Should we discourage the bond tent?

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vineviz
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Re: Should we discourage the bond tent?

Post by vineviz » Wed Oct 31, 2018 2:01 pm

Mavmoses07 wrote:
Wed Oct 31, 2018 11:48 am
scout1 wrote:
Wed Oct 31, 2018 11:30 am
They just need to compare what they have tested to declining equity glide path and the declining one will look superior to what they have shown in their tables...
Declining equity paths how a lower SWR than other portfolios for a 30-year time horizon, at least according to Cfiresim and other retirement calculators that use historical data. If you know of research to contrary I'd love to see it.
The wrinkle in simulating two glide paths while the portfolio is under withdrawals is that the different glide paths are unlikely to have the same average allocations because the different weights are acting on different portfolio balances.

The only truly fair way to answer the question about whether rising or declining equity allocations are preferred would be to set the withdrawal rate such that the two glide paths had the same dollar and time weighted average equity exposures. If you don't do this, then you aren't testing only on the glide path but a combination of glide path and withdrawal strategy.

Under most assumptions except the most conservative withdrawal rate assumptions, the declining equity glide path has more equity exposure (in NPV) than a rising equity glide path: you're getting better returns (and therefore success rates) by taking on more risk. I suspect this is what Kitces was referring to when he talked about portfolio size effect.
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Re: Should we discourage the bond tent?

Post by nisiprius » Wed Oct 31, 2018 2:14 pm

randomguy wrote:
Wed Oct 31, 2018 1:58 pm
Real world numbers.

40 years at 3.75%
70/30 94.5%
30/70 64.8%

40 years @3.5%
70/30 99.1%
30/70 87.1%

50 years at 3%
70/30 100%
30/70 89.6%

I consider those a pretty big gap:). Why the difference between that and what vanguard put out. My guess is handling of inflation and mean reversion.

And yes you can keep going hyper conservative until things work out.
Source, please?
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Re: Should we discourage the bond tent?

Post by BigJohn » Wed Oct 31, 2018 5:17 pm

b0B wrote:
Wed Oct 31, 2018 10:26 am
If you construe "Bond Tent" narrowly to mean “Post-Retirement Pre-Determined Rising Equity Glidepath”, then it is indefensible and easily criticized, and the OP is right.

If you construe "Bond Tent" broadly to mean any of a whole wide range of strategies that in some circumstances might kinda sorta vaguely resemble some kind of "Bond Tent"-y thingy, at least some of the time, then you can't out of hand dismiss all such strategies. (But then there's no real reason for the term "Bond Tent" to exist.)
You make a very valid point. I may be wrong but it seemed to me that the OP was saying any strategy that increased bonds in early retirement was bad. My earlier defense was of my personal “bond tenty thingy” that came about as follows. When I was in my early 50’s, I planned to hold 60/40 through out retirement. Some reading about the potential for sequence of return risk convinced me that I should start retirement at closer to 40/60. I agree that robotically following a pre-determined glide path makes little sense but... depending on the size of my portfolio and health, I may glide back up to 60/40 at some point. So in hindsight it may well look like a bond tent.

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Re: Should we discourage the bond tent?

Post by BigJohn » Wed Oct 31, 2018 5:18 pm

Delete repeat post

Tony-S
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Re: Should we discourage the bond tent?

Post by Tony-S » Sat May 04, 2019 8:28 am

BigJohn wrote:
Wed Oct 31, 2018 5:17 pm
When I was in my early 50’s, I planned to hold 60/40 through out retirement. Some reading about the potential for sequence of return risk convinced me that I should start retirement at closer to 40/60.
Was this decision based upon statistical probability of a 40/60 success, or was it because 40% gave you X number of years of income?

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Re: Should we discourage the bond tent?

Post by dbr » Sat May 04, 2019 8:50 am

scout1 wrote:
Mon Oct 29, 2018 3:09 pm

The bond tent violates the most fundamental rule of asset allocation: money should be allocated to match time horizon.
I don't think that is a fundamental rule of asset allocation applied to retirement investing. There is no time horizon for people saving for retirement and then withdrawing from those savings during retirement. The "horizon" is not a place but rather a journey along a road. The question to be addressed is what is the best vehicle to ride to make that journey, and the answer regarding stock/bond asset allocation as a function of time is not simple or obvious. That said, I agree people should be skeptical of gimmicks such as bond tents, but not for the reason above.

Now, actually, you can do liability matching for a continuous extent of time. That topic is addressed by the advocates for the liability matching portfolio approach. Ironically that approach, the LMP, converts all of the assets (except the "risk portfolio") into bonds (TIPS) from the get go. Even worse, the most logical implementation of the LMP disposes of the assets entirely by using them to buy an inflation indexed annuity.

Whether any of these ideas are good ideas still needs to be settled on the merits of the results.

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TheTimeLord
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Re: Should we discourage the bond tent?

Post by TheTimeLord » Sat May 04, 2019 8:50 am

scout1 wrote:
Mon Oct 29, 2018 3:09 pm
I have seen a number of discussions on BH referencing the Bond Tent as well as a number of BH members saying that they are going to use the strategy. To me it looks like a bad strategy and I believe BH'ers should push back on it.

The bond tent violates the most fundamental rule of asset allocation: money should be allocated to match time horizon. If you’re 65 and your portfolio needs to last 30 years, over-weighting bonds doesn’t make sense and when you’re 85 with a 10 year horizon, over-weighting equity to compensate for being underweight earlier is even worse. The strategy locks you into lower risk when you have a higher risk tolerance and higher risk when you have a lower risk tolerance. No hypothetical numbers are even needed, this is self-evidently true.
I can't decide if you don't understand there is a point where for some people risk management is more important than maximizing gains because they have won the game and their need to take risk is very low or if you are someone who is more focused on saving for their care at the end of their life rather as opposed to being focused on maximizing the early years of retirement. Those seem to be the emotional triggers that causes people to oppose strategies like "Bond Tents". You need to understand people have different priorities in their lives and that translates into different investment strategies. I chose to use a strategy similar to a bond tent because I have things I want to do early in my retirement while I am mostly like to be fit and healthy so my time horizon for those funds is considerably less than 30 years. Also, when people retire in their 40s, 50s and even early 60s they often are fully funding their retirements from their portfolios and have SS and/or pensions kicking in later in their retirements so why wouldn't you be conservative with the money needed for your bridge years when the entire complexion of your finances changes once you start receiving SS and pensions? Also this statement is just incorrect "higher risk when you have a lower risk tolerance" imo.
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Re: Should we discourage the bond tent?

