Are Asset Allocating Withdrawal Strategies a Reliable Retirement Funding Method?

[Freeatlast47]

Ha,

However, studies also show that the first 5 years of retirement is critical. Those people who retire at the bottom of this recession assuming it doesn’t last too long should have a higher success rate assuming they only have a 30-40 year horizon.

Since I have a 40 year retirement plan.. I am at extreme risk correct? When I first started retirement two years ago I thought I had reasonable risk. I had a year of cash stashed away in FDIC insured bank. 1/3 was in cash with broker money market fund the other 1/3 was in growth stocks, 1/3 in PM stocks and the other combination dividend bearing stocks and shorts. To me at my age 48 it seemed pretty conservative and I could hunker down for a two years if the market turned bearish. However hindsight being 20/20 I should of took more cash out in Dec 2007 as the value of equities has dropped 40% since then. I think we are looking at a long bear market for the next 10 years. I have enough for minimum budget for the next 5 years in a FDIC insured bank. It is going to take some time to recover 40% loss. Are we looking at 70's type of inflation or 30's type deflation? I have been through this type of market fluctuation in 87 and 2000 but this one is going to be more severe due to the worldwide banking crisis. I have no idea how to plan for because it seems that this type of economic depression --- is not in the history books.

So how do you plan your retirement based on the 32 to 1954 scenario? Do you cut expenses to 2% annually? Or go back to work?

 

[Canadian Grunt]

Since I have a 40 year retirement plan.. I am at extreme risk correct? When I first started retirement two years ago I thought I had reasonable risk. I had a year of cash stashed away in FDIC insured bank. 1/3 was in cash with broker money market fund the other 1/3 was in growth stocks, 1/3 in PM stocks and the other combination dividend bearing stocks and shorts. To me at my age 48 it seemed pretty conservative and I could hunker down for a two years if the market turned bearish. However hindsight being 20/20 I should of took more cash out in Dec 2007 as the value of equities has dropped 40% since then. I think we are looking at a long bear market for the next 10 years. I have enough for minimum budget for the next 5 years in a FDIC insured bank. It is going to take some time to recover 40% loss. Are we looking at 70's type of inflation or 30's type deflation? I have been through this type of market fluctuation in 87 and 2000 but this one is going to be more severe due to the worldwide banking crisis. I have no idea how to plan for because it seems that this type of economic depression --- is not in the history books.

So how do you plan your retirement based on the 32 to 1954 scenario? Do you cut expenses to 2% annually? Or go back to work?

I can't speak to your situation. I decided to work to 55 even though I have a military pension, mostly to increase my standard of living in retirement.

I do know the math however, and the probabilities for portfolio failure increase during longer time horizons, and the time sequence before a bear market. The major problem is depletion of equity during extended bears as I discussed several months ago.

But since you are already retired you want possible solutions.


Two ways to halt the effects of portfolio dilution are as follows:

Move away from growth stocks to income producing stocks and bonds. Some of the yields available for dividend stocks are at all time highs. But don’t do this at a loss.

Reduce the withdrawal rate as necessary to eliminate capital draw downs during bear markets. If necessary move to a semi-retirement lifestyle during the bear.

Personally, I would not rely on the market rebounding to make up lost capital. I would shift my investments to produce income and preserve capital at all costs. The older you get the harder it will be to replace lost capital through employment.

The issue is not that a portfolio is down 40%, what is at stake is the amount of shares available for future gains in the market. If you sell shares to live, those shares and future gains are lost during the recovery whenever that occurs. You can’t expect the remaining shares to make up the loss after a protracted bear.

If this is a short bear market then the discomfort would be short lived. If the bear market turns into a Japan style 10 year recession your portfolio will not be depleted and your worst case scenario will be semi-retirement.