Retirement Portfolio Goals Poll

[Meadbh]

Here is the poll Midpack was considering, with my edits.

The desired balance between capital preservation, income and growth is key to finding the right asset allocation.

 

[Animorph]

OK, I want an "Other" choice now!

I'm retired, DW works for now but we supplement her income with our portfolio. I don't invest for dividends and interest, nor do they provide enough income for us, I mostly sell equity shares to meet my income needs (just last week even!). At the same time, our portfolio value is still growing well above inflation now and should continue to grow above inflation after DW retires. Not preservation in the sense of spending only dividends and interest, nor in terms of a constant portfolio in dollars. But I'm definitely not spending it down.

Number 1 is the best fit, but not a good one.

 

[FIREd]

The best answer for me is #2. Preservation of capital is crucial during the first few years (not sure yet whether it's going to be by living on a fixed % of portfolio, or having a significant cash bucket, or pulling a Norwegian Widow move and using dividend income as a backstop) with more focus on income starting in our 60s (no need to leave a legacy).

 

[W2R]

I voted for income generation and hoping for some capital appreciation.

I don't plan to spend more than my dividends, so hopefully there will be some capital appreciation. However, suppose that some day I become a Big Spender and want to spend more than my dividends, up to my chosen SWR? That would be perfectly OK as long as that is what I want to do. Right now, I just think "Why?"

 

[Amethyst]

I'm working, husband is retired, I expect a (somewhat) COLA'd* pension. Our pensions will be enough to cover our expenses, if life goes on as it has; but we know perfectly well that it won't. Therefore, I want enough extra to cover LTC for husband and eventually, for me. Plus hire other people to do stuff that we now do for ourselves. So, I need an option for "Has pension; also needs to preserve capital for first part of retirement; needs to generate income/have enough capital to spend down for LTC part of retirement."
A.
*As I've posted many times before, the COLA is pegged to the CPI, a woefully inadequate inflation measure. Still, it's better than no COLA at all.

 

[DeborahB]

OK, I want an "Other" choice now!

I went with this one:

Income generation is my primary goal. I am also hoping for some capital appreciation for the first X years. (This implies that expected portfolio yield exceeds income requirements early in retirement; this portfolio is probably large.)

My portfolio yield is mixed - the "yield" will hopefully be sufficient. I have some investments in dividend-yielding stocks and bonds, some in stocks or mutual funds with capital appreciation possibilities. It's not a huge amount of money which is why I'm having trouble with "this portfolio is probably large".

I have no pension to carry me through - careful investing and virtually no debt is my normal lifestyle.

 

[audreyh1]

OTHER! - Total Return approach with 3.5% fixed SWR

Well - none of these meets the classic Trinity Study type SWR. That does not worry about "Capital Preservation" nor "Income Generation" (if by income generation you mean interest and dividend income).

By definition, the Trinity Study model does NOT seek to preserve capital as you can go to 0, nor does it rely on interest or dividend income by themselves.

Those of us operating on the Trinity Study model - whether using the initial SWR inflation adjusted OR the fixed SWR % recalculated each year - do not fit in the above poll.

Audrey

 

[Nords]

I'm working, husband is retired, I expect a (somewhat) COLA'd* pension. Our pensions will be enough to cover our expenses, if life goes on as it has; but we know perfectly well that it won't. Therefore, I want enough extra to cover LTC for husband and eventually, for me. Plus hire other people to do stuff that we now do for ourselves. So, I need an option for "Has pension; also needs to preserve capital for first part of retirement; needs to generate income/have enough capital to spend down for LTC part of retirement."
A.
*As I've posted many times before, the COLA is pegged to the CPI, a woefully inadequate inflation measure. Still, it's better than no COLA at all.

Or, in other words, "You want to work how long?"

 

[Meadbh]

I didn't include "other" because of the original discussion. If one of the Mods would like to do so now, please go ahead. It's not like we're doing a scientific study or anything!

With 30 votes, nobody has voted for income all the way.

 

[audreyh1]

I'm not really asking for "OTHER" - I'm pointing out that the Trinity Study type SWR model is missing from the poll, and IMO that is a pretty huge omission.

Audrey

 

[Meadbh]

I am not familiar with the Trinity SWR model. But I'm happy to learn if you would like to explain it, Audrey.

 

[audreyh1]

When on this forum we talk about SWR (Safe Withdrawal Rates), and FIRECalc and portfolio survival based on historical data - that is all based on the Trinity Study model and variations to it.

Audrey

 

[Meadbh]

Thanks Audrey. I still don't understand how the concept of SWR is in conflict with the concepts in the poll. Maybe I'm stupid or something....

 

[samclem]

Thanks Audrey. I still don't understand how the concept of SWR is in conflict with the concepts in the poll. Maybe I'm stupid or something....

