Should you follow the 3% or 4% retirement rule?
Uncle8888 doesn't follow the 3% or 4% retirement rule!
After researching the cyberspace and also reading available NLB's books on retirement planning; he is convinced that his three taps model to build retirement income for life is more sustainable across market cycles as he doesn't have to draw down on his investment portfolio pay for household living expenses during market low. Any draw down on our investment account size will make very difficult to recover.
In long term investing; our account size really matters!
Read? DIY Annuity (Jan 2018 to Dec 2038) With CPF OA
Is your 3 tap model similar to bucket strategy for retirement?
ReplyDeleteI mean, you keep the next 5-10 years in cash/liquid form, the next 5-10 years in balanced portfolio (with heavy emphasis on capital preservation) and the last bucket in risky assets (equity). In this model, you first draw down from bucket 1 (liquid/cash) and exceed proceeds/returns if any from bucket 2 and 3 move into bucket 1 as you progress into retirement.
About the same concept, the idea is that we shouldn't be funding bulk of cash flow ONLY from our investment to avoid any significant draw down during market low. Forced to sell is painful. When we need additional cash flow it is better to draw down on fixed assets that is non volatile over market cycles.
DeleteThat is Tap 1. When Tap 1 is enough to provide sustainable retirement income for life, investing is no longer critical as wealth accumulation tool. We can either quit the investing game or treat it as hobby.
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