How to Invest 401k Funds When Guaranteed Income Sources Pays for Most of Our Expenses

[G-Man]

How to Invest 401k Fund When Guaranteed Income Sources Takes Care of Most of your Expenses in Retirement?

I have been struggling with a decision on how to invest our 401(k) funds when my wife and I guaranteed income sources takes care of most of our expenses in retirement. Do I invest in all stocks knowing that I don't need these funds for the foreseeable future? If not, how would you invest the funds? The goal for us to spend all of our hard-earned money during retirement.

The below video resonates with our situation. We have strong pensions, strong Social Security Benefits, reasonable taxable account (checking/saving), and equity in our home. We don’t need to rely heavily on our retirement portfolio assets, so the severity of failure is less because of our guaranteed income sources.

Starting at the 14:29 minute mark in the video below sums up the essence of our situation.

Would love to hear from others in this similar situation.

 

[GrayHare]

I'd invest in a mix with the goal to keep up with inflation.

 

[G-Man]

I'd invest in a mix with the goal to keep up with inflation.

So, you would not invest aggressively knowing that you can sustain the ups and downs of the stock market.

 

[OldShooter]

... Would love to hear from others in this similar situation ...

Well, in our case at 76YO we are invested 70/30 and if necessary the 30 would probably last longer than we will.

But your first question has to be "What is this money for?" As they say, if you don't know where you're going, any road will get you there.

@GrayHare's suggested goal of keeping up with inflation doesn't imply any purpose for the money. So what if it keeps up with inflation?

In our case, the aggressively invested 70% will go to three grands, DS, and about 1/3 to charity. Those are (hopefully) long-term targets so a long-term attitude for the investments suits.

 

[Dash man]

I agree with OldShooter that a 70/30 mix would be good, with the 70% broad based ETFs and the 30% in treasuries or CDs. Maybe put a chunk into a Donor Advised Fund for charitable giving.
Definitely consider what you might do with the money sooner rather than later. Health issues can catch up with you when you're not looking.

 

[njhowie]

So, you would not invest aggressively knowing that you can sustain the ups and downs of the stock market.

Or conversely, at this point, why invest at all? You indicate that your objective is to spend all your hard-earned money. So you have no real objective as far as investing goes, would simply potentially give you more money to spend...or less.

What's wrong with CD's, Treasuries, or Stable Value Fund in your situation?

You've won the game, why continue playing? What's the benefit?

 

[OldShooter]

I agree with OldShooter that a 70/30 mix would be good, with the 70% broad based ETFs and the 30% in treasuries or CDs. ...

To be clear, this is NOT my recommendation for the OP. I don't have the slightest idea what their purpose is for their stash. 70/30 suits OUR purpose and the amount of money involved in the decision. I just mentioned it for reference.

 

[GrayHare]

No, I'd not go aggressive. Your stated goal is to spend all of it, not potentially lose it. Spending implies you want to get something of value in return, which won't happen if you don't keep up with inflation. Inflation protection is especially important since your pension is not COLAed, well, at least you did not write that it is.

 

[G-Man]

Great points so far in making me think about what the purpose of this money is. We have no kids. For Long Term Care, we have decided to self-insure and use the equity in our primary residence.

My wife and I would love to own a vacation home at the beach one day (within the next 8 years).

 

[G-Man]

No, I'd not go aggressive. Your stated goal is to spend all of it, not potentially lose it. Spending implies you want to get something of value in return, which won't happen if you don't keep up with inflation. Inflation protection is especially important since your pension is not COLAed, well, at least you did not write that it is.

Correct. Both of our pensions are non-COLA.

 

[G-Man]

Added another video to my first post.

 

[Al18]

I think the video goes off the rails at the 14:29 mark, when the CFP says he’s OK with a probability of success of 45-50%, because of the high pension and SS benefits - and we can adjust the plan as we go along. To me, that says he wants the client to keep meeting with him every year (at a cost of a few thousand dollars per year). It seems the CFP is setting up his clients to fund HIS retirement - no thanks.

An alternative is I’ll continue to be my own FA, maintain my 50/50 asset ratio and I’ll go on an extra week vacation per year with the savings over not paying this guy an annual fee.

 

[G-Man]

I think the video goes off the rails at the 14:29 mark, when the CFP says he’s OK with a probability of success of 45-50%, because of the high pension and SS benefits - and we can adjust the plan as we go along. To me, that says he wants the client to keep meeting with him every year (at a cost of a few thousand dollars per year). It seems the CFP is setting up his clients to fund HIS retirement - no thanks.

An alternative is I’ll continue to be my own FA, maintain my 50/50 asset ratio and I’ll go on an extra week vacation per year with the savings over not paying this guy an annual fee.

I'm not promoting this advisor at all. Just the principle in this video resonates with my situation.

 

[Al18]

G-Man,
You can rent a vacation home at the beach for far less than owning one. There’s no long term commitment, no need to rebuild after a storm floods the home, no need to deal with ever increasing home owners insurance. Read all the posts on this forum about Florida and CA residents are dealing with big insurance increases, or their insurance company dropping them or leaving the state.

I like visiting these places, just don’t want to live there.

 

[G-Man]

G-Man,
You can rent a vacation home at the beach for far less than owning one. There’s no long term commitment, no need to rebuild after a storm floods the home, no need to deal with ever increasing home owners insurance. Read all the posts on this forum about Florida and CA residents are dealing with big insurance increases, or their insurance company dropping them or leaving the state.

I like visiting these places, just don’t want to live there.

Thanks for the feedback. Will definitely do my research before deciding to purchase a vacation home on the east coast.

