ROBERT A from NC posted 2 months ago:

My takeaway from this is that the portfolio with the highest percentage of equities provided highest ending balance and the highest average withdrawals. I'm so glad I've maintained 100% equities all my investing life!

JOHN C from MA posted 2 months ago:

Question is : are you getting an incrementally more return for added risk of 100% equity exposure or are you buying more risk without getting properly compensated for this added risk????? john

ROBERT A from NC posted 2 months ago:

John C: There is no "added risk" in having a 100% equities portfolio. That's a myth. It should be obvious that holding bonds presents a practical CERTAINTY that your portfolio will underperform the stock market in the long run. I've been in this game for the long run from the moment I bought my first stock. And, yes, I have been very, VERY well compensated for adhering to this methodology. As James Cloonan put it, “[T]he success of a strategy that is 100% in equities all the time is largely dependent on having done that from the beginning of your investment career. If you have used a 60% stocks/40% bonds strategy through the years, you probably will not have built up the higher portfolio value to see you through any major downturn during the withdrawal stage.”

JOHN L from NJ posted 2 months ago:

100% Equity investing for a lifetime in my opinion is the "winning" strategy but it requires emotional and mental strength. Not just patience to wait out bear market drops. But also to recognize during big bull markets (like now) that the market is probably over valued and the market value of the stock portfolio is likely to decline in the future. Any withdraw scheme needs to recognize that taking out 4% per year in retirement is likely to be problematic if the market is over valued. Plan for a probable decline by reducing the withdraw rate and retirement will be worry free.

ROBERT A from NC posted 2 months ago:

Very well said, John L! Maintaining a prudent level of frugality is an essential ingredient for successful investing and a happy retirement.

JOHN M from VA posted 2 months ago:

I would like to know the following:(1) what was the average rate of returns for the various portfolios; (2)what results if extended for 35 years; (3) using a RMD for ages 73-108. ( a withdrawal rate of the Greater of the RMD or stated rate). Also, I’d be interested in comments on using an annuity, either an immediate or deferred QLAC, in an IRA as a part of the bond allocation or in lieu of bonds? I’m retiring and starting withdrawals from my regular IRA as I’m 73. I want to draw from it for my lifetime and then leave it for my wife’s and she is 5 years younger. I want to get the say up to 5%, out of it but safely have it last for a 30 or 35 year run. A large balance on the survivor’s death is nice but not the goal as I see that as a tax problem for my heirs. I’d prefer to spend it (vs other funds) and have the Roth accounts grow and pass Roth and non IRA funds to my children. Simplicity and sleeping well are more important to me than the max provided by using a 100% equity approach. An 80/20 or even a 60/40 approach is more preferable for me. Any thoughts?

VICTOR S from NC posted 2 months ago:

Interesting and informative article. However, my withdrawal percentage is something I monitor as each year rolls by rather than use to determine how much to withdraw. I use two tools each year: a Monte Carlo based portfolio projection based on estimated expenses using decades of historical data (Fidelity has a really good one) and last year's tax software. Early in each year I load up the tax software with income estimates for that year (pension, SS, interest, dividends, withdrawals from taxable brokerage account, etc.) and update it quarterly. When the following April 15 rolls around I'm within a few hundred dollars at most of the final result for each line on the 1040. The last two years and the next two have me doing Roth conversions before RMDs kick in. The software helps me stay below the next bracket threshold (not yet approaching the next IRMAA tier/cliff). Withdrawals starting in 2016 were: 5.2%,3.9%, 6.2%, 4.8%, 4.4%, 4.0%, 5.8%, 0.0%, 0.0%, and 0.0% (the last three are zero because of taxable withdrawals from brokerage account, both to live on and pay taxes on the Roth conversions).

CHARLES M from NY posted 2 months ago:

This analysis uses 'average withdrawal' as the primary optimization goal. However note how much the annual withdrawals move around. In retirement, can you 'afford' to go from the average $70k+ down to the minimum in the $30-40k range when the market takes a serious dip? Most of us can't, so we'll probably 'bank' overages in good years to tide us over the bad years or over-withdraw in the bad years. Surprisingly, the minimum withdrawals are not stongly affected by the portfolio mix. Is there some year in the analysis periods where both equity and fixed income were down a lot? No mention of inflation. At 3%/yr, your $1M is going to be worth less than $500k in purchasing power after 25 years, affecting your lifestyle as well as the value passed on to heirs.