Post by dbr » Sat May 04, 2019 8:58 am

TheTimeLord wrote:
Sat May 04, 2019 8:50 am
scout1 wrote:
Mon Oct 29, 2018 3:09 pm
I have seen a number of discussions on BH referencing the Bond Tent as well as a number of BH members saying that they are going to use the strategy. To me it looks like a bad strategy and I believe BH'ers should push back on it.

The bond tent violates the most fundamental rule of asset allocation: money should be allocated to match time horizon. If you’re 65 and your portfolio needs to last 30 years, over-weighting bonds doesn’t make sense and when you’re 85 with a 10 year horizon, over-weighting equity to compensate for being underweight earlier is even worse. The strategy locks you into lower risk when you have a higher risk tolerance and higher risk when you have a lower risk tolerance. No hypothetical numbers are even needed, this is self-evidently true.
I can't decide if you don't understand there is a point where for some people risk management is more important than maximizing gains because they have won the game and their need to take risk is very low or if you are someone who is more focused on saving for their care at the end of their life rather as opposed to being focused on maximizing the early years of retirement. Those seem to be the emotional triggers that causes people to oppose strategies like "Bond Tents". You need to understand people have different priorities in their lives and that translates into different investment strategies. I chose to use a strategy similar to a bond tent because I have things I want to do early in my retirement while I am mostly like to be fit and healthy so my time horizon for those funds is considerably less than 30 years. Also, when people retire in their 40s, 50s and even early 60s they often are fully funding their retirements from their portfolios and have SS and/or pensions kicking in later in their retirements so why wouldn't you be conservative with the money needed for your bridge years when the entire complexion of your finances changes once you start receiving SS and pensions? Also this statement is just incorrect "higher risk when you have a lower risk tolerance" imo.
Perfect example that you have to look at the road map for your own journey and see where the risks and the opportunities lie.

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Re: Should we discourage the bond tent?

Post by BigJohn » Sat May 04, 2019 8:59 am

Tony-S wrote:
Sat May 04, 2019 8:28 am
BigJohn wrote:
Wed Oct 31, 2018 5:17 pm
When I was in my early 50’s, I planned to hold 60/40 through out retirement. Some reading about the potential for sequence of return risk convinced me that I should start retirement at closer to 40/60.
Was this decision based upon statistical probability of a 40/60 success, or was it because 40% gave you X number of years of income?
I went to 60% bonds because that was about 30 years of my estimated minimum income.

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Re: Should we discourage the bond tent?

Post by TheTimeLord » Sat May 04, 2019 9:00 am

scout1 wrote:
Wed Oct 31, 2018 11:30 am
They just need to compare what they have tested to declining equity glide path and the declining one will look superior to what they have shown in their tables. That's standard stuff and what every target date fund does. Target date funds don't lower the equity portion over time just so the retireee can jump back into equities when they're 85.
The only reason to have a declining glide path in retirement that I can think off is having insufficient assets thus an inability to withstand a downturn. Personally, I don't consider the fact Target Date Funds do anything to be an endorsement of their strategy. It is obviously ridiculous to say someone Warren Buffet and tell him to sell so his AA is in alignment with a Target Date fund for a man his age, your level of assets matter it is not one size fits all like implied by Target Date Funds.
Last edited by TheTimeLord on Sat May 04, 2019 9:05 am, edited 1 time in total.
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Re: Should we discourage the bond tent?

Post by dbr » Sat May 04, 2019 9:03 am

TheTimeLord wrote:
Sat May 04, 2019 9:00 am
scout1 wrote:
Wed Oct 31, 2018 11:30 am
They just need to compare what they have tested to declining equity glide path and the declining one will look superior to what they have shown in their tables. That's standard stuff and what every target date fund does. Target date funds don't lower the equity portion over time just so the retireee can jump back into equities when they're 85.
The only reason to have a declining glide path in retirement that I can think off is having insufficient assets thus an inability to withstand a downturn. Personally, I don't consider the fact Target Date Funds do anything to be an endorsement of their strategy.
A person might be motivated to become highly conservative in later years in order to ensure the certainty of what is handed on to heirs, especially if they are not motivated to take risk to continue to grow the assets. Such a person could also just give the money away sooner rather than later. It is all individual goals and objectives.

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Re: Should we discourage the bond tent?

Post by David Jay » Sat May 04, 2019 9:07 am

TheTimeLord wrote:
Sat May 04, 2019 8:50 am
...when people retire in their 40s, 50s and even early 60s they often are fully funding their retirements from their portfolios and have SS and/or pensions kicking in later in their retirements so why wouldn't you be conservative with the money needed for your bridge years when the entire complexion of your finances changes once you start receiving SS and pensions?
This precisely characterizes my situation. The rising equity occurs as I spend down my fixed assets before age 70. After that I expect to hold a constant allocation. I actually prefer the ERN work on rising equity paths in retirement. The rising equity is for a relatively (compared to entire length of retirement) short period and is for sequence-of-risk management.
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Re: Should we discourage the bond tent?

Post by TheTimeLord » Sat May 04, 2019 9:08 am

dbr wrote:
Sat May 04, 2019 9:03 am
TheTimeLord wrote:
Sat May 04, 2019 9:00 am
scout1 wrote:
Wed Oct 31, 2018 11:30 am
They just need to compare what they have tested to declining equity glide path and the declining one will look superior to what they have shown in their tables. That's standard stuff and what every target date fund does. Target date funds don't lower the equity portion over time just so the retireee can jump back into equities when they're 85.
The only reason to have a declining glide path in retirement that I can think off is having insufficient assets thus an inability to withstand a downturn. Personally, I don't consider the fact Target Date Funds do anything to be an endorsement of their strategy.
A person might be motivated to become highly conservative in later years in order to ensure the certainty of what is handed on to heirs, especially if they are not motivated to take risk to continue to grow the assets. Such a person could also just give the money away sooner rather than later. It is all individual goals and objectives.
I should have said "the only reason to have to have a declining glide path". You are correct there are many personal reasons/preferences that could lead someone to choose a declining glide path.
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Re: Should we discourage the bond tent?

Post by 2pedals » Sat May 04, 2019 10:05 am

I personally like Micheal McClung's book "Living off Your Money". The variable withdrawal method using extended mortality (EM) combined with prime harvesting for income harvesting is very appealing to me. Basically bonds are used for spending (income harvesting) and bonds are replenished after the equity assets have significant market gains. The asset allocation floats and only defined at the start of retirement.

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Re: Should we discourage the bond tent?

