Best Allocation: Living off just the interest

[Kriegsspiel]

And it's kbg not KGB. :-)

[mathjak107]

Hello Everyone,

I am curious on opinions of what the proper allocation would be for someone's goal of living off of JUST THE INTEREST of their investments (i.e. not touching the principle) with $10 or $20 million.

Surely, in that situation having access cash would not be as important since you would not need 25% to pay your monthly bills if the market took a dump. I also would think you would want to be heavier in equities because of the capital gains treatment (as opposed to regular income tax rates).

I would think something like a modified golden butterfly would be ideal (with the only real change being in the size of the cash component):

22.5% Total Stock
22.5% Small Cap Value
22.5% LT Bonds
22.5% GLD
10% ST Bonds/Cash

Thoughts?

there is no such thing as not touching principal . it is all principal ..everything in your accounts on any day is all your money ... are you trying to say if you had a 100k in 1987 and 4 million today that only the 100k counts as principal

whether you get interest or spend dividends or appreciation , it is irrelevant , you are spending your total return in all cases .

plus you have negative real return sequences to deal with when spending down .. you have market returns and interest that can be negative and you can have inflation as the wild card creating negative real returns . so in those years you may spend more then you get ...

all in all there really is no such thing as not spending principal since it is all "your money "

your draw would have to be so small as to be unaffected by sequences which to me makes little sense ... on the other hand a safe withdrawal rate always assumes what you have can be spent down to pretty much zero .

[ahhrunforthehills]

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[mathjak107]

the reality is that part of the success rate calculation since it is based on odds of success is actually far higher when life expectancy is entered in to the equation .

while good planning dictates we plan to 90-95 , the reality most of us will not live that long so statistically that ads quite a bit to the success rate

[ahhrunforthehills]

.

[mathjak107]

if we look at the 118 rolling 30 year periods , with a 60/40 allocation , it has ended with more than you started 90% of the time, 2x what you started with 67% of the time and 3x what you started with 50% of the time according to kitces.. if we eliminated the 5 dates the safe withdrawal rate is based on , 1907,1929,1937,1965, 1966 a safe withdrawal rate would actually be 6.50% ....