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is 60/40 too conservative for my situation ?
Old 09-06-2019, 11:41 AM   #1
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is 60/40 too conservative for my situation ?

I was making 120K per year and all of my investments were in 100% equities the last 25 years but I just quit my high stress job at the age of 50 and have about 3mill in all my investment accounts(Rollover IRA, Roth and brokerage account). I have zero debt, 150K cash for emergency fund, I am currently in 60/40 and I DO NOT need to touch my investment accounts since my rental income covers all my expenses.


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Old 09-06-2019, 11:46 AM   #2
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You have "won the game" since you don't need this money for your retirement. There are two schools of thought on AA in this situation.

One extreme is that since you don't need the money there is no need to risk it to grow it so you would be 0% stocks.

The other extreme is that you don't need the money so you can take risk and get paid for taking the risk... so you could go 100% stocks.

Both make sense.... and as a result, anything in-between makes sense too.

I am 60/40 and suspect that I will stay with that for a long time.
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Old 09-06-2019, 01:57 PM   #3
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Thatís a nice problem to have... Iíd stay 40/60. Youíve earned the privilege of sleeping well at night.
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Old 09-06-2019, 02:43 PM   #4
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As the above folks have said, what you are comfortable with is what matters. With what you have saved/invested you have a wide range of AAs that would be fine in your situation. At your age I was just below 60/40 but began dialing back and am presently at 40/60. But that is what suited my comfort level, yours will be different.
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Old 09-06-2019, 03:07 PM   #5
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I would never say that 60/40 is conservative. It's pretty much the safest allocation you can have (60% stocks for inflation, 40% bonds for safety in a market plunge). For now I think you can stay at that ratio.
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Old 09-06-2019, 03:41 PM   #6
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I don’t consider 60/40 stocks/bonds to be conservative for a retiree, certainly not for an older retiree.

It all comes down to your other “guaranteed” sources of income, whether you need to draw from your investments, and your personal risk tolerance. Retirees who don’t need to draw from their investments to cover living expenses tend to choose higher equity allocations because they want growth for their heirs. But not everyone is the same.
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Old 09-06-2019, 04:54 PM   #7
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Thanks everyone for all good responses. I guess bond is a new thing for me since I was 100% in equities and had 35 individual stocks the last 25 years but I did have a decent income. Now I am in a 3 fund portfolio so I got to reprogram my brain to not be so aggressive in my investment since I don't work anymore.
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Old 09-07-2019, 07:33 AM   #8
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Moved to 60/40 a year ago. Retired 3 1/2 years ago. I'm sticking with this AA.
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Old 09-07-2019, 08:11 AM   #9
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Originally Posted by vipertom1970 View Post
Thanks everyone for all good responses. I guess bond is a new thing for me since I was 100% in equities and had 35 individual stocks the last 25 years but I did have a decent income. Now I am in a 3 fund portfolio so I got to reprogram my brain to not be so aggressive in my investment since I don't work anymore.
This may help.... it is a graph of the growth of 40% Total Bond (blue line) and 60% Total Stock/40% Total Bond (red line).... the blue line is "stable ballast"... needed since you no longer have regular cash flow from earnings in retirement.... and then supplemented by more volatile stocks (the area between the blue line and the red line) to provide for growth to provide for inflation.
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Old 09-07-2019, 09:39 AM   #10
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I will stick with 60/40 for the next 10 years but how many times do I rebalance my overall portfolio per year and it’s good to start thinking about Roth conversion maybe next year ?
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Old 09-07-2019, 09:49 AM   #11
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It is up to you. Some studies show that rebalancing isn't all that necessary. below is the same chart but with no rebalancing.... not much different That said, I rebalance annually when I do my Roth conversion for the year in December.
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Old 09-07-2019, 09:53 AM   #12
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I will stick with 60/40 for the next 10 years but how many times do I rebalance my overall portfolio per year ?
As I am living off my investments in retirement, I am constantly rebalancing. When my stock balance increases past a certain level, I sell around 20K to build up cash balance. I have done that around ten times over the last year. If my stock balance gets too low, I would sell a bond fund for my next influx into cash. So far, it is working out. I have very lumpy expenses (expensive travel) so I try to get the cash balance up well in advance of when it is needed. I just sold first of eight 20K transfers I need by 1/1/21.

