Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Re: Equity/Fixed Income Allocation Change with Age
Old 08-14-2006, 02:51 PM   #21
Recycles dryer sheets
 
Join Date: Apr 2006
Posts: 147
Re: Equity/Fixed Income Allocation Change with Age

So what I have gathered so far is that volatility does not matter much to those on a COLAed pension that covers basic living expenses and so that group does not make any adjustments in their equity/FI ratio based on age. Not sure what those without the benefit of a pension are doing. None have reported in.
__________________

__________________
Hydroman 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: Equity/Fixed Income Allocation Change with Age
Old 08-14-2006, 03:06 PM   #22
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
REWahoo's Avatar
 
Join Date: Jun 2002
Location: Texas Hill Country
Posts: 42,117
Re: Equity/Fixed Income Allocation Change with Age

Quote:
Originally Posted by Hydroman
Not sure what those without the benefit of a pension are doing. None have reported in.
Hydro, no pension here. Can't say that I've followed a predetermined equity decrease formula as I've aged, but I did do some dirty market timing in late 1999 and go from roughly a 70/30 mix to something closer to 25/75. Beginning in 2001 I started weighting more toward equities until I was at roughly 50/50 when I retired last year at age 58.

I don't have any immediate plans to tweak my allocation, but that may change when I begin to draw SS...or if there is a significant change in my testosterone level.

__________________

__________________
Numbers is hard

When I hit 70, it hit back

Retired in 2005 at age 58, no pension
REWahoo is offline   Reply With Quote
Re: Equity/Fixed Income Allocation Change with Age
Old 08-14-2006, 03:21 PM   #23
Thinks s/he gets paid by the post
 
Join Date: Aug 2005
Posts: 1,375
Re: Equity/Fixed Income Allocation Change with Age

No pension here, and DH's pension is too small to mention (OK, it's $237...at age 65...with no survivorship...told ya!).

When we worked full time, we had 100% equities in 401ks and rollover IRAs and 25-50% equities in taxable accts. When we semi-retired at age 52, I moved gradually to an overall allocaation of 55% equities. I retired at 55, but DH is still semi-retired at 57. When he fully retires, I plan to gradually go down to 40-50% equities. Gotta sleep at night...and avoid returning to work It depends a little on whether DH works at his current job long enough to qualify for any pension or retiree health insurance--the more pension income, the less need for FI on our part.
__________________
You can't always get what you want, but if you try sometimes, you might find you get what you need.
astromeria is offline   Reply With Quote
Re: Equity/Fixed Income Allocation Change with Age
Old 08-14-2006, 03:37 PM   #24
Moderator Emeritus
Nords's Avatar
 
Join Date: Dec 2002
Location: Oahu
Posts: 26,617
Re: Equity/Fixed Income Allocation Change with Age

Quote:
Originally Posted by Hydroman
So what I have gathered so far is that volatility does not matter much to those on a COLAed pension that covers basic living expenses and so that group does not make any adjustments in their equity/FI ratio based on age. Not sure what those without the benefit of a pension are doing. None have reported in.
I think everyone should stop polling the audience and work out the math for their own situations. *ER is hard enough, but if people can't do math then ER is impossible.

I'm not sure if "those on a COLAed pension that covers basic living expenses" is a jibe or if I should play it as a straight comment, so I'll play it straight.

The pension and the COLA have nothing to do with volatility. *(If you want a pension with a COLA then go buy a Vanguard inflation-indexed annuity. *Compared to what I paid for mine, Vanguard is a bargain.) *The pension and the COLA also have nothing to do with our personal rate of inflation, although the COLA is indexed to CPI-U. *My pension happens to cover most of my living expenses because I can only surf one longboard at a time, and because our teenager is more interested in hanging out with her posse than she is in blowing our budget on woo-hoo vacations. *Four years from now, when she's out the door to college, I suspect the ol' entertainment budget is gonna experience a double-digit percentage spending increase. *I might even "need" a new longboard by then.

