Asset Allocation and Expense Multiple for those Retired 50+ Years

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Random Poster
Posts: 1681
Joined: Wed Feb 03, 2010 10:17 am

Asset Allocation and Expense Multiple for those Retired 50+ Years

Post by Random Poster » Mon Feb 26, 2018 9:28 am

For those who retired early (namely, those who expect to have a 50+ year retirement) or for those who plan to do so, I'm curious:

1) What your asset allocation upon retirement was (or is); and

2) How many years of expenses did you have in investable assets upon retirement.

If you wish to disclose what your withdrawal rate has been, that would be nice too.

I'm trying to get a feel for what the real-world consensus is (as compared to a FireCalc-modeled view) for what a longer-term retirement portfolio should look like.

Thank you.

AlohaJoe
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Joined: Mon Nov 26, 2007 2:00 pm
Location: Saigon, Vietnam

Re: Asset Allocation and Expense Multiple for those Retired 50+ Years

Post by AlohaJoe » Mon Feb 26, 2018 9:51 am

Random Poster wrote:
Mon Feb 26, 2018 9:28 am
For those who retired early (namely, those who expect to have a 50+ year retirement) or for those who plan to do so, I'm curious:

1) What your asset allocation upon retirement was (or is); and

2) How many years of expenses did you have in investable assets upon retirement.

If you wish to disclose what your withdrawal rate has been, that would be nice too.

I'm trying to get a feel for what the real-world consensus is (as compared to a FireCalc-modeled view) for what a longer-term retirement portfolio should look like.
There is no real-world consensus. The only thing anyone will be able to give you is variations on the FireCalc-modeled view, which generally give numbers in the 3-3.5% range.

My asset allocation is 95% stocks, 10% bonds (including leverage).

I think it is a bit foolhardy to use current expenses to meaningfully discuss a 50-year retirement. Nobody's life remains completely unchanged for that long. (Heck, we know from research on spending patterns that it doesn't even stay unchanged for retirees for who 70+ years old; so obviously a constant-spending pattern for someone decades younger, with a lot more of life's changes ahead of them, is implausible.) Especially since being that young may mean things like:

- Haven't even had children yet, so no good guideline for how much that will affect expenses
- Have children but they aren't done with university yet
- Have children and they are done with university but haven't established their lives, so unknown what "unplanned" expenses will be in your future and you help them leave the nest.
- Uncertain what medical complications may develop in the future decades that have on-going costs. (e.g. develop Type 2 diabetes at age 50; kidney fails after a viral infection while backpacking across the Appalachians; etc)
- Uncertain what technological changes will come (nobody 50 years ago was budgeting for laptops, iPhones, 4G data plans, and Netflix subscriptions).
- The whole point of the "progress of civilisation" is to inflate our standard of living, when a retirement is only 20 years you can get away with ignoring that; when your retirement is 50+ years you can't. Imagine someone who retired in 1900 and compare their life then to their life in 1945. They would have bought a washing machine, a car, a refrigerator, air travel, etc.
- Secular trends on spending: 40 years ago spending on restaurants was much different than it is today; spending on "things" was generally higher and spending on "services" was much lower. I expect there will be further trend changes rather than the future remaining a perfect reflection of today.

So I think the whole notion of relying on current expenses -- though a fair starting points -- gives a level of false precision for super early retirees.

I have 113x my current expenses. But I'm pretty sure that 2 years from now that number will be quite different even if the market is flat; my expenses will have changed quite a bit.

If you really wanted to do the exercise, I would estimate expenses for each year individually, varying them over time, and the back it all out to Present Values. Then calculate a Funded Ratio for the Present Values of my future (changing) expenses. If the numbers work by using an extremely conservative discount rate -- say 30-year TIPS real yields -- then I'd feel more confident. If I had to use more aggressive discount rates (say, the average real return of equities over the 20th century), then I'd feel less confident.

dbr
Posts: 27207
Joined: Sun Mar 04, 2007 9:50 am

Re: Asset Allocation and Expense Multiple for those Retired 50+ Years

Post by dbr » Mon Feb 26, 2018 10:03 am

The only two people I know who "retired" that early have zero assets and zero withdrawal. They do have some disability and SS income and rely significantly on public assistance. Taken all in all they are doing just fine now. The biggest step is getting old enough for SS, Medicare, Elderly Waiver in assisted living and so on. Being a military veteran helps.

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