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Feature Portfolio Strategies Retirement Planning

The Importance of Diversification in Retirement Portfolios

Diversifying a portfolio among four primary asset classes allows for large withdrawals to be taken throughout retirement.

by Craig Israelsen | April 2015

There’s good news and bad news.

First, the good news: We’re living longer. Now, the bad news: It costs to maintain a parking spot on this planet. Building a retirement portfolio that won’t run out before we do is a significant challenge of the new “living longer” era.

This article analyzes various portfolios and how long they survived over 55 rolling 35-year periods from 1926 through 2014. Additionally, the assortment of retirement portfolios were tested under several different withdrawal rates. As will be seen, when the initial withdrawal exceeds 5% of the portfolio’s value at retirement and is adjusted upward annually in response to inflation, nearly all of the portfolios experience a significant increase in the failure rate.

Core Asset Classes Since 1926

There are four core asset classes that we can measure back to 1926: U.S. bonds, U.S. large-cap stock, U.S. small-cap stock and cash. These asset classes represent the building blocks of a retirement portfolio.

Over the 89-year period from 1926 through 2014, U.S. bonds averaged an annualized return of 5.4% with a standard deviation of 5.7%, using returns for the Ibbotson U.S. Intermediate Government Bonds index from 1926 through 1975 and the Barclay’s Capital Aggregate Bond index 1976–2014. [Editor’s note: Standard deviation is a measure of volatility, with higher numbers implying greater price fluctuations.] The worst one-year return for U.S. bonds was –2.9%, in 1994. Over the 89 years, there were nine years in which U.S. bonds had a negative return—or just over 10% of the time. The average loss was –1.3% during those down years for bonds.

U.S. bonds have done a good job avoiding losses (in nominal terms) over the last eight-plus decades. However, bonds have also experienced protracted periods of very low returns, which creates a distinct challenge in a retirement portfolio if the returns are below the withdrawal rate. For instance, U.S. bonds experienced a 29-year period (from 1941 through 1969) where the average annualized return was a mere 2.2%. During those same years, large-cap U.S. stocks averaged annualized gains of 12.8% and small-cap U.S. stocks averaged annualized gains of 18.6%. This simple observation reminds us of the value in diversifying, particularly during the retirement years.

Large-cap U.S. stocks (as measured by the S&P 500 index) produced an average annualized return of 10.1% from 1926 through 2014, but with a standard deviation of return of 20.1%. Large-cap stocks endured 24 negative years, or 27% of the time since 1926. The largest loss was 43.3% in 1931. The average loss was 13.6%.

Small-cap U.S. stocks (as measured by Ibbotson’s Small-Company Stock index from 1926 through 1978 and the Russell 2000 index from 1979 through 2014) have an even more colorful past. Over the past 89 years, small U.S. stocks have produced an average annualized return of 11.4% and a standard deviation of 31.8%. The biggest one-year loss was 58.0%, which occurred in 1937. Small U.S. stocks have experienced a one-year loss 28 times since 1926, or nearly 32% of the time. The average loss during those 28 years was 16.8%.

Finally, there is the performance of cash (as measured by the 90-day U.S. Treasury bills). From 1926 through 2014, cash had an average annualized return of 3.6% and a standard deviation of return of 3.3%. Its worst one-year return was a decline of 0.02%, which occurred in 1938. This was the only year with a nominal loss (in nominal terms, not in inflation-adjusted terms) for cash.

Building a Retirement Portfolio

Which asset class is the best choice for a retirement portfolio? Or, more correctly, what combinations of these assets are best suited to carry a retiree through the retirement years without running out of money? We will now examine the analysis of various retirement portfolios that were built with different asset classes or combinations of asset classes.

A dated, but well-known, notion is to build a retirement portfolio that has a bond allocation equal to your current age—often referred to as the “age-in-bonds” approach. Bonds certainly present less volatility than stocks, but that is not the only consideration when building a retirement portfolio. There is also a need for growth in a retirement portfolio. A retirement portfolio needs to serve two goals: control downside risk and achieve a reasonable rate of growth.

