Thoughts on Bill Bengen "free lunch" equity glidepath?

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BigSky777
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Thoughts on Bill Bengen "free lunch" equity glidepath?

Post by BigSky777 »

Greetings,

In a recent interview with Bill Bengen by Paula Pant at the Bogleheads conference he mentioned the 4 free lunches of retirement planning including the use of an equity glidepath. Reducing equities at retirement, then increasing later to hedge risk of SORR. What do you think of this quote "free lunch"? I haven't heard of many doing this but maybe I missed it. Thanks for any thoughts.


Cheers
Last edited by BigSky777 on Fri Nov 29, 2024 5:35 pm, edited 1 time in total.
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Re: Thoughts on Bill Bergen "free lunch" equity glidepath?

Post by jebmke »

Did he explain why it is "free?"
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Re: Thoughts on Bill Bergen "free lunch" equity glidepath?

Post by BigSky777 »

jebmke wrote: Fri Nov 29, 2024 2:28 pm Did he explain why it is "free?"
Not specifically. He lumped it in with diversification, rebalancing, and small cap tilt.
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Re: Thoughts on Bill Bergen "free lunch" equity glidepath?

Post by jebmke »

I used the strategy but not because I thought I was getting something free. I did it to insulate myself from behavioral errors/risk. I have no doubt I left money "on the table" but my goal wasn't to end my life with the biggest pile.

I also used an aggressive small cap value tilt during accumulation. But I'm not sure I'd do it today; our situation was unique and conditions were different in the 1980s than they are today.
When you discover that you are riding a dead horse, the best strategy is to dismount.
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Re: Thoughts on Bill Bergen "free lunch" equity glidepath?

Post by cvn74n2 »

A rising equity glidepath made sense to me to minimize SORR and as a behavioral check when I retired a couple years ago. I put approximately 20 years of a LMP in an individual TIPS ladder and the remainder in VTI/VEA. As the TIPS mature and are spent, the equity portion remains untouched and rises in value (hopefully) as well as percentage of portfolio. I also did this so it would be fairly automatic for my spouse to administer should I predecease her.
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Re: Thoughts on Bill Bergen "free lunch" equity glidepath?

Post by nisiprius »

  1. There ain't no such thing as a free lunch.*
  2. "Diversification is the only free lunch in investing." (Attributed to Harry Markowitz)
  3. There are four free lunches in retirement planning. (Bill Bengen)
If forced to pick, I'll go with #1, myself.


*Wikipedia traces it to a 1938 newspaper. Its use by SF writer Robert Heinlein in the 1960s definitely publicized it.
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Re: Thoughts on Bill Bergen "free lunch" equity glidepath?

Post by TipsQuestions »

BigSky777 wrote: Fri Nov 29, 2024 2:23 pm Reducing equities at retirement, then increasing later to hedge risk of SORR.
I've seen a few free lunches in my day. Wacky AA convolutions like this ain't one of them.
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Re: Thoughts on Bill Bengen "free lunch" equity glidepath?

Post by JMACatfish »

Not sure if it'd exactly be a free lunch, but I'm also not sure if I'd call it some wacky asset allocation. If early retirement is when you're most vulnerable to market crashes, then that's when you most need protection from it in the form of fixed income. Once that's over, stocks have the higher expected value so you begin to readjust back onto them. This sounds pretty much exactly like a bond tent, which actually strikes me as a rather reasonable maneuver.
jebmke wrote: Fri Nov 29, 2024 2:28 pm Did he explain why it is "free?"
I'm wondering about this as well. If "free lunch" means "without tradeoffs," then of course this is no free lunch. To that matter, index investing wouldn't be either because you're giving up the possibility of casino-like gains. "Best of both worlds" seems a much more defensible position (not that I necessarily know if it would be the best).
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Re: Thoughts on Bill Bengen "free lunch" equity glidepath?

Post by firebirdparts »

It is what it is. It doesn’t matter what we call it.

I would think though, that anybody with an ounce of sense would be looking for and wondering whether there is some process that narrows the outcomes better than a static “I can’t control my behavior” AA. I am not sure that the bond tent really does that, but that is the idea of it (obviously). If we can’t debate that, this thread won’t be very interesting.

