Constant $ withdrawal

[mathjak107]

no ,those dates are the worst historical dates for retirees in any allocation and they are the dates the 4% safe withdrawal rate was based on . all of those dates failed and you needed to reduce to about 3.70% with any allocation over 35% equities to survive the stress test 100% .

but those dates failing still represent over a 90% success rate at 4% so it is still acceptable .

but the common denominator to all failures at 4% are conditions were so bad the first 15 years that even the best of years coming along later could not salvage them .

so mathematically it takes about a 2% real return the first 15 years to have 4% hold . of course what balance is left at 30 years depends on your actual allocation , but the income stream should hold up ok

the funny thing is researcher michael kitces found that if you made it to the 15 year mark okay , that even if your retirement went out longer than 30 years you still were okay .

so you can see in the 30 year results for all those failure years 30 years was not bad . but the 15 year periods sucked .

we don't know how the pp would have held up over those benchmark years since gold's prices were really skewed but it is not important . thanks to kitces we know no matter what you use if you are not seeing a 2% real return the first 15 years you are in danger of not holding 4% so a pay cut may be in order. in fact if you are not holding a 2% real return 5 years in , i certainly would proactively cut spending as a precaution

[Kriegsspiel]

Just read an article by Kitces, he's saying the same thing I am.

One popular way to manage the concern of sequence risk is through so-called “bucket strategies” that break parts of the portfolio into pools of money to handle specific goals or time horizons. For instance, a pool of cash might cover spending for the next 3 years, an account full of bonds could handle the next 5-7 years, and equities would only be needed for spending more than a decade away, “ensuring” that no withdrawals will need to occur from the portfolio if there is an early market decline.

Yet the reality is that strict implementation of a bucket strategy is more than just an exercise in mental accounting; it can actually distort the portfolio’s asset allocation, leading to an increasing amount of equity exposure over time as fixed income assets are spent down while equities continue to grow. Yet recent research shows that despite the contrary nature of the strategy – allowing equity exposure to increase during retirement when conventional wisdom suggests it should decline as clients age – it turns out that a “rising equity glidepath” actually does improve retirement outcomes!

... ironically, it turns out that for those who do want to implement a rising equity glidepath, the best approach might actually be to explain it to clients as a bucket strategy in the first place!

https://www.kitces.com/blog/should-equi ... ly-better/

[mathjak107]

buckets are nothing more than mental masturbation . in fact not only is there no help from them but they can actually hurt you .

our brains like to compartmentalize . they are comfortable like that . but using a fixed allocation and simply rebalansing seems to get better results .

as kitces said:


EXECUTIVE SUMMARY

Financial planners have always sought to adjust their strategies and communication techniques to the realities of client needs, although the increasing volume of behavioral finance research is now beginning to document exactly how we as human beings sometimes think in very irrational ways, which in turn provides insight about how to best adapt to deliver effective advice. One common challenge area regarding investments in particular is our tendency for mental accounting – where we break up and categorize assets based on various needs and purposes, even if the underlying investments are flexible or entirely fungible – which in turn has spurred the growth of so-called “bucket strategies” that seek to allocate portfolios based on various goals, needs, or time horizons.

Unfortunately, though, recent research has shown that stringent applications of bucket strategies can potentially result in less optimal retirement outcomes, not better ones, particularly due to the “cash drag” and portfolios that can dial down too conservatively too fast; in addition, the reality is that mathematically, most of the benefits of bucket strategies are captured simply from traditional rebalancing strategies, which already ensure that stocks are bought (not sold) when they’re down and that cash and bonds are used for spending needs when appropriate.

Nonetheless, from the behavioral perspective, using bucket strategies remains appealing, if only to help clients stay the course during stressful times. But ultimately, perhaps the best solution is not just to weigh the trade-off between managing with buckets (even if the results are worse) versus helping clients psychologically (which is still better than having them bail out at the worst of times), but to accomplish both by improving performance reporting to overlay buckets and goals on top of the portfolio. In other words, maybe the key is not that we need to change how we invest for clients, but simply to more effectively frame how we report the results?

https://www.kitces.com/blog/Should-Fina ... -That-Way/