Should we discourage the bond tent?

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randomguy
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Re: Should we discourage the bond tent?

Post by randomguy » Sun May 05, 2019 2:05 pm

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

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.
the 2000 retiree would have been 10-15% better with a 7-15 year bond tent. That is almost best case for the strategy (i.e. bonds do abnormally well and stocks do poorly. Think 1929 is better but haven't run the numbers). But it is also money you don't need as the 2000 retiree is likely to make it. On the other hand look at the 1966 retiree when bonds didn't outperform stocks for the first 15 years. The bond tent doesn't help.

Now the question is how often does the bond tent hurt. If we looked at the say the 1965 retiree with a 7 year bond tend end up with a lower SWR than the 1965 retiree that just held 50/50? I haven't done the math but I expect there are few cases where it actively hurts.

MnD
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Re: Should we discourage the bond tent?

Post by MnD » Sun May 05, 2019 2:43 pm

Things like ultra-low fixed SWR's and bond tents are surefire ways to reduce retirement income and and portfolio returns in all or most sequences in the hope that if a terrible sequence does come to pass at just the wrong time, they will provide some additional safety and relief. I prefer to use a variable (fixed % of current portfolio balance) withdrawal strategy instead, so I only have to drink the bad tasting medicine if and only if a rotten sequence actually emerges.

I guess if you retire on the bleeding edge of being able to cover your true needs with portfolio income, an ultra-low SWR and/or bond tent might be advisable....... But this forum isn't exactly filled with that crowd. :confused

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TheTimeLord
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Re: Should we discourage the bond tent?

Post by TheTimeLord » Sun May 05, 2019 2:52 pm

MnD wrote:
Sun May 05, 2019 2:43 pm
Things like ultra-low fixed SWR's and bond tents are surefire ways to reduce retirement income and and portfolio returns in all or most sequences in the hope that if a terrible sequence does come to pass at just the wrong time, they will provide some additional safety and relief. I prefer to use a variable (fixed % of current portfolio balance) withdrawal strategy instead, so I only have to drink the bad tasting medicine if and only if a rotten sequence actually emerges.

I guess if you retire on the bleeding edge of being able to cover your true needs with portfolio income, an ultra-low SWR and/or bond tent might be advisable....... But this forum isn't exactly filled with that crowd. :confused
You have that backwards in my mind, people who retire on the edge are the ones that have to take risk and can't afford to be conservative. How would someone with an ultra low SWR not have way more than they likely need?
IMHO, Investing should be about living the life you want, not avoiding the life you fear. | Run, You Clever Boy! [9085]

FOGU
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Re: Should we discourage the bond tent?

Post by FOGU » Sun May 05, 2019 2:53 pm

MnD wrote:
Sun May 05, 2019 2:43 pm
Things like ultra-low fixed SWR's and bond tents are surefire ways to reduce retirement income and and portfolio returns in all or most sequences in the hope that if a terrible sequence does come to pass at just the wrong time, they will provide some additional safety and relief. I prefer to use a variable (fixed % of current portfolio balance) withdrawal strategy instead, so I only have to drink the bad tasting medicine if and only if a rotten sequence actually emerges.

I guess if you retire on the bleeding edge of being able to cover your true needs with portfolio income, an ultra-low SWR and/or bond tent might be advisable....... But this forum isn't exactly filled with that crowd. :confused
But how do you know when to take the medicine, and how do you determine and administer the dosage?
~ Don't just do something. Sit there. ~

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willthrill81
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Re: Should we discourage the bond tent?

Post by willthrill81 » Sun May 05, 2019 3:32 pm

FOGU wrote:
Sun May 05, 2019 2:53 pm
MnD wrote:
Sun May 05, 2019 2:43 pm
Things like ultra-low fixed SWR's and bond tents are surefire ways to reduce retirement income and and portfolio returns in all or most sequences in the hope that if a terrible sequence does come to pass at just the wrong time, they will provide some additional safety and relief. I prefer to use a variable (fixed % of current portfolio balance) withdrawal strategy instead, so I only have to drink the bad tasting medicine if and only if a rotten sequence actually emerges.

I guess if you retire on the bleeding edge of being able to cover your true needs with portfolio income, an ultra-low SWR and/or bond tent might be advisable....... But this forum isn't exactly filled with that crowd. :confused
But how do you know when to take the medicine, and how do you determine and administer the dosage?
That's the $64,000 question. There are myriad ways to do it, but the one that I personally favor the most is the time value of money formula. Using it, you can adjust your withdrawals as often as you like based on your portfolio's current value, the time frame you wish to spread withdrawals over, and simple return assumptions. In this thread, I showed an example of how year 2000 retirees could have used it. It's extremely flexible, and with the use of spreadsheets, you can also incorporate non-portfolio income sources and timelines (e.g. SS benefits, pension, real estate income).
“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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willthrill81
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Re: Should we discourage the bond tent?

Post by willthrill81 » Sun May 05, 2019 3:39 pm

randomguy wrote:
Sun May 05, 2019 2:05 pm
willthrill81 wrote:
Sun May 05, 2019 11:18 am

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.
the 2000 retiree would have been 10-15% better with a 7-15 year bond tent. That is almost best case for the strategy (i.e. bonds do abnormally well and stocks do poorly. Think 1929 is better but haven't run the numbers). But it is also money you don't need as the 2000 retiree is likely to make it. On the other hand look at the 1966 retiree when bonds didn't outperform stocks for the first 15 years. The bond tent doesn't help.

Now the question is how often does the bond tent hurt. If we looked at the say the 1965 retiree with a 7 year bond tend end up with a lower SWR than the 1965 retiree that just held 50/50? I haven't done the math but I expect there are few cases where it actively hurts.
I'm inclined to agree that it's unlikely to help but also unlikely to hurt.

To be honest, it seems to me that about any reasonably balanced fixed AA is likely to do about as well for retirees from a 'success rate' standpoint as a bond tent' strategy. When you look at Kitces' original post on the bond tent, its benefit in the MC simulations over a fixed AA was limited to a few percent.

Finding a strategy that you believe in enough to stick with in retirement is probably more important than which strategy you adopt, much like the rest of one's investment tenure. For that reason and others, the 'fly by the seat of your pants' method advocated by some is robustly unappealing to me. Imagine the reaction here if someone said that about their investment strategy during accumulation.
“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

MnD
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Re: Should we discourage the bond tent?

Post by MnD » Sun May 05, 2019 4:07 pm

TheTimeLord wrote:
Sun May 05, 2019 2:52 pm
MnD wrote:
Sun May 05, 2019 2:43 pm
Things like ultra-low fixed SWR's and bond tents are surefire ways to reduce retirement income and and portfolio returns in all or most sequences in the hope that if a terrible sequence does come to pass at just the wrong time, they will provide some additional safety and relief. I prefer to use a variable (fixed % of current portfolio balance) withdrawal strategy instead, so I only have to drink the bad tasting medicine if and only if a rotten sequence actually emerges.

I guess if you retire on the bleeding edge of being able to cover your true needs with portfolio income, an ultra-low SWR and/or bond tent might be advisable....... But this forum isn't exactly filled with that crowd. :confused
You have that backwards in my mind, people who retire on the edge are the ones that have to take risk and can't afford to be conservative. How would someone with an ultra low SWR not have way more than they likely need?
Not at all. if you retire on the bleeding edge of having enough for needs where the consequences of having to cut back would be catastrophic, things like ultra-low ultra-safe SWR's and bond tents are made to order regardless of what sequence of returns actually comes to pass. The price of getting it wrong might be not being able to afford a pricy medication that's keeping you alive, not being able to pay the rent or keep the lights and heat on.

In contrast, someone whose portfolio is bankrolling mostly or exclusively wants in a terrible sequence of returns might have to dial back on the the number of international trips, a bit less fine dining out or even worse, maybe opt for Costco Kirkland Signature wine once in a while :shock: .

A quasi-guarantee of unreduced income in retirement from an investment portfolio of stocks and bonds comes at a very high price in terms of reduced utility from that portfolio in terms of income. A bond tent is yet just another way to reduce portfolio return and hence income over the retirement span - whether you needed to or not.

sailaway
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Re: Should we discourage the bond tent?

Post by sailaway » Sun May 05, 2019 4:26 pm

MnD wrote:
Sun May 05, 2019 4:07 pm
TheTimeLord wrote:
Sun May 05, 2019 2:52 pm
MnD wrote:
Sun May 05, 2019 2:43 pm
Things like ultra-low fixed SWR's and bond tents are surefire ways to reduce retirement income and and portfolio returns in all or most sequences in the hope that if a terrible sequence does come to pass at just the wrong time, they will provide some additional safety and relief. I prefer to use a variable (fixed % of current portfolio balance) withdrawal strategy instead, so I only have to drink the bad tasting medicine if and only if a rotten sequence actually emerges.

I guess if you retire on the bleeding edge of being able to cover your true needs with portfolio income, an ultra-low SWR and/or bond tent might be advisable....... But this forum isn't exactly filled with that crowd. :confused
You have that backwards in my mind, people who retire on the edge are the ones that have to take risk and can't afford to be conservative. How would someone with an ultra low SWR not have way more than they likely need?
Not at all. if you retire on the bleeding edge of having enough for needs where the consequences of having to cut back would be catastrophic, things like ultra-low ultra-safe SWR's and bond tents are made to order regardless of what sequence of returns actually comes to pass. The price of getting it wrong might be not being able to afford a pricy medication that's keeping you alive, not being able to pay the rent or keep the lights and heat on.

