Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Asset alocation with pension
Old 01-31-2007, 10:31 AM   #1
Full time employment: Posting here.
 
Join Date: Mar 2005
Location: Punta Gorda, FL
Posts: 666
Asset alocation with pension

As I posted earlier, I plan to retire this summer with my wife working full time one more year. I plan to roll my 401k into a IRA and she will receive a pension. She teaches a 3hour class at the local college and will continue to do this as she enjoys it.

I currently have the following American Funds in my 401K. About 250K.

Investment Co. of America 40%
New Perspective 30%
New Economy 15%
Smallcap World fund 15%

In my taxable account I have 100K with 70% stock and 30% bonds/ fixed. I should have another 35K or so by summer.

Our home is paid for and we have no debt. We could also downsize our home and probably put 100K in our pocket.

With the pension and part time work we should be fine. I'll be 50 this year and she is 46. I am currently with TD Ameritrade and I have a small IRA there and my thinking is to roll the 401k into that.

We shouldn't need the 401K/IRA money for 10yrs or more and thats only when the wife deceids she dosn't want to put in the 3hrs a week for two semesters per year. She makes $5000 per year.

Ive went over our budget and we need $26,000 to pay our bills. This would be our bare bones budget though. $58,000 is more in line with what we are spending now. Her pension will be $54,000 and does have a cola and survivor benefits. I'm assuming 15% taxes.

I should have around 385K to invest. $250k tax defered and $135K after tax. Im thinking of keeping around 35K in bonds/fixed in the after tax account but not sure how much I should put in the IRA. I can just keep the American Funds, but Im thinking of just buying a mix of ETF.

Any idea's. Should I even consider buying more bonds?



__________________

__________________
dm is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Re: Asset alocation with pension
Old 01-31-2007, 11:03 AM   #2
Thinks s/he gets paid by the post
MasterBlaster's Avatar
 
Join Date: Jun 2005
Posts: 4,359
Re: Asset alocation with pension

Some people believe that a pension is a partial or total replacement for bonds in their portfolio.

With this in mind, perhaps you could think about lowering your bond asset allocation.

here's another discussion of this topic:

http://socialize.morningstar.com/New...&convId=183129
__________________

__________________
MasterBlaster is offline   Reply With Quote
Re: Asset alocation with pension
Old 01-31-2007, 12:43 PM   #3
Recycles dryer sheets
 
Join Date: Apr 2006
Posts: 80
Re: Asset alocation with pension

Thanks for the link, MB! My two cents (and worth about that much...) I have a pension that I consider to be the "bond" portion of my retirement planning, and as a result almost all the rest of my investing is in stocks and real estate. Good luck! Katie
__________________
SolidA is offline   Reply With Quote
Re: Asset alocation with pension
Old 01-31-2007, 12:46 PM   #4
Thinks s/he gets paid by the post
 
Join Date: Jul 2003
Location: Pasadena CA
Posts: 2,695
Re: Asset alocation with pension

Even more links:

http://tinyurl.com/2r3xb5

I think of my pension as like a bond allowing a higher % of stocks.
__________________
T.S. Eliot:
Old men ought to be explorers
yakers is offline   Reply With Quote
Re: Asset alocation with pension
Old 01-31-2007, 01:04 PM   #5
Dryer sheet aficionado
 
Join Date: Jan 2007
Posts: 29
Re: Asset alocation with pension

A couple of items to consider: Most pension plans don't allow retirement until at least age 50 and some much later than that. Your wife being 46 .... Your current age (49) is also a important factor as you can't touch your IRA money until age 59 1/2 without paying a significant penalty in addition to state and federal income taxes (10% federal and several percent state) until you reach at least age 55. At 55 you can start substantially equal withdrawals based on your anticipated life expectancy per IRS guidelines.
__________________
rogerc1944 is offline   Reply With Quote
Re: Asset alocation with pension
Old 01-31-2007, 01:23 PM   #6
Thinks s/he gets paid by the post
MasterBlaster's Avatar
 
Join Date: Jun 2005
Posts: 4,359
Re: Asset alocation with pension

Roger1944:

You can also take penalty free distributions from your IRA at any age. Check out the IRS 72-t rules.

http://www.moneymanagment.info/72T.htm

here's a calculator to estimate how much you can take out per year based on the 72t rules:

http://www.dinkytown.net/java/Retire72T.html
__________________
MasterBlaster is offline   Reply With Quote
Re: Asset alocation with pension
Old 01-31-2007, 01:25 PM   #7
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
cute fuzzy bunny's Avatar
 
Join Date: Dec 2003
Location: Losing my whump
Posts: 22,697
Re: Asset alocation with pension

Any income stream coming in or permanent reduction in spending going out can be considered a "bond" in a portfolio.

You can take more volatility in your investments if you have regular income to offset some spending; same thing if you dont need to take as much to service your spending needs.

A really important fine point that often goes unnoticed or is avoided because its considered "too complex".

And a serious linchpin in decisions like when to take annuities, pensions, social security, or phase out loans/mortgages/the second home/etc.

Even a smaller, higher equity portfolio coupled with an income stream or reduced debt spending can create higher returns than a larger, more balanced, higher bond component portfolio in the absence of the income stream or presence of a higher spending demand needing monthly service.

More potential volatility to be sure...so you have to be able to 'take' that...

but the numbers make sense...
__________________
Be fearful when others are greedy, and greedy when others are fearful. Just another form of "buy low, sell high" for those who have trouble with things. This rule is not universal. Do not buy a 1973 Pinto because everyone else is afraid of it.
cute fuzzy bunny is offline   Reply With Quote
Re: Asset alocation with pension
Old 01-31-2007, 01:32 PM   #8
Full time employment: Posting here.
 
Join Date: Mar 2005
Location: Punta Gorda, FL
Posts: 666
Re: Asset alocation with pension

Thanks for the links. So it looks like some count their pension as a bond and some as just a reduction in income needed. In one of the links it mentioned that you cant dip into the principle or sell the bonds, you also can't leave it to your kids. This makes more sense to me.

Maybe I'll just go with a fairly high stock allocation with the money I have to invest. Something like 85/15. If I put 15% in my after tax account I should have enough to get by on from the interest alone. And if something came up I still wouldnt have to start selling stocks right away. If the market did good I'm sure we could always increase our spending some. And there's always Social Security.
__________________
dm is offline   Reply With Quote
Re: Asset alocation with pension
Old 01-31-2007, 01:37 PM   #9
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
cute fuzzy bunny's Avatar
 
Join Date: Dec 2003
Location: Losing my whump
Posts: 22,697
Re: Asset alocation with pension

Some claim that past 80% you take on more volatility than the excess returns would warrant, and below 20% bonds you take on less returns than the reduced volatility buys you. But there are dissenters to that opinion that can show ways to avoid the dampening effect. The difference between 80 and 85 is probably not that big of a deal either way.
__________________
Be fearful when others are greedy, and greedy when others are fearful. Just another form of "buy low, sell high" for those who have trouble with things. This rule is not universal. Do not buy a 1973 Pinto because everyone else is afraid of it.
cute fuzzy bunny is offline   Reply With Quote
Re: Asset alocation with pension
Old 01-31-2007, 01:40 PM   #10
Full time employment: Posting here.
 
Join Date: Mar 2005
Location: Punta Gorda, FL
Posts: 666
Re: Asset alocation with pension

Quote:
Originally Posted by rogerc1944
A couple of items to consider: Most pension plans don't allow retirement until at least age 50 and some much later than that. Your wife being 46 .... Your current age (49) is also a important factor as you can't touch your IRA money until age 59 1/2 without paying a significant penalty in addition to state and federal income taxes (10% federal and several percent state) until you reach at least age 55. At 55 you can start substantially equal withdrawals based on your anticipated life expectancy per IRS guidelines.
She only needs 25 years in the pension in order to retire. We actually bought 3yrs in order to bring her up to 25. She is going to work one more year so she will be 47 when she retires with 26 yrs of service. The plan is offering an early out till July 08 that does not include a reduction because of her age. If she dosn't retire in 08 she will have to work 4 more yrs.
__________________
dm is offline   Reply With Quote
Re: Asset alocation with pension
Old 01-31-2007, 01:52 PM   #11
Full time employment: Posting here.
 
