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Wife and I (age 61) recently flipped our asset allocation from 60/40 total stock fund to 40/60 total stocks. Reason is income from a 60% Fidelity total bond allocation will provide sustainable survival income regardless of bond capital erosion or stock market collapse. We believe we can ignore bond NAV from here because rate increases gives us more income. 40% AA in stocks should grow and protect the portfolio over our 30 year projected requirement. All the projection tables and calculators say we will have enough and likely leave an expanded estate without any higher risk required (God forbid some early extended healthcare problem). Are we realistic?
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- Joined: 28 May 2013
hard to say without knowing the size of the nest egg and annual expenses. I for one am 61 and I use a 55/45 AA with a pension and future SS income.
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- Location: Ohio
Inflation is the 800 pound gorilla that could put a real hurt on the buying power of your bond income, but your 40% allocation to equities should help overcome the drag of inflation over the longer term.
It sounds like you are in pretty good shape
Volatility is my friend
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- Location: central Florida - on the grown up side of 76
It seems reasonable to me. If you wait until you have enough to be absolutely positive you have enough you'll probably never retire.
High risk does not equal high reward. It equals high risk of no reward.
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If you plan to live on 2.5% from 60% of your assets now, that translates to a withdrawal rate from the portfolio of 1.5%. This is such a small rate of withdrawal that you could invest just about any way you want with great security and very high likelihood you will die with far more wealth in hand than you have now. The analysis behind this conclusion is not, however, based on assumptions about what the current yield will give you or what increases in rates will do to benefit you in the future and without considering inflation. The analysis is that people have looked at how portfolios evolve under different rates of withdrawal for different asset allocations, which is what the calculators and projections you have consulted are saying.
I think it would also be better not to think about "sustainable survival income" but rather about what you think you will actually spend with a contingency added and see what withdrawal rate you get from that.
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