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Old 02-10-2014, 09:25 PM   #101
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I see that he is stating by age 70, but I would guess that is based on a more traditional retirement age of 65, or maybe even a bit later. I don't remember if his book addresses anything in particular about early retirees. But if you plan to retire 10-20 years earlier than the typical age, you have to make some adjustments to the recommendations in these books.
With an early retirement, you'll basically run down the LMP to nothing. So you'd better have enough extra so that once it's gone, you can still survive. At age 70, most folks probably wouldn't outlive the LMP.



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In his eBook and elsewhere he notes that part of his LMP writing comes from watching his clients somewhat unexpectedly panic sell (to some extent) in the 08-09 meltdown.

Having more money than you'll ever need always makes it easier...
According to his website, the min net worth of his clients is 10M. This is a whole different ball-game from most of the folks here.
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Old 02-10-2014, 09:25 PM   #102
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My graduate work had a lot to do with decision trees (machine learning). The problem is the data is historical.
What was the focus of your work?
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Old 02-10-2014, 09:31 PM   #103
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+1

I enjoy reading everyone's viewpoints here. Clearly there are going to be some very conservative investors on a forum this large, and I always enjoy reading their posts.

Obgyn65, I'm glad you continue to post your viewpoints here and I always learn from them. Thanks for sharing your insights. You have to invest in a manner that's comfortable for you, and clearly you are doing so. There's nothing wrong with that.

Did I actually get quoted for the first time?! I think I just blushed!
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Old 02-10-2014, 09:43 PM   #104
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Thanks for posting the Bernstein ideas, and the article above which I will read next. Do you have a link to the Rob Arnott article that you are referring to?

My idea about inflation is that it is important, but it would take quite a while for US style inflation to wound a portfolio as much as a bad few months in the stock market.

Ha

Ha - as you realized, I meant Rob Arnott, not Bob:

https://www.researchaffiliates.com/O...an_Legend.aspx

Snippet -

"Emboldened by the 1980s and 1990s (when stocks compounded at 17.6% and 18.2% per annum, respectively), “Stocks for the Long Run” became the mantra for long-term investing, as well as a best-selling book. This view is now embedded into the psyche of an entire generation of professional and casual investors who ignore the fact that much of those outsized returns were a consequence of soaring valuation multiples and tumbling yields. In this issue we examine historical U.S. equity performance from a larger perspective and find that today’s overwhelming equity bias is built on a shaky foundation, reliant on a short and unrepresentative time period."
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Old 02-10-2014, 09:57 PM   #105
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Ha - as you realized, I meant Rob Arnott, not Bob -

https://www.researchaffiliates.com/O...an_Legend.aspx

Snippet -

"Emboldened by the 1980s and 1990s (when stocks compounded at 17.6% and 18.2% per annum, respectively), “Stocks for the Long Run” became the mantra for long-term investing, as well as a best-selling book. This view is now embedded into the psyche of an entire generation of professional and casual investors who ignore the fact that much of those outsized returns were a consequence of soaring valuation multiples and tumbling yields. In this issue we examine historical U.S. equity performance from a larger perspective and find that today’s overwhelming equity bias is built on a shaky foundation, reliant on a short and unrepresentative time period."
Thanks you dlds. I agree completely with what he says. It's just like most of us cannot give up on the idea that inflation will soon come roaring back, we have a strong equity bias and an idea that an equity market barely off all -time highs, and very low real interest rates are to be taken for granted. Lately many people are convinced that bonds have topped out ( just when the 10 year backed off from 3% to 2.75%), but we still think that equity prices are likely to go up in 2014. Almost all the Barron's Round Table participants were raging bulls in January.

No clue what will happen, but to this simple-minded fellow there appears to be more S&P room below than above, unless Ms Yellen somehow manages to cook up a runaway Weimar style inflation.

When I was a boy, people retired with stocks and bonds if they were wealthy.
Average people retired on pensions and savings accounts, CDs and utility bonds. Maybe some shares of the local gas and electric utility. People who had become accustomed to risk in their work (in my experience mostly farmers) may have sold their farms instead of leasing or letting shares, and then they invested in stocks. American and Canadian Farmers like some blue sky and don't scare easily.

Ha
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Old 02-10-2014, 10:42 PM   #106
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Here are some quotes from prior posts in this thread alone: ......

But that is a lot of "ifs".

But what probability would you assign to the stock and bond market future being exactly like the past? 100%, 80%, 50%, 20%? Did Japan have a long term stock meltdown before they had a long term stock meltdown?

