I have been reading up on this and have found that most experts agree that the first 5-7 years of retirement.....especially early retirement where one is living off investments until pensions and social security are taken in later years.... is the period where poor market returns could devastate a portfolio.
My wife and I are now retired and have to bridge the next 6 years until we both start our pensions at ages 63 and 62. Social security will start 4-6 years after this. So for the next 6 years it will be muni bond income as well as dividends from taxable equity funds plus a cash surplus for unexpected expenses and/or a few vacations.
We have a cash bucket (cash,CD's, ultra short bonds) that should carry us for the next 8-10 years in the event of a prolonged bear market. Problem is that this approach of not withdrawing principal from equity funds will throw off current/desired AA of 50/50. But if the stock market drops 50%....AA will be way out of whack anyway.
Other solutions would include reducing expenses. I have read about other possible scenarios of actually entering retirement with a reduced equity allocation ....say a 40/60 or even a 30/70 equity / fixed income allocation so a big drop the first few years of retirement will not devastate a portfolio. Then gradually increase your equity allocation after 5-10 years into retirement. Of course this exercise will cause one to miss out on any gains if the market shows a significant increase early in retirement.
How have you/will you handle this issue? Thank you.
My wife and I are now retired and have to bridge the next 6 years until we both start our pensions at ages 63 and 62. Social security will start 4-6 years after this. So for the next 6 years it will be muni bond income as well as dividends from taxable equity funds plus a cash surplus for unexpected expenses and/or a few vacations.
We have a cash bucket (cash,CD's, ultra short bonds) that should carry us for the next 8-10 years in the event of a prolonged bear market. Problem is that this approach of not withdrawing principal from equity funds will throw off current/desired AA of 50/50. But if the stock market drops 50%....AA will be way out of whack anyway.
Other solutions would include reducing expenses. I have read about other possible scenarios of actually entering retirement with a reduced equity allocation ....say a 40/60 or even a 30/70 equity / fixed income allocation so a big drop the first few years of retirement will not devastate a portfolio. Then gradually increase your equity allocation after 5-10 years into retirement. Of course this exercise will cause one to miss out on any gains if the market shows a significant increase early in retirement.
How have you/will you handle this issue? Thank you.