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Old 04-09-2015, 09:22 AM   #41
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So, who knows what will happen in the next 50 years. The only thing certain is that I will be dead.
Well death is not certain either. It is certainly not out of the realm of possibility that a system is developed that causes cells to regenerate or stop decay. Alternatively the brain could be mapped onto the next generation of quantum computer and you could *live* forever (or as long as you can afford to pay for your iBrain storage space in the cloud).
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Old 04-09-2015, 09:35 AM   #42
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The retirement killing scenarios in the future might not involve ugly inflationary periods.
Very true...
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Old 04-09-2015, 09:45 AM   #43
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Well death is not certain either.
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Very true...
My money says REWahoo's scenario happens before Fermion's does ...
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Old 04-09-2015, 09:51 AM   #44
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My money says REWahoo's scenario happens before Fermion's does ...
In the past 100 years we have been hit by exactly how many mile-diameter asteroids?

In the past 100 years life expectancy has increased by decades and processing power has gone from slide rule to trillions of calculations per second.

Smart money would be on me based on recent history.


Maybe we will need to amend Ben's quote. For sure he will always be correct about taxes.
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Old 04-09-2015, 10:00 AM   #45
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In the past 100 years we have been hit by exactly how many mile-diameter asteroids?

In the past 100 years life expectancy has increased by decades and processing power has gone from slide rule to trillions of calculations per second.

Smart money would be on me based on recent history.
Past performance is no guarantee of future results
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Old 04-09-2015, 10:56 AM   #46
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Gonna be retiring in 12 months, with a 40+ year time horizon.

I think firecalc will say I'm 100% good for anything between 30/70 and 70/30. I've chosen 60/40, and it may stay there for the rest of my life...
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Old 04-09-2015, 11:40 AM   #47
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I ran 2 scenarios in VPW shown below. The first is a 30/70 and the second is a 50/50 AA. Both are for a 65 year old with depletion of the portfolio at age 110. The backtesting table is for a start year 1968 which was the worst in modern times and encompassed the 1969 and 1973 recessions plus the 1970's inflation.

In general the 50/50 allows somewhat higher spending but not for every year of a start year sequence. I haven't shown all the results but the chart of withdrawal statistics for every start year in general move up with 50/50 versus 30/70. It could be that different start ages and some international stock would modify results somewhat.



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Old 04-09-2015, 11:34 PM   #48
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Well death is not certain either. It is certainly not out of the realm of possibility that a system is developed that causes cells to regenerate or stop decay. Alternatively the brain could be mapped onto the next generation of quantum computer and you could *live* forever (or as long as you can afford to pay for your iBrain storage space in the cloud).
If your thoughts could be stored on a computer, could that still be you without your body and senses (what good are thoughts or ideas without a physical body and its senses)? Or will your senses get virtualized also, la Matrix the movie? And what prevents a software virus from polluting your stored thoughts, causing it to crash the computer or enter an endless loop?

And will computing power be so cheap that the thought storage can be provided free to everybody? So that their thoughts continue to post threads on the virtualized ER forum, so they can argue about every little thing till eternity?

And as you mention the cost for iBrain storage, will the cost become so low with advanced technology that our WR will become infinitesimal, allowing our portfolio to grow indefinitely, rendering all this AA and WR moot?

But the most important issue is what will keep ReWahoo's asteroid from wiping out all this wonderful computer storage where our thoughts reside?

I don't think anything can ever be certain or guaranteed. Something bad is going to happen one way or another. It's nature.
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Old 04-10-2015, 07:12 AM   #49
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For those that continue for years to feel that interest rates are too low to hold bonds, (this article advocated 5 year treasuries), if interest rates were to climb 3 percent in the next year which do you think would perform worse 5 year treasuries or the US stock market?
So do you think the stock market would take such a rapid increase in stride
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Old 04-10-2015, 07:54 AM   #50
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Chuckanut may have been taking a well-earned vacation when we discussed Mr Ferri's 30/70 proposal a few months ago.

Here's that thread. Lots of graphs and well-thought-out opinions there (as here).

Like then, I think Mr Ferri is conflating "risk" with "volatility"--they ain't the same thing. The main "risk" is not the rising and falling of equity prices, it is inflation. Having a healthy dollop of equities has, historically, been important in order to address that risk. And as Audrey1 pointed out, if a long-term retiree goes below about 45% stocks, then the withdrawal rate needs to go down.

Chart below is from an article by Wade Pfau:

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Takeaway from the above: If your retirement horizon is 30 years or longer and you need to take a WR of more than 3.5% (of starting balance, adjusted for inflation), then you probably need more than 30% stocks if history is any guide. 45% stocks would be a better WAG for this situation.

