Change the Plan or Hold Steady?

[GravitySucks]

So I reviewed my retirement investment plan this week and am wondering if it still valid as a few actions should be made now.
Plan says stay 60/40 and rebalance at 55 or 65. Bonds are to transition to 5 year treasuries or an intermediate treasury fund (FUAMX).
I'm now at 66/34 and a rung of the bond ladder maturing next week. The plan says I should rebalance and reinvest the bond proceeds both to FUAMX. That brings my bond ladder down to the 5 years my revised plan calls for and increases FUAMX to about 5 years of living expenses. However FUAMX has a 30 day yield of 0.58% and the 7 year duration is not ideal if rates rise. (Of course I've been wrong on rate directions consistantly.) I have over 6 months of preCovid level spending in MM funds and don't want to increase that.
So the options as I see them:
1. Stick to the plan. Hold my nose and rebalance and reinvest the bonds into the low yield FUAMX fund.
2. Change the plan. Move AA to 65/35 and let it ride to 70/30 and extend the bond ladder another year. This still leaves enough bonds to make it to SS at 70 which covers all essential expenses.
3. Punt. Rebalance and put the funds in a very short term bond fund and reinvest the bond in a one or two year CD.

I'm sure others here are looking at options in this current environment. Are you changing plans?

 

[RunningBum]

I'm not changing plans. I think people are too hung up on the very low bond rate and not thinking about how bonds reduce volatility. 0.58% looks low compared to past rates. But it's really good compared to a 25% loss if stocks take a dive after this long bull market.

Maybe there's a better alternative than FUAMX. Perhaps TIPS?

 

[OldShooter]

Hard to say without some more pieces: age? pension prospects? dependents and/or spouse at retirement? spouse's resources and pension prospects? ... and the big one: How does 4% of your current total portfolio compare to your expected portfolio income needs at retirement?

FWIW, we had a comfortable amount of money by the time we turned 50, so we left our AA at 90/10 until almost the point where we retired at 56 and 58. We rode out all the commotions from 1987, tech bubble, housing bubble, etc. without touching our portfolio. We are now 73YO and AA at 75/25, with the 75 probably ending up in our estate.

 

[pb4uski]

Punt. If you qualify for membership, Navy Federal is offering 0.65%, 0.75% and 0.90%, respectively, on its 1, 2 and 3 year CDs... similiar interest income yield and no interest rate risk.

 

[GravitySucks]

Hard to say without some more pieces: age? pension prospects? dependents and/or spouse at retirement? spouse's resources and pension prospects? ... and the big one: How does 4% of your current total portfolio compare to your expected portfolio income needs at retirement?

FWIW, we had a comfortable amount of money by the time we turned 50, so we left our AA at 90/10 until almost the point where we retired at 56 and 58. We rode out all the commotions from 1987, tech bubble, housing bubble, etc. without touching our portfolio. We are now 73YO and AA at 75/25, with the 75 probably ending up in our estate.

Age 62. Retired 7 years
No pension
SS at 70 about $35k year (covers essentials, about what I'm spending this Covid reduced year.)
Planned spending is 4.5% of current portfolio but haven't come close in last 2 years.

 

[W2R]

So the options as I see them:
1. Stick to the plan. Hold my nose and rebalance and reinvest the bonds into the low yield FUAMX fund.
[...]
I'm sure others here are looking at options in this current environment. Are you changing plans?

(bolded emphasis mine)
It's tough to do Option #1, believe me, I know! But sticking to my plan is what I intend to do if I can possibly do it. Sticking to the plan got me through so many "iffy" times thus far, that I know it is really the best choice.

 

[OldShooter]

Age 62. Retired 7 years
No pension
SS at 70 about $35k year (covers essentials, about what I'm spending this Covid reduced year.)
Planned spending is 4.5% of current portfolio but haven't come close in last 2 years.

Others will weigh in here but I would say that your low withdrawal rate gives you a great deal of flexibility in choosing an AA.

Probably your AA decision will be based more on your comfort with volatility than anything else. Remember though that volatility is not risk. Personally I'd carry a fixed income tranche large enough to feel safe from SORR, then consider investing he balance in equities. Maybe dollar cost average any increases to balance FOMO against fear of buying too high. But I am not you.

 

[pb4uski]

Punt. If you qualify for membership, Navy Federal is offering 0.65%, 0.75% and 0.90%, respectively, on its 1, 2 and 3 year CDs... similiar interest income yield and no interest rate risk.

I would suggest this is sticking to the plan... your AA is unchanged, it is just that you are chosing to invest in fixed shorter to mitigate interest rate risk... or you could go with a 5-year CD and be sticking to the plan.

BTW, the rates I quoted were for $100k+. For $1-99K, the rates are 0.5% lower... so 0.60%, 0.70% and 0.85%, respectively, on 1, 2 and 3 year CDs. the 5-year is at 1.15% for $1-99K.

 

[Animorph]

Stick with the plan. Now seems like a great time to get back to 60/40.

I sort of stick with 75/25. The 25% is ballast. I use bonds to get a little better gain than cash, but neither are equities. I don't really care what the gains on the bond side are, though I'll try to maximize it a bit. In a bear market I'll shift my AA to buy more equites.

If you continue to feel that 70/30 is what you want, I'd wait until the next bear market and then make the move to add equities.

If selling equities at new market highs or buying them during a bear market seems too worry-inducing then stick precisely to your rebalancing plan. Currently you're wandering off the path and thinking of buying equites when they're high and selling when they're low.

 

[OldShooter]

Sticking with the plan is always a good default when you're not sure what to do, but the fact is "the plan" does need to change occasionally as life circumstances and financial circumstances change. We were 90/10 for most of our lives, then 60/40 for 10-15 years or so, now 75/25. None of the changes was caused or affected by market behavior at the time.

That said, changes are made more difficult by our urge to market time. "Wait until the next bear market" is good advice but hard to implement. Taylor Larimore's market timing quotes https://www.bogleheads.org/wiki/Taylor_Larimore's_market_timing_quotes

 

[audreyh1]

Sticking to my AA plan. I don’t care about interest rates. Rebalancing takes care of the ups and downs.

 

[foxfirev5]

Not buying or selling equities at this point. I am slowly evolving into a
barometer/speedometer approach where I watch my total investment $$. Take my withdrawals and keep my net investment worth in the acceptable range. Many ways to get there.

 

[GravitySucks]

Thanks folks. I appreciate the input.
I'm leaning toward the punt.
Maintain the 60/40 AA.
Cash in the wins but go more short term on the durations.