For anybody that needs it, “narrowing” means you would not experience the best case of 100% or some amount “more” equities and you wouldn’t the worst case of 100% or some amount “more” equities. “Better” means you have more money in most or all cases than s person with a static AA. This is the free lunch part. Makes total sense. I am skeptical but I don’t care enough to assess that probabilistically.

My take on it is that I did it, but I am not entirely convinced of the math.
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Re: Thoughts on Bill Bergen "free lunch" equity glidepath?

Post by J295 »

jebmke wrote: Fri Nov 29, 2024 2:36 pm I used the strategy but not because I thought I was getting something free. I did it to insulate myself from behavioral errors/risk. I have no doubt I left money "on the table" but my goal wasn't to end my life with the biggest pile.

I also used an aggressive small cap value tilt during accumulation. But I'm not sure I'd do it today; our situation was unique and conditions were different in the 1980s than they are today.
I’m not clear on precisely what you did. Reduce equities upon retirement… then increase during retirement?

Thanks
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Re: Thoughts on Bill Bengen "free lunch" equity glidepath?

Post by jebmke »

yes; we dropped back to 40/60. Stayed approximately there for 10 years. Now up to 50/50 and will never re-balance out of equity again. As stocks rise equity allocation will rise. When RMDs start in 2026 I'll be tossing bonds over the side in larger quantities.
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Re: Thoughts on Bill Bengen "free lunch" equity glidepath?

Post by J295 »

jebmke wrote: Sat Nov 30, 2024 7:46 am yes; we dropped back to 40/60. Stayed approximately there for 10 years. Now up to 50/50 and will never re-balance out of equity again. As stocks rise equity allocation will rise. When RMDs start in 2026 I'll be tossing bonds over the side in larger quantities.
Thank you. Your statement about comfort leaving money on the table and not necessarily wanting to have the biggest pile when you die resonated. We went from 100% equities upon early retirement 11 years ago to 60%, then dropped that over 10 years down to 50%. I just checked and now it’s creeped up to 56%.
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Re: Thoughts on Bill Bengen "free lunch" equity glidepath?

Post by TheTimeLord »

BigSky777 wrote: Fri Nov 29, 2024 2:23 pm Greetings,

In a recent interview with Bill Bengen by Paula Pant at the Bogleheads conference he mentioned the 4 free lunches of retirement planning including the use of an equity glidepath. Reducing equities at retirement, then increasing later to hedge risk of SORR. What do you think of this quote "free lunch"? I haven't heard of many doing this but maybe I missed it. Thanks for any thoughts.


Cheers
Are you talking about a "Bond Tent"?

https://www.kitces.com/blog/managing-po ... -red-zone/

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Re: Thoughts on Bill Bengen "free lunch" equity glidepath?

Post by nisiprius »

Yes, "bond tent" is the improved name for "rising equity glide path." Pfau and Kitces published a paper on what they then called a "rising equity glide path." It brushed a way the obvious concern in a single sentence:
Notably, the clear caveat and concern of this approach is that it may also create concerns for seniors in their later years, who may not be comfortable from a risk tolerance perspective handling the greater equity exposures implied by this approach (even if the results would technically be optimal from the mathematical and markets perspective).
Fans of high stock allocations immediately jumped on the result. Kitces renamed the approach a "bond tent" because it was being misinterpreted as "more stocks better" and missing the point was that the rising equity glide path was preceded by a deeper reduction in stocks than with a traditional glide path.
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Re: Thoughts on Bill Bengen "free lunch" equity glidepath?

Post by BigSky777 »

TheTimeLord wrote: Sat Nov 30, 2024 8:41 am
BigSky777 wrote: Fri Nov 29, 2024 2:23 pm Greetings,

In a recent interview with Bill Bengen by Paula Pant at the Bogleheads conference he mentioned the 4 free lunches of retirement planning including the use of an equity glidepath. Reducing equities at retirement, then increasing later to hedge risk of SORR. What do you think of this quote "free lunch"? I haven't heard of many doing this but maybe I missed it. Thanks for any thoughts.