In contrast, someone whose portfolio is bankrolling mostly or exclusively wants in a terrible sequence of returns might have to dial back on the the number of international trips, a bit less fine dining out or even worse, maybe opt for Costco Kirkland Signature wine once in a while :shock: .

A quasi-guarantee of unreduced income in retirement from an investment portfolio of stocks and bonds comes at a very high price in terms of reduced utility from that portfolio in terms of income. A bond tent is yet just another way to reduce portfolio return and hence income over the retirement span - whether you needed to or not.
If someone has an ultra low SWR they are, by definition, not on the bleeding edge.

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TheTimeLord
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Re: Should we discourage the bond tent?

Post by TheTimeLord » Sun May 05, 2019 5:03 pm

sailaway wrote:
Sun May 05, 2019 4:26 pm
MnD wrote:
Sun May 05, 2019 4:07 pm
TheTimeLord wrote:
Sun May 05, 2019 2:52 pm
MnD wrote:
Sun May 05, 2019 2:43 pm
Things like ultra-low fixed SWR's and bond tents are surefire ways to reduce retirement income and and portfolio returns in all or most sequences in the hope that if a terrible sequence does come to pass at just the wrong time, they will provide some additional safety and relief. I prefer to use a variable (fixed % of current portfolio balance) withdrawal strategy instead, so I only have to drink the bad tasting medicine if and only if a rotten sequence actually emerges.

I guess if you retire on the bleeding edge of being able to cover your true needs with portfolio income, an ultra-low SWR and/or bond tent might be advisable....... But this forum isn't exactly filled with that crowd. :confused
You have that backwards in my mind, people who retire on the edge are the ones that have to take risk and can't afford to be conservative. How would someone with an ultra low SWR not have way more than they likely need?
Not at all. if you retire on the bleeding edge of having enough for needs where the consequences of having to cut back would be catastrophic, things like ultra-low ultra-safe SWR's and bond tents are made to order regardless of what sequence of returns actually comes to pass. The price of getting it wrong might be not being able to afford a pricy medication that's keeping you alive, not being able to pay the rent or keep the lights and heat on.

In contrast, someone whose portfolio is bankrolling mostly or exclusively wants in a terrible sequence of returns might have to dial back on the the number of international trips, a bit less fine dining out or even worse, maybe opt for Costco Kirkland Signature wine once in a while :shock: .

A quasi-guarantee of unreduced income in retirement from an investment portfolio of stocks and bonds comes at a very high price in terms of reduced utility from that portfolio in terms of income. A bond tent is yet just another way to reduce portfolio return and hence income over the retirement span - whether you needed to or not.
If someone has an ultra low SWR they are, by definition, not on the bleeding edge.
+1, hard to see how someone using a 2% SWR, in other words their savings is 50 times expenses, is on the bleeding edge.
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 5:13 pm

MnD wrote:
Sun May 05, 2019 4:07 pm
TheTimeLord wrote:
Sun May 05, 2019 2:52 pm
MnD wrote:
Sun May 05, 2019 2:43 pm
Things like ultra-low fixed SWR's and bond tents are surefire ways to reduce retirement income and and portfolio returns in all or most sequences in the hope that if a terrible sequence does come to pass at just the wrong time, they will provide some additional safety and relief. I prefer to use a variable (fixed % of current portfolio balance) withdrawal strategy instead, so I only have to drink the bad tasting medicine if and only if a rotten sequence actually emerges.

I guess if you retire on the bleeding edge of being able to cover your true needs with portfolio income, an ultra-low SWR and/or bond tent might be advisable....... But this forum isn't exactly filled with that crowd. :confused
You have that backwards in my mind, people who retire on the edge are the ones that have to take risk and can't afford to be conservative. How would someone with an ultra low SWR not have way more than they likely need?
Not at all. if you retire on the bleeding edge of having enough for needs where the consequences of having to cut back would be catastrophic, things like ultra-low ultra-safe SWR's and bond tents are made to order regardless of what sequence of returns actually comes to pass. The price of getting it wrong might be not being able to afford a pricy medication that's keeping you alive, not being able to pay the rent or keep the lights and heat on.

In contrast, someone whose portfolio is bankrolling mostly or exclusively wants in a terrible sequence of returns might have to dial back on the the number of international trips, a bit less fine dining out or even worse, maybe opt for Costco Kirkland Signature wine once in a while :shock: .

A quasi-guarantee of unreduced income in retirement from an investment portfolio of stocks and bonds comes at a very high price in terms of reduced utility from that portfolio in terms of income. A bond tent is yet just another way to reduce portfolio return and hence income over the retirement span - whether you needed to or not.
Well I am using a version of a bond tent and I don't fit your profile nor am using it for the reasons you are supposing. Instead since I have "Won The Game" I am doing it to avoid the section of your response I highlighted early in my retirement when I hope to be healthy, active and going full steam. And with a rising glide path once you get through the early years I am not convinced that it will necessarily reduce the return of my portfolio over its life. But even if it does its okay because circling back to the crucial point I can undertake this strategy because I have "Won The Game".
IMHO, Investing should be about living the life you want, not avoiding the life you fear. | Run, You Clever Boy! [9085]

FOGU
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Re: Should we discourage the bond tent?

Post by FOGU » Sun May 05, 2019 6:14 pm

willthrill81 wrote:
Sun May 05, 2019 3:32 pm
FOGU wrote:
Sun May 05, 2019 2:53 pm
MnD wrote:
Sun May 05, 2019 2:43 pm
Things like ultra-low fixed SWR's and bond tents are surefire ways to reduce retirement income and and portfolio returns in all or most sequences in the hope that if a terrible sequence does come to pass at just the wrong time, they will provide some additional safety and relief. I prefer to use a variable (fixed % of current portfolio balance) withdrawal strategy instead, so I only have to drink the bad tasting medicine if and only if a rotten sequence actually emerges.

I guess if you retire on the bleeding edge of being able to cover your true needs with portfolio income, an ultra-low SWR and/or bond tent might be advisable....... But this forum isn't exactly filled with that crowd. :confused
But how do you know when to take the medicine, and how do you determine and administer the dosage?
That's the $64,000 question. There are myriad ways to do it, but the one that I personally favor the most is the time value of money formula. Using it, you can adjust your withdrawals as often as you like based on your portfolio's current value, the time frame you wish to spread withdrawals over, and simple return assumptions. In this thread, I showed an example of how year 2000 retirees could have used it. It's extremely flexible, and with the use of spreadsheets, you can also incorporate non-portfolio income sources and timelines (e.g. SS benefits, pension, real estate income).
I'm going through that thread. Very thoughtful discussion. Thank you.
~ Don't just do something. Sit there. ~

MnD
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Re: Should we discourage the bond tent?

Post by MnD » Mon May 06, 2019 8:09 am

sailaway wrote:
Sun May 05, 2019 4:26 pm
MnD wrote:
Sun May 05, 2019 4:07 pm
TheTimeLord wrote:
Sun May 05, 2019 2:52 pm
MnD wrote:
Sun May 05, 2019 2:43 pm
Things like ultra-low fixed SWR's and bond tents are surefire ways to reduce retirement income and and portfolio returns in all or most sequences in the hope that if a terrible sequence does come to pass at just the wrong time, they will provide some additional safety and relief. I prefer to use a variable (fixed % of current portfolio balance) withdrawal strategy instead, so I only have to drink the bad tasting medicine if and only if a rotten sequence actually emerges.

I guess if you retire on the bleeding edge of being able to cover your true needs with portfolio income, an ultra-low SWR and/or bond tent might be advisable....... But this forum isn't exactly filled with that crowd. :confused
You have that backwards in my mind, people who retire on the edge are the ones that have to take risk and can't afford to be conservative. How would someone with an ultra low SWR not have way more than they likely need?
Not at all. if you retire on the bleeding edge of having enough for needs where the consequences of having to cut back would be catastrophic, things like ultra-low ultra-safe SWR's and bond tents are made to order regardless of what sequence of returns actually comes to pass. The price of getting it wrong might be not being able to afford a pricy medication that's keeping you alive, not being able to pay the rent or keep the lights and heat on.

In contrast, someone whose portfolio is bankrolling mostly or exclusively wants in a terrible sequence of returns might have to dial back on the the number of international trips, a bit less fine dining out or even worse, maybe opt for Costco Kirkland Signature wine once in a while :shock: .

A quasi-guarantee of unreduced income in retirement from an investment portfolio of stocks and bonds comes at a very high price in terms of reduced utility from that portfolio in terms of income. A bond tent is yet just another way to reduce portfolio return and hence income over the retirement span - whether you needed to or not.
If someone has an ultra low SWR they are, by definition, not on the bleeding edge.
The greater the real-world adverse consequences are of running out of portfolio or having to reduce portfolio income in bad sequences, the more conservative a withdrawal strategy one should adopt that may include things like lower SWR's, bond tents, annuities, conservative AA ect.

Others might also adopt these strategies for a host of other reasons but it isn't really warranted - whatever they do will be fine. Many people here are very fixated in growing/preserving their giant cash mountains by various convoluted approaches and a fair amount admit they have little or no use for it in retirement. Investing advice for that situation is pretty pointless. Go 100% TIPS ladder or 100% equity. Or anything in between.

