Asset Allocation at Retirement Time

[JDARNELL]

I am thinking about what our asset allocation might look like when we get ready to retire.  So I thought I would ask the folks here the following questions for some ideas.

1.  What was or is your projected asset allocation at the start of retirement?

2.  At what point did you start moving towards this allocation?

3.  How did you age and other variables (ie other income sources, debt, etc) play into your decision? 

Thanks! 

Tomcat98

 

[SC]

Hi Tomcat98, can I ask how old you are?

I'm 37 and will be starting to withdraw from our assets this year. I'm managing our portfolio as if I'll live to be 90, although I doubt I'll make it that far. Since that's so far out, I'm making no changes to the portfolio and keeping about 70% in stocks.

One of Vanguard's planners created an asset allocation for us and he also recommended 60-70% in stocks based on our ages.

We're at 30% bonds (1/3 standard domestic bonds, 1/3 inflation adjusted domestic, 1/3 foreign bonds) and 70% stocks (1/2 domestic, 1/2 foreign). I tend to over-complicate things so there are subdivisions within those subdivisions for value/growth and large/mid/small-cap.

We're planning to use other income sources to supplement our withdrawals but that wouldn't change our allocation any...

SC

 

[Nords]

I am thinking about what our asset allocation might look like when we get ready to retire.  So I thought I would ask the folks here the following questions for some ideas.
1.  What was or is your projected asset allocation at the start of retirement?

We looked at my military pension & spouse's anticipated Reserves pension and decided that our retirement portfolio needed to be 100% stocks. Later we tweaked that to keep a year's expenses in cash and another year's expenses in CDs.

Spouse declared that if she didn't make it to a pension or if our numbers turned out to be too low that she'd go find a job. But her sacrifice meant that she expected me to do the reading, analysis, & asset allocation.

Part of that portfolio started out in small-cap growth. As we read more Bernstein (and as 2002 progressed to destroy the reputation of the S&P500 & the NASDAQ) we decided to go international, value, & small-cap. We also wanted to achieve lower expense ratios, which until that point had not been a big deal because we were blissfully ignorant.

We decided that fully funding the kid's college expenses was not such a high priority anymore. It's aggressively invested and it'll fund a public or maybe a mediocre private school but I'd be extremely surprised if it funded Amherst.

2. At what point did you start moving towards this allocation?

We started moving that direction in the mid-90s. Cap losses in 2001-2 greatly accelerated the process of converting mutual-fund cap gains into ETFs.

We're still trying to get there. Spouse slowed down our initial SWR with some drill pay. We don't contribute to Tweedy, Browne and we're withdrawing our living expenses from that fund first. They've done a fine job since we started with them, but if they piss us off (management changes or a higher ER) then we'd be ready to go to an international value ETF or even an international dividend ETF. We hung on to the small-cap growth ETF but it's less than a percent of our portfolio. We don't add to our kid's college fund anymore but when she starts earning income we'll make sure that her Roth is fully funded.

3. How did you age and other variables (ie other income sources, debt, etc) play into your decision?

We decided to invest for a lifespan of 120 years, although the genetic odds seem to be against me getting into triple digits. Spouse's grandparents all lived hale & hearty well into their 90s, though, so she might make it to the finals. That means we need a retirement portfolio that'll handle nearly eight decades.

We also decided to keep the mortgage and to invest that money into a small-cap value ETF.

We have a rental property that we assess as a wash for income/expenses, and we expect to have spouse's parents or our kid occupying it for quite a few decades. It's a good deal for them but we don't count it as an asset that could be liquidated to pay for our living expenses. Oh, it could, but we place a higher value on family harmony-- and, if it comes to that, on our kid's selection of our long-term care facility.

If our portfolio return exceeds our wildest expectations then during Hawaii's next real estate downturn we could be interested in a rehab condo. But as good as she is, I don't see my spouse doing drywall tape into her 80s.

 

[Mr._johngalt]

I am thinking about what our asset allocation might look like when we get ready to retire.  So I thought I would ask the folks here the following questions for some ideas.

1.  What was or is your projected asset allocation at the start of retirement?

2.  At what point did you start moving towards this allocation?

3.  How did you age and other variables (ie other income sources, debt, etc) play into your decision? 

Thanks! 

Tomcat98

1. Didn't have one.

2. Long retired before I even thought about it.

3. Age made me quit. Other factors were more or less ignored. Eventually
the nearness to SS took some of the angst out of my "no plan-no prep"
ER.