Cheers
Are you talking about a "Bond Tent"?

https://www.kitces.com/blog/managing-po ... -red-zone/

Image
Yes, thank you for the response and link. In the interview he did not discuss any level of specifics around the topic. Do you think many people utilize this strategy?
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Re: Thoughts on Bill Bengen "free lunch" equity glidepath?

Post by dcabler »

BigSky777 wrote: Sat Nov 30, 2024 11:12 am
TheTimeLord wrote: Sat Nov 30, 2024 8:41 am

Are you talking about a "Bond Tent"?

https://www.kitces.com/blog/managing-po ... -red-zone/

Image
Yes, thank you for the response and link. In the interview he did not discuss any level of specifics around the topic. Do you think many people utilize this strategy?
There are people on the forum who have noted that they use this or at least asked about it previously. There have also been a bunch of backtests, assuming SWR as the withdrawal method that appear to show that any improvement there might have been was marginal. Note my use of the past tense since most SWR studies were based on past data.

There is no escaping SORR, but you do have control over how it manifests itself. Rather than the risk of total portfolio depletion where all the risk happens with the last withdrawal, you can instead spread the risk across all withdrawals, resulting in withdrawals that very from period to period. I would suggest looking at VPW, ABW and TPAW on this forum as well as the 2 part series on the bogleheads blog by siamond located here:
https://www.bogleheads.org/blog/2019/02 ... -of-money/
https://www.bogleheads.org/blog/2019/02 ... ey-part-2/

Cheers.
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Re: Thoughts on Bill Bergen "free lunch" equity glidepath?

Post by Valuethinker »

nisiprius wrote: Fri Nov 29, 2024 5:01 pm
  1. There ain't no such thing as a free lunch.*
  2. "Diversification is the only free lunch in investing." (Attributed to Harry Markowitz)
  3. There are four free lunches in retirement planning. (Bill Bengen)
If forced to pick, I'll go with #1, myself.


*Wikipedia traces it to a 1938 newspaper. Its use by SF writer Robert Heinlein in the 1960s definitely publicized it.
Perhaps because I had formal education in Finance (and am thus blind to the risks) I would go with number 2.

Diversification is a free lunch. You can lower your risk, or increase your return, by including a non perfectly correlated asset in your portfolio.

*However* it does depend on risks. And maybe the big risk, of a complete failure of an asset or asset class, is hidden there.

Stocks have provided more of a free lunch than they should have, in the past 120 years. 6% real (US) or 5% real (non-US) stocks is really just an incredible return (providing 2^10 real multiple on your money).

Why?

- we've underestimated volatility because by definition we have not considered the stock markets that went to 0 (most likely explanation in my mind)

- taxes (this is a good one; investors have demanded higher returns because of the tax costs of investing)

- other frictions like dealing costs or fund management costs - which have been substantial

- (unlikely: our choice of inflation estimator has led to an overestimate of real returns)
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Re: Thoughts on Bill Bergen "free lunch" equity glidepath?

Post by Valuethinker »

jebmke wrote: Fri Nov 29, 2024 2:36 pm I used the strategy but not because I thought I was getting something free. I did it to insulate myself from behavioral errors/risk. I have no doubt I left money "on the table" but my goal wasn't to end my life with the biggest pile.

I also used an aggressive small cap value tilt during accumulation. But I'm not sure I'd do it today; our situation was unique and conditions were different in the 1980s than they are today.
Amazing if you knew about the Small Cap Value effect then? Were you involved in academia in Finance?

Rolf Banz only published in the 1980s. The Value effect was widely talked about - when I really started getting into markets in the 1990s it had gone away for a very long time (came back with a bang post 2000).

All the funds in the 1980s that we would now call "Small Cap Value" - things like John Neff's Windsor (more of a large cap value in truth) or Peter Cundill or John Templeton -- they all had big front end loads and high MERs?

AFAIK it wasn't until the late 1990s (even then?) that value index funds started to appear. I don't know when Dimensional Fund Advisers funds became available?
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Re: Thoughts on Bill Bengen "free lunch" equity glidepath?

