CLEC Investment & Wealth DatabaseUnited States and Taiwan: Retirement Asset Allocation for Living by Withdrawing From Assets, Without Pledging, Across Different Funding Levels!
United States and Taiwan: Retirement Asset Allocation for Living by Withdrawing From Assets, Without Pledging, Across Different Funding Levels!
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Document Text
Retirement Asset Allocation for US and Taiwan Investors Without Pledged Borrowing, rev 2.0
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This article covers both Taiwan and the United States. The first part discusses US residents; the later part discusses Taiwan.
Retirees without securities-backed lending should not invest in leveraged funds.
For retirees without pledged borrowing, do not use an asset allocation with leveraged funds.
For US retirees without pledged borrowing, asset allocation depends on funding level:
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If retirement funds equal 50 times annual spending, buy 80% QQQ and 20% money market, such as SWVXX or SGOV. Rebalance every year.
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If funds are only 33 times annual spending, switch to SPY: 80% SPY and 20% money market, such as SWVXX or SGOV. Rebalance every year.
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If funds are insufficient, the only choice is SPHD and living on 4% to 6% annual dividends.
If 5% of funds is not enough to live on, you do not have the conditions to retire.
For Taiwan retirees without pledged borrowing, asset allocation also depends on funding level:
- If retirement funds equal 50 times annual spending, buy 80% 00662 and 20% 00864B. Rebalance every year.
Whether Retired or Not, If You Use Pledged Borrowing, Watch the Playlist Below Carefully
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If funds are only 33 times annual spending, switch to 00646: 80% in 00646 and 20% in 00864B. Rebalance every year.
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If funds are insufficient, the only choice is 0056 and living on 4% to 6% annual dividends.
If 5% of funds is not enough to live on, you do not have the conditions to retire.
The following example uses Taiwan investors, but it also applies to US investors if 00662 is replaced with QQQ, 00646 with SPY, 0056 with SPHD, and 00864B with a money market fund.
Whether retired or not, if you use pledged borrowing, please carefully watch this playlist:
Investment Risk Management https://youtube.com/playlist?list=PLiskER8xug1dxX1-UVDicxBW2FfEicJis&si=6Pk9FtR1-eDz3XNM
Using the example from short video 00162, if a retiree has NT$14,400,000 and no pledged borrowing, a safer allocation is 80% in 00662 and 20% cash in 00864B. The 20% cash can be used as an emergency reserve. Each year, the retiree can use 2% of NT$14,400,000, or NT$288,000, regardless of the remaining principal. Rebalance 00662 and 00864B once a year so that total assets return to 80% 00662 and 20% 00864B.
If 2% is not enough to live on, replace 00662 with 00646. The lower volatility lets the usable amount rise to 3%, or NT$432,000 per year and NT$36,000 per month on NT$14,400,000.
If 3% or NT$36,000 per month is still not enough, replace it with 0056: 80% in 0056 and 20% in 00864B. That allows 4% per year, or NT$576,000 per year and NT$48,000 per month on NT$14,400,000.
Those annual or monthly spending amounts are not tied to market fluctuations. Whether the market rises or falls, you can live on those amounts.
Disclaimer
If assets later double or more, spending can be increased. If after ten years assets reach NT$30,000,000, multiply that by 2%, 3%, or 4%, depending on whether the investment is 00662, 00646, or 0056.
Retirees without pledged borrowing should not use leveraged funds.
Retirees should deleverage and reduce debt. When you still have wages and new cash inflow, adding leverage can be a plus and may accelerate asset growth. But after early retirement or retirement, whether through a home equity loan or a large pledged loan, borrowing does not necessarily increase asset growth. For safety, you must increase cash reserves and invest in lower-volatility, lower-return assets. If asset allocation and risk control are not done well, risk increases.
Therefore, after retirement you should deleverage. Only people still working should increase loans, and only debt that can be repaid with wages should be borrowed.
The highest guiding principles for investment asset allocation:
- Under any extreme condition:
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Money markets and time deposits have no interest.
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Borrowing rates rise sky-high.
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Stock prices fall to zero and markets close for ten years.
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If these extreme conditions occur, a good asset allocation should still let you live calmly.
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It must provide long-term stable cash flow.
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Emergency funds must be available at any time.
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Assets must continue growing to resist inflation.
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Cash is air. Cash is air. Cash is air.
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Keeping cash can produce returns as good as people who are fully invested without cash, while providing higher safety.
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Holding enough cash without sacrificing returns is the essence of asset allocation.
Draft: James
All emails, video content, and replies are for reference only. I am not a professional investment adviser or tax professional. All information is only personal experience sharing. Invest carefully, and take responsibility for every investment decision and action yourself.
Draft: James.
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