No. of Recommendations: 9
The sad corollary of that is when yields are low, if you want to avoid longevity risk, you either have to buy insurance against that risk or pick a withdrawal rate that assumes you'll live forever even at low portfolio returns.
OK, at the extreme, a 1% withdrawal rate is probably OK.
Even if you're in 100% cash, few people manage 100 years of retirement.

As I am prone to remark: It is expensive to be poor.

Whatever you do for this insurance--buy options, large cash allocation, large bond allocation--is a dragging anchor.
If you are rich enough, then you don't need to buy portfolio insurance. Only if you are poor(ish) do you need to buy it---and have an anchor to drag.

I read once -- and playing with Firecalc pretty much bears it out -- that a withdrawal rate for 40 year portfolio survival is good for longer periods, too. The 40 year SWR is the same as the 100 year SWR.

It's only for 20-30 year portfolios that the SWR changes.

Baby boomers are getting to the age when all of a sudden they realize that they don't need a 30 year portfolio---because they aren't going to live another 30 years anyway!
When you hit 70, you probably won't live to 100. So now it makes sense to start looking at a 20 year SWR.

For 95% sucess rate, the SWR is 4.00% for 30 years, but 4.85% for 20 years.

And them the non-financial wife (but she can still do basic math in her head) realizes, Hey, we have $1,000,000 and only spend $40,000 a year. So if our investments do NOTHING it will last for 25 years. So why am I buying bread at the day-old store?

Okay....had to check it out.
95% survival rate for 40 years is 3.70% SWR.
For 60 years, 3.68%.
For 70 (as if!) years, 3.55%

The people who are running around yelling about the need to do 2% SWR are just being silly.
Print the post  


What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
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.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! 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.