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Old 08-24-2007, 05:50 PM   #1
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Just start planning ER

I found your forum and was surprised by the depth of knowledge and interest of people here.
Let me introdiced myself: 57 years old and plan to retire in three to four years. I need to plan, and I think this forum can help me. I have $700K in my IRA and $500K in taxable and may get some inheretance in two years. I'm maried and the children are on they own. Live in California and thinking to move to Washington State. My asset allocation is 20% US Large Cap, 10% US Small Cap, 3% International, 3% High Yield CEF, 5% Bonds and 25% cash. I know it's not the optimal AA, and I'm reading books by Rick Ferry and Larry Swedrow and will develope an AA to match my goals for ER, if it's possible.
I would like to ask two questions:
1. what AA are most ER are using? 60% stocks and 40% bonds and what % in International?
2. How best explain to my wife why 4% withdrawal rate is the most optimal solution?

Thank you very much.
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Old 08-25-2007, 08:25 AM   #2
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Spring, there's a nice thread in the "Best Of" forum that talks about the 4% SWR.

If you haven't yet, check out FIRECalc. It will help you develop a SWR for your specific situation.

Welcome to the board!

Coach
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Old 08-25-2007, 10:50 AM   #3
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Quote:
Originally Posted by Spring View Post
I would like to ask two questions:
1. what AA are most ER are using? 60% stocks and 40% bonds and what % in International?
.
Thats a question you will have to answer for yourself once you finish reading the books and exploring this and other sites. No one can know your situation, plans or your tolerance for risk as well as you can.

Oh, and hello and welcome...

DD
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Old 08-26-2007, 02:39 PM   #4
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Hello and welcome.

As DblDoc said, there is no one pat answer. You will have to figure out what you are comfortable with.
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Old 08-26-2007, 04:23 PM   #5
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Welcome Spring.
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Old 08-26-2007, 05:39 PM   #6
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Welcome, Spring.

There is a wide range of AA here.

I am older than you and still in acquisition mode. I am 100% equities, equities 50/50 US/international. I look at Social Security as my fixed-income component (when it comes), but others have a lower tolerance for risk (fluctuation in value of assets--i.e., the bottom drops out of the market for a month...a year...10 years). The famous Terhorsts have been living off a 100% S&P 500 index fund for years. No social security--too young!

Just today, someone was talking about 50/50 equities/fixed income, equities 50/50 US/international for an autopilot portfolio for his wife should he predecease her. I think 50% FI is too much, myself; not enough protection against inflation. Many people also think any international is too much.

Some posters are 100% in real estate, managing their own properties. (Not for me. Been there. Tried that.)

If you are depending exclusively on your own assets and ignore SS, there are several rules of thumb. One is your % in bonds = your age. Several studies show that 60/40 or 75/25 equities/bonds give very good survivability over 30 years with less volatility than 100% equities.

An old-time poster here, Galeno, used to use a bucket approach. He took 4% out of his pot of 100% equities every year and put it into a CD ladder of 4-year CDs (as I recall). As the 4-year CDs matured, he bought 2-year CDs with them. As the 2-year CDs matured, he put them into a money market account and took out 1/24 of the contents every month. (He later simplified it, I think.) He had 6 years fixed income buffer to smooth out bumps in the stock market being fed by his stocks. The stocks took care of inflation for him. As I recall, the way it balances out he had 10-20% in fixed income and the rest in stocks.

Paul Merriman has a lot of articles that help explain the 4% idea, the value of index funds, the value of international content and other concepts:
FundAdvice.com - Articles
He has lots of tables and charts and has an easy-to-understand presentation. (Secondarily, he promotes a market-timing idea, but market-timing is not popular here and if you want to automate your money machine, this just adds complications--if it works at all. Not recommended by me.)

Who is right? Who is right-er? Time will tell. Do your homework, assess your personal tolerance for risk (market volatility), you pays yo' money an' you makes yo' choice.

You might take a peek into the older threads on this board, too. Lotsa good stuff.

Cheers,

Ed
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Old 08-30-2007, 03:19 PM   #7
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Quote:
Originally Posted by Spring View Post
I found your forum and was surprised by the depth of knowledge and interest of people here.
Let me introdiced myself: 57 years old and plan to retire in three to four years. I need to plan, and I think this forum can help me. I have $700K in my IRA and $500K in taxable and may get some inheretance in two years. I'm maried and the children are on they own. Live in California and thinking to move to Washington State. My asset allocation is 20% US Large Cap, 10% US Small Cap, 3% International, 3% High Yield CEF, 5% Bonds and 25% cash. I know it's not the optimal AA, and I'm reading books by Rick Ferry and Larry Swedrow and will develope an AA to match my goals for ER, if it's possible.
I would like to ask two questions:
1. what AA are most ER are using? 60% stocks and 40% bonds and what % in International?
2. How best explain to my wife why 4% withdrawal rate is the most optimal solution?

Thank you very much.
Wish I knew. Retired last year at 62 and am still working on an asset allocation for the distribution phase. Think it will be 70% equity; 20% short term bonds (laddered); 10% MM. Presently at 88% equity with 5% bonds and 7% MM. Have 2 small pensions that cover basic expenses (no debt). Therefore, can take a little more volatility. Not comfortable with erosion of real value due to inflation and taxes by heavy use of bonds. Presently have 35% of portfolio in international thinking it would be a little out of step with the US. It has surprised me by being fairly similar. However, many of the large US companies have become international.
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Old 08-30-2007, 06:07 PM   #8
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Thank you very much to all of you. I'm still reading the books and getting more ideas. Will read the posts to educate myself more.
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