View Poll Results: Count SS NPV as part of portfolio or not?
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Yes, count SS NPV as part of portfolio for AA purposes.
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14 |
7.78% |
No, don't count SS NPV as part of portfolio for AA purposes.
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121 |
67.22% |
I like bacon.
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45 |
25.00% |
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06-10-2020, 04:00 AM
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#21
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Dec 2015
Location: Michigan
Posts: 5,003
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I don't count mine.
__________________
"The mountains are calling, and I must go." John Muir
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06-10-2020, 04:58 AM
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#22
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Thinks s/he gets paid by the post
Join Date: Mar 2009
Posts: 2,985
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If I can't turn it to cash by 4 PM today I don't count it.
__________________
Took SS at 62 and hope I live long enough to regret the decision.
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06-10-2020, 05:20 AM
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#23
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Dec 2008
Posts: 12,655
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In our case, if we didn't include pension income, our income would be rather small! (We are civil service retirees, who paid into pensions instead of SS).
I'm well aware that our pensions are "like a bond," so by the usual calculations, everything else but the emergency fund should be in stocks. But I've somehow never been comfortable with that.
Quote:
Originally Posted by stepford
If we don't include SS in our AA then by the same logic we shouldn't include any pension income either - and in fact I include neither. That said, doing so makes my nominally kinda conservative 50/50 AA REEEALLY conservative.
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__________________
If you understood everything I say, you'd be me ~ Miles Davis
'There is only one success – to be able to spend your life in your own way.’ Christopher Morley.
Even a blind clock finds an acorn twice a day.
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06-10-2020, 06:41 AM
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#24
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Thinks s/he gets paid by the post
Join Date: Feb 2019
Location: St Pete
Posts: 1,241
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I don't and I don't count my pension benefit either but for different reasons. SS is a "promise" but not an asset... the government could easily change/eliminate/means test etc and I do not own it in any sense (to me SS is a liability as long as I have earned income and I'd opt out if I could-with refund of contributions me and my employers have paid in over my lift). My pension, I do have a legal right to (it is pretty darn secure), but I don't count it as it is not a value I can use/allocate. As a paper, "how much am I worth," exercise I'll occasionally discount the value just for fun and see how it would impact my WR -especially if I'm feeling pessimistic about w*rk and/or falling down the OMY line of thinking.
I do add my projected SS annuity as an income source a spreadsheet I use to project/plan withdrawals as I'll probably get something but won't count on it.
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06-10-2020, 08:06 AM
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#25
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Dec 2008
Location: On a hill in the Pine Barrens
Posts: 9,719
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Bogle said it's ok.
🤓
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06-10-2020, 09:23 AM
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#26
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Recycles dryer sheets
Join Date: Dec 2016
Posts: 413
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....but bogle was wrong
I certainly don't use SS NPV in any calcs, nor consider it a bond
it is a future income stream, subject to constraints
In my case, I could start it tomorrow (and have moneys 6 months in arrears paid, as well) but have still been deferring. My pension is being paid currently, and was never considered as a bond... just as a future income back before retirement.
If you can't reallocate between stocks and it, you cannot include in allocation.... so no to SS, true pensions**. One could sell some items (real estate, patent/royalty payments, beanie babies, "collectible" cards, future crop yields, etc) but would need to consider the value after fees, taxes, and the variability of the items value (which could be huge)... in many cases the results would be GIGO for planning purposes.
(**cash balance plans aren't "true" pensions; one could purchase a SPIA upon retirement but that's not an obligation carried by the company but rather one defined by the company that you purchased the SPIA from)
{...voted No, but also like bacon}
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06-10-2020, 10:05 AM
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#27
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 38,139
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Personally I would simply reduce my expenses by the annual SS amount.
__________________
Retired since summer 1999.
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06-10-2020, 10:16 AM
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#28
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Mar 2013
Location: Limerick
Posts: 5,655
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Personally, I love bacon!
I think you’re overthinking it. Pick one method and stick with it so you have consistency.
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06-10-2020, 01:05 PM
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#29
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gone traveling
Join Date: Sep 2018
Location: Washington, DC
Posts: 575
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I don't count SS (or SS NPV) as part of AA determination, but I certainly consider it in my overall analysis - basically as an annuity payment starting at xx age.
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06-10-2020, 01:18 PM
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#30
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Apr 2012
Posts: 6,176
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Quote:
Originally Posted by MichaelB
Poll option C. You’re smart, but overthinking this. Go with the allocation that lets you sleep soundly.
