Dandy wrote: ↑
Tue Apr 03, 2018 4:27 pm
That requires double the portfolio size that the '4% rule' suggests. For most investors, that's around another decade of saving and working. If you like what you do for money and are otherwise able to do so, fine. But I doubt that most would be willing to make the trade-off of a guaranteed decade of saving/working for the additional safety of 'not playing the game'.
All you have said is probably true but let me try to explain a bit -- and I am no expert on this I just happen to be lucky to have enough and like his approach.
1. Requires double the size of the 4% rule
a.I believe the 4% rule is geared to a 30 year period then in theory it goes to zero. 30 years should be enough for most but it does depend on a decent equity allocation which poses different risks.
b. Keep in mind this is not
an investment strategy for the masses it is for those who have enough - which, unfortunately, is a much smaller group.
2. For most investors that's around another decade of work...
This is not for most investors or investors who hope
to have enough. Again, this is geared to retirees who have already ample assets and are trying to decide on a retirement
investment strategy. The idea for them is not to put the assets they need
at risk (or very limited risk). Bernstein suggests put the excess assets at risk if you choose and use those gains to splurge.
Note: my idea is use the excess or "risk" gains to make sure the LMP assets are adequate and also splurge. All allocation and withdrawal strategies have risks. This set aside of 20-25 years "safe" (aka low return) assets is subject to expense and inflation creep. I also think a person who uses this strategy needs a decent size excess with at least a moderate allocation to equities.
1. In the lion's share of historic cases, implementation of the '4% rule' would not leave a retiree penniless at the 30 year mark. Further, I've not met anyone who has ever strictly implemented the '4% rule'; when the market nosedives, everyone I've ever spoken with or heard rumor of reduces their withdrawals, almost irrespective of their prior withdrawal rate.
2. One could argue that those who have 25-30X their annual expenses already have 'enough' and don't need to keep padding their portfolio to avoid 'playing the game'. As Homer has said here, those with 25X expenses are already carrying an umbrella in the event that it rains on their retirement; why do they need another umbrella?
3. You state that you think that those implementing this approach still need "at least a moderate allocation to equities." If that's the case, aren't they still 'playing the game', albeit with discretionary money and not with non-discretionary money? If that's the case, then how is this any different from the retiree whose necessary expenses represent a 2% of their portfolio annually, and their discretionary expenses represent another 2%, for instance (which is what we're roughly planning on), or from an income-flooring-plus approach, like that recommended by Wade Pfau?
I'm not saying that this strategy isn't appropriate for anyone, but I don't think it's appropriate even for the majority of the BHs, who are, by and large, a well prepared group. Yes, there are some here with 50X their expenses or even more, and I think such a strategy is fine for them, though with a 2% withdrawal rate, virtually any retirement strategy will work. For most folks, I think that the sacrifice of certainly
giving up a significant chunk of time in order to build their portfolio to the point that they can avoid the risk
of the market seems like a very bad bet. For most of us, a decade of our lives is a very precious thing. I'd try to hunt down a SPIA with a COLA long before creating a 30 year TIPS ladder. YMMV.
Those who can afford to implement this strategy may have enough resources to not really need and, consequently, not benefit much from it.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings