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Asset allocation for a Lazy Portfolio
03-04-2014, 09:42 PM
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#1
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Dryer sheet aficionado
Join Date: Mar 2011
Posts: 30
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Asset allocation for a Lazy Portfolio
Hi all, newbie questions for you. I'm hoping you can help me out.
I'm considering firing my FA and creatiing a Lazy Portfolio with my IRA and Roth IRA. I also have a 401k that's in a 2020 target date fund with my former employer. I won't move that, I retired at 56 so I can currently withdraw $ from it penalty free. I am currently 58.
I'm collecting a non-cola'd pension annuity from my former employer. It seems I should be able to reduce the % of bonds in the lazy portfolio due to the pension income. How do I compute the value of the pension?
Would I use the same funds/same %'s in the Roth IRA that I put in the IRA?
The IRA has $394,000 and the Roth Ira $65,000.
Thanks, Trix55
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03-05-2014, 04:34 AM
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#2
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jan 2008
Location: NC
Posts: 21,304
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Welcome to ER.org.
Instead of mirroring your desired asset allocation in each account, most would recommend you view each account as part of the overall picture. For example if you decide you want a lazy portfolio to hold a domestic fund, an international fund and a bond fund - you could invest your 401k solely in a domestic fund, your IRA solely in an international fund and your Roth IRA solely in a bond fund. In practice, you'll have to factor in your desired asset class percentages (relative to account percentages), which accounts offer which funds, withdrawal sequence, tax planning, etc. Here's a primer:
Asset allocation in multiple accounts - Bogleheads
As for valuing your pension, I'd bring up an online annuity calculator like http://www.immediateannuities.com/im...uities/?sce=hc, enter your age, state, gender and monthly pension payment and calculate cost for an equivalent annuity. If the non COLA'd annuity would cost $500,000 for example, and your combined accounts (401k, IRAs) value at $1,000,000, your pension is 1/3rd your assets. FWIW, $500K would provide a 58 yo female a non-COLA'd lifetime monthly income of approx $2,425.
So putting it all together, for example:- If you want a lazy portfolio with 1/3rd Total Stock Market, 1/3rd Total International and 1/3rd Total Bond Market
- And you have a 401k worth $541, a TIRA worth $394, a Roth IRA worth $65 and a pension valued at $500K - total $1,500,000
- Your pension accounts for your Bond allocation (if you consider your pension equivalent to bonds as in your post above, pensions/annuities can be considered in other ways) - total $500K
- Hold Total International in your TIRA (all $394K), your Roth IRA (all $65K) and $41K in your 401k - total $500K
- The remaining $500K in your 401k in Total Stock Market - total $500K
This is NOT a recommendation at all, it's simply an example to show why there's no need to mirror your overall desired asset allocation in each account.
__________________
No one agrees with other people's opinions; they merely agree with their own opinions -- expressed by somebody else. Sydney Tremayne
Retired Jun 2011 at age 57
Target AA: 50% equity funds / 45% bonds / 5% cash
Target WR: Approx 1.5% Approx 20% SI (secure income, SS only)
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03-05-2014, 11:17 AM
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#4
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Nov 2010
Location: Sarasota, FL & Vermont
Posts: 36,373
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Does the former employer 401k offer any stable value funds? If they do and they pay a reasonable rate of interest, use that for your bond allocation.
I don't consider the imputed value of my pension in my AA, but I know some people do. I like Midpack's advice to look at the premium for a SPIA paying the same benefit.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.
Retired Jan 2012 at age 56
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03-05-2014, 11:42 AM
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#5
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Recycles dryer sheets
Join Date: Mar 2007
Posts: 319
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Their are lots of recommendations for this as each person seems to find their comfort zone. I went to all index funds many years ago, following a 40/60 split model, and then moved most of my assets to a managed fund, which is my core fund, which has been around for a long time and has a blend of all asset classes.
I have a few specialty funds, 5% or less of portfolio, to get additional exposure to classes that are not in my core holding.
One way to educate yourself and simplify you allocation is to look at the Life Style funds @ VG they are based on your risk tolerance and hold index funds.
Good luck
__________________
Just Trekking thru!
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03-05-2014, 01:58 PM
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#6
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Thinks s/he gets paid by the post
Join Date: Jul 2005
Posts: 4,366
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Do you plan to withdraw from the Roth at all? It can be used to avoid rising into the next tax bracket, but otherwise may be best used last. If you don't plan any withdrawals from it, all equities would probably be best for maximum growth.
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03-05-2014, 05:16 PM
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#7
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Dryer sheet aficionado
Join Date: Mar 2011
Posts: 30
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Thanks for all the great suggestions. You all have given me a lot to think about.
Midpack, you said there are other ways to regard a pension/annuity, rather than as a bond. What else would you consider it? BTW, you were just about dead on with the valuation, it came in just under 500K, at 496,833.
Sadly, the 401k only has 184K in it.
So amounts are
401K - 184K
TIRA - 394k
Roth - 65K
pension annuity - 496K
total 1.139K
Thanks, Trix55
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03-05-2014, 05:50 PM
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#8
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jan 2008
Location: NC
Posts: 21,304
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Quote:
Originally Posted by Trix55
Midpack, you said there are other ways to regard a pension/annuity, rather than as a bond. What else would you consider it?
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Many people consider a pension/annuity (and/or Soc Sec) to be more like a bond than another asset (class). My point was simply that not everyone treats pensions/annuities that way Is a Pension a Bond? | Financial Planning. Your decision.
__________________
No one agrees with other people's opinions; they merely agree with their own opinions -- expressed by somebody else. Sydney Tremayne
Retired Jun 2011 at age 57
Target AA: 50% equity funds / 45% bonds / 5% cash
Target WR: Approx 1.5% Approx 20% SI (secure income, SS only)
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03-05-2014, 05:51 PM
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#9
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Dryer sheet aficionado
Join Date: Mar 2011
Posts: 30
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Oh, and SS is 19K at age 62.
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03-05-2014, 05:51 PM
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#10
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Dryer sheet aficionado
Join Date: Mar 2011
Posts: 30
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Thank you Midpack, I'm going to look at that now.
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03-05-2014, 07:31 PM
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#11
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Thinks s/he gets paid by the post
Join Date: Jul 2005
Posts: 4,366
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Quote:
Originally Posted by Trix55
Midpack, you said there are other ways to regard a pension/annuity, rather than as a bond. What else would you consider it?
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I treat an annuity or SS as a reduction in expenses. It doesn't match bond behavior very well in your portfolio. You can't rebalance with it. You can't sell it to raise cash.
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03-06-2014, 09:03 AM
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#12
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Dryer sheet aficionado
Join Date: Mar 2011
Posts: 30
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Thanks, I appreciate the help from all of you. Trix55
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