"The 4% Retirement Rule Is in Doubt. Will Your Nest Egg Last?" (raise, best)
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All that to say, my hunch is a 80/20 would prove more profitable than a 50/50 in these times.
80/20 is roughly where I'm at. I'm not retired yet, but close enough that I'm already at my retirement allocation. For a long time I'd been planning on something like a 60/40 split during retirement. However, real returns from bonds will likely be negative for a long time, possibly the rest of my life, and I don't want to have an enormous amount in non-productive assets.
Returns from equities could be less than their long-run average over, say, the next ten years, but I very much doubt they will lag bonds over that timeframe.
If you could theoretically live on 2/3 of your currently projected monthly SS, you will never run out of money. I could, and I consider the rest to be a bonus. Still looks like a good bonus regardless of the galloping inflation. I don't need to leave anything to anyone, and my life is one year shorter every year, which probably also factors into the who-cares attitude, inflation schimflation. And my retirement is based primarily on fixed income (laddered annuities)... but this year, I saved 1/4 of the annuity income, so enough room for 25% cummulative inflation until the first annuity ladder stepup kicks in, in 3 years. So, I am good with about 6% annual inflation for the next 3 years, without tapping anything else. Btw, I'd say that inflation expectation is probably realistic.
Yes, some of us are in the keep it simple stupid category. Unfortunately, I lost my stomach for the market about ten years ago because I felt 80 due to an accident. If you don't need a ton of money you don't need to take a ton of risk. Also, I suppose those that have a ton of money can take a lot more risk because 50% of their money in a down market is still a F ton of money (MathJak). Some of us have a lot of control over what we consume.
I agree 20% inflation of the last year cannot go on forever.
Location: Was Midvalley Oregon; Now Eastside Seattle area
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Note:
IRRC
Christine Benz (Personal Finance, Morningstar), was a founder of Bglehaed, primarily an Index retirement forum.
IMO, she is covering her rear, just in case.
Even the founder, J.Bogle, said before he passed that future real growth worldwide (5+ years ago), will be less than historical average. He has been so far been incorrect, but the future isn't here yet.
Its not a bad stance since it encourages conservative lifestyle and less volatile investing. Those people who are secure in there current and future retirement ignore the scenario. Those who can't afford retirement, advice from pundits mean nothing. Those who are in the red zone and possible adequate retirement, need to think about this scenario.
YMMV
Yes, some of us are in the keep it simple stupid category. Unfortunately, I lost my stomach for the market about ten years ago because I felt 80 due to an accident. If you don't need a ton of money you don't need to take a ton of risk. Also, I suppose those that have a ton of money can take a lot more risk because 50% of their money in a down market is still a F ton of money (MathJak). Some of us have a lot of control over what we consume.
I agree 20% inflation of the last year cannot go on forever.
the less one has the more efficient use of it they need and that means at least running a conservative portfolio .
everything is relative to the draw you want .
my larger portfolio is identical in what it needs to have as an allocation to spin off x percent safely as someone with a much smaller portfolio .
we are no different in that respect ..
no matter how much is involved a 4% draw requires the same allocations to do it safely
Yes, some of us are in the keep it simple stupid category. Unfortunately, I lost my stomach for the market about ten years ago because I felt 80 due to an accident. If you don't need a ton of money you don't need to take a ton of risk. Also, I suppose those that have a ton of money can take a lot more risk because 50% of their money in a down market is still a F ton of money (MathJak). Some of us have a lot of control over what we consume.
I agree 20% inflation of the last year cannot go on forever.
Did I miss something? 20% inflation? I thought it was 6-7%. What have you been reading?
Did I miss something? 20% inflation? I thought it was 6-7%. What have you been reading?
You are correct.
Many people greatly overstate inflation because they fixate on certain products they noticed had higher rates but don't consider how little a percentage of the average person's living expenses it is.
Written by:
Christine Benz
Director of Personal Finance and
Retirement Planning
+1 312 696-6325 christine.benz@morningstar.com
Quote:
A 4% starting withdrawal rate, with annual inflation adjustments to that initial dollar amount thereafter, is generally considered an appropriate level for retirees. Four percent has been the starting point for spending discussions since 1994, when financial planner William Bengen demonstrated that over every rolling 30-year time horizon since 1926, retirees holding a portfolio that consisted 50% of stocks and 50% of fixed-income securities could have safely withdrawn an annual amount equal to 4% of their original assets, adjusted for inflation.
Under those same assumptions, a 4% withdrawal rate may no longer be feasible. Because of the confluence of low starting yields on bonds and equity valuations that are high relative to historical norms, retirees are unlikely to receive returns that match those of the past. Using forward-looking estimates for investment performance and inflation, Morningstar estimates that the standard rule of thumb should be lowered to 3.3% from 4%.
This should not be interpreted as recommending a withdrawal rate of 3.3%. The conventions that underlie the withdrawal-rate calculations are conservative. They presume: 1) a time horizon that exceeds most retirees’ expected life spans; 2) fully adjusting all withdrawals for the effect of inflation; 3) a fixed withdrawal schedule that does not react to changes in the investment markets; and 4) a high projected success rate for the plan (90%).
As this paper will demonstrate, by adjusting one or more of those levers, current retirees can safely withdraw a significantly higher amount than the 3.3% initial projection might
suggest.
That said, it seems there is little question that current conditions demand greater forethought and planning than in the past, when lower valuations and loftier yields paved the way to higher future returns. Given this, many of today’s retirees will have to be more resourceful to support their income needs. With that in mind, this study examines practical ways in which retirees can make their savings last longer without compromising their standard of living and explores the trade-offs some of those techniques entail.
Morningstar Research
Nov. 11, 2021
Contents
Section I: Introduction/Research Goals
Section II: Historical Research
Section III: What History Says About Safe Withdrawal Rates
Section IV: What Is a Safe Withdrawal Rate for the Future?
Section V: How Flexible Withdrawal Strategies Can Help
Section VI: Identifying the Right Withdrawal Method
Section VII: Additional Portfolio-Level Strategies for Maximizing Retirement Income
Section VIII: Non-portfolio Strategies for Maximizing Retirement Income
Section IX: Putting It All Together
Written by:
Christine Benz
Director of Personal Finance and
Retirement Planning
+1 312 696-6325 christine.benz@morningstar.com
the math shows otherwise …that because a swr is already based on the worst of times ..
thanks to the work of researcher michael kitces he spent the time actually studying the math behind things .
it takes as little as a 2% real return the first 15 years to have a 4% swr hold ….others who proclaim otherwise have not analyzed exactly what it takes to hold .
their assumptions are not based on the worst we have seen which is exactly what the 4% swr is based on
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