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TheTimeLord
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Re: Should we discourage the bond tent?

Post by TheTimeLord » Mon May 06, 2019 8:34 am

MnD wrote:
Mon May 06, 2019 8:09 am
sailaway wrote:
Sun May 05, 2019 4:26 pm
MnD wrote:
Sun May 05, 2019 4:07 pm
TheTimeLord wrote:
Sun May 05, 2019 2:52 pm
MnD wrote:
Sun May 05, 2019 2:43 pm
Things like ultra-low fixed SWR's and bond tents are surefire ways to reduce retirement income and and portfolio returns in all or most sequences in the hope that if a terrible sequence does come to pass at just the wrong time, they will provide some additional safety and relief. I prefer to use a variable (fixed % of current portfolio balance) withdrawal strategy instead, so I only have to drink the bad tasting medicine if and only if a rotten sequence actually emerges.

I guess if you retire on the bleeding edge of being able to cover your true needs with portfolio income, an ultra-low SWR and/or bond tent might be advisable....... But this forum isn't exactly filled with that crowd. :confused
You have that backwards in my mind, people who retire on the edge are the ones that have to take risk and can't afford to be conservative. How would someone with an ultra low SWR not have way more than they likely need?
Not at all. if you retire on the bleeding edge of having enough for needs where the consequences of having to cut back would be catastrophic, things like ultra-low ultra-safe SWR's and bond tents are made to order regardless of what sequence of returns actually comes to pass. The price of getting it wrong might be not being able to afford a pricy medication that's keeping you alive, not being able to pay the rent or keep the lights and heat on.

In contrast, someone whose portfolio is bankrolling mostly or exclusively wants in a terrible sequence of returns might have to dial back on the the number of international trips, a bit less fine dining out or even worse, maybe opt for Costco Kirkland Signature wine once in a while :shock: .

A quasi-guarantee of unreduced income in retirement from an investment portfolio of stocks and bonds comes at a very high price in terms of reduced utility from that portfolio in terms of income. A bond tent is yet just another way to reduce portfolio return and hence income over the retirement span - whether you needed to or not.
If someone has an ultra low SWR they are, by definition, not on the bleeding edge.
The greater the real-world adverse consequences are of running out of portfolio or having to reduce portfolio income in bad sequences, the more conservative a withdrawal strategy one should adopt including things like lower SWR's, bond tents, annuities, conservative AA ect.

Others might also adopt these strategies for a host of other reasons but it isn't really warranted - whatever they do will be fine. Many people here are very fixated in growing/preserving their giant cash mountains by various convoluted approaches and a fair amount admit they have little or no use for it in retirement.
Rather than constantly talk past each other I will just say you and I see things very differently. I see people on the bleeding edge needing to take the most risk, you see them as the least able to take risk, both are true. The difference is I see them having no choice since if they retired on the bleeding edge it means they need every dollar they can generate because they are on the edge so conservative strategies are not an option. Where you see them using strategies I feel are more appropriate for well funded risk management types. I use a Bond Tent like strategy because I value the first 10 years of my retirement over the rest of my retirement and I do not want a negative sequence of returns to even psychologically effecting my spending during these years because I believe in some cases delaying some of the things I want to do would mean never doing them. So for me it is as simple as that, I want to make sure I feel free to spend in early retirement with no dialing back. While a little dialing back is not something you see as significant, to me and my plan I feel it is. Just that simple I want to maximize my younger, hopefully healthier and more active years.
IMHO, Investing should be about living the life you want, not avoiding the life you fear. | Run, You Clever Boy! [9085]

MnD
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Re: Should we discourage the bond tent?

Post by MnD » Mon May 06, 2019 8:52 am

TheTimeLord wrote:
Mon May 06, 2019 8:34 am
MnD wrote:
Mon May 06, 2019 8:09 am
sailaway wrote:
Sun May 05, 2019 4:26 pm
MnD wrote:
Sun May 05, 2019 4:07 pm
TheTimeLord wrote:
Sun May 05, 2019 2:52 pm


You have that backwards in my mind, people who retire on the edge are the ones that have to take risk and can't afford to be conservative. How would someone with an ultra low SWR not have way more than they likely need?
Not at all. if you retire on the bleeding edge of having enough for needs where the consequences of having to cut back would be catastrophic, things like ultra-low ultra-safe SWR's and bond tents are made to order regardless of what sequence of returns actually comes to pass. The price of getting it wrong might be not being able to afford a pricy medication that's keeping you alive, not being able to pay the rent or keep the lights and heat on.

In contrast, someone whose portfolio is bankrolling mostly or exclusively wants in a terrible sequence of returns might have to dial back on the the number of international trips, a bit less fine dining out or even worse, maybe opt for Costco Kirkland Signature wine once in a while :shock: .

A quasi-guarantee of unreduced income in retirement from an investment portfolio of stocks and bonds comes at a very high price in terms of reduced utility from that portfolio in terms of income. A bond tent is yet just another way to reduce portfolio return and hence income over the retirement span - whether you needed to or not.
If someone has an ultra low SWR they are, by definition, not on the bleeding edge.
The greater the real-world adverse consequences are of running out of portfolio or having to reduce portfolio income in bad sequences, the more conservative a withdrawal strategy one should adopt including things like lower SWR's, bond tents, annuities, conservative AA ect.

Others might also adopt these strategies for a host of other reasons but it isn't really warranted - whatever they do will be fine. Many people here are very fixated in growing/preserving their giant cash mountains by various convoluted approaches and a fair amount admit they have little or no use for it in retirement.
Rather than constantly talk past each other I will just say you and I see things very differently. I see people on the bleeding edge needing to take the most risk, you see them as the least able to take risk, both are true. The difference is I see them having no choice since if they retired on the bleeding edge it means they need every dollar they can generate because they are on the edge so conservative strategies are not an option. Where you see them using strategies I feel are more appropriate for well funded risk management types. I use a Bond Tent like strategy because I value the first 10 years of my retirement over the rest of my retirement and I do not want a negative sequence of returns to even psychologically effecting my spending during these years because I believe in some cases delaying some of the things I want to do would mean never doing them. So for me it is as simple as that, I want to make sure I feel free to spend in early retirement with no dialing back. While a little dialing back is not something you see as significant, to me and my plan I feel it is. Just that simple I want to maximize my younger, hopefully healthier and more active years.
Adopting very conservative withdrawal strategies when you have lots mean you have already dialed backed in those precious early retirement years whether you actually will need to or not. And in all likelihood you will end up with multiples of your starting portfolio at an age when one will have little utility for it. Conservative withdrawal strategies are terrible at converting wealth to income and great for heirs and AUM fund managers and advisors. But if dialing back means getting your house foreclosed on one needs to take that into consideration.

dbr
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Re: Should we discourage the bond tent?

Post by dbr » Mon May 06, 2019 9:10 am

I don't get a lot of this conversation. If the question is minimizing risk to retirement success, that is not the same thing as minimizing the volatility of the investment portfolio. We already know the most risky portfolio regarding possibility of outliving one's money is to put everything in bonds. The least risky portfolio, financially speaking, is to convert everything to an inflation indexed annuity.

What the bond tent is all about is trying to minimize retirement failure but whether or not that is actually accomplished by reducing volatility during one period of retirement or another is a highly technical question that does not have an obvious answer either way. The dilemma is that the trade off between the damage done by getting a bad sequence of returns and the damage done by investing at too low a return relative to intended spending is not an obvious trade-off.

The whole term bond tent originates in Pfau's attempt to analyze this problem and the result can be discussed on the merits. I am pretty confident that the general effect of messing with changing the asset allocation over time is a minor modification of the odds at best. In short it is a generally irrelevant discussion.

The far and away dominant effect on retirement success is what span of years a person selects for being alive, and if that is not one of the better ones a person will have to adjust as time goes on.

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TheTimeLord
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Re: Should we discourage the bond tent?

Post by TheTimeLord » Mon May 06, 2019 9:13 am

dbr wrote:
Mon May 06, 2019 9:10 am
The far and away dominant effect on retirement success is what span of years a person selects for being alive
+1
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abc132
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Re: Should we discourage the bond tent?

Post by abc132 » Mon May 06, 2019 11:07 am

Since we only get one chance at retirement, none of us know what the best strategy will be for our one chance at life. This includes using a bond tent. The low number of times the game is played (one), will make the choice between "better" and "worse" strategies much less meaningful.

Looking at 70/30 vs 30/70 historically and concluding there is no difference ignores the average portfolio size, and also ignores the fact that one of them will likely be much better than the other for our one chance at retirement. We don't know in advance which one will be better, but we can look at the various outcomes to make an informed decision. The answer for "best" AA may be different based on our preferences.

Be careful of retirement tools that use random return each year. Historically one out of 3 years has negative returns, but the chance of multiple negative returns in a row is much bigger in the simulator than what has happened historically. These simulators become mostly junk by the high 90% outcomes. A better simulator will grab a random year's return and have a high chance (~85%) of also grabbing the next years return, in this case forming a four year sequence of returns on average. Even the best simulators rely on either historical returns or assumptions that limit the precision of their results. Use them as a guide, but make an informed decision based on your preferences.