Another important issue in a retirement portfolio is the sequence of returns; that is, the order in which returns occur has a dramatic impact on the longevity of a retirement portfolio. Market-based losses (or very low returns) in the early years (just after the person has retired) can be disastrous to the longevity of the portfolio. Thus, a retirement portfolio needs to be sufficiently diversified to minimize “timing-of-returns” risk. Building a retirement portfolio that has a very large allocation in any one asset class is simply asking for trouble because of the lack of diversification.

Retirement Portfolios

Six index-based retirement portfolios were analyzed in this study:

  • Portfolio 1: 100% Cash—allocated to 90-day U.S. Treasury bills from 1926 through 2014.
  • Portfolio 2: 100% U.S. Bonds—allocated to the Ibbotson U.S. Intermediate Government Bonds index from 1926 through 1975 and the Barclay’s Capital Aggregate Bond index from 1976 through 2014.
  • Portfolio 3: “Age-in-Bonds”—allocation to U.S. bonds (as defined in Portfolio 2) was equal to the age of the investor from age 65 to age 99, with the remaining balance allocated to the S&P 500 index. Thus, when the investor was age 80, the portfolio was 80% U.S. bonds and 20% large-cap U.S. stocks. When the investor was age 99, the portfolio was 99% in U.S. bonds and 1% in stocks.
  • Portfolio 4: 40% Stocks/60% Bonds—a 60% allocation to the Ibbotson U.S. Intermediate Government Bond index from 1926 through 1975 and the Barclay’s Capital Aggregate Bond index from 1976 through 2014 and a 40% allocation to the S&P 500 index from 1926–2014. This portfolio was rebalanced annually to maintain the 40/60 weighting.
  • Portfolio 5: 60% Stocks/40% Bonds—a 40% allocation to Ibbotson U.S. Intermediate Government Bonds index from 1926 through 1975 and the Barclay’s Capital Aggregate Bond index from 1976 through 2014, as well as a 60% allocation to the S&P 500 index from 1926 through 2014. This portfolio was rebalanced annually to maintain the 60/40 weighting.
  • Portfolio 6: Four-Asset Portfolio—an allocation of 25% to the S&P 500 index, 25% to small-cap U.S. stocks (Ibbotson Small-Company Stock index from 1926 through 1978 and the Russell 2000 index from 1979 through 2014), 25% to U.S. bonds (as described in Portfolio 2), and 25% to 90-day U.S. Treasury bills. This portfolio was rebalanced annually.

The time frame of this analysis of retirement portfolio durability was 1926 to 2014, over which there were 55 rolling 35-year periods. The start of each 35-year retirement period was assumed to begin at age 65. Each portfolio was analyzed over all of the 55 rolling periods. A starting balance of $250,000 at age 65 was assumed. Five different initial rates of withdrawal were employed, ranging from 3% up to 7%. The initial withdrawal rate specified the amount of the first year’s withdrawal from the portfolio. Thus, using an initial withdrawal rate of 3%, the first year’s withdrawal was $7,500. The next year’s withdrawal was determined by the cost-of-living adjustment (COLA), which was assumed to be 3% in this study. The COLA is the equivalent of an inflation factor. Based on the 3% COLA, the withdrawal in the second year was $7,725, in the third year $7,957, and so on. The annual withdrawals occurred at the end of each year.

Retirement Durability

The “survival” analysis of all six retirement portfolios is reported in Tables 1 and 2.

Table 1 reports the percentage of time each portfolio remained solvent until age 100. The all-cash portfolio was able to survive to age 100 in just over half of the rolling 35-year periods (assuming a 3% initial withdrawal rate). At a 6% initial withdrawal rate, an all-cash portfolio never survived to age 100. The all-bond portfolio did not fare much better than an all-cash portfolio.

Table 1. Likelihood of a Retirement Portfolio Lasting 35 Years   

The data below shows the frequency at which each portfolio lasted until a person retiring at age 65 lived to age 100, given a specified withdrawal rate. The withdrawal rate was the initial distribution taken from a starting balance of $250,000. Subsequent withdrawals were taken annually and were increased each year by 3% to account for increases in the cost of living. The data is based on analysis of 55 rolling 35-year periods between 1926 and 2014. Values below 100% indicate the portfolio ran out of money during at least some of the rolling 35-year periods.


