The Ultimate Guide to Safe Withdrawal Rates – Part 20: More Thoughts on Equity Glidepaths

Welcome back to the 20th installment of the Safe Withdrawal Rate series. Check out Part 1 to jump to the beginning of the series and for links to the other parts! This is a follow-up from last week’s post on equity glidepaths to address a few more open questions:

  1. Some more details on the mechanics of the glidepath and why it’s so successful in smoothing out Sequence of Return Risk.
  2. Additional calculations requested by readers last week: shorter horizons, other glidepaths, etc.
  3. Why are my results so different from the Michael Kitces and Wade Pfau research? Hint: Historical Simulations vs. Monte Carlo Simulations.

So, let’s get to work …

More on the glidepath mechanics

In last week’s post, we got a bit ahead of ourselves, simulating glidepaths without digging deeper into the intuition for why a glidepath should cushion the effect from Sequence of Return Risk. So let’s look at a simple case study to understand the benefits of an upward-sloping equity glidepath in retirement:

  • A 10-year horizon, withdrawals are made annually at the beginning of the year. The initial portfolio value is $1,000,000, the initial withdrawal is $35,000, which is then increased by 2% every year to keep up with inflation.
  • We look at one glidepath from 70% equities to 90% and one fixed 80% equity allocation.
  • In the first case study, equities drop by 30% in year 1, then another 5% in year two before starting another nice 8-year-long bull market. Also, notice that the bond market returns are modeled to reflect a negative correlation with equities!
  • The rebalancing to the target weights occurs every year at the same time as the withdrawals. In other words, post-withdrawal the portfolio displays exactly the target weights.

Let’s look at how the (nominal) portfolio values, withdrawals, and the rebalancing evolve over the ten years, see table below. The top panel is for the glidepath, the bottom panel is for the constant equity share.

  • With the glidepath, you actually withdraw much more from bonds, especially during the first few years. Over 60% of your total withdrawals during the first 10 years come from bonds. On the other hand, with the fixed equity weight more than 85% of your withdrawals come from equities. That’s even higher than the target equity share! Because you withdraw so much more from equities while equities are cheap the fixed asset allocation is more exposed to Sequence of Return Risk.
  • The benefit of the glidepath comes from the fact that we not only plow money into equities on the way down (two years of negative withdrawals!). But during the bull market, we withdraw only about $25k p.a. from equities and the rest from bonds! That gives the equity portfolio more room to enjoy the bull market!
  • Compare that to the withdrawals with the fixed equity shares: You withdraw about $17k from the equity portfolio at the bottom of the stock market (ouch!) and then during the bull market, you withdraw more than the necessary consumption level from the equity portfolio to replenish the bond portfolio every year. During the bull market, the equity weight is constantly dragged above its target. Thus, you hamper the recovery of your portfolio when you constantly shift away from the well-performing asset (equities) and into the relatively low-performing asset (bonds).
  • Also notice that after two years, the glidepath beats the static allocation by about $42k ($733,314 vs. $691,746). After ten years that gap has increased to almost $80k ($1,074,558 vs. $995,378). Almost half the advantage of the glidepath came from the bull market that followed the drop!
Glidepath portfolio (top panel, 70% equities to 90% equities) vs. constant 80% equity share portfolio (bottom panel, constant 20% bond share). Equity bear market during the first two years, then a bull market for 8 years.

Of course, if the returns were to occur in the opposite order – a continued equity bull market eight years and then a crash at the end – results will look quite different, see table below:

  • All assumptions are the same as before. I only reverse order of returns.
  • Now the glidepath performs worse than the constant equity weight. But that’s expected: Because you start with only 70% equities you participate less in the bull market and you have the highest equity share when the market falls in years 9 and 10!
  • Of course, even though the glidepath underperforms the static allocation ($1,089,990 vs. $1,162,099), you are still better off than with the glidepath when the bear market hits you in the first two years ($1,089,990 vs. $1,074,558)!
Glidepath portfolio (top panel, 70% equities to 90% equities) vs. constant 80% equity share portfolio (bottom panel, constant 20% bond share). 8 more years of bull market, then a bear market in years 9-10. (=same returns as in the table above but in reverse order!)

To summarize the case study results, let’s look at the final values for the glidepath and the constant asset allocation, see chart below. The variability of final asset values is lower with the glidepath. True, you underperform the constant 80% equity portfolio when you have a long bull market early in retirement, but the glidepath performs significantly better when it really counts, i.e., when there’s a bear market during the first two years of retirement!