But back to portfolio math. *The effect of downward volatility IS reduced by how many years' expenses are in cash-- a known quantity of money available at a known time. *I believe the only way to achieve that "cash" is through a CD or a money market, or maybe even a bond ladder, but not a bond fund. *If you don't need to sell equities for a few years to provide living expenses, then you don't have to care about volatility. *By the time it's necessary to sell equities for cash then hopefully dividends or a market recovery have carried the portfolio over the bear market and will enable it to recover. *We keep two years' expenses in cash, Frank Armstrong recommends as much as seven, and most people could probably sleep comfortably in between those ends of the bell curve. *Note that Bernstein analyzes stock/bond portfolios but doesn't do the same sort of detailed analysis for stock/cash.

My concern with adjusting the equity/FI ratio with age is that only equities have been proven to beat inflation. *Bonds, FI, & beaver cheese provide the diversification that reduces volatility, but they do not beat inflation. *Raising the "FI" portion of the portfolio with age will eventually begin losing to inflation. *I can't predict when that'll happen but I bet that it'll happen at least two decades before both people of a couple have died. *If my portfolio had followed that equity/FI ratio, I wouldn't feel comfortable knowing that my spous's only protection against inflation was to spend the principal in ever-increasing chunks. *Not even Ty Bernicke's cat food can turn that problem around.

If you can sidestep volatility with a cash stash instead of reducing volatility through diversification, then you don't have to care about volatility. *And if you can stay in a high-equity portfolio, then you'll also continue to beat inflation.

But you have to do whatever makes you sleep at night. *If low volatilty and lower returns with a lifetime of inflation corrosion lets you sleep at night, then sweet dreams...
__________________
*
*

The book written on E-R.org, "The Military Guide to Financial Independence and Retirement", on sale now! For more info see "About Me" in my profile.
I don't spend much time here anymore, so please send me a PM. Thanks.
Nords is offline   Reply With Quote
Re: Equity/Fixed Income Allocation Change with Age
Old 08-14-2006, 03:45 PM   #25
Recycles dryer sheets
 
Join Date: Jun 2006
Posts: 473
Re: Equity/Fixed Income Allocation Change with Age

Quote:
Originally Posted by Nords
My concern with adjusting the equity/FI ratio with age is that only equities have been proven to beat inflation. *Bonds, FI, & f*zzy b*nny provide the diversification that reduces volatility, but they do not beat inflation
I assume that excludes TIPS and similar new fangled instruments, right? Or are you concerned that they may tank in a high-inflation high-taxes environment?
__________________
Scrooge is offline   Reply With Quote
Re: Equity/Fixed Income Allocation Change with Age
Old 08-14-2006, 04:22 PM   #26
Thinks s/he gets paid by the post
 
Join Date: Apr 2006
Posts: 1,487
Re: Equity/Fixed Income Allocation Change with Age

Quote:
Venezuelan beaver-cheese futures
... thought b33v3r-ch33s3 was verboten*
Quote:
You'll have to get back to us the day after your 100th birthday
...i'll make a note of that!
__________________
d is offline   Reply With Quote
Re: Equity/Fixed Income Allocation Change with Age
Old 08-14-2006, 05:48 PM   #27
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jul 2005
Posts: 5,413
Re: Equity/Fixed Income Allocation Change with Age

Quote:
Originally Posted by Hydroman
Are you adjusting those 50/50 to 60/40 allocations as you get older? Do you foresee doing so or is the allocation and bucket system going to remain constant tell you depart this earth?
it kind of self adjusts as you refill your shorter term buckets during the good times by selling some of the longer term buckets
__________________
mathjak107 is offline   Reply With Quote
Re: Equity/Fixed Income Allocation Change with Age
Old 08-14-2006, 05:49 PM   #28
Moderator Emeritus
Nords's Avatar
 
Join Date: Dec 2002
Location: Oahu
Posts: 26,617
Re: Equity/Fixed Income Allocation Change with Age

Quote:
Originally Posted by Scrooge
I assume that excludes TIPS and similar new fangled instruments, right? Or are you concerned that they may tank in a high-inflation high-taxes environment?
That's a darn good question. *(I'm sure an answer will be forthcoming shortly!) *I think we decided a while back that a TIPS portfolio has too low a yield to support a 4% SWR, or that the phantom taxes would be a nightmare. *But there's probably not enough data for the quantitative economists to come up with a study to answer that question.

