Independent
Thinks s/he gets paid by the post
- Joined
- Oct 28, 2006
- Messages
- 4,629
I would be interested in views on whether or not to consider pensions or SS in AA.
For example, right now I have a pension from a former employer that I can begin to draw anytime between now and 65. The sweet spot under that plan is about age 60 and I am now 55.
To date in AA, I have totally ignored this "asset".
However, I wonder if I should impute a value for this pension and include that as a fixed income in my AA, which would then result in higher equity positions in my investment accounts, but would still overall remain at my 60% equities/40% fixed income targets.
Do any of you consider pensions to be fixed income for AA purposes?
Also, if it is appropriate for private pension, should we apply the same notion to SS?
I would take a step back and ask "Where did I get my AA? and What am I trying to accomplish with my AA?"
To me, asset allocation is a risk/reward question. My SS an pension give me a base income, so in general I could be willing to take more risk with my invested assets because I have less fear of a down market.
But that doesn't provide any particular number. I think the best way of establishing an AA is to look at the full range of possible scenarios with different AAs and decide which of them "feel right" given my personal risk tolerance. When I do that, I certainly want to include the cash payments from my pension an SS since they are part of my total income.
If, instead of looking at scenarios, I decided to just use a rule-of-the-thumb like bond % = age, then I'd use the pv of my pension and my SS as bonds.