What asset allocation would work?

[slv1]

I was wondering. To follow a 4% SWR with a 3% inflation rate what asset allocation would be the minimum to get one there. 50/50. 60/40 etc. Assume 40+ years of retirement and no loss of principal.

 

[golfnut]

Don't know if this question has a definitive answer. If it does, I'm all over it.

 

[RunningBum]

I was wondering. To follow a 4% SWR with a 3% inflation rate what asset allocation would be the minimum to get one there. 50/50. 60/40 etc. Assume 40+ years of retirement and no loss of principal.

I'll tell you in 40+ years, if it can even be done. Especially the bolded part.

 

[O2Bfree]

Depends on a number of variable, your age and risk tolerance for example. Oh, and then there's the stock market. You'll need to know what that's going to do for the next 40+ years. Get those down and you'll have your answer.

 

[Blue Collar Guy]

Based on history and your parameters, none.

 

[Corporateburnout]

If you want 4% with no loss of principle for 40 years keep working.......

 

[slv1]

so then the 4% rule is basically BS.

 

[MichaelB]

I was wondering. To follow a 4% SWR with a 3% inflation rate what asset allocation would be the minimum to get one there. 50/50. 60/40 etc. Assume 40+ years of retirement and no loss of principal.

Why not model different asset allocations using FIRECalc and see how they endure over 40 years?

 

[slv1]

Why not model different asset allocations using FIRECalc and see how they endure over 40 years?

Did that. Looked good. But in most cases I had less than I started at 40 to 50 years and at 20 years I had much less. This was true even if I reduced WR.

There are many who advocate 4% withdrawl. Some like Mr. mm say you will never run through your principal at 4%. I think they are selling their brand.

 

[Blue Collar Guy]

so then the 4% rule is basically BS.

Yeah, it was written as a gag, by a bunch of guys high on LSD. http://afcpe.org/assets/pdf/vol1014.pdf, Maybe a brief read of this will help.

 

[slv1]

Yeah, it was written as a gag, by a bunch of guys high on LSD. http://afcpe.org/assets/pdf/vol1014.pdf, Maybe a brief read of this will help.

Trinity study was for 30 years. The PDF you post is also based on that and Wade P. Also over 30 years. Also, 75% stocks. If you didn't have a pension would you have retired based on those studies?

 

[Another Reader]

The assumption is not that you will have the same or more assets (initial principal), it is that you will not run out of money over the period studied. If you die with nothing left, that's considered a success.

 

[RunningBum]

Trying to figure out if you are trolling, or something else. Nobody here that I've seen says that you can draw 4% for 40+ years with guaranteed success of not even losing principle. If Mr. MM says that, go over there and shoot it down, not here.

 

[slv1]

Trying to figure out if you are trolling, or something else. Nobody here that I've seen says that you can draw 4% for 40+ years with guaranteed success of not even losing principle. If Mr. MM says that, go over there and shoot it down, not here.

Not trolling. Working on getting the best asset allocation and SWR without all the sales stuff and "special" plans out there.

 

[RunningBum]

Then you should educate yourself better before calling things BS.

 

[pb4uski]

Did that. Looked good. But in most cases I had less than I started at 40 to 50 years and at 20 years I had much less. This was true even if I reduced WR.

There are many who advocate 4% withdrawl. Some like Mr. mm say you will never run through your principal at 4%. I think they are selling their brand.

Perhaps you need to read and learn before concluding. Google "Trinity study". Going from memory, the study was based on 30 years... typical retirement age at the time (1998) was 65 and few 65 year olds lived to age 95. Also, there were some failures... ~5% IIRC. So what it concluded is that there was a high likelihood of a 65 year old not running out of money with a 4% WR.

I think that conclusion still holds. If you model firecalc with a 4% WR for 30 years and a 60/40 AA it returns a 95.7% success rate. (50/50 is 94.8%).

However, you are significantly changing the parameters, by adding 10 years.... reduces success rate from 95.7% to 80.4%

Also, don't forget that in all cases the 4% is adjusted for inflation.

 

[W2R]

Why not model different asset allocations using FIRECalc and see how they endure over 40 years?

Did that. Looked good. But in most cases I had less than I started at 40 to 50 years and at 20 years I had much less. This was true even if I reduced WR.

There are many who advocate 4% withdrawl. Some like Mr. mm say you will never run through your principal at 4%. I think they are selling their brand.

You can specify in FIRECalc, under the "Investigate" tab, that you want your balance to never go below a certain number of dollars. That should give you the answers that you are interested in.

 

[slv1]

Perhaps you need to read and learn before concluding. Google "Trinity study". Going from memory, the study was based on 30 years... typical retirement age at the time (1998) was 65 and few 65 year olds lived to age 95. Also, there were some failures... ~5% IIRC. So what it concluded is that there was a high likelihood of a 65 year old not running out of money with a 4% WR.

I think that conclusion still holds. If you model firecalc with a 4% WR for 30 years and a 60/40 AA it returns a 95.7% success rate. (50/50 is 94.8%).


However, you are significantly changing the parameters, by adding 10 years.... reduces success rate from 95.7% to 80.4%

Also, don't forget that in all cases the 4% is adjusted for inflation.

For completion sake. I ran firecalc at 4% swr just now. 72% success rate. At 3.45% 95.8% success rate. 60/40 portfolio over 50 years.

40 years at 4% it was 81% success. At 3.45 % it was 96% success rate. No SS included.

 

[audreyh1]

so then the 4% rule is basically BS.

The 4% rule assumes you are willing to spend down your principal over a long time. And under the worst case scenarios you will. This is something very important to understand up front!!!

And the "4% rule" is for 30 years, not 40.

 

[Corporateburnout]

40 years at 4% it was 81% success. At 3.45 % it was 96% success rate. No SS included.

So you've answered your own question......

 

[euro]

Based on history and your parameters, none.

That!

 

[audreyh1]

For completion sake. I ran firecalc at 4% swr just now. 72% success rate. At 3.45% 95.8% success rate. 60/40 portfolio over 50 years.

40 years at 4% it was 81% success. At 3.45 % it was 96% success rate. No SS included.

Understand that success = the portfolio did not go to $0 during the time period. That is not the same as preserving principal!

So at 3.45%, 4% of the time you ran out of money within 40 years.

On average, however, you probably ended up with more than when you started - so on average you will preserve principal, but not in all cases.

 

[Blue Collar Guy]

Trinity study was for 30 years. The PDF you post is also based on that and Wade P. Also over 30 years. Also, 75% stocks. If you didn't have a pension would you have retired based on those studies?

Thats why I feel you shouldn't call the 4 % rule b.s. . It was based on 30 years not 40+ like you asked. And they didnt select a steady 3 % inflation. Yes if I didnt have a pension, I would have withdrew 3.15 % of my starting portfolio with an AA of 80/20. Except I would not have retired when i did, My nest egg was 1.1 million which would have only allowed us only 35,000 a year. I wanted 50,000.

 

[Fedup]

If you want not to touch your principle, put in a long term CD that earns over 3% and just spend 3%. I think we have people here in ER doing that.

 

[slv1]

If you want not to touch your principle, put in a long term CD that earns over 3% and just spend 3%. I think we have people here in ER doing that.

It will lose it spending power. Not adjusted for inflation. The only thing I can think off is inflation adjusted guaranteed funds but they don't pay much.