Summary of final portfolio values in glidepath vs. constant AA model. The rising glidepath is less susceptible to the sequence of returns!

Back to the historical simulations: more glidepaths

The table below is almost the same as last time, but with a few changes:

  1. I added eight more glidepaths. The first is inspired by the work of Michael Kitces who, relying on the Monte Carlo simulation study with Wade Pfau (see Table 6), suggested a 30 to 70% equity glidepath over 30 years, which optimized the success probability of a 4% Rule using historical average returns. So I used that glidepath (30->70% with a 0.111% passive slope). But I also use glidepaths with larger slopes (0.2%, 0.3%, 0.4% per month) and the same for a lower starting and end point (20% -> 60%).
  2. Instead of high CAPE vs. all CAPE scenarios, I split the percentile stats into high CAPE (>20) and low CAPE (≤20).


  • When the CAPE is below 20, there is no benefit from a glidepath. Any 90-100% static equity weight will give you the highest, or at least close to the highest fail-safe withdrawal rate. The same is true when targeting slightly higher failure rates (1%-25%).
  • But glidepaths are useful when equities are expensive (CAPE>20), as we already saw last week! The 60 to 100% glidepath had consistently the best withdrawal rates for all failure probabilities studied here. 40->100% and 80->100% are close behind. The active vs. passive glidepaths and the exact slopes don’t make that much of a difference if you get the correct start and especially the endpoint (100%!) of the glidepath.
  • Quite amazingly, the glidepath recommended by the Kitces and Pfau study (30 to 70%) is consistently one of the worst. It not only underperforms pretty much all of the other ERN-designed glidepaths. It’s actually so bad that it even underperforms most of the static asset allocation paths in the historical simulations! At first, I thought this is because of my 60-year horizon, but as we will see in just a minute, the Kitces and Pfau glidepath is pretty universally inferior, even over a 30-year horizon!
Failsafe and other percentiles of the SWR distribution for different Static asset allocations (top panel) and the 32 different glidepaths. The left panel for high CAPE ratios at the start of the retirement, the right panel for low CAPE ratios. 60-year horizon, final Value target 0% (capital depletion), monthly data 1/1871-12/2015.

How about a shorter retirement horizon?

Glad you asked! Here’s the same table but with a 30-year horizon:

  • The same result as before: Glidepaths are of no use when equities are cheap to moderately valued (CAPE below 20).
  • Notice how among the fixed equity weights, you achieve the most attractive SWRs between 65 and 75% when the CAPE is above 20, a bit lower than the 75-80% optimal equity weights over the longer horizon. But when the CAPE is below 20 you’re still better off using 100% equities, regardless of your failure probability!
  • The glidepaths that did best over 60 years, moving from 60% to 100%, are still consistently very good performers. Quite intriguingly, the 40->100% glidepaths are now even slightly better!
  • The Kitces and Pfau glidepath is still one of the worst performers. Both in its original form (slow transition over 30 years) and with faster transitions. The 20->60% specification is even worse.
Failsafe and other percentiles of the SWR distribution for different Static asset allocations (top panel) and the 32 different glidepaths. The left panel for high CAPE ratios at the start of the retirement, the right panel for low CAPE ratios. 30-year horizon, final Value target 0% (capital depletion), monthly data 1/1871-12/2015.

Failure Rates of specific SWRs

Another way to slice that data. Instead of targeting a specific failure rate and then calculating the withdrawal rate, we can also look at the different withdrawal rates between 3 and 4% and calculate the failure rates, see table below:

  • I do this only for the high CAPE regime (>20) to save space.
  • Notice the unacceptably high 60-year failure rates for the 4% rule!
  • Also, notice that the failure probabilities are lower with the glidepaths but the effect is only marginal. For example, even with the “best” glidepath will not miraculously rehabilitate the 4% rule. All you can hope for is to make the 3.5% rule a lot more secure!
Failure rates of specific SWRs (3% to 4% in 0.25% steps), conditional on the Shiller CAPE>20. 1871-2015.

Higher Final Value Targets

As requested by a reader last week, here’s the table with SWRs targeting specific failure rates but for different final value targets and using fail-safe and 1-5% failure probabilities. The reader asked for 1% steps, but I report only fail-safe, 1%, 3% and 5% to save space. If you want the 2% and 4% SWR percentiles you simply take the midpoints!

