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Investing/Strategies / Retirement Investing
|Subject: Re: Retirement Needs Formula?||Date: 10/6/2013 12:35 PM|
|Author: Rayvt||Number: 73458 of 76883|
The traditional TMF way to deal with that problem is to keep 5 yrs living expenses (only 20% of assets) in a laddered maturity bond portfolio. You live off the interest and the one bond that matures each year. In normal years you sell 4% of assets and buy a new 5 yr bond. If the market crashes, you defer replacing the bonds until after recovery.
That's the "cash bucket" method. And it is a mirage. It's an emotionally comforting story for a technique that is a failure financially.
Here's some other ways to describe it, all accurate:
* When the market goes down (crashes), shift your asset allocation to less cash and more stocks. The longer it goes down the more heavily you go into stocks.
* In the case of a very long bear market, wait until it has been going down for many years and then sell your stocks. Instead of selling early-on for 10% loss, hang on and sell for 50% loss.
The single biggest reason (IMHO) that it doesn't work is the step that is usually just mentioned in passing: refilling the cash bucket.
There is a spreadsheet here: https://www.dropbox.com/s/xf4ma5blug27aws/SPY_Withdraw_by_Ca... that you can model a cash bucket portfolio using real historical data.
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