Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Higher fixed income percentage negate need for bonds?
Old 05-11-2019, 03:07 PM   #1
Full time employment: Posting here.
 
Join Date: Aug 2015
Posts: 517
Higher fixed income percentage negate need for bonds?

Just want a quick consensus. If a high percentage of your planned retirement income is pensions and SS, say around 75%, with a 2-3% SWR making up the other 25%, is there really a need to carry anywhere near the 40% bonds the 60/40 crowd preaches? I can live off 50% of my total income, so my thinking was for a higher percentage in equities for the nest egg, with some harvesting during strong returns. I doubt I will ever need to take 4%, but did want to use the money when the urge arises. I was thinking maybe 15% bonds max.
__________________

Perryinva 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!

Old 05-11-2019, 04:18 PM   #2
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Vermont & Sarasota, FL
Posts: 23,316
Yes, I am having the same thoughts... I'll likely just hold off on rebalancing and let the equity % drift up over time. See this thread I started on the subject.

Increase stocks in AA?

Quote:
I'm thinking of migrating from 60/40 to a much higher equity allocation.... minimum of 80/20 but possibly as high as 100/0 once we have started SS. The higher risk return would somewhat mitigate that we don't have LTC insurance and provide a larger inheritance for the kids.

Thoughts? Am I crazy?
Quote:
What I did to think of what my AA target should be was to carve out a SS suppplement fund equal to 3 years of SS since we are 63 and plan to claim at 66. That will be in fixed income.

Then I took our gap of 36% of spending once SS starts and divided it by 4% to get the amount needed to fund the gap and split that result 60/40 to be conservative.

Any remainder was 100% stocks... saying that the first two funds will provide for our spending so any excess can be invested in higher risk/higher reward similar to what my kids would be investing in at their ages.

The overall result would be ~75/25 today and grade to ~80/20 or 85/15 at age 66. Our current target has been 60/40.

Still mulling it over and haven't made a final decision, but I think that our current AA is too conservative based on that logic.
Some would suggest that I should go more conservative given that we have "won the game" but I'm dancing with the girl that brought me to this early retirement dance, and her name is Equities.... hopefully our kids and charities will get more as a result, but if they don't they'll never know that I made an educated bet on their behalf and it didn't work out.
__________________

__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.

Retired Jan 2012 at age 56...60/35/5 AA
pb4uski is offline   Reply With Quote
Old 05-11-2019, 08:44 PM   #3
Recycles dryer sheets
workmyfingerstothebone's Avatar
 
Join Date: Oct 2013
Posts: 79
Interesting you bring this up as I asked similar advice on this a few years ago on this site.

Basically, Pensions, SS and rental income will cover our annual expenses.

So we are invested 86% equities and 14% cash/bonds.

The market will go up and down and we'll live with that.



We expect to spend down my 401K from age 80 to 88.
No timeline on when the wife's will be spent down.


Of course, life will throw a few wrenches into are plans, as it always does.

Deal with those as they arise.
workmyfingerstothebone is offline   Reply With Quote
Old 05-11-2019, 09:05 PM   #4
Full time employment: Posting here.
USGrant1962's Avatar
 
Join Date: Dec 2016
Location: DC area
Posts: 979
At less than 3% WR (not SWR!) your AA can be almost anything. Zero real return (e.g. bank savings accounts) will last 33+ years. 100% equities will most likely be triple what you started with in real dollars, and is extremely unlikely to run out - it never has in U.S. history, and most models show a perpetual withdrawal rate above 3%.

So yes, very high equity allocation is reasonable if most of your spending is covered by other income streams.
__________________
FI and Semi-ER March 24, 2017
Consulting to stay engaged

"All models are wrong, some are useful." - George Box
USGrant1962 is offline   Reply With Quote
Old 05-11-2019, 09:31 PM   #5
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
audreyh1's Avatar
 
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 22,930
Quote:
Originally Posted by Perryinva View Post
Just want a quick consensus. If a high percentage of your planned retirement income is pensions and SS, say around 75%, with a 2-3% SWR making up the other 25%, is there really a need to carry anywhere near the 40% bonds the 60/40 crowd preaches? I can live off 50% of my total income, so my thinking was for a higher percentage in equities for the nest egg, with some harvesting during strong returns. I doubt I will ever need to take 4%, but did want to use the money when the urge arises. I was thinking maybe 15% bonds max.
Is your pension COLA?
__________________
Retired since summer 1999.
audreyh1 is offline   Reply With Quote
Old 05-12-2019, 10:10 AM   #6
Full time employment: Posting here.
 
