But then, I know I’ll stay the course when the storms arrive. But the question you have to ask yourself, and that only you can answer, is: Will you?"
So, for those people who are nervous nellies and nervous nelsons, who can't bear the thought of a stock market crash, are likely to panic and sell, that article is useful because it provides the amount of starting nest egg needed to have the luxury of keeping a low equity allocation (low = under 20% equities). I don't think there's any way to have a zero equity allocation with the average investor, and the author isn't suggesting that either.
Basically, the investor pays one way or the other...either with a larger nest egg to start with (which perhaps means working longer) and/or living on less, or taking increased risk with a higher equity allocation.
This is fine, if one's objective is merely to fund one's retirement. If however the objective is to build a fortune for fortune's sake, the strategy will be entirely different.
This is fine, if one's objective is merely to fund one's retirement.
That's the premise of the article.
The author specifically says he and his wife are not trying to build a fortune for fortune's sake, but only to fund their own retirement and do so up to age 100, which they claim they've accomplished, and no longer need to have much of a stock equity allocation (though they do have some).
What I find particularly salient is the chart showing how much of a nest egg one needs to sustain annual burn rates ranging from $20k-$100k over retirement spans ranging from 35 to 65 years.
Important Notes: this article says nothing about investment returns and that's on purpose. It also doesn't address the issue of wanting to leave investments to heirs -- it is strictly about spending for a person (or a couple) for a period of time, with no consideration of receiving SS benefits or bequeathing an estate. They outline their reasons for not addressing these things.
Nice article. I liked it and read it a couple of times. I am in a group that is all about the gains when they should at least think on what happens at the end of the game (retired no longer working). If the plan is to continually work and accumulate then it is fine to be in a high equity stance. If you are not going to work in retirement you need to be more aware of your allocation than ever. Huge market swings will dampen spirits and make retirement income sporadic. This is something those on the lower income scale need to be even more aware of. The people in the group I am in also have pension income that they are earning as well. So to me they already have a base from which to start planning draw levels.
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