JG

 

[kat]

1. What was or is your projected asset allocation at the start of retirement?

2. At what point did you start moving towards this allocation?

3. How did you age and other variables (ie other income sources, debt, etc) play into your decision?

1. 65/35, with 20% international

2. When I finally paid attention to my investments, it's what I was comfortable with, and I stuck with it.

3. When I wanted to retire early, I realized I could right then, and if I was wrong I could easily work part time in my field. It's been pretty simple so far, and keeps looking better than I thought it would.

kate

 

[Mr._johngalt]

1. 65/35, with 20% international

2.  When I finally paid attention to my investments, it's what I was comfortable with, and I stuck with it.

3.  When I wanted to retire early, I realized I could right then, and if I was wrong I could easily work part time in my field.  It's been pretty simple so far, and keeps looking better than I thought it would.

kate

I like this post. Straightforward. I especially liked the "It's been pretty simple
so far." I've been blindsided a few times but overall it's been "pretty simple" for me
too.

JG

 

[kz]

Due to two very secure state pensions we've stayed heavily invested in stocks in retirement.

A year or so before retirement, though, we did add some laddered CDs, I-bonds, as well as several months of living expenses in a money market.

And hubby realized after he retired that he really wanted to "be somewhere with something to do" so he dabbles in part-time seasonal work here and there. He's even entertained the idea of a full-time job for 4-5 yrs if it was something that he really, really wanted to do. Wouldn't be my first choice but whatever makes the guy happy.

 

[grumpy]

Similar situation to KZ. We have cola'd pensions that cover most living expenses. So, other than $100K in Vanguard Prime MM, $100K in TSP G-fund, and $25K in I-Bonds, everything else ($850K) is in individual dividend paying stocks and equity mutual funds. Prior to retirement I was nearly 100% in equities. I bought the I-Bonds over the 3 years before FIRE and sold mutual funds in our taxable accounts in the year before FIRE to get the cash for the MM. I shifted TSP funds from the C-fund, I-fund and S-fund to the G-fund this year. Now that we have been in our new house for a year and have most major purchases behind us I am thinking about taking half of the MM funds and buying more dividend paying stocks.

Grumpy

 

[JDARNELL]

Hey SC I am 37. 

We looked at my military pension & spouse's anticipated Reserves pension and decided that our retirement portfolio needed to be 100% stocks.  Later we tweaked that to keep a year's expenses in cash and another year's expenses in CDs.

We have a rental property that we assess as a wash for income/expenses, and we expect to have spouse's parents or our kid occupying it for quite a few decades.  It's a good deal for them but we don't count it as an asset that could be liquidated to pay for our living expenses.  Oh, it could, but we place a higher value on family harmony-- and, if it comes to that, on our kid's selection of our long-term care facility. 

I guess you could make the claim that the military pension is like a fixed income component.  I have often thought about it that way.   I have also thought about a 80% equity/20% fixed as a starting point when I leave the AF in 4-5 years excluding the military pension.  I am no where near that today and I am not for sure when I want to start moving towards that direction.  There will be no mortgage and there is a good possibility that 1 of 2 rentals will be mortgage free as well.  Plus I am sure there will be some additional sources of income in some form.

I hear what you are saying about the rental and family harmony.  My thoughts were to use these to fund the kids education then they will each have a place to live or I will use these funds for the place they want to live.  I don't count this into the liquidated asset category. 

So overall this may be too conservative. 

Similar situation to KZ.  We have cola'd pensions that cover most living expenses.  So, other than $100K in Vanguard Prime MM, $100K in TSP G-fund, and $25K in I-Bonds, everything else ($850K) is in individual dividend paying stocks and equity mutual funds.  Prior to retirement I was nearly 100% in equities.  I bought the I-Bonds over the 3 years before FIRE and sold mutual funds in our taxable accounts in the year before FIRE to get the cash for the MM.  I shifted TSP funds from the C-fund, I-fund and S-fund to the G-fund this year.  Now that we have been in our new house for a year and have most major purchases behind us I am thinking about taking half of the MM funds and buying more dividend paying stocks.

   Grumpy

Interesting.  So thats about 80% equities.  Any reason for the large amount in cash? 

Tomcat98

 

[grumpy]

Interesting. So thats about 80% equities. Any reason for the large amount in cash?

I built up the $100K in cash because we were newly retired and moving to a new home in a new state. I really wasn't sure what our living expenses would be and I didn't know how much we would be spending on furnishing the new house. I figured I should have 3 to 5 years of living expenses not covered by the pensions in a liquid investment. Now that I have a year's experience entered into Quicken, I can see that the $100K is more like 8 to 10 years worth. I guess this is another example of my very conservative planning. Therefore, I will likely cut it in half and put that $ to work where it can earn a higher return.

Grumpy

 

[JDARNELL]

I built up the $100K in cash because we were newly retired and moving to a new home in a new state.  I really wasn't sure what our living expenses would be and I didn't know how much we would be spending on furnishing the new house.  I figured I should have 3 to 5 years of living expenses not covered by the pensions in a liquid investment.  Now that I have a year's experience entered into Quicken, I can see that the $100K is more like 8 to 10 years worth. I guess this is another example of my very conservative planning.  Therefore, I will likely cut it in half and put that $ to work where it can earn a higher return.

  Grumpy

Understand.  Makes sense to me.

Thanks!

Tomcat98