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+1
SS NPV is more "abstract" to me, and abstract things tend to get lost during market downturns and folks panicking with an AA they thought they were comfortable with. I ignore my SS (and pension) NPV, and just look at them as income streams separate from my AA. My AA is set to let me sleep at night regardless of what the market is doing.
__________________
FIREd date: June 26, 2018 - "This Happy Feeling, Going Round and Round!" (GQ)
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06-10-2020, 07:56 PM
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#31
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Nov 2010
Location: Sarasota, FL & Vermont
Posts: 36,361
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Quote:
Originally Posted by FI_RElater
... it is a future income stream, subject to constraints
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The primary constraint being that you are alive to receive it. [emoji3]
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.
Retired Jan 2012 at age 56
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06-10-2020, 08:08 PM
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#32
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jul 2008
Location: Leeward Oahu
Posts: 17,899
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I do not. I suppose it makes some sense to help you set up your portfolio AA. Naturally, YMMV.
__________________
Ko'olau's Law -
Anything which can be used can be misused. Anything which can be misused will be.
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06-10-2020, 08:18 PM
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#33
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jun 2007
Posts: 13,227
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Truthfully, if I was starting to look at this now at age 58, I would probably do a side fund calculation for my pension and SS, and wouldn't be including them in my net worth (for withdrawal rate purposes) nor my AA. But I started my planning in my late 30s and I either didn't figure out the side fund option, or decided it was too far away to do it.
I could change it now, but that would fall under the "overthinking" category, so I'll live with it. When I start collecting each, I'll drop it out of my NW and AA calcs. Probably.
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06-11-2020, 01:32 AM
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#34
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Thinks s/he gets paid by the post
Join Date: Jul 2004
Posts: 1,558
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Quote:
Originally Posted by RunningBum
OP discounted SS by 40%. I discounted it by 25%. So we aren't ignoring this.
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Yup, 25% discount for me with 'run model assuming it all melts down and see if you could still eat gourmet cat food' as bottom floor. I figure if the US government doesn't pay the military pension, we're in a whole other territory of hurt and AA isn't the important thing on our minds....
__________________
Deserat aka Bridget
“We sleep soundly in our beds because rough men stand ready in the night to visit violence on those who would do us harm.”
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06-11-2020, 01:54 AM
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#35
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Thinks s/he gets paid by the post
Join Date: Jul 2004
Posts: 1,558
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More serious post regarding OP intent (as I understand it).
I believe what you are alluding to is "should I include my pension income in my AA?" There are different schools of thought which have been discussed here. I remember Nords onetime discussing that he had read a book where someone had posited that your pension should be treated like a bond and if so, then your portfolio should be adjusted accordingly to meet your AA. Therefore, your portfolio would tilt much more towards stocks.
My thought on this is 'it depends.' I've been doing a lot of reading over at Bogleheads on the VPW (thanks, RunningBum! for the tip), and one of the tenets in using that is at the age of 80, one would purchase an inflation indexed SPIA (annuity) to establish a floor of income past the age of 100 that would cover basic needs. If one already has a COLA pension and/or their lifestyle cost needs are met with the pension, then purchase of the SPIA may not be necessary. If your lifestyle costs are not met by that pension then purchase of that annuity at the age of 80 to cover basic needs will probably be required to ensure you don't last past your money. So a quick oversimplification would be you live on your portfolio until age 80, then 'buy' a pension that covers your costs and anything coming from the rest of the portfolio is gravy.
In that VPW model, your pensions are not counted as part of your AA - they are managed separately. Your portfolio AA is just that - the AA on the portfolio. The model gives you a final amount you can spend (within bands based on a 50% drop in the stock portion of your portfolio) of which the pension income is part of that. You can still decide your AA.
So to go back around now, to me the most important piece of information one needs in order to figure out what to do with one's AA, pensions, etc, is to figure out what your lifestyle costs will be. That becomes a target that you work your plan to meet. Some of us here live on very little and some not so little. Your plan then needs to take into account the amount of risk you can take with regard to funding your lifestyle. If you are on a tight margin, then *not* including the pension (SS) in your AA calculation would drive you to have a less stock tilted portfolio. If your lifestyles costs are covered by the pension, then your AA could be tilted much higher in stocks and perhaps be 100% (which is what Nords does, I believe - he's really nuts on this ;-) and loves to play arbitrage games).
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Deserat aka Bridget
“We sleep soundly in our beds because rough men stand ready in the night to visit violence on those who would do us harm.”
