Reducing stock exposure in Retirement, age 60+

[Dtail]

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

Agree

 

[Onda]

Thanks..was more curious what others have done and couldn't think of what to search for to see previous comments but will try "won the game".

You "won the game" when you can live of off dividends only because that is totaly passive investment and it provides inflation protection. As a added benefit you will get 5-7% "pay raise" almost every year.

https://www.multpl.com/s-p-500-dividend-growth/table/by-year

 

[mathjak107]

It still takes enough appreciation to over come the pay out reduction or it’s no different then taking the same dollars out of any portfolio

Dividends are a withdrawal method .


It isn’t like interest
Returns only can come from appreciation of the stock or fund

 

[marko]

For fun, and unconnected to this thread I was playing with Firecalc the other day. Ran some different scenarios.
Age 72 (25 years "to go"), currently 70/30.

While we are very much "fat fire" with a heavy touch of BTD, I found that we could still increase our spending by 30% and still be safe. Conversely, we could lose 25% of our portfolio and still be safe.
Even an extended LTC situation (15 years) merely put a minor dent in things

IIRC, this was not the case 10 or 15 years ago but two things have come together: Mr Market has been generous and-- perhaps considerably more influential--we are running out of time.
.
My point I think is that portfolio success is not a static thing. Time keeps on ticking and the equation keeps on changing. Somewhere along the timeline one hits a critical mass it seems.

In five years I'll be 77, looking at 80, perhaps spending even less and with even less time to spend it. Just can't seem to get ahead of this thing!

 

[FREE866]

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

I guess it is. However, with a $1,000,000 starting portfolio the median balance on 100% bond portfolio after 30 years with a 4% WR inflation adjusted is ~$512, 000.


You'd have to bump it up to 50% bonds to get the final balance to over $1,000,000.


So I guess it goes back to the original point that having a very high bond portfolio leaves a lot of money on the table.



I used the ******** calculator to get the above values.

 

[DJRR]

I would say don't trust your gut. We are hard wired by evolution to make incorrect financial choices. You say inflation was 18% the last 3 years, however the return on the S&P 500 is 33% the last 3 years, so you would be way ahead if you did not let your gut rule your decisions.

That is not to say you should change anything. A bad plan executed well is better than a great plan executed poorly. The best thing you can do is commit to a consistent plan that meets your needs and follow it consistently. If you are constantly tempted to change horses midstream then you are not in the right place. Many people are doing perfectly well with no equity exposure, so it clearly works. There are fixed ways to handle inflation, such as TIPs, that others have mentioned. You are already 60, so not trying to get out really early so you don't need the equity exposure to build a nest egg. Your main issue is terminal value. If you want a higher chance of leaving a larger inheritance then keep, even add, to equity exposure. If not, then do what makes you comfortable to stick with the plan.

 

[mathjak107]

i view it as i worked hard all my life for my money . now it’s my moneys turn to work hard for me .

so i wont get it a low end , low paying job .

i expect my money to work efficiently for me , so nothing under 40% equities is acceptable to us and we strive now for 50-55%

 

[TheWizard]

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?

A bigger yacht?

 

[Exchme]

I believe OP is getting wrong footed about looking at short term worries while making what should be long term decisions about asset allocation, but I have no illusions that internet advice can calm OP's nerves. There are things that could be done to help protect from the specific big fears OP mentioned.

OP mentioned high CAPE multiples of stocks as a big fear but didn't mention foreign stocks, those do not have particularly elevated multiples. Plus it is may be nice to hold some things whose performance do not depend on good US governance.

OP specifically mentioned inflation as a big fear. That can be combatted by maximizing SS benefits and building a TIPS ladder at least large enough to cover projected spending and taxes.

I would also nitpick about OP's saying there is "~20 years" left. Odds are about 50% that a least one of you will reach 89, about 25% that at least one of you makes it to your mid 90s and 10% that at least one of you makes it to your upper 90s. So make sure the plan covers the risk of long life and the possible need for increasing care as you age. That can be particularly expensive here as there are no children to step in.