BARRY J from TX posted 2 months ago:

#1 Some really good critiques and analyses here in these comments. #2 Why is it that only the folks who (1) keep records, (2) analyze their income streams, (3) compare/manage the opportunity costs of their lifestyles, and (4) continuously monitor their plans … can respond wisely to this supposed Gordian knot? #3 PS: It’s only a knot because of (A) the constant and insidious siphoning off of returns through various fees in investment accounts, and (B) the numerous and complex tax laws passed when the Boomers turned 65 to tax away investment returns. #4 The shared “clues” in these comments for managing the dilemma of (A) running out of money (“ROOM”) versus (B) running out of time over (“ROOT”) are right here in these comments. (1) Pay attention. There will be math on the yearly quizzes and the final exam. (2) Plan. (3) Save. (4) Invest. (5) Reinvest. (6) Stay invested. (7) Budget. (8) Replan. (9) Breathe in. Breathe out. (10) Move on. Thanks, Robert A, John L, John C, John M, Victor, and Charles.

BARRY J from TX posted 2 months ago:

Craig, once again, I enjoyed having you turn in my/our homework for me/us. #1 Maybe the solution to “courage”/“patience” requirements is for every retiree to get a “4%” tattoo on a body part to remind them of their safe zone and a 6% tattoo on the zone they reach for when their fear of “ROOM” activates. #2 As I was following your analyses of the INCREMENTAL CHANGING “risk” generated by the progressive changes from a 4% to a 7% withdrawal rates that INCREASED the “risk” of not achieving a “safe” withdrawal rate AND/OR breaking below "running out of money" (“ROOM”) threshold for an ending balance below the “margin safety.” #3 Your analyses rely on standard statistical frequentist probabilities. I like to think in Bayesian probabilities. It helps me estimate how [let’s say year-over-year, for example] changes alter my [financial] position. #4 The Good Reverend Bayes estimated where his billiard ball was after it moved due to changes in its position. #5 His complicated formula can be simplified and reduced to 3 factors – prior position (“before”), a numerical change in position (“a known change”), and the posterior (“after”) position. #6 These 3 data points can be used to calculate/triangulate the PROBABILITY of the NEW position after a change (say year-over-year, as you did here). #7 Updated probabilities help me track HOW the probabilities of “RISK” are changing within [Ben Graham’s famous] “margin of safety” requirement. #8 Perhaps you would like to consider this your next AAII article to help your growing AAII following develop some rules of thumb [heuristics] that would help them estimate how changes increase/reduce the probabilities they will remain within their “margin of safety.” Thank you again for delivering some practical education to help AAIIers achieve their goals.

ADAM G from MA posted 2 months ago:

I take issue with the premise of these calculations in that many people wish to establish an initial % output and add an annual "COLA for inflation. It would be useful to see these calculations modified by perhaps 2 or 3% annual increases in distributions.

VIRGINIA S from NC posted 2 months ago:

Please address sequence of return risks during the five years before and five years after retirement.

JOHN L from NJ posted about 1 month ago:

Virginia S - "Sequence of returns risk" is the term efficient market believers use to disguise the fact that stock markets go through long cycles of over and under valuation which disproves the efficient market hypothesis. During long secular bull markets which last approximately 20 years, stock market valuations grow and during secular bear markets which last approximately 15 years, stock market valuations shrink. The stock market being volatile during these long secular periods can and does drop or increase by large percentages (20% or more). According to the standard but useless definitions these movements are also called bull and bear markets. And the risk of these movements five years before or after retirement can be temporarily (several years) painful. But the real risk is when the stock market changes from a secular bull to a secular bear. Then you are looking at 10 to 15 years of poor returns. Pity the poor retiree who started their retirement in 1929, 1966, or 2000. The stock market was grossly overvalued in these years. Future returns were poor over the next 10 to 15 years. The only protection is to reduce the withdraw rate to 3%. And that is no fun and unbelievable to retirees who have just experienced a long period of higher than average returns and want to believe this will continue. And the bad news is that valuations in the stock market are currently quite high and have been growing since 2009 (17 years ago). When the current secular bull changes to a secular bear sometime in the future, it will be a bad time to retire unless you can live with an initial 3% withdraw rate and then adjust for inflation!

