Asset allocation for retirees with pension and social security

[Gumby]

So long as we don't experience prolonged high inflation, the young wife and I can live our lives quite well on just our pensions and social security. But what happens if those sources of income should dry up? Well, that's why we also have an investment portfolio. Even if we had to live off portfolio draws alone, we still get 100% in FIRECalc. I invest that portfolio as if that will be the case, so it will always be there and always capable of supporting us with a 4% draw, which means a pretty plain vanilla 70/30 - 65/35 assortment of mostly funds, and a few stocks and bonds. I don't need to hit a home run, just a bunch of base hits.

 

[TheWizard]

100% stock. If at all goes bust your SS and pension saves you.

Ummm, the S&P 500, and index funds connected thereto, are simply NOT going to go bust.
So perish that thought...

 

[24601NoMore]

Very true. We have not had a rip roaring, take no prisoners, almost inexhaustible Bear market for over four decades. But, I remember the Bear of the 1970’s. It tore huge chunks out of the stock market, went away for a short while, and then came back to sink its teeth and claws into investors and rip off a few more pounds of flesh. It devoured equities, driving the market down about 50%. Then, IIRC, it took 18 years for the market to get back to it’s previous highs in REAL terms.

The Bear doesn’t give a hoot or a growl about your plans or feelings. So, yes, have something stashed away in government guaranteed CDs, Treasuries, etc.

Good advice, IMHO. We personally keep <25% in equities for that very reason.

But to OP's original question - the answer depends on WHY you are investing (if at all) in equities or any other "risk asset". If you have "enough" to comfortably live out the rest of your life, why take much/ANY risk, unless your goals include legacy gifts, generation-passing wealth, upping your overall life experience (more exotic travel, fancier toys), etc..personally, we're at the point in our lives where those things don't matter much to us. It's more important to be content, comfortable and to take less risk than to go bonzo crazy with the latest expensive toys, exotic travel, etc..

 

[Phroig]

Pick one:
a. Why not take more risk? It won’t hurt you.
b. Why take more risk? You don’t need to.

 

[target2019]

Hello everyone.
Doing research on asset allocation proposals for those with both a pension and social security. I've done searches in ER and also "you tube", but there is not much available discussion that cover the rebalancing of asset allocation for retirees that have both pension and SS.

Wondering if anyone can recommend website links that cover asset allocation for retirees with pension and SS. Or perhaps a book or two from Amazon that cover these points?

You won't find much, because advice depends on the balance between your income and expenses, without much regard for the income source. The source of income is very improtant to you, but the advice will be the same.

I'm fortunate to be in the same boat. Once the smooth sailing of retirement began, we felt more sure about letting equity go a bit higher, from 50% to 60%.

There are plenty of books about asset allocation. How about "The Intelligent Asset Allocator: How to Build Your Portfolio to Maximize Returns and Minimize Risk" by William Bernstein?

 

[523HRR]

Retired 11 years ago, and Deferred Comp distributions have carried us so far. Now 60, and DB pensions now cover our spending + taxes. So asset allocation is pretty much all equities as time horizon is now based on our son and sole heir.

 

[pb4uski]

Pick your poison. According to Bard:

Have there been any 10 year periods where CDs outperformed stocks?

Yes, there have been two 10-year periods where CDs outperformed stocks. The first was from 1970 to 1980, and the second was from 2000 to 2010.

In the 1970s, the stock market was volatile and inflation was high. This made CDs a more attractive investment, as they offered a guaranteed return that was higher than inflation. The S&P 500 index returned an average of 6.1% per year during this period, while CDs returned an average of 7.6% per year.

In the 2000s, the stock market experienced a major decline following the dot-com bubble. The S&P 500 index returned an average of -0.95% per year during this period, while CDs returned an average of 3.3% per year.

It is important to note that these are just two examples of 10-year periods where CDs outperformed stocks. In general, stocks have a higher long-term return than CDs. However, there are always exceptions to the rule, and it is important to consider all of your options before making an investment decision.

Though the experts expect stock returns to be modest over the next decade, but who knows?

 

[Koolau]

^^^^^^^

Nothing wrong with a serious commitment to CDs, but as always, "never put all your eggs in one basket."

 

[G-Man]

So long as we don't experience prolonged high inflation, the young wife and I can live our lives quite well on just our pensions and social security. But what happens if those sources of income should dry up? Well, that's why we also have an investment portfolio. Even if we had to live off portfolio draws alone, we still get 100% in FIRECalc. I invest that portfolio as if that will be the case, so it will always be there and always capable of supporting us with a 4% draw, which means a pretty plain vanilla 70/30 - 65/35 assortment of mostly funds, and a few stocks and bonds. I don't need to hit a home run, just a bunch of base hits.

Are your pensions cola or non-cola?

 

[Gumby]

Are your pensions cola or non-cola?

They are diet COLA. We get our COLAs in July. Mine is 60% of the delta CPI-U June to June, with a minimum of 2% and a maximum of 6%. (So I will get a 2% COLA in my next check). If inflation remains below 2%, I actually gain ground. The young wife gets whatever the last social security COLA was, up to a maximum of 6%. However, if the pension fund performance for the prior year was less than 6.9%, she gets a max of 1.5% COLA, which is what happened this year. (I don't know who negotiated that, but it is a horrible provision during stagflation, when you most need a COLA).

So, in general, if inflation is 2% and the market is good, we will keep up with inflation.

