Rising Equity Glide Path in Retirement

[rkser]

I find our Asset Allocation going up to 66/37, the intended AA being 50-55/45/5.

This is in spite of having Muni Funds & short Term Bond Funds in Taxable accounts

1)The high Stock returns,
2)Roth Conversions from Bonds to Stocks, in trying to decrease the RMDs
are some of the reasons I could see for this.

I am 65, retired & although not alarming, the aggressive AA concerns me. There is the risk of poor sequence of stock returns also, although our Bonds will last 12 to 15 yrs of basic living expenses.

I am doing serial yearly Roth Conversions & have some prior cash left for living expenses.
If I sell the Stock Funds with its cap gains it leaves less room for Roth Conversions.

If others are having this rising Equity Glide Path, how are you managing it.
I will appreciate any feedback, thankyou in advance

 

[MBAustin]

We have had the same thing happen with the rising stock market over the past several years. One thing we do is donate a significant amount from our non-IRA stock funds to our donor advised fund each year to fund our charitable giving. This also offsets much of our tax liability from Roth conversions. We've also moved a good bit of our IRA funds to more conservative positions such as Wellesley.

 

[RunningBum]

This is where buckets make sense to me. I'm still refining my strategy (if I even go this way), but my thought is to keep a few years in fixed income, a few more with a somewhat conservative allocation, and the rest much more aggressive for long term growth. The result of this is that as long as your first two buckets are filled according to your plan, you can let your equities grow.

A drawback is that you are only selling enough to refill those first two buckets, when perhaps you should be selling more when the market is high. Another drawback is that you still have to sell to top off buckets even if the market drops. You could defer selling while there is still something in the buckets, but you run the risk of a prolonged bear market draining the buckets. As I said, I'm still evaluating.

 

[Lewis Clark]

A rising equity glidepath is not necessarily a bad thing. Please see:

https://earlyretirementnow.com/2017...e-withdrawal-rates-part-19-equity-glidepaths/

https://earlyretirementnow.com/2017...s-part-20-more-thoughts-on-equity-glidepaths/

If you are concerned about your equity allocation getting too high, why don't you do your Roth conversions from Bonds to Bonds, instead of bonds to stocks?

 

[Poweruser]

I find our Asset Allocation going up to 66/37, the intended AA being 50-55/45/5.

This is in spite of having Muni Funds & short Term Bond Funds in Taxable accounts

1)The high Stock returns,
2)Roth Conversions from Bonds to Stocks, in trying to decrease the RMDs
are some of the reasons I could see for this.

I am 65, retired & although not alarming, the aggressive AA concerns me. There is the risk of poor sequence of stock returns also, although our Bonds will last 12 to 15 yrs of basic living expenses.

I am doing serial yearly Roth Conversions & have some prior cash left for living expenses.
If I sell the Stock Funds with its cap gains it leaves less room for Roth Conversions.

If others are having this rising Equity Glide Path, how are you managing it.
I will appreciate any feedback, thankyou in advance

Why don't you Roth convert stocks to stocks? Isn't it usually suggested to hold stock funds in Roth for higher tax free growth?


My stock allocation started at 50% after retiring in 2017 at age 56. I was concerned with sequence of returns and my wife being able to keep her job. As of today I am 75% in stocks and I have decided to leave it alone if it increases further. The reasons for the rise is reinvesting home equity when we moved to a lower COL area, the stock market doing well, my wife continuing to work and lower spending due to covid.


I have a pension and with enough in fixed income to live on till social security. My plan for a severe downturn in the market is to do extra Roth conversions. I will no longer rebalance to equities when the market drops.

 

[Exchme]

I'm assuming that your IRA is already filled with bonds as that is good tax planning.

Up to you whether to accept the greater risk of a higher stock allocation. But if your assessment of your risk tolerance was that you a were a 55/45 or 50/50 portfolio holder, switching to mid 60% stocks (note your total of 66 + 37= 103%?) is quite a shift and means more downside risk than you may be comfortable taking. If you are now comfortable at higher stock allocation, you have to ask yourself what changed and why weren't you comfortable there before, just make sure the answer isn't that stocks always go up since of course they don't.