 

[Dtail]

i view it as i worked hard all my life for my money . now it’s my moneys turn to work hard for me .

so i wont get it a low end , low paying job .

i expect my money to work efficiently for me , so nothing under 40% equities is acceptable to us and we strive now for 50-55%

Good thoughts.
Latest thoughts after playing around a lot with some calculators this past week, is for my allocation to be between 45-55% equities. Currently at 49%.

 

[Dtail]

I guess it is. However, with a $1,000,000 starting portfolio the median balance on 100% bond portfolio after 30 years with a 4% WR inflation adjusted is ~$512, 000.


You'd have to bump it up to 50% bonds to get the final balance to over $1,000,000.


So I guess it goes back to the original point that having a very high bond portfolio leaves a lot of money on the table.



I used the ******** calculator to get the above values.

Ah I see you used the calculator which can't be mentioned on this site.

 

[Palmtree]

To the OP. You say that you're at only 22% in stocks/equities. If the market has a major correction and dips down a whopping 50%, you yourself are only down 11% of your portfolio. If you can't take an 11% dip in your investments without it disrupting your retirement, I politely would question if you do indeed have enough saved.

 

[FREE866]

Good thoughts.
Latest thoughts after playing around a lot with some calculators this past week, is for my allocation to be between 45-55% equities. Currently at 49%.

This thread prompted me to play around with calculators for hours again


But every time the conclusion I get is to stay high equity...regardless of AA ratio the success ratio is always 100% and the ending value is high and the possible "lowest amount" isnt much lower with high equity

 

[Dtail]

This thread prompted me to play around with calculators for hours again


But every time the conclusion I get is to stay high equity...regardless of AA ratio the success ratio is always 100% and the ending value is high and the possible "lowest amount" isnt much lower with high equity

I do get you, but the sleep at night volatility factor along the way just would not work for me.

 

[FREE866]

I do get you, but the sleep at night volatility factor along the way just would not work for me.

Yeah, I guess I've become immune at this point. I don't enjoy the volatility, but since retirement during the scary times of December 2018, March 2020, and pretty much all of 2022 I just would go back to the calculators for comfort and also remember that deep down I can cut spending if something catastrophic happens. Which is always possible.

 

[mathjak107]

Good thoughts.
Latest thoughts after playing around a lot with some calculators this past week, is for my allocation to be between 45-55% equities. Currently at 49%.

we use three buckets optimized for three different time frames .

to make it easy each stands alone as its own portfolio

we have an income model for short term money with assorted bond funds , cash instruments and 25% conservative equity funds , so over all 75% less volatile then the s&p

bucket two is intermediate term money and is a 60/40 portfolio


bucket 3 is long term money and is split between vti and berkshire


it is easy to manage .

so recently as we went higher and higher equities were going to high in the other models so i reduced them and simply moved more to the income bucket .


overall 50/37 /13 but much easier to manage

 

[Chuckanut]

It still takes enough appreciation to over come the pay out reduction or it’s no different then taking the same dollars out of any portfolio

Dividends are a withdrawal method .


It isn’t like interest
Returns only can come from appreciation of the stock or fund

John Templeton would be proud of you. He famously advised viewers of Wall Street Week to invest for growth, and then sell some of the growth when you needed the money. I am too chicken to be 100% stocks, even high dividend paying and/or preferred stocks.

The other day I was helping a neighbor go over her investments. She has SS and the earnings from about 600,000 dollars to live on. 50/50 AA. I pointed out that she had made nearly $17,000 so far this year on the growth of her Total USA Index fund. She was shocked in a very good sort of way. I also reminded her that it could go POOF! in a few weeks or months. She wisely, IMO, took half her profits now, knowing she would likely need the money before the end of the year. I was glad to see her thinking like that.

