Keep in mind that just treating both your ESP and DSP as one portfolio with one withdrawal method suffers from the problems mentioned in the OP: either fixed or increasing withdrawals, when the data are clear that most retirees' spending declines throughout retirement.petulant wrote: ↑Tue Jul 17, 2018 8:01 pmI didn't say it should be more conservative overall. I just said there is a reason to be conservative with it that does not exist with the essential portfolio. The reason to be conservative is that if one retires in their mid-60s, they would reasonably expect a short time horizon to spend a lot of their discretionary portfolio--maybe 10 or 15 years. A shorter time horizon is a reason to stay conservative; on the other hand, the discretionary nature is a reason to stay aggressive. With the essential portfolio, there is a reason to be very conservative, but the time frame involved counsels toward being more aggressive. Overall, I would postulate that these factors are a wash, and there's no reason to create the segmented buckets in the first place. Under this postulate, retirees would be better off creating one portfolio that matches their overall risk tolerance.willthrill81 wrote: ↑Tue Jul 17, 2018 7:35 pmWhy would you want to be more conservative with your discretionary portfolio than with your essential portfolio? If you depleted most of your discretionary portfolio by the time you were in your mid-80s, that's not a real problem. But if you do that with your essential portfolio, you may be in real trouble.petulant wrote: ↑Tue Jul 17, 2018 6:39 pmWell, my point is that once you consider the time impact, the essential portfolio should be more aggressive, while the discretionary portfolio should be more conservative, assuming one is actually at withdrawal. So any exercise in making the discretionary portfolio more aggressive because it’s discretionary would be counteracted by the timing need to keep it conservative, while the long-term needs for an essential portfolio counsel in favor of stocks and counteract your desire for complete stability. Not to be offensive, but it raises the question whether this is a worthwhile exercise.
Here's an example. Say with the essential portfolio, you suggest TIPS or other conservative investments. However, for a married couple between 60 and 65 looking to retire, there is a substantial possibility at least one will make it to age 90-95. They have 30 years left on their portfolio, which actually advocates for a stock allocation, perhaps a 30/70 stock-bond or 50/50 stock-bond portfolio. Then, with their discretionary assets, they would like to be more aggressive, but they also realize they plan to spend most of the money in the next 10 or so years. This counsels in favor of a 50/50 stock-bond allocation, or maybe a 70/30 at the most aggressive, for this couple. The result is that the couple could have a 50/50 stock-bond portfolio without creating segmented buckets. Do you see what I mean?
If a retiree was fine with having no more than 10 years of discretionary spending, then a conservative allocation to something like TIPS would be fine. But for 15-20 year periods, I believe that most retirees would want some upside potential (e.g. some allocation to stocks).