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Good problem, but how would you setup AA
Old 10-12-2018, 03:17 PM   #1
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Good problem, but how would you setup AA

Here is the situation(both retired, no kids)

Expenses 83K/yr; Expenses include all, but travel

Current retirement income 103K/COLA adjusted each year

Additional income: SS/both and two additional pensions totaling 60k/yr within 5 yrs

Current AA is 85%Eq/13%FI/2%Cash


Is our AA right for us, ages myself 60, DW 57 since don't have a need for it currently, that may change later if we have an unexpected life event.
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Old 10-12-2018, 03:31 PM   #2
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Is the 103k in income coming from the portfolio or is that pension as well?
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Old 10-12-2018, 03:50 PM   #3
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Well, we are in a similar situation in that we probably have more money than we will ever need. So in that situation, the question becomes: What is the purpose or eventual use of the money? Kids' trusts or bequests? Gifts before you die? Grandchildren's education? Charitable gifts from the estate or before your demise?

Equities IMO should have at least a 5 year time horizon, ideally longer. With a long time horizon you may be looking at some volatility enroute but at the end odds are you will be much further ahead than you will be with fixed income or cash. So the risk with the long term stuff is that you will be too conservative in your investments and not have gained what you could. The risk is not the volatility.

Assuming that your COLA-ed $103K income is pensions not portfolio income, with that and the other income sources you are looking at a portfolio that will continue to increase until you both die. Is that necessary? What about having some fun with charitable giving along the way? Or helping out relatives and friends in an unobtrusive way. We have some friends who are not in great financial shape and who just had a 50th anniversary party. We left an unmarked envelope with fifty, $50 bills on the gift table. $2500. It would have been fun to be a mouse in the corner when they opened that one! But we enjoy just thinking about it.

The right answer for your AA depends on your goals, not on what SGOTI thinks.
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Old 10-12-2018, 04:12 PM   #4
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Iím always independent and donít follow orthodox approaches. I donít have any asset allocation scheme. I am living on the interest and dividends on a variety of investment vehicles. Not too much into bonds right now, even with a rising interest rate. Itís still too low.

So I donít follow any plan except to make educated decisions. I seem to always have enough money to pay for stuff. I need to have the exterior trim painted on my house, unexpectedly. $5K or so.

So do people use asset allocation because someone recommended it, or it lets you sleep at night, or something else? I am very confident about my approach FOR ME but I donít recommend it unless you have a lot of background in finance and arenít risk-averse.
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Old 10-12-2018, 04:12 PM   #5
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103k is pensions.
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Old 10-12-2018, 04:30 PM   #6
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I donít have any asset allocation scheme. I seem to always have enough money to pay for stuff.
That's all great, until we encounter a black swan event (super high inflation, WW III, home country economy collapse (like Greece), etc. Following AA, with diversification between US and international investments, is designed to allow you to diversify risk, and enhance the probability that you won't end up bankrupt.
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Old 10-12-2018, 04:48 PM   #7
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That's all great, until we encounter a black swan event (super high inflation, WW III, home country economy collapse (like Greece), etc. Following AA, with diversification between US and international investments, is designed to allow you to diversify risk, and enhance the probability that you won't end up bankrupt.
Iím actually doing all that, just not tied to a strict %. I donít recommend it for most. Iím very diversified, have some international exposure and some bond funds as well as many stocks and some REITs.
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Old 10-12-2018, 05:03 PM   #8
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Iím actually doing all that, just not tied to a strict %. I donít recommend it for most. Iím very diversified, have some international exposure and some bond funds as well as many stocks and some REITs.
Great! Sounds like me up until this month. I actually decided upon an AA, and calculated deltas (differences, in both percents and dollars), and have been trying to rebalance to my goal AA. This week has made the task difficult, although I did move a bunch from money market into equities (buying some of the dip)!
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Old 10-12-2018, 05:10 PM   #9
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I would suggest that since you have expense needs covered with the pension, then you are back to advice from OldShooter, that is it depends on what you intend for the stash and the timeframe. My thinking is that money that isn’t needed in next 5 to 10 years or longer should have a greater allocation to equities, like you show. The other thing to consider is how great is the need for growth. DW and I are a bit older than you (62 and 65) and we have expenses covered with SS and pensions, so we have 70% in equities today. Yes, SS will kick in 8 years from now, so will draw a small amount from our pile for a while.

I would layout the intended use of your investment pile and plan around that.

One thing to consider, we have 3 pension checks and will have 2 SS checks, but will loose some income when one of us dies. If you don’t have a survivor benefit on pensions, consider how much of your pile the remaining spouse will need as a replacement. Just one item we have planned for.
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Old 10-12-2018, 05:16 PM   #10
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Agree with OldShooter, it depends on what you see the money going to eventually, but it doesn't sound like anything near term, which implies mostly equities to me.