Planning for an early retirement, I like the idea of building and owning a ladder of individual treasuries (possibly CD's) that meet some of my income needs before social security. The reason is obvious, the ability to obtain income prior to social security, and without having to withdraw stocks at market lows. I don't want a bond fund for this portion of my portfolio, as I view individual treasuries as more appropriate for this purpose. Something on the order of 5 years of treasuries, which will work within any AA with at least 20% bonds, and the remainder of bonds going into bond funds.

Coming up with a predetermined path seems inappropriate. If stocks are doing well I would be more likely to take some stock gains in a tax-managed way, and reinvest the safer assets to maintain the same length of easy access to these safe assets. If stocks are doing poorly, I would be more likely to use up the ladder of treasuries. I see no reason to build up such a high level of safe assets that I need to use up safe assets when the market is doing well. That doesn't mean that doing so is wrong, just not my choice.

While I plan for the early portion of retirement, I see little value in pre-planning for late retirement. The outcomes are simply too varied to make useful planning decisions, and my portfolio size and health at the time will determine what action to best take.

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Re: Should we discourage the bond tent?

Post by BigJohn » Mon May 06, 2019 5:54 pm

abc132 wrote:
Mon May 06, 2019 11:07 am
I don't want a bond fund for this portion of my portfolio, as I view individual treasuries as more appropriate for this purpose. Something on the order of 5 years of treasuries, which will work within any AA with at least 20% bonds, and the remainder of bonds going into a bond funds.
I agree with your perspective on only getting one shot at this and thus the need for caution, especially early in retirement before SS kicks in. The fact that being cautious isn’t necessary in most circumstances won’t be much comfort if that circumstance turns up in your retirement.

One question, why do you view individual treasuries as more appropriate than a fund that is 100% treasuries? Both seem adequately “safe” to me and I value the simplicity of a fund for several reasons.

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Re: Should we discourage the bond tent?

Post by dknightd » Mon May 06, 2019 6:43 pm

abc132 wrote:
Mon May 06, 2019 11:07 am

While I plan for the early portion of retirement, I see little value in pre-planning for late retirement. The outcomes are simply too varied to make useful planning decisions, and my portfolio size and health at the time will determine what action to best take.
It is hard to plan for the early portion of retirement. I guess my plan is to spend as much as I feel safe doing. I will revisit that every year. I do plan to have enough to be comfortable. I suspect we'll have enough to be a little more than just comfortable. I do see value in planning for late retirement. My plan is to have SS and annuity income (essentially a purchased pension) cover what we need for a comfortable enough life, for me and or my wife, more or less forever.

Everybody has a different life. And we do not know what that life might bring. OP does not like a bond tent. Fine. It is his and or her money. Everybody has different goals while working and while retired. My wife and I agreed a long time ago we want to be comfortable. We have never looked for the optimal outcome, we just want to be comfortable.

YMMV

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Re: Should we discourage the bond tent?

Post by randomguy » Mon May 06, 2019 7:21 pm

willthrill81 wrote:
Sun May 05, 2019 3:39 pm
randomguy wrote:
Sun May 05, 2019 2:05 pm
willthrill81 wrote:
Sun May 05, 2019 11:18 am

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.
the 2000 retiree would have been 10-15% better with a 7-15 year bond tent. That is almost best case for the strategy (i.e. bonds do abnormally well and stocks do poorly. Think 1929 is better but haven't run the numbers). But it is also money you don't need as the 2000 retiree is likely to make it. On the other hand look at the 1966 retiree when bonds didn't outperform stocks for the first 15 years. The bond tent doesn't help.

Now the question is how often does the bond tent hurt. If we looked at the say the 1965 retiree with a 7 year bond tend end up with a lower SWR than the 1965 retiree that just held 50/50? I haven't done the math but I expect there are few cases where it actively hurts.
I'm inclined to agree that it's unlikely to help but also unlikely to hurt.

To be honest, it seems to me that about any reasonably balanced fixed AA is likely to do about as well for retirees from a 'success rate' standpoint as a bond tent' strategy. When you look at Kitces' original post on the bond tent, its benefit in the MC simulations over a fixed AA was limited to a few percent.

Finding a strategy that you believe in enough to stick with in retirement is probably more important than which strategy you adopt, much like the rest of one's investment tenure. For that reason and others, the 'fly by the seat of your pants' method advocated by some is robustly unappealing to me. Imagine the reaction here if someone said that about their investment strategy during accumulation.
My impression is that bond tents, rising equity, buckets and just about everything else does nothing to help with sequence of risk. What they can do is cut down volatility at the expense of lower average portfolio values. That might be a good trade off to make.

It is unfortunate that their is no good way to avoid sequence of return risks. If there was we would be talking about 5 or 6% SWR with worst case returns.

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Re: Should we discourage the bond tent?

Post by dknightd » Mon May 06, 2019 7:40 pm

randomguy wrote:
Mon May 06, 2019 7:21 pm

My impression is that bond tents, rising equity, buckets and just about everything else does nothing to help with sequence of risk. What they can do is cut down volatility at the expense of lower average portfolio values. That might be a good trade off to make.

It is unfortunate that their is no good way to avoid sequence of return risks. If there was we would be talking about 5 or 6% SWR with worst case returns.
I agree, they do nothing for increasing returns. What they might do is provide a plan that a retiree is more comfortable sticking with. Sometimes sticking with a plan is more important than the actual plan ;)

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Re: Should we discourage the bond tent?

Post by abc132 » Tue May 07, 2019 1:29 pm

BigJohn wrote:
Mon May 06, 2019 5:54 pm
abc132 wrote:
Mon May 06, 2019 11:07 am
I don't want a bond fund for this portion of my portfolio, as I view individual treasuries as more appropriate for this purpose. Something on the order of 5 years of treasuries, which will work within any AA with at least 20% bonds, and the remainder of bonds going into a bond funds.
I agree with your perspective on only getting one shot at this and thus the need for caution, especially early in retirement before SS kicks in. The fact that being cautious isn’t necessary in most circumstances won’t be much comfort if that circumstance turns up in your retirement.

One question, why do you view individual treasuries as more appropriate than a fund that is 100% treasuries? Both seem adequately “safe” to me and I value the simplicity of a fund for several reasons.
With a ladder of treasuries that are held to maturity, tax consequences are known in advance for each year, and the money will just be there if I need it. I also have the option to opt for 5 year CD's if/when CD net earnings are better. Bond fund fees really bother me when the rates are historically low, and the effort of purchasing one treasury per year is trivial for me.

Most funds drag their target because of cash positions, turnover rate, fees, etc. They can get creative with one day loans to businesses and other financial wizardry, but I would expect most funds to do worse than their target if they truly represent their target.

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Re: Should we discourage the bond tent?

Post by Bongleur » Mon May 13, 2019 5:40 am

abc132 wrote:
Mon May 06, 2019 11:07 am
Since we only get one chance at retirement, none of us know what the best strategy will be for our one chance at life.

While I plan for the early portion of retirement, I see little value in pre-planning for late retirement. The outcomes are simply too varied to make useful planning decisions, and my portfolio size and health at the time will determine what action to best take.
What if you get dementia and cannot determine what action to take? Note that this situation creeps up; you won't ask for help in time to mitigate financial problems.
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Re: Should we discourage the bond tent?

Post by Bongleur » Mon May 13, 2019 5:59 am

The OP references a 2016 article, but that one referred back to a 2013 article which has more quantification, Monte Carlo showing the odds of lasting 30 years and also how many years it would last with a really bad sequence:

https://www.kitces.com/blog/should-equi ... ly-better/

What strikes me is the difference between the historical returns and reduced expectations (using 5/2012 numbers) for a bad sequence:
>
probability of success using historical returns (average annual compound real growth rate of 6.5% for stocks and 2.4% for bonds)
...
the chart below shows the glidepath results with the return assumptions that Harold Evensky recommends for the popular MoneyGuidePro financial planning software package (arithmetic real returns of 5.5% for equities and 1.75% for bonds, which given their volatility result in geometric means of 3.4% and 1.5% respectively). Notably, these assumptions reflect both a lower overall return environment compared to historical averages, and also a reduced equity risk premium (i.e., the excess return of stocks over bonds is diminished).
>

The best E/B allocation lasted 30 years historically, but was reduced to 23 years going forward.
And if you picked the worst allocation, it went from 21 to 15.
So the importance of getting the E/B ratio correct is critical unless you are very optimistic about returns going forward. Well, its critical even if you are an optimist, but you won't feel the pain of struggling to avoid going broke until it happens.
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Re: Should we discourage the bond tent?

Post by Freefun » Mon May 13, 2019 6:44 am

Whew. I was planning on a bond tent but after reading this thread I wonder if my One More Year syndrome, thought to be cured this year (and the year before that yada yada yada) may last forever.
Remember when you wanted what you currently have?

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Re: Should we discourage the bond tent?

Post by abc132 » Mon May 13, 2019 2:40 pm

Bongleur wrote:
Mon May 13, 2019 5:40 am
abc132 wrote:
Mon May 06, 2019 11:07 am
Since we only get one chance at retirement, none of us know what the best strategy will be for our one chance at life.

