How much passive/fixed income would you need to get out of equities?

[ShokWaveRider]

I got to thinking (Yes, that is what the noise was), what would make one comfortable enough so as not to take any additional investment risk. This is not intended as an investment vs inflation discussion so please try to refrain from bringing it up and making it one.

We (DW & I) as I assume most of us here on ER.ORG, IMHO have a good (to very good) middle class life, we own our own home and live in a nice resort area, there is lots to do, even if we do not always take part in the activities as we enjoy staying at home and enjoying each other's company.

We do not spend our days chasing the almighty $$, and are pretty much fixed income investors and have been for the last 25 years. Most of you know that about us anyway.

Our Mandatory expenses are about $45k a year and our returns for various investments are approximately about $95k of which 40% is Taxable. We do currently shelter/defer some of the taxable for ACA purposes. We do not budget for discretional spending items, we just fund them as needed/wanted.

This does NOT include any SS or pension income that we are eligible for from 3 different sources (Estimated at about $60k when we start taking them). We have chosen NOT to take any at all until DW is eligible for Medicare or something changes in the USA Healthcare system (Unlikely). Or, we move to a country that has proper sensible HC or universal healthcare that truly benefits it's citizens and not the providers or insurance companies (That is a debate for another time though).

In our case this is more than enough to last us the next 25 - 30 years (I will not last that long for sure), so we think we can "Still" go without traditional stock market investing.

I would be grateful for your thoughts and wonder if anyone else here is like us.

We do not have any heirs and when we die ALL our assets will be sold and split evenly between, St. Judes & Shriners hospitals for sick kids, Guide Dogs for the Blind and Guide dogs of America.

 

[OldShooter]

IMO the answer depends on the purpose of the equity portion of your AA. In our case the fixed side of our AA is almost certainly more money than we will ever need. The equity side will primarily end up in trusts for our two boys, so it is long term money and thus best to be in equities.

In your case, with no heirs, maybe you do not care about maximizing the size of your charitable donations. But, hey, if you are really well covered why not give away some of that loot while you can enjoy the process?

 

[Sunset]

I don't think I would ever go below 30% equities as I think a mix of investments protects against various events better.

My nature is to maximize return, so going all fixed income would make me fearful that 20 years down the road I ended up short changed, when I had unexpected huge expenses.

Currently I'm about 90+% equities, and I'm slowly changing to more fixed income to get to a more reasonable balance.

 

[wmc1000]

I don't think I would ever go below 30% equities as I think a mix of investments protects against various events better.

My nature is to maximize return, so going all fixed income would make me fearful that 20 years down the road I ended up short changed, when I had unexpected huge expenses.

Currently we're about 90+% equities, and I'm slowly changing to more fixed income to get to a more reasonable balance.

+1 - we are currently above 90% equities but fortunately don't have a need for WD unless SS gets a haircut in 2034 or 1 of us needs assistance/LTC.

 

[audreyh1]

I guess I have never been able to imagine reducing my equities to zero.

33X expenses (or maybe it's 30X) is usually the recommendation if you want to go 100% fixed income, to support a 4% withdrawal rate I think?

I don't see dropping our equities below 30% even when we're a couple of decades older - or maybe minimum of 20% if we reach 80. I guess I'm just used to having some equity exposure. And we have a lot of fixed income already to tie us through short-term bumps in the road as well as provide ballast to the volatility of equities. So I'm not hankering for more fixed income.

 

[gwraigty]

We do not spend our days chasing the almighty $$, and are pretty much fixed income investors and have been for the last 25 years. Most of you know that about us anyway.

I've been investing in fixed income for the last 15-20 years, contrary to my original investing theories, which always seemed to work the opposite of what I'd intended. Because of that, we're now in a position where my husband could retire early if he wanted to, or if he lost his job, we wouldn't have to worry about finances. It's a great place to be.

I see no reason for you to change your investing strategy to anything that doesn't make you comfortable. Forget the articles, the talking heads in media, etc. If it ain't broke, don't fix it.

 

[ShokWaveRider]

I've been investing in fixed income for the last 15-20 years, contrary to my original investing theories, which always seemed to work the opposite of what I'd intended. Because of that, we're now in a position where my husband could retire early if he wanted to, or if he lost his job, we wouldn't have to worry about finances. It's a great place to be.

