Reducing stock exposure in Retirement, age 60+

[Koolau]

I had intentionally held at about 30 to 35% equity until recently my old Megacorp stock - 401(k) match - took off. By now, Megacorp stock is pushing 20% of Net Invested! Over the years, I've sold MOST of Megacorp stock I've ever owned! Just wondering what that would feel like if I'd kept it all! I've got maybe 1000 shares now and have owned maybe 12000 over the years. 12 X what I have now would be a real bundle - not that I worry too much about "what might have been." I feel as if I did the right thing at the time - getting rid of most of it. 20:20 hind sight, and all that sort of thing. Who knew??
In any case, I have "enough" so this is simply a "thought experiment." YMMV

 

[Dtail]

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.

Good decision for you. You are not a fan of stocks in your current investment status and have effectively said directly and indirectly in other threads.
So move forward with your plan and if stocks go up even more by EOY 2024, so be it.

 

[FREE866]

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.

To be bigger and flashier? Lol
That’s def not the case with me. . Frankly, I like the ability to give back to others. Maybe be in a better position to help out family members more as time goes on. Help out charities,etc. and by “ having more” I’ll have a better ability to do that. I’m already noticing and doing it more since retiring 7+ years ago. Portfolio has grown dramatically because of equities. It’s a great feeling.lm very grateful.

 

[Flieger]

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

I do agree that would be excellent. I often wonder though, if I have no legacy to leave, does it matter if what I have left is compared to inflation? If I am adjusting my withdrawal for cost of living change (2.5% increase per year or something like that), and my $1,000,000 portfolio is $1,000,000 at the end, I'm not sure I care.

Flieger

 

[TheWizard]

To the OP: the usual rationale for maintaining a modest percentage of stock funds through retirement years is to deal with inflation.
But if you are presently withdrawing/spending less than 4% of assets per year, then yes the "need" to hold any stock funds may not exist for you...

 

[dmpi]

If you've built up a large nest egg and there's no way you would spend it all then there's two rationale which are both valid.

1. I should become more aggressive with stocks because now I can afford to take the risk and maybe pull something off that's extrodinary.
2. I should become less aggressive with stocks because I've already won the 'game' and all I have to do is play defense from this point on.

Which you do will depend on the type of person you are. For me I've been frozen in indecision for many years with a 70/30 portfolio.

 

[marko]

To be bigger and flashier? Lol
That’s def not the case with me. . Frankly, I like the ability to give back to others. Maybe be in a better position to help out family members more as time goes on. Help out charities,etc. and by “ having more” I’ll have a better ability to do that. I’m already noticing and doing it more since retiring 7+ years ago. Portfolio has grown dramatically because of equities. It’s a great feeling.lm very grateful.

I think you can reach a point where it's just a game. It's not about gain for more stuff, it becomes a game to just see it go a tad more year over year.

"How much is enough, My Rockefeller? " "Just a little bit more. Just a bit more"

 

[brett]

It is a sleep at night decision. But, the percentage of equity can vary significantly on whether you are depending solely on your investments or if you have a DB and this, plus SS meets a fair amount of your day to day living expenses.

Our equity allocation has been well above 50 percent. At early retirement it was 70 plus percent. We do not regret it. Equities outperformed inflation. We doubled down when the market was low and stuck with it.

Thirteen years later our equity position is 55-60 percent. But...that does not take into account the value of my DB plan which I view, for allocation purposes, as a fixed income investment, albeit declining in value each year.

You need to do what you believe is right and what you feel will protect your retirement. We made a protect your retirement decision just prior to early retirment by exercising employer stock options. Never regretted it for a moment.

 

[FREE866]

I think you can reach a point where it's just a game. It's not about gain for more stuff, it becomes a game to just see it go a tad more year over year.

"How much is enough, My Rockefeller? " "Just a little bit more. Just a bit more"

I'm not looking for or expecting it to grow every year as thats an unrealistic expectation of how the stock market moves.

 

[NC 57]

I am age 69 this year, wife 68. We will draw SS at age 70. Currently at 50/50 equity/fixed mix with 30% international. No debt. We depend on non inflation indexed pensions for about half our spending and income from investments for the rest. We've never had to draw our entire interest and dividend income in a given year so we are still investing.

We have slept well through all the major dips. Months go by without looking at our portfolio. It automatically rebalances quarterly. I fortunately long ago learned I can't time the market, low cost index funds are best for slow and steady equity growth, and not to panic in a market crash. The 2022 downturn did not cause us to reevaluate our plan, nor did we change our spending. We prepare an annual budget and almost always spend less. I expect to increase contributions to the portfolio when we begin drawing Social Security.

 

[TickTock]

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.

You're right, you don't have to take on risk. Continue with MM/CDs/MYGAs/individual bonds, TIPS are a good option in a tax-advantaged account.

Maybe consider adding a SPIA to cover the last 10-15% of expenses.

 

[Car-Guy]

If you've built up a large nest egg and there's no way you would spend it all then there's two rationale which are both valid.

1. I should become more aggressive with stocks because now I can afford to take the risk and maybe pull something off that's extrodinary.
2. I should become less aggressive with stocks because I've already won the 'game' and all I have to do is play defense from this point on.

Which you do will depend on the type of person you are. For me I've been frozen in indecision for many years with a 70/30 portfolio.

