In the Fidelity Retirement Score as you increase stocks the amount you can spend goes down??? I thought it would go up?

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iamblessed
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In the Fidelity Retirement Score as you increase stocks the amount you can spend goes down??? I thought it would go up?

Post by iamblessed » Mon Feb 11, 2019 8:38 pm

Fidelity Retirement Score you thoughts on it. The numbers I ran showed the best amount to spend a month at 0 stocks 0 bonds.

dbr
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Re: In the Fidelity Retirement Score as you increase stocks the amount you can spend goes down??? I thought it would go

Post by dbr » Mon Feb 11, 2019 8:48 pm

I'm not sure exactly what you are looking at, but in some models for withdrawal in retirement it is true that the maximum safe withdrawal rate or the lowest failure rate at a certain rate of withdrawal is around 50%-70% stocks and goes down a bit at 100% stocks. However the difference is small and may not even exceed the margin of error on those numbers. Is this what you are seeing?

For the benefit of readers you might explain what the Fidelity Retirement Score is.


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nisiprius
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Re: In the Fidelity Retirement Score as you increase stocks the amount you can spend goes down??? I thought it would go

Post by nisiprius » Mon Feb 11, 2019 9:13 pm

Why did you think it would go up?

In every retirement withdrawal simulator I've ever played with, the general form of the results has been similar: scoring by safety,

1) The results are fairly flat in the area between 25% stocks and 75% stocks, then drop at both extremes.

2) With conservative assumptions (low rate of withdrawals, failure rates well below 5%), the results are almost perfectly flat from 25% stocks to 75% stocks, i.e. more stocks are no safer for you, although they give you a much higher average "terminal wealth" to pass on to your heirs.

3) With aggressive assumptions (high rate of withdrawals, failure rates above 10%), there is an upward slope, i.e. more stocks are safer than less, up to somewhere in the 75%-80% vicinity;

4) The "safest" results in the aggressive scenario are much less safe than any of the results in the conservative scenario.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

tarmangani
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Re: In the Fidelity Retirement Score as you increase stocks the amount you can spend goes down??? I thought it would go

Post by tarmangani » Mon Feb 11, 2019 9:15 pm

I'm going to guess that it's factoring in the possibility of a major market meltdown. Suppose you have $10 million at 65 in all cash. Provided you don't have a ridiculous cost of living, you will 100% succeed in retirement. The money won't go anywhere. If you're in the stock market, there's some slight chance that it will all evaporate.

The larger issue is whether you should even use this tool at all. I wouldn't bother with it, because it estimates, and does not know, your cost of living. Cost of living is a critical retirement planning variable.

dbr
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Re: In the Fidelity Retirement Score as you increase stocks the amount you can spend goes down??? I thought it would go

Post by dbr » Tue Feb 12, 2019 9:20 am

The general mechanics of too much in stock being less safe in retirement is that risky portfolios trade off failure due to bad sequences of returns against having higher average return. There is also the factor mentioned that a large risk could turn up in spades in a risky portfolio. These risks are offset by the overall higher return resulting in little dependence on stock allocation at all except at the extreme where the extra risk drives things down a little. At the low end probability of failure rises rapidly with less and less in stocks because the return is not enough even if the volatility is minimal.

At a low enough withdrawal rate it does not matter.

What is different in the results with high stock allocations is greater and greater chances of leaving a lot of money to one's heirs. That could be an objective one desires.

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