Is there zero chance that a large equity portfolio might underperform a more conservative portfolio?
Well, aren't there a lot of 'ifs' in any outlook for the future? Aren't there just as many 'ifs' relying on fixed income? Inflation, interest rates, bond defaults? And the biggest 'if' for many would be 'if' I can save ~ 1.8X more money (before I die or get too old to enjoy retirement)? Of course there is a chance that a 75/25 AA could under-perform a 0/100 AA over a 35~45 year period. But history shows the 0/100 AA portfolios to fail at a much higher rate than 75/25 - maybe I should not expect that to continue, but why would I expect it not to continue?

And let's remember, when looking at FIRECalc results, we are dealing with the failures, the very worst times in history. There seems to be a feeling that 'bad times' mean bad outcomes for stock investors, but it is these periods where stocks helped. So it isn't really a matter of whether 0/100 AA ever outperformed a 75/25 AA - the question is which held up better in bad times.

Quote:
Also I am trying to reconcile the above statements based on Firecalc vs. Bill Bernstein calling stocks in retirement "nuclear toxic", Rob Arnott's article and charts on the biggest urban legend in finance, and Robert Powell's article on sequence of returns risk in retirement -

....

This article and the others I mentioned make a lot of sense to me.
Well, I didn't read every word, but I found there was some (odd to me) 'framing' of the scenarios. It looks like Bernstein's 'toxic' comment is tied to the comment of selling at the bottom during a crisis. Well, if you think your mindset would have you selling at the bottom, then you probably shouldn't own a high % of equities. But as we've pointed out, history indicates you'll need to start with a lot more money. But this might be the right choice for some.

He's also framing things in terms of 4%-5% WR. That seems odd if we are having a conversation about 'conservative' strategies. And where does this come from?

Quote:
So if you have a long series of bad returns, plus you're withdrawing 4% or 5% of your portfolio to live on it, then in 10 to 12 years, you may not have anything left.
Using the extreme end of his numbers, a FIRECalc run shows zero failures in 12 years @ 5% WR and 75/25 AA, or even 100/0 AA for that matter. Even a 6.1% WR and 75/25 had zero failures in 12 years. Where is he getting these numbers?

And if you think he doesn't 'trust' history, how about this:
Quote:
It's true that real yields right now are historically low, but as a student of financial history I have to believe that's not going to last forever.
I'm not impressed if he ignores history to make a point, and then uses history to when it suits him.


So after writing all this, I guess I'm actually confused about just what it is you are trying to say. I have a feeling we actually agree on a lot, but the words are getting in the way. Maybe a direct question will clear it up:

Are you saying that over a 35-40-45 year period, that at a given WR, you expect a 0/100 AA to fail fewer times than a 75/25 AA?

But if you are agreeing that a 0/100 also means you need to drop the WR considerably to remain 'safe', OK, but that is not apples-apples, and then there are some interesting numbers that can be compared.

OK, I looked back at an earlier post from you where you talked abut reducing expenses, or having different sources of income, including employment. Well sure, any money you don't pull from the portfolio will help the portfolio survive. But that has nothing to do with whether a portfolio with a given WR can be expected to survive better with 0/100 or 75/25.

OK, one more comment to maybe help with communication. I do not consider a 0/100 AA to be 'conservative', for the very fact that it historically it won't survive even a relatively modest WR over a long period. I do consider lowering your WR% (either by cutting expenses, other income sources, or with a larger portfolio) to be conservative.

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Old 02-10-2014, 10:48 PM   #107
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bold mine -
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Originally Posted by daylatedollarshort View Post
...

Snippet -

" .... In this issue we examine historical U.S. equity performance from a larger perspective and find that today’s overwhelming equity bias is built on a shaky foundation, reliant on a short and unrepresentative time period."
OK, that may well be a reasonable statement. But can't we say the same thing about fixed income?

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Old 02-10-2014, 11:22 PM   #108
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Are you saying that over a 35-40-45 year period, that at a given WR, you expect a 0/100 AA to fail fewer times than a 75/25 AA?
To avoid beating a dead horse, let me get back to the post I quoted from Ha, which is my main point, "I would not like to convince someone that s/he needs more stocks, right before stocks drop 40%. If we are honest and aware, we will realize that the future is unknowable, and be properly modest about what we say-particularly in the area of advice."
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Old 02-10-2014, 11:37 PM   #109
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we will realize that the future is unknowable, and be properly modest about what we say-particularly in the area of advice."

