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I was beginning to think millionaires were a dime a dozen. But apparently not, as only 5% of U.S. households qualify as HNWIs (High Net Worth Individuals) HNWIs are those with investable assets of over $1,000,000 (real estate is excluded) I live in a small Mayberry type town in one of the poorest states millionaire-wise according to the links above. Yet HNWIs seem to be everywhere in my little town. So I just figured millionaires were a dime a dozen now.
Another interesting stat, according to Fidelity which manages 401(k) accounts for roughly 12 million, only 50,000 have account balances over $1,000,000. That's slightly over 4/10s of 1%.
The last time I saw a figure on 401 (k) millionaires was in 1997 where T. Rowe Price said they had 3.5/10 of 1% millionaires in the 401 (k) accounts they administered. I had thought by now there would be many more 401 (k) millionaires.
A million isn't what it used to be! I don't think those numbers capture the full picture. I have my money in 3 companies and can move it about as it they were one. Also, it doesn't include the imputed value of pensions and social security. Take the example of social security.
1,300 - avg worker SS/mo 12 15,600 - per year 0.05 - interest rate 312,000 - imputed value of SS
Dex, I completely agree, a million dollars isn't what it used to be. But forgetting about pensions and SS, there were still a lot less than I had imagined that had $1,000,000 in investable assets. It used to be that $1,000,000 was the marker for retirement for a couple. I think we all agree that is an outdated goal and more like $2,000,000 is the new $1,000,000 for those entering retirement in their 60s and 70s.
What has been a surprise to me is my estimated spending. I have 7 years of actual spending details and projecting out for 10 years - the average is $31,028 (that included $27,000 for a new truck). The wild card is Obamacare - I'm still paying under an old plan $225/mo. I own my home an have a RV to travel in. I'm not trying to reign in my spending and I'm single.
Dex, being single, totally debt free (no mortgage or rent) and frugal makes a huge difference. I am struggling with when enough is enough. I don't want to spend my years forever fretting about the markets and posting in newsgroups. I don't want to be like this 80 year old lady I know here in town. She has $1,900,000 at the local brokerage firm but pretty much doesn't know who she is anymore. I see so many accumulate more than they will ever need in old age yet never get the chance to enjoy it.
Hey there Junkster- the "enjoy" part isn't all that hard to figure. Take a look at maybe two or three recent years of expenditures... that should be typical for the future years.
• Of the expenditures, determine what part is discretionary, what part not.
• Decide on a reasonable timeframe for future projection: till you're 85? 90? Your call.
• Now project out your non-discretionary: include a 3-5% inflation factor, and also add in a fixed emergency reserve just in case something serious and unforeseen comes along.
• Also project out your anticipated income.
• Hopefully the income projection will exceed the non-discretionary projection... if so, calculate out the remainder as discretionary, on a per-year basis. Think about what you'd like to be doing on the enjoyment side: how do those costs look on an annual basis? A biggie, like maybe international travel, maybe once every two or three years if things are a little tight. Now you have a pretty good idea of "how much is enough".
I've simplified, but that's basically what we've done, and after ten years of retirement things are looking just fine so far.
Thanks OJ, *really* good advice. My goal has always been a nest egg large enough to sustain me even if it never generated another penny of appreciation. In other words, if necessary, just live off the principal of my nest egg. We need more threads on retirement tales/stories/ advice/ experiences..........
Retirement decisions are often among the most challenging and scary that an individual must address and ultimately make. Since everyone confronts it, I agree with your observation that many MFOers would benefit from more comprehensive discussions about it.
The uncertainties of future portfolio returns are surely one element among many that strongly influences the retirement decision. When uncertainty enters the equation, my red flag in support of Monte Carlo simulations immediately is raised. I have been and continue to be a consistent advocate for applying that mathematical tool when exploring retirement scenarios and options.
