[quote=AN][quote=ltsdd]That’s what I used to think. But I am really sold on idea of splitting your retirement $$ into various buckets so on the one hand you’ll know you will have steady flow of income for x number of years regardless of how the market performs; and on the other hand you’ll know that your retirement $$ will have the opportunity to grow.
I was referring to the S&P & DOW. The DOW might be lower in 2009 and 2010 compared to 1999 and 2000, respectively. However, the returns during the 10-year periods were still positive. You’re right about the possibility of depleting your nest egg. That’s why I don’t think you want to switch to investments that could barely keep up with inflation during your retirement years.[/quote]
I understand what you’re talking. I assume you’re referring to the bucket of money strategy from someone like Ray Lucia?
That would be my 2nd option. My 1st option, if I achieve my net egg goal, is to accumulate enough where I can ladder CDs and make more than enough on dividend to live on. If I fail to reach my 1st option, then bucket of money strategy would by my 2nd option. But that just mean I failed and am just trying to make due.
Return between 1999-2009 and 2000-2010 were not positive. They were negative. Like I explained in an early post, depletion of the nest egg drastically affect your average return. So, if you have $2.4M in 2000, over the last 12 years, assuming you have the stomach to keep 100% of your net egg in the S&P, you’re not only negative nominally, you’re depleting your nest egg at $100k a year, which is $1.2M over that 12 years. So, 1/2 of your nets egg is gone and you’re only 12 years into your retirement. Do you think the remaining $1.2M can last you the next 18 years? What if Europe or China goes into the toilet in the next year or two and we’ll see another crash. What would happen to that remaining $1.2M? This is why I wouldn’t want to be in the market if I’m retired.[/quote]
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.
