Risk averse retirement investing

[Dolphin Boy]

I am retired and need to protect my assets with safe investing. I only need to keep a step or two ahead of inflation, not significantly grow my assets.

I want to sleep easily at night and not have to worry about market gyrations, corrections or worse. Suggestions?

 

[Walt34]

The Millionaire Teacher goes into basic investing and asset allocation. It is an easy read, not at all difficult to understand. Others will be along shortly with suggestions too.

Welcome to the forum!

Tell us a bit more about yourself in the Hi, I am... thread.

 

[Meadbh]

Are you also averse to inflation risk? If so, you might be best served by a balanced approach........or just lowering your annual spending to 2% of NW or less.

 

[SteveL]

Safe investing is an oxymoron. There is no way to beat inflation without taking some risk.
Do yourself a favor, there are a lot of these on the internet. Take one and find out how risk averse you are.

Risk Assessment Tools: Risk Analysis Tool, Risk Profile Questionnaire, Financial Risk Tolerance

 

[W2R]

Hi Dolphin Boy, and welcome to the Early Retirement Forum.

Personally I am very risk averse as well, especially now that I am retired. So, I will recommend to you exactly what I found to be the most helpful, for me.

Read any half dozen books from this link that appeal to you: Investment Books

These books will give you a good, solid background in investing and in establishing an asset allocation that corresponds to your risk tolerance.

 

[eytonxav]

When Obgyn shows up, he can give you some tips

 

[LOL!]

You may wish to read Zvi Bodie's "Worry-Free Investing" which was all the rage when Treasury Inflation Protected Securites pay a great rate could be purchased. Of course, Prof. Bodie is in his 70's and still working. He worries about retirement so much that he just has to keep working.

Worry Free Investing | Zvi Bodie

Another alternative would be to investigate whether a SPIA (single premium immediate annuity) would make sense for you.

 

[Meadbh]

When Obgyn shows up, he can give you some tips

But if you listen to Obgyn, you should also seek out Cyclinginvestor!

 

[walkinwood]

Hi Dolphin Boy, and welcome to the Early Retirement Forum.

Personally I am very risk averse as well, especially now that I am retired. So, I will recommend to you exactly what I found to be the most helpful, for me.

Read any half dozen books from this link that appeal to you: Investment Books

These books will give you a good, solid background in investing and in establishing an asset allocation that corresponds to your risk tolerance.

+1
If you don't educate yourself about investing (I'm making an ignorant assumption that you're not already) then you may never know if your investments are safe/conservative or not. This knowledge will help you stick to your plans when the inevitable market crashes occur.

 

[Midpack]

If past history is any indication, this chart should give you some idea what kind of returns you might expect for a given asset allocation.

I couldn't recommend them, but a SPIA would provide a guaranteed return barring a default (historically almost unheard of) if you can't sleep with any fluctuation in returns.

The more conservative you are, the more you'll need, or the less you'll have available to spend.

 

[Chuckanut]

Buy
I Bonds, Tips, and deferred annuities .

But wait a while on some off the annuities until interest rates rise and you can get a better deal.

 

[obgyn65]

Ok here we go... To the OP : a minority of the participants to this website are very conservative. I am one of them. You are not alone.

To answer your question, my portfolio is 90+% in CDs, munis, and equivalent. I also bought some deferred annuities. I hate risk. The only risk I am willing to take is the risk of just keeping up with inflation.

When Obgyn shows up, he can give you some tips

 

[daylatedollarshort]

I am okay with just keeping up with inflation as well. We will try to keep our spending pretty low in comparison to our retirement income streams so we don't really need a high rate of return to be comfortable. I just don't want to lose half our life savings, especially early on in retirement.

We're more in the we've won the game why blow it now camp of investing.

We have TIPS, I bonds, several stable value funds from former 401Ks, CDs, short term bond funds, some stocks, some Treasuries at 4% and a mix of other stuff.

