In a stripped down form, I believe this is what one gets out of Buffett's advice for his future widow - 10% short term government bonds (effectively a cash substitute) and 90% in an equity index fund.
https://blogs.cfainstitute.org/investor/2014/03/04/warren-buffetts-90-10-rule-of-thumb-for-retirement-investing/
That's 2.5-3 years of buffer. As you noted, the length of the overvaluation period (do you mean undervaluation when a retiree is disinvesting?) is unknown, but that is likely enough to insulate one from the worst of it. If that period extends further, one does not need to replenish the buffer, merely sell off enough equity to meet cash flow needs. Once stocks return to a reasonable valuation level, the buffer can be refilled.
Personally, I'm more comfortable with a 4-5 year buffer and a more diversified equity portfolio, but generally find this a good approach.

Newer academic thinking about investment glide path allocations and withdrawal rates in retirement years ( Weigand and Iron / Sptizer and Singh *) has shown that an investor / retiree spend from bonds first and stocks last ( and build a "safe money" fund or bucket of approx. 2 years of expenses which can be used if needed or spent before bonds ). Under this thinking, a misconception about conventional 60 / 40 "glide path" schemes is, that a "bond" allocation be recommended "early" in the investment lifecycle. Yet, the young investor demographic ( age 20's to 50 ) has "time" compounding / "time" to ride out volatility advantages on their side and they aren't so invested in knowing the quarter to quarter fluctuations of their 401K portfolios. So it is logical to assume that a "maximizing" of asset growth by having a much higher portion of assets in equities is warranted and, consequently, should extend into an investors "final years".
Being a late 50's retiree with a somewhat limited but reasonable Roth IRA accumulation and with an extensive expertise in quantitative tactical allocation, I operate under the framework of "preservation of capital" model with an appreciation of what the Weigand and Iron study conveys. As the forward 15 year equity market returns, as measured by CAPE ** and price to book measures are extrapolated to be sub par, preserving capital and asset growth within alternating strategic periods of equity ( small cap value, mid cap growth ), money market, and occasional bond investment through the use of quantitative tactical methods, is my preferred choice. Many "equities heavy" buy and hold investors / retirees may have to ride out the overvaluation period, perhaps spending down their safe money portion and/or retirement asset stake, as is implied by "sequence of return risk". The unknown is how deep and how long the overvaluation period is; this accompanied by varying inflation / disinflation .
Historically, a simple, mechanical, low transaction price / moving average cross strategy has produced decent risk mitigation / capital preservation during these periods of CAPE overvaluation ***.
Some favorite quotes from retirement planner literature are: "Hope for the best, plan for the worst", "You can't predict, but you can prepare ".
* "Market Signals for When to Employ a Bonds-First Withdrawal Sequence to Extend the Longevity of Retirees’ Portfolios" R. Weigand
"Is Rebalancing a Portfolio During Retirement Necessary?" John Spitzer Sandeep Singh
** https://docs.google.com/document/d/1I4sH5UV6fS6UfCNiPl1AsB2SOMF1an1PRt8YH0dgOeQ/edit?usp=sharing
*** https://docs.google.com/presentation/d/1mdon_cto48rvs2_lKWyMWrfqSIh8K0phfe7tThle8qQ/edit?usp=sharing
https://docs.google.com/presentation/d/1Sn6BKRCKRU5tensBDFTkJXI3v2wRQ4M1bt8VoIM2Zmc/edit?usp=sharing

My experience with hundreds of clients over the years (no matter how many projections we run prior to retirement, MonteCarlo or not) is that those with public pensions (after working 30+ years) seldom have spending problems. The public pension system is very generous, and it allows folks to retire with most of their pre-retirement income continuing. If they also have no mortgage and other heavy debt, they are even in better shape. If the spouse has good social security benefits, even better. With these folks, the withdrawal rate on their other savings is not much of an issue.
For other clients, our experience has been that folks tend to spend less following down years for the markets, then discover that some of the "necessary" spending they did previously is not so necessary any more. The first 4-5 years of real retirement are when folks do the most traveling and other unusual expenses. But even then, with the exception of those who have always lived beyond their means, in the last 2-3 years folks have been more aware of their spending. As I have noted previously, those with no mortgage and other debts always seem to worry less than those with debts. And for good reason...their expenses without those things are almost always 30-60% lower.

