Reducing stock exposure in Retirement, age 60+

[pb4uski]

Ah, see... you're changing what you wrote. Before you said "high a fixed income portfolio" (sic) but now you are saying "100% bond portfolio". If you had said 100% bond portfolio earlier I would not have bothered to respond because that is true and FIRECalc proves that it is true.

 

[FREE866]

Ah, see... you're changing what you wrote. Before you said "high a fixed income portfolio" (sic) but now you are saying "100% bond portfolio". If you had said 100% bond portfolio earlier I would not have bothered to respond because that is true and FIRECalc proves that it is true.

100% 80%. I think you get the point.

 

[24601NoMore]

Well, I ran Firecalc with 0% stocks and it tells me we have a 100% chance of successful retirement, so all is good

Reading more about TIPS..might think of picking some of those up.

Should have also mentioned I have a pretty hefty allocation to fixed income (MYGAs, CDs, Bond Funds). Interest from those will pay the bills for the next 5 years. (Actually starting to pick up some 7 year, and recently got a 7 year MYGA @ 5.4). DW can start SS any time. <5 years from now gets her to 70 and max SS. I just hope SS is still around in some form. Doesn't "have" to be for our plan to work, but sure would be nice after paying in for 40+ years.

 

[pb4uski]

With withdrawals and inflation a 100% bond portfolio will burn away at the portfolio. If you’re getting a ~ 4% inflation adjusted portfolio return ( which is what bonds historically provide)and withdrawing 4% that deeply erodes your portfolio. ...

100% 80%. I think you get the point.

But, according to FIRECalc if you started with $100,000 and withdrew $4,000 for spending (4% WR) and adjusted withdrawals for inflation after 30 years with a 20/80 portfolio you would have over $100,000 left at the end of 30 years 74% of the time, so in 74% of the scenarios there is no erosion at all.

With 0/100 portfolio you would have over $100,000 left at the end of 30 years 45% of the time, so in 45% of the scenarios there is no erosion at all.

So with "withdrawals and inflation a 100% bond portfolio will burn away at the portfolio" only 55% of the time because 45% of the time it doesn't erode at all.

 

[24601NoMore]

BTW, I find the different goals and comfort levels expressed when these types of discussions come up somewhat fascinating. Maybe because we don't have kids to leave our assets to, I don't care about maximizing the size of the piggy bank just to have "more" when we pass. But it sure seems like we're in the minority with many/maybe even most here willing on take on some pretty significant risk in the pursuit of "more", risk be damned. That's a tough one for me to understand, having been through a few bear markets in my day. Guess some are more comfortable than we are when looking at heavy six figure swings.

All I know is that 2022 was no fun. The graph of our portfolio value went Southeast on a pretty significant slope, and the net was a pretty alarming drop in (albeit, "on paper") value. At 60+, that's not something I want to do again, as the 15-20 remaining years we have to get back to even is not worth the downside risk, and I have no desire to spend YEARS or even a decade plus getting back to even where we are today if things go splat. And I do think the downside risk is higher than it's been in a very long time, with minimal potential upside from here.

 

[Exchme]

We're staying at 80/20, each day brings us closer to claiming my SS at which time our withdrawal rate will be quite small. At that point, the asset allocation can be most anything, so we will invest on our children's timelines. Meaning that any noise in today's markets is inconsequential vs. staying invested. Ultimately the choice is personal and sleeping well at night is part of that.

 

[TheWizard]

Getting back to the OP's question, part of the answer to stock percentage in retirement depends on where your income in retirement comes from, specifically how much you need to pull from investments.

In my case, I pulled some money from portfolio for living expenses in early retirement years, but once I started SS four years ago at age 70, on top of my pension/annuity income, I find i have excess income almost every month which I invest into stock index funds (VOO, QQQ, VGT, MGK) in my taxable account.

Overall, including taxable, tax-deferred, and Roth accounts, I'm 90-95% stock index funds, the rest in settlement funds (MM).
Especially in my growing taxable account, I target keeping 5% in my settlement fund indefinitely with a few low-ball limit orders outstanding, to take advantage of infrequent buying opportunities.

I never got to do this in my working days, it was all dull payroll reductions into my 403(b).
So it's kinda fun to be able to do this now...

 

[FREE866]

But, according to FIRECalc if you started with $100,000 and withdrew $4,000 for spending (4% WR) and adjusted withdrawals for inflation after 30 years with a 20/80 portfolio you would have over $100,000 left at the end of 30 years 74% of the time, so in 74% of the scenarios there is no erosion at all.