Post by SirE »

firebirdparts wrote: Sat Nov 30, 2024 7:26 am For anybody that needs it, “narrowing” means you would not experience the best case of 100% or some amount “more” equities and you wouldn’t the worst case of 100% or some amount “more” equities. “Better” means you have more money in most or all cases than s person with a static AA. This is the free lunch part.
Makes sense to me. I understand that sequence risk may not be relevant to people who can afford a long retirement regardless of their asset allocation. If you're not one of those lucky people, then avoiding the worst in retirement has some value, doesn't it? (giving up some upside to avoid downside)

Once you've won the game (25x your expenses), could it make sense to stop allocating to equities and just allocate any further income to cash? Then after retiring, you'd gradually increase your equity allocation again (rising equity glide path).
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Re: Thoughts on Bill Bengen "free lunch" equity glidepath?

Post by Leesbro63 »

I've been around here a long time and have followed Bengen since a few years after his 1994 discovery of "the 4% Rule". I've often commented that I find him "quirky" for a number of reasons, but that doesn't make his SWR work invalid. At any rate, despite all of that, I admit, I don't understand the rising equity glidepath.

How are you less at risk for the consequences of a market crash at age 80, say 15 years into a hypothetical 30 year retirement, than you are at 65? Yeah, you have 15 less years of spending. But you also have 15 less years for a recovery. What if you are 80 in 1966? You missed the big portfolio growth starting at your 1951 retirement. Ok, you had rising equity, but you still missed some big gains by not having your maximum equity allocation at the beginning of retirement. Now it's 1966 and until your hypothetical death at age 95, inflation, poor stock and bond returns and spending withdrawals makes it all bad. If you had that full equity horsepower from 1951, you'd be better able to ride out your financial life to age 95. Again, I don't get rising equity glidepath.
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Re: Thoughts on Bill Bergen "free lunch" equity glidepath?

Post by jebmke »

Valuethinker wrote: Sat Nov 30, 2024 5:14 pm
jebmke wrote: Fri Nov 29, 2024 2:36 pm I used the strategy but not because I thought I was getting something free. I did it to insulate myself from behavioral errors/risk. I have no doubt I left money "on the table" but my goal wasn't to end my life with the biggest pile.

I also used an aggressive small cap value tilt during accumulation. But I'm not sure I'd do it today; our situation was unique and conditions were different in the 1980s than they are today.
Amazing if you knew about the Small Cap Value effect then? Were you involved in academia in Finance?

Rolf Banz only published in the 1980s. The Value effect was widely talked about - when I really started getting into markets in the 1990s it had gone away for a very long time (came back with a bang post 2000).

All the funds in the 1980s that we would now call "Small Cap Value" - things like John Neff's Windsor (more of a large cap value in truth) or Peter Cundill or John Templeton -- they all had big front end loads and high MERs?

AFAIK it wasn't until the late 1990s (even then?) that value index funds started to appear. I don't know when Dimensional Fund Advisers funds became available?
My wife worked as a portfolio manager for a very small firm that spun off from Putnam. This was a portfolio she co-managed for clients and all her bonus, profit sharing and pension was invested in the same fund. When sheleft the firm in the mid-90s we just left it there. They did well. It was mostly small with a little mid-cap and virtually all value stocks.
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Re: Thoughts on Bill Bengen "free lunch" equity glidepath?

Post by SirE »

Leesbro63 wrote: Sun Dec 01, 2024 5:29 am How are you less at risk for the consequences of a market crash at age 80, say 15 years into a hypothetical 30 year retirement, than you are at 65? Yeah, you have 15 less years of spending. But you also have 15 less years for a recovery.
You're less at risk because you had 15 years of compounding wealth before the crash (assuming a reasonable withdrawal rate, of course), so a crash won't affect you that much at that point due to having a higher net worth than you need to sustain your withdrawals.
Last edited by SirE on Sun Dec 01, 2024 6:01 am, edited 1 time in total.
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Re: Thoughts on Bill Bengen "free lunch" equity glidepath?

