we have now had 130 rolling 30 year retirement cycles .... looking at the outcomes has demonstrated over and over that unless you want a very low draw , taking a modest 4% has failed to last 66% of all those cycles using fixed income only , regardless of rates .
best results are in the 40-60% equity range ........you want at least a 90% chance of not running out of money without running out of time WITH OUT TAKING PAY CUTS . NO ONE LIKES PAY CUTS , NOT WHEN WORKING AND NOT IN RETIREMENT.
research now shows that building a bond tent maybe the best way and reducing equities about a decade pre retirement and keeping a lower level in to about ten years in retirement ..then ramp up equities .
that protects against getting hit at the nly real vulnerable time , day one in retirement before going through an up cycle .
as famed research michael kitces found :
EXECUTIVE SUMMARY
The final decade leading up to retirement, and the first decade of retirement itself, form a retirement danger zone, where the size of ongoing contributions and the benefits of continuing to work are dwarfed by the returns of the portfolio itself. As a result of this “portfolio size effect”, the portfolio becomes almost entirely dependent on getting a favorable sequence of returns to carry through.
And because the consequences of a bear market can be so severe when the portfolio’s value is at its peak, it becomes necessary to dampen down the volatility of the portfolio to navigate the danger – a strategy commonly implemented by many lifecycle and target date funds, which use a decreasing equity glidepath that drifts equity exposure lower each year.
Yet the reality is that the retirement danger zone is still limited – after the first decade, good returns will have already carried the retiree past the point of danger, and bad returns at least mean that good returns are likely coming soon, as valuation normalizes and the market cycle takes over. Which means while it’s necessary to be conservative to defend against the portfolio size effect, it’s not necessary to reduce equity exposure indefinitely.
Instead, the optimal glidepath for asset allocation appears to be a V-shaped equity exposure, that starts out high in the early working years, gets lower as retirement approaches, and then rebuilds again through the first half of retirement. Or viewed another way, the prospective retiree builds a reserve of bonds in the final decade leading up to retirement, and then spends down that bond reserve in the early years of retirement itself (allowing equity exposure to return to normal).
Ultimately, further research is necessary to determine the exact ideal shape of this “bond tent” (named for the shape of the bond allocation as it rises leading up to retirement and then falls thereafter). But the point remains that perhaps the best way to manage sequence of return risk in the years leading up to retirement and thereafter is simply to build up and then use a reserve of bonds to weather the storm.
https://www.kitces.com/blog/managing-portfolio-size-effect-with-bond-tent-in-retirement-red-zone/