Unlike a spreadsheet analysis, Monte Carlo calculations allow a user to examine various assumptions and potential investment outcomes in super-fast order. Thousands of computations are completed in seconds. I recommend you consider deploying that outstanding tool to better understand your probabilities of retirement success and, more importantly, to establish a feeling for what the principle drivers are that control survival and bankruptcy during retirement. It’s an essential retirement planning multiplier.
There are a host of excellent Monte Carlo codes that are accessible on the Internet without cost. Please avail yourself of this rather new opportunity. It did not exist when I ran the retirement decision gauntlet. Many of these codes are designed to encourage parametric what-if studies in a record short time. And they are fun to exercise.
I recently recommended the Monte Carlo toolkit at the “Portfolio Visualizer” website. Here are the Links to the generic site followed immediately by the Link to their Monte Carlo simulator:
The Portfolio Visualizer version of the Monte Carlo procedure is user friendly and very flexible. It will take a couple of minutes to input your portfolio percentage asset allocation, its total current value, your projected withdrawal preference, and your goal retirement timeframe.
Most importantly, you get to choose expected market returns from 3 options: historical annual returns randomly selected, historical returns based on a statistical model, and your guesstimate of future statistically-based returns. This last option is especially attractive if you suspect future returns will be muted compared to the historical database.
For each set of inputs, 10,000 random simulations are completed for the specified time period. Output includes a likelihood (probability) of portfolio survival, and max, min, mean, and median portfolio balances as a function of time.
Usually, folks target a survival probability in excess of 95% to feel comfortable, but that’s your choice. If you don’t like the results, change a parameter or two to test the sensitivity of outcomes to the various input assumptions. You’ll quickly learn what is important and what is of lesser importance.
If you find it difficult to reach an acceptable survival probability, you might consider not giving yourself an inflation withdrawal increase for a few years. Although that degrades a lifestyle at the margins, it does a terrific job at extending portfolio survival prospects.
I recommend you give this fine tool a test ride. I promise it will make your retirement decision making easier, and that decision will be backstopped with some hard analyses instead of unreliable gut instincts. Monte Carlo to the rescue!
Good luck Junkster. Whatever your decision, I wish you both health and wealth.
@Junkster et al Here are some resources for retirement thinking - not just financial! This is the most important part. Good book How to Retire Happy, Wild, and Free: Retirement Wisdom That You Won't Get from Your Financial Advisor http://www.amazon.com/How-Retire-Happy-Wild-Free/dp/096941949X
A couple of other thoughts. I've been retired 7 years at 52. - You are not going to be a different person when you retire. If you think, when I retire I will travel BUT it wasn't a priority when working - you will do some traveling then not much.
- Younger years are more valuable then older years. It is a balancing act between youth/enjoying life and money.
- My guess is that the amount you spend will remain relatively constant. I mean that in your younger years of retirement you will spend an amount on travel and other things. BUT, as you age you will do less of those things and the money spent on travel and other things will be allocated to inflation and health expenses.
- No matter how much time you spend running the numbers, it all comes down to jumping off the cliff/making a decision. After you do, it is like a weight is lifted off your chest. Much of the decision is emotional, not financial.
This might be a bit unconventional, but with interest rates at historic lows consider taking on debt burden. Your debt burden threshold is much higher as a wager earner verses a retiree. I went from 90K of income in my last year of work to a little over 50K as a retiree. Prior to retirement I owned my home "free and clear", but before I retired I decided to qualify for a conventional mortgage at a little over 4%. My working income qualified me for a higher loan than if I waited to qualify in retirement. I felt comfortable with the monthly payments on my retirement income.
I have found that accessing the cash in my home has allowed my to enjoy being on the receiving end of the phrase "cash is king". When it comes to distressed sellers, "cash is king". Whether its a condo being sold in Florida, a corvette being sold by a divorcee, or any other investment that requires quick and accessible cash; you'll have greater success dealing in cash.
Retirement is a time to follow a dream and if that dream has a price tag, consider having some dry powder to buy it at a "cash offer" price.
If any of this appeals to your sensibilities consider getting the gears in motion prior to retirement when your debt to income ratio is higher.
