Originally Posted by Cobra9777
Regarding asset allocation, I'm quickly learning that most posters in this forum are much more aggressive than my current plan, which is 30% stock, 70% fixed income. It seems contrary to everything I've been taught about being conservative in retirement. But I'm always open to challenging what I've been taught in the past. So, I'm warming up to the idea, in part because I don't like holding 70% bonds when interest rates are likely to increase in the near future. After looking at some of the historic market performance data in FIRECalc and elsewhere, and thinking more long-term, I'm definitely considering this.
One question though... My models say 4% gets me to my actuarial life expectancy with the nest egg intact. It also gets me to age 91 before I start running short of inflation-adjusted spending. My current conservative portfolio generates 3.5-4.0%; and that's in a time of historically low interest rates. It only gets higher from here. I could actually get MORE conservative in the future and still get where I need to go. Under that scenario, and assuming my models are correct, why would I want to get more aggressive and risk the whole thing? Late 2008 is still fresh in my memory.
Conceptually you could think of your portfolio in terms of four separate pools of money for each of the next four decades.
Pool #1 covers your 50s and will need to be somewhat conservatively invested to withstand any deep market dips in the next decade
Pool #2 covers your 60s (10-20 years out) so you need to think about inflation and what kinds of asset allocation is most appropriate for a 10-20 year time horizon.
Pool #3 covers your 70s (20-30 years out). Equities have generally been the strongest performers for any 20-30 year time horizon in the past.
Pool #4 covers your 80s (30-40 years out). Again, inflation is your big concern (especially things like health care inflation). And there probably aren't any 40-year time periods going back to the 1700s when equities didn't produce the highest returns compared to fixed income investments.
For someone looking to make a portfolio last 40+ years you probably need to think more about generating higher rates of return for the pools of money that you are setting aside for the last decades of your life. If you were to invest pools 3 and 4 into mainly equities knowing that money is set aside for 20-40 years in the future it might be easier to conceptualize and that would bring you closer to 50% equities. For example, Vanguard's Target Retirement 2010 is 47% in equities and their Target Retirement 2015 is 55% in equities.
As for whether you are in a position to ER, I don't really have any advice except to ask how easy would it be for you and or your wife to pick up extra income on the side by returning to work or doing something different. You are still young Would you have the means to get back in the workforce in say 5 years if some catastrophe wiped out part of your portfolio? For example, I teach school here in Texas and my wife is a physician. We aren't planning to ER now but if we did it would be relatively easy to hop back in the workforce 5 years down the road. Science teachers can always find work and so can doctors. But if you are in some corporate field that will move on without you and make it very difficult to get back in then it is something to think about.