Why?
It's simply advice. I feel the accountability lies with the receiver to process the information not the provider.
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Old 02-11-2014, 01:34 AM   #110
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What was the focus of your work?

Mainly improving techniques for symbolic learning (not neural networks, genetic algorithms, etc). The practical application was sleep stage scoring (there is, or was, a sleep disorder center in Peoria, Illinois).
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Old 02-11-2014, 01:56 AM   #111
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I said I was not going to post again under this thread, but happy to make an exception.

Hi Tom

I am writing this post at about 1am. Had a long day. Feeling tired but taking a few minutes to answer. Unlike many of you I don't have much time to post, since I still work, hence short on details.

Your four points below are correct. I can confirm that I have a small pension from a consulting activity in the US outside of seeing patients. I also mentioned in the past that I worked for a few years in two European counties - therefore I also expect some pension money from there also, including the UK state pension. My US pension is not cola'd but the UK state pension will be, hopefully. I turn 49 this year and many things can happen in the next 20 years.

Also planning to continue with buying small deferred annuities for the next few years starting at age 62. Then, planning to buy scattered SPIAs in my 70s or 80s to optimize taxes. Keeping about $1mm cash in Europe because I worked there for a few years. The rest from my US income - more cash - invested here in CDs and munis mainly. Always buying 10-year CDs to get the best rates. With this strategy, I can withdraw about $100k a year until age 95, possibly $120k if I work for another year.

Trying to find ideas by participating here and Bogleheads on how to reduce or optimize taxes with passive income and future pensions coming in from three countries. But it is difficult to share details in an open forum when others have mentioned I should use "caveats" when answering questions from newbies who maybe better off than I am, or simply "ignore" equity risk - knowing that, like many others, I hate financial risk but OK with inflation risk -, or even show "hubris" for mentioning my frugal annual expenditure - some of these threads have been permanently deleted, so no need to look for them.

I think the key is to live below one's means, which is what I have been doing - except for my mission trips abroad or the support of my free clinics. And that is a lot of money given away but it has helped improve the lives of thousands over the years. And there is nothing like it.

So yes, it may be possible to FIRE without taking any equity risk. I am not alone and my net worth is not that great when i look at the Bogleheads survey where there are senior business people, law firm partners and audit firm partners, and MDs owning their own practice (I don't and I don't work as many hours as my colleagues) who have a lot more than me. And that's fine - only trying to live my own life. The point is that it may be possible to FIRE without taking equity risk, assuming you have a large enough nest egg and that you keep living below your means.

Ok, going to bed now. Good night.



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Me too, but what makes me frustrated with Obgyn's posts is that he doesn't seem to fill in the whole picture for us. In any group, a person who is an outlier in any way will generate interest. I for one, am interested to learn more about Obgyn's approach, but he spends a lot of time telling us how conservative he is (which is fine) without helping us understand how his plan will work for him.

I seem to remember him mentioning that he has a pension which I think is COLA'd. If that's the case, I'm curious as to how big a part of his plan it is. Could he manage w/o the pension? Is the COLA an essential part of his plan, or just the icing on top of the cake?

I can only speak for myself but as someone who is comfortable with the concept of risk and volatility in a portfolio containing equities, I would be interested to know a little more about the ER's here who have plans that appear to rely heavily on fixed income investments. Obgyn stands out because he beats the drum for conservatism without (IMO) adequately explaining how it will work for him. That's all I (we?) want to know.

No animosity, but I will admit to some annoyance at the controversy he generates here on a regular basis because of his apparent unwillingness to help us understand his approach. I think that's all any of us want.

Here's what I think I know about Obgyn's plan -

1) He invests heavily in muni's, bonds, CD's
2) He has a pension of some sort
3) He is happy to continue working in some capacity after ER, if necessary, to bolster his income
4) He is very frugal, which will help him live from a conservatively invested portfolio

I'm quite envious actually. I (almost) wish that I could generate the interest that Obgyn does here, and he seems to accomplish it without even trying

PS - my version of conservatism is a ~2.5% WR from a 60/35/5 portfolio. We all have our individual and personally crafted styles.

PPS - I do have an appreciation for the idea of very conservative investing. I think much of my frustration would be lessened were there as much in-depth discussion of it here as there is for the more popular approaches involving substantial positions in equities.
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Old 02-11-2014, 07:31 AM   #112
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OBGYN65:

Where do you find 10 year CDs these days? Are they better than Penfeds 3% 5 Year?