If I may . . .
Say a retiree has constructed a diversified portfolio that meets his/her risk tolerance. The retiree plans to withdraw 3.5% of the ending balance of the portfolio each year. Which poll answer would this retiree pick? Or, say the retiree plans to take 3.5% of the initial portfolio and increase this amount for inflation every year--which poll answer should this person choose?

 

[freebird5825]

#6 for me, but not on a scale large enough that I can live off a modest pension and annuity forever. Health bennies are covered and self paid.
My medium size portfolio, still under construction, is the protective cushion if SS does not turn out to be (in 11 years) what my statements say it will be. The portfolio will be just about the right size at about the same time I have to make the "take it or delay it" decision about SS at age 62.

 

[audreyh1]

Thanks Audrey. I still don't understand how the concept of SWR is in conflict with the concepts in the poll. Maybe I'm stupid or something....

The SWR method does not rely on income from a portfolio. It is based on the total return (both income AND cap gains together) for each given AA over several decades based on historical data.

And the SWR method does not seek to preserve principal, but instead expects to spend principal down in some cases, even if temporarily. Instead you pick an SWR and AA that has a high chance of the portfolio not going to 0 before a certain number of decades has passed.

That is why I am saying it is not included in the above poll. There is no capital preservation. There is no investment income goal. It's all based on an SWR and a time period.

Could be described as "My goal is portfolio survival for X decades based on a Y SWR".

Note that this also means - "I don't care about capital preservation, nor do I care what income is generated by the portfolio."

Audrey

 

[Meadbh]

Thanks for the explanation Audrey. In other words, people who focus only on SWR alone will not care whether the SWR comes from dividends, interest or capital. Now I get it.

I guess I am not a "pure" SWR fan. I will be looking at the absolute numbers and the underlying portfolio structure.

 

[Coach]

I'm with audreyh1.

Coach

 

[traineeinvestor]

Plan A is to maintain the real value of my portfolio indefinitely and live of less than 100% of the income.

Number 1 is the best fit.

 

[scrabbler1]

I chose #5. I expect to run surpluses (dividends > expenses) in the next 10 years or so (on my non-retirement investments) although I will probably begin to run deficits for a few years until I can tap into my three "reinforcements" which are (a) IRA, (b) frozen pension, and (c) Social Security (if it is still there).

I am not assuming any long-term reduction in my expenses due to HI reform, though.

 

[audreyh1]

Thanks for the explanation Audrey. In other words, people who focus only on SWR alone will not care whether the SWR comes from dividends, interest or capital. Now I get it.

Yep. It's also known as a Total Return approach.

With the SWR method, you choose the AA based on the how long you need the portfolio to last and the desired withdrawal rate.

Then, once a year you withdraw that percent from the portfolio, selling whatever assets might be necessary, and then rebalance to the original AA.

I think there are probably quite a few folks on this forum using this "pure SWR" method.

Audrey

 

[DblDoc]

Plan A is to maintain the real value of my portfolio indefinitely and live of less than 100% of the income.

Number 1 is the best fit.

While this is a valid plan very few can retire early with such an approach.

DD

 

[DblDoc]

+1 to Audrey and Coach.

- While not retired yet my plan is based on total return of a diversified portfolio and a WR of 3.5%

DD

 

[W2R]

While this is a valid plan very few can retire early with such an approach.

DD

I dunno - - if you define retire early as "before age 65" I'll bet a lot of our members could do it, especially the more frugal members. Think of the discussions of re-using plastic bags and the lowest monthly cell phone costs, not to mention food budgets. With expenditures as low as they are for some, I am also sometimes amazed at the size of portfolios our members have. I am sure mine (which seems big to me) is small compared with most here.

 

[donheff]

The SWR method does not rely on income from a portfolio. It is based on the total return (both income AND cap gains together) for each given AA over several decades based on historical data.

And the SWR method does not seek to preserve principal, but instead expects to spend principal down in some cases, even if temporarily. Instead you pick an SWR and AA that has a high chance of the portfolio not going to 0 before a certain number of decades has passed.

I follow this method and agree to a degree but...

Note that this also means - "I don't care about capital preservation, nor do I care what income is generated by the portfolio."

I don't actually agree with the above. I suspect many of us choose this approach as a reasonable way to get at a safe income stream over the course of retirement. I also suspect that many of us (I include myself in this group) are prepared to adjust our approach, scaling back if necessary if we find ourselves on a course that takes us far toward portfolio exhaustion. For me that is one of those artsy "I will know it when I see it situations." I am not pre-planning a specific point that I would start scaling back and am not worried that I need to.

Bottom line is I would like to leave a substantial nest egg to my kids if possible but I am not going to start living small at my tender age to do so. I will risk going down and sorta plan on scaling back when I am older if necessary.

I chose #3: Income generation is my primary goal from Day 1. My capital may be partly depleted over time, but I hope to have some residual capital to leave as a legacy.