I would check to ensure the cost basis for your stock funds is set to SpecID so you can identify any low capital gain lots that you have. You may find you have some stocks that can be sold in taxable at very low tax cost and you can do your rebalancing with little pain.

The next alternative is to put your excess bonds in Roth.

 

[mrfeh]

I find our Asset Allocation going up to 66/37, the intended AA being 50-55/45/5.

This is in spite of having Muni Funds & short Term Bond Funds in Taxable accounts

1)The high Stock returns,
2)Roth Conversions from Bonds to Stocks, in trying to decrease the RMDs
are some of the reasons I could see for this.

I am 65, retired & although not alarming, the aggressive AA concerns me. There is the risk of poor sequence of stock returns also, although our Bonds will last 12 to 15 yrs of basic living expenses.

I am doing serial yearly Roth Conversions & have some prior cash left for living expenses.
If I sell the Stock Funds with its cap gains it leaves less room for Roth Conversions.

If others are having this rising Equity Glide Path, how are you managing it.
I will appreciate any feedback, thankyou in advance

I don't understand...if you want to keep a constant AA, rebalance accordingly.

Don't let the tax tail wag the dog.

 

[Doingitwrong]

Rebalance on schedule and move on.
Or are you thinking about changing the plan at 65?

 

[RobbieB]

I've been keeping it close to 80-20 by spending only equities and letting bond interest reinvest. I've been taking RMD's ever since I retired even though they are not required.

 

[foxfirev5]

Ah yes. The rising equity allocation in a bull market. It is very tempting to ditch your set allocation. Why have an AA at all?

Personally I've gone through the whole menu of planning tools. AA with rebalancing, lowering equity exposure at retirement and finally rising equity glidepath back to earlier levels. However in reality I follow a liability matching approach. I have 25 + years expenses in fixed income. This consists of CD/Treasury ladders, Series I bonds, short and intermediate bond funds, HYSA etc.

Everything else goes into equities, primarily Roths. Over the last few years my AA has shifted from 40/60 to about 50/50. Will it continue to be a rising glidepath? Who knows.

 

[DrRoy]

I have been making corrections to my equity AA for the last 5 years as the market rises and I withdraw cash for spending. I am overfunded so I do not need the exposure or the risk. AA was 63% now 53%. I do it in the retirement accounts so no tax.

 

[Dtail]

A rising equity glidepath is not necessarily a bad thing. Please see:

https://earlyretirementnow.com/2017...e-withdrawal-rates-part-19-equity-glidepaths/

https://earlyretirementnow.com/2017...s-part-20-more-thoughts-on-equity-glidepaths/

If you are concerned about your equity allocation getting too high, why don't you do your Roth conversions from Bonds to Bonds, instead of bonds to stocks?

+1

 

[rkser]

I'm assuming that your IRA is already filled with bonds as that is good tax planning.

Up to you whether to accept the greater risk of a higher stock allocation. But if your assessment of your risk tolerance was that you a were a 55/45 or 50/50 portfolio holder, switching to mid 60% stocks (note your total of 66 + 37= 103%?) is quite a shift and means more downside risk than you may be comfortable taking. If you are now comfortable at higher stock allocation, you have to ask yourself what changed and why weren't you comfortable there before, just make sure the answer isn't that stocks always go up since of course they don't.

I would check to ensure the cost basis for your stock funds is set to SpecID so you can identify any low capital gain lots that you have. You may find you have some stocks that can be sold in taxable at very low tax cost and you can do your rebalancing with little pain.

The next alternative is to put your excess bonds in Roth.

Thankyou for your helpful reply,

Yes my bad, it needs to be 66/34.

Our IRAs are in V Total Bond Index + V Total International Bond Index, no stocks in Tax Deferred. All Stocks are in taxable.

In an attempt to get the Asset Allocation in line, I have added Bonds in Taxable Accounts with Tax Exempt Intermediate Term Bonds (MFJ 24%) + some Short Term Bonds. We are retired so no earned income so no more contributions to IRAs.

The Bonds can last 12 to 14 yrs of living expenses, so that gives me some solace against the poor sequence of returns risk, as we do not have to sell the stock funds for living expenses in case of a Market Downturn.

