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Need Def Comp strategy!
Old 07-27-2005, 10:50 AM   #1
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Need Def Comp strategy!

I am new to the board, but have enjoyed reading the posts for some time. Here is my personal conundrum. Please be patient...

First off, I am (unfortunately!) not really a FIRE person...missed the boat on that. I am 57.5 and 26.5 years through my "career". I expect to retire in 2-3 years with a pension and full soc security if I live that long. My pension will be about $42k until 62 then 36k thereafter, social security will be about $18k at 62 if I decide to take it early...my wife is 3 years behind me, and would get the 50% allocation of my benefit etc.

I currently have about $650k in a 401k and IRA, $270k in Deferred Comp and $230k in a brokerage account. So....I currently have about 1.15 mil in funds to support my retirement. My target is to get to 1.3 at retirement...I am currently saving about $30k/yr. I have about $100k home equity and $300-400k in a collection but those are not part of my planning.

In retirement, I expect to need $72k/yr minimum before tax to maintain my current lifestyle (including my current mortgage payment). My general plan is to use the pension plus deferred comp to achieve the majority of this, augmented by modest withdrawl from my brokerage account between 62-66...then early social security if I have to. I plan to let the 401k and IRA as well as the brokerage account "cook" until I am 70, if possible. I will probably move my 401k $ to my IRA and invest it in a better selection of funds when I am 59.5 fwiw

My question today regards what/how to set up my Deferred Comp account for withdrawl. My target is $300k in this account by retirement. All of the distributions are set for 10 payments after retirement. The payout date is 3-15 of each year.* The calculation is 1/10 of the total value in year one, 1/9 in year two etc.* Although the "investments" are only bookkeeping entries, I can allocate the $ to a group of specified funds, mostly Fidelity. Currently, I have it allocated as follows:

$60k Am Century Equity Inc
$30k Clipper
$30k Fid Contra
$30k Fid Equity Inc
$40k Fid Diversified Intl
$30k Van 500 Idx
$40k Fid Low Priced Stk

I rounded off but there is another 10k scattered beteen those. This allocation has performed ok in the current market and has a beta of about .8.

Now, I know the general weakness of this portfolio for retirment withdrawl is "no bonds" especially in a "can't afford to lose it" forced annual withdrawl. That said, here are the bond choices I am offered:*

Fidelity Govt Income
PIMCO Real Return Bond (Admin)
PIMCO Total Return III
TRP Hi Yield
PIMCO Global Bond Unhdgd (Admin)

There are other choices also. The whole series of Fid Freedom Funds including Freedom Income, and Fid Real Estate Investment Portfolio.

I would be happy with a 6% annual return during the 10 year liquidation of this portfolio.

My inclination at the moment is to grit my teeth and stay in stocks with my current funds until Greenspan bumps the rates again then to begin shifting the portfolio to the following:

50% American Century Equity Income
20% PIMCO Total Return
20% PIMCO Real Return
10% TRP Hi Yield*

But that is a wild ass stab in the twilight if not the dark. FWIW I am suspicious of REITs going forward, and Am Century has 30% convertible bonds.

Help appreciated! thanks

*
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Re: Need Def Comp strategy!
Old 07-27-2005, 06:50 PM   #2
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Re: Need Def Comp strategy!

I like everything in your portfolio except the Clipper.* It has severly underperformed the past 2+ years.* *Within the Morningstar "Large Value" category, it ranks 98th YTD and 99th the past 3 years.* I sold all mine.
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Re: Need Def Comp strategy!
Old 07-27-2005, 06:52 PM   #3
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Re: Need Def Comp strategy!

BTW, those numbers are rankings out of 100.
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Re: Need Def Comp strategy!
Old 07-27-2005, 07:53 PM   #4
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Re: Need Def Comp strategy!

That is a lot information and hard to follow. If you need to take 10% out of your def. comp every year, it seems like you need to be in mostly fixed income and very little stocks. You probably should run some spreadsheets on withdrawals and assume some return rates. My guess is that you should be at 80-90% bonds.
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Re: Need Def Comp strategy!
Old 07-28-2005, 04:53 PM   #5
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Re: Need Def Comp strategy!

I've heard that you're better off owning the bonds outright as opposed to owning bond funds because the funds can go down in value as interest rates rise.* With the bonds you will at least get all your principal back, plus interest.* Any comments from the group?
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Re: Need Def Comp strategy!
Old 07-28-2005, 05:20 PM   #6
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Re: Need Def Comp strategy!

Quote:
Originally Posted by Patrick
I've heard that you're better off owning the bonds outright as opposed to owning bond funds because the funds can go down in value as interest rates rise.* With the bonds you will at least get all your principal back, plus interest.* Any comments from the group?
The only flaw I see is the chance of default, in which case you will not
"get all your principal back".

JG
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