I'm approaching retirement and am at over 90% stock, and am planning how to glide down to a more sensible figure for when income stops. But I'm not looking at a pure percentage based asset allocation, but rather, I want to have a sensible amount in safe holdings like cash/bonds to cover a certain number of years expenses while putting the rest in stocks (for upside risk).
So the question is: How many years expenses should be in cash/bonds? (There are many complexities and variables, but I'm just looking for a broad brush ball park figure.)
For example, suppose you retire with initially 30 years expenses, how about
2 years in cash
4 years in bonds
the rest (initially 24 years) in stocks?
You could say that this is an 80% allocation to stocks, but this is not meant to be a target percentage that is rebalanced to, but rather, you maintain the cash+bonds bucket at roughly a size in terms of years expenses, not as a percentage of portfolio, while the stock portion is free to grow or shrink.
The cash+bonds bucket may vary as you spend it down and top it up as needed, (and depending how the stock portion is doing) but you let the stocks boom or crash without rebalancing to predetermined percentages.
I realize "expenses" is ambiguous (needs? wants? emergencies? luxuries?) and you could vary it depending on portfolio performance. And if you have other income then change "expenses" to "expenses minus income".
But without pinning down a bunch of definitions of terms, what's the rough general picture of a sensible amount in safe holdings?
So the question is: How many years expenses should be in cash/bonds? (There are many complexities and variables, but I'm just looking for a broad brush ball park figure.)
For example, suppose you retire with initially 30 years expenses, how about
2 years in cash
4 years in bonds
the rest (initially 24 years) in stocks?
You could say that this is an 80% allocation to stocks, but this is not meant to be a target percentage that is rebalanced to, but rather, you maintain the cash+bonds bucket at roughly a size in terms of years expenses, not as a percentage of portfolio, while the stock portion is free to grow or shrink.
The cash+bonds bucket may vary as you spend it down and top it up as needed, (and depending how the stock portion is doing) but you let the stocks boom or crash without rebalancing to predetermined percentages.
I realize "expenses" is ambiguous (needs? wants? emergencies? luxuries?) and you could vary it depending on portfolio performance. And if you have other income then change "expenses" to "expenses minus income".
But without pinning down a bunch of definitions of terms, what's the rough general picture of a sensible amount in safe holdings?