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2 people have a lifetime investable savings of \$1,000,000, after basic living cost reserves. (Doesn't matter whether the persons are currently 80 or 20 years old... the 80 year old has a past accumulation of \$1M, the 20 year old has a future investable \$1M.)

Let's assume X amount of this net worth is *just enough* to throw sufficient yield to cover all living expenses at 80 years old.

Hi Dave,

Your analysis is a bit awkward as written. The thing that makes it awkward is that X is determined by your future investment returns. This is a problem mainly because you don't know what your future returns will be. You can make some reasonable estimates, but if your investments don't do well then you miscalculated X and you are eating Alpo. I think there is a way to make the question more meaningful.

Just to flesh out the analogy a little bit, our 80 year old expects to live less than 20 years, and any money he wants to leave to his heirs are in separate accounts that he's not going to touch. And I don't think anyone would recommend 100% stocks for someone in his position, so a non-100% stock portfolio is a given. Real simple situation. Reading on:

If X = \$1M, then \$Zero can go into the S&P, because any drawdown at all, if it occurs while funds are required to be spent (which is now,) can afford to be lost.

Not quite, it is not a bad thing at all to spend some principal as long as we don't wind up eating Alpo. In fact, at year 20 when you die ideally would have spent every last dime you own. You can't take it with you.

I think a more useful way to state the problem is to ask what is the maximum amount that can be safely withdrawn from the portfolio such that it lasts a minimum of 20 years? That's of course the famous SWR. Many gazillions of electrons have been expended debating that point. Books have been written. At least one person has been driven completely insane by that question. But Intercst and others who have taken a scholarly at that question have concluded at the efficient frontier, the 20-year "safe" withdrawal rate is about 5% of the initial portfolio balance.

"Safe" in quotations of course because the future might be worse than the past, possibility of institutional failure, asteroid impacts, etc. But based on the evidence I'm pretty confident that number will get our 80-year all year at least extremely close if not the way there and he could die wealthy, too. So as long as his living expenses are equal or less than the SWR, he's good to go. And the efficient frontier calc answers the question about what percentage should be in bonds.

Question: What is the SWR for a IUL?

Answer: Impossible to say.

The raises a problem for the 80-year old with the IUL and everyone else planning to use a IUL planning for retirement income. You have guess at your WR. If you guess high, you wind up eating Alpo. Not good. If you guess low, you needlessly reduce your lifestyle. Not good either. But is an important question you are deciding by making a blind guess.

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