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Equity/Fixed Income Allocation Change with Age
Old 08-13-2006, 06:52 PM   #1
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Equity/Fixed Income Allocation Change with Age

How many of you change your equity vs fixed income allocation as you get older? For example the common advice is your percent allocation invested in stock should be no more the 110 minus you age. So if you are age 50 your stock investments would equal 60%. So if I were to follow this rule I would reduce my equity allocation by 1% each year when I rebalence.

Anyone follow this rule by reducing their equity allocation each year?

Is there a way to use FireCalc to determine the affect of reducing the Equtity allocation by 1% each year on overall portfolio survival?
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Re: Equity/Fixed Income Allocation Change with Age
Old 08-13-2006, 08:14 PM   #2
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Re: Equity/Fixed Income Allocation Change with Age

Yep - except 110 minus my age says I should be in VG Target 2005 instead of 2015 - I'm an optimist.

And no - I don't think Firecalc does sliding asset mixtures over time. Maybe SG or someone knows a slick way of modeling the effect by taking snapshots of various mixes with different span times or something.

heh heh heh
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Re: Equity/Fixed Income Allocation Change with Age
Old 08-13-2006, 08:34 PM   #3
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Re: Equity/Fixed Income Allocation Change with Age

I intuitively reduce equity exposure as I age. Most significantly when I entered withdrawal phase rather than accumulation phase.

In my 40's, I held virtually no fixed income, perhaps 10%. That started to change significantly in my mid-50's when I had pretty well decided to retire at about 57. Currently 60% equity but willing to be as high as 70% equity in event of extraordinary blue chip dividend paying equity buying opportunities.

However, I don't see myself going below 35% equity until my 70's. My mother, for example, is currently about 18% equity at 88 years of age....but in a conservative dividend income mutual fund. I will speculate she will retain all or most of that until the day she dies.
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Re: Equity/Fixed Income Allocation Change with Age
Old 08-13-2006, 09:04 PM   #4
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Re: Equity/Fixed Income Allocation Change with Age

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Originally Posted by Hydroman
How many of you change your equity vs fixed income allocation as you get older? For example the common advice is your percent allocation invested in stock should be no more the 110 minus you age. So if you are age 50 your stock investments would equal 60%. So if I were to follow this rule I would reduce my equity allocation by 1% each year when I rebalence.
Anyone follow this rule by reducing their equity allocation each year?
So a retiree should deliberately reduce a portfolio's ability to beat inflation in exchange for lower volatility?

SamBro over at the M* boards is in his 90s with a 100% equity allocation. Ours isn't quite that high, but I see no reason to lower it with age.
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Re: Equity/Fixed Income Allocation Change with Age
Old 08-13-2006, 09:15 PM   #5
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Re: Equity/Fixed Income Allocation Change with Age

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Originally Posted by Nords
So a retiree should deliberately reduce a portfolio's ability to beat inflation in exchange for lower volatility?
Possibly yes. The need to beat inflation becomes less of an issue as you get closer to end of life while at the same time you have less time to recover if the stock market takes a major dump.
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Re: Equity/Fixed Income Allocation Change with Age
Old 08-13-2006, 09:16 PM   #6
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Re: Equity/Fixed Income Allocation Change with Age

Depends on your circumstances. I have a defined benefit COLA'd pension that covers most of our routine expenses in retirement. Although I will be 60 on my next birthday I have kept my equity allocation at 75%. If I were to treat my pension as if it were an income stream from fixed income investments then my equity allocation would be only 38%. On that basis I see no need to reduce my equity allocation as I age.

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Re: Equity/Fixed Income Allocation Change with Age
Old 08-13-2006, 09:19 PM   #7
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Re: Equity/Fixed Income Allocation Change with Age

Mandatory RMD - in 7 yrs - not as bad as it used to be but there none the less. Plus I didn't count my 15% dividend/hobby stocks - they are 'sort of extra'.

Since Uncle Sam wants me to RMD out more than current yield - I'm thinking damp the SD - if I subsequently put some in stocks - or a series of mini Roth conversions - so be it.

Heh heh heh - I'm open to suggestions - I don't want to take it with me - The IRS says I can croak precisely at *age 84.6.
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Re: Equity/Fixed Income Allocation Change with Age
Old 08-13-2006, 10:41 PM   #8
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Re: Equity/Fixed Income Allocation Change with Age

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Originally Posted by unclemick2
Heh heh heh - I'm open to suggestions - I don't want to take it with me - The IRS says I can croak precisely at *age 84.6.
You could put the stocks and other free cash into Wellesley
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Re: Equity/Fixed Income Allocation Change with Age
Old 08-14-2006, 03:08 AM   #9
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Re: Equity/Fixed Income Allocation Change with Age

game changes for most of us as we get closer to retirement or do retire...no longer is the game about growing richer,,the game is about not growing poorer....it takes carful balancing to stay ahead of inflation and not loose to much in market downturns.... i find 50/50 to 60/40 using a 3 bucket system works great for me....
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Re: Equity/Fixed Income Allocation Change with Age
Old 08-14-2006, 07:59 AM   #10
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Re: Equity/Fixed Income Allocation Change with Age

