This is our first year of IRA withdrawal and basically living off our savings. I have been drawn to Frank Armstrong's 2 buckets and trying to avoid selling stocks in down markets. I haven't seen much detail though, in how to pursue this strategy; i.e., if you have a -25% year followed by a +5% year, does that mean the 5% is profit to spend in the second year!
I've also appreciated Larry Swedroe's books and his 5/25 approach to range setting allocations to trigger re-allocation moves. I believe I have read where Larry has spoken against Frank's approach, saying you should always have a plan that stays within allocation targets to control overall risk.
So, I have been thinking about a sort of hybrid approach and would appreciate feedback as to whether it makes any sense, is too simplistic, stupid, etc.
Assumptions:
1) Equity is sub-allocated into MPT-like well diversified sub-categories.
2) Cash is raised for expenses once a year.
3) Larry's 5/25 rule is used for stock and stock sub-category target and min/max allocations.
4) Yearly, at raising cash & rebalancing time, the amounts needed for cash and to be withdrawn or added to stock are determined. The amount to be withdrawn or added to bonds will be determined by these 2 amounts.
Equity withdrawal rules:
1) Allocation between target and max: No withdrawal if non-positive earnings during past year. Otherwise, will withdraw the smaller of the positive earnings or what is required to bring equity allocation back to target.
2) Allocation above max: Execute rule 1. If result is an allocation still above max, withdraw enuf from stock to get back down to maximum level. This is intended to keep portfolio from getting too far out of target after repeated instances of primarily using bonds for expenses.
3) Allocation between target and minimum: No change to equity allocation.
4) Allocation below minimum: Add enuf to stock from bonds to bring allocation back up to minimum.
In all cases, would try to keep sub-equity categories within their defined ranges.
Thanks for your thoughts!.... Bill
I've also appreciated Larry Swedroe's books and his 5/25 approach to range setting allocations to trigger re-allocation moves. I believe I have read where Larry has spoken against Frank's approach, saying you should always have a plan that stays within allocation targets to control overall risk.
So, I have been thinking about a sort of hybrid approach and would appreciate feedback as to whether it makes any sense, is too simplistic, stupid, etc.
Assumptions:
1) Equity is sub-allocated into MPT-like well diversified sub-categories.
2) Cash is raised for expenses once a year.
3) Larry's 5/25 rule is used for stock and stock sub-category target and min/max allocations.
4) Yearly, at raising cash & rebalancing time, the amounts needed for cash and to be withdrawn or added to stock are determined. The amount to be withdrawn or added to bonds will be determined by these 2 amounts.
Equity withdrawal rules:
1) Allocation between target and max: No withdrawal if non-positive earnings during past year. Otherwise, will withdraw the smaller of the positive earnings or what is required to bring equity allocation back to target.
2) Allocation above max: Execute rule 1. If result is an allocation still above max, withdraw enuf from stock to get back down to maximum level. This is intended to keep portfolio from getting too far out of target after repeated instances of primarily using bonds for expenses.
3) Allocation between target and minimum: No change to equity allocation.
4) Allocation below minimum: Add enuf to stock from bonds to bring allocation back up to minimum.
In all cases, would try to keep sub-equity categories within their defined ranges.
Thanks for your thoughts!.... Bill
