Decumulation & Retirement – How To Spend Your Money

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4 Responses

  1. Paul knight says:

    When looking at CAPE based rules – where do you take the CAPE value from – ie: as CAPE will vary in different regiosn is this a global value or do you average out CAPE based on your own asset allocation to arrive at a portfolio average?

    • Mike Rawson says:

      It’s a good question. I don’t use CAPE rules, so this is not my personal practice.

      The people who write about CAPE rules are usually American, and they would use a US CAPE. I think that a global CAPE or a weighted average of your (stock) portfolio are each defensible, and it might come down to which was easier to calculate / access.

      The key would be to use the same system each year, and not to chop and change.

  2. Paul knight says:

    Thanks Mike – I agree that picking something and sticking with it is the way to go.
    I also saw antoher CAPE based approach, which could be easily confused with this, where one sells down equity or fixed income to withdraw depending on CAPE to average CAPE.

    • Mike Rawson says:

      Yes, there are a lot of approaches, but generally, you are either changing the amount you take out each year (dynamic spending) or the split between stocks and others (dynamic allocation).

      The safest approach is to build a pot big enough so that you can live off 3% pa and then set your equity allocation as close to 75% as you can get it.

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Decumulation & Retirement – How To Spend Your Money

by Mike Rawson time to read: 2 min