I am still working, so no personal experience yet. However, I like Galeno's approach:

http://early-retirement.org/forums/i...hp?topic=107.0
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Re: Equity/Fixed Income Allocation Change with Age
Old 08-14-2006, 12:06 PM   #11
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Re: Equity/Fixed Income Allocation Change with Age

Quote:
Originally Posted by mathjak107
..it takes carful balancing to stay ahead of inflation and not loose to much in market downturns.... i find 50/50 to 60/40 using a 3 bucket system works great for me....
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?
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Re: Equity/Fixed Income Allocation Change with Age
Old 08-14-2006, 12:22 PM   #12
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Re: Equity/Fixed Income Allocation Change with Age

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Originally Posted by Ed_The_Gypsy
However, I like Galeno's approach:
Exactly-- with a few years' cash on hand to ride out a bear market, no one has to worry about downward volatility. No need for bonds, either.

I don't think anyone's worrying about upward volatility...
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Re: Equity/Fixed Income Allocation Change with Age
Old 08-14-2006, 12:23 PM   #13
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Re: Equity/Fixed Income Allocation Change with Age

for many years i have found useful the following guidline: *
equity % = 1-(age/100)^2
this has provided a % which has been comfortable for me, might not be comfortable for others.
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Re: Equity/Fixed Income Allocation Change with Age
Old 08-14-2006, 12:44 PM   #14
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Re: Equity/Fixed Income Allocation Change with Age

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Originally Posted by d
for many years i have found useful the following guidline: *
equity % = 1-(age/100)^2
this has provided a % which has been comfortable for me, might not be comfortable for others.
You'll have to get back to us the day after your 100th birthday.

What do you do then, start trading options?
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Re: Equity/Fixed Income Allocation Change with Age
Old 08-14-2006, 12:47 PM   #15
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Re: Equity/Fixed Income Allocation Change with Age

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Originally Posted by Nords
You'll have to get back to us the day after your 100th birthday.

What do you do then, start trading options?
Venezuelan beaver-cheese futures. On margin.
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Re: Equity/Fixed Income Allocation Change with Age
Old 08-14-2006, 01:30 PM   #16
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Re: Equity/Fixed Income Allocation Change with Age

Quote:
Originally Posted by Nords
Exactly-- with a few years' cash on hand to ride out a bear market, no one has to worry about downward volatility. No need for bonds, either.

I don't think anyone's worrying about upward volatility...
Unless of course you started drawing from your portfolio in the late 60's Your few years of cash would have probably run out half way through the bear market
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Re: Equity/Fixed Income Allocation Change with Age
Old 08-14-2006, 01:33 PM   #17
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Re: Equity/Fixed Income Allocation Change with Age

Using FireCalc the optimum portfolio survival using a 4% SWR seems to be around 60% in equities if you have a 30-40 year horizon. So this idea of have 75-90% in equities until the day you die does not seem reasonable unless your expenses are being covered by a COLAed pension, which seems to be the case for those advocating a lifetime high percentage equity position with no adjustments for age. Those who are covered by strong COLAed pensions probably can afford to make a Vegas play.
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Re: Equity/Fixed Income Allocation Change with Age
Old 08-14-2006, 01:39 PM   #18
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Re: Equity/Fixed Income Allocation Change with Age

Quote:
Originally Posted by Hydroman
Using FireCalc the optimum portfolio survival using a 4% SWR seems to be around 60% in equities if you have a 30-40 year horizon. So this idea of have 75-90% in equities until the day you die does not seem reasonable unless your expenses are being covered by a COLAed pension, which seems to be the case for those advocating a lifetime high percentage equity position with no adjustments for age. Those who are covered by strong COLAed pensions probably can afford to make a Vegas play.
They could just give away their portfolio and still be covered as to essentials.

Ha
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Re: Equity/Fixed Income Allocation Change with Age
Old 08-14-2006, 02:39 PM   #19
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Re: Equity/Fixed Income Allocation Change with Age

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Originally Posted by brewer12345
Venezuelan beaver-cheese futures.* On margin.
Yeah, I hear Rydex is offering them both inverse and leveraged to 200% with only a 2.4% expense ratio!
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Re: Equity/Fixed Income Allocation Change with Age
Old 08-14-2006, 02:47 PM   #20
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Re: Equity/Fixed Income Allocation Change with Age

Quote:
Originally Posted by Ed_The_Gypsy
I am still working, so no personal experience yet. However, I like Galeno's approach:

http://early-retirement.org/forums/i...hp?topic=107.0
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.
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