A couple going through the exact same exercise in December 2007 of course endured a much rougher time as the financial crisis was dawning.
What was the difference? Luck. No one can control the circumstance of the stock market does in the first year of their retirement, or ever. The couple retiring at the end of 2007 with all the same assumptions probably would have gone into 2009 with just $810,000.
The Journal article linked above makes the argument for greatly reducing equity exposure upon retiring, not as a permanent solution but as a means of protecting against a 2007-like start to retirement permanently impairing capital. This strategy was referred to as the U-shaped path.
The WSJ cited research from the Journal of Financial Planning that found a 20-30% allocation to equities early in retirement and then increasing it slowly to 50-70% was the optimal strategy although the WSJ did not define slowly.
The Journal of Financial Planning actually found that starting retirement at a “normal” equity allocation of 60% and then gradually reduced that exposure in favor of fixed income actually increased the likelihood of running out of money.
This is an interesting concept and there is another reason to support the idea not mentioned in the article. How many people retired in 2007, took an immediate hit to their portfolios, panic sold close to the low and never came back. While the answer is unknowable it obviously happened to some number of people, repeating from above, permanently impair capital and causing people to unnecessarily lock in a lower standard of living.
The nature of markets, investment and retirement planning is that they all evolve. Clients will be best served by advisors who keep current with where the industry and research goes.
This article was written by AdvisorShares ETF Strategist Roger Nusbaum.