While I plan for the early portion of retirement, I see little value in pre-planning for late retirement. The outcomes are simply too varied to make useful planning decisions, and my portfolio size and health at the time will determine what action to best take.
What if you get dementia and cannot determine what action to take? Note that this situation creeps up; you won't ask for help in time to mitigate financial problems.
My wife would need to take over all financial decisions. Every financial planner I have met starts with communicating your goals and your current financial situation. That would be the time to have the conversation, with the additional task of taking care of someone with dementia. We have also legally selected people to take over medical and financial decisions if my wife and I are unable to do so.

As retirement becomes a reality, and resources are better known, I (or someone else) will work on late retirement decisions - how specifically to generate income. Taxable/Tax Delayed/Tax Free accounts and several years of direct treasuries should make this pretty easy for someone to implement. Doing nothing would literally provide them with several years of income, and there would be plenty of time to form a plan.

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Re: Should we discourage the bond tent?

Post by Broken Man 1999 » Mon May 13, 2019 3:46 pm

If only we knew when we would no longer need our portfolio!

Things would be so much easier.

Any retiree who thinks they have a foolproof retirement figured out via some magic plan or another probably believes in unicorns as well.

Life is not predictable enough to solve all that might be thrown at a retiree.

Plan as best you can, and adjust when you need to do so.

I will be willing to slowly increase equities as we age, but not at a sharp, steep climb. We don't necessarily need more equities for retirement, but for legacy reasons.

However, changes might be in order. I certainly wouldn't risk our retirement for any legacy, wouldn't be prudent.

Broken Man 1999
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Re: Should we discourage the bond tent?

Post by YRT70 » Tue May 14, 2019 2:24 pm

nisiprius wrote:
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?
I realise it's been a few months since you asked the question but I noticed his numbers seem pretty close to these:

Image

https://earlyretirementnow.com/2016/12/ ... t-1-intro/

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Re: Should we discourage the bond tent?

Post by Bongleur » Sun Jun 02, 2019 7:22 am

stlutz wrote:
Tue Oct 30, 2018 9:43 pm
... If I want to be able to draw a constant dollar amount our of my bond portfolio each year, I can do this as long as my portfolio duration matches my investing horizon--i.e. if I'm planning to live 30 years then my duration should be 15 (since, on average, I'll spend the money in 15 years). Over time the value of my bond portfolio declines. My equity portfolio might not.
Huh? How do you get 15 and an average of what exactly? You spend the money forever, until you die, but then your heirs spend it.
Mean, Median, Mode... ???
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Re: Should we discourage the bond tent?

Post by Sandtrap » Sun Jun 02, 2019 7:34 am

willthrill81 wrote:
Sun May 05, 2019 3:39 pm
randomguy wrote:
Sun May 05, 2019 2:05 pm
willthrill81 wrote:
Sun May 05, 2019 11:18 am

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.
the 2000 retiree would have been 10-15% better with a 7-15 year bond tent. That is almost best case for the strategy (i.e. bonds do abnormally well and stocks do poorly. Think 1929 is better but haven't run the numbers). But it is also money you don't need as the 2000 retiree is likely to make it. On the other hand look at the 1966 retiree when bonds didn't outperform stocks for the first 15 years. The bond tent doesn't help.

Now the question is how often does the bond tent hurt. If we looked at the say the 1965 retiree with a 7 year bond tend end up with a lower SWR than the 1965 retiree that just held 50/50? I haven't done the math but I expect there are few cases where it actively hurts.
I'm inclined to agree that it's unlikely to help but also unlikely to hurt.

To be honest, it seems to me that about any reasonably balanced fixed AA is likely to do about as well for retirees from a 'success rate' standpoint as a bond tent' strategy. When you look at Kitces' original post on the bond tent, its benefit in the MC simulations over a fixed AA was limited to a few percent.

Finding a strategy that you believe in enough to stick with in retirement is probably more important than which strategy you adopt, much like the rest of one's investment tenure. For that reason and others, the 'fly by the seat of your pants' method advocated by some is robustly unappealing to me. Imagine the reaction here if someone said that about their investment strategy during accumulation.
+1
Good points!

Given the data presented in this thread, Is "Sequence of Returns Risk" a real danger for retirees?

But, regardless, there are other ways to negate it besides a Bond Tent (per Kitces).
IE: Annuities, Laddered Annuities, Diversification of Income Stream, etc.

As to allocation, there isn't a huge difference between returns and risk in the middle ranges, as seen on the Vanguard Allocation Chart.
VANGUARD PORTFOLIO ALLOCATION MODELS
https://personal.vanguard.com/us/insig ... locations

As is often mentioned here, the biggest dangers to a portfolio during a market downturn, especially if extended, are behavioral (reactive).

IMHO Any financial strategy is going to work well depending on the situation and person. To "discourage" anything isn't a good idea.

j
Edited per "mythbuster".
Last edited by Sandtrap on Sun Jun 02, 2019 9:18 am, edited 1 time in total.

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Re: Should we discourage the bond tent?

Post by longinvest » Sun Jun 02, 2019 9:01 am

Sandtrap wrote:
Sun Jun 02, 2019 7:34 am
"Sequence of Returns Risk" is a real danger for retirees.
No, IT'S NOT, unless a retiree decides to use an inefficient withdrawal method to extract a constant inflation-indexed amount from a fluctuating portfolio regardless of market returns; a withdrawal method that opens the retiree to a possibility of premature portfolio depletion and a high probability of dying with a gigantic unspent portfolio; a withdrawal method that no sane human would follow during a severe and prolonged bear market.

The BOND TEND is a broken concept based on modeling a withdrawal method that no sensible human would ever adopt.

Even the least knowledgeable retiree is likely to simply take Required Minimum Distributions (RMD) from his retirement accounts, which would adapt his withdrawals to market returns. RMDs are NOT exposed to "Sequence of Returns Risk". They're only exposed to "Market Risk".

Members of the Bogleheads community know about flexible withdrawal methods, such as our wiki's variable percentage withdrawal (VPW) method. VPW is a method that adapts withdrawal amounts to the retiree's retirement horizon, asset allocation, and portfolio returns during retirement. It combines the best ideas of the constant-dollar, constant-percentage, and 1/N withdrawal methods to allow the retiree to spend most of his portfolio using return-adjusted withdrawals. By adapting withdrawals to market returns, VPW will never prematurely deplete the portfolio.

Here's a post that illustrates the difference between "Sequence of Returns" risk (e.g. premature depletion risk) and "Market Risk" (e.g. fluctuating withdrawal amounts):
skjoldur wrote:
Tue May 10, 2016 6:34 pm
Maybe I can help illustrate the difference between what longinvest refers to as 'market risk' and sequence of returns risk. I have made three graphs using made up numbers.

I made 10 random returns, and then scrambled those 10 returns into a variety of different sequences. The first picture shows a $1M portfolio following each of these different paths. Note that the final portfolio value is identical in each case. Holding a portfolio without adding or withdrawing is not subject to sequence of returns risk. The sequence does not matter.

Image

The next image shows the same portfolio with a 4% annual withdrawal. This is not a constant dollar withdrawal, it is a constant percentage withdrawal. Note, that the end values of all the paths are the same. Constant percentage withdrawal is not subject to sequences of returns risk. The portfolios are subject to market risk, in that the ending value could be high or low but the sequence does not matter.

Image

The final image shows the same portfolio with a $40K withdrawal, this is the dreaded constant dollar withdrawal. Note that in this case, the final portfolio values are all different. That difference is sequence of returns risk. In this case, poor returns early combined with constant withdrawals results in varied outcomes.

Image

It turns out (and this surprised me mathematically, but longinvest demonstrated it another thread) that a sequence of varied percentage withdrawals has the same property as a constant percentage withdrawal. In other words, VPW is also mathematically immune to sequence of returns risk.

So here is a bonus picture. In this one, the portfolios are all subject to the same sequence of varied percentage withdrawals. You can see that the end portfolio values are all the same once again.

Image

So VPW is immune to sequence of returns risk with regard to final portfolio value.

That does not mean that VPW is not 'risky' or that it magically fixes the fact that the markets themselves are 'risky.' But (along with similar percentage based withdrawal methods) it does not suffer from sequence of returns risk. How cool is that!
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Re: Should we discourage the bond tent?

Post by AlohaJoe » Sun Jun 02, 2019 9:11 am

willthrill81 wrote:
Sun May 05, 2019 3:39 pm
randomguy wrote:
Sun May 05, 2019 2:05 pm
Now the question is how often does the bond tent hurt. If we looked at the say the 1965 retiree with a 7 year bond tend end up with a lower SWR than the 1965 retiree that just held 50/50? I haven't done the math but I expect there are few cases where it actively hurts.
I'm inclined to agree that it's unlikely to help but also unlikely to hurt.
Using a bond tent definitely hurts. In a kind of trivially obvious sense: anything that makes you hold less equities hurts by giving you a smaller portfolio in the overwhelming majority of scenarios. And the vast majority of real world retirees are going to have some kind of link between portfolio size and spending, even if it isn't as rigorous as VPW. A bigger portfolio is going to result in higher spending (or donating to charity, or supporting family, or whatever) for many real world retirees. My tests show that a bond tent hurts in 70% of retirement cohorts by an average of $2,000/year[*]. And in 10% of cases by as much as $5,000-$7,000/year.