Results are roughly the same. But I noticed that the benefit of the 60-100% glidepath goes up vis-a-vis the static allocation. For example, the fail-safe SWR improves by 0.22% (3.47% vs. 3.25%) under capital depletion. But it improves by 0.29% under capital preservation (3.34% vs. 3.05%). Again, it doesn’t miraculously make the 4% Rule viable again but you’ll get a noticeable improvement in the sustainable withdrawal amounts!

Failsafe and other percentiles of the SWR distribution for different Static asset allocations (top panel) and the 32 different glidepaths. Conditional on CAPE>20 at the start of the retirement. 60-year horizon, final Value target 0%, 50% and 100% of real, CPI-adjusted initial portfolio. Monthly data 1/1871-12/2015.

Why do I get different results than Michael Kitces and Wade Pfau?

First, I thought that the main driver was the shorter retirement horizon in the Kitces/Pfau paper (30 years). But I showed above that even over 30-year windows their proposed rule, 30->70% linearly over 30 years (=0.111% monthly steps) is consistently one of the worst glidepaths. You can improve it a little bit by accelerating the pace of the glidepath to 0.2, 0.3, or 0.4% monthly steps, which gets you to 70% equities after 200 months, 133 months and 100 months, respectively. But even those glidepaths stink compared to some of the other paths that I proposed. They are even worse than some of the fixed asset allocations. What’s going on here?

The major difference between my work and the Kitces/Pfau study is that I use historical returns and they use Monte Carlo simulations. How can that make such a big difference? In my view, there are (at least) three features of real-world return data that are impossible to replicate with a Monte Carlo study a la Kitces/Pfau:

1) Short-term Mean Reversion: After each major drop in equities, we are bound to observe a strong recovery, see, for example, our post on the 2009-2017 bull market from a few months ago. The theory is that investors overreact on the downside (remember March 2009?) before a nice new bull market ensues. A Monte Carlo study will not replicate this feature. A Random Walk means that returns have no memory, i.e., the distribution of returns going forward after a 50% drop is the same as after 50% gain. But with real-world data, you’d benefit from a glidepath with a much steeper slope to better capture the bull market that will likely follow the initial drop. Remember, in the first year after the 2009 trough, the S&P500 went up by 72.3% (nominal total return, March 9, 2009, to March 9, 2010)!

2) Long-term Mean Reversion: The non-random-walk nature of equity returns is even more pronounced if we look at longer windows, say, 15 years. In the chart below, I plot the average annualized real S&P500 return over two consecutive (neighboring) 15-year windows. Notice the negative correlation? If the previous 15-year return was poor then the next 15 years had above-average returns! This has profound consequences on the glidepath design: It’s the main reason why the glidepath has to shift to its maximum much faster than over 30 years and it’s also the main reason why in the historical simulations, the preferred long-term equity weight is 100%.

If you get unlucky during the first 15 years of your retirement due to poor equity returns you benefit greatly from going “all in” during years 16-30 of your retirement!

In fact, that might be the only way to salvage an underwater portfolio that has been taken to the woodshed due to bad equity returns and 15 years of withdrawals. If you base your optimal glidepath design on Monte Carlo simulations you’ll find much lower optimal long-term equity weights!

Real Equity Returns over neighboring 15-year windows show how the stock market is not really a Random Walk. Poor returns over one 15-year window are normally followed by very strong returns over the subsequent 15 years!

3) Correlations: Kitces and Pfau have to pick one single stock-bond correlation in their Monte Carlo Study. However, in real-world return data, this correlation has been all over the map during the last few decades. We’ve had the 1970s/early-1980s where the correlation was strongly positive (both stocks and bonds lost value), but we also had the 2000s onward where stocks and bonds had a strong negative correlation and bonds were a great equity diversifier. The optimal glidepaths calibrated to that one single correlation are clearly suboptimal when using historical data.

What now?

I’m the first to admit the weaknesses of working with historical return data. We don’t know what the future holds. CAPE ratios are hard to compare over time, and I can come up with theories for why the returns going forward can be much more attractive than in the past. But I also have a theory for why they could be worse. So, using the historical simulations as a midpoint to gauge average returns is not a bad starting point.