 % Likelihood of Portfolio Lasting 35 Years
Withdrawal Rate 3% 4% 5% 6% 7%
100% Cash Portfolio 56.4 41.8 29.1 0.0 0.0
100% Bond Portfolio 69.1 43.6 30.9 23.6 9.1
Age-in-Bonds Portfolio 100.0 81.8 54.5 25.5 12.7
40% Stock/60% Bond Portfolio 100.0 96.4 81.8 34.5 16.4
60% Stock/40% Bond Portfolio 100.0 96.4 89.1 69.1 43.6
Four-Asset Portfolio* 100.0 98.2 89.1 83.6 50.9
*25% large stock, 25% small stock, 25% bonds, 25% cash.
Data source: Lipper, author calculations.

The age-in-bonds portfolio was markedly superior to the all-bond portfolio at the lower withdrawal rates of 3% to 5%. At higher withdrawal rates (6% and 7%) all of the portfolios with high amounts of cash or bonds had very low survival rates. This is particularly evident when comparing the 40/60 and 60/40 portfolios at the 6% and 7% withdrawal rates—with the 60% stock/40% bond portfolio being clearly superior—indicating that a higher allocation to stocks (and therefore a correspondingly lower allocation to bonds) was needed to withstand a higher withdrawal rate. The overall winner was the diversified four-asset portfolio, which had the highest survival rate (or tied for the highest survival rate) across all five withdrawal rates.

Table 2 shows the frequency of each portfolio lasting at least 20 years (from age 65 to 85). Once again, the diversified four-asset portfolio had the highest frequency of survival for 20 years at the higher withdrawal rates of 6% and 7%. The clear message is that a retirement portfolio needs to have a material allocation to equities in order to support higher withdrawal rates (rates above 5%). I’m not advocating a high initial withdrawal rate, but as many retirees are entering into retirement with inadequate account balances it is inevitable that many will require a withdrawal rate higher than 5%.

Table 2. Likelihood of a Retirement Portfolio Lasting 20 Years

The data below shows the frequency at which each portfolio lasted at least 20 years when retiring at age 65. The withdrawal rate was the initial distribution taken from a starting balance of $250,000. Subsequent withdrawals were taken annually and were increased each year by 3% to account for increases in the cost of living. The data is based on analysis of 55 rolling 35-year periods between 1926 and 2014. Values below 100% indicate the portfolio ran out of money during at least some of the rolling 35-year periods.


 % Likelihood of Portfolio Lasting 20 Years
Withdrawal Rate 3% 4% 5% 6% 7%
100% Cash Portfolio 100.0 81.8 49.1 34.5 27.3
100% Bond Portfolio 100.0 100.0 69.1 36.4 25.5
Age-in-Bonds Portfolio 100.0 100.0 100.0 85.5 47.3
40% Stock/60% Bond Portfolio 100.0 100.0 100.0 90.9 69.1
60% Stock/40% Bond Portfolio 100.0 100.0 96.4 90.9 80.0
Four-Asset Portfolio* 100.0 100.0 98.2 94.5 89.1
*25% large stock, 25% small stock, 25% bonds, 25% cash.
Data source: Lipper, author calculations.

 

Rolling 35-Year Periods

The viability of retirement portfolios is highly time-frame-dependent—meaning that the specific 35-year period being studied can make a big difference in the outcome. Figure 1 shows the years the 100% U.S. Bonds Portfolio, the Age-in-Bonds Portfolio and the Four-Asset Portfolio succeeded and failed assuming a 4% rate. The success rates and the average ending balance are also shown. On AAII.com, an additional table (Table 3) shows the ending account balance (at age 100) in each of three portfolios over 55 different 35-year periods assuming a 3%, 4% or a 5% withdrawal rate. In Table 3, numbers in red represent the age at which the retiree ran out of money (assuming retirement began at age 65). Numbers in black represent the balance after 35-years (at age 100).


