Patzer wrote: ↑Fri Dec 03, 2021 9:03 am
JackoC wrote: ↑Fri Dec 03, 2021 8:35 am
Also, not new ground either for the two asset combination ('stock' or 'bond') past very bad outcomes of either were still much lower than the expected return now, so far so good. But, often combinations of bad returns for one or other were accompanied by returns above the (current) expected return for the other (as when averagish +2-2.5% real bond returns helped bail out very bad stock returns in some periods,
doesn't seem a very relevant scenario from now).
We have had much worse bond yields historically and people did just fine.
1917 Retirement Date
Right now we are experiencing transitory inflation and bond yields far lower than inflation.
We had roughly 15%/yr inflation from Jan 1917-Jan 1921. A world war and a pandemic ended and the cost of everything went way up.
10 yr bonds lost ~35% on an inflation adjusted basis over 4 years.
The stock market lost ~50% on an inflation adjusted basis over those 4 years.
Sounds like if you retired in 1917, you are hosed, right?
Nope, 21.3X expenses would have done fine with 75% Stocks, 15% 10 year treasuries, and 10% 3 month treasuries for a 50 year retirement period.
From Jan 1921-Jan 1923 had 16% deflation and Jan 1923-Jan 1928 had an average of 0.3% inflation.
Bonds returned an inflation adjusted return of 45% for those 7 years.
Stocks returned an inflation adjusted return of 570% for those 7 years.
1901 Retirement Date
But what about high stock values...
Okay, fair point, let's go back to 1901.
Stocks were at all time highs, CAPE ratios were at all time highs, 10 year Treasuries were at all time lows. Sounds a lot like 2021.
Sounds like a bad year to retire... and it was.
If you lived 50 years from a 1901 retirement date, you would have had:
Bear markets of 1903, 1907, 1914, 1929-1933, and 1937
Rapid inflation of 1917-1920, 1941-1945, and 1946-1948
The systematic failure of the country during the great depression from 1929-1939 and two world wars.
If you retired at the start of the highest peak month of 1901, with 75% Stocks, 15% 10 year treasuries, and 10% 3 month treasuries, then it took 27.3X expenses to survive for a 50 year retirement period.
If you retired 1 month earlier or later, so pretty close to the worst date, but just slightly better luck, then you only needed 25.7X expenses.
Realistically, most of us will have far shorter retirement periods than 50 years, and realistically 2021 is unlikely to be worse than retiring in 1901.