A.I.M. Users Bulletin Board

[ls7550]

Japan end of 1989 retirement date, perhaps one of the worst possible times to have retired. I'm guessing that after the great 1980's up-run that AIM might have been indicating 70% cash levels.

Starting a 2 bucket with 70% in bonds, 30% stock, where bonds are spend first using a 4% SWR (4% of start date portfolio value income, where that capital value is uplifted by inflation as the amount drawn at the start of each subsequent year) ... and ...

Bonds (10 year Treasury) sustained withdrawals to just past the end of 2015. 100% stock remaining sustained withdrawals just out to 30 years in total.

The Trinity study SWR approach was I believe based on 30 year periods where the worst case just exhausted all of capital, much the same as above. In the average case, being better, capital remained available, often substantially more in inflation adjusted terms than at the start. A greater risk is the risk of not actually living for 30+ years following retirement.

I haven't run the figures but believe that in many other cases of asset allocation/weightings the 4% SWR approach failed in Japan, in some cases not even extending out to 15 years or less before capital was exhausted.

For those with heirs that they desire to leave a inheritance, dropping to a 3% SWR better covers that. In the above 1990 start date for instance around 40% of the inflation adjusted value remained at the end of 30 years. If instead you passed after 20 years, end of 2010 then they inherited around 60% of the inflation adjusted start date portfolio value still remaining.

Looks to me that basing your initial retirement stock/bond allocation according to AIM could serve you very well if applied to a two bucket approach. I suspect if you continued to AIM, then much of bonds might have been migrated over to stocks and continued to see stock declines that likely would have resulted in earlier exhaustion of capital.

Clive.

PS for a 4% SWR 50/50 non rebalanced spend bonds first all of capital was exhausted after 21 years. If however the investor had opted for 50/50 Japanese/US stock for the 'stock' holdings then that worked out fine, had transitioned to being all-stock after 17 years and after 30 years there was still 45% of the inflation adjusted start date amount still intact (in comparison to AIM as above i.e. 30/70 initial stock/bond had 114% of the start date amount available at the end of 30 years if J/US stock were held as the stock holdings).