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04-21-2016, 07:59 AM
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#1
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Thinks s/he gets paid by the post
Join Date: Mar 2010
Location: Chicago
Posts: 1,154
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Stay in or get out
Just looking for some thoughts or ideas and not necessarily what I may do. I may have even started this thread before but can't find it. But here we go.....My pension and now my DW ss will start this summer. Between the two it is enough money to cover our day to day living expenses and then some for a vacation or two and we only have our mortgage. We currently have a close to mid six figure investments and savings. Our asset allocation is 50/50. I was thinking that perhaps we have won the game and now go to 20/80. We are both in our early 60's.
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04-21-2016, 08:04 AM
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#2
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: May 2008
Location: No fixed abode
Posts: 8,764
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While it does sound like you've won the game, I wouldn't go to 20/80. IMO, having a pension and SS fulfills a large part of your fixed income/bonds portion of your AA. And since there's very little difference in risk between 20/80 and 50/50, and a fairly significant difference in return, I'd recommend staying at or close to your current allocation. But if 50/50 keeps you from sleeping, of course do whatever makes you feel comfortable. Good luck.
__________________
"Good judgment comes from experience. Experience comes from bad judgement." - Anonymous (not Will Rogers or Sam Clemens)
DW and I - FIREd at 50 (7/06), living off assets
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04-21-2016, 08:06 AM
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#3
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jun 2002
Location: Texas: No Country for Old Men
Posts: 50,000
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Along harley's theme, why not go with something like 40/60 or 35/65 (Wellesley!)? More conservative than where you are today yet enough equity exposure to provide some inflation insurance over time.
__________________
Numbers is hard
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04-21-2016, 08:53 AM
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#4
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Thinks s/he gets paid by the post
Join Date: Oct 2008
Location: Naples
Posts: 2,179
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Quote:
Originally Posted by REWahoo
Along harley's theme, why not go with something like 40/60 or 35/65 (Wellesley!)? More conservative than where you are today yet enough equity exposure to provide some inflation insurance over time.
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This is the route we took and on the advice of some members of this forum. We don't need these funds to cover day to day expenses and the RMD is there to cover annual expenses like property taxes, car and home insurance, etc. DW nudged me off the CD routine when returns got down to 2%. We went with Vanguard Wellesley Admiral for my IRA and later bought more as just as good investment fund. When the market took a little dive recently we didn't get hit too hard because of the good stocks in that fund. Thanks again to the forum members for their recommendations.
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04-21-2016, 09:45 AM
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#5
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Feb 2005
Location: Central MS/Orange Beach, AL
Posts: 9,067
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All good suggestions. Question.......how well will you feel when we have the next market crash? If you can't sleep I would go the more conservative route. I'm one of the odd balls here and stay conservative(20/80 range). Only you can really decide.
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Retired 3/31/2007@52
Investing style: Full time wuss.
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04-22-2016, 05:41 AM
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#6
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Thinks s/he gets paid by the post
Join Date: Dec 2004
Location: Minneapolis
Posts: 4,455
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On another take, one could go more aggressive when pensions cover living expenses. The bottom line is whatever you feel comfortable and keeping you sleeping well.
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May we live in peace and harmony and be free from all human sufferings.
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04-22-2016, 05:51 AM
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#7
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Nov 2010
Location: Sarasota, FL & Vermont
Posts: 36,204
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I guess that I am an optimizer and to me a very conservative portfolio is suboptimal so not attractive to me.... in your situation I would stay at 50/50 and sleep well in the fact that we don't "need" that money so we can easily weather any market gyrations but that in the long run the portfolio will provide better results to fund "fun", gifts to our favorite charities and to our heirs.
DM is in a similar situation and is 60/40 because that AA is more appropriate for her heirs. In her case, while she knows her portfolio is ~60/40 she doesn't care and doesn't ask.
__________________
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
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04-22-2016, 06:20 AM
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#8
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Full time employment: Posting here.
Join Date: May 2015
Location: Atlanta suburbs
Posts: 633
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Somebody can correct me if I mis-stated this, but isn't there a suggestion from either Dr Pfau or Mr Kitces (or jointly) suggesting starting from 30/70 or 40/60 and then (possibly) increasing the equity part of the portfolio after about 10 years? to handle the sequence of returns risk?
