Hi. Corporates are 5% X 3 years = 15% And a mix of SPY and QQQ doubled over the past 3 years (from charts and data). One can easily argue with using the outstanding performance of stocks recently --- but the long term returns that encourage folks to have any stock allocation give a less exaggerated but still useful set of results.
The major brokerage houses are arguing the opposite... that there will be reversion to the mean and that equity returns over the next decade will be lower. Given that equities doubled over the last 3 years it seems to me hard to assert that it will repeat over the next 3 years. We'll see.
I won't argue it, I'll outright reject using a 3 year snapshot in any meaningful way for a 30+ year projection!
OK, for something meaningful, how about back-testing with actual returns, like FIRECalc/Trinity study did/does?
Note: 3 years until first year of retirement. You haven't had a 4% to take out yet. After rebalancing, fixed income covers a lot, but not all of 4% withdrawal, so you grab inflation adjusted 4.4% from wherever you like. I'm not trying to defend my quickie example....I'm just urging you model guys to check premises. Is the inflation concept correct or exaggerated? Do you automatically take a much larger dollar withdrawal than you need as the portfolio value grows? Or reinvest? And are the GROWTH assumptions consistent with history (silly, YOU have a view) or realistic, or does the theoretical portfolio not grow ever. That's all.I won't argue it, I'll outright reject using a 3 year snapshot in any meaningful way for a 30+ year projection!
OK, for something meaningful, how about back-testing with actual returns, like FIRECalc/Trinity study did/does?
Oh, I got your 5%/year over 3 years = 15%, but what about your income in the past 3 years? To match 4%, that's $40K (plus inflation), and you are getting just $20K in cash flow from the $400K corp bonds @ 5%. How is this working?
So use their predictions.......but see response below. D
I don't understand why you are starting 3 years in? You are drawing from a 3 year accumulation to take the 1st years w/d? I don't see how that helps us get a 'view' into how this is sustainable, it just seems to complicate things.
My post simply suggests a couple things USERS OF MODELS should check. YOU can think it through and / or check the assumptions in your models.
OK, but that still leaves me confused as to why you start the w/d 3 years in (after 3 years accumulation of assumed gains)? What was this intended to show us?
These tools (firecalc.com/, ficalc.app/) are not really models, they just generate reports based on history. The database has returns for several key market indexes, and inflation. You can read their 'about' pages, but basically they just run through each 30 year (or whatever time frame you choose) period, taking your inflation adjusted withdrawals, adding deposits (SS, pension typically), calculating the portfolio value for each of the following xx year period. So the 30 year period (for example) from 1871 to 1901, then 1872 to 1902, etc up to 1994 to 2024.
What good are CURRENT numbers? They change. Again, we are talking 30-40 year periods here. To me, that is the beauty of these reports, they take into account how inflation and markets actually worked in history - no simulation, no modelling, not Monte Carlo (that's an option, I don't use it). FIRECalc assumes annual rebalance, ficalc allows a selection.
You know, the tendency of some posters to simply make up their own personal abbreviations for things certainly makes their posts less understandable.
I chose retirement 3 years in because I thought these exercises were intended for PREPARING at some remove for retirement. I've really got no more to say --- except that I don't think humans actually behave as suggested in the "computation" or whatever it is. As one poster implied IMO correctly --- most investment firms and active market participants agree: assuming the extraordinary returns of the past 3 years is silly. IF an investor believes that, it's kinda nutty not to take a lot of profits and reduce the equity allocation for a while. I don't know folks like this, but I think a reasonable investor who believes equity appreciation is going to stall typically does something about it rather than throwing their fate to the wind. Good interesting interchange, but I need to get busy preparing for my portfolio reconstruction. This morning I was at 66% cash, now at 31% cash --- holding that to see if there is more panic selling. Since early Feb I've increased portfolio earnings about 75 basis points, and when fully invested again, portfolio yield will be roughly 12.5%.
Maybe we should start a lingo bingo card.
Of course....,but MARKETS take that into account too. Available yields would rise and equity prices have always been driven UP by inflation. 24 years ago the DJIA was about 10,000. You can't hold some parameters steady while letting the fear-inducing ones change.
Merely sticking to the so-called "4% rule" WITH inflation adjustment should stand you in good stead. Forget DR and live your comfortable life, look forward to SS and do some BTD with your PF - even if its value drops. The 4% rule never told us that our PF wouldn't drop at some point. It only said that our PF is very unlikely ever to drop to - "0" - .
Most of the 62% will be in sad shape, even if we warn them.
