Overfunded Retirement Strategies

[DawgMan]

First, let me acknowledge I know none of us really know if we are/were overfunded until we hit the dirt nap. That said, I am curious if/how/what those of you who may have some confidence in being overfunded do as it relates to managing the designated excess? If as an example all the calculators say $1M at a 60/40 AA gives you 100% probability of funding your desired retirement and you have $2M, do any of you separate the extra $1M and run it as a separate portfolio doing any of the following?

- Go extremely conservative and put in cash to just "blow the dough" or pump up the early giving/charity?
- Go relatively conservative and put it in fixed investments to minimize loss/volatility since you "won the game"?
- Let it ride in equities for legacy reasons or just to run up the score because you can?
- Just keep it in the mix with your first $1M, same AA, just pulling a lower WR?
- Some hybrid of the above, other?

Again, I know it's a personal and "depends" and I can see all scenarios being a valid way to approach any excess. I'm just scratching an itch here...

 

[JRon]

Once we hit our number we started donating anything over what we need to live on. What we have invested is all invested the same.

 

[BearD]

Right now I am just letting it all ride. Too early to start giving it away. I still have kids at home. I've been thinking about moving a portion to more conservative investments. Hard to pull any out of the market the way thinks have been going. Guess I will have to wait it out if "another" black swan event occurs.

 

[DawgMan]

Right now I am just letting it all ride. Too early to start giving it away. I still have kids at home. I've been thinking about moving a portion to more conservative investments. Hard to pull any out of the market the way thinks have been going. Guess I will have to wait it out if "another" black swan event occurs.

Good point which raises the followup question... what age did you feel comfortable earmarking any "excess" thinking you were over the real sequence of return risk?

Launching my kids (4th one launched officially earlier this year) was the last major hurdle I wanted to clear before launching myself. The picture gets clearer once the heavy lifting is done.

 

[Rianne]

Letting it ride 60/35/5. I'm uncomfortable with the probability of facing health issues later on. We have pre existing conditions, mine kidney and cancer related which can be extremely expensive. I'm very healthy now, following daily time restricted fasting. HC in this country is a crapshoot. We don't know from one year to the next what's going to happen.

 

[target2019]

Good point which raises the followup question... what age did you feel comfortable earmarking any "excess" thinking you were over the real sequence of return risk?

Launching my kids (4th one launched officially earlier this year) was the last major hurdle I wanted to clear before launching myself. The picture gets clearer once the heavy lifting is done.

Both have launched here, last was about 3-5 years ago. Sorta! We're mid 60's.

We are going through a "normal" retirement process, with me out (as of early 2020) and her on the job for another year. So your early retirement has specifics we're not familiar with, since we are not E-R'd.

But it may feel like the following. There are decisions about what we feel are excess funds. The primary indicator is that bank cash balances are still growing, with no need to tap any retirement funds.

We're not conceding large amounts, though. We have upped charitable this year, and have no problem with $500 presents for children. OTH they don't need anything, by their own words.

To solve this long term, we have a brokerage account (a/k/a Family Bank) set aside. It holds inherited stocks and ETFs, as well as stock gifted to us. We feed the bank a little each month. The auto-investing comes from the checking acct where paycheck goes. The total balance is 15% of total invested.

Both children know of this "bank" and may borrow and pay back or not (within reason). It's a work in progress, and it's working for us so far.

It is an option one could take, to set aside a portion and manage for the next generation. Of course you want to retain ownership for now, as something significant could happen and you'd need the money. At the end of each future year, depending on how invested and the market, you'll see growth, dividends, and will likely see a gift amount you're comfortable with.

This is all a nice problem to have, and I wish you well finding a path you're comfortable with.

 

[Midpack]

With “once you’ve won the game, why keep playing” in mind, I’ve just ratcheted back risk instead of separating the portfolio as the OP describes - has essentially the same effect. I was 100% equities and entirely comfortable with it until age 51, current AA below (though I’ll deploy more cash next dip).

 

[misanman]

We took a portion of our stash and funded a 10-year bond fund ladder as a contingency and possibly for LTC. That has been great for peace of mind. Other funds are invested mostly in equities. We are somewhat conservative by nature so it's been hard to spend our income. Getting used to it though, and it's a nice problem to have. If there's something we want to do then we just do it, as long as it's not ridiculous.

