Bob Brinker Free Discussion Site 59,820+: Re: Re: Re: Re: Critical Mass

» Kirk - Re: Re: Re: Re: Critical Mass

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In response to Re: Re: Re: Critical Mass posted by iamacamera:

I looked at a conservative rate of return and treated it as a mortgage (or really a sinking fund)with our lives as the term. E.g. at 60, if you believe you'll live to 95, enter 420 as the number of payments and your capital say 1.5 million as the PV, if you think 6% is reasonable return enter 0.5%/month as the interest rate. This will give you a payment of $8552 per month and you die broke.

Be careful with this unless you think dog food is a gourmet item to serve for supper.

From "Table 3. Inflation-Adjusted Portfolio Succes Rates: 1926 to 1995 (Percentage of all past payout periods supported by the portfolio after adjusting withdrawals for inflation)" from the article "Retirement Savings: Choosing a Withdrawal Rate That Is Sustainable" you will see that a 50:50 equities:bonds portfolio with 6% annual takeout and 30 year life has a 49% probability of FAILURE using Monte Carlo analysis.

See our Critical Mass - Care and Feeding For forum for many articles posted about his. Sorry, but the AAII website has changed so I don't have a link to the article. (I read from my copy I emailed myself.) There are several articles out there but my conclusion from reading most is 4% is OK for 30 yrs and 3.5% should work for 35 years to 50 years.

What I've not seen discussed is the "Monte Hall - Always switch boxes when he shows one with a goat Question" and how it relates to this analysis. I believe the nice thing about being conservative is you can take profits after a big up year, lower your equity allocation by 1% (switch boxes) and effectively give yourself a raise. You could probably bank several good years like this then when the market eventually corrects, convert back to 50:50 on a rebalance and get even more appreciation... but that is very complicated.... so best discussed on our Critical Mass - Care and Feeding For forum.

Note: # Phillip L. Cooley, Carl M. Hubbard and Daniel T. Walz, "Retirement Savings: Choosing a Withdrawal Rate that Is Sustainable," AAII Journal, February 1998, pp. 16–21.

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