Investments after Retiring

[armor99]

Hello everyone,
So I am around 7 years out I am thinking. At present, I have 1.4mil in retirement accounts. Goal is to hit 3mil by then. Should be 50/50 Roth and Traditional 401k. A bit ambitious, but we will see.
So at the moment, I am almost 100% stocks. I fully understand that the market can tank (hopefully now and not years later). So after I retire, do I go for super safe, and just try to get that 4% return, or do I stay the course I have now, or maybe split the difference? I worry about hitting that huge market downturn at exactly the wrong time. The first few years of retirement.

 

[MichaelB]

Thread moved to “Fire and money” where it will get more visibility.

 

[OldShooter]

What you are talking about is Sequence of Returns Risk, fondly jargonized here as SORR. A search will bury you in threads to read.

Nobody knows what's right for you. For us, the strategy was to stay nearly 100% in stocks until maybe a couple of years before retirement, then to move enough money into fixed income that we could live for several years without selling stocks if there was a big downturn. Most people here talk about that as an asset allocation, often around 50/50 but the allocation depends critically on each person's assets, goals, and spend rate. Another way to talk about it is to visualize "buckets" where the first bucket is what gets tapped in a down market. I think both views are useful, but a little searching here will find heated debate.

Another consideration is inflation. Recently calm inflation has, IMO, lulled people into not worrying too much about it. Look back around 1980 +/- to see how exciting it can get, though. Our strategy there is to hold a good bit of FI in TIPS, viewing the yield penalty as the cost of our inflation insurance. We are definitely not with the mainstream on this.

You will get generally good advice here, but remember that it is coming from people who know nothing about you, your goals, your priorities, and your risk tolerance. On the latter subject, try to remember that volatility is not risk and that every single market downturn so far has been followed by a recovery. So the risk is not a permanent loss of money; it is having to sell equity during the downturn.

 

[Luvtoride]

Armor, as Old Shooter has pointed out, a bucket approach as to when you will need to draw down funds makes the most sense in allocation for retirement. You definitely don't want the SORR just as you are retiring, needing to sell assets at a LOW point because you need funds then. By using buckets, you can take greater "risk" with funds that won't be needed until later in retirement.
I'm a couple of years away from retirement and have already positioned our assets in these buckets to cover the next 8-10 years of anticipated cash needs. The later bucket assets can be as aggressive as you like since you won't touch those funds until much later.
Good luck.

 

[eytonxav]

Just come up with an allocation that lets you sleep well at night.

 

[freedomatlast]

I have been retired for a couple of years and while I still maintain a relatively high allocation of stock, I also have several years of expenses in cash stashed to be able to ride out a potential downturn in the stock market, so I won't have to sell equities at a loss. History says this should work. Time will tell.

 

[dmpi]

In 2008 I was 7 years out from retirement and 95% invested in stocks. Then the housing bubble burst. It's a understatement to say those were dark days. I couldn't take it anymore and I made the cardinal sin. I sold after the crash. Not everything but about half of what I had. Fortunately the CD/Bond rate wasn't bad at the time and as soon as they matured I bought right back into the market. In the end I survived the crash and I didn't do too bad recovering from my 'mistake'. The take away lesson for me is: Don't overestimate your tolerance for risk. And whatever happens, keep your wits and you'll probably still land on your feet.

 

[walkinwood]

Just come up with an allocation that lets you sleep well at night.

... and glide to that allocation between now and retirement.
Read Kitces article on glide paths - it goes against conventional wisdom but has numbers to back it.
https://www.kitces.com/blog/should-...is-a-rising-equity-glidepath-actually-better/



I'm in my early 60s, have been retired for 13 years and have maintained a 60/40 stock/bond allocation through this time. Before ER, I was at 80/20

 

[38Chevy454]

You are also confusing asset allocation and SORR. Although they are sort of related to each other, they are different items. A high equities AA is good for inflation protection and for portfolio growth. Having less equities and more fixed income is good for stability and gets into your risk tolerance. If you have high risk tolerance, and do not overreact to market ups and downs then you can stand a higher equities AA. As for SORR, there are different strategies that can help with that. The buckets method works, if that helps you to visualize the money better. Ultimately money is fungible and if you have an AA that works for your risk tolerance, then income can be had from whatever equities or fixed income is up at that time (sell high). The key is to control your AA so that you can sleep well at night, no matter what the market does.

