In part 3 of our Safe Withdrawal Rate Series we set out to determine the optimal mix of Australian equities and Australian bonds that would allow us to withdraw the most from our retirement portfolios without running out of money.
We found that we could safely withdraw 4.00% of our retirement balance per year (adjusted for inflation) as long as the portfolios had at least 75% Australian equities.
We also noticed that portfolios with 75% equities and 25% bonds actually performed better than a 100% equities portfolio. This was our first indication that diversification can be beneficial, even if we diversify into a lower return asset.
Then in part 4 of the series, we extended our analysis to determine whether international exposure would be better for Australian retirees. We found that we can safely withdraw more when Aussie retirement portfolios were made up of Australian equities, U.S. equities and U.S. bonds. We don’t even need to buy Australian bonds!
One conscious limitation of all that previous analysis is that we assumed a 30 year retirement length. However, in reality many early retirees may be retired for 40, 50 or even 60 years. So in this article we will examine the effect of longer retirement lengths on safe withdrawal rates.