100% Equities Portfolio for very early retirees

[W2R]

I was 100% equities until about three years before retirement. At that point I started changing my AA and was no longer 100%.

[nun]

With all these Pfau etc papers coming out and on the back of several market down turns followed by steep rises in stocks I think it's time to go beyond the 60/40 asset allocation. I'm sensitive to this now because I follow the UK retirement and pension trends and there they are just now removing restrictions that forced most people to buy annuities for retirement income. Most UK retirees are very unsophisticated and have no idea of what they are doing and all this discussion would be way over their heads......but I suppose we are in rarified territory for most US retirees too. Still what is the best way for a retiree to generate income. SS has to be a major contributor, but that will not be enough in most cases. How you go about generating income is going to be dependent on your resources and spending needs. The poor should probably stick with safe stuff like savings accounts and CDs so they can't lose their small principal and have money for emergencies the rich can afford to take more risk and be heavily in equities and then there's the middle folks who might look at 4% SWR and not have enough to live on. For those using a portion of their money to buy a SPIA might be useful to juice their income early in retirement and take some principal out of the stock market volatility. Inflation will erode the income, but spending needs often decreases with age. It's a complex problem with no one answer.

[Corporateburnout]

Quote:

Originally Posted by Major Tom My WR is 2% of the current portfolio balance, so I suppose I could go all equities if I wanted. The reason I keep a ~35-40% bond fund component is not to increase the survivability of my portfolio (the 2% WR does that for me) but to reduce the chances of getting an upset stomach and a nasty case of the runs when a severe downturn occurs.

I think a lot of retired folks would push the panic button and may sell their equity position at a loss after a 50% market drop.

Our goal in retirement is to rest, relax, reduce stress and enjoy life. A 50% drop in portfolio value would not achieve this goal. Our allocation is 50/40/10 with annual re balancing. So far life is good......

[RetireAge50]

I'll probably go 100% stock at age 65 when pensions and social security kick in. From ages 50-65 we will be relying heavily on portfolio (withdrawing 7% or more per year) so will likely go with about 65% stocks.

[jim584672]

Interesting idea. Maybe write some at-the-money calls on VTI to be slightly more conservative. Or in-the money calls if you are really conservative.

[haha]

Quote:

Originally Posted by nun The poor should probably stick with safe stuff like savings accounts and CDs ...

The poor will stick with what they have since the mid-century-the money of those of us taxpayers who are still not clever enough to offload their expenses onto others.

Ha

[haha]

Quote:

Originally Posted by Corporateburnout I think a lot of retired folks would push the panic button and may sell their equity position at a loss after a 50% market drop. Our goal in retirement is to rest, relax, reduce stress and enjoy life. A 50% drop in portfolio value would not achieve this goal. Our allocation is 50/40/10 with annual re balancing. So far life is good......

People are usually quite sanguine about their so called risk tolerance, until something happens. There is an active thread on this board now that illustrates some of the thought processes that can encourage tendencies toward misunderstanding reality. "Glide path"! If there ever was misnomer, this is one. Although a gradual glide can happen, it is just as likely that what happens to ones assets is more similar to a plane being shot down than some sort of controlled landing in a soft recently plowed field.

I am reading 3rd edition of Shiller's Irrational Exuberance. There is a fabulous chapter that shows drawdowns in various non-US countries over the past 2 - 3 decades. He also shows what happened next-did prices pop back up, did the crash continue, did a long lasting stagnation occur? In fact, all of these things have occurred, in some countries at some time or other. Most of what is taken as knowledge about markets often isn't; it's just suppositions about markets that are as likely to wrong as right.

Ha

[daylatedollarshort]

Quote:

Originally Posted by haha People are usually quite sanguine about their so called risk tolerance, until something happens. .....I am reading 3rd edition of Shiller's Irrational Exuberance. There is a fabulous chapter that shows drawdowns in various non-US countries over the past 2 - 3 decades. He also shows what happened next-did prices pop back up, did the crash continue, did a long lasting stagnation occur? In fact, all of these things have occurred, in some countries at some time or other. Most of what is taken as knowledge about markets often isn't; it's just suppositions about markets that are as likely to wrong as right. Ha

Ha, along the same train of thought, in a previous thread you also brought up Triumph of the Optimists (thanks for that), and I found a good summary here:

http://www.econ.uniurb.it/materiale/..._optimists.pdf

[eta2020]

Quote:

Originally Posted by haha People are usually quite sanguine about their so called risk tolerance, until something happens. Ha

If you survived 2008-2009 without panicking you have nothing to worry about.

[Corporateburnout]

Reading comments from members here back in the dark days of the great recession not many were advocating 100% equity allocation. In fact there were a lot of nervous people on this board.

Since the market has been on a nice run for the last 5 years some people are much more aggressive until something happens......

[eta2020]

Quote:

Originally Posted by Corporateburnout Reading comments from members here back in the dark days of the great recession not many were advocating 100% equity allocation. In fact there were a lot of nervous people on this board. Since the market has been on a nice run for the last 5 years some people are much more aggressive until something happens......

To tell you truth I thought we will have to retire at 60 instead of planned 55. Yes it was depressing and disappointing. But I did not panic with 100% in equities.

Today I could retire at 50 .

But I suppose one has to have Plan B and panicking can not be part of such plan.
BTW I would not feel comfortable retiring with 100% equities unless Dividend yield is equal to annual spending.

