A reader asks:
My wife and I are both 50 and we retired from our jobs about three years ago. We’ve been living off our investments. However we were harshly reminded in 2022 of the impact of volatile returns vs. smooth returns when drawing upon the principal. I am a bit of a spreadsheet warrior and have run many models going out 50 years. I assume a 2.25% inflation rate, and a composite 15% tax rate which I hope to manage even lower. Our assets excluding our home are about $4.4M broken down as 60% taxable/liquid, 35% in IRAs and 5% in Roths. Our only debt is a 2.1% mortgage that will be paid off in 10 years. You’ve often said: “When you’ve won the game, you stop playing” which I probably need to shift to more than my current “in for a dime, in for a dollar” approach. I am considering perhaps going “all-in” on JEPI or a similar investment(s) with my ideal scenario being 5-6% yield plus 1-2% annual appreciation. Drawing from principal during market downturns would have minimal impact, and this math would work really well for me until age 59.5 and beyond. Other than market declines in the principal, I am trying to think about other risks I may not have considered and alternatives to this approach. The wild swings created by adjusting +/- 50 bps in long term returns are incredible with compounding.
I too am a spreadsheet warrior.
I made my first retirement spreadsheet right out of college.
I made a bunch of assumptions about savings rates, market returns, asset allocation, etc. That was roughly 20 years ago.
None of it played out like that retirement spreadsheet. Spreadsheets are linear but life is lumpy.
That doesn’t mean you should forgo the spreadsheets altogether. Setting