Hi everyone, my wife 44 and myself 51 with no kids retired one year ago. I'm currently working on my asset allocation and would greatly appreciate thoughts from the community. My key concern is mitigating SORR.
I've been reviewing the Early Retirement Now part 19 and 20 regarding equity glidepaths in retirement. Given CAPE is currently >20, a 60% to 100% equity guide path with 0.4% monthly increments enables the highest fail safe SWR of 3.47% for a 60 year horizon and final value target of 0%. This is compared to 100% equities which has a SWR of 2.58%.
The paper "Beyond the Status Quo: A Critical Assessment of Lifecycle Investment Advice" which recommends a optimal lifetime allocation of 100% equities also acknowledges that "The optimal strategy is all equity at every age except for a brief period immediately upon retirement. Investors allocate 27% to fixed income (all in bills) upon retirement at age 65, but that weight shrinks to 7% by age 68 and 0% by age 70.
I've been 100% equities through the accumulation phase and am considering 90% stocks / 10% cash with the objective being to withdraw from the equities bucket when stocks are high and from the cash bucket if the stock market crashes. I'll have about 5 years living expenses in a cash fund which acts as a volatility dampener and mitigates SORR to a similar extent as a glide path.
What is everyone's opinion on a REGP versus a 90:10 strategy? When CAPE is <20, there is no benefit from a glide path. However given the CAPE is currently 36.2, SORR is elevated when CAPE ratio is high. I'm concerned with the performance drag of holding bonds in my portfolio, particularly given the positive correlation recently between stocks and bonds.
BTW I'm based in New Zealand and am invested in global share funds, NZ share funds, and cash fund. I don't have acess to US Treasury bills for example however can invest in global or NZ bond funds. My actual withdrawal rate is 2% excluding discretionary spending such as overseas trips so can tighten the belt well below the target 3.5% SWR during market downturns.
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