We have a 30 year, low rate mortgage offset by non-COLAed pension income, too, for now.

 

[pb4uski]

And if I remember the timing of your investment in Wellesley correctly, it is doing pretty well so far, even with the January dip.

OP, Vanguard's Wellesley Income fund is a good conservative balanced fund that you could consider as one of your core holdings.

Ok here we go... To the OP : a minority of the participants to this website are very conservative. I am one of them. You are not alone.

To answer your question, my portfolio is 90+% in CDs, munis, and equivalent. I also bought some deferred annuities. I hate risk. The only risk I am willing to take is the risk of just keeping up with inflation.

 

[ETFs_Rule]

This is your answer. Buy ETF's instead of individual bonds and stocks.

Personally I'd favor a little bit of XLP rather than so much bond exposure. Notice how XLP recovered quickly from the 2008 - 2009 collapse.

 

[Midpack]

Ok here we go... To the OP : a minority of the participants to this website are very conservative. I am one of them. You are not alone.

To answer your question, my portfolio is 90+% in CDs, munis, and equivalent. I also bought some deferred annuities. I hate risk. The only risk I am willing to take is the risk of just keeping up with inflation.

This is possible as long as the OP also understands he/she will need a nest egg that's 40-60% larger (or spends commensurately less) than someone with a even a modest equity:fixed income asset allocation. Sounds like it might be an option for the OP, but you don't get something for nothing when it comes to returns (and risk) or we'd all be in CD's and bonds.

Not everyone wants to (or can) work 40-60% longer or save 40-60% more during the accumulation years or spend that much less in retirement.

 

[obgyn65]

But wouldn't buying deferred annuities in your 40s (starting paying at age 62 for example) and buying SPIAs after age 75 (where mortality credits are highest) have a better outcome than a modest:fixed income AA?

This assumes we factor out heirs, married or single, etc.

This is possible as long as the OP also understands he/she will need a nest egg that's 40-60% larger (or spends commensurately less) than someone with a even a modest equity:fixed income asset allocation. Sounds like it might be an option for the OP, but you don't get something for nothing when it comes to returns (and risk) or we'd all be in CD's and bonds.

Not everyone wants to (or can) work 40-60% longer or save 40-60% more during the accumulation years or spend that much less in retirement.

 

[Huston55]

Ok here we go... To the OP : a minority of the participants to this website are very conservative. I am one of them. You are not alone.

To answer your question, my portfolio is 90+% in CDs, munis, and equivalent. I also bought some deferred annuities. I hate risk. The only risk I am willing to take is the risk of just keeping up with inflation.

Dolphin Boy-

You're lucky to get this advice so easily. Normally, Obgyn has folks lie down and put their feet up in the stirrups. But, oh wait..."Dolphin" Boy; perhaps he couldn't find your legs?

 

[Huston55]

On a more serious note...Dirk Cotton is posting a great blog series on various retirement investing strategies. It does a good job of discussing pros and cons and should help you decide what's best for you.


The Retirement Cafe: Unraveling Retirement Strategies: Floor-and-Upside

 

[ShokWaveRider]

I agree with OBGYN especially this year. I am pretty much the same as him for allocation. You just missed some good PENFED CDS at 3%. (New Money) I will be renewing 2 this month at that rate for OLD Money. I feel the downside risk if interest rates jump (Unlikely) is worth it.

I have been searching and searching for projected interest rate forecasts for the next 5 years and they seem to be rare as I need to make a decision by Feb 20th.

If anyone has any please post a link.

Thanks

 

[Midpack]

But wouldn't buying deferred annuities in your 40s (starting paying at age 62 for example) and buying SPIAs after age 75 (where mortality credits are highest) have a better outcome than a modest:fixed income AA?

This assumes we factor out heirs, married or single, etc.

You need only compare your approach to the chart in post #10 above to know. However don't overlook the fact that annuity payouts include return of principal, they are not "returns."

