The Rational Reminder podcast pointed me to this paper called Sustainable Withdrawal Rates from Retirement Portfolios – The Historical Evidence on Buffer Zone Strategies. What the hell is a buffer zone? I think many of you retirement planners like to have cash in your retirement like a cash bucket. If the stock market is not so good, instead of spending from the more volatile part of your portfolio, spend from the cash allocation. In this way, you can avoid the negative sequence of return risk. (Read here about the sequence of return risk). But on top of that, when times are good, you replenish the cash buffer as well. So, how good is having this cash buffer? According to this paper, it is not so good. The conclusion is that it is better to just stick with a plain old equity and bond portfolio. But Kyith, shouldn’t having cash be…