Quote:
Originally Posted by d
... thought b33v3r-ch33s3 was verboten* ...i'll make a note of that!
Well, the hyphenated phrase slipped through a loophole, but I closed it.

Thanks for bringing that up, D! *Anyone else have any other words they'd like to add to the list?
__________________
*
*

The book written on E-R.org, "The Military Guide to Financial Independence and Retirement", on sale now! For more info see "About Me" in my profile.
I don't spend much time here anymore, so please send me a PM. Thanks.
Nords is offline   Reply With Quote
Re: Equity/Fixed Income Allocation Change with Age
Old 08-14-2006, 08:27 PM   #29
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Ed_The_Gypsy's Avatar
 
Join Date: Dec 2004
Location: the City of Subdued Excitement
Posts: 5,293
Re: Equity/Fixed Income Allocation Change with Age

Quote:
Does anyone know what ever happened to this Galeno guy? Searching history it appears he made that one post and then was never heard from again. By the way looking at his FI mix, he list 2 year CDs maturing in 1 year. Never saw one of those before..he he.
I think he got a life. He once posted a lot on other forums.

As I read his method, every year he takes 4% of his equity pot and buys a 2-year CD. This means he has a 'staggered ladder', and every year another 2-year CD matures.

Quote:
Not sure what those without the benefit of a pension are doing. None have reported in.
I will get $400/mo when I turn 65. I will let you know then.

Our partron saint, John Greaney, published a study here:
http://www.retireearlyhomepage.com/restud1.html
that included a small graph of % stock allocation vs. pay-out period for 100% safe withdrawals. The data points were:
10 year pay-out = 49% stocks
20 year pay-out = 66% stocks
30 year pay-out = 74% stocks
40 year pay-out = 78% stocks
etc.
(See article for further details, like what 'stocks'?.)

Some folks have suggested that Social Security could be considered a 'bond'-type of investment. Using this reasoning, our other investment could be heavily weighted towards equities.

Ed
__________________
my bumpersticker:
"I am not in a hurry.
I am retired.
And I don't care how big your truck is."
Ed_The_Gypsy is offline   Reply With Quote
Re: Equity/Fixed Income Allocation Change with Age
Old 08-14-2006, 08:29 PM   #30
Recycles dryer sheets
 
Join Date: Apr 2006
Posts: 147
Re: Equity/Fixed Income Allocation Change with Age

Quote:
Originally Posted by Nords
I think everyone should stop polling the audience and work out the math for their own situations. ER is hard enough, but if people can't do math then ER is impossible.

I'm not sure if "those on a COLAed pension that covers basic living expenses" is a jibe or if I should play it as a straight comment, so I'll play it straight.
No problem doing the math myself. I thought the purpose of this forum was to exchange different viewpoint which we each can then use or reject as an input to our own decision process. If we cant solicit other participants viewpoint or "poll" them as you put it then what the hell is the purpose of this forum? It sure is sucking a lot bandwidth.

Yep that was a straight comment, no "Jibe" intended.
__________________
Hydroman is offline   Reply With Quote
Re: Equity/Fixed Income Allocation Change with Age
Old 08-15-2006, 01:03 PM   #31
Moderator Emeritus
Nords's Avatar
 
Join Date: Dec 2002
Location: Oahu
Posts: 26,617
Re: Equity/Fixed Income Allocation Change with Age

Quote:
Originally Posted by Hydroman
No problem doing the math myself. I thought the purpose of this forum was to exchange different viewpoint which we each can then use or reject as an input to our own decision process. If we cant solicit other participants viewpoint or "poll" them as you put it then what the hell is the purpose of this forum? It sure is sucking a lot bandwidth.
I think the best uses of this forum are (1) finding tools, (2) learning how to use them, and (3) having people nitpick review our decisions for errors & omissions.

