Look at the worst years for each portfolio. Find one that wouldn't scare the crap out of you or wreck your retirement. Also keep in mind dollar cost averaging works in reverse once you retire so lots of volatility when you are withdrawing from your portfolio hurts a lot more than when you are adding to it. For this reason the absolute max aggressive portfolio I would consider for someone drawing down their portfolio is 70/30. Most investors are probably better off with a 50/50 or 60/40, but even for a conservative investor the most conservative they should probably go is a 30/70.
Keep in mind that the length of your retirement is incredibly important when deciding on an appropriate asset allocation.
For the "standard" 30 year retirement ("standard" because a) the Trinity study uses 15-30 year retirements and b) this is the default setting in cFIREsim) a 50/50 allocation has a 89.6% success rate. I would question stepping down as low as 30/70 though, as your success rate is now at 70.4% (but I haven't added SS into the simulation because I haven't looked at SS payout numbers at all).
But what about a 50 year retirement? Somebody FIREing in their 30s and living until their 80s? (or whatever start age you prefer, really)
With a constant 4% inflation adjusted withdrawal rate, here are the success rates:
50/50: 56.8%
60/40: 70.5%
70/30: 76.8%
80/20: 80%
90/10: 85.3%
100/0: 85.3%
And then with a variable spending rate of 3.5% to 4.5% of the initial portfolio, inflation adjusted every year:
50/50: 75.8%
60/40: 87.4%
70/30: 93.7%
80/20: 95.8%
90/10: 96.8%
100/0: 95.8%
Let's tone it down a bit. What about 40 year retirements?
Here's the constant 4% inflation adjusted withdrawal rate success rates:
50/50: 65.7%
60/40: 75.2%
70/30: 81%
80/20: 82.9%
90/10: 86.7%
100/0: 87.6%
And here's the numbers when you have a variable spending scheme of 3.5% to 4.5% of the original portfolio, inflation adjusted every year.
50/50: 87.6%
60/40:93.3%
70/30: 94.3%
80/20: 94.3%
90/10: 96.2%
100/0: 95.2%
With longer retirements (such as 40 or 50 years), withdrawing 4% of the initial portfolio with inflation adjustments every year from a portfolio with a 50/50 or 60/40 allocation does not give good success rates (at least, in my book, below 80-85% is not good enough). For a 50 year retirement, even 70/30, which Indexer considers to be an "absolute max", is not good enough. So you have three options as I see it:
1) Invest more aggressively. The 4% rule still hits my benchmark of 80-85% success rate at 80/20 even for a 50 year retirement.
2) Be flexible in your spending. Spending between 3.5% and 4.5% of your initial portfolio, adjusted for inflation, massively increases your success rate at every portfolio allocation.
3) Be okay with less than 80-85% success rates, and have a contingency plan. In reality, all of us should have contingency plans, but somebody with a long retirement who doesn't take one of the first two options should really have their contingency plans ironed out.