I am also planning on lowering my allocation to 55/40/5 so unless market goes down in next year, I will make additional sales of stocks to keep cash at 5% minimum.

Marc
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Old 09-07-2019, 10:01 AM   #13
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And never try to withdraw more than 4% per year from your portfolio correct ?
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Old 09-07-2019, 10:22 AM   #14
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And never try to withdraw more than 4% per year from your portfolio correct ?
I have deliberately set aside a 'bridge' of money to make up income shortfall until pension and SS start. The bridge is in cash, MM and the largest chunk a conservative bond fund that will see me through the next eight years. The bridge fund will deliberately be spent down, so my total withdrawal rate is greater than 4% until the income streams start.

This means I currently have a relatively small percentage equity stake that will rise as the bridge fund is depleted. Helps me sleep better in guarding against SORR.

YMMV
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Old 09-07-2019, 11:02 AM   #15
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And never try to withdraw more than 4% per year from your portfolio correct ?
No.... if one retires early there may be some years before pensions and SS start that you are withdrawing more than 4%.

For me, for the first few years that we retired, my WR was about 5.0-5.5%, then about 4.5-5.2% once my pension kicked in, but once SS starts it will be 1.5-2.0%. What is most important is your "ultimate" WR once pensions and SS have started, not the WR in your early years.

One way of ballparking your ultimate WR is to reduce the denominator for extra withdrawals from ER until those cash flows start.

So the numerator is spending - pensions - SS... aka your "gap" and the denominator is your retirement portfolio less amounts to replace pensions and SS from ER until when they start. Using that construct, my ultimate ER when I retired was 2.5% a tad higher than what I project it will actually be because the ballpark formula ignores investment returns during that transitional period.
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Old 09-07-2019, 11:08 AM   #16
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About to retire at 60, and I'm about 45 stock/55 bond and annuity.

Considering that I have an inflation-adjusted pension, this may be too conservative. But, even in the current shaky-looking market, I'm comfortable with it.
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Old 09-07-2019, 12:43 PM   #17
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No.... if one retires early there may be some years before pensions and SS start that you are withdrawing more than 4%.

For me, for the first few years that we retired, my WR was about 5.0-5.5%, then a tad over 4.5-5.2% once my pension kicked in, but once SS starts it will be 1.5-2.0%. What is most important is your "ultimate" WR once pensions and SS have started, not the WR in your early years.

One way of ballparking your ultimate WR is to reduce the denominator for extra withdrawals from ER until those cash flows start.

So the numerator is spending - pensions - SS... aka your "gap" and the denominator is your retirement portfolio less amounts to replace pensions and SS from ER until when they start. Using that construct, my ultimate ER when I retired was 2.5% a tad higher than what I project it will actually be because the ballpark formula ignores investment returns during that transitional period.
Something similar in concept here.
We have various income streams coming in before 70 y.o.
Highest WR% expected around 4.75% for 7 years, then when SS hits, should be around 2.4% for hopefully 20+ years.
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Old 09-07-2019, 03:00 PM   #18
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My rental income cover 100%+ of my retirement. And rents keep going up. SS will be near the max. A pension is waiting for me when I want it, or when I turn 65. My VA disability is there now, and comes with free healthcare. I have yet to even take my dividends, I just keep auto-reinvesting them.

I paid off a few mortgages ($500K) during the two years before my actual retirement and now. I figure that is my bond fund.

My main investment is IVV, S&P. Followed by IVW, HDV, DVY, QQQ, IWM.

I have no bonds, as I figure my paid off mortgages is a bond fund, as my cash flow is larger than it would be otherwise.
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