[dallas27]

Quote:

Originally Posted by Corporateburnout Reading comments from members here back in the dark days of the great recession not many were advocating 100% equity allocation. In fact there were a lot of nervous people on this board. Since the market has been on a nice run for the last 5 years some people are much more aggressive until something happens......

I'd be more worried I would try to re-balance incorrectly to take advantage of a 50% downturn. But I would not shift from stocks unless bonds were paying an extraordinary dividend. When government bonds are paying in the 15% range like in the 80's, give me a ring, I'll buy into that crisis, but I'll probably be back out in less than 24 months when the Fed get's it under control.

[Corporateburnout]

Quote:

Originally Posted by eta2020 If you survived 2008-2009 without panicking you have nothing to worry about.

I also survived 2008-2009 and did not panic but I was working and investing 50% of my income buying stocks on sale. A couple of years later I adjusted my allocation to a balanced portfolio to get ready for retirement before pulling the plug last year.

If I was dependent on my portfolio to cover my expenses in retirement I would have been a very nervous and unhappy fellow.

[eta2020]

Quote:

Originally Posted by Corporateburnout I also survived 2008-2009 and did not panic but I was working and investing 50% of my income buying stocks on sale. A couple of years later I adjusted my allocation to a balanced portfolio to get ready for retirement before pulling the plug last year. If I was dependent on my portfolio to cover my expenses in retirement I would have been a very nervous and unhappy fellow.

I am with you.

All I am saying is if you need lets say 75k a year and you have Equity portfolio generating 80k a year in dividends you may be 100% in equities. In fact it makes sense to be 100% in equities.

Portfolio that generated 80k in 2007 probably generated 70k in 2008 and 2009. Dividends did not go down 50%. For example VTI index did not decline dividend at all. KO, PEP, PG, CL, MO , PM and lot of other companies increased dividends in 2008 and 2009.

[ESRwannabe]

So I have enough that I can switch to part-time work, but not enough to stop working completely, i.e. I can ESR if I want to now.

My taxable investments that would let me ESR are all individual stocks. The money for ESR would come from the dividends. I also have cash, which I would like to increase.

So my idea of a good early retirement asset allocation would be a few years living expenses in cash (maybe as much as 5 years), a paid off house, and then the rest in dividend paying stocks. I'd be perfectly at ease retiring off of that.

The kinds of stocks I like are domestic focused essential services type companies like: Southern Company (utility), Duke Energy (utility), AT&T (telecom), Verizon (telecom), Sysco (food distribution), Waste Management Inc (landfills), Health Care Properties Inc (nursing homes & hospitals reit), Service Corp International (funeral homes), etc.

Then in addition to that I like some of the old multinational stalwarts like: Coca Cola, Pepsi, Johnson & Johnson, Proctor and Gamble, etc.

I'd feel extremely comfortable retiring off the dividend income from these companies.

[audreyh1]

Rebalancing in Jan of 2009 to buy more stocks was one of the hardest things I have ever done. I had already caught the falling knife twice in 2008.

[ejman]

Quote:

Originally Posted by eta2020 If you survived 2008-2009 without panicking you have nothing to worry about.

You really think that another Great Depression is impossible? Maybe I'm one of the few that think that the stars aligned with us ER types in 2008-2009 by having a chairman of the Federal Reserve that had studied deeply the events surrounding that event and knew how to act. And a concurrent political system and officials in place that allowed that action. Not so sure we may be as lucky next time.

[eta2020]

Quote:

Originally Posted by ejman You really think that another Great Depression is impossible? Maybe I'm one of the few that think that the stars aligned with us ER types in 2008-2009 by having a chairman of the Federal Reserve that had studied deeply the events surrounding that event and knew how to act. And a concurrent political system and officials in place that allowed that action. Not so sure we may be as lucky next time.

S&P 500 Dividend by Year

During Great Depression dividend of 80k would for 2-3 years decline to 50k and then go back to about 60k for next 10 years....

So in my example I would just readjust my lifestyle and live on 60k income before collecting SS.

And yes now we have better understanding of economy and more checks and balances so I do not expect Great Depression, but I would survive it just fine.

I also think during Great Depression we had 30% deflation so 50k could buy more then 50k before Depression.

[ejman]

Quote:

Originally Posted by eta2020 S&P 500 Dividend by Year During Great Depression dividend of 80k would for 2-3 years decline to 50k and then go back to about 60k for next 10 years.... So in my example I would just readjust my lifestyle and live on 60k income before collecting SS. And yes now we have better understanding of economy and more checks and balances so I do not expect Great Depression, but I would survive it just fine. I think during Great Depression we had deflation so 50k could buy more then 50k before Depression.

Thank you for that link. It's kind of fun to data mine into the past. See for example December 1917 - dividend 11.77. It was below that level - substantially so - for 10 years. the drop for most of that period over 40%. Now I'm not saying that's what's in the cards now but there is nothing certain in any investment approach and living off of dividends is no exception and its certainly not guaranteed.

[photoguy]

Quote:

Originally Posted by haha People are usually quite sanguine about their so called risk tolerance, until something happens.

I keep thinking of the quote from mike tyson: "Everyone has a plan 'till they get punched in the mouth".

Quote:

Originally Posted by eta2020 If you survived 2008-2009 without panicking you have nothing to worry about.

During the 2008-09 crash I didn't blink and just carried on as normal. It was a little depressing seeing my network plummet but at least I was working, making good $$$ and funneling that into equities. It actually turned out to be beneficial.

However, now that I'm fired, a re-occurence like 2008-9 would be a much more serious test.