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4% Rule and Target Date Funds
Old 11-10-2015, 12:57 PM   #1
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4% Rule and Target Date Funds

The author here concludes that the safe withdrawal rate for a 30 year retirement using Target Date funds is well below the accepted 4% rule because they do not re-balance to maintain a 50/50 portfolio. Most stop around 40/60. His argument seems sensible. If he's correct, I might have to make some changes...

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Old 11-10-2015, 01:53 PM   #2
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I only read the first bit and decided not to invest any more time right now to read further. This part stopped me dead in my tracks......

I noticed that two investing/retirement rules of thumb were used in his presentation:
  1. Use Target Date Retirement funds
  2. The 4% withdrawal rule.
Being a geek, specifically regarding withdrawal rates in retirement, I immediately noticed an issue with these rules of thumb – they aren’t likely to be true if people follow both at the same time!

Target Date funds are for accumulation phase and 4% SWR applies to distribution phase, so why would anyone follow both at the same time?

A bigger issue to me is that the specific AA varies significantly between different mutual fund companies for a given Target Date. I generally ratchet up the equity side a bit to satisfy my own risk tolerance

...with no reasonable expectation for ER, I'm just here auditing the AP class.Retired 8/1/15.
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Old 11-10-2015, 01:54 PM   #3
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Target funds cuttiing back on equity's over time will likely have trouble keeping pace. Cash and bonds are starting out at just to low as far as returns.
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Old 11-10-2015, 02:20 PM   #4
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The validity of the 4% rule depends on you assumptions about stock and bond returns. The returns are significantly lower that the historical averages then the 4% rule looks optimistic. Wade Pfau has written about this and done some modeling.
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Old 11-10-2015, 02:23 PM   #5
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At one point I had 100% in a 2015 TDF. Over the past few years, I found myself wandering out into funds that deliver more return.

I still have about 30% in my 2015 but I find I'm now there for the general broad market it represents rather than a RE return.
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Old 11-10-2015, 02:32 PM   #6
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You can always use a fund that is dated a decade or two after you retire. You just can't verify your SWR unless you have a calculator that can handle the variable AA.

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