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Bond/FI Allocation Changes?
Old 10-03-2016, 07:13 AM   #1
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Bond/FI Allocation Changes?

DW and myself are not yet collecting SS, nor is DW receiving her small pension for a few more years. I am wondering how many reduced their bond/FI allocations when starting to collect SS and/or pensions or just left it the same. I am currently at about a 30% bond/FI allocation and was thinking to just leave that alone after the other income sources kick in.
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Old 10-03-2016, 07:23 AM   #2
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Didn't change our bond allocation when we started taking SS. In theory we should be more comfortable with a higher risk level/equity allocation once on SS, but in actuality that comfort level didn't change.
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Old 10-03-2016, 07:30 AM   #3
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My equity allocation is so low, I will probably bump it a tad when I start SS. But even after I do that, my AA will still be more conservative than most here. Yep......I am a wuss.
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Old 10-03-2016, 07:30 AM   #4
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In theory reducing your FI proportion to reflect any pensions makes good sense. You don't have to wait until you start collecting though. You know when it's coming and how much the payments will be, so you could simply discount the present value of this payment stream and include it as a notional FI component in your AA.
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Old 10-03-2016, 08:39 AM   #5
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We include the present value of all pensions (3) as part of our FI allocation. This leads to us investing in more equity from our liquid funds. The registered retirement funds are all equity. Each year we rebalance them after our withdrawals.
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Old 10-03-2016, 09:00 AM   #6
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My equity allocation is so low, I will probably bump it a tad when I start SS. But even after I do that, my AA will still be more conservative than most here. Yep......I am a wuss.
Or a made man. Nothing to worry about, so why create stress? Good for you.

Personally, my bond allocation is probably a little too low, so I'll leave it alone when we get to SS time. We're diversified between equities, bonds, and real estate, and I'm pretty comfortable with that AA.
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Old 10-03-2016, 06:18 PM   #7
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In theory reducing your FI proportion to reflect any pensions makes good sense. You don't have to wait until you start collecting though. You know when it's coming and how much the payments will be, so you could simply discount the present value of this payment stream and include it as a notional FI component in your AA.

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Old 10-03-2016, 07:19 PM   #8
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Originally Posted by DFW_M5 View Post
DW and myself are not yet collecting SS, nor is DW receiving her small pension for a few more years. I am wondering how many reduced their bond/FI allocations when starting to collect SS and/or pensions or just left it the same. I am currently at about a 30% bond/FI allocation and was thinking to just leave that alone after the other income sources kick in.
If you are saying you have 70% equities, I would think that is a pretty decent helping of risk.

FWIW, we are at 60/40 right now but it will be variable for us. I don't have a problem with adjusting risk based on a reasonable methodology.
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Old 10-04-2016, 06:29 AM   #9
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If you are saying you have 70% equities, I would think that is a pretty decent helping of risk.

FWIW, we are at 60/40 right now but it will be variable for us. I don't have a problem with adjusting risk based on a reasonable methodology.
No, I am not saying that, as I do not count my cash position as bond/FI.
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Old 10-04-2016, 06:43 AM   #10
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We include the present value of all pensions (3) as part of our FI allocation. This leads to us investing in more equity from our liquid funds. The registered retirement funds are all equity. Each year we rebalance them after our withdrawals.
Do you do this just for your pensions? Or do you also do it for your social security? If you do not do it for your social security, why not?
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Old 10-04-2016, 06:52 AM   #11
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Do you do this just for your pensions? Or do you also do it for your social security? If you do not do it for your social security, why not?
I guess I'm up earlier than Keith this AM, so will note that being Canadian he doesn't receive SS. Sounds like he has included all his pensions including CPP and any unclawed OAS. Agree Americans would include SS as this is a pension.
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Old 10-04-2016, 07:02 AM   #12
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I guess I'm up earlier than Keith this AM, so will note that being Canadian he doesn't receive SS. Sounds like he has included all his pensions including CPP and any unclawed OAS. Agree Americans would include SS as this is a pension.
I understand. Thank you.
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Old 10-04-2016, 07:07 AM   #13
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Our pensions and SS meet 85%+/- of our spending including taxes, but we still maintain a 55/40/5, E/FI/C allocation. SWAN is important to us.
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Old 10-04-2016, 07:08 AM   #14
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Originally Posted by DFW_M5 View Post
DW and myself are not yet collecting SS, nor is DW receiving her small pension for a few more years. I am wondering how many reduced their bond/FI allocations when starting to collect SS and/or pensions or just left it the same. I am currently at about a 30% bond/FI allocation and was thinking to just leave that alone after the other income sources kick in.
A decline in income might inspire me to be more conservative, but I would increase my equity allocation only in response to a change in expectations for future equity returns.
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Old 10-04-2016, 07:23 AM   #15
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Our pensions and SS meet 85%+/- of our spending including taxes, but we still maintain a 55/40/5, E/FI/C allocation. SWAN is important to us.
Should I know what SWAN is an acronym for? I have never heard it used before.
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Old 10-04-2016, 07:28 AM   #16
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Should I know what SWAN is an acronym for? I have never heard it used before.
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Old 10-04-2016, 10:15 AM   #17
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No, I am not saying that, as I do not count my cash position as bond/FI.
Maybe I don't quite get the "bond/FI" shorthand. Do you mean bond's as a percentage of fixed income assets? I would include cash (savings, 3 month Treasuries, checking) as part of the FI as generally cash earns some interest.

Anyway, with my definition of FI, our bonds that are subject to interest rate gyrations make up 70% of our FI. And we take SS but there are no pensions. Our cash is set to minimal needs (currently 3% of FI) and the short term bonds (10% of FI) is where the cash gets produced from. Ibonds are 17% of the FI.

Here is one way I personally look at the intermediate bonds right now. For a fund like VFIDX (Intermediate bonds) the SEC yield is 2.3%. I would guess a rise in rates over the next 12 months of 0.5% (2 Fed quarter point hikes). Then the net nominal return for those 12 months might be zero as the duration is 5.5 years. But at the end of those 12 months the yield will likely be about 2.8%. So if the Fed continues to bump up rates, eventually we will see some real returns. There might be a bit of bond pain going forward but no guarantees on that one as recent years have been a nice ride. I could have said this same thing 12 months ago and been wrong.
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Old 10-04-2016, 12:28 PM   #18
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Maybe I don't quite get the "bond/FI" shorthand. Do you mean bond's as a percentage of fixed income assets? I would include cash (savings, 3 month Treasuries, checking) as part of the FI as generally cash earns some interest.
My bond/fixed income allocation represents 30% of my total portfolio. Equities and cash make up the other 70%.
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Old 10-04-2016, 01:04 PM   #19
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Maybe I don't quite get the "bond/FI" shorthand. ....
While I think the OP used the term synonymously, bonds are a subset of fixed income.
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Old 10-04-2016, 02:40 PM   #20
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While I think the OP used the term synonymously, bonds are a subset of fixed income.
Right, my fixed income portion includes longer term CDs and a stable value fund that I do not consider the same as cash. Of course, others may classify those investments differently, but yes, bonds are a subset of fixed income.
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