msterrr wrote: ↑
Tue Sep 26, 2017 6:59 am
Goal is 25,000 withdrawal yearly / 60 years
- I'm expecting to end the savings stage with ~1/2 that portfolio aiming for a 4% SWR though.
So $625,000 for two people, retiring around age 40? Are there other sources of income? Is it easy to go back to work after several years of retirement if the portfolio fails? Does the 4% withdrawal include luxuries that can be cut back, or is it a simplicity lifestyle already?
Most (or all?) SWR studies that found 4% to have worked historically were assuming a 30 year retirement. The historical SWR would be significantly lower for a longer withdrawal period, especially with a bond heavy portfolio.
4% barely succeeded (or in some studies, failed, depending on the assumptions) for retirements beginning some years in the mid to late 1960s. Today stocks are much more expensive than in the 60s, and nominal bond yields are lower.
Even without sequence of returns risk (assuming valuations just stay as they are) I don't think the proposed portfolio can support a 4% withdrawal rate for 60 years.
The potential need to extend my timeline out a few years due to fluctuations in market performance is understood and acceptable.
Maybe you could hold the 65% bond portfolio and delay retirement until stocks become cheap enough to move back to equities. You take a real risk that stocks do not become cheap again for much longer than "a few years".
I feel that there is very high risk today in holding a lot of equity. If US stocks become as cheap as they were in the early 1980s, we could see a 75% drop from today's price. Ex-US doesn't look as extremely expensive, but still pricey.
But moving away from equities can increase shortfall risk. I see this as a tradeoff. I don't know enough about your situation and personalities to judge, but it seems your tradeoff may be extreme.
aristotelian wrote: ↑
Tue Sep 26, 2017 8:11 am
It seems like you are trying to have it both ways. You are not doing a permanent allocation shift, but you aren't timing the market either.
It's market timing:
If US equities were cheaper I'd be considering the current Swensen. 30% VTSMX, 15% VDVIX, 10% VEIEX, 15% VGSIX, 15% VFITX, 15% VIPSX.
I'm one of the minority here that thinks market timing can be ok in moderation, for some people, when markets reach extremes. Provided you are humble enough to accept that you could be completely wrong, and can accept the consequences of being wrong. For me, US vs Ex-US valuations might be at enough of an extreme to make a bet against US and underweight it. I'm not convinced that global equities are so expensive that market timing equity overall is worth the risk. And of course moving from 100% to 35% equity is anything but moderate!