At today's interest rates, I'd be buying some very short duration bonds if I was thinking of going to a bond-heavy allocation.

With this recommendation, I'm concerned Mr Ferri may have joined Dr Bernstein in recommending a course of action that will reduce their chances of getting a batch of nasty phone calls from clients. I'd rather they provide analysis, with all appropriate cautions, that is appropriate for the informed investor.

This is a great baseline. What is not included is other income, like most ER's I do not include SS in my budget calculations. Since that is variable a table really could not include it. We do 40/60 and are 54 and 53 yrs old planning on ER next yr. I may change the AA when we start collecting SS. So many variables go into your budget. We want to enjoy the $ while we are young and I can see us spending more now then say when we are in our 70's. My point with this is to show how different everyone is and why it is worth the effort to create a realistic budget and live with it. A 40/60 AA meets our budget needs with a 4% rate.
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Old 04-10-2015, 08:50 AM   #51
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We were at 50-55% equities since before retirement but have started gradually moving to 60-65% now that SS has started & will bump up again in a few years. I.e., we now have an annuity as a backstop against volatility. We also a bit of steady rental income. Net, seems sensible to take more risk now since our timeframe of need grows shorter. It's in line with this article: How Much Stock Should You Own in Retirement? - WSJ
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Old 04-10-2015, 11:31 AM   #52
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If your thoughts could be stored on a computer, could that still be you without your body and senses (what good are thoughts or ideas without a physical body and its senses)? Or will your senses get virtualized also, la Matrix the movie? And what prevents a software virus from polluting your stored thoughts, causing it to crash the computer or enter an endless loop?

And will computing power be so cheap that the thought storage can be provided free to everybody? So that their thoughts continue to post threads on the virtualized ER forum, so they can argue about every little thing till eternity?

And as you mention the cost for iBrain storage, will the cost become so low with advanced technology that our WR will become infinitesimal, allowing our portfolio to grow indefinitely, rendering all this AA and WR moot?

But the most important issue is what will keep ReWahoo's asteroid from wiping out all this wonderful computer storage where our thoughts reside?

I don't think anything can ever be certain or guaranteed. Something bad is going to happen one way or another. It's nature.
I know this was a somewhat tongue in cheek response, but actually most of the *issues* you pointed out can be solved. Sensory input is just electrical signals generated by certain cells (touch, hearing, vision). There are already small steps being taken to restore these senses with electronic versions for people who have lost them. I do not think it a great stretch to imagine the electronic brain connected to a similar system of sensory input.

Redundant storage could be provided (for a cost) on a satellite, the moon, or even another planet.

It is all very sci-fi, but so was the star trek tri-corder just a few decades ago. We now call it an I-phone but it is very similar.
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Old 04-10-2015, 11:51 AM   #53
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I know this was a somewhat tongue in cheek response, but actually most of the *issues* you pointed out can be solved. Sensory input is just electrical signals generated by certain cells (touch, hearing, vision). There are already small steps being taken to restore these senses with electronic versions for people who have lost them. I do not think it a great stretch to imagine the electronic brain connected to a similar system of sensory input.

Redundant storage could be provided (for a cost) on a satellite, the moon, or even another planet.

It is all very sci-fi, but so was the star trek tri-corder just a few decades ago. We now call it an I-phone but it is very similar.
I have many physician friends, some of whom neurologists, who ponder the future results of bio-engineering. Thoughts, senses, emotion and even awareness are at their most fundamental levels purely electrical impulses that in theory can be emulated, stored, reused and combined. Could we someday see what you describe? I wouldn't rule it out. Someday it could be common practice to use 120 years of age or more as an end point when deciding asset allocations.
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Old 04-10-2015, 01:42 PM   #54
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I think a better approach would be to go 30/70 with the 70 in a "stable value" fund, like T Rowe Price or something similar - it has an effective duration of 0 and the annual RORs have been much higher than cash - that's probably what I'll be doing when I start drawing down
I'm closer to 30/70 than most of the AAs claimed by this thread's contributors. But, in fact, my non-equities contain relatively low levels of bond funds. As suggested by Big_Hitter, I have a significant commitment to a "stable value" fund held in my 401(k). It's true that such funds have produced relatively small gains compared to equities, but with virtually no volatility. Additionally, I have some less-than-traditional bond "equivalents" such as SPDAs (faithfully cranking out 4.5% interest) as well as I-bonds (old enough to have significant actual interest rates in addition to their inflation sweetener.) Less traditionally, I have a small but significant allocation to PMs, stored in a safe deposit box as well as a contract sale.

