[quote=AN][quote=ltsdd]You’re assuming that as a retiree you’ll stick your entire nest egg into a single S&P or the DOW “bucket”. But that’s not how the that thing works. And the assumption that you’ll withdraw the constant amount every year is also flawed. These buckets are rolling buckets – you’ll need to rebalance every year. On lean years you’ll need to withdraw less. So sure you’ll run into some rough times here and there, but the whole idea is that that doesn’t matter if you have money invested for now (ultra defensive, principle preserving) for the near-term and the long-term(go for broke, swing for the fences). In other words if you plan to live for another X years after you retired, then put 1/3 of your nest egg under your mattress (and replenish at the end of each year). Another 1/3 in some other not so risky investment And for the last 1/3, invest as you are investing today. This is just a general example, but you get the idea of splitting your nest egg into various buckets.
BTW., I haven’t read up Ray Lucia’s books, but BStein did mention RL in his book. I like BStein’s method in that he took various strategies (RL buckets of $$, Galeno’s, etc..) and refined them by running those through various scenarios and making adjustments. As a bonus, his self-deprecating sense of humor makes his books both educational and entertaining.[/quote]
I assume that because if I don’t, how are you going to get an average of 7.5% return from your total portfolio?
Now, since you’re using the bucket of money strategy, then I’d have to take in a much lower assumption of average return. Since I’d be in retirement, my fixed income bucket will be the largest bucket. Looking at CD rate today, I’d be lucky to get 2%. Stocks is negative YTD and negative for 2011.
Are you ignoring the example I gave of a retiree in 2000 with $2.4M? If you use the bucket strategy, you’d be much better off than putting 100% into S&P and DOW, but your total nest egg is still greatly depleted.
I only assume constant withdraw because I’m trying to reduce the amount of variables when comparing 401k vs pension. If you use less, then sure, you don’t have to deplete your 401k as much. But if you don’t spend $100k/year, then with a pension, you could save the difference and start to grow that money too. But adding this extra variable makes it that much harder to do an apple-to-apple comparison.[/quote]
AN,
In all of your examples, you’re ignoring dividends and fixed income returns on bonds that were purchased before ZIRP. If you bought a 10-year Note in 2000, you would have earned ~6.5%. Someone who was retiring in 2000 should have had a healthy bond portfolio with a fairly large mix of long-term and short-term Treasuries in addition to municipal bonds and some GSEs, etc. If they were overweight bonds in 2000 — which they should have been if they were retiring — they should easily have earned 5-7% over the past 12 years.
