- quote -

I think the Social Security payments and the rental property income are
analogous to the "yield" on "phantom bonds." So I concur with the
"assumed" asset allocation that the original poster has calcuated. A
couple of points in followup, however. First, we don't know how many
rental properties this gentlemen owns or how they are managed. If his real
estate holdings are substantial, and/or he manages them personally, then
this may become a burden on him as he ages. Suppose as he gets on in years
he has to hire a professional property manager? This might reduce the
return to the point where it would make more sense to sell the real estate
and invest the proceeds in "real" bonds. On the other hand, we don't know
his estate plan. Seeing as he's owned these properties for a long time, we
can assume they have appreciated greatly. Given the stepped-up basis rule,
if he needs money in the future he may wish to liquidate his equities
before he sells his real estate so that his heirs can avoid capital gains
taxes.

"Elle" <elle_navorski[at]nospam.earthlink.net> wrote in message
news:G%_ve.10389$hK3.441[at]newsread3.news.pas.earthlink.net...
- quote -

A problem with looking only at pictures is that one can miss crucial facts.
This curve subtracts out 1% "to cover the costs of professional management
and advice." Ibid at p. 61. As you have reminded us, Fidelity funds (both
equity and bond) offer professional management at 10 basis points.

Adjust the figure accordingly, and one sees that 4%, inflation adjusted, is
indeed a safe withdrawal rate even for the "conservative" portfolio that
includes only 20% in equities.
- quote -

Table 3 (the one described as "gloomiest") shows that there is a 100% chance
of lasting 25 years with the OP-recommended 75/25 stock/bond mix, and a
"mere" 98% chance of lasting 30 years. It is reasonable to assume that had
one excluded the period beginning with 1930 or so, the odds of success would
have risen to 100%.

T. Rowe Price had a study a few years ago that also concluded that a
portfolio that was 75% in stocks would perform better, with comparable
capital preservation, to one that had more bonds, as I recall. That's one
of the conclusions reached in the TIAA-CREF study as well (that
"conservative" portfolios don't add safety - p. 64).

--
Mark Freeland
nBeOwXs[at]pacbell.net

"Dave Dodson" <Dave.Darla[at]gmail.com> wrote
snip
- quote -


Do you have a typ-o above? The conclusion of this article says 50% to 75%.

Also, I think your wording above ("it has been established") doesn't do
justice to this article or what other similar studies state. The conclusion
says a safe withdrawal rate will often be 4%, but not always. Also, it is
based on historical trends, which are no guarantee of the future.

Ariticles that also treat withdrawal rates using historical trends are:

http://www.tiaa-crefinstitute.org/Pu...fs/pa12-01.pdf See
especially Figure 1 for a quick summary and evidence that a 4% withdrawal
rate could wipe a person out in less than 30 years even with a portfolio of
over 50% stocks, if, say we are at the start of a period like those
beginning in the 1960s.

http://www.retirement-income.net/run_out.htm See especially the links to the
tables at the bottom of this site. These reference the famous 1998 Trinity
study, an investigation by three Trinity University (San Antonio, Texas)
professors of what withdrawal rates were least likely to deplete an
investor's funds, based on simulations using historical data.

Frank - I don't know how anyone knows when there is "the expectation
that a five year bear market is not likely."
My withdrawal rate is less than 3% so I should be OK.

Jim

Mike - Thanks for the reply. The real estate is in the Los Angeles
area and I have owned it for a long time. It is money in the bank. My
gut feeling is that inflation (at least as measured by the government)
is going to be low for a while. I know that is probably not a
consensus view.

Jim

Don Juan Caballero wrote:
- quote -

This may be too conservative for your own good. It has been established
that portfolio survival with annual withdrawals of 4% of the initial
balance, adjusted for inflation, is maximized with an equity position
of 60 to 75%.

http://www.fpanet.org/journal/articl...p0304-art8.cfm

Dave

As a rule of thumb, your age should be the fraction of your portfolio
invested in bonds, and the difference in stocks. If your age is 60,
then 60% in bonds and 40% in stocks. Next year, rebalance to 61% in
bonds and 39% in stocks, and so on...

Jim,

The risk of running out of money may be worse that the risk of the
stock market.

My rule of thumb is "Don't have money in the stock market that you need
in five years." The idea is to avoid withdrawals when the marketis low
and the expectation that a five year bear market is not likely.

Therefore if your 15% bonds and money market will last 5 years (i.e. a
3% withdrawal rate) and you are ok with market risk, then your
portfolio is ok. For a 5% withdrawal rate, you should have 25% in
bonds.

Frank

Jim wrote:
- quote -

"Jim" <jimeick[at]comcast.net> wrote in message
news:1119820328.449861.242620[at]f14g2000cwb.googlegroups.com...
- quote -

I have a similar situation in that I have my investment portfolio, and then
again almost as much money in an annuity kept on my behalf by my company, in
which I am vested. That annuity is invested in the money market, so my
investement portfolio is riskier than it ought to be (most would say)
because the annuity, if calculated in to the whole, hedges the risk of the
portfolio in the same way I would choose to do so if that annuity did not
exist.

That said, under the present economic conditions, I'd make sure that my
revenue assumptions from SS and my rentals were always at the low end of the
range of possibilities. It's reasonably likely that a SS compromise will
decrease the COLA to the real inflation rate, and if you're in a real estate
market that's been hot you'd want to consider the possibility that rents may
not increase with inflation.

For the record, I'm not a professional financial planner.

Mike

I am currently retired and have 85% of my investment portfolio in
"stock" mutual funds (index funds and active managed funds) with the
rest in bond funds and money market. I realize that this allocation is
risky for someone who is retired, but I also have income streams from
rental properties and social security. If I assume that income is
coming from phantom bonds with a coupon of 6% then my asset allocation
is then 50/50. Is this a reasonable assumption or am I taking too much
risk? I tend to be a risk taker.