The difficulty in current time is that there are not so many good options for fixed income as far as returns on investment. It is more of just trying to trad water recently. The old adage higher risk = higher returns holds true.

I was 100% equities up until about 3 years from retirement, then tapered back to 80/20. My current target is 70/30, however I have let that creep up thanks to great market results last few years, without rebalancing. Will I regret that decision? Time will tell, but I have enough in fixed income to weather the downturn, so it works for me with my high risk tolerance.

 

[OldShooter]

@armor99, risk tolerance has been mentioned a couple of times. This is an important topic. There are any number of risk tolerance questionnaires available of the internet, but sitting in your recliner chair filling them out is not even close to the experience of an actual market pullback. Your first one will not be fun, but if you avoid @dmpi's mistake you will find that gutting it out through the next one will be easier, and the one after that easier still. DW and I have been riding this horse since the 1987 dip and have never sold into one. Now we just laugh with each other when something exciting happens. Keep saying to yourself "Volatility is not risk." over and over until your lips bleed. You'll be fine.

 

[armor99]

Lots of really great advice here. Thanks so much. Still a while out.. like 7 years. Lots to consider as I get closer though.

 

[SnowballCamper]

I say decide on the AA that you will stick with through the worst market decline, and get to that AA by the time you retire. Then when/if the crash happens, rebalance as necessary, in conjunction with your withdrawals for living expenses.

Will you be younger than 59.5 in seven years? are you doing a 72t or adding a regular brokerage?

 

[Scrapr]

One other thing to think about is money outside of your IRAs & Roths. Taxable accounts. This lets you manage withdrawals to be tax efficient.

I was 100% stocks until the Great Recession. My business was in the housing sector, so double whammy. My stocks went down, our 2 house values went down & my livelihood was off 70%. Once things stabilized I rebalanced to 60/40. Thanks to an inheritance I have a boatload of cash. I sleep good now

 

[armor99]

I say decide on the AA that you will stick with through the worst market decline, and get to that AA by the time you retire. Then when/if the crash happens, rebalance as necessary, in conjunction with your withdrawals for living expenses.

Will you be younger than 59.5 in seven years? are you doing a 72t or adding a regular brokerage?

I will be 55 at that time. If I choose to retire, I will roll my Roth 401k into a Roth IRA and have access immediately to all of my contributions (yes Roth IRA has been around for over a decade). Just before I retire, I will reverse roll over my T Ira into my companies 401k account. (My company does allow this), and then use the rule of 55 to have access to the money penalty free. That should be more than enough to get me to 59.5

 

[pb4uski]

Lots of really great advice here. Thanks so much. Still a while out.. like 7 years. Lots to consider as I get closer though.

One thing that you might consider is changing your contributions and dividend reinvestment from here until you retire to go into fixed income funds or ETFs within your traditional 401k... especially if your 401k offers a stable value fund that pays a decent interest rate. That way, your AA will creep from 100/0 today to less than 100/0 gradually over the next 7 years.

 

[target2019]

Hello everyone,
So I am around 7 years out I am thinking. At present, I have 1.4mil in retirement accounts. Goal is to hit 3mil by then. Should be 50/50 Roth and Traditional 401k. A bit ambitious, but we will see.
So at the moment, I am almost 100% stocks. I fully understand that the market can tank (hopefully now and not years later). So after I retire, do I go for super safe, and just try to get that 4% return, or do I stay the course I have now, or maybe split the difference? I worry about hitting that huge market downturn at exactly the wrong time. The first few years of retirement.

Say you want to get from 100% equity to 65%. That is 35% over 7 years, or about 5% each year. Others have mentioned different ways to accomplish a transition away from 100%.
- change new contributions to stable value
- buy bond fund
- exchange to bond fund or stable value
I used various tactics like the ones above. Market forces have effect on this.

 

[OldShooter]

@armor99, before you fall in love with any AA percentage be sure to check a bucket view. For example, what does 35% mean in terms of your expected annual draw? One year? Four years? Ten years? It matters. Three or four years might be a good number, while ten years means IMO you are foregoing market gains unnecessarily. One year might be a bit too risky. It would be for me but YMMV.