 

[bada bing]

When you are SIRE rather than FIRE, investment allocation can be pretty much whatever you want. Where is the remaining money going eventually ? You can set the investment horizon based on the recipient. If it's intended for your under 10 year old grandchildren, you might realistically invest 90/10 based on their 50 year horizon to retirement. (as an example)

I'm living from portfolio withdrawals currently and will start SS and non-COLA'd pension in 5 years (or less). SS and pension will cover anticipated expenses then. I'm currently withdrawing from only fixed income and dividends for spending with a "rising glideslope", going from 60/40 currently towards 70/30 in 5 years. My estate intentions are to leave what remains in my pre-tax to charity and in Roth/house to family. The accounts should be close to even, at least in the plan.

That's my plan, but it's arbitrary. I could target anything between 20/80 and 90/10 (the sideboards of the efficient frontier) once I start drawing SS/pension. How much will market fluctuations bother you when you're SIRE ? How useful would growing your estate be ?

If your goal is safely spend as much as possible, it's not a bad time to annuitize a significant portion with a SPIA. Set a high "stretch" spending goal and buy annuities to cover the deficit. Buy VTI with what remains and go have fun. Or not

 

[G-Man]

When you are SIRE rather than FIRE, investment allocation can be pretty much whatever you want. Where is the remaining money going eventually ? You can set the investment horizon based on the recipient. If it's intended for your under 10 year old grandchildren, you might realistically invest 90/10 based on their 50 year horizon to retirement. (as an example)

I'm living from portfolio withdrawals currently and will start SS and non-COLA'd pension in 5 years (or less). SS and pension will cover anticipated expenses then. I'm currently withdrawing from only fixed income and dividends for spending with a "rising glideslope", going from 60/40 currently towards 70/30 in 5 years. My estate intentions are to leave what remains in my pre-tax to charity and in Roth/house to family. The accounts should be close to even, at least in the plan.

That's my plan, but it's arbitrary. I could target anything between 20/80 and 90/10 (the sideboards of the efficient frontier) once I start drawing SS/pension. How much will market fluctuations bother you when you're SIRE ? How useful would growing your estate be ?

If your goal is spend as much as possible, it's not a bad time to annuitize a significant portion with a SPIA. Set a high "stretch" spending goal and buy annuities to cover the deficit. Buy VTI with what remains and go have fun. Or not

Had to look up what SIRE means...

https://www.early-retirement.org/forums/f28/poll-which-are-you-will-you-be-sire-or-fire-46680.html

 

[G-Man]

When you are SIRE rather than FIRE, investment allocation can be pretty much whatever you want. Where is the remaining money going eventually ? You can set the investment horizon based on the recipient. If it's intended for your under 10 year old grandchildren, you might realistically invest 90/10 based on their 50 year horizon to retirement. (as an example)

I'm living from portfolio withdrawals currently and will start SS and non-COLA'd pension in 5 years (or less). SS and pension will cover anticipated expenses then. I'm currently withdrawing from only fixed income and dividends for spending with a "rising glideslope", going from 60/40 currently towards 70/30 in 5 years. My estate intentions are to leave what remains in my pre-tax to charity and in Roth/house to family. The accounts should be close to even, at least in the plan.

That's my plan, but it's arbitrary. I could target anything between 20/80 and 90/10 (the sideboards of the efficient frontier) once I start drawing SS/pension. How much will market fluctuations bother you when you're SIRE ? How useful would growing your estate be ?

If your goal is spend as much as possible, it's not a bad time to annuitize a significant portion with a SPIA. Set a high "stretch" spending goal and buy annuities to cover the deficit. Buy VTI with what remains and go have fun. Or not

What's the equivalent of VTI at Fidelity?

 

[njhowie]

What's the equivalent of VTI at Fidelity?

FZROX

https://fundresearch.fidelity.com/mutual-funds/summary/31635T708

 

[G-Man]

Any other feedback?

 

[target2019]

So, you would not invest aggressively knowing that you can sustain the ups and downs of the stock market.

I understand the background of your question. We reached the same point in the last couple of years.

We are pretty much 60/40 investors. Before retirement we put less into stocks, and went to 50/50.

Now we're climbing back to 60/40 by decision. Dare we go to 70/30, or further?

When do we need the money? You mentioned a 2nd home. Depending on your allocation now, a serious crash could ruin your plan (or idea).

Everyone seems to be drunk on good stock market returns in 2023. It is certain this year will be good, and so on. How many times have we been wrong on that prediction in the past?

 

[G-Man]

I understand the background of your question. We reached the same point in the last couple of years.

We are pretty much 60/40 investors. Before retirement we put less into stocks, and went to 50/50.

Now we're climbing back to 60/40 by decision. Dare we go to 70/30, or further?

When do we need the money? You mentioned a 2nd home. Depending on your allocation now, a serious crash could ruin your plan (or idea).

Everyone seems to be drunk on good stock market returns in 2023. It is certain this year will be good, and so on. How many times have we been wrong on that prediction in the past?

Ok. So, don't be too aggressive.

 

[pb4uski]

What's the equivalent of VTI at Fidelity?

VTI

As an ETF, VTI trades ike a stock so you can buy it at Fidelity just like any other stock or ETF.

 

[pb4uski]

Any other feedback?

You are in the catbird seat. 100/0 or 0/100 would work equally well for you, so you can do whatever you wish to and are most comfortable with. There is no wrong answer, which in some ways arguably makes the decision more complicated.

 

[target2019]

Ok. So, don't be too aggressive.

For us, definitely, don't be too agressive.

It's difficult to answer for another, though. You know what style got you to success.

One can go very deep discussing studies and charts, like the Efficient Frontier. I enjoy mulling over the concepts.

The standard answer is, "Why take risk when you've won the game?" I don't have an answer for that.