pb4uski
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
I actually appreciate DLDS's posts on the subject. It isn't talked about very much otherwise, and I think it is an interesting alternative viewpoint. ....
I agree but I have trouble getting enthusiastic about sub-optimal alternatives... perhaps I am too much of a capitalist.
Let's take a hypothetical 65 yo retiree couple with a $1 million nestegg that they need $40k a year from (inflation adjusted, so a 4% WR) and expect to live to be 100 (35 year time horizon).
At one extreme they could take their million and buy a COLAed annuity that would provide $40k inflation adjusted (actually they would need $1.04 million, but what is $40k between friends). However, they would then have nothing left and would be in a pinch if some financial emergency arose.
On the other extreme, if they invest in a 60/40 portfolio, Firecalc indicates:
Here is how your portfolio would have fared in each of the 110 cycles. The lowest and highest portfolio balance at the end of your retirement was $-693,994 to $6,339,034, with an average at the end of $1,461,893. (Note: this is looking at all the possible periods; values are in terms of the dollars as of the beginning of the retirement period for each cycle.)
For our purposes, failure means the portfolio was depleted before the end of the 35 years. FIRECalc found that 11 cycles failed, for a success rate of 90.0%.
For the liability matching couple, they will get their inflation-adjusted payments for their joint lives, have no source for a financial emergency and their heirs get nothing whether they die early or live long.
For the 60/40 couple, there is some risk that they might run out of money, but also a much more significant likelihood that performance is favorable and they can spend more and/or leave more to their heirs and/or charities. Also, if they don't live to 100, but only live to 90, there is $0 to $4.1 million legacy that they leave behind. There is also some risk that they might live longer than 100 or that investment performance might be poorer than ever.
I guess that as an averages player, I'm comfortable with the risk and I wouldn't recommend the other extreme to anyone, but if people choose it with their eyes wide open then fine... after all, its their money and their life.