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Old 04-23-2015, 11:00 AM   #41
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The risk of an early retiree having a low equity allocations is that inflation will probably hurt you badly in the long run.

However, there might be a reason to start at 30% equities as long as you let your equity allocation rise over time. Check out Kitces "equity glide path" work in this area. he is trying to address the risks in the first 15 years. As Clients Age, Stock Up on Stocks: Kitces

I see you are mentioned the Pfau approach. There are already quite a few threads discussing the rising equity glide path in this site.

I would never drop below 30% at the start however. Long-term portfolio survival doesn't do will with low equity exposure.

Personally I probably won't drop below 45% equities until I'm well into my 70s. I'm at about 53% now.

Well, I thought I was retired. But it seems that now I'm working as a travel agent instead!
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Old 04-23-2015, 12:07 PM   #42
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The first few years in retirement probably are critical, if you didn't retire at a 100% successful WR, but I'm not sure you can do a whole lot about it with a static or open-loop allocation. I think the ideal is to reach a 100% "safe" withdrawal rate as soon as you can, if you didn't retire at a low WR.

That could be done with 100% stocks and a great first few years without a big subsequent dip. An early market dip would be trouble. If you go super conservative for the first few years, you are less vulnerable to a portfolio dip, but you are also not making a lot of progress towards that safer WR. You are vulnerable longer. And a great first few years might not get you to that 100% safe WR. So 100% stocks and a favorable market looks good. Super conservative is good if the market dips early, but then you want to become aggressive for the recovery rather than stay conservative. I think that's where Dr. Pfau's rising equity allocation gives a small boost, even if he is doing it regardless of market conditions.

Hopefully we'll see more on simple dynamic allocations (algorithmic, not guesswork) in future retirement studies. I haven't managed to try it out at this point.

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Old 04-23-2015, 12:43 PM   #43
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I noticed you didn't have any down years in your bond market performance scenarios. Considering we've been in an extremely long bond bull market, interest rates are at historic lows, and government, consumer and corporate combined debt is at historic highs, I think it would be prudent to adjust your assumptions. There are many concerns about liquidity in the bond markets that could lead to a major financial crisis. Handcuffs put on the banks by Dodd-Frank may prevent actions by the banks to avoid a crisis. Just some food for thought.

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