Post by willthrill81 » Sat May 04, 2019 10:28 am

2pedals wrote:
Sat May 04, 2019 10:05 am
I personally like Micheal McClung's book "Living off Your Money". The variable withdrawal method using extended mortality (EM) combined with prime harvesting for income harvesting is very appealing to me. Basically bonds are used for spending (income harvesting) and bonds are replenished after the equity assets have significant market gains. The asset allocation floats and only defined at the start of retirement.
Dynamic asset allocations in retirement may help, but the biggest issue I see with the way most people do not seem to have fleshed out the details, where the devil resides. For instance, precise, measurable definitions are needed for things like "significant market gains." Failure to lay out the specifics opens the retiree to a whole host of potential behavioral issues which could easily overwhelm any benefit provided by the dynamic AA strategy itself.
“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

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Re: Should we discourage the bond tent?

Post by TheTimeLord » Sat May 04, 2019 10:37 am

willthrill81 wrote:
Sat May 04, 2019 10:28 am
2pedals wrote:
Sat May 04, 2019 10:05 am
I personally like Micheal McClung's book "Living off Your Money". The variable withdrawal method using extended mortality (EM) combined with prime harvesting for income harvesting is very appealing to me. Basically bonds are used for spending (income harvesting) and bonds are replenished after the equity assets have significant market gains. The asset allocation floats and only defined at the start of retirement.
Dynamic asset allocations in retirement may help, but the biggest issue I see with the way most people do not seem to have fleshed out the details, where the devil resides. For instance, precise, measurable definitions are needed for things like "significant market gains." Failure to lay out the specifics opens the retiree to a whole host of potential behavioral issues which could easily overwhelm any benefit provided by the dynamic AA strategy itself.
So like you would harvest any gains beyond say 8% in a year for equities? How does this work if you were down 20% 1 year then up 25% the next so you are essentially unchanged for the 2 year period?
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Re: Should we discourage the bond tent?

Post by willthrill81 » Sat May 04, 2019 10:43 am

TheTimeLord wrote:
Sat May 04, 2019 10:37 am
willthrill81 wrote:
Sat May 04, 2019 10:28 am
2pedals wrote:
Sat May 04, 2019 10:05 am
I personally like Micheal McClung's book "Living off Your Money". The variable withdrawal method using extended mortality (EM) combined with prime harvesting for income harvesting is very appealing to me. Basically bonds are used for spending (income harvesting) and bonds are replenished after the equity assets have significant market gains. The asset allocation floats and only defined at the start of retirement.
Dynamic asset allocations in retirement may help, but the biggest issue I see with the way most people do not seem to have fleshed out the details, where the devil resides. For instance, precise, measurable definitions are needed for things like "significant market gains." Failure to lay out the specifics opens the retiree to a whole host of potential behavioral issues which could easily overwhelm any benefit provided by the dynamic AA strategy itself.
So like you would harvest any gains beyond say 8% in a year for equities? How does this work if you were down 20% 1 year then up 25% the next so you are essentially unchanged for the 2 year period?
That's precisely my point: the devil is in the details.
“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

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Re: Should we discourage the bond tent?

Post by 2pedals » Sat May 04, 2019 1:44 pm

willthrill81 wrote:
Sat May 04, 2019 10:43 am
TheTimeLord wrote:
Sat May 04, 2019 10:37 am
willthrill81 wrote:
Sat May 04, 2019 10:28 am
2pedals wrote:
Sat May 04, 2019 10:05 am
I personally like Micheal McClung's book "Living off Your Money". The variable withdrawal method using extended mortality (EM) combined with prime harvesting for income harvesting is very appealing to me. Basically bonds are used for spending (income harvesting) and bonds are replenished after the equity assets have significant market gains. The asset allocation floats and only defined at the start of retirement.
Dynamic asset allocations in retirement may help, but the biggest issue I see with the way most people do not seem to have fleshed out the details, where the devil resides. For instance, precise, measurable definitions are needed for things like "significant market gains." Failure to lay out the specifics opens the retiree to a whole host of potential behavioral issues which could easily overwhelm any benefit provided by the dynamic AA strategy itself.
So like you would harvest any gains beyond say 8% in a year for equities? How does this work if you were down 20% 1 year then up 25% the next so you are essentially unchanged for the 2 year period?
That's precisely my point: the devil is in the details.
McClung's Book defines all the devilish details. He recommends defining your equity amount (call it 100% equity) and let it ride. Sell equity if it gains over 120% of adjusted for inflation. If it reaches more than 120% sell the excess to get back down to 100%. Equity is never purchased.

I retired in 2018, I am going to add a personal twist to the method. The thing I am uncomfortable with is I don't want to let my total asset allocation exceed too much say 70% equity overall (because I don't have the willingness to do so).

I started with 40/60 and my is plan is:

I will will sell equity for two events (capped for 120% initial equity and 70% AA in equity)
- sell equity over 120% inflation adjusted
- I am risk adverse so I will sell equity if my overall AA in equity exceeds 70%.

I will sell bonds as needed to support discretionary expense and some expenses, pension and SS covers a lot of my expenses. So what McClung says I can harvest is more than enough. If I don't harvest much and/or the stock market drops resulting in an equity AA below 30% I can buy more equity if I have the willingness to do so.

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Re: Should we discourage the bond tent?

Post by willthrill81 » Sat May 04, 2019 2:34 pm

2pedals wrote:
Sat May 04, 2019 1:44 pm
willthrill81 wrote:
Sat May 04, 2019 10:43 am
TheTimeLord wrote:
Sat May 04, 2019 10:37 am
willthrill81 wrote:
Sat May 04, 2019 10:28 am
2pedals wrote:
Sat May 04, 2019 10:05 am
I personally like Micheal McClung's book "Living off Your Money". The variable withdrawal method using extended mortality (EM) combined with prime harvesting for income harvesting is very appealing to me. Basically bonds are used for spending (income harvesting) and bonds are replenished after the equity assets have significant market gains. The asset allocation floats and only defined at the start of retirement.
Dynamic asset allocations in retirement may help, but the biggest issue I see with the way most people do not seem to have fleshed out the details, where the devil resides. For instance, precise, measurable definitions are needed for things like "significant market gains." Failure to lay out the specifics opens the retiree to a whole host of potential behavioral issues which could easily overwhelm any benefit provided by the dynamic AA strategy itself.
So like you would harvest any gains beyond say 8% in a year for equities? How does this work if you were down 20% 1 year then up 25% the next so you are essentially unchanged for the 2 year period?
That's precisely my point: the devil is in the details.
McClung's Book defines all the devilish details. He recommends defining your equity amount (call it 100% equity) and let it ride. Sell equity if it gains over 120% of adjusted for inflation. If it reaches more than 120% sell the excess to get back down to 100%. Equity is never purchased.
How did that backtest?
“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

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Re: Should we discourage the bond tent?

