I'm FIREd 4 years, 51M, with about a 1% net WR.
Really I'm just doing whatever the financial equivalent is of figuring out how many angels can dance on the head of a pin, I think.
I do sleep soundly, and when I don't it's because of my mattress or caffeine, not because of my finances.
I just like to try to optimize when I can.
With a net WR of 1%, it doesn't really matter, and I don't have any failures in FIREcalc with my data, and haven't had any for six years now.
As you and others have mentioned, this is the most relevant part of the thread. You can go with any of your poll's options and still avoid a portfolio failure.
You'll sleep well anyway, and now you're logically consistent.
My AA for the past several years has been to take my actual expenses, multiply that by 25 to get a portfolio number, then set my AA to that which provided a maximum safe WR% historically according to FIREcalc. Whatever was leftover was invested in stocks, since I expected my kids to inherit that part.
But just the other day I had a duh moment.
I calculate an NPV for my SS benefits as follows: I take my age 70 benefit amount from the SS website and inflate that on a monthly basis by CPI (so I'm doing everything in future nominal dollars). I then assume I'll collect 60% of that amount (to account for possible future benefit reductions) from age 70 to age 85. I then do an NPV calculation on the sum of those future reduced benefit amounts, using CPI again as the discount rate.
Anyway, I get NPV for my SS benefits. This SS NPV is about six times the amount I currently have in bonds - so say $640K or so - and I'm currently ignoring it for AA purposes.
A. I am dumb and should have been counting my SS NPV as part of my asset allocation and therefore sell the $100K bonds I have and use the $640K SS NPV as more than covering the bond portion of my portfolio.
More serious post regarding OP intent (as I understand it).
I believe what you are alluding to is "should I include my pension income in my AA?" There are different schools of thought which have been discussed here. I remember Nords onetime discussing that he had read a book where someone had posited that your pension should be treated like a bond and if so, then your portfolio should be adjusted accordingly to meet your AA. Therefore, your portfolio would tilt much more towards stocks.
Moshe Milevsky in "Are You A Stock Or A Bond?"
2Cor, you're not dumb before and you're not making any mistakes now. As Deserat pointed out, instead of a NPV calculation I take a simpler (possibly less precise) approach.
I just check the yield on I bonds or the Vanguard TIPS fund and assume that's the dollar amount of those bonds I'd have to hold for the equivalent monthly income from Social Security. (They're inflation-adjusted so they'll stay in constant dollars.) Of course SS is for my entire remaining life and I bonds or TIPS are a max of 30 years, but we're already torturing an imperfect analogy.
That dollar amount of bond principal tells me where the rest of my portfolio asset allocation can be invested. There's usually no reason to hold other bonds, and I tend to default to equity index funds for the rest. (Currently Vanguard's total stock market index ETF VTI with some Berkshire Hathaway "B" shares.) I'd also invest up to 10% of an asset allocation in "whatever you want to experiment with", whether that's individual stocks, precious metals, cryptocurrencies, or other alternatives. In my case, angel investments.
At Hale Nords, my military pension (and eventually Social Security) means that the rest of our portfolio can be invested in equities. We go for ">90% equities", and typically it's >95%. PersonalCapital says we're currently 99%, because I'm spending a lot more time with local surf wax than with international travel. When we start buying COVID-19 vaccines and plane tickets then we'll sell some equity shares to raise cash as needed.
If your lifestyles costs are covered by the pension, then your AA could be tilted much higher in stocks and perhaps be 100% (which is what Nords does, I believe - he's really nuts on this ;-) and loves to play arbitrage games).
If by "nuts" you mean "passionately enthusiastic", then I agree!
If you mean "sadly deluded in his persistently aggressive yet logically challenged math" then I'd claim that I finally have 16 years of arbitrage data to distinguish luck from history that it makes sense to borrow at <6% to earn at least 7%. (We're currently borrowing at 3.5%, and our 16-year after-tax compounded annual return is 8%/year. The arbitrage has a lower long-term risk when you can guarantee the mortgage's principal & interest payments with an inflation-fighting annuity like a military pension or Social Security. In my case I'm borrowing on my future pension payments by putting up my personal residence as collateral.
https://www.early-retirement.org/fo...rtgage-without-losing-your-ass-ets-15237.html
As for the perpetual debate on Social Security: I think it makes sense to go with the SSA forecast of roughly 75% after 2030. That's actuarially pessimistic, and about a week before it happens then Congress will finally vote the tax solutions to get it back to 100%.
That's the most quantitative analysis I can find, because I don't think that we can consider "political risk of Congress" to be subject to quantitative analysis.
