Warning from Fidelity to Boomers

[pacergal]

I am comfortable anywhere from 70/30 to 60/40, have a pension so that helps the sleep at night factor.

 

[Bir48die]

I am comfortable anywhere from 70/30 to 60/40, have a pension so that helps the sleep at night factor.

We are at the exact point you are so we have the pension and DW's SS to fall back on. I have Deferred Comp that I'm obligated to take for another six years so that could vary for sure. However, my SS can be activated at any time which allows us enough by far to have a nice monthly budget and not touch our portfolio. That will be my sleeping pill.

 

[LRDave]

We have about 8% in short-term savings/CDs and about 15% in TIAA Traditional. We could live for 10 years (or more) on that. We also have a modest COLA'd pension starting next year.

I've finally gotten DW to see a market correction in the coming years as good timing (Roth conversions of equities) - given that a correction is going to happen SOME time.

 

[karen1972]

I often seen advise like that for bond ratios but I often don't see any advise on cash on hand.

I keep roughly 2 years of cash equivalent on hand. Dividends would provide another year and half, cutting back on the budget could give us up to another year and half, so like 5 years.

Maybe I'm wrong but it always seems to me its not a bond/stock issue but a zero cash issue that forces one to make poor decisions out of need rather than due diligence.

 

[gayl]

I've basically seen the same article three or four times today that Fidelity is sounding the alarm to baby boomers within 10 years of retirement to cut back on stocks. They are recommending that people in this category have their portfolio in 70% or less stocks. .... Is anyone else contemplating changes based on the Fidelity guidance? Or have opinions on my exchange?

No. It will be higher in 10-20 yrs than it is now, I'll be required to take it out (RMD) in 4 and that's okay. But sticking to my:
80% SPY/SCHB
9% International Index (will increase this)
1% holdover individual stocks
10% bonds / CDs (decreasing this)
+ 6 months 'travel expenses'

Articles like that don't fit everyone. As previously stated:

...I think a large part of this decision is how dependent one is on their portfolio for living expenses.

 

[brett]

We have been reducing equities slowly. We include the NPV of our DB as part of our asset allocation calculation.

At 68, we are down to 45 percent equities and will probably remain at that level. We were much higher in the past and we benefited greatly from it.

I suspect those like us with DB and SS like incomes that cover a good portion of their expenses are more likely to have a higher exposure to equities.

 

[samclem]

This is an issue for international bond index funds.

Yes. And by extension, some target date funds. Folks who own th Vanguard 2015 Target Date Fund have 15% of their assets in Vanguard's Intl Bond Index fund (present yield to maturity: 0.6%). Investors in Fido's 2015 Freedom Fund have 17% of their assets in Fido's intl bond index fund.

 

[North Texas Cajun]

Not liking rules of thumb

Several replies mention allocation rules of thumb such as 100-age or 120-age. But how can such simple answers be right for all households or even most households? Households vary greatly in their financial situations and in their long term goals:

- Most have SS income, but the amounts can vary greatly.

- Some have private pensions, some do not.

- Some wish to leave $ to heirs, some have no heirs.

- Some have small nest eggs, some have large ones.

- Tolerance for risk likely varies greatly even when all else is similar.

I have a strong finance and investments background, and I do not feel I need a financial advisor. But I do recommend financial advisors over rules of thumb for those who may be intimidated by the retirement planning challenge.

 

[ziggy29]

Several replies mention allocation rules of thumb such as 100-age or 120-age. But how can such simple answers be right for all households or even most households? Households vary greatly in their financial situations and in their long term goals....

Agreed -- which is why I look at how much income you need each month to secure your retirement, rather than "what can I get from my current account balance". I think the latter is the tail wagging the dog.

For many people, choosing the "right" AA is based on maximizing the chances to avoid failure (running out of money), which can happen if you take too much risk *or* not enough risk. If these people are dependent on this income stream, it's more important to get it right -- especially if they need, say, a 2.5-3% drawdown or more to start.

But for people who don't need much (if anything) from their retirement investments to make the numbers work, it's more a matter of personal comfort. They can take as much or as little risk as they want, and then it becomes a matter of not only your own retirement, but other factors including risk tolerance and desire to pass something to heirs.