Post by 2pedals » Sat May 04, 2019 3:37 pm

willthrill81 wrote:
Sat May 04, 2019 2:34 pm
2pedals wrote:
Sat May 04, 2019 1:44 pm
willthrill81 wrote:
Sat May 04, 2019 10:43 am
TheTimeLord wrote:
Sat May 04, 2019 10:37 am
willthrill81 wrote:
Sat May 04, 2019 10:28 am


Dynamic asset allocations in retirement may help, but the biggest issue I see with the way most people do not seem to have fleshed out the details, where the devil resides. For instance, precise, measurable definitions are needed for things like "significant market gains." Failure to lay out the specifics opens the retiree to a whole host of potential behavioral issues which could easily overwhelm any benefit provided by the dynamic AA strategy itself.
So like you would harvest any gains beyond say 8% in a year for equities? How does this work if you were down 20% 1 year then up 25% the next so you are essentially unchanged for the 2 year period?
That's precisely my point: the devil is in the details.
McClung's Book defines all the devilish details. He recommends defining your equity amount (call it 100% equity) and let it ride. Sell equity if it gains over 120% of adjusted for inflation. If it reaches more than 120% sell the excess to get back down to 100%. Equity is never purchased.
How did that backtest?
EREVN has a simple study here.
Prime Harvesting vs Rebalancing (graphs!)

You should probably get the book or borrow it to read what he says about relative performance in comparison to other methods.

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Re: Should we discourage the bond tent?

Post by JBTX » Sat May 04, 2019 4:01 pm

I've always been leery of upward sloping glide paths. They are based on historical outcomes, but not on theory or typical risk aversion. Having an 80 year old in 70 percent or higher stocks may have statistically in past experience generally worked out, but they kind of defy logic, and they fail to account for the fact in the small percent of failure of a SWR to succeed, they may fail badly.

However, in the context of retiring early and delaying social security, it makes a lot of sense. If you are 60, and will take SS at 70, having that portion you will need over the next 10 years in a more conservative allocation makes a lot of sense. Social security could be viewed as replacing the bond portion of your portfolio.

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Re: Should we discourage the bond tent?

Post by FIREchief » Sat May 04, 2019 5:19 pm

JBTX wrote:
Sat May 04, 2019 4:01 pm
I've always been leery of upward sloping glide paths. Having an 80 year old in 70 percent or higher stocks may have statistically in past experience generally worked out, but they kind of defy logic, and they fail to account for the fact in the small percent of failure of a SWR to succeed, they may fail badly.
If that 80 year old had more than enough money and wanted to leave some to much younger heirs/charity, would that still seem to defy logic? :confused
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

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Re: Should we discourage the bond tent?

Post by JBTX » Sat May 04, 2019 5:38 pm

FIREchief wrote:
Sat May 04, 2019 5:19 pm
JBTX wrote:
Sat May 04, 2019 4:01 pm
I've always been leery of upward sloping glide paths. Having an 80 year old in 70 percent or higher stocks may have statistically in past experience generally worked out, but they kind of defy logic, and they fail to account for the fact in the small percent of failure of a SWR to succeed, they may fail badly.
If that 80 year old had more than enough money and wanted to leave some to much younger heirs/charity, would that still seem to defy logic? :confused
No of course not.

Generally these SWR and bond tent conversations are around what is the best way to increase your probability of having enough money as long as you live. They ignore the residual benefit that could potentially go to heirs. If leaving money to heirs is also a factor that changes things quite a bit. In that case a withdrawal rate of 3% or less (at retirement age) and a heavy stock allocation may make a lot of sense.

In those cases you are balancing probability of success with the expected value of various outcomes, which will favor high stock allocations.

In our case leaving money for kids, especially special needs one, is a significant objective.

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Re: Should we discourage the bond tent?

Post by WoodSpinner » Sat May 04, 2019 7:25 pm

willthrill81 wrote:
Sat May 04, 2019 10:28 am
2pedals wrote:
Sat May 04, 2019 10:05 am
I personally like Micheal McClung's book "Living off Your Money". The variable withdrawal method using extended mortality (EM) combined with prime harvesting for income harvesting is very appealing to me. Basically bonds are used for spending (income harvesting) and bonds are replenished after the equity assets have significant market gains. The asset allocation floats and only defined at the start of retirement.
Dynamic asset allocations in retirement may help, but the biggest issue I see with the way most people do not seem to have fleshed out the details, where the devil resides. For instance, precise, measurable definitions are needed for things like "significant market gains." Failure to lay out the specifics opens the retiree to a whole host of potential behavioral issues which could easily overwhelm any benefit provided by the dynamic AA strategy itself.
I have a slightly different approach for managing Dynamic Asset Allocation. I believe it’s robust and specific. Would love thoughts and insights that will help tighten it up if needed.

Thanks

WoodSpinner

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Re: Should we discourage the bond tent?

Post by willthrill81 » Sat May 04, 2019 9:16 pm

WoodSpinner wrote:
Sat May 04, 2019 7:25 pm
willthrill81 wrote:
Sat May 04, 2019 10:28 am
2pedals wrote:
Sat May 04, 2019 10:05 am
I personally like Micheal McClung's book "Living off Your Money". The variable withdrawal method using extended mortality (EM) combined with prime harvesting for income harvesting is very appealing to me. Basically bonds are used for spending (income harvesting) and bonds are replenished after the equity assets have significant market gains. The asset allocation floats and only defined at the start of retirement.
Dynamic asset allocations in retirement may help, but the biggest issue I see with the way most people do not seem to have fleshed out the details, where the devil resides. For instance, precise, measurable definitions are needed for things like "significant market gains." Failure to lay out the specifics opens the retiree to a whole host of potential behavioral issues which could easily overwhelm any benefit provided by the dynamic AA strategy itself.
I have a slightly different approach for managing Dynamic Asset Allocation. I believe it’s robust and specific. Would love thoughts and insights that will help tighten it up if needed.

Thanks

WoodSpinner
Actually, there are a several terms and phrases that are not adequately defined. These include "major downturn," "may temporarily," "may be sold," "may also be invested," "should be invested," "may be forced," "preference will be," and "may have more." There's plenty of wiggle room for behavioral biases, fear, etc. to worm their way in to the strategy.
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Re: Should we discourage the bond tent?

Post by TheTimeLord » Sun May 05, 2019 8:47 am

JBTX wrote:
Sat May 04, 2019 5:38 pm
FIREchief wrote:
Sat May 04, 2019 5:19 pm
JBTX wrote:
Sat May 04, 2019 4:01 pm
I've always been leery of upward sloping glide paths. Having an 80 year old in 70 percent or higher stocks may have statistically in past experience generally worked out, but they kind of defy logic, and they fail to account for the fact in the small percent of failure of a SWR to succeed, they may fail badly.
If that 80 year old had more than enough money and wanted to leave some to much younger heirs/charity, would that still seem to defy logic? :confused
No of course not.

