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"Time segmentation is a process of matching your investments up with the point in time when you will need to withdraw them to meet your retirement income needs."
and,
"Time segmentation is quite different than the traditional approach of asset allocation with systematic withdrawals. A traditional asset allocation approach specifies what percentage of your funds should be in cash, bonds and stocks based on how much annual volatility you are willing to experience. Then you set up what is referred to as a systematic withdrawal plan to sell so much of each asset class each year (or each month) to meet your retirement income needs. With a time segmented approach annual volatility is irrelevant to your goals."
I think there may be a flaw in this guys calculations. He takes $358,451 from the $600k 401k to be invested in his ladder. I don't see where he accounts for taxes on the 401k withdraw. Even at best and Harry and Sally had to take out 15% for taxes on that withdrawal, this leaves them only with about $188k on their growth portfolio, not $241,549. And I'm guessing if you take that large amount out of the 401k at one time, you would be in an even higher tax bracket for that year for most of that money.
Maybe I missed something...
Total needed: $358,451
Let’s assume Harry and Sally have an IRA, a 401(k) and other savings and investment accounts totaling $600,000. After using some of their savings to cover the time segments above (which corresponds with their first ten years of their retirement) that leaves them with $241,549 left.
I believe the $50K is before taxes, but you make a good point. Taxes can be the single biggest drag on any withdrawal strategy. Obviously with this strategy (taking $50k/yr) will meet RMD obligations, but such a sizable withdrawal may also increase the tax-ability of SS as well as increase Medicare premiums. Managing taxes matters.
Institutions call this "asset-liability matching" and it is at least 30 years old. I am not certain how this would apply to individuals. For example, what happens to your plan if you have an unplanned medical expense?
My mom had 8 of these and we all went far beyond being merely financial burdens. I'm glad she convince my dad that we were assets worth holding.
Also, the next time I see a young women with a older man I will try to remember this term "asset-liability matching", but "Sugar Daddy" just has a sweeter ring to it. This dynamic (regardless of what it's called) applies to individuals ever day and in every way.
Life is full of unplanned events. It's the planned events that we don't plan for that often get individuals and institutions into trouble.
I dunno if this is the same thing, but I tried to do something like this for my daughters' education fund. It was an unmitigated disaster. I just couldn't make it work. Market drops, tax management, etc. made it unwieldy to persist with.
One reason I have multiple brokerage accounts is I wanted segregation between different portfolios for different goals. While some of that remains true (I have a TRP account for my in-laws) today I have different brokerage accounts mostly because I want segregation based on the "style" of the portfolio. For instance I am building a "global allocation" portfolio at TIAA, and a "alternative" portfolio at Merrill. This lets me see very easily how much I have in what kind of investments and also because I'm not confident I can pick just one correct global allocation/alternative/etc fund.
I do switch funds across brokerages etc. if I want to claim gains but am not allowed back in within time limit, etc. So I'm in a reasonable happy place, but not exactly from a time segmentation perspective. Right now, I'm patiently waiting for my elder to pick her college so I can decide what to do with which brokerage account.
Comments
Maybe I missed something...
Nick de Peyster
Undervalued Stocks
My mom had 8 of these and we all went far beyond being merely financial burdens. I'm glad she convince my dad that we were assets worth holding.
Also, the next time I see a young women with a older man I will try to remember this term "asset-liability matching", but "Sugar Daddy" just has a sweeter ring to it. This dynamic (regardless of what it's called) applies to individuals ever day and in every way.
Life is full of unplanned events. It's the planned events that we don't plan for that often get individuals and institutions into trouble.
One reason I have multiple brokerage accounts is I wanted segregation between different portfolios for different goals. While some of that remains true (I have a TRP account for my in-laws) today I have different brokerage accounts mostly because I want segregation based on the "style" of the portfolio. For instance I am building a "global allocation" portfolio at TIAA, and a "alternative" portfolio at Merrill. This lets me see very easily how much I have in what kind of investments and also because I'm not confident I can pick just one correct global allocation/alternative/etc fund.
I do switch funds across brokerages etc. if I want to claim gains but am not allowed back in within time limit, etc. So I'm in a reasonable happy place, but not exactly from a time segmentation perspective. Right now, I'm patiently waiting for my elder to pick her college so I can decide what to do with which brokerage account.