ROBERT A from NC posted about 1 month ago:

John L provides wise advice. Just the other day, I read a Kiplinger's Personal Finance article bemoaning the fact that so many retirees "underspend"! I think that's CRAZY! Through 15 years of retirement, my assets have increased (very nicely) in value, so my permissible spending, in dollars, has also increased. However, my spending RATE (as a percentage of assets) has DECREASED over that time. I sleep well with a gigantic cushion between what I could spend and what I do spend.

NICK V from CT posted about 1 month ago:

My question relates to the results presented in the tables. It is unclear if the numbers are calculated in constant dollars. If not, some of the conclusions related to the withdrawal and ending portfolio balances may be misleading. For example for the 25 year period from 1973 to 1997, one dollar in 1973 would be worth less than 30 cents in 1997. At a 4% withdrawal rate, a $1.4M ending balance would be less than $420K in real $. May cause someone to re-think the 4%.

DAVID E from ME posted about 1 month ago:

In 1925, when the average family income was roughly $1,400 per year, a $50,000 retirement income would allow a family to live like royalty in their local community. Naturally, most such families would count it as a grievous misfortune if they were not able to keep up their standard of living and even improve it over the subsequent 25 years, a heavy burden for any investment plan during those particular 25 years. What would interest me in further analysis is the "pain" endured by any of the plans over the various periods. I'm thinking of "pain" as the adjustment a family must make in its standard of living to accommodate its actual real income, assuming they refused to over-withdraw. For example, if inflation is 4% and investment return is 2%, then the pain index is increased by 2. Furthermore, until catch up occurs, the pain continues to accumulate in subsequent years. Years when investment return exceeds inflation need to be discounted, perhaps by raising the expectation floor by one-half the excess return. We make this discounting adjustment because families tend to assume that the good times will continue and adjust their expected standard of living upwardly. The overall result of this accumulating "pain" index would be a measure of the risk of disappointment for each of the allocation plans and withdrawal rates over seventy-five different periods. A low pain index matched by a superior average withdrawal and ending balance would likely be the optimal plan for most times and retirees.

ARNE E from CA posted about 1 month ago:

I'm new to this and have a very basic question - Assuming the portfolio has a balance of $1mm to start. If you withdraw 3% that's only $30K, why does the article say that at 3% in the 80/20 portfolio you'd draw $92? or $74K in the 60/40 one? Sorry if that's a stupid question..

DAVID E from ME posted about 1 month ago:

In answer to Arne E, the portfolios grow and shrink with investment returns. If they grow, then the 3% return the next year is higher and so on. Over 25 years, investment returns can add up even when carrying the burden of management fees and measured withdrawals.

ARNE E from CA posted about 1 month ago:

So the first year you'd only withdraw $30K? Or is the assumption that you would wait until the end of the year before withdrawing - so if the market did well and went up 10% you'd have $1,100,000. then the 3% would be $33K - leaving you $1,067,000. Larger than the original amount. This is disappointing to see that $1mm only generates $30K, that makes retirement further off than I thought.

DAVID L from CA posted about 1 month ago:

I'm single and have no kids, what I leave behind will go to other family, but no one is depending on what I leave. It seems every scenario in the article leaves a decent amount of money, even the ones that ended up with less than what was in the account at the beginning of retirement. Has there ever been a study where you start off with 1MM and at the end of every year you withdraw only the amount that the account produces during that year? You end up with 1MM at death. I want to enjoy my savings not have them grow and not be able to use them. Interesting read "How to Die with Zero" by Bill Perkins talks about the utility of money and how it really drops for a 60 yr old to 90 yr old.