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06-11-2020, 05:22 AM
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#36
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Thinks s/he gets paid by the post
Join Date: Nov 2008
Posts: 3,408
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Quote:
Originally Posted by jollystomper
+1
SS NPV is more "abstract" to me, and abstract things tend to get lost during market downturns and folks panicking with an AA they thought they were comfortable with. I ignore my SS (and pension) NPV, and just look at them as income streams separate from my AA. My AA is set to let me sleep at night regardless of what the market is doing.
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+1 We mostly live on our SS and pensions while still living a frugal life for the majority of the days and expenses. Then dip into retirement funds for any travel, home repairs, gifts to our grown children, and donations. If SS and pensions were to disappear we would still be covered until the bucket is kicked.
Cheers!
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06-11-2020, 05:38 AM
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#37
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Full time employment: Posting here.
Join Date: Mar 2016
Location: An island off the coast of Florida. (Ok - if you really need to know it's Vero Beach)
Posts: 633
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Quote:
Originally Posted by HNL Bill
I would not count the present value of SS, as it's not in your account right now. Your AA needs to mitigate your SORR from your current age, to the age at which you begin SS payments. Counting the NPV of SS would result in an AA that is too heavily stock-weighted, and you'd have a significant SORR from your current age of 51 to age 70 (19 years), when you begin SS distributions. If you're using FIRECALC, input SS benefits on the SS input section. If you have any failure lines (most likely with a 4% or greater WR), they usually cross the $0 line 15-20 years after you start tapping the investments. However, since your WR is so low, does it really matter?
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My plan has been to guard against Sequence of Returns Risk before pension and SS starts. SORR may be a risk that many fail to appreciate until it hits. A rising equity glidepath mitigates some of the downside while trading away upside potential for peace of mind.
IMHO SS and pension is an income stream used to offset portfolio with drawls, not a bankable asset.
Bacon lover.
__________________
DW and I are 62/62. 100% equities 31 years. FIRE'd August 2019. Non-cola pension cashed out Dec 2022 before segmentation rates reduced balance - rolled to MM fund, max SS for DH and DW at FRA. Mega retiree health available. IRA rollover from 401k Jan 2020 for NUA treatment. LTCG for 3 years. Next few years will be IRA cash withdrawals or until Stock Market recovers. AA 33% stocks, 67% MM and T-Bills. Rising equity glidepath.
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06-11-2020, 05:48 AM
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#38
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Thinks s/he gets paid by the post
Join Date: Nov 2014
Location: Austin
Posts: 1,384
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For me "No" was the best answer. I treat it as only as a guaranteed, COLA'd income stream. I also have a TIPs/Ibonds ladder to supplement that to add a fixed, COLA'd dollar amount income stream to that. Then I have an AA for stocks/bonds. Of course SS and my TIPs/Ibond ladder have an affect on my choice of stocks/bonds AA is, but since SS + TIPs/Ibonds is targeting a dollar amount, not a percentage, I treat them completely separate when calculating my AA.
In terms of an annual withdrawal, I will calculate the NPV of my SS stream and the NPV of my TIPs/Ibond ladder during the period between retirement and the time when I actually start taking SS and withdrawing from the TIPs/Ibond ladder and that will be part of the calculation of my annual withdrawal. This is described over on bogleheads in the "Time Value of Money" threads.
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06-11-2020, 05:51 AM
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#39
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Thinks s/he gets paid by the post
Join Date: May 2016
Location: Mid-Atlantic
Posts: 2,676
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I chose "I like bacon" because 1) I like bacon, and 2) I had to look up what NPV was, so I hadn't thought of this before either.
But...I did leave SS out of my Fidelity retirement planner until about a year or two ago, just to make sure that we would be OK without it, even though at worst we'd probably get 75% of our expected benefits, so I almost said don't count it. That's a different reason to leave it out, but it's true that I don't count it towards my AA, and I don't think I will.
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-Looking to FIRE in the mid-2020s, which would be our mid-50s.
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06-12-2020, 01:52 PM
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#40
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jul 2006
Location: Pacific latitude 20/49
Posts: 7,677
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Quote:
Originally Posted by audreyh1
Personally I would simply reduce my expenses by the annual SS amount.
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We have 5 pensions and that is what we do. And our SWR is under 2% as a result. But yes the pension amounts count towards fixed assets. So our portfolios have an equity tilt of 65%.
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For the fun of it...Keith
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