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Posted by FranksPlace2 on December 4, 2006, 10:34 am
I am familar with that article in the Journal of Financial Planning
that recommends 5% or lower withdrawal rates during retirement. I
don't like that answer because to have a withdrawal which is 80% of my
pre-retirement income, I need to have 16X my preretirement annual
income in my retirement accounts. For example to withdraw $60k per
year, I need $1.2M in savings.
My reading of the article indicates withdrawals were in the same
proportion as the portfolio, for example 75% stocks and 25% bonds, and
the result was low stock prices had a major impact on portfolio
longevity. Fidelity did a detailed analysis for me but apparently they
also assumed withdrawals were in porportion the the portfolio mix.
The main reason I hold bonds in my portfolio (about 25%) is to provide
a buffer against low stock prices. My strategy is to withdraw from the
bonds only part of the portfolio and rebalance when the market is up
(like now). At a 5% withdrawal rate, my bonds would last 5 years which
is long compared to stock market declines.
Are there any references or tools that address this "bonds first out"
withdrawal strategy?
Frank
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Posted by woessner@gmail.com on December 4, 2006, 11:04 am
> Are there any references or tools that address this "bonds first out"
withdrawal strategy?
I remember reading an article a while ago about how pension funds use
bonds as a buffer for fluctuating stock prices. The basic idea was
that the fund moves more toward stocks when the market is down and more
toward bonds when the market is up. A nice side effect was that it
provided automatic balancing between stocks and bonds. I wish I had a
link for you, but this was a while ago. However, I got the impression
that it was at least somewhat common, so maybe if you do some research
in to pension funds, you might be able to come across something like
this.
My personal take is that your idea seems dangerously close to market
timing. Perhaps it would be just as effective to use dollar cost
averaging on your withdrawals. That way, you'll sell some stocks low,
some stocks medium and some stocks high. This will provide some of the
protection you're looking for.
As an aside, the 5% withdrawal rate is, IMO, entirely reasonable. The
(admittedly convservative) Rule of 25 suggests a rate of 4% can be
sustained indefinitely. Depending on your age, you may want to factor
Social Security in to your planning. I'm 27, so I disregard Social
Security when doing any retirement planning. But if you're 57, it
might be a different story.
--Bill
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Posted by Elizabeth Richardson on December 4, 2006, 11:13 am
>
> My reading of the article indicates withdrawals were in the same
> proportion as the portfolio, for example 75% stocks and 25% bonds,
This doesn't sound in the least like a good idea. I wouldn't think selling
stocks for income is practical at all. I have monies invested for income,
like Bonds or a Money Market, and that's where I'll be getting my
withdrawals.
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Posted by Douglas Johnson on December 4, 2006, 3:40 pm
>
>>
>> My reading of the article indicates withdrawals were in the same
>> proportion as the portfolio, for example 75% stocks and 25% bonds,
>
>This doesn't sound in the least like a good idea. I wouldn't think selling
>stocks for income is practical at all. I have monies invested for income,
>like Bonds or a Money Market, and that's where I'll be getting my
>withdrawals.
I don't understand. Are you saying you don't have any equities at all? If you
do have equities, when do you rebalance?
What's wrong with selling stocks for income as long as you have enough non-stock
assets to ride through bad markets? If you don't sell stocks at some point, why
own them?
Thanks,
Doug
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Posted by Elizabeth Richardson on December 4, 2006, 8:37 pm
>
> I don't understand. Are you saying you don't have any equities at all?
If you
> do have equities, when do you rebalance?
>
> What's wrong with selling stocks for income as long as you have enough
non-stock
See jLMs response for clarification. I don't necessarily advocate the
ultra-conservative 7-8 years in cash/cash-like, but neither would I
subscribe to something as risky as selling equities for income.
Elizabeth Richardson
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