Join Date: Mar 2005
Location: Punta Gorda, FL
Posts: 666
Re: Asset alocation with pension

Quote:
Originally Posted by Cute Fuzzy Bunny
Some claim that past 80% you take on more volatility than the excess returns would warrant, and below 20% bonds you take on less returns than the reduced volatility buys you. But there are dissenters to that opinion that can show ways to avoid the dampening effect. The difference between 80 and 85 is probably not that big of a deal either way.
Im still thinking this out. Ive still got a while and just starting to think this through. Also I'd like to just draw out of the taxable account for 10 yrs and not worry about the 72t deal. 20% bonds with most of that in the taxable account should throw off just about enough to get by. Then if something came up that I needed more, I could sell bonds or stocks depending on how the market was doing.

I can always find something to spend more on if I find the portfolio growing to much. And there is always Social Security (maybe).
__________________
dm is offline   Reply With Quote
Re: Asset alocation with pension
Old 01-31-2007, 01:53 PM   #12
Thinks s/he gets paid by the post
Telly's Avatar
 
Join Date: Feb 2003
Posts: 1,448
Re: Asset alocation with pension

I have a very small pension that I can turn on in a couple years. I looked up the present dollar amount needed to create an annuity with the same payments on immediateannuity.com and Vanguard's site.

I'm close enough now that I'm figuring in the present value dollar equivalent of the small pension into my allocation percentage, as far as if/when to rebalance. If I would have figured out how much PV there was sooner, I probably would not have rebalanced the last time.
__________________
-- Telly, the D-I-Y guy --
Two fools dancing on the hands of time
Telly is offline   Reply With Quote
Re: Asset alocation with pension
Old 01-31-2007, 01:54 PM   #13
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
cute fuzzy bunny's Avatar
 
Join Date: Dec 2003
Location: Losing my whump
Posts: 22,697
Re: Asset alocation with pension

And you can reinvest excess income.

Thats the awful position I find myself in on a regular basis.

And if the volatility becomes too excessive, presumably for not more than a few years...most people have the flexibility to cut their spending significantly for a short time or defer some larger expenses for a year or two.
__________________
Be fearful when others are greedy, and greedy when others are fearful. Just another form of "buy low, sell high" for those who have trouble with things. This rule is not universal. Do not buy a 1973 Pinto because everyone else is afraid of it.
cute fuzzy bunny is offline   Reply With Quote
Re: Asset alocation with pension
Old 01-31-2007, 02:03 PM   #14
Thinks s/he gets paid by the post
 
Join Date: Feb 2003
Location: Mesa
Posts: 3,588
Re: Asset alocation with pension

I'm not counting the small pension benefits I am expected to recieve as bond investments until I am able to actually start receiving benefits. This is still several years away for me. Until then, I consider this part of my net worth to have significant risk. So I ignore there value in computing my asset allocation and deciding when to rebalance. My current thinking is that I will start to consider this income stream as a bond investment as soon as it actually becomes an income stream.

I have no quantifiable justification for this practice. It's just the way I decided to approach the problem and since my pension benefits are not a big part of my retirement plan, it doesn't seem to matter that much. If I consider my future benefits as bonds, then my portfolio is a little bit more conservative than I consider it to be now.

__________________
sgeeeee is offline   Reply With Quote
Re: Asset alocation with pension
Old 01-31-2007, 02:14 PM   #15
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
cute fuzzy bunny's Avatar
 
Join Date: Dec 2003
Location: Losing my whump
Posts: 22,697
Re: Asset alocation with pension

The only trouble with that strategy is that, as described in many other mutually destructive diatribes...the appearance of an income stream later in life can positively affect your current SWR.

That having been said, while i'm aware of several pensions, social security, the wifes variable annuity and some other income goodies, I dont plan for them. Should they materialize, I'll take advantage of them as roll-overs or immediate benefits...in that order where possible. Lobster and champagne money, or perhaps college funds.