Post by loukycpa »

I have done a couple of things in recent years, the result of which have made me sleep pretty well at night and think a lot less about these things. At 51, my loose plan from here:

1) Continue working and saving until mid 2031 (retire from current career at age 58)
2) Delay social security until age 70 (I am well past the second bend point now)
3) Allow a bridge to those SS checks, which I have already funded with a TIPS ladder (maturities in 2031 to 2043) in a rollover traditional IRA, to provide me with the equivalent of a SS check in the bridge years
4) Besides a reasonable amount of reserves in a money market fund, the remainder of my portfolio is in a US total stock market index fund and a international total stock market index fund
5) All future savings, any inheritance I may receive, etc. will go be going 100% into the total market index funds

The combination of the SS bridge, eventual SS checks, and a low initial withdrawal rate from the equity side (with flexibility), assuming any future market conditions that are anywhere close to within the bounds of what we have seen the last 100 years of US market history, should provide me with at least an adequate retirement. If things go reasonably well, perhaps much better than adequate.

The result of the above is expected to be a rising equity glidepath. My equity allocation is over 50% equities now and should generally increase going forward (the market will dictate how much). I'm not suggesting this plan will be necessarily be optimal (no one knows) or provides a free lunch, but it is simple, suits my temperament, and I believe it is going to work fine for me. I will have relatively safe floor of income and I am reasonably sure I will never have to live under a bridge or eat cat food. Once again it has allowed me to stop stressing and thinking about this stuff and focus on other more important things.
Last edited by loukycpa on Sun Dec 01, 2024 8:22 am, edited 2 times in total.
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Re: Thoughts on Bill Bengen "free lunch" equity glidepath?

Post by dknightd »

I used a glide path (or Bond tent, if you prefer) type of approach.
I did this so that the years between retiring and claiming SS were covered.
The idea is when you have income you can risk a little more of it. The years when you have no income you might be a little more cautious. Yes, I count SS as income.
In retrospect I probably would have been a little better off not doing this. But it could have gone the other way. I'm comfortable with this approach, and would likely do it again if I had the chance to start over. YMMV
Retired 2019. So far, so good. I want to wake up every morning. But I want to die in my sleep. Just another conundrum. I think the solution might be afternoon naps ;)
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Re: Thoughts on Bill Bengen "free lunch" equity glidepath?

Post by loukycpa »

delete
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Re: Thoughts on Bill Bengen "free lunch" equity glidepath?

Post by nisiprius »

SirE wrote: Sun Dec 01, 2024 5:56 am
Leesbro63 wrote: Sun Dec 01, 2024 5:29 am How are you less at risk for the consequences of a market crash at age 80, say 15 years into a hypothetical 30 year retirement, than you are at 65? Yeah, you have 15 less years of spending. But you also have 15 less years for a recovery.
You're less at risk because you had 15 years of compounding wealth before the crash (assuming a reasonable withdrawal rate, of course), so a crash won't affect you that much at that point due to having a higher net worth than you need to sustain your withdrawals.
Unless, of course, those 15 years were 1929-1943.
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Re: Thoughts on Bill Bengen "free lunch" equity glidepath?

Post by Leesbro63 »

nisiprius wrote: Sun Dec 01, 2024 8:25 am
SirE wrote: Sun Dec 01, 2024 5:56 am

You're less at risk because you had 15 years of compounding wealth before the crash (assuming a reasonable withdrawal rate, of course), so a crash won't affect you that much at that point due to having a higher net worth than you need to sustain your withdrawals.
Unless, of course, those 15 years were 1929-1943.
Exactly my point. Risk can show up at any time during a 30 year retirement and do great damage. Seems to me that rising equity glidepath doesn’t really change that.
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Re: Thoughts on Bill Bengen "free lunch" equity glidepath?

Post by Circle the Wagons »

Leesbro63 wrote: Sun Dec 01, 2024 8:41 am
nisiprius wrote: Sun Dec 01, 2024 8:25 am Unless, of course, those 15 years were 1929-1943.
Exactly my point. Risk can show up at any time during a 30 year retirement and do great damage. Seems to me that rising equity glidepath doesn’t really change that.
Agreed. It makes much more sense for AA to consider portfolio size, future spending needs, and the equity risk premium at each point in time.
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Re: Thoughts on Bill Bengen "free lunch" equity glidepath?