That's not even an especially controversial claim or interesting insight. Because bond tent advocates would say: "But those are all in 'successful' retirements anyway and when everything goes smoothly having extra money doesn't really matter, or at least it doesn't matter very much. If I retired expecting to live off of $40,000 a year and end up living off of $50,000 a year, I don't really lose sleep thinking that I could have had $55,000 a year by avoiding the bond tent. The bond tent is supposed to help with the worst case scenarios not the 95% of normal case scenarios."

Which is fair enough. And a bond tent did help out in 1929, 1930, 1931, and 1969 (among others). It only helped out in 30% of years but those are years that people really worry about!

In 1929, your lifetime income went from $35,000/year to $39,000/year.
In 1930, from $39,000 to $43,000.
In 1931, from $47,000 to $50,000.
In 1969, from $31,000 to $32,000.
(and in the other dozen or so cases the gap was progressively smaller)

These numbers just confirm what we already knew: the only thing a bond tent helps with is a massive equity crash in the early part of retirement. Remember: the bond tent is about trying to deal with the portfolio size effect & nothing else. The numbers give a sense of the scale of the benefit. When there's an 85% equity crash then the bond tent gives us about $4,000/year in additional income during retirement.

For other scenarios, even 1969, the equity crash just isn't big enough for the bond tent to help.

Different people can look all of that and come to different conclusions about the value of a bond tent. After all, someone could certainly say "yes, there is only a vanishing chance of a 1929-style 85% crash again. But I'm willing to pay the cost for some protection against that." And who can argue with a personal choice like that, even if it isn't the one I'd make?

[*]: All income numbers are based on certainty-equivalent withdrawals assuming a VPW variable withdrawal scheme by the retiree. The bond tent assumes going from a 75/25 portfolio to a 100/0 portfolio over 30 years (7 years of bonds is 7/25 = 28%, so this is closely equivalent to holding 7 years of bonds to start with). The non-bond tent portfolio is a static allocation of 87/13. 87% because that's the average bond allocation of the bond tent over 30 years. 100+75 / 2 = 87%.
Last edited by AlohaJoe on Sun Jun 02, 2019 9:28 am, edited 2 times in total.

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Re: Should we discourage the bond tent?

Post by Sandtrap » Sun Jun 02, 2019 9:15 am

longinvest wrote:
Sun Jun 02, 2019 9:01 am
Sandtrap wrote:
Sun Jun 02, 2019 7:34 am
"Sequence of Returns Risk" is a real danger for retirees.
No, IT'S NOT, unless a retiree decides to use an inefficient withdrawal method to extract a constant inflation-indexed amount from a fluctuating portfolio regardless of market returns; a withdrawal method that opens the retiree to a possibility of premature portfolio depletion and a high probability of dying with a gigantic unspent portfolio; a withdrawal method that no sane human would follow during a severe and prolonged bear market.

The BOND TEND is a broken concept based on modeling a withdrawal method that no sensible human would ever adopt.

Even the least knowledgeable retiree is likely to simply take Required Minimum Distributions (RMD) from his retirement accounts, which would adapt his withdrawals to market returns. RMDs are NOT exposed to "Sequence of Returns Risk". They're only exposed to "Market Risk".

Members of the Bogleheads community know about flexible withdrawal methods, such as our wiki's variable percentage withdrawal (VPW) method. VPW is a method that adapts withdrawal amounts to the retiree's retirement horizon, asset allocation, and portfolio returns during retirement. It combines the best ideas of the constant-dollar, constant-percentage, and 1/N withdrawal methods to allow the retiree to spend most of his portfolio using return-adjusted withdrawals. By adapting withdrawals to market returns, VPW will never prematurely deplete the portfolio.

Here's a post that illustrates the difference between "Sequence of Returns" risk (e.g. premature depletion risk) and "Market Risk" (e.g. fluctuating withdrawal amounts):
skjoldur wrote:
Tue May 10, 2016 6:34 pm
Maybe I can help illustrate the difference between what longinvest refers to as 'market risk' and sequence of returns risk. I have made three graphs using made up numbers.

I made 10 random returns, and then scrambled those 10 returns into a variety of different sequences. The first picture shows a $1M portfolio following each of these different paths. Note that the final portfolio value is identical in each case. Holding a portfolio without adding or withdrawing is not subject to sequence of returns risk. The sequence does not matter.

Image

The next image shows the same portfolio with a 4% annual withdrawal. This is not a constant dollar withdrawal, it is a constant percentage withdrawal. Note, that the end values of all the paths are the same. Constant percentage withdrawal is not subject to sequences of returns risk. The portfolios are subject to market risk, in that the ending value could be high or low but the sequence does not matter.

Image

The final image shows the same portfolio with a $40K withdrawal, this is the dreaded constant dollar withdrawal. Note that in this case, the final portfolio values are all different. That difference is sequence of returns risk. In this case, poor returns early combined with constant withdrawals results in varied outcomes.

Image

It turns out (and this surprised me mathematically, but longinvest demonstrated it another thread) that a sequence of varied percentage withdrawals has the same property as a constant percentage withdrawal. In other words, VPW is also mathematically immune to sequence of returns risk.

So here is a bonus picture. In this one, the portfolios are all subject to the same sequence of varied percentage withdrawals. You can see that the end portfolio values are all the same once again.

Image

So VPW is immune to sequence of returns risk with regard to final portfolio value.

That does not mean that VPW is not 'risky' or that it magically fixes the fact that the markets themselves are 'risky.' But (along with similar percentage based withdrawal methods) it does not suffer from sequence of returns risk. How cool is that!
+1
This makes perfect sense.

Thanks for detailing it out.

. . Sort of like "Myth Busting". :D :D

DW and I both adhere to VPW in retirement. It seems the most intuitive (common sense). :happy
j

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Re: Should we discourage the bond tent?

Post by longinvest » Sun Jun 02, 2019 9:18 am

It should be noted that "Market Risk" does not change with time horizon. Stocks are as likely to lose 50% during the 15th year of retirement as in the 1st year of retirement.

As a consequence, the BOND TENT doesn't make sense when using a sensible withdrawal method that adapts withdrawal amounts to market returns (RMDs, VPW, etc). In other words, an 80 years old retiree won't want his withdrawals to fluctuate more than they were fluctuating at 65.

I suggest that members of our community should consider tossing aside the concept of taking constant inflation-adjusted withdrawals from a fluctuating portfolio. Stable inflation-indexed income can be bought, indirectly by delaying Social Security to age 70, and directly by buying a CPI-indexed SPIA*, but it comes at the cost of losing liquidity.

A sensible and simple financial approach to retirement is to combine lifelong stable income like Social Security, a pension (if any), and (if necessary) a CPI-indexed SPIA with variable withdrawals (VPW) from a balanced portfolio.

* Single-Premium Immediate Annuity.
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Re: Should we discourage the bond tent?

Post by willthrill81 » Sun Jun 02, 2019 9:33 am

AlohaJoe wrote:
Sun Jun 02, 2019 9:11 am
willthrill81 wrote:
Sun May 05, 2019 3:39 pm
randomguy wrote:
Sun May 05, 2019 2:05 pm
Now the question is how often does the bond tent hurt. If we looked at the say the 1965 retiree with a 7 year bond tend end up with a lower SWR than the 1965 retiree that just held 50/50? I haven't done the math but I expect there are few cases where it actively hurts.
I'm inclined to agree that it's unlikely to help but also unlikely to hurt.
Using a bond tent definitely hurts. In a kind of trivially obvious sense: anything that makes you hold less equities hurts by giving you a smaller portfolio in the overwhelming majority of scenarios.
We could say the same thing about fixed bond allocations greater than about 30%.

I was referring to the 'success rates' that so many are obsessed with, although I believe them to be very misleading.
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Re: Should we discourage the bond tent?

Post by YRT70 » Sun Jun 02, 2019 11:36 am

longinvest wrote:
Sun Jun 02, 2019 9:01 am
unless a retiree decides to use an inefficient withdrawal method to extract a constant inflation-indexed amount from a fluctuating portfolio regardless of market returns;
If I get you correctly you're saying that sequence of return risk is a real risk for people who prefer to withdraw a constant inflation-indexed amount of their portfolio?

I know you don't think that spending method is a good idea, but I'm not sure I have much flexibility in my spending. I'm trying to decide if a higher bond allocation in my early retirement might be a good idea to protect me somewhat against a bear market.

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Re: Should we discourage the bond tent?

Post by longinvest » Sun Jun 02, 2019 11:55 am

YRT70 wrote:
Sun Jun 02, 2019 11:36 am
longinvest wrote:
Sun Jun 02, 2019 9:01 am
unless a retiree decides to use an inefficient withdrawal method to extract a constant inflation-indexed amount from a fluctuating portfolio regardless of market returns;
If I get you correctly you're saying that sequence of return risk is a real risk for people who prefer to withdraw a constant inflation-indexed amount of their portfolio?

I know you don't think that spending method is a good idea, but I'm not sure I have much flexibility in my spending. I'm trying to decide if a higher bond allocation in my early retirement might be a good idea to protect me somewhat against a bear market.
YRT70, it's unfortunately my opinion that someone who doesn't have flexibility in his budget is simply not ready to retire.