Also, given that most market bumps only last a few years, seven years is IMO too soon to begin transitioning the portfolio. Three to five years is probably enough, but that is a risk/strategy question that only you can evaluate.

 

[brett]

We have been retired for almost ten years. We view my DB as a fixed income component. At just shy of 70, I still take a 10-20 year window for investing. Our remaining allocation sits anywhere from 55-60 percent equities, the rest is short term bonds, other investment, and from time to time a little cash.

We were fortunate. We never sold out for cash when the market was down. I followed the advice of my spouse who has no interest in finance.

Her advice, stick on black and now it the time to buy. Buy low, sell high. Basic-take the long view.

But...we were in the fortunate position where loosing 60 or 70 percent of our equity would not impact our lifestyle appreciably.

I expect that our allocation will continue to be 50-65 percent equities at any given time depending on the market.

 

[kevink]

Lots of good advice already here. I suggest looking at both Safe and Perpetual Withdrawal Rates for a bunch of the popular "lazy" portfolios featured on the Portfolio Charts site. Since you may not be familiar with the Perpetual Withdrawal concept here's a link to the article on the site that explains it and shows how it works in practice:

https://portfoliocharts.com/2016/12/09/perpetual-withdrawal-rates-are-the-runway-to-a-long-retirement/

Suffice it to say that there are plenty of portfolios that are great for minimizing sequence-of-returns risk during both the accumulation and distribution phases and that do so much more elegantly than using Kitces' rising equity glide path.

 

[SecondAttempt]

One thing you can do is to look at the asset allocation of some target date retirement funds for your retirement year. You say you are 7 years out, 2021+ 7=2028 so maybe look at a 2030 (or 2028 if you can find one) target date retirement fund and see what its allocation is.

I'm not actually a fan of target date retirement funds but I do have one in my w*rk retirement plan because it is the least bad of several options. (Vanguard Wellesley Admiral is one option and holds most of my money but I wanted a little more stock allocation so I also hold a far away target fund.) But looking at how the pros are allocating can be informative. I suggest looking at several rather than just one. Most will have similar allocation but it never hurts to have several opinions.

 

[53anddone]

same

I have been retired for a couple of years and while I still maintain a relatively high allocation of stock, I also have several years of expenses in cash stashed to be able to ride out a potential downturn in the stock market, so I won't have to sell equities at a loss. History says this should work. Time will tell.

Ditto

 

[street]

I have been retired for a couple of years and while I still maintain a relatively high allocation of stock, I also have several years of expenses in cash stashed to be able to ride out a potential downturn in the stock market, so I won't have to sell equities at a loss. History says this should work. Time will tell.

I like your strategy and history tested plan. I also have more then several years in cash to survive a long drawn out down time. I hope history is right.

 

[DrRoy]

Just come up with an allocation that lets you sleep well at night.

I have reduced my AA (in stages) from 84% equities a few years before RE to 54% a few years after. I should say that I am over funded and have done this in the face of the rising market over that period.

 

[chrisaukcam]

My investment philosophy has been to keep 2 years of income in bonds. That is because the average recession lasts around 18 months. And then keep the rest in stocks. I like to play the market a little so I keep around 80% in etfs and play around with individual stocks with the rest. But like others have said, it is what allows you to sleep at night.

 

[Markola]

Investing is one area of life where, fortunately and ironically, less-is-more and it pays handsomely to KEEP IT SIMPLE. Here’s an excellent, easy to understand little book that I wish existed 30 years ago:

“Twenty benefits from the three-fund total market index portfolio.

The Bogleheads’ Guide to The Three-Fund Portfolio describes the most popular portfolio on the Bogleheads forum. This all-indexed portfolio contains over 15,000 worldwide securities, in just three easily-managed funds, that has outperformed the vast majority of both professional and amateur investors.

If you are a new investor, or an experienced investor who wants to simplify and improve your portfolio, The Bogleheads’ Guide to The Three-Fund Portfolio is a short, easy-to-read guide to show you how.

https://www.amazon.com/dp/1119487331/ref=cm_sw_em_r_mt_dp_43G2C5RB4QM3J3M33NJB