As Bogleheads say - once you've won the game, you can stop playing. I'm intrigued that we have Mustachians pushing folks to stay in the market after hitting their number, since our cohort should be far than more capable of adjusting their spending. Why push the pedal to the metal (100% equities) for more once you're FI?
I'm 52. I use a planning horizon to age 90. That means 38 years.
My primary goal is maximizing the probability of being able to stay FIREd and not go broke over that 38 year time frame.
So what I do is run FIREcalc with my numbers, including that 38 year figure, and look at it's investigate AA feature. What I see is that 90%-95% stocks is the AA most likely to meet my goal.
I then also realize that I won't spend all of what I have. The part I don't spend will go to my kids, probably in 30-40 years. That part I invest at 100% stocks because (a) they haven't won the game yet, and (b) it's 30 years, and (c) they generally have a high capacity for risk.
I do a little math to mix my 90%-95% with their 100% and arrive at a final target of 97%.
I do it not to "play the game" but to "be as safe as possible".
Just for fun, I did the same thing, using a 40 year horizon and my numbers. As long as I have at least 5% exposure to stocks, then I have 100% success. Not very enlightening.
So I tried a second run after carving out $2 million (e.g. donor advised fund - which makes sense to set to 100% stock). I get something that looks like 50 - 75% stocks being optimal.
I'd be interested to know how you get a result like 100% or 95% stocks being a higher success probability than 80% stocks during drawdown. Are you assuming you will stay in the accumulation phase during some of that retirement period, or are you using higher than 4% SWR for your money after setting the inheritance aside?
I'm running fairly simplified tests, but don't get your results unless I go to lower success rates, which typically do increase with 100% stock but also only max out at sub-90% success rate...
I'll describe my general process, but I have a rigid policy of not disclosing anything about assets or income publicly, so you may be left wanting a bit.
I put in my actual spending, portfolio, and 38 years on the first tab.
On the second tab, I put in my Social Security and my start year. My SS actually covers my spending and starts in 2039. I also put in my non-portfolio income, which is about half of my expected SS, and I start that in the current year and keep the inflation adjusted checkbox checked.
(I suspect the above entries are the key difference between my analysis and yours.)
On the portfolio tab, I put fees of 0.04% and equities at 97%, because those are my actual numbers.
With the above numbers, I get a success rate of 100%. I then go to the investigate tab and search for the 95% success spending level, which is about twice my actual spending level. This is to explore what my AA should look like at a modestly unsafe level, since at my actual spending level I'm 100% safe, and probably 100% safe at any AA.
I take that 95% success spending level, and change my spending on the first tab to that number, then go to the investigate tab and choose the "changing my AA" radio button.
Which leads me to one minor point that I left out - when choosing my AA based on the above, I will trade off a modest amount of safety for a much higher stock AA, because I also know from experience that higher stock AAs have higher terminal values even if the safety level is about the same, and while I mostly care about safety I also care about terminal value as I have three offspring who I'm playing for. This is especially true since at the moment I'm only spending at about half the 95% safety level as alluded to above.
I've attached a screenshot showing that final result. As you can see, there's a broad plateau on the right from 60% to 95% equities, with a slight drop to the right of that and a slight rise to the left. For me the tradeoff between 55% equities at ~97% success vs. 95% equities at ~95% success is worth going to the latter.
(The math to do the mixing to get to 97% success is just some simple arithmetic in Excel based on current spending, current portfolio, and the 95% result from the above analysis.)
Topic: Race from $2M to $4M...and Beyond! (Read 1410913 times)