Figure 1. When Each Retirement Portfolio
Survived or Failed

Figure 1. When Each Retirement Portfolio Survived or Failed

For a retiree using an all-bond approach, the first 31 rolling 35-year periods (1926–1960 through 1956–1990) were nail-biters, as a 100% bond retirement portfolio was never able to last for the full 35 years with a 4% or a 5% initial withdrawal rate and an assumed 3% annual cost-of-living adjustment. At a 5% initial withdrawal, a 100% bond retirement portfolio lasted until age 100 only 31% of the time. In those cases where it did have a positive balance when the investor reached age 100, the average account was just $270,000, a comparatively small amount. Bond returns averaged 4.6% during the 1930s, 1.8% during the 1940s, 1.3% during the 1950s, and 3.5% during the 1960s. No wonder the all-bond portfolio ran out of gas.

In more recent decades, an all-bond portfolio has fared considerably better. But remember that U.S. interest rates began declining in 1982, which produced a tailwind for bond returns during the last 33 years. Bonds produced an average 10-year return of 7.0% during the 1970s, 12.4% during the 1980s, 7.7% during the 1990s and 6.3% between 2000 and 2009. Between 2010 and 2014, U.S. bonds have averaged 4.5%. Over all 55 rolling 35-year periods from 1926 to 2014, the all-bond portfolio had a success ratio of 69% at a 3% withdrawal rate, a 44% success ratio at a 4% withdrawal rate, and a 31% success ratio at a 5% withdrawal rate. (Success ratio is defined as the percentage of times the portfolio lasted to age 100).

The age-in-bonds portfolio was a considerable improvement to the all-bond portfolio at a withdrawal rate of 3% or 4%. A modest allocation to U.S. large-cap stocks (35% at age 65, 20% at age 80, 10% at age 90, etc.) was very beneficial. At a 3% initial withdrawal rate, the success ratio was 100%. At a 4% initial withdrawal rate, the success ratio was 82%. At a 5% initial withdrawal ratio, the success ratio was 55%.

The equally weighted four-asset portfolio worked the best. At a 3% initial withdrawal rate, this portfolio had a 100% success ratio. At a 4% withdrawal rate, the success ratio was 98%. Even at a 5% withdrawal rate, the success ratio was 89%. Moreover, the average ending balance for the four-asset portfolio at age 100 was nearly $2 million at a 5% withdrawal rate compared to less than $489,000 for the age-in-bonds portfolio (in those years in which each portfolio lasted until age 100).

The value of multi-asset diversification is clearly illustrated in this analysis. In this case, each of the four asset classes was equally weighted and rebalanced annually. As there are many more asset classes (and investable products) now available compared to the 1930s, it is reasonably simple to build a broadly diversified, multi-asset class retirement portfolio using a variety of mutual funds and/or exchange-traded funds.

Diversification for Life

The importance of a building a diversified portfolio for retirement has been clearly illustrated—particularly at higher initial rates of withdrawal.

For those retirees seeking an initial withdrawal rate of 5% or higher, it will be essential to build a diversified portfolio that has growth potential combined with prudent downside protection—the hallmarks of what diversification is able to achieve. An all-bond portfolio or an age-in-bonds approach ignores the virtues of diversification when it is arguably needed the most—during the retirement years.

There is no perfect retirement portfolio because every investment faces some type of risk, whether it’s volatility risk, interest rate risk, inflation risk, currency risk, etc. The key is to build a portfolio that is assembled in such a way that it contains asset classes that address each unique risk while maintaining adequate exposure to needed portfolio growth.

Diversification across a variety of asset classes is one such way. While it is not perfect, a lack of diversification is likely to be far less perfect.

Discussion

Madeleine Greene from MD posted over 11 years ago:

In my role as an Accredited Financial Counselor and financial literacy educator this information and the excellent charts will be most useful. Thanks you again AAII for valuable information.


Kenneth Jones from MD posted over 11 years ago:

The huge jump in % of 35-year survival at 6% & 7% withdrawal rates definitely should necessitate examining at least a 7th portfolio, namely 100% stocks. Other possible portfolios would include such mixes as 25% large cap stocks, 25% small cap stocks, 25% international stocks, 15% bonds, and 10% gold-mining stocks.


