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Allocation again
Old 04-29-2007, 11:21 AM   #1
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Allocation again

A couple of times a year I go through an existential crisis about my asset allocation, usually resulting in some dumb move. So this time, instead of acting impulsively, I spent the last 2-3 days searching through the wealth of great articles on this forum to gain from everyone痴 ideas. I learned a great deal (there are some awesome financial minds here), but my situation is a little bit different, at least I think it is. Maybe I知 suffering from the TMI syndrome, but I知 confused and would appreciate comments on my situation.

I remain only partially retired but close enough to full retirement that I値l frame this as if I just retired.

I知 62 and have run out my projection for 21 years, to age 83. I have several income streams: an inflation protected military pension, an inflation protected (sort of) SS for my wife and myself, and a fixed TIAA Transfer Payout Annuity (TPA) that I will take for 10 years. When I add all of these together, I project that I will be able to live on this income with little or no withdrawal from my investments.

After 10 years, and for the next 11 years after that, I will have to replace the income from my expiring TPA from my investments. My overall withdrawal for the entire 21-year period are within the SWR of 4%, but it is variable, with 0% for 10 years and 5% for the next 11.

If I consider the TPA as the equivalent of a bond my current allocation is 50/50, which seems reasonable. If I remove the TPA from my equation, my allocation for the remaining money is 90/10 towards equity, which seems too aggressive. So I知 seeing this in two ways, and don稚 know which is the 田orrect way, if there is one.

Way 1: The TPA is part of my retirement income, so should be added into the overall pot and my true allocation is 50/50, which is reasonable.

Way 2: Since I will be withdrawing from the TPA to live on, it is the equivalent of income from a job, and my situation is equivalent to someone still working and 10 years from retirement. The 90/10 for my investment funds to be used in 10 years is too aggressive, and should closer to the 60/40 usually recommended for someone within 10 years of retirement.

I would appreciate any thoughts or advice, and apologize if this has been discussed before, but I couldn稚 locate this precise situation.
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Re: Allocation again
Old 04-30-2007, 01:11 PM   #2
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Re: Allocation again

The lack of responses indicates that either my question was stupid, or too confusing. Probably the latter, since I got a bit confused myself rereading it. :-)

Anyway, if anyone else in a similar situation the real question is, once retired, what do you do with money that won't be needed for at least 10 years. I had that money in 100% stock but after getting tired of thinking about it I decided to move from essentially 100% stocks to around 70% stocks, 20% cash for unexpected needs, and 10% bonds that I will increase with time.

Given the variability in the market data, I don't think I can fine tune this any further. So I will sleep now until my next existential crisis.
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Re: Allocation again
Old 04-30-2007, 01:17 PM   #3
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Re: Allocation again

Quote:
Originally Posted by SoonToRetire
The lack of responses indicates that either my question was stupid, or too confusing. Probably the latter, since I got a bit confused myself rereading it. :-)

Anyway, if anyone else in a similar situation the real question is, once retired, what do you do with money that won't be needed for at least 10 years. I had that money in 100% stock but after getting tired of thinking about it I decided to move from essentially 100% stocks to around 70% stocks, 20% cash for unexpected needs, and 10% bonds that I will increase with time.

Given the variability in the market data, I don't think I can fine tune this any further. So I will sleep now until my next existential crisis.
If you think you have too much in equities then you have too much in equities. If you get your equities down to 75% from 90% the loss in retunrs might not be that much. (about 1-2% maybe) So if having less in equities will let you sleep better then go for that. Also because you like to tinker, either get a 5% play money portfolio or make a rule to yourself thet even though you will work on other variations you will touch/rebalance your portfolio only once every yr or once every two years. Tell your spouse about it so that you will not tinker :-)

-h
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Re: Allocation again
Old 04-30-2007, 01:21 PM   #4
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Re: Allocation again

Quote:
Originally Posted by lswswein
Tell your spouse about it so that you will not tinker :-)

-h
Oh man, that's hard core. I might as well invite Ernst & Young to look over my books. But you're right, that's a tinker killer right there.

I like your bottom line, I have to be able to sleep at night.
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