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Old 05-06-2010, 12:50 PM   #21
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That's why I just use the 100 - age = amount in equities, my age = amount in fixed income formulas for my allocation. To try to take the emotion out of the allocations and to protect my investments from my worst enemy, that being myself .
EasySurfer,
I understand why you'd say that. The "100 - age" approach seems intuitive, making sense on the surface, and is recommended by many planners as well as distinguished and reputable people like Jack Bogle. Still it is a myth.

In the last 6 months I've tested 40 or more different withdraw strategies using Shiller's data, Ibbson's data, and Monte Carlo simulations. These tests included three age-based strategies: 100-age, 120-age, and Glidepath. Of all the strategies, the age-based ones had the poorest performance, with "100-age" being the worst (running out of money in retirement more than any other strategy). If you have a low enough withdrawal rate then about any strategy will work, but I recommend avoiding all the age-based ones.

I agree with your sentiment though.
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Old 05-06-2010, 02:18 PM   #22
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EasySurfer,
I understand why you'd say that. The "100 - age" approach seems intuitive, making sense on the surface, and is recommended by many planners as well as distinguished and reputable people like Jack Bogle. Still it is a myth.

In the last 6 months I've tested 40 or more different withdraw strategies using Shiller's data, Ibbson's data, and Monte Carlo simulations. These tests included three age-based strategies: 100-age, 120-age, and Glidepath. Of all the strategies, the age-based ones had the poorest performance, with "100-age" being the worst (running out of money in retirement more than any other strategy). If you have a low enough withdrawal rate then about any strategy will work, but I recommend avoiding all the age-based ones.

I agree with your sentiment though.
I have not done the testing you did... there was article posted here within last 2 months which showed some similar studies.

General conclusion was invest aggressively up to retirement-10 years, then time when you put on brakes (hard). Meaning 100% or 80% equities to retirement-12 years, then within next 4-6 years sell off about 1/5-1/2 of the equity positions to a portfolio which is more income based and let the more conservative portfolio ride you off into the sunset.


This does not help OP "as much" because he is closer to retirement than retirement-10...
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Old 05-06-2010, 02:20 PM   #23
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Still it is a myth.
That is a little harsh. Bonds are a safer investment that on average have returned less than equities. If you use more of a safer investment in your portfolio, you should expect to have a lower return and consequently to withdraw less.

Of course, safer portfolios don't always return less. The last decade has been a good lesson.
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Old 05-06-2010, 06:41 PM   #24
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That is a little harsh. Bonds are a safer investment that on average have returned less than equities. If you use more of a safer investment in your portfolio, you should expect to have a lower return and consequently to withdraw less.

Of course, safer portfolios don't always return less. The last decade has been a good lesson.
That's why in the end, after all the studies, etc., the other rule of thumb is just have an allocation that won't keep you up at night. In otherwords, there really is no hard and fast rule and everyone has to decide what is best for them
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Old 05-06-2010, 06:49 PM   #25
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That is a little harsh. Bonds are a safer investment that on average have returned less than equities. If you use more of a safer investment in your portfolio, you should expect to have a lower return and consequently to withdraw less.

Of course, safer portfolios don't always return less. The last decade has been a good lesson.
It is not my intent to be harsh (sorry if it sounded that way). The industry and the web is full of age-based retirement recommendations that are essentially incorrect. I'm trying to counter those with a clear rebuttal to the general rule. I agree with your point -- bonds are safest if you have a low enough withdraw rate (e.g. 100% TIPS). jIMOh's last post also states another caveat that generally sounds true.
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