UnThreaded | Threaded | Whole Thread (18) | Ignore Thread Prev | Next
Author: DrTarr Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75826  
Subject: Re: SWR/High Bond Fund Allocation? Date: 3/2/2011 8:57 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 2
True the base number for 100% is not very much different for the 70/30 or 30/70. It is all in the speed with which failure occurs as you increase the withdrawal. Both are safe at 3%, but at 4% or 5% the difference in survival rates are quite a spread apart.

From the Trintiy Study - the difference between 70/30 and 30/70:

Withdrawal Rate as a % of Initial Portfolio Value:
Payout Period 3% 4% 5% 6% 7% 8% 9% 10% 11% 12%
75% Stocks/25% Bonds
30 Years 100 98 83 68 49 34 22 7 2 0
25% Stocks/75% Bonds
30 Years 100 71 27 20 5 0 0 0 0 0


I did not run the forty years but can later. Using the data (shiller not ibbotson)from 1926 and the 10 yr treasury rate vs. IG corp rate here are the estimated withdrawal rates that would have made thirty years for retiring in that year:


Year 70E/30FI 30E/70FI P/E
1926 4.5% 5.4% 12
1927 4.2% 5.0% 14
1928 4.2% 4.9% 19
1929 3.8% 4.4% 27
1930 3.3% 3.9% 22
1931 3.4% 3.7% 16
1932 3.6% 3.6% 9
1933 4.1% 3.7% 9
1934 4.4% 4.0% 13
1935 3.8% 3.5% 12
1936 4.0% 3.7% 18
1937 3.4% 3.3% 22
1938 3.1% 3.1% 14
1939 3.6% 3.3% 16
1940 3.5% 3.2% 17
1941 3.6% 3.2% 14
1942 4.4% 3.7% 10
1943 4.9% 4.2% 10
1944 4.9% 4.2% 11
1945 4.7% 4.1% 12
1946 4.5% 4.0% 16
1947 4.6% 4.3% 12
1948 5.2% 4.9% 10
1949 5.2% 5.1% 10
1950 5.2% 4.9% 11
1951 5.4% 5.2% 12
1952 5.2% 5.0% 12
1953 5.0% 4.9% 13
1954 4.8% 4.8% 12
1955 4.9% 4.8% 16
1956 4.4% 4.3% 18
1957 4.1% 4.2% 16
1958 4.2% 4.2% 14
1959 4.6% 4.4% 18
1960 4.2% 4.0% 18
1961 4.1% 4.0% 19
1962 4.1% 3.9% 21
1963 3.9% 3.8% 19
1964 4.1% 3.9% 21
1965 3.8% 3.7% 23
1966 3.7% 3.6% 24
1967 3.7% 3.6% 20
1968 3.9% 3.8% 21
1969 3.5% 3.7% 21
1970 3.7% 3.8% 17
1971 4.1% 4.0% 16
1972 4.3% 4.0% 17
1973 4.2% 4.0% 19
1974 4.0% 4.1% 13
1975 4.5% 4.8% 9
1976 5.3% 4.9% 11
1977 5.1% 5.0% 11
1978 5.2% 5.4% 9
1979 5.6% 5.7% 9
1980 5.6% 6.3% 9
1981 5.4% 6.7% 9


I also included 10 yr P/E because a real interesting point to me is that as the P/E comes down, there is some correlation with the rate going up. Notice that most the time when the rate (use the 70% equity) is around 5% the P/E is low teens around ten. When the P/E gets high teens and twenties the rate drops down to the 3% region.

Also, notice that as we come into the 80's the bond portfolio rate really starts to climb. May be that way again in just a few years...

So with current bond rates and P/E, another leading indicator is the returns year by year. If you start w/$1MM and take out 3% because you want 100% survivability and the market throws you a bone with 20% return, then you may be able do more than adjust for inflation. You can go to 3% of the new portfolio value ($1.16MM) which is ~$35000 because if 3% had 100% survivability of 30 years, it had 100% survivability for 29 years.

All this with the point - historical data does not guarantee the future returns.
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Print the post  
UnThreaded | Threaded | Whole Thread (18) | Ignore Thread Prev | Next

Announcements

The Retire Early Home Page
Discussion on accelerating retirement day.
Pencils of Promise - Back to School Drive
"Pencils of Promise works with communities across the globe to build schools and create programs that provide education opportunities for children."
Managing Your Wealth
Our own TMFHockeypop from Rule Your Retirement fame on the TV show Managing Your Wealth.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
Community Home
Speak Your Mind, Start Your Blog, Rate Your Stocks

Community Team Fools - who are those TMF's?
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and "#1 Media Company to Work For" (BusinessInsider 2011)! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.
Advertisement