I see no reason for you to change your investing strategy to anything that doesn't make you comfortable. Forget the articles, the talking heads in media, etc. If it ain't broke, don't fix it.

Thanks, we live by the mantra... "If you have won the game why keep playing?" Glad you agree and all the best.

 

[Spock]

I think I'm already there at 2.4% of assets in stocks and almost everything else in Stable Value, CDs, and MMF. I've been told "thats just silly".
The phrase "When you've won the game, quit playing" combined with a deep cynicism over rigged casino markets has kinda kept me frozen. I worked too long too hard to screw it up now. A lifetime of frugal LBYM doesn't thaw quickly.

I'm sniffing around dipping my toe back into stocks again (just today). But at 58 the current income across all accounts minus burn rate has kept the total net worth flat to increasing for the 3 years since unemployment. So instead of a stock ETF I was watching I bought my first short term tbill outside of a fund to see what that is like.

This thread sent me off on yet another spreadsheet exercise/review. With no heirs to consider, I think I'm going to stay put and focus on tax management before RMDs start.

 

[FIREd_2015]

I've been out of equities for several years now but I don't consider myself to be completely out of the market since my RE holdings (primary residence and rental) account for more than half of my net worth. My passive income from CDs, Treasuries and rental income also exceed my annual expenses so I don't see the need to be in equities. For me the risk vs reward trade off doesn't make sense especially at current market levels. I might get back into equities at some point in time if I think the risk reward is more favorable.

 

[COcheesehead]

Firecalc tells with 100% success that I can have 0% in equities.
I still keep around 30-35% just to hedge, but it really boils down to controlling expenses and managing your personal rate of inflation. If a 3%+ rate of return gets you to where you want to be, I can get you 3%+ all day long in fixed income.

 

[CaliKid]

I have fairly extensive assets and don't think I would ever go to zero equities. I have gone to less equities. I have some money with a financial advisor and I have told him he won't impress me by telling me how my returns are beating the market. He'll impress me by not being way down if we have another 2008. So still have equities but have less and have hedges in place also.

 

[pb4uski]

I think I'm already there at 2.4% of assets in stocks and almost everything else in Stable Value, CDs, and MMF. I've been told "thats just silly".
The phrase "When you've won the game, quit playing" combined with a deep cynicism over rigged casino markets has kinda kept me frozen. I worked too long too hard to screw it up now. A lifetime of frugal LBYM doesn't thaw quickly.

I'm sniffing around dipping my toe back into stocks again (just today). But at 58 the current income across all accounts minus burn rate has kept the total net worth flat to increasing for the 3 years since unemployment. So instead of a stock ETF I was watching I bought my first short term tbill outside of a fund to see what that is like.

This thread sent me off on yet another spreadsheet exercise/review. With no heirs to consider, I think I'm going to stay put and focus on tax management before RMDs start.

You might try playing around with Portfolio Visualizer and some of their portfolios to compare strategies.

 

[ERD50]

I'd call it as a moot point. If you have enough that you can support yourself on fixed income alone, even through a decade of high inflation, then you also have enough to weather the volatility of some market exposure.

I can't see going below 40/60. The FIRECalc success rates drop pretty quickly below 40%, that's not a good sign.

And don't forget, those "scary thoughts" of the market tanking 50% are an illusion. The market has never just dropped 50% w/o a big run-up first. So a 50% 'drop' is from a level you never would have achieved w/o stocks in the first place. So it isn't apples-apples to fixed income.

-ERD50

 

[Chuckanut]

In regards to investing I believe that diversity is the #1 thing ordinary folks like me can do to protect themselves against unforseen events. It's those exogenous events that come out of nowhere that concern me.

I remember the double digit inflation of the 1970's to the early 1980's. Ouch! A decade or so of that can shrink even a huge pile of money if there is nothing to protect against inflation. Starting with 1970 we had inflation rates of:

Start: 1970
5.6%
3.3
3.4
8.7
12.3
6.9
4.9
6.7
9.0
13.3
12.5
8.9
End: 1982

A $1 purchase in 1970 would take $2.49 in 1982. Cumulative rate of inflation was about 149%. Not so good

I will keep some money in business assets. It just seems prudent to me.

 

[Chuckanut]

You might try playing around with Portfolio Visualizer and some of their portfolios to compare strategies.

+1

A very good idea.

