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Mathjak, you are drawing lots of conclusions from calculations that appear to be highly questionable. Take a look at some different Firecalc scenarios. Use a 5 or 6% withdrawal rate and a 25 or 30 year time period and use the investigate tab to see the effect of different different equity allocations. The probability of success will increase steadily to a 100% allocation. I would be very cautious about drawing conclusions solely from this sort of calculator. Try some different calculators with slightly different starting points and you will arrive at vastly different conclusions.
you need to look below the surface to see what those higher numers actually mean.
as i said above:
" The difference between 100% success for 75/25 and 96% for 50/50 is just that in two years (1965 and 1966) the maximum withdrawal rate fell slightly below 4% with 50/50, but stayed slightly above 4% with 75/25. It is not that big of deal when considering your overall return requirements and tolerance for risk."
while you may want 70-100% equities through retirement i doubt you will find many who do want to go through those swings ,especially if when you look under the hood the numbers increasing represent little real world meaning.
living through steep swings downward in retirement can play havoc with anyones pucker factor. unless the rewards are far greater which they are not why bother.
the difference between 50% equities and 100% has little real world benefit but the swings sure do go up a lot..
don't forget until the trinity study was updated and calculations looked at from angles not before examined that folks even really understood the difference between 75/25 and 50/50 boiled down to just two years.
on the other hand it wasn't until michael kitces recently qualified just what poor conditions even meant in real numbers that we even knew what we had to achieve to even make the swr's work.
Last edited by mathjak107; 03-23-2014 at 07:24 AM..
Hmmmm, a 70/30 AA can be different if the 70 percent equity consists of bio-tech and sector funds and the 30 percent is junk bonds compared to a 70 percent of capital appreciation and 30 percent intermediate treasuries. That is why I said the volatility within the AA. Also the OP is asking about in retirement with a pension and eventual SS. Can create a different risk/reward scenario depending on their personality.
I think trying to data from the past to predict our economic future is highly suspect. If that worked then the pros should be able to look at the past cycles and predict the future of the stock market. Many have tried and failed. I would not want to follow anyone's predictions. But somehow we seem willing to do that when it comes to asset allocation. Even when we do not have access to the raw data being using or to the method of calculation. That is placing a lot of faith in the developers of Firecalc or other calculators and in the talking heads.
Some of what is happening today is clearly different than the behaviors in the past. For one thing the Fed has kept interest rates very low. So when the stock market did a dive, bond rates did not create a haven for investors. That abnormality has had a major impact. Now that the stock market has shown a major rebound, it is approaching the time for considering rebalancing. Sooner or later the growth will slow or become negative. Unfortunately with the artificially low interest rates, bonds remain very risky. Rates are low and sooner or later when they increase the value of bond funds will decrease. The real estate market is also ready for a major shakeup. Every homeowner has refinanced at artificially low rates. At 67 years old, I was able to get a relatively large mortgage at well under 4% interest. Would any of you in your right minds want to lend me money for 30 years at a low rate? I think the answer is clearly no. Somewhere in the near future, there will need to be a major correction and all of those organizations who loaned money at low rates will want that money back for better investments.
So we would like to predict the future from the past and where we are at now. Well, you can trust the calculators or the talking heads. I would advise some caution in drawing conclusions from either.
whenever we talk in terms of success or failure we always assume a diversified mix that represents just markets and not individual sectors or individual stocks.
there is no guidance you can really give anyone once personal preferences come into play that bet the ranch on individual companies or sectors doing well.
market indexes really do not have individual company risk or sector risk which is a personal situation.
It might be difficult to convince someone who has been working with a plan for forty plus years and has gotten to where they want to be that their plan might be flawed.
I think trying to data from the past to predict our economic future is highly suspect. If that worked then the pros should be able to look at the past cycles and predict the future of the stock market. Many have tried and failed. I would not want to follow anyone's predictions. But somehow we seem willing to do that when it comes to asset allocation. Even when we do not have access to the raw data being using or to the method of calculation. That is placing a lot of faith in the developers of Firecalc or other calculators and in the talking heads.
Some of what is happening today is clearly different than the behaviors in the past. For one thing the Fed has kept interest rates very low. So when the stock market did a dive, bond rates did not create a haven for investors. That abnormality has had a major impact. Now that the stock market has shown a major rebound, it is approaching the time for considering rebalancing. Sooner or later the growth will slow or become negative. Unfortunately with the artificially low interest rates, bonds remain very risky. Rates are low and sooner or later when they increase the value of bond funds will decrease. The real estate market is also ready for a major shakeup. Every homeowner has refinanced at artificially low rates. At 67 years old, I was able to get a relatively large mortgage at well under 4% interest. Would any of you in your right minds want to lend me money for 30 years at a low rate? I think the answer is clearly no. Somewhere in the near future, there will need to be a major correction and all of those organizations who loaned money at low rates will want that money back for better investments.
So we would like to predict the future from the past and where we are at now. Well, you can trust the calculators or the talking heads. I would advise some caution in drawing conclusions from either.
actually they can predict certain things from the past data all to well . while they can't tell you when or how much the markets will be up or down or if a nuclear war will destroy life as we know it , certain results never change. that is because you don't care about how the events of the time arrainge the numbers going in ,all you care about is the sum coming out.
if inflation , sequencing and yearly returns always add up to x and a certain swr fails every single time that number equals less than x it really does not matter how the numbers are going into the equation. all that matters is the ending sum.
not achieving at least a 2% real return as a per year average the first 15 years will end up in 4% failing just about every time unless draw is cut.
we learned that important fact from past data.
you can almost bet the ranch on the fact if you are barely above 1% real return average the first 15 years that the 2nd half will be tough going unless cuts are made in draw.
we can say with 98% certainty that when shillers pe/10 is at 20-25 when you start your retirement that below average market returns have resulted for the first 15 years of retirement.
we are at the level now.
there are many important things that past data tells us and the long shot would be that it is different this time.
sure it could happen but the odds say unlikely. .
Last edited by mathjak107; 03-23-2014 at 07:49 AM..
It might be difficult to convince someone who has been working with a plan for forty plus years and has gotten to where they want to be that their plan might be flawed.
their plan isn't flawed , it is only no data is available to guide them when they ask others ..
BTW, the effect of earning 1 or 2% above inflation has nothing to do with learning from the past. That is simple, straight math. Many calculators will allow you to enter a fixed ROI and a fixed COL rate and calculate the effect over time. That has nothing to do with making predictions based on the past.
well take a look at shillers pe/10 for every single 30 year time frame to date . since the first 15 years are the all to critical time frame there has never been a time that the next 15 years in the markets have not produced lower than average returns when going into retirement pe/10 has been 20-25.
sure you could buck that but again you would be betting on the long shot.
insanity is defined on getting the same outcome time and time again but hoping next time will be different.
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