I find myself taking the other side of the argument "If you have pension or SS or other annuity income (which I do), you can allocate more to equities." That's certainly a valid viewpoint, but I would say "I no longer need the additional potential provided by a large commitment to equities." I prefer a lower "terminal value potential" and a less volatile "ride". Assuming inflation remains reasonable, I see no reason why this AA should not work for me since my WR is well below 4% and my time horizon is unlikely to exceed 30 years (more like 20 or, optimistically, 25.) If inflation begins to rear its ugly rear, I may be forced to rethink my AA. In the 10 years of my ER, my port has never suffered a numerical loss, even considering withdrawals and significant Roth conversions. I haven't tracked inflation closely enough to determine if my purchasing power has ever taken a hit, but I'm sure such a hit has been small if it exists. I consider my primary residence only as a back-up in my portfolio.

Clearly, I could have played this all a lot better (especially in hind sight, heh, heh.) I could probably have nearly doubled my stash had I been more into equities starting 20 years back and maintaining a 50/50 AA or higher (equity) allocation. But, I've had the money I needed to do the things I wanted. Those things I've "given up" such as late model cars, world travel, larger more exclusive housing, etc. are things I never particularly aspired to - though if wishes were horses (or Teslas) I suppose I would opt for more consumer "goodies" - or more likely, first class air travel instead of cattle car, er, I mean coach.

If I'm making a point, it would be that "whatever works for me" works. I understand the risks (in my case, the biggest is probably run-away inflation.) Still, I've built in back-ups (to my back-ups). In short, I believe my comfort level is better served by my current AA than it would be with a more traditional ER-level AA. How one feels about one's retirement is often more important than what one owns in retirement. That's my story and I'm sticking to it - for now, but YMMV.
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Old 04-10-2015, 02:11 PM   #55
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FWIW, I think it is probably that the 30/70 ratio is based upon a person whose retirement is mostly dependent on one's personal financial investments with minimal pension/annuity/rental-income, etc. YMMV.
Excellent point!
Many ignore pension/annuity in their AA analysis.
But having owned rental property in the past, I would not lump rental income with P/A's. Net rental income can be very volatile (with large unexpected repair expenses, extended vacancies, etc.).
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Old 04-10-2015, 03:46 PM   #56
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the real question isn't the sources of the income but the withdrawal rate they want.

someone can have a 60k pension and still need a 4% withdrawal rate from savings so the rules and backtesting still apply. on the other hand a 2% withdrawal rate and no pension would have back tested fine with 30% equities.
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Old 04-10-2015, 04:44 PM   #57
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If you are 'deep' within 100% SWR territory, then looking at pass/fail isn't going to be very sensitive to AA. You won't really get much information from that kind of a comparison.
Yep, better way to see AA impact on a portfolio's success rate is to get it as close to 99.99% success as possible, then start fiddling.
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Old 04-10-2015, 04:49 PM   #58
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the real question isn't the sources of the income but the withdrawal rate they want.

someone can have a 60k pension and still need a 4% withdrawal rate from savings so the rules and backtesting still apply. on the other hand a 2% withdrawal rate and no pension would have back tested fine with 30% equities.
Agreed!

Whether or not someone has a pension has nothing to do with how much they might need from their investments.

If someone needs 4% or whatever from their investments beyond what their pension provides, then they need to use the appropriate allocation for meet their time frame.
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Old 04-10-2015, 08:45 PM   #59
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Yep, better way to see AA impact on a portfolio's success rate is to get it as close to 99.99% success as possible, then start fiddling.
That should work for a Monte Carlo simulation, but for FIRECalc that would be selecting just one failure case to work on. It might be just a high inflation scenario. I wouldn't base AA selection on that.
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Old 04-10-2015, 09:49 PM   #60
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Your post made me realize that we have been talking all these years about the worst case scenarios in the past that a retiree had to contend with. Namely, the high-inflationary period starting in 1966 was the worst, followed by the Great Depression whose effects on the stock market was mitigated by its deflationary nature.

But, as they say, we are spending too much time worrying about the "known unknowns", but we may get hit by an "unknown unknown".

No, I am not bringing up REWahoo's asteroid, but am thinking of some politico-economic collapse that has never been experienced in the US, hence totally unplanned for. What if the drought in California extends to all Western states, resulting in half of the US becoming the bleak landscape in Mad Max movies? Or an epidemic that we no longer can dodge?

No, I am not staying up late at night worrying about this. I am just saying there's only so much we can worry about AA and WR. There's a lot of uncertainties out there, and what I am trying to do is to eat and drink and be merry while I still can.
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