 

[Time2]

I'm 65 and haven't cut back on my AA, I'm about 80/20, not including home. We are also at 47x spending, with SS coming in the future. I'm mostly invested for the kids inheritance now. Although, if things work out as hoped, they will be in their 50s and an inheritance won't matter.
I think we've raised them to save.


btw, do they every really get out on their own? We recently finished paying tuition on our son and still have 3 more large payments on our daughter. My son moved back in with us, this was kind of a goodby visit between college and marriage, but then Covid, a long distance engagement that got broken and he is staying. I'm not complaining, I'm enjoying and glad to have him here. We did a lot of projects together at home. I recently helped him with a work project, that is now complete. He wants me to learn a little ukulele to accompany him. I think I'm to slow to pick it up, he played guitar and borrowed a ukulele and progressed fast. But, I'll probably try.

 

[O2Bfree]

My stash is currently 40x my planned yearly expenses, but might be more than that...or less. It's hard to tell after this first year as our expenses have been surprisingly low, what with trips cancelled and purchases postponed because of Covid. WRT expenses, I don't feel like I'm into a true retirement scenario yet so I haven't made any moves with excess funds. We don't have kids to gift to, but I do have a niece and grandniece I plan to help out, and there are a couple organizations I'll give to. But I'll wait a few years to see how our expenses pan out. In the meantime, I'm letting it ride.

 

[DawgMan]

btw, do they every really get out on their own?

Can't a guy just enjoy the moment!

I hear ya... there is no telling if they are ever really off the payroll. I have knocked out 2 weddings, but have 2 more girls to go. Plus, we have 1 granddaughter and 2 more grandkids due in Jan/Mar so my wife has created a new expense category for us!

 

[OldShooter]

Can't a guy just enjoy the moment! ...

Don't bother putting flowered wallpaper in the boys' bedrooms. They come back anyway.

 

[DawgMan]

Don't bother putting flowered wallpaper in the boys' bedrooms. They come back anyway.

Funny... after each one of my kids left the house I told them their bedrooms were getting new labels and were no longer theirs... Guest Room #1, #2, etc. They don't seem to believe me when they come back and find out a guest has been sleeping in "their room" and they act all possessive... "hey, that's my room!"

 

[Dash man]

We’ve stepped up our giving this year since so many charities are hurting. We have provided townhomes for each of the boys and their families, which are in our name, but will be theirs when we pass. The 529 plans for our three grandkids have also been funded and will continue to be. We planned on doing a major remodel, but with my FIL living with us it just isn’t the right time. I’m considering splurging on a 2021 MB E-450, but haven’t pulled the trigger yet. If the nest egg keeps growing beyond our needs, we’ll start gifting more to the boys so they can learn investing on their own.

 

[pb4uski]

Don't bother putting flowered wallpaper in the boys' bedrooms. They come back anyway.

Might flowered wallpaper in "their" bedroom keep them away?
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We've been lucky. DD launched easily. During the summer between her junior and senior years she lived near her school and was doing an internship. One time we visited and took her out to lunch and in the course of the conversation I mentioned somethign about her being "off the dole" in 10 months... she had never earned the term before so I explained it and we had a good laugh.

DS was a little harder. He was in and out of numerous jobs and lived at home for different periods and it was stressful... DW would be pushy and he woudl be resistant. I finally convinced him that it waas best for him to move out and he ultimately got a job about an hour from home and moved out after a couple months and is self sufficient. He's not making a lot but he is LBYM and actually saving money... so all is good.

 

[Which Roger]

Once we hit our number we started donating anything over what we need to live on. What we have invested is all invested the same.

Thank you. Ditto on both parts. Regarding donating, DW and are are changing our mindset to be comfortable giving more and more while we're still around to see it do some good. Regarding investing, no changes to our asset allocation. My thought is that all the SWR analysis and whatnot assumes that the future will not be worse than the worst of the past. If the future is worse, nobody knows what asset allocation will be best, so might as well stay the course.

 

[W2R]

do any of you separate the extra $1M and run it as a separate portfolio doing any of the following? [...]