Some people in the latter situations want nothing to do with market risk, so they keep it in safer stuff. They are likely to have a much lower account balance when they pass away, but their retirements are not endangered. Some people are comfortable with playing the odds and hoping to maximize the average expected account balance when they pass away, and they may be much more aggressive in equities. Their balance may be devastated by a crash and major bear market, but their retirement would not be at much risk of busting.

Anyone who has more than enough from SS and pensions effectively can do it with a 0% withdrawal rate or close to it (of course, if there are RMDs it will be more than 0% starting at age 72). And in that situation, the retirement savings going to zero is unfortunate but is not going to break retirement.

 

[Dtail]

We are at 55% equities and currently using a 3%WR.
We are more tilted in our thinking towards capital preservation vs. leaving a large amount to heirs.
Thus I suspect our equity % will decline in the future.

 

[Montecfo]

We have all our money at Fido.
We are ages 71/62.
We are 74% stocks and expect to be 74.5% later this afternoon.

I have a whole different approach.
My question is: Do we have enough in cash/bonds to survive a 7-year market meltdown at our current (and expected) withdrawal rate?
If yes, then we don't need a greater % in cash/bonds.

We take the same approach. As an aside, I did not see the article but it doesn't sound like any sort of news flash.

 

[OldShooter]

... My question is: Do we have enough in cash/bonds to survive a 7-year market meltdown at our current (and expected) withdrawal rate? If yes, then we don't need a greater % in cash/bonds.

Yes, that is our approach, too, although I do not put a very sharp pencil to it as our withdrawal rate is hard to predict and will depend somewhat on investment results.

... I suspect our equity % will decline in the future.

This is certainly conventional wisdom but I wonder if it is correct. If we are looking at the fixed income portion of the AA to be large enough to bridge market declines should we not also be looking at our planning horizon as we get older? The extreme case would be if @davebarnes got to be 100YO -- is it sensible for him to still hold 7 years x current withdrawal rate? I don't think so.

Somehow and at some point maybe we should be recognizing that we are highly likely to outlive our "conservative" stash, so we might as well reduce that balance and move it to equity for the kids. IOW, the exact opposite of the conventional wisdom that the equity portion of the AA will decline with age.

 

[Dtail]

Yes, that is our approach, too, although I do not put a very sharp pencil to it as our withdrawal rate is hard to predict and will depend somewhat on investment results.



This is certainly conventional wisdom but I wonder if it is correct. If we are looking at the fixed income portion of the AA to be large enough to bridge market declines should we not also be looking at our planning horizon as we get older? The extreme case would be if @davebarnes got to be 100YO -- is it sensible for him to still hold 7 years x current withdrawal rate? I don't think so.

Somehow and at some point maybe we should be recognizing that we are highly likely to outlive our "conservative" stash, so we might as well reduce that balance and move it to equity for the kids. IOW, the exact opposite of the conventional wisdom that the equity portion of the AA will decline with age.

Interesting point. Lots of longevity in our family too.

 

[audreyh1]

.Somehow and at some point maybe we should be recognizing that we are highly likely to outlive our "conservative" stash, so we might as well reduce that balance and move it to equity for the kids. IOW, the exact opposite of the conventional wisdom that the equity portion of the AA will decline with age.

Not everyone has kids.

 

[OldShooter]

Not everyone has kids.

Picky, picky. Move some of the stash to equities to benefit your estate, wherever it is going. Or alternatively, as has been mentioned, blow more dough.

But the question is the same: Should we not be recognizing that the amount needed for a a conservative stash declines as we get older?

 

[audreyh1]

Picky, picky. Move some of the stash to equities to benefit your estate, wherever it is going. Or alternatively, as has been mentioned, blow more dough.

But the question is the same: Should we not be recognizing that the amount needed for a a conservative stash declines as we get older?

It’s not picky picky. Some people have motivation to preserve part of their estate for heirs. Others have more motivation to spend down the estate and are not concerned with a high ending value or blowing more dough in their 90s. Personal needs and goals will influence choice of AA. There is definitely not one size fits all here.

I may well prefer a more conservative stash as I get older based on several possible criteria. It will also be influenced by what happens to my stash in the meantime.