Post by SirE »

nisiprius wrote: Sun Dec 01, 2024 8:25 am
SirE wrote: Sun Dec 01, 2024 5:56 am

You're less at risk because you had 15 years of compounding wealth before the crash (assuming a reasonable withdrawal rate, of course), so a crash won't affect you that much at that point due to having a higher net worth than you need to sustain your withdrawals.
Unless, of course, those 15 years were 1929-1943.
Sure, but a 50% crash won't hit you as hard with a $2 million portfolio as it will with a $1 million portfolio, assuming $1 million is the 25x you need to maintain a 4% withdrawal rate. All things being equal, a 1929 crash at the beginning of retirement is much worse than a 1929 crash 15 years into retirement (because your portfolio had 15y to compound). Of course, not having a 1929 crash in the first place will always be nice :-)
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Re: Thoughts on Bill Bengen "free lunch" equity glidepath?

Post by Leesbro63 »

SirE wrote: Sun Dec 01, 2024 9:43 am
nisiprius wrote: Sun Dec 01, 2024 8:25 am Unless, of course, those 15 years were 1929-1943.
Sure, but a 50% crash won't hit you as hard with a $2 million portfolio as it will with a $1 million portfolio, assuming $1 million is the 25x you need to maintain a 4% withdrawal rate. All things being equal, a 1929 crash at the beginning of retirement is much worse than a 1929 crash 15 years into retirement (because your portfolio had 15y to compound). Of course, not having a 1929 crash in the first place will always be nice :-)
On the other hand, a crash early in retirement might allow a Plan B which could be return to work. Whereas at age 80, a fat portfolio might have encouraged lifestyle creep that will be hard to cut back. No one wants a surgeon who retired at 65 and had to go back to doing open heart surgery or cataract removal at age 80.

I'm stickin' with my assertion that a 50% crash at any of the different times will always bring problems...albeit different but not necessarily better or worse than at a different time.
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Re: Thoughts on Bill Bengen "free lunch" equity glidepath?

Post by TipsQuestions »

Leesbro63 wrote: Sun Dec 01, 2024 8:41 am
nisiprius wrote: Sun Dec 01, 2024 8:25 am Unless, of course, those 15 years were 1929-1943.
Exactly my point. Risk can show up at any time during a 30 year retirement and do great damage. Seems to me that rising equity glidepath doesn’t really change that.
Indeed. Bunching risk near the end of life has no rational basis, which is why no target retirement fund does it. Looks like the studies showing this is "better" compare to a fixed w/d rate, where you mindlessly draw down the portfolio by the same amount each year regardless of returns. Nobody does this in practice.
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Re: Thoughts on Bill Bengen "free lunch" equity glidepath?

Post by Unchained »

Exactly my point. Risk can show up at any time during a 30 year retirement and do great damage. Seems to me that rising equity glidepath doesn’t really change that.
[/quote]

Indeed. Bunching risk near the end of life has no rational basis, which is why no target retirement fund does it.
[/quote]

No rational basis at all? Towards the end of my life I would expect that additional stock market risk would likely allow me to pass more on to my heirs, with a stepped up cost basis.
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Re: Thoughts on Bill Bengen "free lunch" equity glidepath?

Post by FactualFran »

nisiprius wrote: Sun Dec 01, 2024 8:25 am
SirE wrote: Sun Dec 01, 2024 5:56 am You're less at risk because you had 15 years of compounding wealth before the crash (assuming a reasonable withdrawal rate, of course), so a crash won't affect you that much at that point due to having a higher net worth than you need to sustain your withdrawals.
Unless, of course, those 15 years were 1929-1943.
Using 1929 as the starting year, an initial withdrawal rate of 4%, inflation-adjusted withdrawal amounts, and the 50/50 stock/bond portfolio that Bengen used, the portfolio balance adjusted for inflation at the end of 1943 would have been 84% of the initial balance. 1929 was not a bad starting year for a portfolio with a moderate allocation to stocks and bonds.
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Re: Thoughts on Bill Bengen "free lunch" equity glidepath?

