Its more of a nudge then anything else. We are talking a few tenths of a percent change (in the initial withdrawal rate) based on valuation. I don't have a problem with that. Even Bogle changed his asset allocation around 2000 due to valuations. If still not convenced then go with the conservative 0% tilt from his table.
OK, a small nudge is probably similar to some small smoothing that doesn't stray too far from a percent of portfolio balance. That's fine with me, even if it creates the equivlent of a "short-term memory" into the method. (Note that I have not read the book; I am merely commenting based on what I read in this thread).
The recommended Income harvesting (Prime Harvesting) is similar to VPW. His spreadsheet uses the same ideas of % of remaining portfolio and mortality based. However, unlike yours which goes to zero at the end of term Prime Harvesting does not.
There might be a small misunderstanding of VPW, here. I think that the Wiki is pretty clear about it; VPW is not a "set it and forget" plan; one should revise the plan every few years. Let me cite the Wiki:
https://www.bogleheads.org/wiki/Variabl ... retirement
I've added the bold and underline.
Every few years, you should review your overall retirement plan. (If you are over 80 years old and your health is better than anticipated, for example, you might want to increase the Last Withdrawal Age beyond its initial 99 value).
So, in real life, VPW should never get to zero before the retiree dies. The idea is to set the age when zero is reached beyond
likely age of death of the retiree. If I have a reasonable possibility of reaching 114 years old, I just set VPW's last withdrawal age to 119. (VPW's default last withdrawal age is 99).
OK, I'll admit that VPW won't work if the pill of eternal life is invented. But, then, why shouldn't one be in good enough health to contribute to society and get paid for it, as a supplement to whatever SPIAs, and Social Security, and the remaining portfolio would be able to sustain using a constant-percentage withdrawal (CPW) ?
Leif wrote:The idea I found new (at least for me) is to allow asset allocation to move with the market. His goal in evaluating different income harvesting methods is to compare the maximum safe withdrawal rate (MSWR) using 2 different US data sources and 2 different International source (one was Japan, which I find interesting). Based on that, higher MSWR has (in the past) been produced by Prime Harvesting then traditional rebalancing.
I see. For me, it's not the first time I hear about withdrawal methods that move the portfolio with the market.
There's a whole pile of literature about tactical and dynamic asset allocation. Isn't that what "active management" is all about, in the first place? (Where "active" is as defined in William Sharpe's The Arithmetic of Active Management
Without exception, whatever dynamic allocation method is advocated in an academic paper backtests well. The problem is that whenever such a method has been implemented into a mutual fund, in the past, it usually started to fail its outperformance promises.
Leif wrote:You do not withdraw from equity while equity is below its inflation adjusted $ point (determined at retirement time). His point is if the market has been bad, over an extended period, you do not withdraw from equities (withdrawals are ALWAYS from FI). Your equity % will increase due to withdrawals from FI. But guess what, when you equity allocations are high the market valuations are low, giving a high expected return on equity. Although sub-optimal, you can set limits of % equity if that makes you nervous (cannot sleep).
But, this fails the logical test of considering another retiree commencing retirement just after the stock market has dropped. This other retiree, if not dynamically/tactically allocating his assets, will have rebalanced into more stocks, unlike the already retired person. So both, even if they have the same age, same portfolio balance, same retirement horizon, and same target asset allocation, won't have similar allocations, and will probably take different withdrawals. This makes no sense to me
I am sure that it "feels better" not to sell bonds to buy stocks, when stocks get cheaper
fall into an abyss. So, most people will prefer not rebalancing.
Bogleheads investment philosophy |
Lifelong Portfolio: 25% each of (domestic / international) stocks / (nominal / inflation-indexed) bonds |