Likelihood 20/80 AA going Zero.

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antiqueman
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Likelihood 20/80 AA going Zero.

Post by antiqueman » Sun Jul 16, 2017 5:13 pm

My spouse has recently retired from Federal service. All of my spouse's assets in TSP have been in the G Fund.

She and I have discussed moving the money to the TSP L Income fund which is 20% stock and 80% bond. The AA is broken down as follows: 12% C fund ( S and P), F Fund ( intermediate bond which includes corporate) 6%; international stock 5 % ; emerging market 3% and G fund 74% ( G fund yield is basically that of the 10 year treasury. It can never go down. It goes up each day based on that months interest rate).

She would not withdraw more than 3 % a year. We would want it to last 30 years.

The TSP L income fund rebalances DAILY. My concern is how much effect would a prolong bear market in either C, F or I funds have on a 3% withdrawl over 30 years. My concern is the daily rebalance. If you had a long bear market in stocks ( I cant define "long" but expect it to be as bad as the Depression in the 1930's)If this occurred would the 3% withdrawl survive for 30 years. Jim Otar's calculator indicates a 3% yearly withdrawl would last 30 years with money remaining. Other calculators also indicate the 3 % SWR would last 30 years.

However the calculators , including Jim Otars, do not rebalance DAILY. That is a concern for me because with daily rebalancing you may " catch the failing knife" for many years.



Please, on a scale of 1 to 10, with ten being the highest likelihood of success , how likely is it a 3% SWR would last 3 years on the AA above.

Thanks

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Ged
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Re: Likelihood 20/80 AA going Zero.

Post by Ged » Sun Jul 16, 2017 5:20 pm

Why would you need any money in equities? 3% over 30 years will leave 10% at the end.

It seems to me you have no need to take the risk of rebalancing.

Risk is something you tolerate for a reason. If you don't need to take it, don't.

Thesaints
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Re: Likelihood 20/80 AA going Zero.

Post by Thesaints » Sun Jul 16, 2017 5:37 pm

3% nominal would, net of inflation, who knows.

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Jerry55
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Re: Likelihood 20/80 AA going Zero.

Post by Jerry55 » Sun Jul 16, 2017 5:37 pm

antiqueman wrote:My spouse has recently retired from Federal service. All of my spouse's assets in TSP have been in the G Fund.

Please, on a scale of 1 to 10, with ten being the highest likelihood of success , how likely is it a 3% SWR would last 3 years on the AA above.

Thanks

I retired in 2012 (age 57, CSRS) and have my TSP (not to mention Wellesley - ROTH IRA and Wellington - taxable + Dodge & Cox International), but I'll just address my TSP for now. I'm currently 50/25/25 in C fund, S and I international fund. Currently age 62 and single, so I must say that it depends on your personal point of view and your expenses, because the two of you know the numbers and situation. What are you comfortable with ?
I plan on keeping my current AA for another 5 years or so, until I reach age 67-69, then looking into the L Income fund for more safety (than what I currently have).

Find your comfort level, predicted future returns are not promises.
Retired 12/19/2012 @ age 57 | Good Bye Tension, Hello Pension !!!

finite_difference
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Re: Likelihood 20/80 AA going Zero.

Post by finite_difference » Sun Jul 16, 2017 5:45 pm

In my opinion, 0/100 is foolish. But 20/80 is reasonable if you are very conservative.

But if you do a 3% SWR, you will be fine with 0/100.

But I would just do 80% G, 16% C, 4% S. Then you can rebalance annually yourself. 100% chance* of lasting 30 years. I think this portfolio would last closer to 40 years. But simulate it using 5% real for total market and 0% real for G.

If you do 0/100 you also have 100%* chance of it lasting 30 years, but chances are it will not last much longer than that. Probably will last you 34 years.

*Granted nothing is 100%.
The most precious gift we can offer anyone is our attention. - Thich Nhat Hanh

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Hyperborea
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Re: Likelihood 20/80 AA going Zero.

Post by Hyperborea » Sun Jul 16, 2017 6:42 pm

finite_difference wrote: But if you do a 3% SWR, you will be fine with 0/100.
Depends on what is meant by a "3% SWR". If that is the "standard" 3% of initial to start and the withdrawal is adjusted yearly for inflation then it's only got about an 88% chance of success (according to FireCalc). Even many of the succeeding cases leave the cash pretty close to zero. It's only at 15% stocks that it hits about 100% success using historical data and even that seems to be cutting it close.

If they meant to withdraw the same fixed dollar amount equal to 3% of the initial value then that should work unless something catastrophic occurs. However, inflation will make the withdrawal amount pretty small by the end of the 30 years.

There's a point that being so worried about one possible risk that you become blind to all of the other risks.

antiqueman
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Re: Likelihood 20/80 AA going Zero.

Post by antiqueman » Sun Jul 16, 2017 8:56 pm

[quote="Ged"]Why would you need any money in equities? 3% over 30 years will leave 10% at the end.

It seems to me you have no need to take the risk of rebalancing.

Risk is something you tolerate for a reason. If you don't need to take it, don't.[/


I am the OP.

The reason we are considering some equities is for the following reasons

1) Better chance of keeping up with inflation with stock.

2) Hopefully grow the portfolio some , so if we aren't dead in 30 years we will have more assets to withdraw.

3) Perhaps leave some legacy.


Thanks to everyone who has respond so far.

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Ged
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Re: Likelihood 20/80 AA going Zero.

Post by Ged » Sun Jul 16, 2017 9:16 pm

TIPS will mostly cover inflation protection. Of course there are some caveats like your personal inflation rate may differ from the index TIPS use. And of course there are taxes. TIPS are not tax efficient.

If you are concerned about longevity risk or want growth for a legacy then you need equities.

Like you I am concerned about the issue of rebalancing to a low level in the case of a prolonged market downturn in retirement. To avoid that potential you need to consider various limits on how much you rebalance. There are some ideas - including not rebalancing at all.

I don't think I would like daily rebalancing in this scenario.

antiqueman
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Re: Likelihood 20/80 AA going Zero.

Post by antiqueman » Sun Jul 16, 2017 9:52 pm

Thanks.

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