BmacParticipantStatus: PhysicianPosts: 312Joined: 10/21/2017
I am the opposite. I will not retire until I can live on dividends, rental or passive incomes (0% withdraw). I do not want to crawl back to work when I run out of money after retirement, or depend on any charity or SS to live. I will leave the principle alone while I live and give it to charities or kids once I die (tax free for sure).Click to expand…
You do realize this will keep you working many more years than necessary? Fine if you’re not really trying to do the RE of the FIRE. But otherwise likely overkill.TimParticipantStatus: AccountantPosts: 3030Joined: 09/18/2018Sequence of returns is a serious concern. I’ll be much more conservative in the 5 years leading to and first 5 of retirement. I’ll likely be piling into an appropriate percentage of bonds the last years of working to mitigate some volatility and smooth out the early withdrawals (bonds allow a more consistent draw but decrease overall nest egg), but move towards more aggressive as time goes on (I hope, we’ll see).Click to expand…
Been there, done that. And then you start going back to the thought of maintaining the portfolio for an additional 30-40 years and if you really believe in your AA, the bonds become a focus. The mind and emotions are kicking in, and you know it, “Why am I changing? Out of fear.” Memo to self, “Fear of retirement is not a rational or mathematical reason for changing AA.” Next you start thinking of alternatives for bonds. Yes bonds sometimes fluctuate and MAYBE you can tune from a broad index and “tilt” to corporates or duration or ratings to “goose the interest”. Memo to self, “Chasing yield is not a rational or mathematical reason for changing AA.” Next you start thinking of a bond ladder, greater yield due to different maturities and cash is secure. Memo to self, “Chasing yield is not a rational or mathematical reason for changing AA.” My point is sequence of returns is a real risk today (i.e. the market is too expensive or the expected returns are going to disappoint) and you happen to be retiring.
The AA already reflects the risk of loss of principal, fundamentally it’s why are you changing for 10 years (5 before and 5 after). Shoot, sometimes you consider keeping a year or two in cash and then using AA. Behavior finance is rarely discussed in the transition period from accumulation to withdrawals.
There is a ton of research for AA impact on the accumulation stage, the withdrawal stage its like maybe this or that but a lot of “emotions” that lead back to AA changes that are purely feel based. I love the goal of maintaining cruising altitude, nose dives stink! I am not convinced that one is best served changing AA. Comes at a cost.