Very interesting graphic about one's neighbors, especially for a buckeye xplanted to Mass. Would be nice to see a weighted version wrt CoL: a million here ain't the same as a million in southern Ohio.
Thanks Dex, MJB, and bee. Interest-wise, I've had a very one dimensional life. Trading, running, and hiking. As boring as it may sound to some, for me retirement would be focusing as much as possible on the latter two interests. That's what I have done this year more than ever before and loving every minute of it.
I just don't want to end up like some I know. They have more than enough to retire even if they never earned another red cent. Yet they fret endlessly about the drawing down of their capital - even if that capital is more than enough to get them well beyond 100 years old. Regardless, for me guess I will keep plugging away until the dreaded RMDs at age 70 and 1/2 in 2017. That will be when the *real* retirement commences.
Trading, running, and hiking. As boring as it may sound to some, for me retirement would be focusing as much as possible on the latter two interests. That's what I have done this year more than ever before and loving every minute of it.
Hi Junkster,
Trade, run, and hike to your heart's content. However, please continue to post about mutual funds and life experiences.
I recall that a candidate ran for governor in MD was screaming that millionaires were fleeing the state. This was about the bottom of the downturn. It's good to see MD seems to have recovered. But I am sure low information people believed the fleeing story (taxes). Actually, the government employees and contractors tend to be highish level on average due to proximity to D.C. Many of those millionaires are professionals with 401K type accounts whose savings may have been $1M and probably $1M per couple but barely. The number of millionaires in MD will always face big changes at about that dollar figure. And yes, many do move to lower tax states after retirement.
I see the study but I still believe millionaires are a dime a dozen. It must be so because I'm not a savvy investor (overly conservative and lazy) and I didn't start investing seriously until I was in my 40s and, oh heck, a million really isn't that much anymore.
I am afflicted with a strange behavior whenever I talk with someone named Anna. I feel compelled to mentally sing the folk song from New York Girls that has the chorus: “To me a-weigh, you Santy, My dear Annie Oh, you New York gals, Can't you dance the polka?.” I love it.
You certainly are right in that today’s million is surely not yesterday’s million. I’m equally sure that you’re familiar with the old story that the way to leave Las Vegas’s gaming casinos with a million dollars is to come with two million and practice a little discipline.
More seriously, Maryland is a wonderful state; it is a beautiful state. My wife was born and educated there. My brother-in-law lives in western Maryland. We visit once every two years, and my anecdotally-based observation is that his part of the state is more like West Virginia than like the Baltimore suburbs and the Washington Beltway. Like in most communities, the distribution of wealth is very much uneven.
That’s the bad news, but the good news is that a million dollars is still an attractive retirement target. This is not me just making a wild unsupported assertion. I did a few Monte Carlo simulations using the tool that I referenced in my earlier post.
I assumed a one million dollar bankroll and a 30 year timeframe. I further assumed that annual withdrawals would be increased to match inflation such that lifestyle need not be sacrificed over time. The code quickly did the heavy lifting as I parametrically postulated various drawdown levels to explore portfolio survival likelihoods.
I used the statistical form of the historical database as the likely return rewards. The portfolio asset allocation was purposely input as the simplest possible. I input a 60/40 mix with 60% in the Total US Stock market and 40% in Short Term Investment Grade bonds. This is conservative since a slightly more diversified portfolio would do better.
Here are the findings: at a 30,000 dollar (30K) withdrawal (W/D) rate survival prospects are 100 % with a median end wealth in excess of 8.8 million dollars.
At a 40K W/D schedule, survival likelihood is 98% with a median end wealth of 7.0M.
At a 45K W/D schedule, survival likelihood is 96% with a median end wealth of 6.1M.
At a 50K W/D schedule, survival likelihood is 92% with a median end wealth of 4.9M.
At a 55K W/D schedule, survival likelihood is 86% with a median end wealth of 3.9M.