BTW, I am in your camp. Here is an Example:

I am 60 so I am basing the case on this Age, home paid for and no debt. IMHO Where one should be when retired.

Hypothetically let us use a ~$2m portfolio. Not $1m nor $4m right in the middle.

$2m @ 3% is 60k PA (Before Taxes)

SS Estimated taken at 62 = $20k (my Estimated SS from SS.gov)

That is $80k. Personally this is 2 x what we spend right now and our RE taxes and Insurance costs are above the norm.


OK that said. I have 2 BIG CD's maturing this month at PenFed, and am struggling with renewing them for another 5 years at 3% (Old money).

OBGYN65 Again, do you have any recommendations? Should I just get over it. I cannot find any predictions that show interest rates dramatically rising in the next 5 years.
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Old 02-11-2014, 07:37 AM   #113
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Not OBGYN but Vanguard has FDIC 10 year CD's.
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Old 02-11-2014, 07:37 AM   #114
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The point is that it may be possible to FIRE without taking equity risk, assuming you have a large enough nest egg and that you keep living below your means.
.
Thanks for the succinct explanation of your approach. I concur that exposure to equity or any risky investment is not needed when there are future streams of income (e.g, pension) and a sizable nest egg or portfolio.
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Old 02-11-2014, 07:45 AM   #115
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OBGYN65:

Where do you find 10 year CDs these days? Are they better than Penfeds 3% 5 Year?

BTW, I am in your camp. Here is an Example:

I am 60 so I am basing the case on this Age, home paid for and no debt. IMHO Where one should be when retired.

Hypothetically let us use a ~$2m portfolio. Not $1m nor $4m right in the middle.

$2m @ 3% is 60k PA (Before Taxes)

SS Estimated taken at 62 = $20k (my Estimated SS from SS.gov)

That is $80k. Personally this is 2 x what we spend right now and our RE taxes and Insurance costs are above the norm.


OK that said. I have 2 BIG CD's maturing this month at PenFed, and am struggling with renewing them for another 5 years at 3% (Old money).
Based on what's being said, 3% is more than what you will need. Why is it difficult to review CDs at that rate?
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Old 02-11-2014, 07:46 AM   #116
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Not OBGYN but Vanguard has FDIC 10 year CD's.
Thanks, 10 year is 3.4% from a bank in Utah I think the PenFed 3% is probably better for me at 5 Years.
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Old 02-11-2014, 07:48 AM   #117
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Based on what's being said, 3% is more than what you will need. Why is it difficult to review CDs at that rate?
Renew, not Review.....

Honestly, I do not know. Just seeking some kind of support I suppose. It is a BIG Wodge of Cash.
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Old 02-11-2014, 08:42 AM   #118
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Here are some quotes from prior posts in this thread alone:

"The more conservative you are, the more you'll need, or the less you'll have available to spend."

"Not everyone wants to (or can) work 40-60% longer or save 40-60% more during the accumulation years or spend that much less in retirement. "

"The less risk you take, the larger your portfolio has to be relative to spending, substantially larger without equities - 40-60% is not trivial. Not including the caveat could mislead a novice member..."


"So I think it's fine if someone were to post that they just can't handle volatility, so they chose to wait to build their portfolio to 1.8X in order to do that. "

These statements might be true if Firecalc didn't have any logic or calculation flaws, we know for sure that the future is 100% going to mimic the past, and there aren't going to be any significant sequence of returns risks for retirees early on. But that is a lot of "ifs".

But what probability would you assign to the stock and bond market future being exactly like the past? 100%, 80%, 50%, 20%? Did Japan have a long term stock meltdown before they had a long term stock meltdown?

Is there zero chance that a large equity portfolio might underperform a more conservative portfolio?


Also I am trying to reconcile the above statements based on Firecalc vs. Bill Bernstein calling stocks in retirement "nuclear toxic", Rob Arnott's article and charts on the biggest urban legend in finance, and Robert Powell's article on sequence of returns risk in retirement -

How to avoid sequence-of-return risk - Robert Powell's Retirement Portfolio - MarketWatch

This article and the others I mentioned make a lot of sense to me.
So FIRECALC, the Trinity study and dozens of other SWR works show that from 1871-present, a 65 yo with 25 times their projected first year spending invested in a mix of stocks:bonds had a 95% probability of (inflation adjusted) success over 30 years. And the success rate didn't vary greatly with equity allocations from 20-70%, less and inflation was a significant issue, above that volatility/probability of failure was too great (for a retiree). **

What's the number in red (or similar recommendation) for a portfolio invested in asset classes excluding equities? If my attempts to quantify above are wrong, what guidance should no equity advocates give other members here, newbies included?