Robert Dailey from CA posted over 11 years ago:

How about REITS, which often perform asynchronously with the other investments under consideration here? I seem to remember that our illustrious leader Rothblut's portfolio has 20 or 25% of this asset class. And also worthy of consideration, as mentioned above, is a "purely" stock portfolio, with only enough cash/bonds in a bucket to outlast a 3-5 bear market. I must agree with Mr Buffett's dim view of bonds at this juncture, given their abysmal yield, the likely continuation of same for the near term, and the horrific losses of near-inevitable future inflationary pressures. Holding bonds to prevent the beast of volatility makes no sense. The long term investor is not harmed by volatility, rather by true risk of asset losses, as is widely recognized.


Bill Mead from OH posted over 11 years ago:

In the four asset class portfolio mentioned in the article were the withdrawals for each year assumed to be equally weighted out of each asset class ( for example a 4 % annual initial withdrawal, meant 1% out of each of the asset classes regardless of performance during the year prior? I guess the same question applies to any portfolio with a diversification strategy for that matter - always make annual withdrawals with equal percentages out of each asset class? If they assets classes are not equally contributing o each annual withdrawal, then some understanding 'guessing' of market timing is implied - true?


Rajendra Bhatnagar from VA posted over 11 years ago:

In view of slow down in US Economy growth and the higher percentage growth in countries like China, Japan and Europe, it appears desirable to include a significant percentage of foreign equities. Will the author provide his views on foreign investments?


Robert Houle from MD posted over 11 years ago:

Why no mention of foreign/international stocks/funds?


Arthur Proefke from MI posted over 11 years ago:

I smiled when I saw the 4x25% portfolio. While my dad and I talked investments for many years, I never knew the exact make-up of his portfolio until his passing (in his mid-80s) in 1999. And when I listed his investments, there it was -- a 4x25% portfolio: 25% diversified value stock mutual funds, 25% dependable dividend individual stocks (heavy to staples and utilities), 25% long-term bulletproof bonds (e.g. Treasuries and TVA), and 25% one-year CDs. This "managed for income," yet 50% stock portfolio served him and my mother well for the 20+ years of their retirement together.


Richard Abbott from FL posted over 11 years ago:

I'm 85 and my wife is 69. We both use the "rule of thumb" method of 115 minus our age in conservative balanced mutual funds, the balance in intermediate investment grade bond mutual funds with 5 years of expenses in short term bond funds and cash. When the Dow dropped to 6500 in February, 2009, I did nothing except maintain my allocation. I am now up 265% from the lows in 2009. SOMETIMES THE 'BEST' THING TO DO IS "NOTHING"!.


Dennis Spurgeon from OH posted over 11 years ago:

Very interesting article, and is giving me confidence that my portfolio strategy will provide for our retirement through the years with a conservative withdrawal rate. Actually, I am using 3 strategies: a short-term 0-3 year, mid-term 3-5 year, and long-term 5+ years, with risk levels appropriate for each strategy. My draw-down would come from my most conservative short-term strategy, and I would rebalance annually. Allocations would be 20%, 30%, and 50% for each strategy. My mid-term strategy is invested for income, the long-term for growth. In years of economic downturn, I may choose to forgo rebalancing. Does this make sense? Does it seem too conservative?


Roger Lang from NY posted over 11 years ago:

This data shows that he real key is to never take out more than 3 to 4%/year.


Luther Mcfarlane from FL posted over 11 years ago:

I am approaching my second year of retirement with a standard pension and social security. Currently withdrawing 2.65% of my portfolio annually. Portfolio allocated as follows: Cash 24% Bonds 28% Stock 48% I would recommend that retirees start with the minimum withdrawal needed i.e. 3% or less if possible. Make the COLA adjustments as needed. I believe this conservative approach will significantly reduce the probability of any retiree out living their money.


Frank Balestrery from CA posted over 11 years ago:

The data is quite a surprise. Such a high percentage of small caps in a retirement portfolio is not recommended by any retirement planner I've ever spoken with or read about. I agree with other posters: a modern retirement portfolio needs some international and emerging market stock. My two cents worth is that bonds will gradually be entering a bear market that will last for several decades. The last 30 years have seen a spectacular bond bull market; as for all asset classes, growth rates always revert to the mean if given an adequate time frame for analysis. If that scenario indeed pans out, what percentage of a current retirement portfolio should be in bonds? Any studies on that?