Post by Leesbro63 »

FactualFran wrote: Sun Dec 01, 2024 1:16 pm
nisiprius wrote: Sun Dec 01, 2024 8:25 am Unless, of course, those 15 years were 1929-1943.
Using 1929 as the starting year, an initial withdrawal rate of 4%, inflation-adjusted withdrawal amounts, and the 50/50 stock/bond portfolio that Bengen used, the portfolio balance adjusted for inflation at the end of 1943 would have been 84% of the initial balance. 1929 was not a bad starting year for a portfolio with a moderate allocation to stocks and bonds.
I think the lesson…Bengen mentioned it…is that inflation has been the worst enemy, so far, of retirement investing/withdrawing.
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Re: Thoughts on Bill Bengen "free lunch" equity glidepath?

Post by watchnerd »

I use a TIPS ladder as a bond tent to delayed SS but it’s not a free lunch.

I’m giving up possible upside in exchange for an inflationed adjusted income stream
Global stocks, IG/HY bonds, gold & digital assets at market weights 78% / 17% / 5% || LMP: TIPS ladder
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Re: Thoughts on Bill Bengen "free lunch" equity glidepath?

Post by drdrew450 »

When he says "free lunch", he means it allowed a higher SWR. That was my interpretation. The whole interview is about SWR and what he has been modeling that allowed him to recommend a higher SWR.

Free lunch is not a great term for this, it does have downsides, but again he focuses on SWR.
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Re: Thoughts on Bill Bengen "free lunch" equity glidepath?

Post by Random Musings »

I'm not sure if there is a "free lunch" in the investing world; may only know after the fact. Perhaps closest to a free lunch are TIPs, a known real return over inflation, with one caveat that certain personal inflation rates can be significantly different than the benchmark. There are other risks too so perhaps this is at least a discounted lunch.

RM
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Re: Thoughts on Bill Bengen "free lunch" equity glidepath?

Post by Leesbro63 »

Random Musings wrote: Sun Dec 01, 2024 9:06 pm I'm not sure if there is a "free lunch" in the investing world; may only know after the fact. Perhaps closest to a free lunch are TIPs, a known real return over inflation, with one caveat that certain personal inflation rates can be significantly different than the benchmark. There are other risks too so perhaps this is at least a discounted lunch.

RM
I think diversification is a free lunch. I'm not sure if there are others, but I do think diversification is truly a free lunch.
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Re: Thoughts on Bill Bengen "free lunch" equity glidepath?

Post by jeroly »

I took a reverse glidepath approach when I left my last full-time, non-temporary j*b in 2018, moving from 65% equities down to 40%. I didn't use a bond ladder or even a tent - I moved into money markets instead.

I'm now back up to around 60%, and would be at a higher AA had it not been for selling some real estate and mostly keeping the proceeds out of the market. I'd like to let it run up to 70% or so, though, before I start reallocating out of equities again.
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Re: Thoughts on Bill Bengen "free lunch" equity glidepath?

Post by CloseEnough »

I like the idea of a cash tent, or a mixed cash tent/bond tent. I don't think a bond tent would have worked well for anyone retiring in 2022.

As for equity glide path, once well into retirement the percentages don't matter as much as the absolute amounts, and if you have enough on that basis then allowing equity to build, an equity glide path, makes sense. And I agree that diversification is the free lunch, or as close as you can get.
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Re: Thoughts on Bill Bengen "free lunch" equity glidepath?

Post by Leesbro63 »

This Bengen on Kitces podcast is worth a listen. At around 50 minutes in, he talks about becoming a market timer. Again, he's quirky. He uses a market timing service. He thinks financial planners should look at alternatives to market timing, but doesn't spell out what that is and admits he's failed at it.

I do share his concern that markets can go down and stay down like they did in the 1960s-1970s. But until he comes up with something better than buy and hold, I guess I'll continue to buy and hold.

https://www.youtube.com/watch?v=v1fDIoqzrwk
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