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yitz99L: "I just read a book "25 Myths You've Got To Avoid" ...

One idea there that resonates with me is that bonds aren't that great and that you don't really need to "own your age" % or 40% or whatever of bonds. In general, you are better off putting as much as possible into stocks - even during retirement."

I doubt it, unless your portfolio value dwarfs your withdrawal requirements.

"The following is my presentation of his idea with some of my own embellishments...

Instead, put three years of spending money into a money market fund as you approach retirement. Let's call this your "gas tank." You could put some of that into one year bonds or CD's if that increases the yield by much. The remainder goes into stocks. Think of the stocks as your "pump"."

Whatever you are putting in your gas tank is not in equities - presumably somewhwhere between 10-20% depedning upon the exact numbers.

""Spending money" would be whatever you need in cash in addition to your social security and pension payments. Draw down from the gas tank on a monthly basis.

How to refill the tank...
(1) Use whatever dividends that your portfolio distributes.
(2) Once or twice a year, take a look at your stock portfolio. If the market is performing OK, then sell off enough profits to fill up the gas tank. If the market is down, then delay selling. The three year tank + dividends will likely give you enough time to survive the worst bear market. And even if you have to sell some stocks at a discount, the extra margin that you make before and after the bear market will more than compensate for the loss. Also, almost all of your investment income is now coming from long term capital gains and some qualified dividends, so you earn an additional margin from tax savings."

Looks like you would be seeling into a down market.

"I thought about this some and figured that you could use this model for retirement planning. The plan allows for a withdraw rate of 6-7% of the portfolio rather than the 4% figure that seems to be popular."

I doubt that your 6-7^ agjusts for inflation. Additionally, and much more importantly, by ignoring volatility, you are making the same mistake that Peter Lynch made (and which he later retracted).

"Let's say that you need a gas tank of $50k per year. If we use an "X" of 15, then your target retirement savings is $750K. Three years, or $150k goes into a 4% money market and thus earns $5k on average balance of $125k (you are drawing down each month.) $600k is in stocks and earns 2% on dividends, or $12k. The 6% appreciation earns $36k, for a total annual investment income of $5k + $12k + $36k = $53k gross, or a $3k gross surplus to keep up with inflation. Now you can afford to live to be 10,000 years old."

150/750 = 16.6% outside equities.

Regards, JAFO
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