midareff wrote: ↑
Wed Oct 02, 2019 4:02 pm
....of course, you could also cash everything in and call it a win (plan also worked !), divide the money by the years remaining and be done with it.
Is that really your suggestion?
I forgot to answer this one
Yes, serious suggestion. In your example case, you indicated the person to be over 70 and hence only having another 10-15 years to go (statistically speaking of course)
Meaning you are close to the end and if you have already won the game (TBD), then actually pulling out of the stock portion and use everything in say CDs seems like a real solution to me.
It boils down to (and is actually independent of your age) the fact that if you only need x amount of money per year to live on (ignore inflation for a second, on a short time scale that works even better) you can simply multiply your remaining years with that number and done.
Or the other way round, the reason a stock portfolio has to be quite large at the beginning of a draw period is that the volatility has to be taken into account (the reason why the first 10 years of draw period are the most important) and you don't want to dip too low early on - otherwise you could do a lot smaller portfolio or see above, just draw from cash (ignoring inflation).
Or yet another way to look at it (getting more conservative), the function of stocks in a conservative portfolio is NOT to generate money out of thin air and enjoy unexpected rallies, its function is to compensate for inflation for the rest of the portfolio that sits in cash/bonds/CDs and provides the money to live off from (the portion you have actually saved during your lifetime).
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