That's all this was ever about...no one ever said obgyn's (and others) approach isn't perfectly legitimate or workable. I think we're all looking for workable ways to minimize risk.

** None of the calculators I've seen claim to predict the future, FIRECALC includes a specific statement - "How can FIRECalc predict future returns from past performance? It can't. And it doesn't try." They simply provide a starting point based on past history, it's up to each user to adjust based on their own circumstances and outlook.
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Old 02-11-2014, 09:12 AM   #119
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... The point is that it may be possible to FIRE without taking equity risk, assuming you have a large enough nest egg and that you keep living below your means.
....
Alright! That simple sentence is really all that some of us were looking for (if I may presume to speak for others). When you leave that out, and say you are 'risk averse', it is like fingernails on a chalkboard to some of us. A very low equities portfolio absolutely faces risk over time, just a different kind of risk than a more typical AA.


Of course it is possible to FIRE without taking equity risk. But history says it requires a much larger nest egg - 'living below your means' doesn't really capture it, a low equity portfolio effectively lowers your means (your expected safe WR), so that becomes kind of circular.



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To avoid beating a dead horse, let me get back to the post I quoted from Ha, which is my main point, "I would not like to convince someone that s/he needs more stocks, right before stocks drop 40%. If we are honest and aware, we will realize that the future is unknowable, and be properly modest about what we say-particularly in the area of advice."
I don't think we are beating a dead horse because I don't think I've yet figured out what your position is. I agree with the quote from haha - but that is a very long way from saying that you are better off with zero equities in your portfolio.

Keeping it simple for clarity - if someone came to me and said they had saved their entire life, had always put their money in fixed income, zero into stocks, and wanted to retire at 60, I certainly would not recommend that they make a large move to stocks, and especially after this recent run up. If they saved enough ( a big enough nest egg) that they could keep their WR low enough for a fixed income portfolio, then they are likely fine (very big 'if' for most of us). If they were marginal, I might suggest they try dollar cost averaging to a 50/50 AA over a long period, like 10 years.

I'll see if I can dig up a study I did, I'm pretty sure I saved it away somewhere. It shows a 'funny' thing - taking this more apples-to-apples, if I take that ~ 1.8X nest egg, and invest it in 100% equities, that buffers the volatility. So bottom line, as has been pointed out many times, more money always helps!

-ERD50
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Old 02-11-2014, 09:55 AM   #120
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What's the number in red (or similar recommendation) for a portfolio invested in asset classes excluding equities? If my attempts to quantify above are wrong, what guidance should no equity advocates give other members here, newbies included?
Midpack your insights and charts are very valuable contributions here. However I do not always think it is clear from your posts and some other posters that what you post is data based on past results, and that in the future we are dealing with high probabilities, but far from money back guarantees.

Most of the regulars here understand this, but I as posted earlier, I cringe when newcomers, especially those asking for conservative advice, are told to invest largely in equities, without being informed of the risks. I think sometimes newcomers are given the impression that large equity positions are "the" path to wealth and a secure retirement, when IRS estate data has shown that those with $2M+ net worth only had 12.6% of their assets in publicly traded stocks -

http://www.thomasjstanley.com/blog-a...lionaires.html

We have all sorted some things out through this thread, but I don't see it is logical for posters to complain that obgyn65 doesn't add enough caveats to his posts, when those recommending high equity positions often do not mention sequence of returns risk. I don't see how saving more than double what you need in retirement to live on is riskier than putting 75% of your money in the stock market and hoping history repeats itself.

As Ha noted, do you really want to be the one recommending a large equity position to a novice investor and then have this scenario from Wade Pfau happen:

"People are more vulnerable to the returns experienced when their portfolios are larger because a given percentage change has a bigger impact on absolute wealth. A big portfolio drop at the end could possibly wipe out all of the portfolio gains from the first 25 years of one’s career."

How to avoid sequence-of-return risk - Robert Powell's Retirement Portfolio - MarketWatch

I probably won't post any more in this thread because at this point I am just repeating myself, and I don't know any way to make my points clearer. If you don't agree with what I've posted so far, then I think we'll have to just agree to disagree, move on, and not hijack this thread any further.
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