Hi Davidrmoran,
Using a set of rolling market returns is a step in the right direction over the original Trinity study approach, but it is a very small step. It still only reflects the exact sequence of returns that were historically registered by the marketplace.
Market returns will never repeat that precise order. All evidence points to a purely random series of returns. Monte Carlo methods capture that random characteristic. By running 1000 randomly selected return sequences, a user gets a better feeling for the spread in possible outcomes by an order of magnitude or so.
Given a withdrawal schedule, Monte Carlo projects the likelihood of portfolio survival for elapsed time and projected market return stats. Alternate scenarios and drawdowns are easily explored if the survival prospects are not attractive. I used Monte Carlo as one tool in making my retirement decision.
Thank you for asking.
Best Wishes.

I have personally known 4 people who chose a lump sum option from their employer in retirement vs annuity option. All 4 are in serious trouble now.

Ya I know someone who did the same thing when he retired 5 years ago at 62 and is in trouble now.
Spent every dime. Really sad to see someone work 30+ years at a tough job and end up with so little in retirement.
Maybe our schools need to teach the kids a jingle (to the tune of a Dinsey song I remember as a kid):
"D-I-S-C-I-P-L ... I-N-E spells Discipline." (dumb - I know)
Gets back to BobC's comment too about avoiding credit card debt.

Hi Guys,
Whenever a MFO discussion on retirement planning and drawdown schedule is initiated, my contributions are predictable and fairly consistent. Sorry about that, but I’m a firm believer that Monte Carlo methods are especially appropriate tools to provide actionable guidance.
I believe I posted on this subject recently, but I’ve forgotten the Discussion title. So I will repost my comments as follows:
“Simple heuristics (rules-of-thumb) are fine when making common everyday decisions like buying a hamburger or not, but are totally inadequate when making complex, significant decisions like those about retirement.
The retirement when, where, how much do I need, drawdown rate, portfolio size and placements seem hopelessly intertwined to permit a comfortable and confident decision. But a financial tool is readily accessible that significantly attenuates doubt, and it’s not rule-of-thumb based.
I’ve proposed this approach many times on MFO, but I don’t hesitate to do so once again. That tool is Monte Carlo simulation analyses. I do not apologize for being a broken record in this instance.
Many such tools are easily accessible for free on the Internet. Two such codes that I have previously recommended are the PortfolioVisualizer and the MoneyChimp codes. Here are direct Links to these Monte Carlo simulators:
https://www.portfoliovisualizer.com/monte-carlo-simulation
http://www.moneychimp.com/articles/volatility/montecarlo.htm
Please give them a few tries. The inputs are self-explanatory, and the codes are fast. Many scenarios can be explored over a short commitment of time. Endless what-if scenarios can be examined with end portfolio average value and portfolio survival likelihoods as their primary outputs. Thousands of cases are randomly constructed for the projected market returns.
The PortfolioVisualizer tool has more user options, but the MoneyChimp version also does yeomen work. Since these are Monte Carlo-based codes, each time a simulation is made, expect slightly changed predictions. That somewhat captures the fragile nature of the uncertain future.
Retirement decisions will be dramatically improved by application of these simulators. Imperfect analyses (even estimating the range of possible market returns is risky business) almost always beats poorly informed guesstimates. Before making a retirement decision, give the Monte Carlo codes a test ride. They are powerful stuff for everyone.
And for normal circumstances and drawdown rates, a 2 million dollar portfolio is not necessary for a portfolio with some equity holdings. Do the analyses to challenge the robustness of that statement.”
I hope my repost is helpful to some newer MFO members. Portfolio volatility degrades end wealth. That’s why when constructing a portfolio one goal is to minimize its standard deviation (volatility). Low component standard deviations and low component correlation coefficients work to accomplish that goal.
A simple equation demonstrates the need to minimize portfolio standard deviation to achieve a higher cumulative return. Cumulative annual return is roughly equal to average annual return minus one-half times the square of the portfolio’s standard deviation. Note the minus sign. Standard deviation always operates to reduce average annual returns over the years.
Good luck and good planning for your retirement, and for the likelihood of your portfolio’s survival.
Best Wishes.

Different issue but in the ballpark in answer to bee's question......I have personally known 4 people who chose a lump sum option from their employer in retirement vs annuity option. All 4 are in serious trouble now. I have known 2 who chose the annuity option and they are spending the entire check Jimmy Buffet style on the beach because they know another check will be in the mailbox in 30 days. This brings up a separate set of questions which I will bring up in a separate discussion thread soon.

