AA gear shift at retirement?

[albireo13]

Quote:

Originally Posted by mrfeh Why would you trust what friends tell you to do? Choose the AA that is right for you and ignore advice from others. Don't try to time the market.

I don’t trust them. That's why I am posting here. I am in data gathering
mode and will see what makes sense for us. It's good to
hear from other folks ... get different viewpoints.
Perhaps there are things I've never considered.
In any case I appreciate all opinions here.

[jollystomper]

I chose to shift to 40/60 about 6 months before retirement. It was coming off of a good year for us (2017), and I personally felt more comfortable being less aggressive when shifting from savings to spending mode. All forecasts showed everything should be fine without SS, and our planned spending was only 75% of what the forecasts (on average) said we could spend. I do not advise everyone do this, but for our situation I have been happy with the results.

[ERD50]

Quote:

Originally Posted by 24601NoMore Funny..I was just about to post a link to the same study but have a different take on the net than MidPack does apparently.. To me, the upside (increase in average annual return) of 60/40 over 40/60 is not that huge - but the downside is much more significant (max % down, # of down years). ...

But you are looking at it in a vacuum. Sure the down years are deeper, but when do deep drops occur? After big rises. But you ingnore that? Don't, it's part of the big picture.

The important part is how does it work in retirement?

Here's a link to Portfolio analyzer, going back as far as they have data for VFINX and VBMFX [Jan 1987 - Oct 2019]. I used a 3.5% inflation adjusted withdraw, annual rebalance. 40/60 vs 60/40.

http://bit.ly/2DkTVbJ

The 60/40 pulls ahead, so after the dips, it is still ahead.

Try 5, 10, 15, 20, 25, and 30 year time frames. In 5 of 6 of those, the 60/40 comes out ahead (mostly by quite a lot), and 4 of 6 never dips below the 40/60 value at all. And note that this is with inflation adjusted withdrawals.

In the 15 year period, the 60/40 does dip below the 40/60 a little in the 2008 crash, but not by much and not for long. It recovers, and is now over 15% ahead.

Only the 20 year period is worse for 60/40, starting in 1999 hits the 200 crash smack on. And that is now less than 0.9% behind.

I'd suggest that you forget about "viewpoints" from different people - look at the data.

But for the record, 6040/ 40/60 - my viewpoint is do what you want. But the data does not paint a good picture for 40/60. Personally for me, 40/60 is getting too close to the point where portfolio success starts to drop off (IIRC success is pretty flat from about 30/70 to 95/5) - I'd rather be in the middle of that range, than close to an edge, since the future may well be different from the past.

-ERD50

[OldShooter]

Quote:

Originally Posted by jollystomper ... I do not advise everyone do this, but for our situation I have been happy with the results.

This cannot be said too frequently during these endless threads on what people are doing with their AAs. (added underlines mine)

[FireFool]

Quote:

Originally Posted by DSC800 Maybe not popular here but my wife and I are recently retired at 58 and we are +90% equity and part of the 10% balance is an SFR (which is still an equity), plus a little in cash. We have zero bonds, treasurys, CD's, pensions or annuities. We have no debt at all and our son's college expenses will be done next year. I only invest in US dividend stocks (mostly growth) and ETF's. If I added bonds, treasury's or CD's I'd feel I'd be missing out on growth over time, be hurt by inflation and the interest earned is usually taxed at a higher rate than dividends. Our WR is <2.5% but we are flexible enough to go to just 1% (of current assets) and still pay our bills, and this is without considering SS. I handled the 2000 and 2008 declines without panicking and expect there will be a few more declines in my lifetime. Note that dividend payments are much less volatile during recessions, declining less than 20% during the great recession (IIRC). Maybe I'll change my thinking in my 60's (if it's not too late) but for now I'll let it ride.

I'm in a similar situation, so my attitude has been that my AA should be closer to what's recommended for my children, as a substantial portion of my assets will ultimately become theirs. In the three years I've been retired my assets have grown almost 60% and my WR is <2% despite my efforts to loosen up our spending (I don't have time for more than the four large trips a year we're doing). So somewhere else in the thread was the statement that AA really needs to be individual circumstance specific. WR's, risk tolerance, investment goals, tax situation of you and your heirs, split between tax deferred and post tax investments, etc. don't fall into a neat one-size fits all rule of thumb. I can afford to be wrong by quite a bit in my AA decision as I retired with a conservative WR that has only become even moreso ridiculously conservative to the point I've come to grips that it's extraordinarily unlikely that my wife and I will ever be able to spend all our assets. Sharing my wishes that others can be in the position we are, but I still have to recognize a good amount of where we're at boils down to just good luck.

