Poll: Equity Allocation for the 1st 10 years of RE

[6miths]

Only been retired for just over 4 years. If I considered only our investment portfolio which includes taxable and non-taxable I would say about 80% but if I were to include house, cottage, and insurance products it would drop to 50% or maybe slightly less. If I included social security even a bit less.

 

[Corporateburnout]

One critical aspect to keep in mind when comparing equity allocations is knowing how much of the budget is covered by non-portfolio income. Someone with pension & SS covering 1/2 of total spending has a much different risk profile vs another with no pension or SS income, even if both have the same equity allocation.

+1.


I would have been 75% allocated to equities rather than 55% if I had a pension that covered 50% of my spending.

 

[DrRoy]

One critical aspect to keep in mind when comparing equity allocations is knowing how much of the budget is covered by non-portfolio income. Someone with pension & SS covering 1/2 of total spending has a much different risk profile vs another with no pension or SS income, even if both have the same equity allocation.

I gave this some thought yesterday. My investments are at 60% equities but if I factor in my pension it is 50%. I had been considering bringing the first figure down to 55% if the market continues to rise, but maybe I am good where I am.

 

[RunningBum]

I read the Kitces article on this concept. If one retires into a "low valuation" market (not now), then can one miss out on the rising market and then with reversion to the mean, be at a high equity valuation in later years with a down market and psychologically be able to handle it at 75-80 years old?

The idea is that a downturn then comes late enough that it doesn't have enough effect on your portfolio. I share your concern. I wonder if this is one of those cases where it fits the historical data available, but maybe there's not really enough data to be certain enough it will work in the future.

It's also based on a 30 year period. Proponents here throw the idea around without mention of age. Some of us potentially have 40 or even 50+ years in retirement, especially if they beat the average in remaining life expectancy. If you do the glide path for 10 years and those 10 years have so-so returns, you still have 30-40 years left and I think you are still subject to sequence of returns just like a new retiree has.

Most people are careful not to apply the "4% rule" to an extended retirement, but I see no such caution when talking about this glide path strategy even though it was specifically targeted for a 30 year retirement, just like the 4% rule. And while the 4% rule can be easily modified for a longer retirement by dropping it down to perhaps 3.5%, I don't see a similar easy adjustment for the glide path. Do you extend the glide for 20 years? Start with even lower equities? Stay low for 10 years and then start increasing? Start high, then drop low, then back to high?

 

[DEC-1982]

One critical aspect to keep in mind when comparing equity allocations is knowing how much of the budget is covered by non-portfolio income. Someone with pension & SS covering 1/2 of total spending has a much different risk profile vs another with no pension or SS income, even if both have the same equity allocation.

Very good point. With growth and other changes this year, the equity portion has drifted up from 60% but when I added the pension it came back to just around 60%.

This did make me think about something else. One of my goals was to have at least 7 years of expenses in fixed income to cover an equity bear market and recovery. I forgot that with a bear market, in addition to withdrawals, some money also flows out of fixed income into equity during the downturn due to re-balancing.

 

[Dtail]

The idea is that a downturn then comes late enough that it doesn't have enough effect on your portfolio. I share your concern. I wonder if this is one of those cases where it fits the historical data available, but maybe there's not really enough data to be certain enough it will work in the future.

It's also based on a 30 year period. Proponents here throw the idea around without mention of age. Some of us potentially have 40 or even 50+ years in retirement, especially if they beat the average in remaining life expectancy. If you do the glide path for 10 years and those 10 years have so-so returns, you still have 30-40 years left and I think you are still subject to sequence of returns just like a new retiree has.

Most people are careful not to apply the "4% rule" to an extended retirement, but I see no such caution when talking about this glide path strategy even though it was specifically targeted for a 30 year retirement, just like the 4% rule. And while the 4% rule can be easily modified for a longer retirement by dropping it down to perhaps 3.5%, I don't see a similar easy adjustment for the glide path. Do you extend the glide for 20 years? Start with even lower equities? Stay low for 10 years and then start increasing? Start high, then drop low, then back to high?

All very good points. The control of the WR% appears to be an easier to execute concept vs. moving around equity glidepath % if things go south.

 

[RobLJ]

I'm 60, FIREd (well, I do work part-time online), and at 50% (for my accounts, from which we are drawing). However DW's (4 years younger) accounts, from which we will not draw for another 4 years, are at 69%, for an overall allocation of about 57.5% equities. I did my first withdrawal in February, but it is in bonds in the brokerage account since we haven't spent much of it. I'm about to start my 4th year of FIRE.



Eventually, I'll probably equalize between 55-57% when DW's accounts are drawable, then creep up to 60%/65% when I start to draw SS at FRA.

 

[ikubak]

Of the retirement assets I plan to spend in the next 10 years, they are invested about 60/40. The rest of the retirement assets, those I don’t plan to spend in the next 10 years, are 95% in equities. Also, 75% of our spending needs will be met from SS and pensions within 5 years.

 

[Red Badger]

I voted 65, then realized I excluded our cash and CD ladder. So, more like 55% equities.

 

[flintnational]

70% stocks since ER four years ago

But, I also consider other aspects of our situation. Our house is paid off and we have pensions and SS that will cover most of our budget in 7 years. So, we are a little more aggressive with our stock allocation.

 

[OldShooter]

One critical aspect to keep in mind when comparing equity allocations is knowing how much of the budget is covered by non-portfolio income. Someone with pension & SS covering 1/2 of total spending has a much different risk profile vs another with no pension or SS income, even if both have the same equity allocation.

+1 Not only do needs affect the allocation, so does the relative size of assets versus needs.