I suggest that you enter your personal numbers into the Variable savings rate (VSR) spreadsheet to get a suggestion of budget flexibility for your present situation. (The linked thread contains detailed instructions and explanations). You need to provide:
  • Age, Salary, Portfolio balance, Stock allocation
  • Planned retirement age
  • Social Security annual contribution, start age, and monthly payment
  • For any other pension: annual contribution, start age, monthly payment, and whether it has cost of living adjustments or not
  • Savings frequency: monthly, semimonthly, or biweekly
Given this information, the spreadsheet suggests:
  1. A savings amount for the selected frequency
  2. An additional savings amount that might get added, in future annual calculation updates, if markets misbehave (e.g. stocks lose 50%)
The additional savings amount represents the minimal flexibility that must be kept into the budget such that cutting this amount of spending should be easy to do.

Every year, new up-to-date numbers must be entered into the spreadsheet to get new savings amount suggestions.

The spreadsheet assumes that asset allocation will remained unchanged for life, and that the VPW-adv spreadsheet will be used during retirement.

Here's a screenshot of the spreadsheet:

Image

Good luck!
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Re: Should we discourage the bond tent?

Post by YRT70 » Sun Jun 02, 2019 12:16 pm

longinvest wrote:
Sun Jun 02, 2019 11:55 am
YRT70 wrote:
Sun Jun 02, 2019 11:36 am
longinvest wrote:
Sun Jun 02, 2019 9:01 am
unless a retiree decides to use an inefficient withdrawal method to extract a constant inflation-indexed amount from a fluctuating portfolio regardless of market returns;
If I get you correctly you're saying that sequence of return risk is a real risk for people who prefer to withdraw a constant inflation-indexed amount of their portfolio?

I know you don't think that spending method is a good idea, but I'm not sure I have much flexibility in my spending. I'm trying to decide if a higher bond allocation in my early retirement might be a good idea to protect me somewhat against a bear market.
YRT70, it's unfortunately my opinion that someone who doesn't have flexibility in his budget is simply not ready to retire.

I suggest that you enter your personal numbers into the Variable savings rate (VSR) spreadsheet to get a suggestion of budget flexibility for your present situation. You need to provide:
All good suggestions but I'm not so keen on other spending methods or creating budget flexibility. I just prefer the fixed withdrawal rate with inflation adjustment, even though I know it's not ideal. I think I'm ready to retire. MC tests and backtesting tell me I am.

I think randomguy worded it well in the thread you linked.
randomguy wrote:
Tue May 10, 2016 6:55 pm
In exchange though you are now exposing yourself to sequence of income risk.:) You need to decide if you prefer that risk.
I don't prefer that risk. I am interested in this idea of a bond tent, especially the higher bond allocation in the first years if it offers some protection against a bear market without hurting too much for long term gains.

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Re: Should we discourage the bond tent?

Post by longinvest » Sun Jun 02, 2019 12:32 pm

YRT70 wrote:
Sun Jun 02, 2019 12:16 pm
longinvest wrote:
Sun Jun 02, 2019 11:55 am
YRT70, it's unfortunately my opinion that someone who doesn't have flexibility in his budget is simply not ready to retire.

I suggest that you enter your personal numbers into the Variable savings rate (VSR) spreadsheet to get a suggestion of budget flexibility for your present situation. You need to provide:
All good suggestions but I'm not so keen on other spending methods or creating budget flexibility. I just prefer the fixed withdrawal rate with inflation adjustment, even though I know it's not ideal. I think I'm ready to retire. MC tests and backtesting tell me I am.
YRT70, if you can't tolerate the mild fluctuations of combining lifelong stable income with variable withdrawals from a balanced portfolio, you certainly won't be able to tolerate that withdrawals drop to $0 because of a severe bear market (Japan-like) while using an inflexible constant inflation-indexed withdrawal method!

The so-called constant inflation-indexed withdrawals are only constant as long as they don't drop to $0. In case of failure, the loss is complete.
YRT70 wrote:
Sun Jun 02, 2019 12:16 pm
I am interested in this idea of a bond tent, especially the higher bond allocation in the first years if it offers some protection against a bear market without hurting too much for long term gains.
The bond tent doesn't eliminate the risk of constant inflation-indexed withdrawals dropping to $0. Do you have the flexibility of $0 withdrawals? If you don't, you can't afford to take a chance with a bond tent and constant inflation-indexed withdrawals.

The only reliable approaches to getting a lifelong constant inflation-indexed income are Social Security, an inflation-indexed pension, or an inflation-indexed SPIA*.

Yes, reliable lifelong constant inflation-indexed income can be bought. The younger you are, the more expensive it gets. An early retiree without much flexibility in his budget could use most (but not all!) of his portfolio to buy an inflation-indexed SPIA and keep the remaining portfolio invested into a balanced portfolio to provide liquidity when needed. But, I don't recommend this.

Instead, I suggest that an early retiree use his abilities to find part-time work to get some income to relieve the pressure on the portfolio by taking smaller variable withdrawals. In any case, taking a constant inflation-indexed withdrawal from a fluctuating portfolio remains an illogical solution to the underfunding problem, as it could easily bankrupt the early retiree, bond tent or not.

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Re: Should we discourage the bond tent?

Post by willthrill81 » Sun Jun 02, 2019 12:36 pm

YRT70 wrote:
Sun Jun 02, 2019 12:16 pm
randomguy wrote:
Tue May 10, 2016 6:55 pm
In exchange though you are now exposing yourself to sequence of income risk.:) You need to decide if you prefer that risk.
I don't prefer that risk. I am interested in this idea of a bond tent, especially the higher bond allocation in the first years if it offers some protection against a bear market without hurting too much for long term gains.
Yes, it's true that any withdrawal strategy will be subject to either sequence of return risk as it pertains to your portfolio (e.g. fixed real withdrawals like the '4% rule'), your withdrawals (e.g. any percentage-of-portfolio method), or both. When it comes to fixed real withdrawals, the optimal AA has been between roughly 50/50 and 70/30, but if equities fall by 50%, then that means that if you were using a percentage-of-portfolio withdrawal method, your withdrawals could be cut by 25-35%.

You must decide for yourself, with full knowledge of the pros and cons, which type of overall strategy makes the most sense for your situation. Blanket recommendations regarding which withdrawal method is always 'best' are inappropriate.
“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 longinvest » Sun Jun 02, 2019 1:03 pm

YRT70 wrote:
Sun Jun 02, 2019 11:36 am
I know you don't think that spending method is a good idea, but I'm not sure I have much flexibility in my spending.
YRT70,

In another thread, you wrote:
YRT70 wrote:
Sat Apr 27, 2019 9:25 am
I'm in the EU, 48 years of age and rather new to investing. Recently I received a large sum of money. I've invested a large part of it in Vanguard World (VWRL FTSE All-World UCITS ETF).
I have trouble to reconcile your inflexibility in spending with having received a large sum. Can you elaborate?
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Re: Should we discourage the bond tent?

Post by YRT70 » Sun Jun 02, 2019 1:19 pm

longinvest wrote:
Sun Jun 02, 2019 12:32 pm
YRT70, if you can't tolerate the mild fluctuations of combining lifelong stable income with variable withdrawals from a balanced portfolio,
It's not that I can't, it's that I prefer not to. I have a certain way of spending (not indulgent, not overly frugal) and I don't like to go under that, if possible. If push comes to shove I will and I can go under it.
you certainly won't be able to tolerate that withdrawals drop to $0 because of a severe bear market (Japan-like) while using an inflexible constant inflation-indexed withdrawal method!
That would create a problem, with any spending method I think. But the good thing is I'm still young (47) and could go back to work if necessary.
YRT70 wrote:
Sun Jun 02, 2019 12:16 pm
The only reliable approaches to getting a lifelong constant inflation-indexed income are Social Security, an inflation-indexed pension, or an inflation-indexed SPIA*.
Thanks for the useful comments. I really like the idea of a SPIA, but I'm in the Netherlands and have not found any offerings here.

I have found reverse mortgages, which provide an interesting option for me. I have paid off my house. I might use the reverse mortgage later in life if I need it. I've got some SS coming in later as well, not much, but it will help a bit.
willthrill81 wrote:
Sun Jun 02, 2019 12:36 pm
YRT70 wrote:
Sun Jun 02, 2019 12:16 pm
randomguy wrote:
Tue May 10, 2016 6:55 pm
In exchange though you are now exposing yourself to sequence of income risk.:) You need to decide if you prefer that risk.
I don't prefer that risk. I am interested in this idea of a bond tent, especially the higher bond allocation in the first years if it offers some protection against a bear market without hurting too much for long term gains.
Yes, it's true that any withdrawal strategy will be subject to either sequence of return risk as it pertains to your portfolio (e.g. fixed real withdrawals like the '4% rule'), your withdrawals (e.g. any percentage-of-portfolio method), or both. When it comes to fixed real withdrawals, the optimal AA has been between roughly 50/50 and 70/30, but if equities fall by 50%, then that means that if you were using a percentage-of-portfolio withdrawal method, your withdrawals could be cut by 25-35%.

You must decide for yourself, with full knowledge of the pros and cons, which type of overall strategy makes the most sense for your situation. Blanket recommendations regarding which withdrawal method is always 'best' are inappropriate.
Thanks Will. Yeah I understand I will have to decide for myself. I originally planned on 70/30. I'm in on about 80% of the equity and 100% of the bonds (current allocation happens to be close to 60/40). I've got more money coming in in the next few months (inheritance). So my original plans was to use that for more equity. Seeing current market developments, reading more and testing more I got a bit of cold feet on purchasing more equity right now. So I'm not sure if I'll really go with 70/30 or slightly lower 65/35 or even 60/40.