In my personal view, a Monte Carlo study for retirement glidepath design is the worst of all worlds. You still have to make an assumption about future mean returns and there is no telling whether that assumption is better or worse than the historical return assumption. But you also lose all the interesting return dynamics that are due to equity valuations occasionally deviating and then returning to economic fundamentals. That’s why I will always stick with historical returns despite the limitations!


1: In retirement, an equity glidepath with a positive (!!!) slope helps you during an equity bear market. But not just on the way down! A lot of the benefit from the glidepath comes from better rebalancing dynamics during the subsequent bull market!

2: A glidepath can alleviate some of the sequence of return risk. But the effect is still relatively small. Don’t even start to think that a glidepath can miraculously make the “4% Rule” feasible again over the next 60 years! Expect an increase in the sustainable withdrawal amounts by about 5%, or a slight to moderate decrease in the failure probability of any given SWR.

3: A successful glidepath in retirement should ratchet up the equity share pretty rapidly and reach the maximum equity weight roughly over the length of one complete bear plus bull market. Dragging out the glidepath over 30 years or more is not recommended!

4: Historical simulations show that an equity glidepath is useful when the CAPE is high at the commencement of retirement. As it is today! If the CAPE is below 20, glidepaths are of no use and an aggressive static equity allocation (close to 100%!!!) has performed best in historical simulations!

5: Monte Carlo simulations miss important elements of real-world data, i.e., mean reversion of equity valuations and changing asset return correlations. Hence, glidepaths that were calibrated to do well in Monte Carlo simulations (Kitces and Pfau) tend to do poorly in historical simulations. Unless we believe that the past observed dynamics of equity returns no longer apply in the future, we should disregard the Kitces/Pfau glidepaths because they’d likely perform worse than even most static asset allocations.

Thanks for stopping by today! Please leave your comments and suggestions below! Also, make sure you check out the other parts of the series, see here for a guide to the different parts so far!

129 thoughts on “The Ultimate Guide to Safe Withdrawal Rates – Part 20: More Thoughts on Equity Glidepaths

  1. Big ERN,
    Another excellent contribution to the FIRE community!

    I agree with your pejorative comments about using Monte Carlo (MC) simulations a la Kitces/Pfau (and have stated so in comments elsewhere on your blog), but I have had way too much training in Bayesian econometrics to not continue to think about ways to overcome the limitations (knowingly or unknowingly) imposed by the likes of Kitces/Pfau in their simulations. To that end, I have found that Jim Otar’s book “Unveiling the Retirement Myth” ( has a low-cost pdf version available for purchase as the physical version is currently out of print) has an interesting 2-stage MC method in Chapter 15 that attempts to address some of the issues. Most of the content of Otar’s Chapter 15 is available for free in an article available at and he has an excel version that you can play around with at Haven’t had time to think through how well this captures time-varying heteroskedasticity, but people that are way smarter than me (hint: Big ERN), may be able to pierce through my lack of lucidity.

    There’s lots more in Otar’s book beyond the 2-stage MC…well worth the read IMHO.

    Can’t wait for next week’s posting.

    1. Thanks for the links! That research is clearly a step in the right direction. Without capturing the secular trends I find the whole MC method pretty useless. It’s definitely on my to-do list! To study not just SWRs but optimize glidepaths with varying S/B portfolio allocations, though, the model has to have at least one additional regime. The bear market scenario has to distinguish between a demand shock recession (2008/9, bonds do well) and a supply shock recession (1970s, early 80s, bonds do poorly). I will do that when I’m retired and have more time! 🙂

  2. Thanks for another great post, ERN! I recall reading that Kitces-Pfau article a while back, and trying to replicate the results using CFIRESIM and historical data. I never could get a better answer than with a fixed, mostly-equities allocation, and I appreciate how you have succinctly explained that. I also appreciate a bit of external validation here. I have a more conservative allocation of 65/35, and I’m gradually moving towards a target of 60/40 when I retire in 5 or less years. My main reason is the old Bogleheads “sleep well at night factor.” They always cite the behavioral risk of panicking and selling at the bottom, but I think there’s another one as well. If I’m 100% equities, 6-months from an early retirement, and equities drop 40%, I’m probably going to extend my time frame until my portfolio recovers some. If my 60/40 portfolio drops 24% in that same correction, I can shake it off and not worry I have to extend my retirement date. I think one of your charts referred to that “retirement date risk” in your last post, and that might be the hidden iceberg that’s a lot worse than sequencing of returns risk. After all, none of us know how much time we have left on this rock! Once you hit your 40’s, the best years of the rest of your life are usually the ones right in front of you.

