A.I.M. Users Bulletin Board

[ls7550]

I read a study where it was suggested to be near 100% stocks till near retirement and then gradually go to 50% stock.

After retirement you would spend from the cash / bond portion gradually increasing the stock %.

In this way you would potentially avoid sequence of event risk ( market crash just at retirement which blows up your account ).

It was thought it was better to INCREASE % OF stock in retirement.

I think AIM works good enough.

Hi Toofuzzy

AIM early 1980's was pretty much indicating 0% cash and a all stock retiree from there would have been well served by that. AIM 1999 was indicating 70% cash, so 30/70 initial stock/bonds, spending bonds first, transitions to 100/0 stock/bonds and averages 65/35 stock/bonds. Again the retiree was well served PV example of a 4% SWR (i.e. inflation adjusted initial 4% of portfolio value yearly withdrawals.

BUT! Do you continue to AIM and potentially see some/all of bonds being migrated over to stocks, OR once set just stick with the initial stock/bond allocation? Continuing to spend bonds and leaving stocks to accumulate until such times that all bonds have been spent and at which point likely the stock value will be reasonable enough in size to sustain withdrawals/spending.

Seems to me that if you continue to AIM, perhaps exhaust cash, and stocks continued on further down then you're at risk of selling shares at relatively low levels in order to provide income. Maybe set-and-forget might be the safer choice?

Regards.

Clive.

PS the differences are relatively mild if you opt for 'average' exposure rather than two-buckets.

70% initial cash indicated, 30/70 stock/bonds transitions to 100/0 stock/bonds as all bonds are spent, 65/35 average.

30% initial cash, 70/30 transitions to 100/0 = 85/15 average.

I would imagine that using buckets is better if/when started from a relative high, subsequent declines occurring relatively quickly after starting might have just 30% stock exposure compared to 65% if the 'average' based approach had been adopted. In contrast if stocks do well after starting then 'average' based has higher stock exposure than two-buckets. However if AIM cash is low or maybe even zero the differences would be trivial. Accordingly I suspect two-buckets is perhaps the overall better choice.

Recent 60% AIM cash indicated, so a individual retiring today using a two-bucket allocates 60% to bonds, 40% to stock, draws their income from bonds leaving stocks to accumulate. If a bad sequence of stock returns occurs soon after, maybe stocks values halved in real terms they might be more like 60/20 bond/stock. If drawing 4%/year that 60 bonds covers 15 years of income, enough time for stock declines to recoup/recover. In contrast a 'average' based approach starts with 70/30 stock/bonds, where the bonds covers just 7 years, or less if some of bonds are migrated over to stocks, perhaps just 4 years of bond spending and maybe not enough time for stocks to recover.