The high Market returns are good, but in my case it comes with a uncomfortable feeling, wish I was back at 55/45.

So, either I exchange the Total Stock Index in our Roths to Total Bond Index or go to a Shrink (Ha ha) to comfort myself. As we are getting older the AA is getting aggressive rather than more conservative. I see many people totally comfortable with more aggressive AA & some also have individual Stocks in their portfolios.

Now with the interest rate hikes coming, going into a losing Bond Fund does not seem a good idea.

I don't know guys, our retirement is fortunately (very)well funded but this aggressive AA kind of concerns me, it is in the back of my mind. Looks like we are investing for our kids. Behavioral factors are at work here.

Thanks for listening.

 

[mrfeh]

Now with the interest rate hikes coming, going into a losing Bond Fund does not seem a good idea.

If you're holding a total bond fund (average duration 6-7 years) and you'll be holding that fund for at least that length of time, this should not be a concern. In fact, you should welcome rising interest rates.

Sounds like you need to rebalance.

 

[rkser]

We have had the same thing happen with the rising stock market over the past several years. One thing we do is donate a significant amount from our non-IRA stock funds to our donor advised fund each year to fund our charitable giving. This also offsets much of our tax liability from Roth conversions. We've also moved a good bit of our IRA funds to more conservative positions such as Wellesley.

Thanks for a great idea to donate equities to a Donor Advised Fund.

We are still taking baby steps in donating from our Fidelity DAF, we need to be better organized in our giving efforts & donating to our DAF.

Thanks

 

[rkser]

https://earlyretirementnow.com/2017...e-withdrawal-rates-part-19-equity-glidepaths/

Thanks for the reference,
The well researched article in Early Retirement Now is about positives of a Rising Equity Glidepath after a 5-10 yr period of poor SORR has passed at initial retirement & also a 50-60 yrs in retirement.

It may not apply to me as I am 65, recently retired & am planning a 30 yr retirement. I am at a time when a poor SORR may undermine our investments.
A higher Bond Allocation has been advised during the initial 5-7 yrs in retirement & I am doing exactly opposite.

Thanks again

 

[Major Tom]

I think that most of us who have any significant portion of our portfolio in equities have been experiencing a rising equity allocation in recent years. I can't be of much help, I'm afraid. Roth conversions don't make much sense for me, due to my (relatively) low anticipated income in the future. Every year when I sell funds to generate cash to fund my expenses for the next year, I make sure to sell equity funds, which helps a bit. That's about it, really. My target AA is 60/37/3, and is currently standing at 69/29/2. I'd prefer the equity position to be between 60 and 65, but it's not a big deal. It sounds mighty cavalier of me, but I figure that if/when the market drops, that will help reset my AA

My portfolio could drop by 50% and stay there and, with the ability to take early SS in a few years if I want, I'll still be able to maintain my current spending level - and even increase it a little. I use this knowledge to allow me to lose interest in the subject of finances fairly quickly, and go back to concentrating on my everyday life.

Heading out for a bike ride now.

 

[rkser]

A rising equity glidepath is not necessarily a bad thing. Please see:

https://earlyretirementnow.com/2017...e-withdrawal-rates-part-19-equity-glidepaths/

https://earlyretirementnow.com/2017...s-part-20-more-thoughts-on-equity-glidepaths/

If you are concerned about your equity allocation getting too high, why don't you do your Roth conversions from Bonds to Bonds, instead of bonds to stocks?

Thanks for your reply with the references -

https://earlyretirementnow.com/2021/11/16/leverage-in-retirement-swr-series-part-49/#more-67971

The very involved calculations of a equity based margin loan sound well & good. May not work for this risk averse boglehead in this lifetime at least.

I am afraid my spending in retirement will be restrained thinking that I am spending/living from a loan, which I will be.

This is the most money we have ever had in our lives at the start of our retirement. We do not have ANY debt, no car or house payments.

Thanks

 

[walkinwood]

So, either I exchange the Total Stock Index in our Roths to Total Bond Index

This was my solution ie stock to bond fund exchange. If the prospect of rising interest rates bother you, go to CDs or short-term bond funds.