I did not vote. Our AA is determined by our unique circumstances, the biggest consideration being the size of our assets vs our needs. People with assets far beyond their needs may choose to stop playing the game -- zero equities -- or may choose to invest heavily in equities for the benefit of their heirs and charities. People with more limited assets vs needs will probably go to neither extreme.

IOW, my number is meaningless for you unless we are in similar economic circumstances and, even then, we may not have the same appetite for volatility and risk. (IMO the two are NOT the same, Harry Markowitz notwithstanding.)

 

[MikeTN]

The idea is that a downturn then comes late enough that it doesn't have enough effect on your portfolio. I share your concern. I wonder if this is one of those cases where it fits the historical data available, but maybe there's not really enough data to be certain enough it will work in the future.

It's also based on a 30 year period. Proponents here throw the idea around without mention of age. Some of us potentially have 40 or even 50+ years in retirement, especially if they beat the average in remaining life expectancy. If you do the glide path for 10 years and those 10 years have so-so returns, you still have 30-40 years left and I think you are still subject to sequence of returns just like a new retiree has.

Most people are careful not to apply the "4% rule" to an extended retirement, but I see no such caution when talking about this glide path strategy even though it was specifically targeted for a 30 year retirement, just like the 4% rule. And while the 4% rule can be easily modified for a longer retirement by dropping it down to perhaps 3.5%, I don't see a similar easy adjustment for the glide path. Do you extend the glide for 20 years? Start with even lower equities? Stay low for 10 years and then start increasing? Start high, then drop low, then back to high?

A rising glide path for a 60 and a 30 year retirement are addressed in this:

https://earlyretirementnow.com/2017...s-part-20-more-thoughts-on-equity-glidepaths/

It seems to work for both periods.

 

[Offgrid Organic Farmer]

None of my portfolio has ever been in mutual funds. So I do not have any Asset Allocations.

 

[ikubak]

70% stocks since ER four years ago



But, I also consider other aspects of our situation. Our house is paid off and we have pensions and SS that will cover most of our budget in 7 years. So, we are a little more aggressive with our stock allocation.

+1

Asset allocation is important but expenses and pensions figure into the calculus too. A paid for house/cars, and a pension that covers a good portion of your spending allows one to hold a higher percent of equity and still sleep well at night.

 

[mrfeh]

I expect I will be at 60% for life but only time will tell.

This is our plan as well.

 

[OldShooter]

None of my portfolio has ever been in mutual funds. So I do not have any Asset Allocations.

Huh? If you have assets, your have an asset allocation. It may be something like 100% farmland, or 50% gold and 50% farmland, but it is still an allocation. And, even if you hold zero stocks or MFs, all the cautions about the importance of diversification still apply.

 

[jebmke]

We set ours at ~40% prior to ER in 2007. Pension started this year and have run out of tax loss carryforwards so I'm going to let it ride on the upside and re-balance on the down-side.

 

[Offgrid Organic Farmer]

Huh? If you have assets, your have an asset allocation. It may be something like 100% farmland, or 50% gold and 50% farmland, but it is still an allocation. And, even if you hold zero stocks or MFs, all the cautions about the importance of diversification still apply.

Perhaps I said it wrong.

We have farm land and rental real estate.

 

[jollystomper]

One critical aspect to keep in mind when comparing equity allocations is knowing how much of the budget is covered by non-portfolio income. Someone with pension & SS covering 1/2 of total spending has a much different risk profile vs another with no pension or SS income, even if both have the same equity allocation.

Great point. In our case we should not need to sell equities before we decide to take SS, due to pension, cash, and part-time income. So in theory, we could have much more than 40% in equities. But that would not make me sleep better at night. Maybe after a few years of RE I'll feel differently.

 

[scrabbler1]

One critical aspect to keep in mind when comparing equity allocations is knowing how much of the budget is covered by non-portfolio income. Someone with pension & SS covering 1/2 of total spending has a much different risk profile vs another with no pension or SS income, even if both have the same equity allocation.

Similarly, if someone in ER has no pension or SS for now, but will have one or both of them later on, then his or her equity portion for the taxable portfolio may be different from their tIRA which won't be readily available until the pension and/or SS become available.

 

[Nature Lover]

I expect I will be at 60% for life but only time will tell.

+1. I have non-investment income (COLA pensions, other passive income) that currently cover all current necessities plus a little, so the investments continue to be invested. While I could invest the portfolio more aggressively, or less so, 55%-65% equities is what I'm comfortable with.

NL

 

[Ed B]

+1. I have non-investment income (COLA pensions, other passive income) that currently cover all current necessities plus a little, so the investments continue to be invested. While I could invest the portfolio more aggressively, or less so, 55%-65% equities is what I'm comfortable with.

NL

+2

I sold my last individual equity last week and rearranged things with 1/2 portfolio in Wellington and the other half split between VTI, BIV and megacorp Stable Value which puts me at 65% equities. I went ahead and bought Wellington because my instructions for DW in case of my untimely demise will be to put everything into Wellington and take the yearly distributions to supplement her pension and SoSec.

Since 90% of our expenses will be met by pension and SoSec once the latter is started I feel pretty good about using Wellington for her instead of a more conservative play like Wellesley.

Lots of words to say 65% equities is our plan now and going forward.

 

[swakyaby]

85% equities while w*rking. Retired this year, no pension, with equities at 68%. Desired asset allocation is 60/35/5.

 

[cranberryjoe]

I'm only 5 years in. My target is 65% equities but I voted 70% because it keeps creeping up and is usually closer to 70 than 65. Today it's at about 69.5%, almost ready to trigger another rebalancing.

 

[Car-Guy]

I just didn't feel right about voting since the lowest voting category was 45% or less. My equity position is usually so far below that it just didn't feel right to cast a vote.