Stock/Bond fund ratio?

[LXEX55]

What is the minimum percentage of stock funds I should own (the remainder being bond funds) to allow for a 3.2% withdrawal rate? Being risk averse, I would like the minimum amount of my money in stocks, but would still need a 3.2% withdrawal rate. Thanks very much for any insight.

 

[COcheesehead]

How many years do you need the money to last?

Here’s a chart to ponder.

https://earlyretirementnow.com/2016/12/07/the-ultimate-guide-to-safe-withdrawal-rates-part-1-intro/

 

[JohnnyBGoode]

How many years do you need the money to last?

Here’s a chart to ponder.

https://earlyretirementnow.com/2016/12/07/the-ultimate-guide-to-safe-withdrawal-rates-part-1-intro/

What an amazing post(s) and chart. Thanks for pointing it out. Their methodology seemed pretty rigorous and one would think would put a lot of questions about the "4% rule" to bed. But alas, I expect not. The short answer is there are too many variables to say whether 4% is good or bad. This paper does a great job showing how they interact.

 

[DrRoy]

Yes, excellent post. It answers the question above and a lot more.

 

[target2019]

What is the minimum percentage of stock funds I should own (the remainder being bond funds) to allow for a 3.2% withdrawal rate? Being risk averse, I would like the minimum amount of my money in stocks, but would still need a 3.2% withdrawal rate. Thanks very much for any insight.

This link shows how complicated the answer would be for a financial analyst. I just skimmed the article, but assume that any of these tools would need an input of stock/bond ratio.

https://www.kitces.com/blog/safe-wi...or-software-big-picture-timeline-app-reviews/

I can share with you personal experience with in-laws, one being risk adverse. Once they made that choice with the investment management company, their stock ratio was set to 20%. This may be a wise choice at the beginning, when sequence of returns is important. In time though, we adjusted to 35% stock, which has helped the portfolio grow "a bit." The next "stop" is 50% stock.

I'd think Firecalc can show you some graphs with success rates on this subject. But I am not that familiar with the tool.

 

[joeea]

What is the minimum percentage of stock funds I should own (the remainder being bond funds) to allow for a 3.2% withdrawal rate? Being risk averse, I would like the minimum amount of my money in stocks, but would still need a 3.2% withdrawal rate. Thanks very much for any insight.

Zero.

By definition, you can always withdraw 3.2% of whatever you have.

 

[LXEX55]

Zero.

By definition, you can always withdraw 3.2% of whatever you have.

I meant make the 3.2% annual withdrawal and not have to worry about running out of money in later years.

 

[COcheesehead]

This link shows how complicated the answer would be for a financial analyst. I just skimmed the article, but assume that any of these tools would need an input of stock/bond ratio.

https://www.kitces.com/blog/safe-wi...or-software-big-picture-timeline-app-reviews/

I can share with you personal experience with in-laws, one being risk adverse. Once they made that choice with the investment management company, their stock ratio was set to 20%. This may be a wise choice at the beginning, when sequence of returns is important. In time though, we adjusted to 35% stock, which has helped the portfolio grow "a bit." The next "stop" is 50% stock.

I'd think Firecalc can show you some graphs with success rates on this subject. But I am not that familiar with the tool.

Firecalc, be sure to fill out all the tabs, will show minimum equity percentage for the success rate of your choosing.

 

[VanWinkle]

I meant make the 3.2% annual withdrawal and not have to worry about running out of money in later years.

The supplied chart gives a good idea of what stock % is needed for withdrawal rates for different year periods. Take your age and subtract from 95 and that is the # of years you should plan for unless you have serious health concerns. About 25% stocks for a person age 65 wanting a 3.2% withdrawal.

 

[audreyh1]

What is the minimum percentage of stock funds I should own (the remainder being bond funds) to allow for a 3.2% withdrawal rate? Being risk averse, I would like the minimum amount of my money in stocks, but would still need a 3.2% withdrawal rate. Thanks very much for any insight.

30% stocks is usually considered a minimum to keep up with inflation. Personally I would not be comfortable under 45% until my estimated retirement time period dropped under 30 years.

However, a good option is to start your stock exposure low at 30% when you first retire and then allow it to gradually rise up to a higher level while you spend more from fixed income. This handles the early sequence risk better. Kitces has written about this “Rising Glide Path” and how it is protective.
https://www.kitces.com/blog/should-...is-a-rising-equity-glidepath-actually-better/

 

[REWahoo]

30% stocks is usually considered a minimum to keep up with inflation.

30-35% stocks is what history shows to be the minimum. Less than that and you are simply trading one risk (volatility) for another (inflation).

 

[street]

There is a lot of information on that site. Thanks for sharing that.

 

[pb4uski]

What is the minimum percentage of stock funds I should own (the remainder being bond funds) to allow for a 3.2% withdrawal rate? Being risk averse, I would like the minimum amount of my money in stocks, but would still need a 3.2% withdrawal rate. Thanks very much for any insight.

To be clear, where you say a 3.2% withdrawal rate you mean 3.2% of your balance when you retire, adjusted annually for inflation... if so, then the posts that you have been getting are on point.

However, if you mean 3.2% of your balance at the beginning of each year, that is an entirely different kettle of fish... as is 3.2% of your initial balance but not adjusted for inflation or adjusted for inflation only if the portfolio goes up.

The point is that there are many different versions of a 3.2% withdrawal rate and they each have different risk profiles.

 

[mickeyd]

What is the minimum percentage of stock funds I should own

Your minimum is your call. I was 60/40 for many years but now am quite comfortable with about 50/50. I only w/d whatever the RMD is, but I don't spend it all.

 

[COcheesehead]

We just got thrown under the bus by the OP at Bogleheads. Said our responses were just wise ass. Keep that in mind next time the OP asks a question here.

 

[38Chevy454]

I thought the answers were quite good, and if the OP would have comprehended the replies, he got his answer.