Unusual Drawdown Method Increases Retirement Safety? - What's the Catch?
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- Опубликовано: 12 июн 2024
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Timestamps:
0:00 What is your retirement drawdown strategy?
0:33 The Target Date Method: Lifecycle Investing
1:52 The Retirement Redzone
2:57 Rising Equity Glidepath Method
4:33 Traditional Glidepath vs. Rising Equity Glidepath
5:44 Third Party Research
7:13 Additional Retirement Benefit #1
8:23 Additional Retirement Benefit #2
8:57 Additional Retirement Benefit #3
10:32 Additional Retirement Benefit #4
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Love this strategy.
This is no different than a bucket strategy with 14 years of income in the safe bucket. This will give you the same 30/70 allocation that M. Kitces used in his rising equity glide path research (using a 5%W/R).
And as you deplete the cash bucket the percentage of equitys will rise .
Another benefit of this strategy is that if you get hit by a bad sequence early in retirement your cash/bond heavy allocation can be used as dry powder to buy back into the market
I’m with you Sergio! I have large cash bucket at 59, 10 years worth. My dry powder is now making 4.5 to 5% in MM and brokered CDs. I wasn’t counting on my cash making money honestly. So why not dollar cost average my monthly bonus cash while markets are down? It’s like you’re still investing even though you’re not working. Set up automatic buying 1st of month in your cash accounts. If you buy brokered CDs make sure they pay out monthly so you can sweep over to equity funds. Many Brokered CDs pay out semi annually or at maturity date so can’t invest the cash monthly.
I like the idea of having 7-10 years of income shortfall invested conservatively in bonds, cd and the rest in a low cost total market index ETF.
This channel is the only one that I've seen that questions the retirement planning dogma, and *tests* the issues with data and models. I learn something new every time I watch one of your videos. (Regrettably, I'm in that ed zone, and likely too highly invested in the volatile stocks... )
Thanks Eric and the rest of the team.... as always excellent thought provoking material.
I will be retiring in 2 months, and I've been adding to my stock and stock ETF holdings. I have been buying quality dividend payers that have been on sale, and thos dividends will be a part of my income stream. I will retire with about 35% of my portfolio in stocks.
Eric, Kudos! Great presentation about the Increasing Glide Path Method. 🎉😊❤
This seems somewhat like a bucket plan strategy where you start with, example, 80/20 equities/short-term investments. As you spend out of your short-term investments, the natural split means the equities % should get larger over time (be it through equity appreciation, or just the short-term investment becomes smaller as you spend it). Granted, at some point, you need to replenish your short-term bucket That said, I believe the overall premise is correct, retirees need to keeps a substantial exposure to equities in retirement (more than the traditional 60/40 or 100 minus your age approach) to have a higher chance of a financially successful retirement.
Another excellent video Eric. I'm going to have to watch this a couple more times and reflect on all this to properly digest the information and data. Thank you Eric, I appreciate all the effort you put into these videos. Larry Oman
Can you do a video on how to best implement the reverse glide path and when to start, e.g. at retirement, 5 years in, etc.?
Great video! Thanks for putting out some alternative strategies. 100% agree with some of these concepts, and have read a lot of the work of Dr. Pfau and Kitces.
They also,make the point, that once your Social Security Kicks in(especially if delayed), the income from SS can essentially replace the “bond” portion of the portfolio, allowing a much higher stock allocation.
As mentioned “sequence” risk is large and may be a problem for those of us retiring now or soon. We are planning on something similar, specifically letting high risk assets such as stocks and Bitcoin remain in the portfolio long term, while withdrawing low risk assets now as I bridge to full SS. My wife has already started her’s as she is older and is able to carry a dependent on it.
This is similar to a bond tent strategy. Only problem is bonds don't always provide protection when stocks decline like we've seen in 2022. A better approach IMHO is to pick investments which have shown over a long period of time, 30 years or more, to have less risk than the S&P 500. Then combine that with around 25% in intermediate bonds. Such a portfolio with these allocations can be created that has less risk than a 60/40 portfolio while also having higher returns. But very few people will do the research to achieve this and for those that have they won't share it with others.
SSI is even safer than a bond portfolio. Upping the equity % to offset the social security is just balancing the original risk
Interesting but in practicality is it worth it?
Based on the Kitces & Pfau charts shown, the Vanguard target date method with a constant 30% equity position throughout retirement would yield a 94% success rate and withdrawal of 4.3%.
Is the additional required portfolio management that would be needed to implement the reverse glide path method worth it to get a small fractional improvement in potential outcomes?
And do I really want to be actively managing my portfolio at age 88?
Great video. But try telling that to your Vanguard Managed Accounts people. I suppose the only thing to do is to fire them and go at it DIY.
Or hire SWM. Compare their fees. It's an option
With today's favorable rates on CDs and MYGA, s it will be simple to build your cash bucket with ladders CDs ,MYGA, s and bonds for the 70% cash position .
And an SP500 index fund (VFINX) for the 30% equity position.
It’s super easy to do. Buy some broad ETFs and you are good to go.
Personally, I think expressing these stock vs. bond holdings as a percentage may be a mistake. I would expect that the amount held in bonds should be proportional to expenses, not overall wealth. Someone with a $1M portfolio really might need to be 70% bonds at some point in your retirement, but if you have a $10M portfolio and retain the same modest way of life, then this amount of bond would be destructive to final outcomes. In both cases, maybe you ought to have $700k in bonds to cover expenses over the next five years and the remainder, whatever you don’t need right away, in stocks. I can only imagine that the reason the reverse glide path works is that social security kicks in so the amount of bond you need to keep around is reduced because your living expenses (net social security) are reduced. I’ll keep watching the video to find out.
what is the outcome if someone invests in 100% stocks (index fund) and just left it there, no glide path at all?
I urge to look up "sequence of return risk"
Buy more income producing stocks, income is the key. Don’t draw down the income producing assets, draw (or reinvest) the dividends and distributions.
I'm 61 and Vanguard had my brokerage account in 40% bonds. I told them to put 100% in stocks and let it ride. My 401k has always been 100% in large and small company stocks. No guts, no glory.
Great strategy!
Until the market crashes.
@@markwalters7498 My 401k has been 100% stock for the past 16 years and I have made almost 1mil. That was even during the crash of 2008. Search the average S&P500 returns for the past 100 years and you will see that it's 9.8%. That's a good thing to invest in.