Originally Posted by freebird5825
Being naturally thick-headed, I still see the pension as a cash asset, not a bond asset.
Go ahead and correct me on this post if necessary.
Sometimes I need a brick thrown in my direction. No pain will be incurred.
Some kinds of "cash" are better than others.
I think you'd have more faith in a pension coming from the U.S. govt ("more" faith, not necessarily "absolute" faith) than you would for a pension coming from the City of San Diego or from General Motors... or in an annuity purchased from AIG.
If I was a retired airlines pilot then I'd have no more faith in my pension than the amount that's "guaranteed" by the PBGC. Or at least whatever PBGC guarantees are good for.
No matter how quantitatively one figures out their asset allocation, using all available Vulcan logic, there's still an emotional component. People have to be able to sleep at night with their asset allocations-- or else it just doesn't matter whether a portfolio is evaluated as real assets or as phantom bonds.
When our ER portfolio started dropping in 2008, I could say reassuring things like "We keep two years' expenses in cash for just this sort of volatility" and "Hey, we can cut back our spending to live on my pension" or "We still have rental income from the tenants". But when the drop kept dropping (it eventually bottomed out at -58% off the peak) I felt pretty silly saying "Did you know that the present value of our future Social Security benefits is more valuable than our current ER portfolio?" I was rationally correct in my logical assessment of the situation, but it didn't exactly go over like a bedtime lullaby.
So now that we've climbed back out of the recession's hole, whenever our ER portfolio has an exceptional month we're likely to take a little off the table to help satisfy the emotional side of asset allocation.