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Ben Carlson’s column today is a reprint of a method for sustainable retirement spending. You start by calculating your spending requirements in retirement (although I don’t see an allowance for inflation) and have four year’s worth set aside in cash or cash equivalents by the time you retire. Then there are rules for when you withdraw from cash or stock, and when you replenish cash. It sounds like the remainder of the portfolio is all in stock. I didn’t follow that method, as I only have 50% of my portfolio in stock, but it is an interesting approach, and worked for him, despite starting retirement in early 2000.
I am not in a position to comment on this because I don’t rely on investments for income, but it’s something I think about. I can’t imagine myself dealing with the issue and all the variables to consider regarding withdrawals and investments.
People who read and write on HD are different. Far more involved. I wonder how more financially average people deal with all this.
Do they attempt to follow the – often conflicting – advice of the so-called experts? Are they turned off to annuity income streams because some guru says they are a bad investment?
I know one thing, a steady, guaranteed income stream is peace of mind.
So true. With 110% guaranteed income and now needing our retirement accounts we have piece of mind
Imagine your two favorite financial gurus issue new review articles today and you read them both, found their ideas and reasoning compelling, but their messages are quite different from each other. What do you do? Which one is right?
I think its useful to understand each writers’ goals, and interpret their ideas through that lens. For example, Bill Bernstein has explicitly stated that the goal ought to be, once retired, to not run out of money. Some authors prefer keeping smaller cash and short term bonds allocations, with most in stocks. Their goal, at lest implicitly, is to maximize long term portfolio growth. So, maybe they are both “right”, depending on what your own goals are. I try to remind myself what my own goals are, in order to avoid acting on emotional reactions to the non-stop financial media reports. (Charlie Munger: “Don’t do anything stupid”).
Many fellow commenters wisely point out that one difficulty with applying general rules of thumb, is that some of us have very modest nest eggs, while a few at the other end of the spectrum have more money than they could ever spend.
I read articles from prominent financial figures to understand their thinking and reasoning, not to implement their ideas. My approach is straightforward: I know my financial situation better than anyone else. With my education, business background, and experience in finance, I’m fully capable of managing a portfolio aligned with both my risk tolerance and capacity for risk.
Constantly shifting between investment philosophies is counterproductive. The key is to construct a solid plan and maintain discipline. Financial articles should inform your thinking, not dictate your actions.
The best portfolio isn’t the most sophisticated—it’s the simplest one that accomplishes your specific objectives.