One lesson your hypothetical 65-year-old should take away from both graphs is that they can’t afford to spend what they’re proposing to spend. The question they actually want anwered (or ought to) isn’t “what’s my probability of lasting 20 years with these numbers and a given investment allocation?”, it’s more like “given this much to invest and a given investment allocation, how much can I take out every year and still have, say, a 98% chance of not running out in 20 years?”.
(Ideally we’d do this with a more brutal simulation that allows for occasional events substantially better or worse than in the historical record. And ideally the simulation would allow you to say not “take $X out every year” but “take out between $X and $Y every year, depending on the outcome of simulations performed at that point”.)
Unfortunately the Vanguard simulator doesn’t work on the computer I’m currently sat at, so I can’t tell how stocks and bonds compare according to a metric of that sort. I firmly expect that stocks will still win, for what it’s worth.
Nope, actually stocks don’t still win when what you want is to maximize widthdrawals subject to keeping Pr(run out of money) very small. The 98% level for bonds only is between $15k and $16k; for 50:50 it’s a little better, somewhere between $16000 and $17000; for stocks only it’s about $12k
(Another thing the simulator notably doesn’t let you do: adjust your portfolio allocation over time.)
One lesson your hypothetical 65-year-old should take away from both graphs is that they can’t afford to spend what they’re proposing to spend. The question they actually want anwered (or ought to) isn’t “what’s my probability of lasting 20 years with these numbers and a given investment allocation?”, it’s more like “given this much to invest and a given investment allocation, how much can I take out every year and still have, say, a 98% chance of not running out in 20 years?”.
(Ideally we’d do this with a more brutal simulation that allows for occasional events substantially better or worse than in the historical record. And ideally the simulation would allow you to say not “take $X out every year” but “take out between $X and $Y every year, depending on the outcome of simulations performed at that point”.)
Unfortunately the Vanguard simulator doesn’t work on the computer I’m currently sat at, so I can’t tell how stocks and bonds compare according to a metric of that sort. I firmly expect that stocks will still win, for what it’s worth.
Nope, actually stocks don’t still win when what you want is to maximize widthdrawals subject to keeping Pr(run out of money) very small. The 98% level for bonds only is between $15k and $16k; for 50:50 it’s a little better, somewhere between $16000 and $17000; for stocks only it’s about $12k
(Another thing the simulator notably doesn’t let you do: adjust your portfolio allocation over time.)
That’s correct.