My meaning is that too many posters attempt to decide by concensus instead of by learning the tools (helpfully provided here) and then using them to make their own decisions. Math doesn't care what the public-opinion polls are saying about your particular situation. There are many paths to ER and many ways to continue the journey without a tour guide. There's no such thing as the ideal asset allocation-- only the one that works for your particular situation, and changes as your life also changes appropriately.

We've all seen the "Yeah, but" posters who've already made up their minds and are only seeking confirmation bias mutual support for their "decision".

We've also seen the "I forgot to mention" posters who provide just enough details for us to recommend a decision and then bring up one minor piece of new info that completely derails the previous plan.

I think human decision-making heuristics (investor psychology) suffer from too much conventional wisdom and too many rules of thumb. (Witness the many incarnations of the "80% of pre-retirement income" pablum.) Look at how many questions people still come up with after using FIRECalc, admittedly one of ER's most straightforward and unambiguous tools! If ER was easy then everyone would be doing it and financial advisors would be cleaning toilets for food.

Take as many polls and get as many opinions as you want. At some point, though, we all have to close the books on the conventional wisdom, analyze our own situations, create our own portfolios, and keep track of our own issues without trying to match everyone else's models...
__________________
*
*

The book written on E-R.org, "The Military Guide to Financial Independence and Retirement", on sale now! For more info see "About Me" in my profile.
I don't spend much time here anymore, so please send me a PM. Thanks.
Nords is offline   Reply With Quote
Re: Equity/Fixed Income Allocation Change with Age
Old 08-30-2006, 06:25 PM   #32
Recycles dryer sheets
 
Join Date: Aug 2005
Posts: 480
Re: Equity/Fixed Income Allocation Change with Age

Quote:
Originally Posted by Hydroman
So what I have gathered so far is that volatility does not matter much to those on a COLAed pension that covers basic living expenses and so that group does not make any adjustments in their equity/FI ratio based on age. Not sure what those without the benefit of a pension are doing. None have reported in.
No one likes to talk about it, but a situation that produces a severe and prolonged downturn in the stock market could cause some of those pensions to fail or lose the COLA. The only sure thing is that there's no sure thing.
Don't go crazy over this, but do be aware that any pension still has some risk. How much risk will vary a lot from one to another.
__________________
Gearhead Jim is offline   Reply With Quote
Re: Equity/Fixed Income Allocation Change with Age
Old 08-30-2006, 11:05 PM   #33
Thinks s/he gets paid by the post
Spanky's Avatar
 
Join Date: Dec 2004
Location: Minneapolis
Posts: 4,046
Re: Equity/Fixed Income Allocation Change with Age

Quote:
Originally Posted by Gearhead Jim
No one likes to talk about it, but a situation that produces a severe and prolonged downturn in the stock market could cause some of those pensions to fail or lose the COLA. The only sure thing is that there's no sure thing.
Don't go crazy over this, but do be aware that any pension still has some risk. How much risk will vary a lot from one to another.
That may be true for private sector pensions -- not likely for public (or military) pensions. The risk is minimal.
__________________

__________________
May we live in peace and harmony and be free from all human sufferings.
Spanky 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
Allocation again FinallyRetired FIRE and Money 3 04-30-2007 01:21 PM
Asset Allocation: Effective but not feasible? Hillbilly FIRE and Money 20 04-28-2007 11:02 PM
At what age will you take Social Security? retire@40 FIRE and Money 39 10-05-2006 01:58 PM
What is taxable income? mickeyd Other topics 21 01-29-2005 04:02 PM
Multiple Streams of Income hocus Young Dreamers 30 06-08-2004 09:23 PM

 

 
All times are GMT -6. The time now is 03:44 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.