Generally these SWR and bond tent conversations are around what is the best way to increase your probability of having enough money as long as you live.
Bonds tents are about avoiding Sequence of Return risk in late pre-retirement and early retirement. It is like lump sum vs. DCA conversations. Lump Sum comes out better what two thirds of the time but the greatest potential for loss is also by lump summing on the wrong day. If you are risk managing instead of maximizing gains it might be worth it to you to give up the potential higher gains two thirds of the time to avoid the greater losses one third of the time and the potential maximum loss. Of course then what we are really talking about is the irony that the people who have the greatest ability to take risk also have the least need for risk.
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Re: Should we discourage the bond tent?

Post by Sandtrap » Sun May 05, 2019 8:58 am

TheTimeLord wrote:
Sun May 05, 2019 8:47 am
JBTX wrote:
Sat May 04, 2019 5:38 pm
FIREchief wrote:
Sat May 04, 2019 5:19 pm
JBTX wrote:
Sat May 04, 2019 4:01 pm
I've always been leery of upward sloping glide paths. Having an 80 year old in 70 percent or higher stocks may have statistically in past experience generally worked out, but they kind of defy logic, and they fail to account for the fact in the small percent of failure of a SWR to succeed, they may fail badly.
If that 80 year old had more than enough money and wanted to leave some to much younger heirs/charity, would that still seem to defy logic? :confused
No of course not.

Generally these SWR and bond tent conversations are around what is the best way to increase your probability of having enough money as long as you live.
Bonds tents are about avoiding Sequence of Return risk in late pre-retirement and early retirement. It is like lump sum vs. DCA conversations. Lump Sum comes out better what two thirds of the time but the greatest potential for loss is also by lump summing on the wrong day. If you are risk managing instead of maximizing gains it might be worth it to you to give up the potential higher gains two thirds of the time to avoid the greater losses one third of the time and the potential maximum loss. Of course then what we are really talking about is the irony that the people who have the greatest ability to take risk also have the least need for risk.
Great points!
Along the lines of a Liability Matching Portfolio, perhaps a "Bond Tent" can be diversified to include any or all of the following. "Non Bond" percentage can match the average duration of the "Bond Funds" used is a thought to help mitigate Sequence of Returns Risk.
Thus, a "Bond Tent" does not have to be all bonds, as long as the following are satisfied in varying degrees.

1. Security of Principal
2. Liquidity
3. Accessibility
4. Returns
5. Volatility

Diversification of fixed that might consist of or include:
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Re: Should we discourage the bond tent?

Post by dknightd » Sun May 05, 2019 9:04 am

I have what could be considered a "bond tent". It may not be optimal, but it makes me feel comfortable.
I'm 61 and will be retiring this year. I'm currently about 25/75 stocks/other.
When I retire I'll convert 20% of my savings to an SPIA. I'll keep about 5% available for future SPIA purchases.
I plan to take SS at 70. I have enough "other" to get me to 70. I think.
By time I reach 70 I'll be at about 50/50. By then my base "comfortable enough" should be covered.
The 50/50 will hopefully allow me to be more than comfortable in some years.
edit: I'll probably take some of those "more than comfortable years" before I'm 70 if returns allow it.
To me ensuring "comfortable" matters more than anything else. Anything above that is a bonus ;)

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Re: Should we discourage the bond tent?

Post by TheTimeLord » Sun May 05, 2019 9:18 am

Sandtrap wrote:
Sun May 05, 2019 8:58 am
[Great points!
Along the lines of a Liability Matching Portfolio, perhaps a "Bond Tent" can be diversified to include any or all of the following. "Non Bond" percentage can match the average duration of the "Bond Funds" used is a thought to help mitigate Sequence of Returns Risk.
Thus, a "Bond Tent" does not have to be all bonds, as long as the following are satisfied in varying degrees.

1. Security of Principal
2. Liquidity
3. Accessibility
4. Returns
5. Volatility
Thanks. I think until you go through it is hard to understanding how much and quickly your perspective can change as you move from accumulation to 25x to 30x to actual retirement where you live off of you portfolio. You go from just piling up as much as you can, to not want to lose the pile you worked decades too construct to needing that pile to live on.
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Re: Should we discourage the bond tent?

Post by dbr » Sun May 05, 2019 9:22 am

I think people are imagining that the differences in outcome of different schemes are much greater than they really are. Keep in mind that in every case the actual outcome will be some single example from a wide range of possibilities and that those ranges of possibilities overlap hugely. This is a complex example of the more simpleminded problem in basic data analysis of how do you know two sets of data represent an actual difference in reality. In any case there is no grounds for being comfortable based on some mental construct of investments that are "safe" and investments that are not "safe."

As to answering the question in the OP, I don't think we should discourage thinking about things such as the bond tent. I do think we should discourage giving the impression that tactics like this will be a major panacea that removes uncertainty and danger from future events or that, so to speak, immunizes financial plans against not working out as well as we had hoped.

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Re: Should we discourage the bond tent?

Post by dbr » Sun May 05, 2019 9:23 am

TheTimeLord wrote:
Sun May 05, 2019 9:18 am
Sandtrap wrote:
Sun May 05, 2019 8:58 am
[Great points!
Along the lines of a Liability Matching Portfolio, perhaps a "Bond Tent" can be diversified to include any or all of the following. "Non Bond" percentage can match the average duration of the "Bond Funds" used is a thought to help mitigate Sequence of Returns Risk.
Thus, a "Bond Tent" does not have to be all bonds, as long as the following are satisfied in varying degrees.

1. Security of Principal
2. Liquidity
3. Accessibility
4. Returns
5. Volatility
Thanks. I think until you go through it is hard to understanding how much and quickly your perspective can change as you move from accumulation to 25x to 30x to actual retirement where you live off of you portfolio. You go from just piling up as much as you can, to not want to lose the pile you worked decades too construct to needing that pile to live on.
I would think people would be overjoyed to finally be able to spend all that money they had so painfully saved over the years.

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Re: Should we discourage the bond tent?

Post by Tony-S » Sun May 05, 2019 9:27 am

Considering how the Fed is principally focused on keeping inflation in check, would it be wise to simply put 8 to 10 years or so of retirement spending funds in bonds/MM/etc., regardless of a potential market decline? This may or may not result in a bond tent but it would substantially increase the probability of navigating an adverse sequence of returns event.
Last edited by Tony-S on Sun May 05, 2019 10:26 am, edited 1 time in total.

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Re: Should we discourage the bond tent?