With 0/100 portfolio you would have over $100,000 left at the end of 30 years 45% of the time, so in 45% of the scenarios there is no erosion at all.

So with "withdrawals and inflation a 100% bond portfolio will burn away at the portfolio" only 55% of the time because 45% of the time it doesn't erode at all.

I don’t know, to me that’s a pretty bad burn if after 30 years you have what you started with.

 

[24601NoMore]

Getting back to the OP's question, part of the answer to stock percentage in retirement depends on where your income in retirement comes from, specifically how much you need to pull from investments.

In my case, I pulled some money from portfolio for living expenses in early retirement years, but once I started SS four years ago at age 70, on top of my pension/annuity income, I find i have excess income almost every month which I invest into stock index funds (VOO, QQQ, VGT, MGK) in my taxable account.

Overall, including taxable, tax-deferred, and Roth accounts, I'm 90-95% stock index funds, the rest in settlement funds (MM).
Especially in my growing taxable account, I target keeping 5% in my settlement fund indefinitely with a few low-ball limit orders outstanding, to take advantage of infrequent buying opportunities.

I never got to do this in my working days, it was all dull payroll reductions into my 403(b).
So it's kinda fun to be able to do this now...

I'm genuinely curious what one would be looking to achieve by being 90-95% equity at age 70?

 

[TheWizard]

I'm genuinely curious what one would be looking to achieve by being 90-95% equity at age 70?

I'm 74 now, but that's still an excellent question.

Part of it might be to provide LTC if needed down the road, since I don't have insurance for that.
Part of it is to allow increasing QCDs to various charities that I'm trying to decide on.
Part of it allows more warm hand gifts to offspring.
Part of it allows purchase of new vehicles whenever I get annoyed enough with one of my current ones.

Beyond that, it's just a hobby...

 

[24601NoMore]

I don’t know, to me that’s a pretty bad burn if after 30 years you have what you started with.

I don't follow. If you have what you started with AND can safely withdraw 4% a year to pay the bills, what's the issue?

To me, that's the absolute ideal scenario. You've paid the bills AND preserved principal (vs risking it all on the roulette wheel we call "The Market"). Albeit, the principal is worth a fraction of what you started with due to inflation. So? Key: you've PAID THE BILLS. and are 30 years down the road, albeit with a smaller nest egg. But at that point, who cares unless you're investing for heirs?

To me, ANY approach that generates 4% or more a year income on a guaranteed/reliable/consistent basis with low risk over 30 years is an absolute no-brainer. Many advocate taking ALL SORTS of risk to be able to pull a SWR or 4% (now more like 3 - 3.5%), and it's far from guaranteed and can seriously decimate your portfolio. "Door #1" seems like an obvious choice, so not sure why anyone would choose door #2 unless you are just gunning for "more".

 

[24601NoMore]

I'm 74 now, but that's still an excellent question.

Part of it might be to provide LTC if needed down the road, since I don't have insurance for that.
Part of it is to allow increasing QCDs to various charities that I'm trying to decide on.
Part of it allows more warm hand gifts to offspring.
Part of it allows purchase of new vehicles whenever I get annoyed enough with one of my current ones.

Beyond that, it's just a hobby...

Ah, OK. But wouldn't allocating some of that to buy LTC insurance if that's a concern be worth doing?

 

[TheWizard]

Ah, OK. But wouldn't allocating some of that to buy LTC insurance if that's a concern be worth doing?

Probably not.
As a single person, my income alone, without selling any assets beyond RMDs, would probably cover it...

 

[csoul]

The average inflation rate over the last 100+ years is 3.1%; current rate is about the same, so I wouldn't characterize it as "higher than normal". But yes, I wouldn't be surprised if it is higher than it was in the 2010s for quite some time...


Our current allocation is about 70/30. When social security kicks in, our basic needs will be covered by SS and an annuity, and at that time we may bump the stock allocation up a bit. We do have a CD ladder that covers our next 5 years of expected IRA withdrawals, so a multi-year market downturn would be painful, but it wouldn't kill us.

 

[FREE866]

I don't follow. If you have what you started with AND can safely withdraw 4% a year to pay the bills, what's the issue?

To me, that's the absolute ideal scenario. You've paid the bills AND preserved principal (vs risking it all on the roulette wheel we call "The Market"). Albeit, the principal is worth a fraction of what you started with due to inflation. So? Key: you've PAID THE BILLS. and are 30 years down the road, albeit with a smaller nest egg. But at that point, who cares unless you're investing for heirs?

