AA & Fin Advice for a New Retiree?

[SunnyOne]

I am literally retiring from the federal govt within a few weeks. 60 years of age, single, moving from HCOL area to a Medium HCOL area - renter for now.

Looking over my portfolio, I have drifted from an AA of 50/50 in the past couple of years to a 30/70 split - conservative out of concerns for a sequence of returns risk and similar economic issues. As the pandemic hit, I was more concerned about the impact of losses than missing out on future gains....fortunately that worked out ok and I am somewhat dealing ok with the issue of fear of missing out lol.

My ratio of tax deferred/ nontaxable assets is about the opposite: 70/30.

With potentially 30 years of retirement ahead, does 30/70 seem overly conservative? I do not plan to leave any type of legacy beyond whatever property I own.

Thanks

 

[VanWinkle]

I am literally retiring from the federal govt within a few weeks. 60 years of age, single, moving from HCOL area to a Medium HCOL area - renter for now.

Looking over my portfolio, I have drifted from an AA of 50/50 in the past couple of years to a 30/70 split - conservative out of concerns for a sequence of returns risk and similar economic issues. As the pandemic hit, I was more concerned about the impact of losses than missing out on future gains....fortunately that worked out ok and I am somewhat dealing ok with the issue of fear of missing out lol.

My ratio of tax deferred/ nontaxable assets is about the opposite: 70/30.

With potentially 30 years of retirement ahead, does 30/70 seem overly conservative? I do not plan to leave any type of legacy beyond whatever property I own.

Thanks

30/70 at retirement is in line with several academics recommendation.
Sequence of return risks at retirement lend credence to your current allocation.
That doesn't mean that things can't be changed later if you see the need to
increase risk. I am at 50/50 after 4 1/2 years of retirement which matched my allocation at retirement.

Good luck to you in retirement,

VW

 

[capjak]

What is your asset to annual expense ratio?

>25? >33? >50?

IF you have a portfolio that is 50x your annual expenses or greater sequence of return is probably not an issue if you are at 25 than it is a factor.

It may be a better to figure out how much $ is needed to have 20- 25 years expenses (after Pension/SS) in Fixed Income and then invest the rest as you see fit.

You can gauge typical retirement AA by looking at the AA of Vanguard target date 2020 (VTWNX) to see what they recommend the first year of retirement. Remember that these target date funds glide path to lower stock allocations and than stay fixed.


Vanguard Total Bond Market II Index Fund Investor Shares† 29.70%
Vanguard Total Stock Market Index Fund Investor Shares 29.10%
Vanguard Total International Stock Index Fund Investor Shares 20.00%
Vanguard Total International Bond Index Fund Investor Shares 12.60%
Vanguard Short-Term Inflation-Protected Securities Index Fund 8.60%

 

[TheWizard]

Part of the answer depends on where your retirement incomes comes from. If you have plenty of income from pension + annuities + SS, you may not need funds from investments for routine expenses.

In that case you can be more heavily in stocks if you want...

 

[OldShooter]

No surprise, this question comes up here a lot. IMO almost all of those posts, including yours, beg the question: "What is the purpose for this money?" This is effectively what @capjak and @TheWizard are getting at.

If your purpose is to significantly support daily expenses and the total $ amount is small, then being conservative is probably the right strategy.

If your stash is very large relative to your need to spend from it, you many choose a more aggressive AA in order to benefit your heirs and estate beneficiaries.

If your stash is very large relative to your needs to spend from it but you have no interest in leaving an estate, then start having some fun with charitable donations. I particularly recommend community foundations where the donations are spent locally and even small amounts can have real impact. https://www.cof.org/page/community-foundation-locator

So, from the limited information you've provided the answer to your question has to be: "It depends."

 

[SunnyOne]

If your purpose is to significantly support daily expenses and the total $ amount is small, then being conservative is probably the right strategy.

Thank you. This is my situation...also trying to determine appropriate mix of fund categories for this new phase of life.

 

[Montecfo]

Do you qualify for a pension?

 

[SunnyOne]

yes, the amount of that pension will cover about 20% of my anticipated expense budget in retirement.

 

[OldShooter]

If your purpose is to significantly support daily expenses and the total $ amount is small, then being conservative is probably the right strategy.

Thank you. This is my situation...also trying to determine appropriate mix of fund categories for this new phase of life.

OK, fine. I am a fairly aggressive equity investor, so not the right one to give detailed advice, but I will offer a couple of things.

Homework: You will probably be looking at dividend stock and possibly at preferred stocks. The discussion about dividends is whether the investor favors dividend-payers or whether he/she should invest for total return and take whatever dividends come along. The academic/finance community will tell you that the latter is the right strategy but there are many here who seek the dividend payers (funds or stock) as a sort of "paycheck" portfolio or for other reasons. If you start to think dividends you would be well-advised to study this tradeoff very carefully and understand it thoroughly.

Same story on preferred stocks but IMO the issue with these is more complex. They are sort of the same as a bond that never matures, so quite interest rate sensitive, but they often also have call provisions and, of course, business risks at the issuer. Again, study before leaping into this pond.

Finally, re: "appropriate mix of fund categories" don't overthiink this. Many people here invest very successfully using only three funds. In DW and my equity portion we hold just one fund. If you are advised or if you want to go beyond three, make sure you have a good reason. Often, additional funds simply duplicate what you already have. For example, one S&P 500 fund gives you very good diversification; adding one, two, or three more S&P funds gets you nothing but a more complicated broker statement.

Hopefully some of the more income-oriented members here will be along soon with some ideas for you.

 

[Montecfo]

Given you have a pension covering 20 percent of expenses I would say your equity allocation seems very conservative. Think of your pension as being similar to holding a bond portfolio large enough to generate a total return equal to your pension.

Work that into your allocation thinking.

You have a long retirement. You will need more equities in my view.

 

[Exchme]

Everyone's situation is different, but a lot of literature would suggest 60/40 as "home base". I hold more stocks than that, others hold less. Factors will include your goals (travel?, heirs?, gifts?, vacation home?, luxuries?), your risk tolerance, whether you have enough money to live comfortably without growth, etc.

 

[Plantman]

With the way the markets have moved the past couple of years, I'm wondering how you drifted from 50/50 to 30/70. I would have thought you'd be moving closer to 70/30 if anything. Nevertheless, my studies have shown me that the sweet spot for withdrawal longevity seems to be around 75/25 which is where I try to keep my allocation.

 

[HI Bill]

Nevertheless, my studies have shown me that the sweet spot for withdrawal longevity seems to be around 75/25 which is where I try to keep my allocation.

+1. In FIRECALC, you can play with different AAs. The problem with an overly conservative AA is that if bonds continue subpar returns, the SORR, coupled with inflation, could have you running out of $ later on, depending on your WR. I totally get wanting to be 'conservative' with your AA, but too conservative (too much bonds weighting) will likely run you out of $.

 

[SunnyOne]

A couple years ago, I saw my retirement year looming and came across the Michael Kitces article on SORR and creating a bond tent for added protection during the higher risk years immediately leading up to and immediately after retirement. The plan would be revisit this AA once out of the so-called "danger zone.".....It's been awhile since I have looked at it. Now that I will finally have more time to think about all of this and set my portfolio up for decumulation...I am planning to revisit. Thank you.

 

[DrRoy]

I am at 57% equities at age 61, down from 53% at RE 4 years ago. As my NW rises, I notch down on the AA.