Question for those ER's that were 1 - 2 years out

[augam]

Ran the calculator and am feeling better under most if not all scenarios and resultant success rates. My plan is to call it quits in the next 24 months and have an AA over 85% equities.

At what point did you consider rebalancing toward an AA that would provide an income stream and protection from extrordinary market losses.

 

[W2R]

Of course, it's up to you. Personally I started gradually moving from my accumulation phase AA towards my retirement AA about 3 years before I retired. That gave me some time to find out about how much my dividends would be, and what to expect from my new AA.

 

[mystang52]

I don't remember what my exact pre-ER allocation was. But approximately 2 years out I had a call with my Vanguard adviser. I told him I knew I was financially good to go, so I didn't want anything to f&^% it up. We went to a 55/45 allocation based n my wishes and needs. YMMV.

 

[2017ish]

I started buying some fixed income in 2013--about four years out. I keep trying to succeed at that, but sort of stuck between 20-25% right now. Still better than the 100% equity that we had up until 52/53, I guess. [maybe will get easier to buy FI once we quit this summer?]

Income stream hasn't been a concern to us--if it were, we'd have to be far heavier in FI than justified by DW's life expectancy. FI is protection; the amount we have now is sufficient for 10 years post retirement if we cinch our belts a bit, or 6 with travel spending. Either should get us past the worst of a crash.

____________
E.T.A.--FWIW, no pension; social at 70 to the extent that it might be there; big HELOC line set up just in case ...

 

[ERD50]

I think people stress about this way too much. Even 85% in retirement I think is fine, if you are Ok with it.

People will say they don't want to sell stocks in a downturn - OK, don't. Let's say your portfolio kicks off 2.5% in divs, and you need 3.5%. In a 10 year downturn, you only need to pull ~ 1%/year from principal. So pull it from the fixed income side, and even over 10 years, you don't need to sell any equities, and you'd still have some fixed income buffer left, even at a starting point of 85% equities.

-ERD50

 

[Gumby]

I am two years out and have changed my after-tax savings to cash accumulation. Prior to this, we have been mostly fully invested and have carried very little cash. I expect to have at least a full year of expenses in cash when we do retire. Given that our pensions should cover our full expenses, an extra year in cash should be adequate to meet any exceptional expenses without a need to sell assets at a bad time.

 

[scrabbler1]

Ran the calculator and am feeling better under most if not all scenarios and resultant success rates. My plan is to call it quits in the next 24 months and have an AA over 85% equities.

At what point did you consider rebalancing toward an AA that would provide an income stream and protection from extrordinary market losses.

My AA change was very sudden and part of my overall ER plan. When I ERed in late 2008, I cashed out my company stock, which was about 1/3 of my total portfolio, and bought shares in a bond fund, instantly transforming my AA from a stock-oriented one to a bond-oriented one.

I have different AAs in the two parts of my portfolio now. My (rollover) IRA is about 45/55 S/B while my taxable account is about 37/63 S/B. I won't be touching the IRA for at least another 6 years (when I can withdraw from it in an unfettered manner) but I use my taxable account to generate income to cover my daily expenses. Two different investment objectives, 2 different AAs.

 

[SecondCor521]

I moved from 100/0 to 90/10 on 6/2/2016, which was about 3 months after I officially retired and about 6 months after I stopped working. It worked out fine for me, but reallocating in the years before FIRE is much more prudent.

 

[DrRoy]

I started reducing my AA about 2 years out, from 82% to 61% now. I'm 2.5 weeks to RE.

 

[DrBrisket]

~2 years out assuming I can make it that long. Some days this site is primary source of sanity for me while at w*rk.

Currently at 55/0/5 (s/b/c) and the remaining 40 in rental properties. Planning to transition gradually to 85/12/3 after ER to minimize tax impact of divesting the rental property.

I think people stress about this way too much. Even 85% in retirement I think is fine, if you are Ok with it.

People will say they don't want to sell stocks in a downturn - OK, don't. Let's say your portfolio kicks off 2.5% in divs, and you need 3.5%. In a 10 year downturn, you only need to pull ~ 1%/year from principal. So pull it from the fixed income side, and even over 10 years, you don't need to sell any equities, and you'd still have some fixed income buffer left, even at a starting point of 85% equities.

-ERD50

Similar to @ERD50's thoughts, we have set a FIRE target WR of 3.5%. The 12/3 in short-term fixed income/cash plus dividends should conservatively allow at least 6 years before selling equities in a major market downturn. This "bookending" approach where AA is allowed to float within a range (even to 100/0 in a very bad market if necessary) and only rebalanced to a target of ~85/15 when times are good seems to have a lot of merit.