[Spanky]

Quote:

Originally Posted by ERD50 But you are looking at it in a vacuum. Sure the down years are deeper, but when do deep drops occur? After big rises. But you ingnore that? Don't, it's part of the big picture. The important part is how does it work in retirement? Here's a link to Portfolio analyzer, going back as far as they have data for VFINX and VBMFX [Jan 1987 - Oct 2019]. I used a 3.5% inflation adjusted withdraw, annual rebalance. 40/60 vs 60/40. http://bit.ly/2DkTVbJ The 60/40 pulls ahead, so after the dips, it is still ahead. Try 5, 10, 15, 20, 25, and 30 year time frames. In 5 of 6 of those, the 60/40 comes out ahead (mostly by quite a lot), and 4 of 6 never dips below the 40/60 value at all. And note that this is with inflation adjusted withdrawals. In the 15 year period, the 60/40 does dip below the 40/60 a little in the 2008 crash, but not by much and not for long. It recovers, and is now over 15% ahead. Only the 20 year period is worse for 60/40, starting in 1999 hits the 200 crash smack on. And that is now less than 0.9% behind. I'd suggest that you forget about "viewpoints" from different people - look at the data. But for the record, 6040/ 40/60 - my viewpoint is do what you want. But the data does not paint a good picture for 40/60. Personally for me, 40/60 is getting too close to the point where portfolio success starts to drop off (IIRC success is pretty flat from about 30/70 to 95/5) - I'd rather be in the middle of that range, than close to an edge, since the future may well be different from the past. -ERD50

Thanks for the link for the portfolio analyzer. It seems that a higher equity allocation will come out ahead most of the time.

[DrRoy]

I was over 80% equities while working but in the years approaching RE took it down about 20 points. As the market has continued to rise over the last couple years during RE, I have notched it a couple points lower, and after pulling next year's spending $ I plan to rebalance to 58%.

[capjak]

Quote:

Originally Posted by Spanky Thanks for the link for the portfolio analyzer. It seems that a higher equity allocation will come out ahead most of the time.

True your heirs/charity (if you have any) will have more $$ most of the time if history and the future are close....

Depends on the goal.....

Both 40/60 and 60/40 ended with a "+" amount after a lifetime of spending at apx 3% inflation adjusted.

So it was a tie.......

I am currently 40/60 in year 1 of retirement but was 60/40 prior to retiring...

[audreyh1]

Quote:

Originally Posted by albireo13 I am wondering how other folks look at their AA as they switch from savings mode to draw-down mode. I have been using 60/40 allocation the last 5yrs as I approach retirement next year. Friends tell me I should drop to 50/50 or 40/60 in retirement. This seems safe but I worry about inflation erosion and also what is going to happen to SS. Firecalc numbers predict we are ok but I include SS. Also, I expect a market correction soon. How do other folks approach this?

Well I was almost 100% stocks a year before retiring, and when I decided to pull the plug I adjusted to 60/40 over a couple of years. Fine for a young retiree. I think below that you need to review carefully your risk tolerance and age vs. inflation and dependence in retirement on your nest egg. BTW 40/60 will still protect you from inflation.

I’m closer to 50/50 now.

[VanWinkle]

Quote:

Originally Posted by audreyh1 Well I was almost 100% stocks a year before retiring, and when I decided to pull the plug I adjusted to 60/40 over a couple of years. Fine for a young retiree. I think below that you need to review carefully your risk tolerance and age vs. inflation and dependence in retirement on your nest egg. BTW 40/60 will still protect you from inflation. I’m closer to 50/50 now.

You picked a great time to be 100% stocks with a year to go. Some weren't so lucky in 09 if they were retiring in a year. I'm glad you made it!!

VW

[Bir48die]

Quote:

Originally Posted by Chuckanut I think 60/40 is plenty conservative if one is planning for a 20-30 year retirement period. But, if going to 50/50 or 40/60 helps you sleep at night, by all means do it. Nobody knows for sure how it will work out. I am keeping my AA at 60/40 for now, but I am thinking that when I hit 70 and add SS to my monthly pension income I may let my AA start to creep up as I withdraw from bond fund in my taxable IRA. But I will still keep at least three years of funds available in Federally insured savings instrument at all time. There is no point in betting the farm on the belief that the market that will always go up.

I went 60/40 three years into retirement. Was 90/10. I will also bump up equity portion at 70.

[24601NoMore]

Quote:

Originally Posted by capjak True your heirs/charity (if you have any) will have more $$ most of the time if history and the future are close.... Depends on the goal..... Both 40/60 and 60/40 ended with a "+" amount after a lifetime of spending at apx 3% inflation adjusted. So it was a tie....... I am currently 40/60 in year 1 of retirement but was 60/40 prior to retiring...

"Depends on the goal" is 100% spot on. You're absolutely correct that 60/40 will likely result in a larger remaining portfolio balance than 40/60. But, do you NEED a larger portfolio balance at the end of the game? In our case, my priorities are to pay the bills through age 95 for both of us, and to take the minimum amount of risk needed to do so. I'm not including pass-down estate planning, large gifts or anything else. It's strictly - how do I get to age 95 with a minimum amount of volatility, stress and worry? I can't stomach a 33% (max drawdown in your example) drop (or, God forbid, even larger and more prolonged downturn) at this stage in my life.

Given all that, my plan is structured on paying the bills and taking the minimum amount of risk needed to meet our financial goals while we're living. For those who are OK riding the roller coaster down and back up again to potentially end the game with a larger pile - that's fine and everyone's own choices need to be made per the unique financial situation and NEED/DESIRE (ie: to pass to children or others if that's your wish). But, having been here for a few years now, it does seem that the focus is often on "how big can I get the pile, risk be damned" vs. "what do I NEED" to get through the end of the game while living the lifestyle I choose or desire?

Just my $.02..but I'm definitely more in the "how do I get through the game with a minimum amount of risk and still be 100% sure of success" than the "how big can I possibly make the pile" camp..