I'm frustrated with my experience so far with FAs. First I fell into the clutches of Am*riprise and got sold a VA in my Roth IRA, and I still haven't figured out what to do with it...then I went to a Fee Only planner, and due to a peculiarity of my pension (
see my intro post for the details), she gave me what IMO is a gross overestimate of the "magic number" (how much I need in my nest egg to retire). So I am out quite a bit of money and still don't know what I was trying to find out.
I've read and followed the Asset Allocation tutorial, but ran into a snag with determining what allocation I want to use. I asked on that thread and didn't get any replies, so I'll try it again here. The piece of the puzzle I am missing is info on what return and standard deviation I can reasonably expect from a given asset allocation, based on historical data. I might be able to get this info from the fee-only planner, but it will cost me every time I want to do a "what if" scenario. Can anyone tell me a website or computer program I can use to figure this out? I've found a website that does Monte Carlo simulations and can more accurately model my pension than the software my FA was using, so once I have some return/std dev data I will finally be able to figure out my "magic number".
Magic number I shoot for is 25X expenses saved. How that number gets saved or what returns get me to that 25X number are not relevant to me- I just need to get to that number.
Most calculators are good at either predicting "when you will have enough to retire" or "how to draw down the money". Firecalc works good for drawing down, but it does not give me enough information as to how much I need to contribute to be able to draw down starting in a given year (for example).
I have not seen any calculator which takes both situations into account. When accumulating most emphasis is on taking risks to grow the portfolio. There are a finite amount of investments, primarily bonds, equities and cash, which would be used to reach this goal.
Once you have (or approach) having the 25X critical mass, there will be the withdraw portfolio. In this portfolio a person might add assets (commodities and real estate to name two) to stabalize the portfolio value (from year to year). The satablize does "hurt" returns, but IMO the goals change.
A portfolio will go through 5 phases for anyone saving to retire
1) starting out
2) accumulation
3) growth
4) stability
5) draw down
starting out you have around 1X annual expenses and your deposits might be larger than any single position you have in the account.
accumulation you have around 3-6X annual expenses and your annual deposits are more than the actual dollar amount of your single year return.
growth is when you approach 12X annual expenses and your annual return (in dollars) far exceeds the annual contributions (in dollars) you make to the account.
stability is when you reach or approach your critical mass (25X expenses or similar goal). Your goal here is low volatility and to have the yearly return in dollars meet your expense needs.
draw down is when you have to sell shares to meet income needs.
If your desired portfolio is a 5% SWR then you can back that into above (20X for stability, 10X for growth, 3-5X for accumulation and 1X for starting out). If your goal is a 3.3% SWR rate you can back 33X into stability, 16X into growth, 3-8X into accumulation and 1X into starting out. You need to know the end goal (33X, 25X, 20X or other) to know when to add asset classes, change the asset allocation or make other needed portfolio changes.
IMO it is important to see the phases because the deviation matters little when starting out or accumulating. It matters during growth to a degree, but does not really become a true risk until stability. In addition returns are relative to the phase- a 4% return when you are accumulating means little, but if the size of portfolio in growth or stability phase is high enough, that same 4% return prevents you from needing to draw down (sell) assets. Usually once you draw down, that is a point of no return (if you sell assets one year to meet income needs, it is probable you would need to sell some assets every year to meet income needs).