 

[Onda]

John Templeton would be proud of you. He famously advised viewers of Wall Street Week to invest for growth, and then sell some of the growth when you needed the money..

Nothing stops you from being heavily in growth stocks + spend dividends only.

Templeton saw a troubled business as an opportunity for growth. I very much doubt 99.9% of people in this forum have skills to do that.

 

[TheWizard]

To the OP. You say that you're at only 22% in stocks/equities. If the market has a major correction and dips down a whopping 50%, you yourself are only down 11% of your portfolio. If you can't take an 11% dip in your investments without it disrupting your retirement, I politely would question if you do indeed have enough saved.

I think it's more than just the dollar amount.
Some folks have low risk tolerance and "suffer" significantly from Loss Aversion.
I'm not aware of any way to "fix" that condition...

 

[mathjak107]

Nothing stops you from being heavily in growth stocks + spend dividends only.

Templeton saw a troubled business as an opportunity for growth. I very much doubt 99.9% of people in this forum have skills to do that.

spending dividends only may be either an over draw or under draw .

just because a company hands you back a huge dividend it doesn’t mean that can be your draw . your draw is based on a lot more .

in down years when dividends are reduced or cut it may be impossible to meet expenses .

so trying to actually create a consistent income off dividends alone can be rough unless it’s just fun money

 

[Dtail]

spending dividends only may be either an over draw or under draw .

just because a company hands you back a huge dividend it doesn’t mean that can be your draw . your draw is based on a lot more .

in down years when dividends are reduced or cut it may be impossible to meet expenses .

so trying to actually create a consistent income off dividends alone can be rough unless it’s just fun money

Yup.
I see the dividend play more so for the potential tax preferenced nature of the payout.
Otherwise from my standpoint it is the total return that counts.

 

[mathjak107]

actually dividends are a poor way way to take your money .

the entire dividend is taxable .

if i pull the same dollars from my berkshire or an etf that spins off no dividend, only the gain portion is taxable .

plus i get to pick how much and when to take that money .

so dividends are not a great tax structure.

unfortunately 80% of the s&p and 100% of the dow pay dividends so it’s hard to avoid when it comes to large caps .

which is why i like berkshire in my taxable account.

over time dividends being taxed and turnover if its funds can wipe away any tax advantage

 

[Car-Guy]

I think it's more than just the dollar amount.
Some folks have low risk tolerance and "suffer" significantly from Loss Aversion.
I'm not aware of any way to "fix" that condition...

Don't invest?

 

[TheWizard]

Don't invest?

Yes, that's one way to deal with Loss Avoidance fear.

But most folks, having most or all of your retirement income needs met by pensions, annuities and SS might reduce the problem...

 

[24601NoMore]

OP here..appreciate the replies..

I guess this all boils down to a question of why any of us invest - or why we continue to invest.

If one reaches a point where it is not necessary to invest any longer, why incur risk that you don't "need" to take? Is it bragging rights? Wanting to always have "more", bigger, better, flashier, etc?

I guess that gets back to Bernstein's famous "when you've won the game, quit playing" mantra. I personally think those are wise words.

Our combined SS will cover ~85-90% of expenses. RMDs will easily cover the rest, even if we converted everything to cash (MM, CDs, MYGAs) today.

So, we do not "need" to take on risk for the plan to work through age 90+ unless we had some insanely large unforseen expenses (yes, I've considered LTC).

I'm personally looking quite closely at a TIPS ladder as that seems to be a good option for preserving the current piggybank level which is all I'm really interested in doing at this point.

Cheers..

ETA - I built an insanely thorough spreadsheet years ago and continue to enhance it regularly which models all this (income, expenses, portfolio values, inflation, medical coverage, etc) out year by year through age 95. There hasn't been a case yet that I've thought of that breaks the plan. So that's why I'm of the opinion we don't "need" to invest in stocks for our plan to work.