At a 60K W/D schedule, survival likelihood is 79% with a median end wealth of 3.0M.
It appears we have fallen off a cliff as far as withdrawal rates are concerned. I doubt anyone would want to explore further with these final disturbing projections. But feel free to do so. This entire analyses was completed in under 10 minutes.
Don’t allow the Monte Carlo terminology dissuade you. Monte Carlo is really nothing new under the sun. It is simply a spreadsheet analysis repeated thousands of times at supersonic speeds. It’s old stuff in fresh clothing made easy by the computer. Its purpose is to capture the range of possible outcomes given the uncertainties of future market performance.
Yes, before I retired I ran a lot of free calculators, including Monte Carlo. And no need to apologize to me for your explanations but I made my living doing similar mathematics so I do understand a wee little bit. Two problems: 1) The calculators may tell me I'm so rich I can spend more than I made per year but I don't think I want to test it and 2) Money comes into our house from pensions and the like and half of it ends up in CDs or something. It's almost like I am still working and saving for retirement. But I haven't made a lot on the run-up since I am more conservative than is logical. Life isn't logical, though.
I believe all MFO participants make informed investment decisions that represent their special financial situation and their singular behavioral and emotional character.
You define yourself as a conservative investor. That’s fine. So am I. It would be presumptuous on my part if I tried to dissuade you away from that preference or style. I have uniformly refused to offer specific investment advice on MFO (or any other investment website) because I reject the idea that such advice can be useful or trusted given the obvious limitations and dangers of such exchanges.
Winston Churchill said: “Trust but verify”. On the Internet, not only is verification necessary, but trust is also suspect.
In all likelihood, your very conservative investment philosophy does indeed translate onto extending your needed work period prior to a reasonably safe retirement. Whatever savings you accumulate that are placed in CD-like holdings essentially provide almost no multiplier effects on those savings.
Historically, CDs and short term government bonds yield a fraction of one percent over annual inflation rates. In today’s environment, even that low hurdle is not satisfied. More risk must be commonly accepted to secure returns that significantly outpace inflation.
In loose terms, short term corporate bonds traditionally have increased the annual return to roughly one percent above the current inflation rate. In an ascending ladder, REITs, long-term government bonds, long-term corporate bonds, large Cap balanced stock mutual funds, and small Cap value-oriented stock mutual funds have delivered superior annual returns. From a long term planning time horizon perspective, these investments have generated returns in excess of inflation that range from one percent to a top of about six percent. Anticipating anything more would be overly optimistic.
This historical ladder of category returns should play a part in any decision making process. I recognize this may be extremely challenging given your proclivities.
I was pleased that you are familiar with the Monte Carlo tools. These tools, given whatever proclivities dictate your comfort zone, will allow you to make retirement decisions that properly reflect those proclivities. A few folks on the MFO discussion panel just automatically distrust Monte Carlo from the get-go (poor souls). They typically cite the Garbage In- Garbage Out maxim. Of course that’s true; but that’s equally true in all activities. Basically their argument is uninformed and false.
But you or anyone else understand your own set of investment preferences and constraints. Your inputs to any Monte Carlo analysis will surely represent those influences. Monte Carlo analyses will provide you a fair assessment of the risk-reward tradeoffs for taking a more aggressive position on the investment risk-reward spectrum. As always, you and you alone get to make a decision. And remember, these decisions are never irrevocable; they are merely temporal and subject to conditional revision.
Again, history demonstrates that the investment great man theory is much more a myth than a reality. Even among the small number that secure that adulation in the investment community, a high percentage ultimately prove to have feet of clay. Unfortunately, the few heroes that remain standing are not frequent MFO posters. Again, buyer beware.
So, in the end, you must make a decision for yourself with regard to your portfolio’s asset allocation. I can think of none better qualified to do so. Anna, you will adjust, adapt, adopt, and survive this test.
Good luck. We all need a little luck regardless of our sophistication and shortcomings.