Post by FOGU » Sun May 05, 2019 9:28 am

dbr wrote:
Sun May 05, 2019 9:23 am
I would think people would be overjoyed to finally be able to spend all that money they had so painfully saved over the years.
The joy of spending is tempered by the fear of running out of gas before the finish line.
~ Don't just do something. Sit there. ~

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Re: Should we discourage the bond tent?

Post by TheTimeLord » Sun May 05, 2019 9:31 am

dbr wrote:
Sun May 05, 2019 9:23 am
TheTimeLord wrote:
Sun May 05, 2019 9:18 am
Sandtrap wrote:
Sun May 05, 2019 8:58 am
[Great points!
Along the lines of a Liability Matching Portfolio, perhaps a "Bond Tent" can be diversified to include any or all of the following. "Non Bond" percentage can match the average duration of the "Bond Funds" used is a thought to help mitigate Sequence of Returns Risk.
Thus, a "Bond Tent" does not have to be all bonds, as long as the following are satisfied in varying degrees.

1. Security of Principal
2. Liquidity
3. Accessibility
4. Returns
5. Volatility
Thanks. I think until you go through it is hard to understanding how much and quickly your perspective can change as you move from accumulation to 25x to 30x to actual retirement where you live off of you portfolio. You go from just piling up as much as you can, to not want to lose the pile you worked decades too construct to needing that pile to live on.
I would think people would be overjoyed to finally be able to spend all that money they had so painfully saved over the years.
I have talked to several people who have told me one of their hardest adjustments was moving from a paycheck to dependence on their portfolio and accepting their balances going from increasing to decreasing. I am sure it is not a hurdle everyone faces but I would imagine it is a struggle for a significant percentage of retirees in the early months or even years.
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Re: Should we discourage the bond tent?

Post by TheTimeLord » Sun May 05, 2019 9:32 am

FOGU wrote:
Sun May 05, 2019 9:28 am
dbr wrote:
Sun May 05, 2019 9:23 am
I would think people would be overjoyed to finally be able to spend all that money they had so painfully saved over the years.
The joy of spending is tempered by the fear of running out of gas before the finish line.
Exactly, then it is easy to understand how that could be compounded by a negative sequence of returns in early retirement.
IMHO, Investing should be about living the life you want, not avoiding the life you fear. | Run, You Clever Boy! [9085]

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Re: Should we discourage the bond tent?

Post by dbr » Sun May 05, 2019 9:39 am

Fear can be found everywhere if people work hard enough at it.

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Re: Should we discourage the bond tent?

Post by dknightd » Sun May 05, 2019 9:40 am

TheTimeLord wrote:
Sun May 05, 2019 9:18 am


Thanks. I think until you go through it is hard to understanding how much and quickly your perspective can change as you move from accumulation to 25x to 30x to actual retirement where you live off of you portfolio. You go from just piling up as much as you can, to not want to lose the pile you worked decades too construct to needing that pile to live on.
I think this is going to be the hardest part of retirement for me. Going from a saver to a spender will not be easy for me. I'm just going to bight the bullet and go for it. Wish me luck.

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Re: Should we discourage the bond tent?

Post by FOGU » Sun May 05, 2019 10:03 am

TheTimeLord wrote:
Sun May 05, 2019 9:32 am
FOGU wrote:
Sun May 05, 2019 9:28 am
dbr wrote:
Sun May 05, 2019 9:23 am
I would think people would be overjoyed to finally be able to spend all that money they had so painfully saved over the years.
The joy of spending is tempered by the fear of running out of gas before the finish line.
Exactly, then it is easy to understand how that could be compounded by a negative sequence of returns in early retirement.
After reading through this entire thread, and having read Kitces and others on protecting against sequence of returns risk in those early retirement years, I am convinced that this is something to guard against. This can be done with a "glide path" or "bond tent" or bond tenty thingy or even regular old interest-bearing savings vehicles like CDs or money market funds.

The key that I perceive is to avoid, in those first 10 or so years of withdrawals, the need to withdraw substantially from equities in the case of substantial market declines that could prevent portfolio recovery. If that can be achieved, while maintaining desired standard of living, I don't see the method as being overly important.

Of course terms like "early," "substantial," etc., may be defined differently by each person. Beauty is in the eye of the beholder.
~ Don't just do something. Sit there. ~

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Re: Should we discourage the bond tent?

Post by TheTimeLord » Sun May 05, 2019 10:14 am

dbr wrote:
Sun May 05, 2019 9:39 am
Fear can be found everywhere if people work hard enough at it.
I don't think it is fear, for most by the time they retire their portfolio is something they have worked at 3 or 4 decades, focused on building and found security in. To believe that it will be an easy psychological shift to start deconstructing these learnings immediately is optimistic from my point of view.
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Re: Should we discourage the bond tent?

Post by Sandtrap » Sun May 05, 2019 10:41 am

TheTimeLord wrote:
Sun May 05, 2019 9:18 am
Sandtrap wrote:
Sun May 05, 2019 8:58 am
[Great points!
Along the lines of a Liability Matching Portfolio, perhaps a "Bond Tent" can be diversified to include any or all of the following. "Non Bond" percentage can match the average duration of the "Bond Funds" used is a thought to help mitigate Sequence of Returns Risk.
Thus, a "Bond Tent" does not have to be all bonds, as long as the following are satisfied in varying degrees.

1. Security of Principal
2. Liquidity
3. Accessibility
4. Returns
5. Volatility
Thanks. I think until you go through it is hard to understanding how much and quickly your perspective can change as you move from accumulation to 25x to 30x to actual retirement where you live off of you portfolio. You go from just piling up as much as you can, to not want to lose the pile you worked decades too construct to needing that pile to live on.
Absolutely correct!!!!!!
It's likely that "no amount of money" short of 100 million. . maybe. . . can substitute for an employment or other income stream that takes care of all of one's needs in the accumulation phase VS having to deplete one's savings.
That is the one thing that I have not gotten used to and was a huge adjustment when my paychecks stopped.

My wife and I call this "eating chickens". It's okay to live off the eggs. But, if you don't have enough chickens, you have to start eating the chickens to survive retirement. That's not a good thing.
So, don't eat the chickens. :shock:

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Re: Should we discourage the bond tent?

Post by randomguy » Sun May 05, 2019 11:06 am

FOGU wrote:
Sun May 05, 2019 10:03 am
TheTimeLord wrote:
Sun May 05, 2019 9:32 am
FOGU wrote:
Sun May 05, 2019 9:28 am
dbr wrote:
Sun May 05, 2019 9:23 am
I would think people would be overjoyed to finally be able to spend all that money they had so painfully saved over the years.
The joy of spending is tempered by the fear of running out of gas before the finish line.
Exactly, then it is easy to understand how that could be compounded by a negative sequence of returns in early retirement.
After reading through this entire thread, and having read Kitces and others on protecting against sequence of returns risk in those early retirement years, I am convinced that this is something to guard against. This can be done with a "glide path" or "bond tent" or bond tenty thingy or even regular old interest-bearing savings vehicles like CDs or money market funds.