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04-22-2016, 06:25 AM
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#9
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Nov 2010
Location: Sarasota, FL & Vermont
Posts: 36,204
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Yes, but in the OP's case they are not withdrawing from their portfolio so there isn't any sequence of returns risk. Sequence of returns risk is where a combination of poor/negative portfolio performance and withdrawals in the early years of retirement combine to cause a later failure.
__________________
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
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04-22-2016, 06:51 AM
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#10
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Sep 2005
Posts: 5,381
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The pro-equity bias here is pretty interesting. The OP said nothing about wanting to maximize the value of their portfolio, increase spending above what pension & SS allows, leave a large inheritance, earn higher returns, or any other goal for that matter.
The only thing an outsider might infer from what is written is that the OP isn't comfortable with the risk profile of their current 50/50 asset allocation. And yet the advice given is near uniformly in-favor of higher equity allocations.
My advice is different. If your pension is inflation adjusted and it provides enough income to finance your desired standard of living then you don't need to own any equities at all. The question then becomes "how much equity exposure do you want." And to answer that question you'll want to first decide what you want from those savings.
If you're hoping to draw on that money to supplement your SS and Pension income you probably want more, and perhaps much more, than a 20% equity allocation.
If that money is intended as purely an emergency / safety-net stash to cover large unforeseen expenses, a 20% or less equity allocation is perfectly adequate for that purpose.
If you have some other thoughts in mind (e.g. maybe you'd like the option of spending more in the future, etc) then those goals will yield a different equity requirement.
Once you know what you want that money to do for you, the asset allocation needed to meet those goals pretty much decides itself. Then you just need to decide if you're comfortable shouldering the volatility that AA entails or whether you need to rethink your goals.
Good luck
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Retired early, traveling perpetually.
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04-22-2016, 08:33 AM
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#11
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Thinks s/he gets paid by the post
Join Date: Dec 2015
Location: Michigan
Posts: 4,942
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Quote:
Originally Posted by REWahoo
Along harley's theme, why not go with something like 40/60 or 35/65 (Wellesley!)? More conservative than where you are today yet enough equity exposure to provide some inflation insurance over time.
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+1 This is my opinion for you also. I believe that you need more than 20% to keep up with inflation over the long term.
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"The mountains are calling, and I must go." John Muir
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04-22-2016, 08:46 AM
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#12
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Sep 2005
Posts: 5,381
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Quote:
Originally Posted by DrRoy
I believe that you need more than 20% to keep up with inflation over the long term.
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TIPS
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Retired early, traveling perpetually.
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04-22-2016, 09:00 AM
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#13
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Thinks s/he gets paid by the post
Join Date: Mar 2014
Location: Southern Cal
Posts: 4,032
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I have 38% stocks for my IRA, my husband is 25% now, it has gone up from 22%. But all of our income has COLA except my small pension. I get a raise when I turn 70 by taking SS. But I'm not 100% certain we will both be here when I reach that age. Will you and your spouse be ok with just one pension? If not then may be you should lean a bit toward stocks.
Sent from my iPad using Early Retirement Forum
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Just another day in paradise
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04-22-2016, 09:36 AM
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#14
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Nov 2010
Location: Sarasota, FL & Vermont
Posts: 36,204
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Quote:
Originally Posted by Gone4Good
The pro-equity bias here is pretty interesting. The OP said nothing about wanting to maximize the value of their portfolio, increase spending above what pension & SS allows, leave a large inheritance, earn higher returns, or any other goal for that matter. ....
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I would hardly consider 50/50 a pro-equity bias but to each there own. I agree that IF returns on that money or being able to make more generous charitable contributions or leaving some sort of legacy are unimportant to the OP then it doesn't really matter what AA is chosen since they have won the game. OTOH, if those things are important then a moderate equity allocation will provide more in the long run since it is well-established that in the long run equity returns exceed fixed income and in the OP's case sequence of returns risk is not a significant issue since their pension income more than meets their needs.
__________________
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
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04-22-2016, 10:04 AM
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#15
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Thinks s/he gets paid by the post
Join Date: Aug 2014
Location: Chicago West Burbs
Posts: 2,996
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Quote:
My pension and now my DW ss will start this summer. Between the two it is enough money to cover our day to day living expenses and then some for a vacation or two
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I look at it another way. If you've won the game, then you can't loose. If you were to go to 100% equities, what harm if your unnecessary investments tank for a year or three or five. But..... there is no mention if analysis has been done on what a surviving person might have for expenses and income. If that has been done, and you still don't need much from investments, then do what makes you happy. 100% equities, 100% bonds, 100% cash, or anything in between. I am increasing our equities possibly up to 80% as we approach our (we are mid 60's) SS years. If I have chosen wisely, then I will have more to play with and possibly more to leave as inheritance. If I chose poorly, I will still be living the style we have been up till now and have a little left for the kids. The point is if you have actually won the game, then you can't loose.
