SecondCor521
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Hi all,
I'm FIREd 4 years, 51M, with about a 1% net WR.
My AA for the past several years has been to take my actual expenses, multiply that by 25 to get a portfolio number, then set my AA to that which provided a maximum safe WR% historically according to FIREcalc. Whatever was leftover was invested in stocks, since I expected my kids to inherit that part.
For example, let's say I have $2M and spent $40K a year. I'd take that $40K, multiply by 25 to get $1M. I'd then look at FIREcalc with my 40 year time frame and decide that 90/10 was the historically "safest". So I'd put $900K in stocks for me, $100K in bonds for me, and the remaining $1M in stocks for my kids. Which of course is actually a 95% stock AA.
But just the other day I had a duh moment.
I calculate an NPV for my SS benefits as follows: I take my age 70 benefit amount from the SS website and inflate that on a monthly basis by CPI (so I'm doing everything in future nominal dollars). I then assume I'll collect 60% of that amount (to account for possible future benefit reductions) from age 70 to age 85. I then do an NPV calculation on the sum of those future reduced benefit amounts, using CPI again as the discount rate.
Anyway, I get NPV for my SS benefits. This SS NPV is about six times the amount I currently have in bonds - so say $640K or so - and I'm currently ignoring it for AA purposes.
So, poll options:
A. I am dumb and should have been counting my SS NPV as part of my asset allocation and therefore sell the $100K bonds I have and use the $640K SS NPV as more than covering the bond portion of my portfolio.
B. I am smart and should totally ignore the SS NPV and keep my non-SS portfolio the way it is and keep my $100K in bonds.
I usually leave stuff out, so feel free to ask questions if I've forgotten anything.
P.S. - Numbers aren't real, they're just for illustration.
I'm FIREd 4 years, 51M, with about a 1% net WR.
My AA for the past several years has been to take my actual expenses, multiply that by 25 to get a portfolio number, then set my AA to that which provided a maximum safe WR% historically according to FIREcalc. Whatever was leftover was invested in stocks, since I expected my kids to inherit that part.
For example, let's say I have $2M and spent $40K a year. I'd take that $40K, multiply by 25 to get $1M. I'd then look at FIREcalc with my 40 year time frame and decide that 90/10 was the historically "safest". So I'd put $900K in stocks for me, $100K in bonds for me, and the remaining $1M in stocks for my kids. Which of course is actually a 95% stock AA.
But just the other day I had a duh moment.
I calculate an NPV for my SS benefits as follows: I take my age 70 benefit amount from the SS website and inflate that on a monthly basis by CPI (so I'm doing everything in future nominal dollars). I then assume I'll collect 60% of that amount (to account for possible future benefit reductions) from age 70 to age 85. I then do an NPV calculation on the sum of those future reduced benefit amounts, using CPI again as the discount rate.
Anyway, I get NPV for my SS benefits. This SS NPV is about six times the amount I currently have in bonds - so say $640K or so - and I'm currently ignoring it for AA purposes.
So, poll options:
A. I am dumb and should have been counting my SS NPV as part of my asset allocation and therefore sell the $100K bonds I have and use the $640K SS NPV as more than covering the bond portion of my portfolio.
B. I am smart and should totally ignore the SS NPV and keep my non-SS portfolio the way it is and keep my $100K in bonds.
I usually leave stuff out, so feel free to ask questions if I've forgotten anything.
P.S. - Numbers aren't real, they're just for illustration.