You also don't say how much we're talking about. If it's 100K, that could get eaten up pretty quickly by unanticipated expenses, and I'd lean more towards cash. If it's $1M or more, you're probably a whole lot safer.
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Old 10-12-2018, 05:50 PM   #11
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Thank you for the feedback.
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Old 10-12-2018, 05:53 PM   #12
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Originally Posted by DFA View Post
Here is the situation(both retired, no kids)

Expenses 83K/yr; Expenses include all, but travel

Current retirement income 103K/COLA adjusted each year

Additional income: SS/both and two additional pensions totaling 60k/yr within 5 yrs

Current AA is 85%Eq/13%FI/2%Cash


Is our AA right for us, ages myself 60, DW 57 since don't have a need for it currently, that may change later if we have an unexpected life event.
you note expenses, a pension and SS. Are there assets you want to invest in this allocation? Or are the assets the $ that you don't spend from your pension/SS?

If an existing investment , how is it allocated now?
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Old 10-12-2018, 06:20 PM   #13
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you note expenses, a pension and SS. Are there assets you want to invest in this allocation? Or are the assets the $ that you don't spend from your pension/SS?

If an existing investment , how is it allocated now?

Current AA is 85%Eq/13%FI/2%Cash; I really want to know if we are to heavy in Equites and Fixed Income. We really don't need the growth since all of our expenses are covered by pensions.
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Old 10-12-2018, 07:00 PM   #14
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Only you know that. How do you react to a big drop. I thought I was a long term holder until I’m not.
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Old 10-12-2018, 08:06 PM   #15
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I am younger than you (56) and have my expenses covered with interest and dividends on an AA of 50% equity, 45% CDs Etc and 5% cash. I feel under weighted in securities but I also sleep well at night knowing I have a large enough nest egg to support myself with a pretty conservative mix.
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Old 10-13-2018, 06:25 AM   #16
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Originally Posted by DeborahB View Post
Iím always independent and donít follow orthodox approaches. I donít have any asset allocation scheme. I am living on the interest and dividends on a variety of investment vehicles. Not too much into bonds right now, even with a rising interest rate. Itís still too low.



So I donít follow any plan except to make educated decisions. I seem to always have enough money to pay for stuff. I need to have the exterior trim painted on my house, unexpectedly. $5K or so.



So do people use asset allocation because someone recommended it, or it lets you sleep at night, or something else? I am very confident about my approach FOR ME but I donít recommend it unless you have a lot of background in finance and arenít risk-averse.

I'm curious. What is your withdrawal rate (SWR)?


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Old 10-13-2018, 06:51 AM   #17
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I'm curious. What is your withdrawal rate (SWR)?

Are you asking for Safe Withdraw Rate or Withdraw Rate?
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Old 10-13-2018, 06:57 AM   #18
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Well I call my withdrawal rate, my SWR. In this case I'm asking Deborah B, what her withdrawal rate is, if she is willing to share it.
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Old 10-13-2018, 06:59 AM   #19
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Originally Posted by DFA View Post
Here is the situation(both retired, no kids)

Expenses 83K/yr; Expenses include all, but travel

Current retirement income 103K/COLA adjusted each year

Additional income: SS/both and two additional pensions totaling 60k/yr within 5 yrs

Current AA is 85%Eq/13%FI/2%Cash


Is our AA right for us, ages myself 60, DW 57 since don't have a need for it currently, that may change later if we have an unexpected life event.
You are in an enviable position between your COLA'd pension and upcoming SS. So the only thing you seem to be concerned about is whether you can cover an unexpected life event, the magnitude of which is of course unknowable. But at least some of them can be mitigated.

Regarding expensive life events, presumably you have some form of health insurance that will carry you until Medicare? The only other thing I can think of is how you might be situated for the possible future need for Long Term Care, which is a life event that could easily be quite large in magnitude. LTC Insurance is one way to mitigate it.

If all are already considered, then it boils down to your "Need, Willingness, and Ability" to accept risk. We don't know the size of your savings, but you don't appear to have much of need to take risk, yet you appear to have the ability. That leaves you with "Willingness", meaning the question is how would you react to a large loss in your portfolio?

An excellent discussion of this topic is available here: https://www.bogleheads.org/wiki/Risk_tolerance

Best of luck!
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Old 10-13-2018, 07:25 AM   #20
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Well I call my withdrawal rate, my SWR. In this case I'm asking Deborah B, what her withdrawal rate is, if she is willing to share it.
I really donít have a SWR. I withdraw cash when I need it... I have a lot of investments that together with SS kick off enough dividends and interest to easily cover my expenses. I stopped re-investing dividends a couple of years ago so some cash would accumulate. I try to move cash from non-qualified accounts into Ally. There always is enough money. As I said, itís a very unorthodox approach that I donít recommend to everyone. My assets grow each year.

I donít budget and I donít take a set amount per month or year out to spend. I am single with no kids. And I have a large amount in investments, not counting my house. If I want something, I buy it but my wants arenít that much. I lived way below my means for many years to get to this point.

Just did a little math. I spend a little over 4% of my assets, rough estimate.
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