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04-22-2016, 10:47 AM
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#16
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: May 2006
Location: west coast, hi there!
Posts: 8,797
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Here is my advice, ignore all of the above. It seems most of us here are talking our own book. OK, maybe read the advice above but then ...
Rather, do the analysis yourself using tools like FireCalc and VPW. Make a long term plan and stick to it. With your income needs covered (assuming pensions are rock solid), it should be easier to establish a long term AA and/or glide path.
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04-22-2016, 10:54 AM
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#17
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Thinks s/he gets paid by the post
Join Date: Dec 2005
Location: Lake Livingston, Tx
Posts: 4,203
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We were just about where you were when we punched out. It has turned out we have more money than we expected. From what I have read,other folks have that problem.
Taxes are lower, you are not saving for retirement, expenses seem to go down. For sure expenses related to w@rk go down, meals, travel, laundry, etc. It's not a lot, but we seem to eat in more, and spend a little less.
If you have the bases covered, I would say go for it and enjoy the rest of your life.
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If it is after 5:00 when I post I reserve the right to disavow anything I posted.
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04-23-2016, 10:01 AM
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#18
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Thinks s/he gets paid by the post
Join Date: Mar 2010
Location: Chicago
Posts: 1,154
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Quote:
Originally Posted by Gone4Good
The pro-equity bias here is pretty interesting. The OP said nothing about wanting to maximize the value of their portfolio, increase spending above what pension & SS allows, leave a large inheritance, earn higher returns, or any other goal for that matter.
The only thing an outsider might infer from what is written is that the OP isn't comfortable with the risk profile of their current 50/50 asset allocation. And yet the advice given is near uniformly in-favor of higher equity allocations.
My advice is different. If your pension is inflation adjusted and it provides enough income to finance your desired standard of living then you don't need to own any equities at all. The question then becomes "how much equity exposure do you want." And to answer that question you'll want to first decide what you want from those savings.
If you're hoping to draw on that money to supplement your SS and Pension income you probably want more, and perhaps much more, than a 20% equity allocation.
If that money is intended as purely an emergency / safety-net stash to cover large unforeseen expenses, a 20% or less equity allocation is perfectly adequate for that purpose.
If you have some other thoughts in mind (e.g. maybe you'd like the option of spending more in the future, etc) then those goals will yield a different equity requirement.
Once you know what you want that money to do for you, the asset allocation needed to meet those goals pretty much decides itself. Then you just need to decide if you're comfortable shouldering the volatility that AA entails or whether you need to rethink your goals.
Good luck
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Actually we are drawing 2.5% for now. Even though we don't need the money we want to enjoy some extras while we are relatively young.
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04-23-2016, 10:09 AM
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#19
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Sep 2005
Posts: 5,381
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Quote:
Originally Posted by ripper1
Actually we are drawing 2.5% for now. Even though we don't need the money we want to enjoy some extras while we are relatively young.
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If you want to draw 2.5% real from your portfolio, a 20/80 asset allocation is almost certainly too conservative.
I'd say either stay at 50/50 or, if you want to be a "dirty market timer," go to 20/80 and take 100% of your withdrawls from the fixed income side of the portfolio and also plan on rebalancing back to a 50/50 split on the next market drop >20%.
__________________
Retired early, traveling perpetually.
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04-23-2016, 10:27 AM
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#20
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Thinks s/he gets paid by the post
Join Date: Mar 2010
Location: Chicago
Posts: 1,154
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Quote:
Originally Posted by Gone4Good
If you want to draw 2.5% real from your portfolio, a 20/80 asset allocation is almost certainly too conservative.
I'd say either stay at 50/50 or, if you want to be a "dirty market timer," go to 20/80 and take 100% of your withdrawls from the fixed income side of the portfolio and also plan on rebalancing back to a 50/50 split on the next market drop >20%.
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Thanks, G4G. Thanks everyone else. I think I will stay with my 50/50. It worked well for me during the downturns in the last decade and being able to sleep well. Since we have decided to self insure also it might be an insurance policy for LTHC.
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