    It’s nice to learn that my target 60/40 portfolio sets me up very nicely for a rising equity glide path as well! All your talk of high equity allocations had me worrying that I was being too conservative.

    As always, I’ll eagerly await your next post!

    1. Thanks for stopping by! Yes, good point: If 60/40 is a good starting point for retirement then it might be a good idea to transition to that allocation gradually during the last few years of accumulation. There should be a glidepath before retirement as well! Best of luck!

      1. Hmm… what are the ramifications if one has NOT glided into a 60/40 position? I’m basically 100% in equities, retiring in 2 years. To get to 40% bonds by buying treasuries in taxable accounts (that I can tap prior to 59.5), I’d need to sell a bunch of equities with an overall capital gain of 40%. That translates to a 40%*15%=6% “guaranteed loss” at exactly the wrong place in the sequence of returns :-(.  How does that change the glide path math?

        1. Remember that you don’t actually have to hold the bonds in taxable. You can hold the bonds in a tax advantaged account and then when you start withdrawing you sell stocks in your taxable account to raise the cash to live off of and if necessary also sell bonds in tax advantaged and rebuy stocks to maintain your desired asset allocation.

          There are also ways to get at tax advantaged accounts before you turn 59.5. Look into the so called “Roth conversion ladder” and Substantially Equal Periodic Payment (SEPP) withdrawals.

        2. Tough situation! I’m also behind with my equity to bond transition, simply because there’s never been a good and opportune time to do so!
          The shift should ideally occur in the tax-advantaged accounts. Or, if you’re still working, pile all new savings into bonds now and then live off the bonds in the first few years in FIRE.

  3. Excellent follow-up post, ERN! Answers so many of the questions from last week. Your research continues to be thoughtful and thorough. Thank you for the hours you continue to invest and the obvious critical thinking behind your posts. (I suspect thanks should also be extended to your family, as well!)


  4. Maybe I am reading too much into this observation but I am struck by the very large increase in failure rates going from 3.5-3.75 in the 60yr horizon for the 40-100 glidepath and especially the 60-100 path. They both seem to rise very sharply in terms of failure rates compared to the other scenarios. A nice SS income stream (or two) would help alleviate as you have shown in an earlier post

    Just curious……

    Hope all is well in ERN-land!

    1. All well here in ERN-land!
      Good point! The failure rate as a function of the WR has to have this kind of shape. Think of an s-shape curve like a Normal CDF. Flat for very low values (failure prob stays at 0% if going from 2% to 2.25%) and flat for very high values (failure probability stays at close to 100% when going from WR=6% to 6.25%). In between, there has to be a steep part where small changes in the WR cause a large change in the failure rate. It’s a knife-edge situation where the WR is close to the average expected portfolio return rate and small changes in the WR make huge differences in failure rates. Almost like a butterfly effect!

      And yes, some supplemental income like SS or Pension you will alleviate the problem. But only because it shifts the steep part of the S-curve to the right.


  5. Thank you Big ERN!
    If the CAPE says above 20 I’m pretty much sold on the idea of 60% to 100% @ 0.4% slope. I have 5 years until retirement so I will slowly inch my way toward that portfolio mix. I might miss out on some equity gains but that’s okay.

      1. Another great column, Big ERN. I, too, am sold on a 60 and up glidepath.

        My issues are about yield. Do I count preferred funds in the 60, or in the 40? They pay pretty good yields, but have some equity risk. Maybe count them as 50 percent equity, 50 percent bond, in view of their beta?

        And where do I buy bonds that yield enough to pay the required withdrawals? I can buy investment grade bonds that pay maybe 4 percent, but since bonds are “only” 40 percent of the portfolio that means I’ll be withdrawing from equities, too — am I right?

        I am tempted to start the glidepath with 40 percent (common) equity, 40 percent preferred, 20 percent bond, thinking that approximates a 60 / 40 port. Or even 30 / 60/ 10. Am I right?

        I think this comes down to how you classify preferred (and other high-yielding surrogates, such as business development companies and REITs).

        1. In a flat or down market, I don’t think you would be withdrawing from equities because the glide path specifies rebalancing from bonds to equities by 0.4% per month which is 4.8% per year, which is greater than the recommended safe withdrawal rate. You might withdraw from equities in an up market if the equities have gained enough value to more than make up for the desired allocation change.

