Poll: Lowest equity allocation possible from retirement tools

[Car-Guy]

zero, like I have now.

 

[COcheesehead]

Although I have kids, there is a variation of your rule for me: "Fly first class or else my kids will" ;-)

That’s the plan.

 

[COcheesehead]

And the answer is:

Anyone with a low enough WR (from the portfolio). That's all there is. You are making it complicated.

-ERD50

Sorta think you are, but I will leave it there.

 

[DJRR]

Isn't the average real return on bonds ~ 2%, so if you have a portfolio of 25x spending and SS is ~ 50% of your spending then you can have 0% equities and have a 4% withdrawal? The main difference would be the terminal value and maybe an inflationary environment for far longer than anything we have seen to date. If you only have 25x your non SS/pension income then I would think you have shortfalls without equities. I guess another way to look at it is if you can convert your savings into a SPIA and cover your bills you don't need equities, but again may have significant inflation risk.

I think the more interesting question is how low of a % of equities can you use to get 25x your expenses and how long does it take vs. not using equities.

 

[aja8888]

"0"...............

 

[COcheesehead]

I will reiterate the question because it seems something simple is being made complex.

I am not asking the question for answer about me. My personal answer is 0%. I am asking, you as an individual or family, how much do you require in equities in your allocation to make your plan work for you over whatever time frame and expenses you have. Many respondents seem to understand the straight forward question.

My hypothesis is that many, and the results are showing this, on here can live without an equity allocation and be perfectly fine.

 

[DJRR]

I will reiterate the question because it seems something simple is being made complex.

I am not asking the question for answer about me. My personal answer is 0%. I am asking, you as an individual or family, how much do you require in equities in your allocation to make your plan work for you over whatever time frame and expenses you have. Many respondents seem to understand the straight forward question.

My hypothesis is that many, and the results are showing this, on here can live without an equity allocation and be perfectly fine.

K. Then for my plan I need at least 50% equities, but it thinks 60% is optimal.

For your hypothesis, anyone who needs less than a 2.84% withdrawal does not need equities if they use 30 yr Treasuries and trust the algebra. It is interesting to note that the withdrawal rate is .4% lower 2.43% if you use the data from 1927 vs. 1871 so the real return on bonds has shrunk over time. I would imagine that a large % of people on this board need < 2.5% withdrawal rate after claiming SS.

 

[Act2]

I don’t need equities, but I have them anyway.

 

[Exchme]

In the simplest version, where bonds just returned inflation (say they were I-bonds), then anyone where 1/WR exceeds life expectancy doesn't need any bonds. (So a 3.33% WR and 30 year planning horizon is golden). With long TIPS around 2%, a 30 year SWR can be around 4.5%. That means many folks here could use bonds-only if they chose to do so.

We choose to continue with our 80/20 allocation though.

 

[street]

Zero

 

[TheWizard]

I will reiterate the question because it seems something simple is being made complex.

I am not asking the question for answer about me. My personal answer is 0%. I am asking, you as an individual or family, how much do you require in equities in your allocation to make your plan work for you over whatever time frame and expenses you have. Many respondents seem to understand the straight forward question.

My hypothesis is that many, and the results are showing this, on here can live without an equity allocation and be perfectly fine.

That's quite true.
But one of my goals in life is to become a Wealthy B*stard to a degree.
And that's not gonna happen by owning only fixed income investments...

 

[COcheesehead]

That's quite true.
But one of my goals in life is to become a Wealthy B*stard to a degree.
And that's not gonna happen by owning only fixed income investments...

But if you ever get to be that wealthy - like some on here - fixed income looks pretty attractive. It’s called winning the game. 78% of the respondents agree.

 

[ERD50]

But if you ever get to be that wealthy - like some on here - fixed income looks pretty attractive. It’s called winning the game. 78% of the respondents agree.

How do you come to that?

78% of respondents said it was possible to go to zero equities. That doesn't mean that it looks attractive to them, and that is what they are doing, does it? Just that it is possible (per the calculators).

-ERD50

 

[SecondCor521]

How do you come to that?

78% of respondents said it was possible to go to zero equities. That doesn't mean that it looks attractive to them, and that is what they are doing, does it? Just that it is possible (per the calculators).

-ERD50

Indeed. I said and voted that it was possible for me to go to zero equities and succeed. I am, in fact, at 98% equities.

 

[N02L84ER]

Yes, I voted 0% because the retirement calculator gave me 100% success at 0% equities. However, I am currently at 63% equities and have no intention of ever going to 0% equities.

 

[DrRoy]

Our WR is only 2-3% (usually at the lower end) so 0% works.

 

[REWahoo]

Doesn't the poll response depend on a number of individual factors including age, portfolio size, risk tolerance, and income from SS, pensions or annuities?