But then again, I'm already retired with satisfactory income. Someone on the ragged edge of planning and executing might want to consider a future income stream to raise their current SWR, with a failure percentage guesstimate on the future income stream...and a backup plan.
__________________
Be fearful when others are greedy, and greedy when others are fearful. Just another form of "buy low, sell high" for those who have trouble with things. This rule is not universal. Do not buy a 1973 Pinto because everyone else is afraid of it.
cute fuzzy bunny is offline   Reply With Quote
Re: Asset alocation with pension
Old 01-31-2007, 02:28 PM   #16
Thinks s/he gets paid by the post
 
Join Date: Feb 2003
Location: Mesa
Posts: 3,588
Re: Asset alocation with pension

Quote:
Originally Posted by Cute Fuzzy Bunny
The only trouble with that strategy is that, as described in many other mutually destructive diatribes...the appearance of an income stream later in life can positively affect your current SWR.
What strategy are you talking about?
__________________
sgeeeee is offline   Reply With Quote
Re: Asset alocation with pension
Old 01-31-2007, 02:30 PM   #17
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
cute fuzzy bunny's Avatar
 
Join Date: Dec 2003
Location: Losing my whump
Posts: 22,697
Re: Asset alocation with pension

Not considering the income stream until it actually materializes.

Or pick something else that'll make your head explode...I'm gonna go disassemble and move my larger storage shed...by the time I get back you could have a good head of steam built up...
__________________
Be fearful when others are greedy, and greedy when others are fearful. Just another form of "buy low, sell high" for those who have trouble with things. This rule is not universal. Do not buy a 1973 Pinto because everyone else is afraid of it.
cute fuzzy bunny is offline   Reply With Quote
Re: Asset alocation with pension
Old 01-31-2007, 02:40 PM   #18
Thinks s/he gets paid by the post
 
Join Date: Feb 2003
Location: Mesa
Posts: 3,588
Re: Asset alocation with pension

Quote:
Originally Posted by Cute Fuzzy Bunny
Not considering the income stream until it actually materializes.

Or pick something else that'll make your head explode...I'm gonna go disassemble and move my larger storage shed...by the time I get back you could have a good head of steam built up...
Of course an income stream later in retirement will affect SWR. I think that is probably why the OP asked the question about how to deal with it. Don't you

Pick any strategy to account for it and it will have flaws. All an investor can do is try to understand the flaws of each option and choose the flaws they want to live with. You give no indication in your post that you have done either yet. I imagine you have but for some reason think that you will have more fun simply disagreeing. Good luck with that.
__________________
sgeeeee is offline   Reply With Quote
Re: Asset alocation with pension
Old 01-31-2007, 02:43 PM   #19
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
cute fuzzy bunny's Avatar
 
Join Date: Dec 2003
Location: Losing my whump
Posts: 22,697
Re: Asset alocation with pension

Oh yeah?!?

Sez You!
__________________
Be fearful when others are greedy, and greedy when others are fearful. Just another form of "buy low, sell high" for those who have trouble with things. This rule is not universal. Do not buy a 1973 Pinto because everyone else is afraid of it.
cute fuzzy bunny is offline   Reply With Quote
Re: Asset alocation with pension
Old 01-31-2007, 02:45 PM   #20
Thinks s/he gets paid by the post
 
Join Date: Feb 2003
Location: Mesa
Posts: 3,588
Re: Asset alocation with pension

Quote:
Originally Posted by Cute Fuzzy Bunny
Oh yeah?!?

Sez You!
__________________

__________________
sgeeeee is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Asset Allocation: Effective but not feasible? Hillbilly FIRE and Money 20 04-28-2007 11:02 PM
Military pension and pay - how much is it past 20 Average Joe FIRE and Money 13 03-18-2007 11:22 AM
Pension Time Bomb Article Mountain_Mike FIRE and Money 11 01-17-2006 07:49 AM
The Fat Pension newellcr Young Dreamers 34 07-26-2005 09:23 AM
Pension as part of Asset Allocation Beststash FIRE and Money 3 11-23-2003 08:26 AM

 

 
All times are GMT -6. The time now is 03:51 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.