I guess I have a split personality based on your two rationales.

Rationale #1 - (or bucket #1) I play often and aggressively at the Casinos in hopes of pulling off something extraordinary.

Rationale #2 - (or bucket 2) Is my won the game money so I'm far less aggressive with my money and have gone mostly all in with CD's.


As my time horizon continues to shrink (I'm not getting younger), I'm thinking more about moving some money from bucket 2 to bucket 1... But so far, I'm okay with with things as they are.

 

[marko]

I worry about my "sleep at night" decision because the 2008 debacle taught me that a severe downturn is actually a fantastic buying opportunity. In the 2020 downturn, I reshuffled and picked up bargains that have delivered very, very nicely. Very nicely indeed. ( I run "had I done nothing" scenarios)

So, 'am I being too cavalier' on the next buying opportunity? Am I sleeping well when I should be worried? I'm 72 and still at 70/30.

As noted, my portfolio could drop 30% with no serious spending setback (thanks 2020). Fifteen years in LTC would be a mere ding. So, is this a good thing?

If you're a younger RE, you have time to make it back. If your an older RE like me, you just don't have enough time to spend it all.

 

[TheWizard]

I worry about my "sleep at night" decision because the 2008 debacle taught me that a severe downturn is actually a fantastic buying opportunity. In the 2020 downturn, I reshuffled and picked up bargains that have delivered very, very nicely. Very nicely indeed. ( I run "had I done nothing" scenarios)...

True.
But to take advantage of infrequent "buying opportunities", it helps to have excess income that you can put into investments, along with "dry powder" in your AA.
I'm fortunate that my pension/annuity income + SS income exceeds my expenses to the extent that I move a few thousand dollars into my taxable settlement fund most months. Thus a negative withdrawal rate.

But I think this is not the norm for most retirees...

 

[audreyh1]

I do agree that would be excellent. I often wonder though, if I have no legacy to leave, does it matter if what I have left is compared to inflation? If I am adjusting my withdrawal for cost of living change (2.5% increase per year or something like that), and my $1,000,000 portfolio is $1,000,000 at the end, I'm not sure I care.

Flieger

It depends entirely on your personal goals and situation.

 

[audreyh1]

True.
But to take advantage of infrequent "buying opportunities", it helps to have excess income that you can put into investments, along with "dry powder" in your AA.
I'm fortunate that my pension/annuity income + SS income exceeds my expenses to the extent that I move a few thousand dollars into my taxable settlement fund most months. Thus a negative withdrawal rate.

But I think this is not the norm for most retirees...

I never worry about dry powder because my target AA has fixed income including cash.

Rebalancing in the face of drastic market drops is this same buying opportunity. I did manage to rebalance in 2008. It was psychologically very difficult to do. Investments is still my only income source.

 

[FloridaJim57]

I would consider an immediate annuity for no more than 30% of my cash reserve.

 

[Rocky mtn high]

I have been higher but have trimmed back to 60/40. That’s feels best for me especially when rates are around 5% with no risk.

 

[brett]

I worry about my "sleep at night" decision because the 2008 debacle taught me that a severe downturn is actually a fantastic buying opportunity. In the 2020 downturn, I reshuffled and picked up bargains that have delivered very, very nicely. Very nicely indeed. ( I run "had I done nothing" scenarios)

So, 'am I being too cavalier' on the next buying opportunity? Am I sleeping well when I should be worried? I'm 72 and still at 70/30.

As noted, my portfolio could drop 30% with no serious spending setback (thanks 2020). Fifteen years in LTC would be a mere ding. So, is this a good thing?

If you're a younger RE, you have time to make it back. If your an older RE like me, you just don't have enough time to spend it all.

The 2008 downturn taught me to listen to my spouse who did not really participate much in investment decisions.

Her advice at the time...why on earth bail and realize a loss? Hold, and if anything consider averaging down.

I followed her advice, and it worked out exceeding well for us. But..that was 4 or 5 years prior to early retirment. We certainly held in 2020 but our allocation was not the 75 percent that it had been in 2008.

I kniow at least one person who bailed in 2008, took the losses, but moved to fixed and missed out on the subsequent rally. It delayed his retirement by 3 years.

 

[audreyh1]

In 2008 I caught a few falling knives rebalancing on the way down. At least it all worked out overall. But that was a tough time.

 

[marko]

.
I kniow at least one person who bailed in 2008, took the losses, but moved to fixed and missed out on the subsequent rally. It delayed his retirement by 3 years.

I've often mentioned my "smarter than you" neighbor who proudly announced, with a smirk, that she had just "sold everything".

That was on the last Friday of February 2009. A few days later.......

 

[marko]

Someone posted the following on this forum a while ago: "The purpose of investing during retirement is not to die rich, but to avoid dying poor"

I think that sums it up nicely.

 

[Onda]

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 .

Agreed but my point is if you get 200-300k a year in dividends and you are 95% in equities you don't need to worry about your equity exposure.

 

[Koolau]

Agreed but my point is if you get 200-300k a year in dividends and you are 95% in equities you don't need to worry about your equity exposure.

Heh, heh, unless you are spending $400K!

 

[Onda]

Heh, heh, unless you are spending $400K!

Even than you don't need to worry. You just need to be ready to scale down your spending during a bear market.

95% means you probably have few hundred k of cash or short term treasuries.