Downsides of VPW?

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longinvest
Posts: 3489
Joined: Sat Aug 11, 2012 8:44 am

Re: Downsides of VPW?

Post by longinvest » Wed Jun 12, 2019 4:26 pm

What matters is the variability of total income. The new VPW Accumulation And Retirement Worksheet makes this explicit. It even illustrates how a deferred pension dampens income volatility. The default retirement illustration is of a 60/40 stocks/bonds portfolio that, when exposed to a 50% stocks crash, loses 30% (half of its 60% allocation to stocks). But, due to the deferred Social Security pension, the impact on withdrawals is only 17%. Half of the drop was absorbed by the future pension.

I think that it's perfectly fine to apply VPW on a balanced portfolio with an allocation near to that of the market, 57.4/42.6 stocks/bonds according to this post, as long as the retiree is OK with the implied income volatility of his chosen allocation.

Hopefully, the new worksheet will help users easily assess whether they're exposed to more income volatility than they'd like or not, given their portfolio and pensions (possibly delayed).
Bogleheads investment philosophy | single-ETF balanced portfolio | VBAL

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siamond
Posts: 4754
Joined: Mon May 28, 2012 5:50 am

Re: Downsides of VPW?

Post by siamond » Wed Jun 12, 2019 6:35 pm

longinvest wrote:
Wed Jun 12, 2019 4:26 pm
What matters is the variability of total income. The new VPW Accumulation And Retirement Worksheet makes this explicit. It even illustrates how a deferred pension dampens income volatility. [...]
Yup, fully agreed with that.

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