 

[jollystomper]

But if you ever get to be that wealthy - like some on here - fixed income looks pretty attractive. It’s called winning the game. 78% of the respondents agree.

How do you come to that?

78% of respondents said it was possible to go to zero equities. That doesn't mean that it looks attractive to them, and that is what they are doing, does it? Just that it is possible (per the calculators).

-ERD50

Perhaps a good question to ask (as another thread, maybe?) would be "if FireCalc showed you could go to zero equities, but you have not, why not?" Mention above has been things like having heirs for whom you want to increase your portfolio, or concerns about a major future expense like long term care. Then again, some of us just want to keep taking some level of risk for future reward, it is better than the casino .

 

[TheWizard]

Doesn't the poll response depend on a number of individual factors including age, portfolio size, risk tolerance, and income from SS, pensions or annuities?

It certainly does.
So if one has more than enough retirement income from the sources listed, then there's no need to withdraw money from portfolio on a regular basis and you can invest it without regard to conventional AA wisdom...

 

[ERD50]

Doesn't the poll response depend on a number of individual factors including age, portfolio size, risk tolerance, and income from SS, pensions or annuities?

age -YES
portfolio size - NO
risk tolerance - NO
income from SS, pensions or annuities - NO/maybe (maybe depends on if the income is inflation adjusted or not)

Age/years in the model, definitely. At low years/high age, the portfolio will be hurt by short terms equity dips w/o enough time to recover. So that is a factor for sure.

For everything else, it is the withdrawals from the portfolio that determine success/failure. Your personal risk tolerance doesn't change the output of the model (which is what the OP asked). Starting portfolio balance doesn't matter, X% is X%.

Person A may be drawing 2% IA (Inflation Adjusted) from the portfolio with zero pension/SS. They use 2% IA just because they are conservative and have a big enough stash to meet their needs/wants.

Person B may be drawing 2% IA from the portfolio and pension/SS make up another 2% for a 4% IA TOTAL. As far as their portfolio depletion is concerned, it will fail at the same time as person A. The portfolio doesn't "know" about the pension/SS.

Person C may be drawing 4% IA from the portfolio with zero pension/SS. Person C portfolio will fail sooner than person A or B, because it is the draw from the portfolio that matters.

I modeled this in FICALC. As expected $40K IA spend on a $1M portfolio, 30 years has ~ 95% success, $0-$6.1M low/high ending balance.

And $20K IA spend on a $1M portfolio, 30 years has ~ 100% success, $1.2M-$8.0M low/high ending balance.

And $40K IA spend on a $1M portfolio with $20K SS, 30 years has ~ 100% success, $1.2M-$8.0M low/high ending balance. Exactly the same as a $20K IA spend w/o SS, because both portfolios 'see' a 2% IA withdraw. As I said earlier, that (and age) is all that matters.

It's just not clear at all what OP is trying to glean from this line of questioning? It sounds like he's trying to justify a case for a 0/100 AA? Well, there is a case for it, but to me, all this poll and other information does is obfuscate that.

-ERD50

 

[ShokWaveRider]

No equity here, I assume the OP meant how much stock exposure one has. We get 100% success with 0 Equity at 4% CD Returns, so 0 for us.

 

[Gumby]

Perhaps a good question to ask (as another thread, maybe?) would be "if FireCalc showed you could go to zero equities, but you have not, why not?" Mention above has been things like having heirs for whom you want to increase your portfolio, or concerns about a major future expense like long term care. Then again, some of us just want to keep taking some level of risk for future reward, it is better than the casino .

I've been riding the 65/35 horse for a long time now, and it got me this far, so I'm sticking with it.

 

[Koolau]

That's quite true.
But one of my goals in life is to become a Wealthy B*stard to a degree.
And that's not gonna happen by owning only fixed income investments...

Heh, heh, I know the definition of the B-word, but do not know the definition of "Wealthy" which makes it all somewhat academic. YMMV as always.

 

[Koolau]

Perhaps a good question to ask (as another thread, maybe?) would be "if FireCalc showed you could go to zero equities, but you have not, why not?" Mention above has been things like having heirs for whom you want to increase your portfolio, or concerns about a major future expense like long term care. Then again, some of us just want to keep taking some level of risk for future reward, it is better than the casino .

I'm embarrassed to say that (beside those reasons you mention) it's also somewhat a matter of habit. I'd just feel strange not having some equities.

 

[ERD50]

No equity here, I assume the OP meant how much stock exposure one has. We get 100% success with 0 Equity at 4% CD Returns, so 0 for us.

No, the OP was clear on this (but not clear on "why"). Not your actual choice of AA, but what a tool says you could use:

What is the lowest equity allocation you can use with 95%+ success from any of the popular retirement tools based on YOUR actual situation.

-ERD50