Comments
I don't think those numbers capture the full picture. I have my money in 3 companies and can move it about as it they were one. Also, it doesn't include the imputed value of pensions and social security. Take the example of social security.
1,300 - avg worker SS/mo
12
15,600 - per year
0.05 - interest rate
312,000 - imputed value of SS
The wild card is Obamacare - I'm still paying under an old plan $225/mo.
I own my home an have a RV to travel in. I'm not trying to reign in my spending and I'm single.
• Of the expenditures, determine what part is discretionary, what part not.
• Decide on a reasonable timeframe for future projection: till you're 85? 90? Your call.
• Now project out your non-discretionary: include a 3-5% inflation factor, and also add in a fixed emergency reserve just in case something serious and unforeseen comes along.
• Also project out your anticipated income.
• Hopefully the income projection will exceed the non-discretionary projection... if so, calculate out the remainder as discretionary, on a per-year basis. Think about what you'd like to be doing on the enjoyment side: how do those costs look on an annual basis? A biggie, like maybe international travel, maybe once every two or three years if things are a little tight. Now you have a pretty good idea of "how much is enough".
I've simplified, but that's basically what we've done, and after ten years of retirement things are looking just fine so far.
Regards- OJ
Retirement decisions are often among the most challenging and scary that an individual must address and ultimately make. Since everyone confronts it, I agree with your observation that many MFOers would benefit from more comprehensive discussions about it.
The uncertainties of future portfolio returns are surely one element among many that strongly influences the retirement decision. When uncertainty enters the equation, my red flag in support of Monte Carlo simulations immediately is raised. I have been and continue to be a consistent advocate for applying that mathematical tool when exploring retirement scenarios and options.
Unlike a spreadsheet analysis, Monte Carlo calculations allow a user to examine various assumptions and potential investment outcomes in super-fast order. Thousands of computations are completed in seconds. I recommend you consider deploying that outstanding tool to better understand your probabilities of retirement success and, more importantly, to establish a feeling for what the principle drivers are that control survival and bankruptcy during retirement. It’s an essential retirement planning multiplier.
There are a host of excellent Monte Carlo codes that are accessible on the Internet without cost. Please avail yourself of this rather new opportunity. It did not exist when I ran the retirement decision gauntlet. Many of these codes are designed to encourage parametric what-if studies in a record short time. And they are fun to exercise.
I recently recommended the Monte Carlo toolkit at the “Portfolio Visualizer” website. Here are the Links to the generic site followed immediately by the Link to their Monte Carlo simulator:
http://portfoliovisualizer.com/
http://portfoliovisualizer.com/MonteCarloSimulation
The Portfolio Visualizer version of the Monte Carlo procedure is user friendly and very flexible. It will take a couple of minutes to input your portfolio percentage asset allocation, its total current value, your projected withdrawal preference, and your goal retirement timeframe.
Most importantly, you get to choose expected market returns from 3 options: historical annual returns randomly selected, historical returns based on a statistical model, and your guesstimate of future statistically-based returns. This last option is especially attractive if you suspect future returns will be muted compared to the historical database.
For each set of inputs, 10,000 random simulations are completed for the specified time period. Output includes a likelihood (probability) of portfolio survival, and max, min, mean, and median portfolio balances as a function of time.
Usually, folks target a survival probability in excess of 95% to feel comfortable, but that’s your choice. If you don’t like the results, change a parameter or two to test the sensitivity of outcomes to the various input assumptions. You’ll quickly learn what is important and what is of lesser importance.
If you find it difficult to reach an acceptable survival probability, you might consider not giving yourself an inflation withdrawal increase for a few years. Although that degrades a lifestyle at the margins, it does a terrific job at extending portfolio survival prospects.
I recommend you give this fine tool a test ride. I promise it will make your retirement decision making easier, and that decision will be backstopped with some hard analyses instead of unreliable gut instincts. Monte Carlo to the rescue!
Good luck Junkster. Whatever your decision, I wish you both health and wealth.
Best Regards.
