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Best AA?
Old 01-09-2019, 12:00 PM   #1
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Best AA?

Hi everyone, I've lurked on here for years and finally decided to join!
Here are my stats:
I'm 53, married with no kids. Recently lost job and I'm wondering if I have enough to retire. I have health care coverage through my wife and have for years. Total portfolio is $1,100,000 and total expenses including everything are ~$40,000.
When I run the numbers though Firecalc and other calculators they give me the green light , but I wanted to ask on here because it seems like everyone has much more money so not totally confident. My AA is ~90% stock and rest is in 2 corporate bond ETFS.
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Old 01-09-2019, 12:19 PM   #2
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I's say you're just about there. And keep in mind at some point in the not-too-distant future social security will be available which will cut your withdrawal rate way down. (Unless you just want to spend more.)

I'd sleep better with less than 90% stocks and the survival rate is just as good. But around here you'll get lots of differing opinions
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Old 01-09-2019, 12:42 PM   #3
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Originally Posted by Bill from NYC View Post
Hi everyone, I've lurked on here for years and finally decided to join!
Here are my stats:
I'm 53, married with no kids. Recently lost job and I'm wondering if I have enough to retire. I have health care coverage through my wife and have for years. Total portfolio is $1,100,000 and total expenses including everything are ~$40,000.
When I run the numbers though Firecalc and other calculators they give me the green light , but I wanted to ask on here because it seems like everyone has much more money so not totally confident. My AA is ~90% stock and rest is in 2 corporate bond ETFS.
Welcome! Many of us here employ the 'bucket approach', and like to hold 2 to 3 years of expenses equivalent in cash/bonds/money market accounts. With your assets and spending, you don't seem to have a lot of buffer.

Without more information regarding your stock allocation, it's hard to evaulate its diversification. If you hold mutual funds or ETFs that mirror both domestic and international diversified market sectors, most here would consider you well-diversified. If you hold a lot of single stocks, maybe not.
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Old 01-09-2019, 12:46 PM   #4
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Welcome to our wonderful site.
Is the wife planning to work until 65, or if she retires too, what are your plans for health coverage? Can you manage your income for ACA tax subsidies?
Does the 40k exp include potential big ticket items such as new cars, new roof,etc?

Most of the posters here who have a 90/10 AA don't have a substantial dependence on their portfolio in retirement. I would probably dial down your stock allocation somewhat.
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Old 01-09-2019, 12:47 PM   #5
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Welcome! Many of us here employ the 'bucket approach', and like to hold 2 to 3 years of expenses equivalent in cash/bonds/money market accounts. With your assets and spending, you don't seem to have a lot of buffer.

Without more information regarding your stock allocation, it's hard to evaulate its diversification. If you hold mutual funds or ETFs that mirror both domestic and international diversified market sectors, most here would consider you well-diversified. If you hold a lot of single stocks, maybe not.
Just simple ETF's that mirror Russell 2000 and S and P 500
Never buy individual stocks.
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Old 01-09-2019, 01:07 PM   #6
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Welcome to our wonderful site.
Is the wife planning to work until 65, or if she retires too, what are your plans for health coverage? Can you manage your income for ACA tax subsidies?
Does the 40k exp include potential big ticket items such as new cars, new roof,etc?

Most of the posters here who have a 90/10 AA don't have a substantial dependence on their portfolio in retirement. I would probably dial down your stock allocation somewhat.
Yeah, she loves her job, but who knows what future holds....just ran numbers again and they still put me at 95% + with higher expenses...
my thinking is it just has to last until I'm 70 as ss will kick in big time...maybe I'm too optimistic
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Old 01-09-2019, 02:16 PM   #7
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Originally Posted by Bill from NYC View Post
When I run the numbers though Firecalc and other calculators they give me the green light , but I wanted to ask on here because it seems like everyone has much more money so not totally confident. My AA is ~90% stock and rest is in 2 corporate bond ETFS.
Firecalc and many other calculators allow you to run scenarios with different asset allocations. Under the Investigate tab you can select "Investigate changing my allocation" to graph stock % vs success rate. I plugged in 40,000 in spending, 1,100,000 in assets, and 45 year (no SS income - have no idea when and how much you'll be able to claim.) It looks like 60 to 100% stock have similar probabilities of success. So setting it to 60% stocks and doing a success rate investigation gave 91.3% (9 fails) while 100% stocks gave 92.2% (8 fails). At 50% stocks the success rate was 84.5% (16 fails.) At 0% stocks success rate was 17.5% (85 fails).

Firecalc suggests you could keep your AA where it is.