          1. Thanks for your reply, but I don’t follow you. In a down market (or an up market, for that matter), what is the source of cash for withdrawals?

            Assume a 60 / 40 port with bonds yielding 4 percent. If I commit 4.8 percent to equity purchases, I must be selling bonds, right? Even if I don’t buy additional equity (because the market is at an all-time high), withdrawing only the 4 percent coupon gives me a total portfolio withdrawal rate of only 1.6 percent (4 percent of the 40 percent). So I must be selling something, presumably bonds, to withdraw (say) 3 percent.

            Right? If not, what am I missing?

            1. You most definitely sell some principal to fund your withdrawals. The yield alone (maybe 2% for equities and a little over 2% for bonds) will likely not fund your expenses. And in a flat/down market, that principal withdrawal comes from bonds.

        2. I like Preferred Stocks, too! They have decent yields and because of their high exposure to financials, they are not quite as susceptible yield increases as regular bonds. But you have to cross your fingers and hope that the next crisis will not hit the financial sector as hard as the last!

          Just like you, I would probably also count my PFF ETF as 50/50 Stock/Bond.

  6. I believe you have done Kitces and Pfau a disservice. You reference two articles, both published Sept. 2013. However, Kitces revised his findings to recommend an accelerated glidepath over 15 years (Accelerating The Rising Equity Glidepath, With Treasury Bills As Portfolio Ballast?, 8/13/2014). They further updated their analysis to advocate for a “dynamic asset allocation strategy that shifts equity exposure throughout retirement” based on the CAPE (“Increasing Retirement Withdrawal Rates T’hrough Asset Allocation, AAII, 4/2015). You reach a similar conclusion, although your specifics are different.
    I am 68 yrs. old, planning for a 30 year retirement, and have found their conclusions very thoughtful.

    1. Thanks for the links. Hadn’t seen those before. But the only article from Kitces/Pfau that really claims to search for an “optimal” GP is the one I referenced with the big matrix of 11 different starting equity shares and 11 different final equity share that identifies the one with the best success rate (with the limitation that this is done with Monte Carlo).
      And even in the new research they only use clearly inferior glidepaths (30% to 60%) that are sub-optimal – whether you use the 30-year or a faster transition as demonstrated by my research: 60->100% handily beats the 20->60 and 30->70 (and most definitely also the 30->60% rule, though I didn’t report the figures for that one).
      I do find the equity/bond allocation based on the CAPE interesting. I like to do some research on that, too. But again, the “neutral” equity share of 45% seems really ad hoc and awfully low. And I don’t like the discrete jumps from 30 to 45 to 60% either. I think asset allocation should be continuous not discrete.
      But I’m glad you found their research helpful. At age 68 you can probably afford to go with 30-60% equities. With a horizon 30 years longer than yours we can’t afford a low equity weight like that.

  7. Not to be their cheerleader, but Kitces and Pfau conclude by stating: ” For those who are willing to be even more flexible, there appear to be additional benefits to potentially widening the valuation-based adjustments further (expanding or eliminating the bounding thresholds), though such an approach would have to be managed against a person’s risk tolerance…”

  8. The analysis you provide starts the equity glide path immediately. With a CAPE above 20, would it be beneficial to hold the portfolio to 60/40 then have a triggering mechanism (cape drop below 20?) To start the glide path to 100 with a higher slope?

    1. In short, yes! I would prefer that conceptually. I modeled something like that as the “active” glidepath where you ratchet up the equity weight only if the S&P below the all-time high. See more details in Part 19. But other rules and trigger mechanisms may work, too.

  9. So good as always! Now, what about a glide path during accumulation and leading up to retirement? My gut says keep it high (90-100% stocks) during accumulation, then sharply adjust to the start of the retirement glide path as soon as you’ve made an irrevocable decision to retire (given notice, etc) or whenever you’ve decided you’re unwilling to extend your working career in the event of a crash that would make your desired initial withdrawal rate unsustainable.

    1. That is one way to do it but then you are exposing your portfolio to a major market downturn, say 6 months to 1-year out from retirement. Ouch! I don’t have the quantified answer, but my guess is the glidepath toward a 60-40 ratio during the accumulation phase should be steep when the CAPE is >20 and starting maybe 1-2 years out from retirement. Let’s see what Big ERN says…

    2. That’s an interesting and also very difficult question. I would keep the equity share high for as long as possible and the shift down pretty rapidly. But it all depends on your exact reticent timing strategy. Do you have one exact retirement date when you want/have to retire? Maybe shift down during the last few years. Do you have no specific date in mind but like to reach FIRE as quickly as possible? Keep 100% in equities and do the shift to bonds “cold turkey” when you reach your goal.