James Cloonan's newest book Investing at Level3 has an example of this approach on pp 166-7. He ignores dividends, but does show how a year-end 80/20 AA (in a normal market, you start the year with 75/25) with a 5% WR (n.b., I do NOT advocate a 5% WR, but this was in Cloonan's example) would have survived in the 2008/09 recession and have recovered to the original value by 1/1/2013.

Here's a shortened version of Cloonan's example, scaled to an initial 1000 total portfolio value with S portion in an S&P 500 index fund, B portion in safe assets returning 4%, and yearly spend of 50:

Start of Year| S| B| Total
2008| 750* | 250 | 1000
2009| 473 | 158* | 762
2010 | 598 | 114* | 817
2011 | 688 | 69* | 775
2012 | 702 | 22* | 837
2013 | 675* | 112 | 1010

* indicates source of cash on Jan 1 for yearly spending

Haven't yet taken the time to look at other challenging historical periods.

 

[Totoro]

Is that inflation adjusted?

 

[medved]

I am in the middle of a five year (or thereabout) gradual shift from about 70/30 toward about 45/55, with a goal to retire at that allocation, roughly. As much as possible I'm doing this by investing new dollars on the fixed income side, rather than selling stock. (Trying to minimize capital gain). The buoyant stock market is a complication, in my effort to shift in the direction of fixed income, though of course a welcomed one.

I'm tempted to move a little bit further in the direction of fixed income, or at least move to my goal little bit faster. I am sure I am leaving some value on the table. But, as a wise friend of mine told me, "there is no reason for you to continue to play the game once you have won it." At this point, I'm thinking that it does not make sense for me to take much more risk than I need to.

 

[Aiming_4_55]

I'm almost in the same situation, i.e. about 24 - 36 months from ER or S-ER by choice. I've started to look closer to my desired asset allocation, which is high in stocks.

My personal details that I've considered:

- Rental income and cash in taxable accounts to weather a downturn without adjusting my family's lifestyle, so I'll probably keep a high stock %
- My SWR is targeted at or below 3.0%
- My current job skills allows for contract work at $75 +/ hr pay so if I have to return to work vs selling stocks, I can/might
- In 2 years, I'll be 50 years old, so 12 years from a small pension and 17 for SS, so I'm not counting on it.
- Kids' college funds should be fully funded within 24 months, but they are still young
- Potential assistance to aging parent

With the above, I think I'll stay in in the 75 - 85% stocks, but it's probably 65% of my NW.

 

[Ready]

I cut back to 60% equities as I got close. I would not feel comfortable with 85% equities if I was within a few years of retirement, but everyone has a different tolerance for risk.

 

[Dd852]

I'm five years into ER - we've moved from between 65-70% equities to about 55%. My big moves were at the end of last year and the beginning of this as I've felt the election-related jump is going to have a sharp pullback. If I'm wrong and equities go back up to 60% I'm fine with that too but I wanted to have a bigger margin of safety. Fundamentally we don't need to add to our stash, just keep up with inflation at this point.

 

[Jaded salami]

I am three years into ER, had an allocation of 65/10/25 equity/bonds/cash and have largely stuck with it since around 8 years ago, ER'd at 52

 

[pb4uski]

Ran the calculator and am feeling better under most if not all scenarios and resultant success rates. My plan is to call it quits in the next 24 months and have an AA over 85% equities.

At what point did you consider rebalancing toward an AA that would provide an income stream and protection from extrordinary market losses.

I didn't care about an income stream.. and still don't... I'm a total return investor. I hold fixed income to provide stability... not for income.

I was 100% equities until my 40s and then started putting new money (contributions) into fixed income until I reached my 60/40 AA target.

If you start putting new money into fixed income that would be a start.

 

[harley]

I was 75% equities/25% cash when I retired. Due to some real estate transactions I ended up about 40/60 a few years into retirement. It's taken awhile, but I'm now about 50% equities, 5% bonds, 15% cash, and 30% rental real estate. That's the direction I took for creating an income stream. It's worked out pretty well, but I'm going to be selling one of the places this summer. Once I get that money invested I should be around 65/5/10/20, which is a better AA for me. Still enough income to minimize my withdrawals from my equity portfolio, without being too heavily locked into real estate.

 

[whatnot]

We were 80/20 for the most of our accumulation years, went to 70/30 4 years ago, and went to 60/40 in Nov 2016. We are 12-18 mos from retirement.
Although, I think we may be a bit too conservative since DH will have a $45k pension at retirement, we could probably move to 65/35.

 

[DrBrisket]

Is that inflation adjusted?

I assume you are asking about the table in my earlier post in this thread.

The short answer is no, the withdrawals are not inflation adjusted in Cloonan's example. Inflation was relatively mild during the Great Recession linky:

Year | Inflation (%)
2008 | 3.8
2009 | -0.4
2010 | 1.6
2011 | 3.2
2012 | 2.1
2013 | 1.5

I agree that inflation should be taken into account, but in this example, it would not have made a huge difference.