I would like to hear from other retirees who have successfully navigate a portfolio's downside risk in retirement from the point of view of a safe withdrawal "method". In other words, along with a SWR (Safe Withdrawal Rate) there also needs to be guidance on managing a SWM (Safe Withdrawal Method). What part of the portfolio will serve as the vehicle for this safe withdrawal "rate" and when will that withdrawal happen. Cash seem to be a part of a retiree portfolio that might help with this.
@hank lamented as to the "when" with his comment,"We don't take a lot out, but have been traditionally taking the full year's distribution in January. Worked well up until this January. Got stung a little. In the future we'll stagger withdrawals over a full year." As a follow up question, what did you decide to redeem; stock, bonds, or cash?
Obviously redeeming and withdrawing shares of equities that have lost 50% of their value (due to market volatility) doesn't sound like a very safe withdrawal method, but holding cash (or a cash like investment) as the withdrawal vehicle would seem to help remove market volatility out of a portfolio withdrawal.
I have found that saving into market volatility (both up or down) isn't nearly as a emotional as spending down a portfolio's assets. Separating out a portion of one's portfolio into cash for emergencies or for future spending might be one way to calm the emotional side of the withdrawal.
Thanks for the thread @shipwreckedandalone...Additional thoughts?

The rate is important, but living within ones means in retirement is even more important. I have said it many times before, and I say it again: Starting retirement with no mortgage and no burdensome credit card debt can be the most important goal of retirement planning. This alone can reduce spending by 30-50% and makes a huge impact on the withdrawal rate.

Thanks for this "message in a bottle", it led me to these two articles:
7twelveportfolio.com/Downloads/A-Better-Balanced-Fund.pdf
aaii.com/journal/article/the-importance-of-diversification-in-retirement-portfolios.touch

For those who might like to listen in:
Wednesday, March 23, 2016
3p.m. ET
30-Minute Live Webcast Followed by Q&A
Current market fluctuations may have you concerned — particularly as you approach or are in retirement. T. Rowe Price can help you take steps to more confidently manage your investments despite market uncertainty.
Sign up here:
TRP event webcast

"Meanwhile, the T. Rowe Price Retirement series has fallen to Silver--still a strong vote of confidence--from Gold. Solid underlying funds and a steady asset-allocation approach give the series a discernible edge over most peers. However, the team's tendency to stick with the status quo when underlying manager concerns arise gives pause, and continued asset growth might lead to a small shift away from active management, a driver of the series' outstanding long-term results." [my emphasis]

Is this a M* poke-in-the-ribs to TRP? Suggesting..... even though underlying funds are actively managed, it is their understanding that the overall asset allocations will be "managed" as well; and, when the manager(s) of underlying funds express trepidation in outlook for certain assets in the near future, then M* expects TRP to tweak the allocation invested in those assets (and they are not seeing that done). Hmmm, should this perceived shortcoming be enough to warrant a rating downgrade?

Good evening all,
An interesting subject: "Cash Is Now A Sin."
Even though I think of myself as a good Christian according to this article I am a big sinner by holding such a sizeable cash position within my portfolio.
In review of a few recent Xray analysis the funds within my portfolio, which consists of forty seven, currently hold an average of 3% in cash which is down from the year ending analysis number of about 5% in cash back in December. My fixed income funds usually hold more cash than my equity funds.
As I entered 2016, combined, my portfolio was holding about 25% in cash. Now, my cash bubbles at about 22% due to the buys I made during the recent market selling stampede, scheduled retirement distributions plus the funds themselves are now holding less cash than they were at year end. My portfolio, on average, generates about 1.25% in cash (yield) per quarter on amount invested. With this, I could easily be close to a 23% cash allocation by the end of the first quarter.
I'll continue to hold the large cash allocation as I am thinking of selling some of my equities since the S&P 500 Index is currently selling at a TTM P/E Ratio of 23 according to the WSJ. With this, stocks are not currently cheap and are richly priced from my perspective using the Rule of Twenty. Since, I am above my target allocation (50%) to stocks, now at about 53%, soon might be a good time to pair back a few of my equity positions and rebalance as summer approaches.
I am thinking my sizeable cash allocation is a blessing and orginates from Biblical teaching. Besides, when I make harvest of my plantings, and book profits, the Lord gets his share.
Have a good evening,
Old_Skeet