Here are some resources for retirement thinking - not just financial! This is the most important part.
Good book
How to Retire Happy, Wild, and Free: Retirement Wisdom That You Won't Get from Your Financial Advisor
http://www.amazon.com/How-Retire-Happy-Wild-Free/dp/096941949X
People that did it early
http://retireearlylifestyle.com/
I used to read this board
http://www.early-retirement.org/forums/
- You are not going to be a different person when you retire. If you think, when I retire I will travel BUT it wasn't a priority when working - you will do some traveling then not much.
- Younger years are more valuable then older years. It is a balancing act between youth/enjoying life and money.
- My guess is that the amount you spend will remain relatively constant. I mean that in your younger years of retirement you will spend an amount on travel and other things. BUT, as you age you will do less of those things and the money spent on travel and other things will be allocated to inflation and health expenses.
- No matter how much time you spend running the numbers, it all comes down to jumping off the cliff/making a decision. After you do, it is like a weight is lifted off your chest. Much of the decision is emotional, not financial.
I have found that accessing the cash in my home has allowed my to enjoy being on the receiving end of the phrase "cash is king". When it comes to distressed sellers, "cash is king". Whether its a condo being sold in Florida, a corvette being sold by a divorcee, or any other investment that requires quick and accessible cash; you'll have greater success dealing in cash.
Retirement is a time to follow a dream and if that dream has a price tag, consider having some dry powder to buy it at a "cash offer" price.
If any of this appeals to your sensibilities consider getting the gears in motion prior to retirement when your debt to income ratio is higher.
Enjoy the journey.
I just don't want to end up like some I know. They have more than enough to retire even if they never earned another red cent. Yet they fret endlessly about the drawing down of their capital - even if that capital is more than enough to get them well beyond 100 years old. Regardless, for me guess I will keep plugging away until the dreaded RMDs at age 70 and 1/2 in 2017. That will be when the *real* retirement commences.
Hi Junkster,
Trade, run, and hike to your heart's content. However, please continue to post about mutual funds and life experiences.
Mona
I see the study but I still believe millionaires are a dime a dozen. It must be so because I'm not a savvy investor (overly conservative and lazy) and I didn't start investing seriously until I was in my 40s and, oh heck, a million really isn't that much anymore.
I am afflicted with a strange behavior whenever I talk with someone named Anna. I feel compelled to mentally sing the folk song from New York Girls that has the chorus: “To me a-weigh, you Santy, My dear Annie Oh, you New York gals, Can't you dance the polka?.” I love it.
You certainly are right in that today’s million is surely not yesterday’s million. I’m equally sure that you’re familiar with the old story that the way to leave Las Vegas’s gaming casinos with a million dollars is to come with two million and practice a little discipline.
More seriously, Maryland is a wonderful state; it is a beautiful state. My wife was born and educated there. My brother-in-law lives in western Maryland. We visit once every two years, and my anecdotally-based observation is that his part of the state is more like West Virginia than like the Baltimore suburbs and the Washington Beltway. Like in most communities, the distribution of wealth is very much uneven.
That’s the bad news, but the good news is that a million dollars is still an attractive retirement target. This is not me just making a wild unsupported assertion. I did a few Monte Carlo simulations using the tool that I referenced in my earlier post.
I assumed a one million dollar bankroll and a 30 year timeframe. I further assumed that annual withdrawals would be increased to match inflation such that lifestyle need not be sacrificed over time. The code quickly did the heavy lifting as I parametrically postulated various drawdown levels to explore portfolio survival likelihoods.
I used the statistical form of the historical database as the likely return rewards. The portfolio asset allocation was purposely input as the simplest possible. I input a 60/40 mix with 60% in the Total US Stock market and 40% in Short Term Investment Grade bonds. This is conservative since a slightly more diversified portfolio would do better.
Here are the findings: at a 30,000 dollar (30K) withdrawal (W/D) rate survival prospects are 100 % with a median end wealth in excess of 8.8 million dollars.