The key that I perceive is to avoid, in those first 10 or so years of withdrawals, the need to withdraw substantially from equities in the case of substantial market declines that could prevent portfolio recovery. If that can be achieved, while maintaining desired standard of living, I don't see the method as being overly important.

Of course terms like "early," "substantial," etc., may be defined differently by each person. Beauty is in the eye of the beholder.
If you have a some what reasonable allocation (call it 60/40 or even 70/30), you will rarely ever be withdrawing from equities when they are substantially down. You will be selling bonds to pay the bills and to buy more stock. Bond tents are great at decreasing volatility. But they do pretty much nothing about sequence of returns. You will notice how none of the papers that talk about bond tents, rising glide path and so on talk about the the 5% rule instead of the 4%. Sequence of return risk is caused by lack of returns as much as volatility.

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Re: Should we discourage the bond tent?

Post by willthrill81 » Sun May 05, 2019 11:08 am

Sandtrap wrote:
Sun May 05, 2019 10:41 am
TheTimeLord wrote:
Sun May 05, 2019 9:18 am
Sandtrap wrote:
Sun May 05, 2019 8:58 am
[Great points!
Along the lines of a Liability Matching Portfolio, perhaps a "Bond Tent" can be diversified to include any or all of the following. "Non Bond" percentage can match the average duration of the "Bond Funds" used is a thought to help mitigate Sequence of Returns Risk.
Thus, a "Bond Tent" does not have to be all bonds, as long as the following are satisfied in varying degrees.

1. Security of Principal
2. Liquidity
3. Accessibility
4. Returns
5. Volatility
Thanks. I think until you go through it is hard to understanding how much and quickly your perspective can change as you move from accumulation to 25x to 30x to actual retirement where you live off of you portfolio. You go from just piling up as much as you can, to not want to lose the pile you worked decades too construct to needing that pile to live on.
Absolutely correct!!!!!!
It's likely that "no amount of money" short of 100 million. . maybe. . . can substitute for an employment or other income stream that takes care of all of one's needs in the accumulation phase VS having to deplete one's savings.
That is the one thing that I have not gotten used to and was a huge adjustment when my paychecks stopped.
We could survive very well on 2.2%, the current yield at Ally, of far less than $100 million. Granted, inflation would erode the buying power of the funds, but I'm not aware of any means of never seeing your portfolio decline in value at all and getting more than a tiny real yield. 10 year TIPS, for instance, have a current real yield of just .66%, and 30 year TIPS are currently yielding 1.0%. And of course, TIPS' real yield can easily be negative, as it was for much of 2012-2013 and briefly in 2016 for 10 year TIPS.
Sandtrap wrote:
Sun May 05, 2019 10:41 am
My wife and I call this "eating chickens". It's okay to live off the eggs. But, if you don't have enough chickens, you have to start eating the chickens to survive retirement. That's not a good thing.
So, don't eat the chickens. :shock:
I'm puzzled by this. Are you saying that portfolio depletion throughout the course of one's retirement is wholly unacceptable?
“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

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Re: Should we discourage the bond tent?

Post by dbr » Sun May 05, 2019 11:11 am

TheTimeLord wrote:
Sun May 05, 2019 10:14 am
dbr wrote:
Sun May 05, 2019 9:39 am
Fear can be found everywhere if people work hard enough at it.
I don't think it is fear, for most by the time they retire their portfolio is something they have worked at 3 or 4 decades, focused on building and found security in. To believe that it will be an easy psychological shift to start deconstructing these learnings immediately is optimistic from my point of view.
Don't people accumulate that money with the idea in mind that the reason for doing that is to spend it later? Otherwise why is one doing that?

But, you have a point. I knew a guy that died with an $8M estate and wouldn't even let his wife have a new Camry to replace the old clunker he let her drive. I think for him all that money was not savings but a scorecard of his financial success and he was still keeping score. Today his never employed children are close to frittering the whole thing away, but they are living well. They are the one's who should be afraid of running out of money, but you might be right; they don't have that fear because they didn't go through what had to be done to get it. By the way, he got his money the old fashioned way "he earned it."

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Re: Should we discourage the bond tent?

Post by dbr » Sun May 05, 2019 11:17 am

willthrill81 wrote:
Sun May 05, 2019 11:08 am

I'm puzzled by this. Are you saying that portfolio depletion throughout the course of one's retirement is wholly unacceptable?
A model of retirement investing is money "working" as a replacement for a person working. This is not a crazy idea and actually quite conventional, especially in the old world of entailed estates, consoles, and the like. It is also sort of a fail-safe approach in that the door to "invading principal" is never opened. The appeal is self evident. Whether it is a wise way to use one's resources is a discussion. The consideration is to think about what is actually involved to extract an inflation indexed income while also maintaining the inflation indexed value of assets. But that is the old problem of estate management of perpetual estates.

The ironic alternative to that is to forego the estate entirely for an inflation indexed annuity. This once done also ensures the continued risk free value of the principal; it is exactly zero at no risk from there on.

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Re: Should we discourage the bond tent?

Post by willthrill81 » Sun May 05, 2019 11:18 am

randomguy wrote:
Sun May 05, 2019 11:06 am
FOGU wrote:
Sun May 05, 2019 10:03 am
TheTimeLord wrote:
Sun May 05, 2019 9:32 am
FOGU wrote:
Sun May 05, 2019 9:28 am
dbr wrote:
Sun May 05, 2019 9:23 am
I would think people would be overjoyed to finally be able to spend all that money they had so painfully saved over the years.
The joy of spending is tempered by the fear of running out of gas before the finish line.
Exactly, then it is easy to understand how that could be compounded by a negative sequence of returns in early retirement.
After reading through this entire thread, and having read Kitces and others on protecting against sequence of returns risk in those early retirement years, I am convinced that this is something to guard against. This can be done with a "glide path" or "bond tent" or bond tenty thingy or even regular old interest-bearing savings vehicles like CDs or money market funds.

The key that I perceive is to avoid, in those first 10 or so years of withdrawals, the need to withdraw substantially from equities in the case of substantial market declines that could prevent portfolio recovery. If that can be achieved, while maintaining desired standard of living, I don't see the method as being overly important.