There are so many ways of closing a fund that it's hard to fathom cash flow management being a difficult issue.
There is of course the hard close, where even existing investors cannot add more money. This should not impede funds with excess cash, as Lewis pointed out. Then there are funds that allow money to trickle in by restricting the amount that existing investors can add. The Vanguard Primecap funds that Mona mentioned are a good example of these. They used to be restricted to $25K addditional per SSN per year. Vanguard has since relaxed that a bit, allowing $25K per account type per SSN per year. (Vanguard also allows Flagship clients to open new accounts.)
Most funds that are closed still allow existing investors to add money (soft close). Some go further. Many funds allow new accounts via retirement plans (usually if the plan already has some minimum amount in the fund when counting all participants). Or they may allow clients of investment advisers to open new accounts.
Some funds that are closed via third party intermediaries are still open to investors that invest directly. American Century Midcap Value (ACMVX) and Vanguard Wellington (VWELX/VWENX) are good examples of that. I've seen funds that close off access through major brokers (typically Fidelity and Schwab) but leave access open through other brokers. Sorry, no current examples come to mind.
The point is that cash inflow is more like a spigot than an on/off switch. It's fairly easy to turn that knob. The problem with inflows comes about not because there's no spigot, but if there's no pressure behind it. That is, a fund won't attract cash when the market is plummeting and no one wants to put money in, regardless of whether it's closed or not.

Speaking for myself I used that refrain to address investing in a particular niche of a specific sector of the market, that being major oil companies. At present I see them as a fresh caught fish flopping around in the bottom of the boat. They're smelly but they ain't dead yet. I will be patient while waiting for price stabilization or upward movement. Pipeline companies - now they're a different story. Just as cloudy perhaps but in my mind oil and gas are still going to flow through them no matter what the price of the fuel is so I continued to trudge on through the smoke.
To be honest with you I have no idea whatsoever if we've hit a bottom in prices and I mostly don't care. I have an investment plan and as long as my portfolio continues to contribute to my bottom line and fund my semi-retirement everyday needs I'm good. That squiggly line which everyone seems to think represents what my stuff is worth only gets my attention when either bankruptcy or an offer to good to refuse looms. That doesn't work for everyone but I'm good.

To return briefly to David's comments on FPACX, which I endorse. Thanks for showing me how to painlessly reduce my too-numerous fund holdings. However, (please note I did not say, "That being said…") I can't see LCORX as an alternative but I would put in a plug for the local (Indiana) talent at the Bruce Fund (BRUFX). It's a relatively large non-retirement position for me and one that's been a keeper for 8-9 years.

The small cap value universe has been proven academically and empirically to produce alpha premium above the other stock universes over a 90 year period.
https://docs.google.com/document/d/1kToqLWLISRk4n4YnSzv1hT5kBN54l5CvhwGgDwJKPJI/edit?usp=sharing
etf.com/sections/index-investor-corner/swedroe-small-caps-still-outperforming?nopaging=1.
Investing in the equity markets doesn't have to be complicated and an investor doesn't necessarily need more than a handful of funds representing the equity universe. An investor in the "young" demographic of the investment "lifecycle" ( age 20 - 50 ) can exploit the maximum asset accumulation into retirement phase and beyond, by first building a core position in small cap value, and then over the course of the career, they can diversify into other stock universes ( mid cap growth producing the next best alpha premium and also being somewhat non correlated to value; performance of value and growth trading off performance "leads" over the course of market cycles ( see P. O'Shaughnessy and T. Carlisle).
Further risk mitigated, maximal asset accumulation has been achieved through the use of small cap value ( and also mid cap growth ) and tactical asset allocation modelling
https://docs.google.com/presentation/d/1pQuBfbPd18ca0G-KiZc5FIWNMx0pNa87INgsLjEwuzY/edit?usp=sharing
https://docs.google.com/presentation/d/1C37CJypoxHWHB09e3g25ewOGjP83wDZhj5j6tlrLJoA/edit?usp=sharing
This is a new frontier of asset management science.
(Fortunately or unfortunately) this type of minimal, systematic alpha producing process can be automated and eliminates the need for human, objectively derived allocation decision processes ( "The Robot's Are Coming " )