 

[dm]

In my IRA and after tax accounts I’m at 55/45, but most of my income is from a pension and soon to be SS. This is just over 6 figures and we have been living just fine on this for the last 12 years. Actually our net worth has grown quite a bit over that time.

Last year we bought new cars and I took out $10,000 from the IRA for the first time.

But am I really at 55/45? Since most of our wealth is actually the pension income. Sometimes I think I should just go all in with the IRA With 100% stocks, then other times I think I should just go fixed income and not worry about it.

I’m 62, wife is 58, so hopefully we will be around for a few more years.

 

[jebmke]

In my IRA and after tax accounts I’m at 55/45, but most of my income is from a pension and soon to be SS. This is just over 6 figures and we have been living just fine on this for the last 12 years. Actually our net worth has grown quite a bit over that time.

Last year we bought new cars and I took out $10,000 from the IRA for the first time.

But am I really at 55/45? Since most of our wealth is actually the pension income. Sometimes I think I should just go all in with the IRA With 100% stocks, then other times I think I should just go fixed income and not worry about it.

I’m 62, wife is 58, so hopefully we will be around for a few more years.

Sounds like you are at about the right allocation then.

 

[HI Bill]

his is not intended as an investment vs inflation discussion so please try to refrain from bringing it up and making it one.

The answer for me is a simple equation: Inflation + 4%. If it weren't for inflation, I'd just leave most of my assets in a MM account. Of course, this question also ties to longevity and SORR.

 

[CardsFan]

We are currently at an AA of 52/48, and I plan to stay there (+/-5%) for the near future. We are 63/64, and when SS kicks in (probably at FRA), our expected WR will be less than 2% (maybe closer to 1%).

At that time I may consider an upward glide path, as the bulk of our assets will be left to our DS, and he is only 37.

That all said, I have no doubt we COULD go to zero equities, but why? In 3 years dividends and interest will provide more than we need.

We don't NEED to provide a legacy, since DS is a saver, but if we can, why not?

But, I guess to get to the original question, if we could get a very safe 6% return, with that number moving up if high inflation occurs (ie. CD's in the late 70's and early eighties), then I would consider it.

 

[gwraigty]

Thanks, we live by the mantra... "If you have won the game why keep playing?" Glad you agree and all the best.

You're quite welcome.

 

[Earl E Retyre]

I am currently at 24% equities. My fixed income combined with net rental income is enough to pay for all my expenses. Equities provides me with net worth growth in any year that the market is positive and/or provides extra blow-that-dough money. And, this does not include future SS and pension but that is still a long ways out. Granted, I would most likely be better off in the long run if I invested more in equities, but as you put it, if you've won the game, why take the risk? I do not think I would ever go down to 0% equities however so that I always have some diversification and hedge against inflation.

 

[daylatedollarshort]

When we decided to retire TIPS were at 2% yield + inflation. We added up pensions, Social Security + 2% portfolio return, and decided that was good enough, and our principal would even stay the same in inflation adjusted dollars. TIPS yields trended lower after that but our retirement expenses ended up being lower than planned, and we have some thirty years at the 2% or more, so it has worked out really well for us.

We mainly use the matching strategies style of investing advocated by Bobcat2 over at Bogleheads, so not too much in stocks and inflation accounted for.

 

[calmloki]

Sold a place 13 years ago and carried the contract at 7%. Sold another in 2012 and 2016 on the same terms. It felt low for some years, but felt good for some other years, so all in all I was good with 7%. If we were getting 7% on everything I'd be real happy collecting that interest and paying those regular income taxes.

 

[youbet]

This is not intended as an investment vs inflation discussion so please try to refrain from bringing it up and making it one.

This qualifier makes any discussion of AA difficult since anticipated inflation is an important factor in AA decisions. No doubt, I'd carry a smaller percentage of equity investments if I could count on inflation being zero or very low forever. But, as it is, I carry approximately a 50 - 50 AA most of the time which I feel is most appropriate for my personal situation which varies substantially from yours.

Also, it's easy to construct a portfolio of fixed investments which is NOT what I'd call low risk. I assume you're primarily in shorter term insured CD's and various treasury obligations free from default and interest rate risk?

 

[daylatedollarshort]

I don't see a lot published on CDs and inflation but I ran the FIDO calculator using 100% short term and our plan works out well with that as a target asset mix. They don't have a TIPS option but I put that in my spreadsheet and the results are even better.