Beginning with 60/40 and then slowly going to 70/30 might be an option too. Still in the process of figuring it out. I've got the next few months to do so. Your posts help me to do so.
longinvest wrote:
Sun Jun 02, 2019 1:03 pm
I have trouble to reconcile your inflexibility in spending with having received a large sum. Can you elaborate?
My spending is pretty much set on 3.6% (this includes Dutch property taxes). Prefer not to go under it, would like to go over it if possible. Perhaps my post above already explained it. Let me know if it's not clear please.

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Re: Should we discourage the bond tent?

Post by longinvest » Sun Jun 02, 2019 1:34 pm

YRT70 wrote:
Sun Jun 02, 2019 1:19 pm
I really like the idea of a SPIA, but I'm in the Netherlands and have not found any offerings here.
YRT70,

Maybe you should go and ask an insurance company. Using Google, I found this:

Pension Country Profile: Netherlands
(Extract from the OECD Private Pensions Outlook 2008)
(On page 5)
Country pension design
Structure of private pension system
  • Mandatory/Quasi-mandatory, occupational
    • ...
  • Voluntary, personal
    • Annuities
So, as far as I can understand, annuities exist in the Netherlands. At 47 or 48, they're expensive. A good age to buy one with part (not all!) of the portfolio, when necessary within a flexible retirement plan, is age 80, as explained here.
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Re: Should we discourage the bond tent?

Post by YRT70 » Sun Jun 02, 2019 1:40 pm

longinvest wrote:
Sun Jun 02, 2019 1:34 pm
So, as far as I can understand, annuities exist in the Netherlands. At 47 or 48, they're expensive.
From what I have gathered they do exist, but they don't allow you to bring in your own money. So the money must have been earned in a job and must have been saved for this purpose. At least this is what I've gathered from calling two large insurance companies and reading Dutch forums. The document you linked is from 2008, so it may not be accurate anymore.
longinvest wrote:
Sun Jun 02, 2019 1:34 pm
A good age to buy one with part (not all!) of the portfolio, when necessary within a flexible retirement plan, is age 80, as explained here.
Thanks, I'll have a look. Maybe by that time it will be available. But wouldn't the reverse mortgage offer similar benefits: fixed income?

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Re: Should we discourage the bond tent?

Post by longinvest » Sun Jun 02, 2019 3:44 pm

YRT70 wrote:
Sun Jun 02, 2019 1:19 pm
you certainly won't be able to tolerate that withdrawals drop to $0 because of a severe bear market (Japan-like) while using an inflexible constant inflation-indexed withdrawal method!
That would create a problem, with any spending method I think. But the good thing is I'm still young (47) and could go back to work if necessary.
YRT70,

I think that you don't realize the extent of the failure of a constant inflation-indexed withdrawal. When it fails, you're left with a $0 portfolio and $0 withdrawals. If it happens when you're of age 72, it won't be fun going back to work.

Our wiki's VPW method, in contrast, is mathematically guaranteed to never prematurely deplete the portfolio. It will reduce withdrawals during bear markets to protect the portfolio, but never to zero.

It's your money and your life. You get to make your choices.

Good luck!
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Re: Should we discourage the bond tent?

Post by Bongleur » Mon Jun 03, 2019 1:26 am

longinvest wrote:
Sun Jun 02, 2019 9:01 am
Sandtrap wrote:
Sun Jun 02, 2019 7:34 am
"Sequence of Returns Risk" is a real danger for retirees.
No, IT'S NOT, unless a retiree decides to use an inefficient withdrawal method to extract a constant inflation-indexed amount from a fluctuating portfolio regardless of market returns; a withdrawal method that opens the retiree to a possibility of premature portfolio depletion and a high probability of dying with a gigantic unspent portfolio; a withdrawal method that no sane human would follow during a severe and prolonged bear market.

The BOND TEND is a broken concept based on modeling a withdrawal method that no sensible human would ever adopt.

Even the least knowledgeable retiree is likely to simply take Required Minimum Distributions (RMD) from his retirement accounts, which would adapt his withdrawals to market returns. RMDs are NOT exposed to "Sequence of Returns Risk". They're only exposed to "Market Risk".

...

It turns out (and this surprised me mathematically, but longinvest demonstrated it another thread) that a sequence of varied percentage withdrawals has the same property as a constant percentage withdrawal. In other words, VPW is also mathematically immune to sequence of returns risk.

So here is a bonus picture. In this one, the portfolios are all subject to the same sequence of varied percentage withdrawals. You can see that the end portfolio values are all the same once again.

Image

So VPW is immune to sequence of returns risk with regard to final portfolio value.

That does not mean that VPW is not 'risky' or that it magically fixes the fact that the markets themselves are 'risky.' But (along with similar percentage based withdrawal methods) it does not suffer from sequence of returns risk. How cool is that!
[/quote]

Except that "tax advantaged space" is a special case. If you have to pay taxes on income every year, variance increases. And sometimes you have to pay taxes on phantom income -- like in the 1970's when inflation was more than equity returns. You paid tax on nominal, but lost in real terms. TIPS can do the same thing. What do the numbers for taxable space look like?
...
So if the sequence of VPW withdrawals is irrelevent, then everyone should use VPW AND draw the highest percentages first -- so you can enjoy spending it while you are healthy.
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Re: Should we discourage the bond tent?

Post by Bongleur » Mon Jun 03, 2019 1:43 am

AlohaJoe wrote:
Sun Jun 02, 2019 9:11 am
Using a bond tent definitely hurts. ... My tests show that a bond tent hurts in 70% of retirement cohorts by an average of $2,000/year[*]. And in 10% of cases by as much as $5,000-$7,000/year.

...I retired expecting to live off of $40,000 a year and end up living off [SOMETHING ELSE]... The bond tent is supposed to help with the worst case scenarios not the 95% of normal case scenarios."

Which is fair enough. And a bond tent did help out in 1929, 1930, 1931, and 1969 (among others). It only helped out in 30% of years but those are years that people really worry about!

In 1929, your lifetime income went from $35,000/year to $39,000/year.
In 1930, from $39,000 to $43,000.
In 1931, from $47,000 to $50,000.
In 1969, from $31,000 to $32,000.
(and in the other dozen or so cases the gap was progressively smaller)
And in these cases, you expected to be able to draw $40k?
Seems to me "hurts" is merely emotive. Dispassionately, the cost of _insurance_ averages $2000 a year and $7000 at the worst.
...

>
[*]: All income numbers are based on certainty-equivalent withdrawals assuming a VPW variable withdrawal scheme by the retiree. The bond tent assumes going

from a 75/25 portfolio to a 100/0 portfolio HUH? ARE YOU PUTTING "BOND/EQUITY" INSTEAD OF IN THE STANDARD ORDER?

over 30 years (7 years of bonds is 7/25 = 28%, so this is closely equivalent to holding 7 years of bonds to start with). The non-bond tent portfolio is a static allocation of 87/13. 87% because that's the average bond allocation of the bond tent over 30 years. 100+75 / 2 = 87%.
>

How does this work out for 40 years? A Bad Sequence of Returns gives a worse outcome the longer you need the money, right? Maybe the cost of the insurance has a better return.
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Re: Should we discourage the bond tent?

Post by AlohaJoe » Mon Jun 03, 2019 2:36 am

Bongleur wrote:
Mon Jun 03, 2019 1:43 am
And in these cases, you expected to be able to draw $40k?
The person retired with $1,000,000 in assets. Given the prevalence of the 4% rule, I think most people would assume that means they will have approximately $40,000 a year in retirement income and will use that mental benchmark to see how their retirement is going.
from a 75/25 portfolio to a 100/0 portfolio HUH? ARE YOU PUTTING "BOND/EQUITY" INSTEAD OF IN THE STANDARD ORDER?
No, it is presented equity/bond.
How does this work out for 40 years? A Bad Sequence of Returns gives a worse outcome the longer you need the money, right? Maybe the cost of the insurance has a better return.
Dunno, I haven't looked.

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Re: Should we discourage the bond tent?

Post by YRT70 » Mon Jun 03, 2019 3:03 am

longinvest wrote:
Sun Jun 02, 2019 3:44 pm
I think that you don't realize the extent of the failure of a constant inflation-indexed withdrawal. When it fails, you're left with a $0 portfolio and $0 withdrawals. If it happens when you're of age 72, it won't be fun going back to work.

Our wiki's VPW method, in contrast, is mathematically guaranteed to never prematurely deplete the portfolio. It will reduce withdrawals during bear markets to protect the portfolio, but never to zero.

It's your money and your life. You get to make your choices.

Good luck!
Thanks for reminding me. I think I do realise it. If I really get a bad start, say ~3-5 years of bad returns to start it does make sense to limit my spending. But if returns are sort of in the normal range I don't think an inflation adjusted 3.6% of the initial sum is likely to bring me into problems. At least this is what the various MC tests and back tests are telling me.

And if I really end up broke at 75 I could always get the reverse mortgage I think.

I guess the bond tent is kind of built on the idea that if you get a bad decade for stocks to start with the second decade will be better, which may or may not happen. Correct?

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