Hi, Kevin.
I know. The problem is that small caps (well, stocks) are volatile and I'm rotten at timing the market or making other tactical allocation moves. Mostly I've got too much else going on to spend a lot of time with assessing the Russell 2K's p/e or peg or whatever, and partly I've got a spectacular track record for guessing wrong. As a result, I try to focus my non-retirement portfolio on multi-asset managers; that is, folks who have the freedom to dodge and weave on my behalf. Sometimes that's an overtly multi-asset fund like FPACX or BBALX, sometimes it's a fund with a broad mandate (Seafarer can invest in companies domiciled in the developed world with substantial earnings in the developing one and such stocks represent something like half of the portfolio) and sometimes it's absolute-value guys who say "if it's not a compelling value, I'm sitting on cash."
There are just a couple focused equity funds (Grandeur Peak, Artisan International Value, Wasatch Microcap Value) where I think the managers are doing something useful and distinctive. On whole, my non-retirement portfolio is about 50% growth (half US, half international) and 50% income (Price Spectrum Income, Matthews Asia Strategic Income, RiverPark Short Term High Yield and so on).
To be clear: I'm not preaching that that's The One Right Way. It's just what allows me to make a little money, sleep well and focus elsewhere.
Over the course of the full market cycle, the small cap fund -inclusive of growth, core, and value - with the highest Sharpe ratio, a measure of whether you're getting compensated for the risks you're taking - is Intrepid. It's #1 of 410. VSTCX is about 120th, just behind NAESX and VISVX. Its correlation with those two funds is .99 and .98, respectively. In addition to a higher Sharpe ratio, Intrepid has higher absolute returns over the market cycle (through 1/30/16) than does VTSCX and a substantially lower correlation to the small cap indexes.
Pinnacle isn't far behind Intrepid at 15th by Sharpe with a much lower correlation to any of the above, though also with lower absolute returns than Intrepid or Vanguard. The Aston fund hasn't been around long enough to have full market cycle data, though its five-year profile is strikingly similar to ICMAX.
Up-cycles present a different picture and these guys get left in the dust. But since I don't get to invest just during up-cycles, I don't tend to focus there.
In short, what I find attractive is the combination of higher returns and lower volatility over meaningful market periods.
David

Hi @DavidV,
Thank you for your question.
I do care about portfolio allocation in each account that makes up the master portfolio that I have detailed above. Naturally, the asset allocation does varry from account-to-account along with the holdings. For example, in my health savings account about one third is currently invested in only one fund (American Balanced Fund) and the other two thirds is currently held in cash which is much more than I need from an annual health care perspective. It is one of the accounts that I throttle form time-to-time by adjusting it's allocation as how I am reading the markets. Currently, with high equity valuations and anticipated interest rate increases I have rolled back my exposure to both stocks & bonds not only in this account but in all of my accounts. All the accounts get throttled from time-to-time but not all get throttled at the same time as I make changes (rebalance) over time. For example, I have been raising my cash allocation and lowering my allocation to both stocks and bonds for the past couple of years due to higher than normal price to earnings ratios for stocks and anticipated rising interest rates which will effect most bond valuations.
Generally, when I make a buy, I buy with the intent to hold the asset for at least a year. When selling something, in my taxable account, I generally take profits form long term positions while letting the shorter term positions ride until their profits (or losses) will be taxed as long term capital gains (or losses). For me, investing centers more around time in the markets over timing the markets. Trading centers around timing the markets. Generally, I hold more equities (towards the high range of my allowable allocation) when they have become oversold and their valuations are reasonable ... and, I'll hold less when their valuations have increase with higher than normal price to earnings ratios thus becoming overbought.
Most of these accounts have been in place for a good number of years as I am now retired and began investing when I was a teenager in FKINX (which was my first mutual fund purchased and still remains my largest single position at about six percent of my portfolio). Interestingly, form my late fifties, up to my full retirement at age 67, I made more from my investing endeavors than I made from working.
Thanks again for the question. I hope the above provides you with some insight as how I govern my portfolio and answers your question.

@shostakovich. A fair point, sir. It indeed seems that actively-managed funds can successfully offer lower volatility in return for lower returns, and for retirees, that is probably a good option.
But since over a ten year period -- one that included the biggest housing bubble and market crash since the Great Depression -- a simple balanced index fund outperformed GMO's flagship fund on an aftertax basis by an average of 226 basis points a year, and on a pretax basis by 117 basis points a year (and that's assuming you were lucky enough to have $10 million to buy the cheaper, institutional share class), I think that for most people with at least 10 years till retirement, the index fund is the better bet.
But that investor will have to close his eyes and even add more if possible during the inevitable downturns. Not every investor can do that.