P.S. We have 60% in stocks. Just retired, early 60s for the both of us.
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Old 01-09-2019, 02:21 PM   #8
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Oh - important qualifier - Firecalc assumes (as do all such tools unless they say otherwise) that the stocks you hold follow the major market indices. If you hold a selection of stocks that does not match that assumption then I would say to not trust its output at all. Our own holdings are now entirely in indexed mutual stock and bond funds.
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Old 01-09-2019, 02:38 PM   #9
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Firecalc and many other calculators allow you to run scenarios with different asset allocations. Under the Investigate tab you can select "Investigate changing my allocation" to graph stock % vs success rate. I plugged in 40,000 in spending, 1,100,000 in assets, and 45 year (no SS income - have no idea when and how much you'll be able to claim.) It looks like 60 to 100% stock have similar probabilities of success. So setting it to 60% stocks and doing a success rate investigation gave 91.3% (9 fails) while 100% stocks gave 92.2% (8 fails). At 50% stocks the success rate was 84.5% (16 fails.) At 0% stocks success rate was 17.5% (85 fails).

Firecalc suggests you could keep your AA where it is.


P.S. We have 60% in stocks. Just retired, early 60s for the both of us.
Bolded - the bolded statement above is true for most Firecalc scenarios. However there is much more volatility built in with a 90% stock allocation. Plus the psychology of sleeping well at night if there is a 2008 style drop.
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Old 01-09-2019, 02:46 PM   #10
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HNL Bill mentioned the bucket strategy, which I do. I got the idea here: https://www.theretirementmanifesto.c...ment-paycheck/
90% stocks would not allow me to sleep, but we all have our own risk tolerance.
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Old 01-09-2019, 03:42 PM   #11
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With spouse working and your early draw down at about 4% (until SS) it sounds like you are there or close to there. One question - is any significant amount of your savings tax deferred? If so, you may want to "discount" it for the appropriate tax rate (fed/state/local).

I agree with others that AA may be too stock heavy. That's not a bad AA when you are working and growing your nest egg, but to be able to draw on it, better to have more bonds/cash-like ('safe') money.

Good luck and welcome to the party. Do keep checking back and share your experiences.


Aloha
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Old 01-09-2019, 03:47 PM   #12
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I am assuming that your wife's job will cover the $40K as long as she is working? If so, you can probably be a little more aggressive in your allocation. I was near 100% stocks when working, and then last few years and into my still fairly new retirement I have reduced to a target of 70/30. Although with the run up in stocks last few years it has been tilting more to stocks even though I have dome some rebalancing.
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Old 01-09-2019, 04:11 PM   #13
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Old 01-09-2019, 04:38 PM   #14
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Thank you everyone for all your input....

Yeah, that is interesting that the % success is the same whether its 60 or 100% stock. I guess the difference is that the 100% stock most likely will be worth much more, albeit with significant more volatility.

Will see, I haven't "finalized" my decision yet, but nice to know it's not out of the question.
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Old 01-09-2019, 04:59 PM   #15
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I think youre close and/or there asset-wise but 90% in equities on the cusp of early retirement and after ten years of a raging bull markets sounds too high. Id suggest rebalancing very soon to something more like 60% equities.
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Old 01-09-2019, 05:18 PM   #16
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one more question--in terms of the calculators would it make more sense to run one for 17 years ( age 70) then another one for 25 years( takes me to age 95) based on avg balance that the first one estimates?
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Old 01-09-2019, 05:34 PM   #17
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If it were me knowing what I know today, I would put about 5 years of withdrawals in fixed income in addition to my ultimate AA.... so if your ultimate AA is 90/10 ad WR is 4% I would start retirement at 70/30 and live off fixed income for the first 5 years when SORR is most significant and grade to 90/10 after 5 years... so 70/30, 74/26, 78/22, 82/18, 86/14 and then 90/10.
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Old 01-09-2019, 05:56 PM   #18
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If it were me knowing what I know today, I would put about 5 years of withdrawals in fixed income in addition to my ultimate AA.... so if your ultimate AA is 90/10 ad WR is 4% I would start retirement at 70/30 and live off fixed income for the first 5 years when SORR is most significant and grade to 90/10 after 5 years... so 70/30, 74/26, 78/22, 82/18, 86/14 and then 90/10.
SORR?
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Old 01-09-2019, 05:57 PM   #19
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SORR?
Sequence of return risk.
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Old 01-09-2019, 06:06 PM   #20
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Sequence of return risk.
Thank you! I have to think about that. That would equate to like $330,000 in bonds. I've always been a big stock guy, but I get the logic.
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