  10. Great post! I’d love to see your analysis of glidepaths approaching retirement.

    My guess is that holding 100% equities until retirement leads to the earliest retirement on average, but with the widest distribution of dates. If that’s true, people should glide toward bonds to the degree that they find delayed retirement to be especially bad. (Age and health risks could be factors here.)

    1. Very true! Again, it boils down to your flexibility in the retirement date. If you are stuck with one specific date you probably want to shift down more gradually. With more flexibility, by all means go 100% equities to get to the target as quickly as possible. Cheers!

  11. I just wanted to drop by and compliment you on this series. The articles are all densely packed with interesting and actionable information. I love math (as a hobby) and get excited when I see an email from ERN with the latest installment. Thank you so much for doing this!

  12. I FIRE’d with a 80/20 portfolio. My solution was to accumulate LT cap loss against my post tax portfolio, and upon FIRE I sold stock equivalent to 5 years (plus a little) living expense, and stuck it in short term muni bond fund which should give a little inflation protection.. I also exchanged into some TIPS in my pretax accounts for some inflation protection. My ratio changed from 80/20 to 58/42 over night with no tax bite. Over the 5 year course I project rising again to 70/30 to 80/20 while spending down the muni’s and re-retiring once SS kicks in. What’s your opinion on longer epochs of rebalancing, or a glidepath during an epoch devoted to rebalancing as part of the assumptions instead of rebalance every year? My budgeted SWR is about 3% but my actual expenses are probably a little less.

    1. With a 3% SWR you should be in great shape. I would check if Munis really make sense in early retirement. Normally, you’d need a pretty high marginal tax rate. Did you check if maybe corporate bonds have a high enough yield to beat the Munis after tax?
      If your SS kicks in in 5 years it’snot a bad idea to design the glidepath to last for 5 years. Otherwise I’d plan for maybe a little longer. 10 years seems like a good compromise.

  13. It seems like the results are dependent on a quick recovery after a stock selloff. What happens if the next recovery is slow? For example, like emerging markets, which just recovered to even nearly 10 years after their high point during the fall of 2007. Many of us also look for insurance that the next selloff and recovery might be different from those of the past. I worry about a 50% drop, followed by 10 years until back to even.

    1. We’ll find out what happens after the next drop. I find it hard to believe that there won’t be another nice rally afterward. A 50% drop and 10 years of no returns after that, it would put the CAPE ratio back into single digits. Not gonna happen.
      But just to be sure: The rules I studied did well during 3 different types of market crashes: Great Depression (>10 years of pain), 1965-1982 (actually longer than your 10-year window) and the 2000s (almost as long as your 10-year window).

  14. In terms of MC vs. history, would it be reasonable to infer that historical models are a floor condition? I.e., if a strategy fails in history, is it reasonable to assume this would almost certainly fail in the future? Also- would it be feasible (perhaps even practical) to add in dependencies to the MC (such as mean reversion behaviors) such that the MC behaves like an intermediate between historical and pure stochastic? (Or alternatively, just inject some noise into the historical models to create pseudo-empirical models?)

  15. Dr. Big Ern,

    Thank you for raising the collective IQ of the early retirement community. You have shown that the “Dismal Science” is actually quite exciting and, as compiled and presented by you, makes for a compelling and insightful read!

    What do you think of the applicability of your having modeled an inverse correlation of bond performance versus equities vis-à-vis is today’s market? Across numerous articles, you have demonstrated that bonds deliver very little diversification, and that decreases in a mixed portfolio’s volatility versus 100% equities stem mostly from the reduction in the exposure to equities. You have also noted that, with bonds being so expensive in today’s market, they, along with equities, have substantial downside risk. Should today’s newly or soon to be retired cohort consider cash in lieu of bonds and, hence, Implement a glide path where cash exposure is decreased over time in favor of equities?

    As always, appreciate your rigor and your insights.

    1. That’s a great point! In the past, there would have been an incentive to “time” the bond vs. cash decision. Use bonds in a demand-shock recession (1930s) and cash when rates move up (1970s). And today’s situation could become more like a 1970s scenario. Food for thought!

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