I just came off a 2.5 month Beta test of my intended plan for retirement. If you are reading this, chances are you are probably contemplating or will be entering into retirement. Retirement is a strange concept. If you are so lucky to do so, most of us are used to Working and Saving. Retirement is a mindshift as you have to move away from that construct to now you have to Retire and Spend.
The other thing is once you quit working at a company, which is really what I am discovering is what people mean by retiring, then you have to figure out a new thing to do. You want to find something where you want to have purpose. All of this can only really be manifested by designing a proper financial framework so that your next step can be happy and fulfilling……So…..
Today, I wanted to show you something that really concerns me and that is:
If you are retiring and you end up in a situation where the market starts to go against you, what do you do?
Well, if you are retiring chances are you are invested in a few ways, Heavy Stocks/Equity and Cash or Balanced Equity and Fixed Income/Cash. This is usually the typical asset allocation structure for someone that is going into retirement and usually the best to take advantage of growth but minimize volatility.
The second component of your retirement funding becomes the method on how you withdraw to mitigate risk but optimize growth and compounding. This is the hardest part of changing your behavior because you may have to accept lower growth There are tools that help this. Processes that you can use to help you with ensuring that you don’t have to worry.
WORRY!! ANXIETY!! These are the emotions that make retirement so scary for many. I could go on about our society and government that makes it so that we are constantly worried about paying taxes and bills that fund unnecessary things.
I recently had a major wake up call because there is so much information I have been absorbing that makes retirement and retirement planning so confusing. So I asked myself the following question:
Would my portfolio be able to survive a shock during a the worst period of returns in history and what period would that be?
What kind of withdrawal strategy should I use and which allocation strategy would satisfy it?
I asked this question of ChatGPT and it came back with the period of 2000 – 2009. This is perfect because this captured two serious issues in history. The first being 9/11 where the actual US was attacked the first time since Pearl Harbor. The second was the 2008 Credit Crisis where markets went haywire and that one was a doosy!
So with this information, I wanted to see what 4 different scenarios would do in this climate. 2 different withdrawal strategies and 2 different asset allocation models.
- 90/10 Allocation Using Guyton Klinger Guardrails
- 70/20/10 Allocation Using Guyton Klinger Guardrails
- 90/10 Allocation Using 3 Bucket Strategy
- 70/20/10 Allocation Using Bucket Strategy
The following was what ChatGPT gave me in terms of returns for that period for stocks, bonds and money markets.
| Year | S&P 500 | 10Y Treasury | Cash/MMF |
| 2000 | -9.10% | 13.50% | 5.50% |
| 2001 | -11.90% | 5.60% | 3.70% |
| 2002 | -22.10% | 15.10% | 1.60% |
| 2003 | 28.70% | 2.30% | 1.00% |
| 2004 | 10.90% | 4.30% | 1.20% |
| 2005 | 4.90% | 2.70% | 3.00% |
| 2006 | 15.80% | 1.30% | 4.80% |
| 2007 | 5.50% | 10.20% | 5.00% |
| 2008 | -37.00% | 20.10% | 1.60% |
| 2009 | 26.50% | -11.10% | 0.50% |
I will spare you some of the gory details but the analysis of the above can be found on my spreadsheet at GuardRails and Basket Withdrawal Strategy in 2000 – 2009.
And the results are the following. Note, that even though we are negative, you have pulled out about $350,000 – $460,000 across those years (Add the withdrawal columns in the spreadsheet). For the ending balance in 2009 for each of the allocation and withdrawal strategies we arrive at:
| Portfolio Type | Portfolio Ending Balance in 2009 |
| 90/10 Guardrails | $454,611 |
| 70/20/10 Guardrails | $607,341 |
| 90/10 Bucket Strategy | $574,156 |
| 70/20/10 Bucket Strategy | $484,356 |
As you can see, the withdrawal strategies are interesting depending upon your asset allocation strategy. If you have a the following configurations, the model indicates that you should do:
| Heavy in Equity and Light in Bonds | Use Buckets |
| Balanced Equity and Bonds/Cash | Use Guardrails |
In closing, I can’t say that this is an exact science. I don’t think any of this should be an exact science. The best strategy for investing for retirement and spending is one of simplicity. The more you complicate things the more things go awry. It reminds me of touching wet paint. Makes a big mess. Remember, this is a moment of time to rejoice. We have arrived. You can probably stop doing something you probably hated and moving on to freedom and an exciting future.
Just set it up. Stick to it like you did with saving and set it and forget it. Well, adjust with some semblance of discipline but if you budget correctly you should do alright.
Check out my Youtube channel where I talk about Retirement at Youtube Vincent Plans Freedom.