Of course terms like "early," "substantial," etc., may be defined differently by each person. Beauty is in the eye of the beholder.
If you have a some what reasonable allocation (call it 60/40 or even 70/30), you will rarely ever be withdrawing from equities when they are substantially down. You will be selling bonds to pay the bills and to buy more stock. Bond tents are great at decreasing volatility. But they do pretty much nothing about sequence of returns. You will notice how none of the papers that talk about bond tents, rising glide path and so on talk about the the 5% rule instead of the 4%. Sequence of return risk is caused by lack of returns as much as volatility.
I'm not sure that they do nothing about SRR. But it's certainly true that they are based on the assumption of mean reversion of returns, an assumption that may not hold when you need it to be there (e.g. after experiencing poor portfolio returns after the first decade). After their first decade of retirement, for instance, year 2000 retirees would have been in significantly better shape had they followed a bond tent approach. Had the subsequent decade not been as good for stocks as it was, they could have been in trouble.

OTOH, if you adopt a bond tent approach and bond yields are low enough that your portfolio declines significantly with your withdrawals during that first decade, then stocks suffer as you begin shifting into them, you could be in trouble as well.

All roads carry risk.
“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

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Re: Should we discourage the bond tent?

Post by dbr » Sun May 05, 2019 11:43 am

willthrill81 wrote:
Sun May 05, 2019 11:18 am

All roads carry risk.
Yes, that is the statement that captures all of these discussions perfectly.

There is an optimistic side of the coin: "All roads lead to Dublin."

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Re: Should we discourage the bond tent?

Post by willthrill81 » Sun May 05, 2019 11:46 am

dbr wrote:
Sun May 05, 2019 11:17 am
willthrill81 wrote:
Sun May 05, 2019 11:08 am

I'm puzzled by this. Are you saying that portfolio depletion throughout the course of one's retirement is wholly unacceptable?
A model of retirement investing is money "working" as a replacement for a person working. This is not a crazy idea and actually quite conventional, especially in the old world of entailed estates, consoles, and the like. It is also sort of a fail-safe approach in that the door to "invading principal" is never opened. The appeal is self evident. Whether it is a wise way to use one's resources is a discussion. The consideration is to think about what is actually involved to extract an inflation indexed income while also maintaining the inflation indexed value of assets. But that is the old problem of estate management of perpetual estates.

The ironic alternative to that is to forego the estate entirely for an inflation indexed annuity. This once done also ensures the continued risk free value of the principal; it is exactly zero at no risk from there on.
Don't get me wrong; I fully understand the intuitive appeal of never drawing down your portfolio. As you aptly point out, I am questioning the wisdom of such a strategy. After all, individual retirees are not endowments, for instance, and we have a finite lifespan.

This strategy makes much more sense to me for a person retiring in their 30s or 40s, where the difference between a 'safe' withdrawal rate and a 'perpetual' withdrawal rate approach may be negligible. But that's not the case for someone in their 60s or 70s, and those adopting it may be working significantly longer than necessary, which isn't a sacrifice to some but definitely is for others.
“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

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Re: Should we discourage the bond tent?

Post by dbr » Sun May 05, 2019 11:49 am

willthrill81 wrote:
Sun May 05, 2019 11:46 am
dbr wrote:
Sun May 05, 2019 11:17 am
willthrill81 wrote:
Sun May 05, 2019 11:08 am

I'm puzzled by this. Are you saying that portfolio depletion throughout the course of one's retirement is wholly unacceptable?
A model of retirement investing is money "working" as a replacement for a person working. This is not a crazy idea and actually quite conventional, especially in the old world of entailed estates, consoles, and the like. It is also sort of a fail-safe approach in that the door to "invading principal" is never opened. The appeal is self evident. Whether it is a wise way to use one's resources is a discussion. The consideration is to think about what is actually involved to extract an inflation indexed income while also maintaining the inflation indexed value of assets. But that is the old problem of estate management of perpetual estates.

The ironic alternative to that is to forego the estate entirely for an inflation indexed annuity. This once done also ensures the continued risk free value of the principal; it is exactly zero at no risk from there on.
Don't get me wrong; I fully understand the intuitive appeal of never drawing down your portfolio. As you aptly point out, I am questioning the wisdom of such a strategy. After all, individual retirees are not endowments, for instance, and we have a finite lifespan.

This strategy makes much more sense to me for a person retiring in their 30s or 40s, where the difference between a 'safe' withdrawal rate and a 'perpetual' withdrawal rate approach may be negligible. But that's not the case for someone in their 60s or 70s, and those adopting it may be working significantly longer than necessary, which isn't a sacrifice to some but definitely is for others.
Oh, no I agree with you completely. The fundamental dilemma in this whole scheme, the one the academics address by preferring annuities, is that most of the outcomes leave a person with fabulous unspent wealth, having worked too long and saved too much. The (in)famous VPW attempts explicitly to correct some to this, though how successfully in practical terms is a discussion.

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TheTimeLord
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Re: Should we discourage the bond tent?

Post by TheTimeLord » Sun May 05, 2019 1:53 pm

dbr wrote:
Sun May 05, 2019 11:11 am
TheTimeLord wrote:
Sun May 05, 2019 10:14 am
dbr wrote:
Sun May 05, 2019 9:39 am
Fear can be found everywhere if people work hard enough at it.
I don't think it is fear, for most by the time they retire their portfolio is something they have worked at 3 or 4 decades, focused on building and found security in. To believe that it will be an easy psychological shift to start deconstructing these learnings immediately is optimistic from my point of view.
Don't people accumulate that money with the idea in mind that the reason for doing that is to spend it later? Otherwise why is one doing that?
That most certainly in my mind should be the approach one takes. But after years of measuring and building something you feel is significant and important I think dismantling it almost has to cause inner conflict for some period of time. Hopefully you adjust and get comfortable with the concept. This has probably not been as large an issue over this past decade thanks to our endless Bull, but I am sure lots of folks who retied between 1999-2007 have tales to tell.
IMHO, Investing should be about living the life you want, not avoiding the life you fear. | Run, You Clever Boy! [9085]

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TheTimeLord
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Re: Should we discourage the bond tent?

Post by TheTimeLord » Sun May 05, 2019 2:00 pm

dbr wrote:
Sun May 05, 2019 11:49 am
The fundamental dilemma in this whole scheme, the one the academics address by preferring annuities, is that most of the outcomes leave a person with fabulous unspent wealth, having worked too long and saved too much.
This is the irony, imo, of all the handing wringing around the "4% rule". People fret about its possible failure in the future without much thought to historically in the vast majority of time periods you ended up with significant funds left over and unspent.
IMHO, Investing should be about living the life you want, not avoiding the life you fear. | Run, You Clever Boy! [9085]

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