Join Date: Aug 2015
Posts: 517
Yes, I meant WR, not SWR. One pension is 40% of the 75% & is non COLA. So, 60% of the 75%, or about 50% of total planned income is other pensions & SS, & are COLA and covers all my expenses, taxes, non discretionary and much of my elective expenses. So the other 50% (to start) , ( some non COLA pension and WR, with the WR planned on being COLA, ) is entirely elective travel while young enough (61 now, just retired) expenses, crazy BTD money, late in life whatevers, etc, which I know is a large cushion. I am currently only 30/5/65, for various reasons, but during accumulation I was 75/10/15 and slept fine. There is no planned cost cutting, relocation, change of lifestyle (except up) planned.

Thanks for the other discussion links. I couldn’t find them via search. Helps a lot!!
Perryinva is offline   Reply With Quote
Old 05-12-2019, 10:33 AM   #7
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
RunningBum's Avatar
 
Join Date: Jun 2007
Posts: 8,517
You could do a NPV on your SS+pension and include that as non-equity in your AA, if that helps put it in perspective for you.
RunningBum is offline   Reply With Quote
Old 05-12-2019, 11:04 AM   #8
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Vermont & Sarasota, FL
Posts: 23,316
If you decide to do a value of SS, you can use opensocialsecurity.com to do an expected present value, which combines mortality (the probability of being alive to receive the payments) and the time value of money.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.

Retired Jan 2012 at age 56...60/35/5 AA
pb4uski is offline   Reply With Quote
Old 05-12-2019, 07:01 PM   #9
Thinks s/he gets paid by the post
 
Join Date: Jul 2017
Location: Long Island
Posts: 1,122
I believe I heard a podcast by Wade Pfau stating something to that effect. (In that case the form of the fixed income taking the place of bonds were SPIAs.)
__________________
Use it up, wear it out, make it do or do without.
MarieIG is offline   Reply With Quote
Old 05-12-2019, 07:22 PM   #10
gone traveling
 
Join Date: Mar 2015
Posts: 3,508
Quote:
Originally Posted by Perryinva View Post
Just want a quick consensus. If a high percentage of your planned retirement income is pensions and SS, say around 75%, with a 2-3% SWR making up the other 25%, is there really a need to carry anywhere near the 40% bonds the 60/40 crowd preaches? I can live off 50% of my total income, so my thinking was for a higher percentage in equities for the nest egg, with some harvesting during strong returns. I doubt I will ever need to take 4%, but did want to use the money when the urge arises. I was thinking maybe 15% bonds max.
Why? What is our goal in this - just because you can?
joeea is offline   Reply With Quote
Old 05-12-2019, 08:28 PM   #11
Moderator
Jerry1's Avatar
 
Join Date: Nov 2014
Posts: 2,977
As pb4uski indicated, I think I will increase my percentage of equities as time goes by probably by not rebalancing. Time will tell and circumstances will dictate. As audreyh1 indicates, my pension is not COLA, so inflation is the biggest hole that my portfolio need to cover so that’s what I’ll be keeping an eye on when it comes to how conservative I’ll be in the future. Not my main goal, but if I can leave a good amount to my heirs, that would be nice.
__________________
Every day when I open my eyes now it feels like a Saturday - David Gray
Jerry1 is offline   Reply With Quote
Old 05-12-2019, 09:49 PM   #12
Recycles dryer sheets
jimandthom's Avatar
 
Join Date: Nov 2014
Location: Beautiful UP
Posts: 231
Quote:
Originally Posted by pb4uski View Post
Yes, I am having the same thoughts... I'll likely just hold off on rebalancing and let the equity % drift up over time. See this thread I started on the subject.

Increase stocks in AA?





Some would suggest that I should go more conservative given that we have "won the game" but I'm dancing with the girl that brought me to this early retirement dance, and her name is Equities.... hopefully our kids and charities will get more as a result, but if they don't they'll never know that I made an educated bet on their behalf and it didn't work out.
Thanks for the highlighted.

The little downdraft in the 4th quarter--didn't cause any butterflies. Because of that my thoughts have been to do as you have considered.

With 1 Cola'd pension, 1 SS and 1 non-Cola'd small pension that's about 85% of our somewhat inflated desired income.
jimandthom is offline   Reply With Quote
Old 05-13-2019, 03:24 AM   #13
Thinks s/he gets paid by the post
 
Join Date: Oct 2013
Posts: 1,182
Quote:
Originally Posted by pb4uski View Post
I'm dancing with the girl that brought me to this early retirement dance, and her name is Equities.
Is that girl Equities still dancing at the club with her friends Mystique, Aura and Destiny?
__________________
ďEvery tick-tock is a second of life that passes by, that flees never to repeat itself. And it holds such intensity, such interest that the only problem is knowing how to live. May each person solve it as best they can.Ē

Frida Kahlo
candrew is offline   Reply With Quote
Old 05-13-2019, 04:39 AM   #14
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
audreyh1's Avatar
 
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 22,930
Quote:
Originally Posted by candrew View Post
Is that girl Equities still dancing at the club with her friends Mystique, Aura and Destiny?
Yeah - Iím all for reasonable equity exposure for long term inflation protection and some growth, but Iím under no illusions about the fidelity of equities to keep partying like itís 1999.
__________________
Retired since summer 1999.
audreyh1 is offline   Reply With Quote
Old 05-13-2019, 06:16 AM   #15
Thinks s/he gets paid by the post
 
Join Date: Dec 2015
Posts: 2,012
the way I approached this question was to imagine the worst case scenario that I could find in the last 100 years of equities performance, and see what equities % in my AA would still let me survive that ordeal without diminishing my lifestyle.