 

[Exchme]

Have you tried aacalc.com?
It uses Merton's method and asks questions about your risk tolerance, spending, assets, income, return expectations, etc. and makes a recommendation. Don't be surprised if it recommends all equities in the case where your spending needs are met with no portfolio draw.

 

[Koolau]

They are diet COLA. We get our COLAs in July. Mine is 60% of the delta CPI-U June to June, with a minimum of 2% and a maximum of 6%. (So I will get a 2% COLA in my next check). If inflation remains below 2%, I actually gain ground. The young wife gets whatever the last social security COLA was, up to a maximum of 6%. However, if the pension fund performance for the prior year was less than 6.9%, she gets a max of 1.5% COLA, which is what happened this year. (I don't know who negotiated that, but it is a horrible provision during stagflation, when you most need a COLA).

So, in general, if inflation is 2% and the market is good, we will keep up with inflation.

I'm envious of your COLA (even "diet" as it is.) I've never gotten another dollar on my original pension amount since 2005. It wasn't great when I retired. Now, I'm still glad to have it, but I know it buys about 60% of what it did at first. Better than nothing, I guess. YMMV

 

[friar1610]

One pension and 2 SS checks more than cover routine living expenses and most travel. Spouse’s income will be reduced if I die first. So, have opted for 50/50 to ensure she will be able to make up the difference regardless of what Mr. Market does. If she were to go first I would probably kick it up to 60-65/40-35 as I would still be OK with pension and my SS.

 

[gayl]

Pension with COLA max 4% but automatically banks whatever isn't paid out to be distributed in future years & covers 100% of expenses. Currently 4% COLA still due me .... guess I'll get a nice bump up next year too. SSA funds Bank of Mom which is (in reality) getting sunk into CDs. Was 100% of IRA, Roth, brokerage in stocks but now 85% stocks / 15% CDs after selling all individual stocks except CCL. I'm learning.

All that to say I'm not terribly motivated to go through the math to figure out what it is worth .... I just go to a simple app to find out how much of an annuity I'd need to buy to get the same check & cover health / dental insurance

 

[FREE866]

Though the experts expect stock returns to be modest over the next decade,

Which tells me there is a high probability of better than average returns!

 

[Bigdawg]

^^^^^^^

Nothing wrong with a serious commitment to CDs, but as always, "never put all your eggs in one basket."

If you have mutiple COLA pensions and SSx2, are your eggs ever in one basket? I would answer no.

We currently have 4 COLA pensions with 3 more on the horizon. Most (95+%) of our modest (>1 million) stash is in equities. If we magically lost the whole stash somehow, the first of the month will bring another 10k+.

 

[Koolau]

Which tells me there is a high probability of better than average returns!

Yeah, watch Jim Cramer and then do the opposite!

 

[FREE866]

Yeah, watch Jim Cramer and then do the opposite!

Haha
Guys like Cramer are just entertainers.

 

[madatrub]

The Inverse Cramer ETF is currently -12.72% YTD

 

[Time2]

The Inverse Cramer ETF is currently -12.72% YTD

Is Jim Cramer still on? I haven't seen him in a while.
I guess I need to go back to the gym, I watched him while on the treadmill.

 

[Koolau]

Is Jim Cramer still on? I haven't seen him in a while.
I guess I need to go back to the gym, I watched him while on the treadmill.

I find him entertaining for maybe 10 minutes every week or so as I do channel roulette. YMMV

 

[Motorad]

Asset Allocation Blues

Thanks everyone. I weighed your input and the official coin-toss is to proceed conservatively with my pending asset allocation.

My "official" back-of-envelope calculations follow:
1. Current savings:
a. 55% in the federal TSP "Lifecycle Income" (23/77 stocks/bonds).
b. 45% in Vanguard, mostly in Roth IRA held by me and by my wife.
c. Our combined Roth IRA are 70% Wellesley and 30% Wellington.

2. 2023 is year two of seven annual Roth conversions from TSP to Vanguard.

3. At the end of 2028, our savings should be:
a. 45% in TSP.
b. 55% in Vanguard.

4. The "official" envelope-allocation, when combining TSP and Vanguard at the end of 2028: 35/60/5 (stocks/bonds/cash). By the end of 2028, our combined Roth IRA should be 50% Wellesley and 50% Wellington.

You folks also gave good advice about having some dry powder available. This evening, I stopped the re-investing of dividends generated by our taxable Wellesley fund and by our Roth IRAs, so that these dividends go to our Vanguard settlement funds (VMFXX money market).

I think I'm all set. Thanks very much for your guidance. -Motorad.

 

[pb4uski]

Which tells me there is a high probability of better than average returns!

Good luck with that.

 

[FREE866]

Good luck with that.

Think about it...when has any 5 or 10 year prediction been optimistic?


I've been following markets since the late 1980s and I don't recall that ever to be the case. Pessimistic views always sound better and more convincing, but are usually not the case. We have a century of hard data that confirms that.

 

[mystang52]

No problem with that for those who have thought it through for themselves. It's just not for me. I couldn't deal with such big potential losses. I guess we're all different in this area of investing and YMMV.

I think it depends on your "sleep at night" factor.
If your SS and pensions cover your budget/spending, then you can have your AA be whatever is most comfortable to you and gives you the outcome you plan for.
Firecalc can help with scenarios.

So many wise replies on this thread, but in the end any formula is coldly mathematical. When it comes to retirement finances, however, emotions play a role. DW and I are fortunate that our pensions and SS exceed our spending needs, but we still have a conservative allocation. I am in that "sleep at night" contingent.