Stephen Sanders from NY posted over 11 years ago:

I would add---as many here---that it would be interesting to see the outcome with the addition of REITs, MLPs, emerging market debt, and international equities. In addition, the numbers shown seem to be much too optimistic; given the present level of valuations for bonds and equities. Wade Pfau, who has written for AAII and who has made numerous studies; has shown that given the present valuations, safe withdrawal rates are considerably less than what has been agreed upon. His analysis seems to contradict with the numbers shown within the article. For example Wade shows that for a 40% stock portfolio, lasting 20 years and a 10% chance of failure; only 4.3% can be withdrawn the first year. The AAII article cites a 6% withdrawal is possible. I would tend to defer to Wade's analysis.


Robert Mcgreevy from CA posted over 11 years ago:

Very good article. I would have liked to see all possible combinations of the 35 year range. This article only took 35 year consecutive years. And of course Table 3 to include those ranges that survived and failed.


Paul Lobert from MI posted over 11 years ago:

Very interesting and reassuring that a current 65 year old will very likely not outlive his/her savings regardless of the withdrawal rate (up to 7%) with the 4-asset portfolio. The probability of a 65 year old today surviving to 100 is only about 10% (average for men and women). Since the probability of the 4-asset portfolio not lasting 35 years at a 7% withdrawal rate is roughly 50% (Table 1), the probably that and individual would both live to 100 and outlive his/her savings is only about 5%.


Dennis Dull from WA posted over 11 years ago:

A very good article. I have just retired and have a 65% stock/30% bond/5% cash re-balancing portfolio with my brokerage. Your data supports the idea that this is a good place to be for most cases. What would be of interest to me is the performance of a portfolio containing 80% NASDAQ stock/20% bonds or 100% NASDAQ stock having to go through the year 2000 NASDAQ downturn. We are looking at a 75% or so drop in NASDAQ value during this period. This seems to me to be a worst case scenario if one stayed with the portfolio during this period. It took 15 years for NASDAQ to reach its all time high again. Any comments or insights on this worst case scenario(s)?


Rob A from NC posted over 11 years ago:

I would also like to see an analysis of a few 100% equity portfolios in comparison with the other allocations. If the point of the article is to demonstrate the wisdom of diversification, it should provide a fair comparison to some less-diversified portfolios. I'm betting (literally) that I can safely maintain a 100% domestic equity portfolio throughout retirement. Somebody please prove I'm wrong before it's too late! While I'd agree with the wisdom of maintaining a reasonable emergency fund in cash equivalents, I just don't know why anybody would want to own a bond in their retirement portfolio, especially considering today's stingy yield that's taxed at higher rates than dividends and capital gains.


William Davis from FL posted over 11 years ago:

I think the Four-Asset Portfolio is very interesting. At first glance, the combination of S&P with small cap stocks might seem to be just a 50% stock allocation. The use of 25% cash is also quite interesting. Some writers are saying that it can be helpful to have between 1-3 years of expenses held in short term US Treasury or money market so that an investor can avoid selling stocks in a down market. I suspect that 25% will be more than 3 years of expenses for most retirees that have investments, so the 25% cash should be dampening the volatility of the portfolio. Table 1 shows this Four-Asset Portfolio has a significant advantage at higher withdrawal rates. I wonder how much of it is due to the 25% cash and how much is due to the splitting of the stock allocation. Some writers have stated that the S&P 500 has way more stocks than necessary for a sufficiently diversified portfolio; however, there are so many institutional investors using the S&P 500 index that we have to wonder if those stocks are now much more highly correlated in their movements. I wonder if this article is providing a strong indication that mixing large and small cap stocks has become essential for a well diversified portfolio. Perhaps the author has already researched variations where the Four-Asset Portfolio is compared to some Three-Asset Portfolios where cash is moved to bonds with the others held constant or the small caps stocks are moved to S&P with the others held constant. Comparing those variations to the Four-Asset Portfolio seems like a good follow up article.