To me, the situation that scared me the most was the bear market from about 1999- 2009 or so, where the S&P dropped, and the didn't return to pre-bear levels for over 10 years. (There were dividends to be had, I know)...

For me, that equities AA is around 25-30%. That's my "sleep at night" number, right now. If there is a large correction, I will probably increase it, but for now, that's where I'm at. I'm not suggesting that's the number that would be right for anyone else, just explaining how I got to my AA.
HadEnuff is offline   Reply With Quote
Old 05-13-2019, 06:24 AM   #16
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: 45,585
Quote:
Originally Posted by HadEnuff View Post
the way I approached this question was to imagine the worst case scenario that I could find in the last 100 years of equities performance, and see what equities % in my AA would still let me survive that ordeal without diminishing my lifestyle.
FIREcalc...
__________________
Numbers is hard

Charter resident of the lumpen slums of cyberspace

Retired in 2005 at age 58, no pension
REWahoo is offline   Reply With Quote
Old 05-13-2019, 08:00 AM   #17
Full time employment: Posting here.
 
Join Date: Aug 2015
Posts: 517
Quote:
Originally Posted by joeea View Post
Why? What is our goal in this - just because you can?
You know, thatís a good question. Greed comes to mind. Maximum inflation protection, I suppose. Perhaps that is the better question. Seems Iím still in the accumulation mindset. Some more thought is warranted.
Perryinva is offline   Reply With Quote
Old 05-13-2019, 08:17 AM   #18
Thinks s/he gets paid by the post
jollystomper's Avatar
 
Join Date: Apr 2012
Posts: 2,131
Quote:
Originally Posted by Perryinva View Post
Just want a quick consensus. If a high percentage of your planned retirement income is pensions and SS, say around 75%, with a 2-3% SWR making up the other 25%, is there really a need to carry anywhere near the 40% bonds the 60/40 crowd preaches? I can live off 50% of my total income, so my thinking was for a higher percentage in equities for the nest egg, with some harvesting during strong returns. I doubt I will ever need to take 4%, but did want to use the money when the urge arises. I was thinking maybe 15% bonds max.
It really all comes down to your "sleep well at night regardless of the market" index.

With a pension my current target SWR is just about 2% (in reality it has been less in these first 10 months of retirement). When SS hits (as early as age 64 for me) All of our normal expenses will be covered by that and the pension. But I do not feel the need to accumulate much more, so I plan to just let my current AA "drift" based on the market, around 38-43% stocks. Sure I could take a lot more risk, but I am not driven to accumulate much more.
__________________
FIREd date: June 26, 2018 - wwwwwwhat a rush!
jollystomper is offline   Reply With Quote
Old 05-13-2019, 11:19 AM   #19
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Vermont & Sarasota, FL
Posts: 23,316
Quote:
Originally Posted by joeea View Post
Why? What is our goal in this - just because you can?
For me the goal would be to maximize the inheritance to our kids and charities.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.

Retired Jan 2012 at age 56...60/35/5 AA
pb4uski is offline   Reply With Quote
Old 05-13-2019, 11:30 AM   #20
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
RunningBum's Avatar
 
Join Date: Jun 2007
Posts: 8,517
Quote:
Originally Posted by pb4uski View Post
For me the goal would be to maximize the inheritance to our kids and charities.
Me too, with the additional goal to be more bullet proof against the unknown large expense, and to have more luxuries later in life if I want them, like living in a nicer retirement community for example.
__________________

RunningBum 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
Advisor just recommended higher percentage international equity stephenson Stock Picking and Market Strategy 29 05-01-2018 02:58 PM
Retirement income as a percentage of NET working income? Perryinva Life after FIRE 67 07-25-2017 07:31 AM
Achieving a Higher Safe Withdrawal Rate with the Target Percentage Adjustment walkinwood FIRE and Money 17 01-05-2013 04:16 PM
Building Higher Yield Fixed Income Portfolio DFW_M5 FIRE and Money 1 11-08-2003 01:01 PM

» Quick Links

 
All times are GMT -6. The time now is 05:35 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2019, vBulletin Solutions, Inc.
×