To me, ANY approach that generates 4% or more a year income on a guaranteed/reliable/consistent basis with low risk over 30 years is an absolute no-brainer. Many advocate taking ALL SORTS of risk to be able to pull a SWR or 4% (now more like 3 - 3.5%), and it's far from guaranteed and can seriously decimate your portfolio. "Door #1" seems like an obvious choice, so not sure why anyone would choose door #2 unless you are just gunning for "more".

I can withdraw 4% ( actually my WR has averaged 3.3% in 7 + years of retirement) from a stock portfolio as well. To me, it's about "cash flow" not "income" and cash flow generated from stock sales is also much more tax efficient than fixed income ESPECIALLY if you're looking at year tax outlays every year for lets say 20-30 years.


Fixed income, to me, would just be to mitigate volatility, which at 57 years old, I'm fine with. And odds are heavily in my favor that the ending balance will be substantially higher as well. Even after 7 +years my balance is 70% + higher than what it was then.

Actually just did a backtest of 100% US bond market since January 2017--the time I retired until now. OMG. It would actually be worth less now than when I started.


So ummm...yeah..in your example you cited I'd much rather choose Door#2!!

 

[pb4uski]

I'm genuinely curious what one would be looking to achieve by being 90-95% equity at age 70?

Being the richest person in the cemetery?

 

[pb4uski]

...To me, it's about "cash flow" not "income" and cash flow generated from stock sales is also much more tax efficient than fixed income ESPECIALLY if you're looking at year tax outlays every year for lets say 20-30 years.

Fixed income, to me, would just be to mitigate volatility, ....

I agree that too many posters get wound up in their underwear about income vs cash flow, but not all fixed income is tax inefficient. There are loads of investment grade preferred stocks that pay regular dividends like bonds but the dividends are qualified dividends so they are tax preferenced. These preferreds are more volatile than bonds but much less volatile than stocks, so they mitigate volatility, provide good returns (6.4% yield in my case) AND are tax efficient.

 

[DrRoy]

I went from 82% pre-RE to about 55% now.

 

[tmitchell]

Funny I've been wondering if I shouldn't start INCREASING my stock allocation as I age. I've been on the Jack Bogle plan (60/40) ever since I got to "enough" about 6 years ago. But since I'm not looking for a legacy I figure just leave it alone and enjoy the ride.

My inherited IRA has been in domestic/international bonds for 15 years, split 23/77 (for tax efficiency & AA). It has never made any gains until the past couple years, but now finally shows 2.8% rate of return.

If my whole portfolio was earning less than 4% I'd have a hard time sleeping at night.

 

[RetiredHappy]

When our investments were managed by ML for about 13 years, they had us at 60-35-5 stock-bond-cash. We began managing our investments in late 2021 and moved to about 90 to 95 equities, depending on the account.

With Fidelity Retirement Planning tool, based on market being significantly below average, we still end up with a large sum of money. It tells me that there is not a need to reduce equity exposure. In addition to that, we want to leave a significant amount to my offspring. Fidelity FA said we are very aggressive with our investments but also said we will end up with more. I am in my early 60s and my spouse in mid 70s and I see our investment horizon as 30 years.

We have also taken about 15% of our IRA (my IRA) to buy 2 deferred fixed income annuities, aka fixed income. So it is really a balance. Get the annuities, and then be aggressive with the stock market.

 

[mathjak107]

I don’t know, to me that’s a pretty bad burn if after 30 years you have what you started with.

kitces found that 90% of the time 50-60% equities ended with more then we started with , 67% of the time ended with 2x what we started , 50% of the time 3x what we started with .

10% of the time we either ended broke or with 6x what we started with , it’s the same odds

 

[audreyh1]

kitces found that 90% of the time 50-60% equities ended with more then we started with , 67% of the time ended with 2x what we started , 50% of the time 3x what we started with .

10% of the time we either ended broke or with 6x what we started with , it’s the same odds

At what withdrawal rate? 4%?

 

[mathjak107]

At what withdrawal rate? 4%?

yes , over 30 years

 

[audreyh1]

I don’t know, to me that’s a pretty bad burn if after 30 years you have what you started with.

If after 30 years you have what you started with, inflation adjusted, IMO that is an excellent result.

 

[Onda]

I'm genuinely curious what one would be looking to achieve by being 90-95% equity at age 70?

If that generates for you annually 200-300k in dividends than what is one losing by being 95% in stocks? Add to it 90k in Social security. What will higher spending than 300-400k per year give you?