At a 40K W/D schedule, survival likelihood is 98% with a median end wealth of 7.0M.
At a 45K W/D schedule, survival likelihood is 96% with a median end wealth of 6.1M.
At a 50K W/D schedule, survival likelihood is 92% with a median end wealth of 4.9M.
At a 55K W/D schedule, survival likelihood is 86% with a median end wealth of 3.9M.
At a 60K W/D schedule, survival likelihood is 79% with a median end wealth of 3.0M.
It appears we have fallen off a cliff as far as withdrawal rates are concerned. I doubt anyone would want to explore further with these final disturbing projections. But feel free to do so. This entire analyses was completed in under 10 minutes.
Don’t allow the Monte Carlo terminology dissuade you. Monte Carlo is really nothing new under the sun. It is simply a spreadsheet analysis repeated thousands of times at supersonic speeds. It’s old stuff in fresh clothing made easy by the computer. Its purpose is to capture the range of possible outcomes given the uncertainties of future market performance.
I encourage you and other MFOers to use it.
Best Wishes.
I believe all MFO participants make informed investment decisions that represent their special financial situation and their singular behavioral and emotional character.
You define yourself as a conservative investor. That’s fine. So am I. It would be presumptuous on my part if I tried to dissuade you away from that preference or style. I have uniformly refused to offer specific investment advice on MFO (or any other investment website) because I reject the idea that such advice can be useful or trusted given the obvious limitations and dangers of such exchanges.
Winston Churchill said: “Trust but verify”. On the Internet, not only is verification necessary, but trust is also suspect.
In all likelihood, your very conservative investment philosophy does indeed translate onto extending your needed work period prior to a reasonably safe retirement. Whatever savings you accumulate that are placed in CD-like holdings essentially provide almost no multiplier effects on those savings.
Historically, CDs and short term government bonds yield a fraction of one percent over annual inflation rates. In today’s environment, even that low hurdle is not satisfied. More risk must be commonly accepted to secure returns that significantly outpace inflation.
In loose terms, short term corporate bonds traditionally have increased the annual return to roughly one percent above the current inflation rate. In an ascending ladder, REITs, long-term government bonds, long-term corporate bonds, large Cap balanced stock mutual funds, and small Cap value-oriented stock mutual funds have delivered superior annual returns. From a long term planning time horizon perspective, these investments have generated returns in excess of inflation that range from one percent to a top of about six percent. Anticipating anything more would be overly optimistic.
This historical ladder of category returns should play a part in any decision making process. I recognize this may be extremely challenging given your proclivities.
I was pleased that you are familiar with the Monte Carlo tools. These tools, given whatever proclivities dictate your comfort zone, will allow you to make retirement decisions that properly reflect those proclivities. A few folks on the MFO discussion panel just automatically distrust Monte Carlo from the get-go (poor souls). They typically cite the Garbage In- Garbage Out maxim. Of course that’s true; but that’s equally true in all activities. Basically their argument is uninformed and false.
But you or anyone else understand your own set of investment preferences and constraints. Your inputs to any Monte Carlo analysis will surely represent those influences. Monte Carlo analyses will provide you a fair assessment of the risk-reward tradeoffs for taking a more aggressive position on the investment risk-reward spectrum. As always, you and you alone get to make a decision. And remember, these decisions are never irrevocable; they are merely temporal and subject to conditional revision.
Again, history demonstrates that the investment great man theory is much more a myth than a reality. Even among the small number that secure that adulation in the investment community, a high percentage ultimately prove to have feet of clay. Unfortunately, the few heroes that remain standing are not frequent MFO posters. Again, buyer beware.
So, in the end, you must make a decision for yourself with regard to your portfolio’s asset allocation. I can think of none better qualified to do so. Anna, you will adjust, adapt, adopt, and survive this test.
Good luck. We all need a little luck regardless of our sophistication and shortcomings.
Best Wishes.
Thanks for your insights in this subject. The days of investing being simple during retirement are gone. These are interesting times we live in.