Richard Reem from AK posted over 11 years ago:

Where do RMDs fit in with planned withdrawals? Sadly many of us are compelled to make substantial withdrawals even if not needed.


Randolph Moore from LA posted over 11 years ago:

I find the article intriguing but, with interest rates being at historical lows, I have serious concerns for a portfolio with 50% of its makeup in low-yielding assets. However, I admit that this is probably a short-term if not short-sighted view and that going forward, as interest rates begin to rise, the cash yield will look more favorable. Also, since the bond and cash component should dampen volatility, while maybe not important in the long term, sure helps with jitters in the short term. A good night's sleep is priceless.


J Morlock from NJ posted over 11 years ago:

An excellent and very useful article overall. I would like to see a chart summarizing the yearly returns for each asset class along with a chart of the rolling returns by asset class for the past 5,10,15,20, 25, 30, and 35 years. I would like to see the chart to include data for inflation so that real returns can be assessed. It is not clear from the article how the cola was calculated. Were real inflation figures used or just an annual average of 3% regardless of what actual inflation was. Finally I would like to see the data presented as real returns (net of inflation) rather than nominal returns. Perhaps this can be considered for a future article.


Ralph Patterson from CA posted over 11 years ago:

In the print version of this article you said there would be a third figure showing the ending value of each portfolio available at AAII.com. I have looked over the website and cannot find any such figure. I would really like to know what those values are. Ralph Patterson CA


Charles Rotblut from IL posted over 11 years ago:

Hi Ralph, There is a link to the spreadsheet containing the Table 3 data in the section titled "Rolling 35-Year Periods." -Charles


Mark Krisburg from CA posted over 10 years ago:

Why not survivability of an all stock portfolio? It appears the higher the percentage of equities, the better chance of surviving 35 years after 65. Don't the results presented suggest that that an all equity portfolio would be superior?


John Read from IL posted over 9 years ago:

Very interesting suggestions for retirement. I wonder what percentage of retirees can stick to a plan after its initial implementation?


John Read from UK posted over 9 years ago:

Correction to my state! I am from the England, UK.


Gary Kolb from AL posted over 9 years ago:

I wonder how big a portfolio of dividend stocks paying 4% would have to be to live on just the dividends for 35 years. Then you don't have to worry about stock prices as long as the dividends are not cut.


David Van Knapp from NY posted over 9 years ago:

As usual, a total-return approach to all investments is presumed, without regard to how much of the withdrawal amount could be provided by organic income (dividends and interest). I agree with Gary Kolb's comment above. Also, it is very disappointing that the author did not return to this thread to answer or comment on the questions that were asked over the past year.


Gerard Bieker - Administrator from KS posted over 9 years ago:

The problem we have now is that we are in rising interest rate environment for the next 30+ years and an AAII article from several years ago showed cash outperforming bonds during a rising interest rate time period. It appears stocks and bonds are overvalued except for the fact we have negative interest in Europe and Japan currently. I guess what I'm saying is that I'm not sure those 35 rolling year used in this article are going to be a reflection of the next 35 years of rolling periods? Thanks for the study though!


Paul G. from Missouri posted over 9 years ago:

The study wasn't much help. It would be if it also included a male life expectancy of 10 years. Dying at or before 75 is more common than not. With that, comes the need or desire for a higher withdrawal benchmark let's just say 10 percent and a much higher risk/reward portfolio of stocks-to-bonds/cash ratio. The most glaring omission, need is TECH. The lines between growth and value (large cap and mid cap) are in my unlearned opinion morphing ever more to include what should be a new STAND ALONE PILLAR in our future or current retirement portfolio, i.e. Alphabet, Amazon, Apple, Microsoft, for large cap, and smaller but still tech of the chip, cloud, and infrastructure nature. Tech must be considered even though it only has a past of (roughly) two full ten-year periods. So issue a 10-year rolling average of some measure, showing a much higher risk/reward of a portfolio of 75 percent in stocks and 25 percent bonds/cash with tech making the larger of the stock portion, followed by the century old, standard caps you mention, dividend (income), growth and bonds. Perhaps I ask for the impossible? Thanks AAI.


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