'COLA'd Pension' is what makes it equivalent (assuming a portfolio with adequate growth to offset inflation).
Very few people have a fully COLA'd pension. Mine has a COLA cap. If we get into years of high-inflation it will be time for Plan B.
On one hand, I say it does not matter. Consider this:
Person A: Plans to spend $40,000, inflation adjusted each year. He gets $20,000 from COLA'd Pension/SS. He draws an initial 3.5% from his portfolio (of ~ $570,000) for the other $20,000.
Person B: Plans to spend $40,000, inflation adjusted each year. He has no Pension/SS. He draws an initial 3.5% from his portfolio (of ~ $1,140,000) for the full $40,000.
A 3.5% WR from a portfolio is a 3.5% WR - period. The historical optimum AA has to be the same for each, how can it be different?
-ERD50
Even though the withdrawal rate is the same as a percentage of the portfolio, the consequences of failure is not the same in case A and B. Furthermore portfolio A is much less inflation sensitive (since half of it is COLA).
But regardless, there is only one historically optimum portfolio AA for a given WR and time frame. The portfolio does not 'know' you have a COLA'd SS/pension!
I think our disagreement is coming from the fact that we don't have the same definition of "optimum". If I had a COLA'd annuity that covered most of my expenses, my "optimum" portfolio would be one that had the greatest chance of being a moonshot and I would care much less about failure. On the other hand without any sort of SS/annuity/pension I would weight portfolio failure much higher in my definition of optimum (or objective function).
I suspect that few ERs would go for the shoot the moon scenario unless all of their essential expenses and then some were covered by the COLAd pension. To the extent that some necessary expenses, or even optional expenses, are dependent on the portfolio most people will aim for assuring their ability to keep up their life style rather than maximize growth. The larger the portion of expenses covered by a "guarantee" the more likely people might tilt a bit high on equities but I suspect most wouldn't stray far from the safe pack. I always thought I would but as I learned (and aged) I moved back into the herd.That's a personal choice. But neither has any bearing on the historical optimum AA for a given WR and time frame. With 'optimum' defined in the common way - "not running out in my life time". If you want to optimize for average/peak end values within that success range, typically the higher EQ% will provide that.
I did some runs in FIRECalc, but I can't really pick out volatility in the middle of all those squiggles. But for end points, using 40 years and 3.3% WR for 100% success, and testing a bit higher WR% for sensitivity - I found that 40/60 and 85/15 were both at the edges of failures. Neither ran out of money, and as expected, the peak and average ending portfolio was higher for 85/15.
But both pass, so (historically) either Person A or B could have chosen either AA and 'won'. And either could have gone for the moonshot (85/15), and neither would have had to cut any spending over the 40 years. So I guess we are really talking about whether the person with SS/pension would take on further volatility by going higher than 85/15? Hmmmm, OK, they could go to 100/0, have some failures (but still have their SS/pension), but increase their average and peak end points by about 1.35x.
PV is going to reduce my energy cost from ~$300/month (Electricity + electricity to charge the Tesla instead of buying gasoline) to about $20/month. So when I do my FIRECalc run next year, I'll reduce my spending levels by $280 and my portfolio by $12,800.
How aggressive to be in investing our portfolio's for later years? The 64k question. Your 75/25 is pretty aggressive but that's been a winning formula for the last 4+ years. Mine is 65/35 and may be dialed back somewhat in the next year towards 50/50. I don't wish to repeat a 2008 (or live through a 1929) scenario.After reviewing the comments, I tend to agree that SS is not a "real" asset, just an income stream until you die. I can see it to allow a bit more aggressiveness in a portfolio but not very much.
That's a personal choice. But neither has any bearing on the historical optimum AA for a given WR and time frame. With 'optimum' defined in the common way - "not running out in my life time". If you want to optimize for average/peak end values within that success range, typically the higher EQ% will provide that.
I did some runs in FIRECalc, but I can't really pick out volatility in the middle of all those squiggles. But for end points, using 40 years and 3.3% WR for 100% success, and testing a bit higher WR% for sensitivity - I found that 40/60 and 85/15 were both at the edges of failures. Neither ran out of money, and as expected, the peak and average ending portfolio was higher for 85/15.