V. What happens if I assume more market risk?
While my current plan and asset allocation are on solid ground, I wondered what will happen as I continue to increase the allocation to equities in my portfolio (which I am doing via dollar cost averaging).
So in this test, I compare my current asset allocation with Fidelity's recommendation -- which they call their model balanced portfolio.
The results are very interesting, as they clearly demonstrate a classic risk vs. reward tradeoff.
I start with the two allocation models being compared. The outcome and my comments then follow. [View first post in this series.]
Asset allocations being compared
Results
The results below were obtained using numbers from the previous post (i.e a budget of $6,444 / month). Asset allocation is the only difference between the two portfolios.
My comments
- The higher spend rate coupled with Fidelity's suggested balanced allocation, leads to a 10% likelihood my money will run out at age 88 (approximately four years earlier than my current allocation).
- On the other hand, the balanced portfolio wins hands down in an average market.
My conclusion
In the perfect storm: Low market performance, higher than anticipated inflation and / or higher expenses, a reduction in social security payouts, and the greater than 25% chance that one of us lives beyond 2047, my current allocation appears to be the safer bet.
None the less, I plan to continue to dollar cost average into funds until they make up about 25 - 30% of my portfolio. *
* Two of my four funds also maintain allocations to bonds, so percentages shown here do not represent 100% equities; Armed with results from this exercise, I also plan to review and refine my retirement plan
I. Can my retirement plan stand the test of time?
II. 42 more years of rising expenses (it's not a pretty sight)
III. My current plan passes by a wide margin
IV. Whats the max I can safely spend each year?
V. What happens if I assume more market risk?
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With my total outlay projected to grow to an eye popping $319,970 / year, how well does Fidelity think my current retirement plan will weather the test of time? To come up with the results below, Fidelity's retirement program ran my current financial plan through ... Read
I also wanted to know how much more I could "safely" spend. So I played with expenses to determine what point I become exposed to a 10% chance of running out of money at age 92. The results below assume expenses begin at $6,444 ... Read
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