A.I.M. Users Bulletin Board

[ls7550]

AIM-Hi in Retirement?

AIM HI targets 80/20 stock/bonds (cash). Is that wise if you're in retirement? Short answer looks to be Yes!

Consider a 33 year horizon. You might construct a 33 rung ladder loading 3% into each rung for spending each year. Ideally each rung would pace (or better still exceed) inflation so as to maintain purchase power - provide a 3% Safe Withdrawal Rate (SWR = where the value of the $ amount drawn at the start of the first year is inflation adjusted as the withdrawal amounts in subsequent years). Given that stocks over 20+ years tend to do well, typically providing inflation or better total returns, its not unreasonable to load rungs 20+ with stocks. Given that over the shorter term stock volatility can be wild load the lower rungs with TIPS/Bills/Notes/Bonds.

Starts with 44% stock, 56% bonds, and progressively moves towards being 100% stocks as bonds are spent in earlier years. Over the total 33 years that averages 78% stock (22% bonds). Or rather than laddering you could just use constant weighting 78/22 likely to similar effect. The Ladder in effect has you time average relatively more into stocks as time passes (stock % weighting relatively increases with time), constant weighting averages stock via rebalancing.

Historically over the last 120+ years instead of drawing down to zero, a 3% SWR from 78/22 still had 100% of the inflation adjusted start date amount remaining after 30 years in the worst case. On average it had 3.3 times as much inflation adjusted start date value after 30 years.

This portfoliovisualizer test indicates that since 1972 a 78/22 provided a 5.68% annualised real (hover your mouse over the "i" next to the nominal CAGR figure in the 'Portfolio Returns' section) i.e. the portfolio grew more/faster than a 3% inflation adjusted withdrawal rate.