I have a few more years to go until retirement but I am trying to develope my asset allocation strategy for now and determin how it will change as I approach retirement. I would appreciate some comments on how much cash you (currently retired) set aside for living vs stock and bond investments for the future. I am espicaly interested in your thoughts before and after the "dip" in the market.My thinking is that if I spend 5% of my assets each year I will not run out of money. To cover bad markets I am thinking of three to five years of living expenses in cash. The cash includes CD's or Bonds that mature each year so the market risk has been removed. I consider Social Security, pensions etc the same as cash since there is no market risk to receiving the payments. The question is how may years of living expenses do you keep out of investments (stocks and long term debt securities)and how does the current market drop affect your thinking?
Not to be ghoulish but you may want to look at the mortality tables. These are in Section 2 of the Statistical Abstract of the United States, which should be in your local public library. It turns out that if you are a white male aged 60, then you have a 50% probability of reaching 80.0 years, and about a 22% probability of reaching 85. Of course that is the average. Family history has a lot to do with longevity. Lyndon Johnson fretted that mo male in his family had ever made it to age 65. He himself went at 64 3/4.I plan personally to spend my assets down if that is required to sustain my rather modest lifestyle. The hard part is figuring out how to make sure the dollars last just a bit longer than the heartbeats.
<<The question is how may years of living expenses do you keep out of investments (stocks and longterm debt securities)and how does the current market drop affect your thinking?>>I think your 3-5 years annual income requirements is right on target. Why would you change? The strategy is intended to protect against having to sell securities in a down market. Unless you have been listening to the bears, why do you think the market will be down more than 3-5 years? Regards, Jim
Has anyone ever heard of the Garland Rule? I came ascoss this in a back issue of AAII magazine. According to Garland, you can spend 1.25 times the average yield of the S&P 500 times the size of your stock portfolio. This is supposed to allow for preservation of capital and spending power. The rule is intended for foundations. If you have a finite lifespan you could spend more.
Ataloss: is that earnings yield or dividend yield.?Joe Varga
Dividend....which makes it look awfully conservative now.
ataloss sez:<<>>I've been unable to find the S&P 500 yield. Where is it or better yet, what is the current yield?H.
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