I am not criticizing a (very) conservative approach like yours, but it's (equities) not an either or decision - which you usually forget to note. The less risk you take, the larger your portfolio has to be relative to spending, substantially larger without equities - 40-60% is not trivial. Not including the caveat could mislead a novice member...

 

[OAG]

Much like OBGYN we are 100% CD's (in a 7 year ladder) and, more or less, mostly more, have been since about 1976. The majority of long term CD's are at PFCU (including both tIRA's and ROTH IRA's) or at NFCU. No real need to "rate chase" at other financial institutions. We do have a COLA'd pension, almost a matching combined SS benefit, and a great MEDICARE supplement for health care. Frankly at our mid-70's we like the term "won the game" as baring BOTH of us needing long term nursing care I think we have.

 

[daylatedollarshort]

You need only compare your approach to the chart in post #10 above to know. However don't overlook the fact that annuity payouts include return of principal, they are not "returns."

I am not criticizing a (very) conservative approach like yours, but it's (equities) not an either or decision - which you usually forget to note. The less risk you take, the larger your portfolio has to be relative to spending, substantially larger without equities - 40-60% is not trivial. Not including the caveat could mislead a novice member...

There are other alternatives to having a comfortable retirement to having a huge portfolio. As you mentioned, one would be to just have low expenses in relation to the size of your portfolio. The other would be to have income streams besides stocks and fixed income products - rental income, hobbies that make money, pension and spousal/partner pensions, royalty income, two higher end SS benefits, etc.

I can control my hobby job income and expenses, but I can't control the stock market. Personally, I would rather have my income and expenses at least somewhat predictable.

I guess everyone has different goals and priorities, but I am often a bit surprised here at how many threads focus on SWR and rates of return compared to reducing expenses, finding fulfilling part time work or legally paying zero income taxes.

I have started calculating how much our laundry detergent costs per load. Just saving $100 a year on laundry detergent is $5K over the rest of our probable maximum lifespans, and we have hundreds if not thousands of little costs like that we can chip away at. In total cutting all these little expenses is really adding up to a lot of money we do not need to make up in investment returns. Finding a way to cut $20K a year without impacting quality of life means needing $1M less in nest egg draw down / retirement income money.

 

[bjorn2bwild]

I have been searching and searching for projected interest rate forecasts for the next 5 years and they seem to be rare as I need to make a decision by Feb 20th.

If anyone has any please post a link.

Thanks

I posted this link in the "how long can the bond rally continue" thread. Not exactly a forecast, more a fundamental argument for persistent low bond yields. Remember that forecasts are often wrong.

http://hoisingtonmgt.com/pdf/HIM2013Q4NP.pdf

 

[Huston55]

There are other alternatives to having a comfortable retirement to having a huge portfolio. One would be to just have low expenses in relation to the size of your portfolio. The other would be to have income streams besides stocks and fixed income products - rental income, hobbies that make money, pension and spousal/partner pensions, royalty income, two higher end SS benefits, etc.

I can control my hobby job income and expenses, but I can't control the stock market. Personally, I would rather have my income and expenses at least somewhat predictable.

I guess everyone has different goals and priorities, but I am often a bit surprised here at how many threads focus on SWR and rates of return compared to reducing expenses, finding fulfilling part time work or legally paying zero income taxes.

I have started calculating how much our laundry detergent costs per load. Just saving $100 a year on laundry detergent is $5K over the rest of our probable maximum lifespans, and we have hundreds if not thousands of little costs like that we can chip away at. In total cutting all these little expenses is really adding up to a lot of money we do not need to make up in investment returns. Finding a way to cut $20K a year without impacting quality of life means needing $1M less in nest egg draw down / retirement income money.

Of course steady income beyond one's portfolio or lowering expenses changes the 'demand' on the portfolio. However, I think the (unstated) premise of the remark is that, 'all other things being equal'..."The less risk you take, the larger your portfolio has to be."

I don't view this as a judgment; I view it as a fact...one that we must all deal with in our own way based on our circumstances.