No, I just regard everything as one portfolio.

My only child was launched about 20 years ago and has never asked for a dime. And she wonders why I am so proud of her! Yes I am.

 

[Sunset]

We Just keep it in the mix with your first $1M, same AA, just pulling a lower WR.

Reasons are:

• Currently supporting a relative, and will be for years.
• Have very elder relative, may need some large $$ help, currently just helping a tiny amount.
• We have no LTC insurance, so need to keep reserve to insure for that and not be a burden on kids.
• Never know just how bad the future will be, so it's relaxing to have extra.

 

[brett]

We are overfunded. Last six or seven years of employment and investment did it. We only realized after a few years of retirement and saw how much we were drawing down to supplement our pensions.

We now keep 60-65 percent in equities, and that is increasing. The monies will stay in equities. We plan to leave a healthy education fund for each of our grandchildren and hope to eventually provide enough money for each of two children's retirement. Chances are they will not have the same retirement pension or earnings as we have enjoyed. Those objectives both have a longer time horizon and are well suited to equity investment at the moment.

 

[pb4uski]

We are more likely than not to be overfunded (meaning that in retrospect I may have worked longer than I really needed to.

If one of us has a long nursing home stay while the other is still living at home then I think we'll be ok but there will be a lot less redundancy.

Legacy desires are a small factor in deciding my AA. We've told the kids that if there an inheritance then it is estimating error on my part... while not totally true we prefer that be their expectation so if there is an inheritance it is a bonus.

It wouldn't surprise me that once we are collecting SS if there is still a significant redundancy that we might be more aggressive investing for their sake. Also, it is likely that I'll receive a significant inheritance sometime and I have given some thought about perhaps disclaiming part of it if it would result in what I would otherwise receive going to my kids (and not my siblings).

 

[mickeyd]

I think that I have won the game, as Dr. Bernstein says, but my current retirement assets seem to be more than adequate. I plan on living to age 100, as does Mrs. mickeyd, so my calculations going out 25+ years are really foggy. Will SS, military pensions, corporate pensions continue to be adequate over that time? Hard to tell. Hope so!

 

[RetireAge50]

The compounding is happening and I have realized we will likely leave a bunch to my kids. This year I got more conservative and more aggressive at the same time.
I put enough in CD’s and stable value to last until SS and pensions kick in. The remainder is in stocks split between growth, value, and index.

Overall 75% stocks with zero bonds.

 

[Time2]

Don't bother putting flowered wallpaper in the boys' bedrooms. They come back anyway.

I thought I was going to turn one of the two extra bedrooms into my electronic bench work area, wife said, no, that's for when the kids come home. I thought she would be happy to get it out of the living room.

 

[donheff]

We keep everything as one portfolio but have gradually increased equities from 60 to 70% on the assumption that we are aiming for a long term (our kids' life expectancy).

 

[audreyh1]

As you said - you won’t know if you are underfunded until your demise.

But our retirement portfolio is already larger than we feel that we need by a large cushion (knock on wood). It is invested in a fairly balanced AA around 50/50. This should provide plenty of growth going forward. As a result we aren’t interested in investing even more funds long term.

Our retirement portfolio has grown such that the withdrawn income is much larger compared to say 10 years ago. We used a fixed percent of the Dec 31 value each year, withdrawn in Jan. Our regular spending has grown too, but not nearly as much, so we often have unspent funds at the end of each year. We’ll probably gradually increase the % withdrawn too, because 3% is pretty conservative compared to our ages 61/65.

In our case we let unspent funds accumulate in short term accounts. They can be used for anything - more travel or other spending, gifting, the occasional large purchase, whatever. They are there to be used short-term. Excess is invested in short-term CDs, high yield savings accounts, short term treasuries, MM accounts. Whatever seems to be yielding better at the time. So we park it where it earns some and is protected, but we don’t sweat the “cash drag” because we fell like our portfolio is already more than sufficient (knock on wood again - I’m rather superstitious about tempting fate).

We do considerable family gifting with some of the excess. We had quite a buildup at the beginning of this year and decided to gift a much larger than usual amount. Just in time for the Covid disruption too - ended up being very timely.