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"An American man who’s reached age 65 in good health has a 50% chance of living 20 more years to age 85, and a 25% chance of living to 92. For a 65-year-old woman, those odds rise to a 50% chance of living to age 88 and a one-in-four chance of living to 94."
Note in the article's pie chart which asset allocation from conservative to aggressive had the best returns over time.
Do you seriously need a chart to realize that?
The "over time" is a problem when one is dealing with probabilistic end of life estimations. The returns are a function of start and end points as much as what happens in between and can make or break a retirement.
In the middle of bull markets everyone in the media preaches getting aggressive and being there right until the end. In bear markets, everyone preaches capital protection and reducing volatility.
I think this is where managed funds with an eye on capital protection can help. Rather than just deciding percentage beta exposure with age, keeping the allocation fixed and increasing assets in downside protection strategy funds as one ages. Starting with just index funds in the beginning when you don't need a life vest or friction on returns from active management. Moving to all managed funds towards the end that have a good record of balancing performance with downside protection. Interpolate smoothly between them.
Someone ought to do a target dated fund with this type of strategy. It is not that difficult to do on your own either.
Note in the article's pie chart which asset allocation from conservative to aggressive had the best returns over time. Regards, Ted
Thanks for the article Ted.
Here's an approach I would like others to comment on if you would be so kind.
For simplicity, I propose using Retirement Dated Mutual Funds to help a retiree properly allocate their overall retirement distribution needs during 30 or more years of retirement. Retirement Dated Mutual Funds have a built in mechanism that, over time, allows them to follow an "allocation glide path" from aggressive growth to conservative allocation at a specific date in the future. This eliminates the need for an individual investor to "manage" their retirment portfolio. Allocation decision are built into the overall protfolio by virtue of fund selection. in addition cost as low to resonable dpending on the fund selected.
I propose that these Retirement Dated Funds be thought of as Distribution Dated Funds. The date would coincide with the start date of a 5 year distribution period during retirement. As each five years period end another Distribution Dated Fund would be gliding into position to help fund distributions for the next five years of retirement.
If a retiree were able to determine what periodic distributions they would need (adjusted for inflation and in addition to their retirement income pension, SSI, annuities) and (over each five year period of time in retirement) they could then work backwards and determine initial funding levels using historical performance data as a guide.
So, for example, if one were to retire in 2015 at age 65 their retirement distribution portfolio might look something like this:
Retirement (Distribution) Dated Funds 2015 - Will provide distributions from age 65-70 2020 - Will provide distributions from age 70-75 2025 - Will provide distributions from age 75-80 2030 - Will provide distributions from age 80-85 2035 - Will provide distributions from age 85-90 2040 - Will provide distributions from age 90-95
@bee: A managed payout fund could add to the discussion. Example: Vanguard Managed Payout Fund (VPGDX) Product summary/Fund facts:
"The Managed Payout Fund is intended to supplement an investor’s retirement income by paying a monthly distribution that is based on an annual distribution rate of 4%. The Managed Payout Fund invests in a number of Vanguard funds, providing exposure to a broad range of asset classes and investments.
The fund’s strategic objective is to try to make monthly payouts that, over time, keep pace with inflation. The fund seeks to balance its payout level with its potential for future capital growth. If the fund’s investment returns are low, the fund may distribute capital as part of its payout, which could lead to a decline in monthly payment amounts and in the value of fund shares over time."
Comments
Ouch!
Regards,
Ted
The "over time" is a problem when one is dealing with probabilistic end of life estimations. The returns are a function of start and end points as much as what happens in between and can make or break a retirement.
In the middle of bull markets everyone in the media preaches getting aggressive and being there right until the end. In bear markets, everyone preaches capital protection and reducing volatility.
I think this is where managed funds with an eye on capital protection can help. Rather than just deciding percentage beta exposure with age, keeping the allocation fixed and increasing assets in downside protection strategy funds as one ages. Starting with just index funds in the beginning when you don't need a life vest or friction on returns from active management. Moving to all managed funds towards the end that have a good record of balancing performance with downside protection. Interpolate smoothly between them.
Someone ought to do a target dated fund with this type of strategy. It is not that difficult to do on your own either.
Here's an approach I would like others to comment on if you would be so kind.
For simplicity, I propose using Retirement Dated Mutual Funds to help a retiree properly allocate their overall retirement distribution needs during 30 or more years of retirement. Retirement Dated Mutual Funds have a built in mechanism that, over time, allows them to follow an "allocation glide path" from aggressive growth to conservative allocation at a specific date in the future. This eliminates the need for an individual investor to "manage" their retirment portfolio. Allocation decision are built into the overall protfolio by virtue of fund selection. in addition cost as low to resonable dpending on the fund selected.
I propose that these Retirement Dated Funds be thought of as Distribution Dated Funds. The date would coincide with the start date of a 5 year distribution period during retirement. As each five years period end another Distribution Dated Fund would be gliding into position to help fund distributions for the next five years of retirement.
If a retiree were able to determine what periodic distributions they would need (adjusted for inflation and in addition to their retirement income pension, SSI, annuities) and (over each five year period of time in retirement) they could then work backwards and determine initial funding levels using historical performance data as a guide.
So, for example, if one were to retire in 2015 at age 65 their retirement distribution portfolio might look something like this:
Retirement (Distribution) Dated Funds
2015 - Will provide distributions from age 65-70
2020 - Will provide distributions from age 70-75
2025 - Will provide distributions from age 75-80
2030 - Will provide distributions from age 80-85
2035 - Will provide distributions from age 85-90
2040 - Will provide distributions from age 90-95
Vanguard Managed Payout Fund (VPGDX)
Product summary/Fund facts:
"The Managed Payout Fund is intended to supplement an investor’s retirement income by paying a monthly distribution that is based on an annual distribution rate of 4%. The Managed Payout Fund invests in a number of Vanguard funds, providing exposure to a broad range of asset classes and investments.
The fund’s strategic objective is to try to make monthly payouts that, over time, keep pace with inflation. The fund seeks to balance its payout level with its potential for future capital growth. If the fund’s investment returns are low, the fund may distribute capital as part of its payout, which could lead to a decline in monthly payment amounts and in the value of fund shares over time."