Should one in Retirement Rebalance
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Should one in Retirement Rebalance
Please provide your thoughts on whether a person in Retirement should rebalance from fixed income to equities. I have read a number of threads on that question but if there is a consensus I have missed it. I recall Larry S. saying that he does not recommend rebalancing in retirement. (Or at least that's what I think I recall him saying.)
Thanks for any and all comments on this issue.
Thanks for any and all comments on this issue.
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Re: Should one in Retirement Rebalance
Currently, I think rebalancing is the standard. Some are proposing other methods, but they aren't mainstream yet.
- Taylor Larimore
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Re: Should one in Retirement Rebalance
antiqueman:antiqueman wrote:Please provide your thoughts on whether a person in Retirement should rebalance from fixed income to equities. I have read a number of threads on that question but if there is a consensus I have missed it. I recall Larry S. saying that he does not recommend rebalancing in retirement. (Or at least that's what I think I recall him saying.)
Thanks for any and all comments on this issue.
I believe it is more important to rebalance back to our desired asset-allocation plan in retirement.
When young we can make make mistakes because we probably have time to overcome our losses. However, in retirement we cannot afford to lose what we will need for the rest of our life.
Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle
Re: Should one in Retirement Rebalance
Rebalancing is easy during retirement. You take your AWR from what's up.
KISS & STC.
Re: Should one in Retirement Rebalance
There are some recent papers by Wade Pfau and Michael Kitches that re-visit the whole issue of whether you should increase your bond holdings in retirement. If you want to reduce your risk, it's a no brainer to hold more bonds, right? Well, the answer depends on which risk you're talking about, risk of your investments taking a drop in value or risk of running out of money before you die. In fact, no one has been able to show that increasing bond holding in retirement reduces your risk; look at the safe withdrawal rate studies in the Wiki. What no one seemed to have noticed for a long time, when bonds offered good returns, was that one way that running out of money can happen is that bonds return less than the rate of inflation; that has happened for long periods of time and could happen again so holding more bonds doesn't necessarily reduce risk.
What Pfau/Kitches found was you're best off with a U shaped asset allocation, high in stocks when you're young, higher in bonds as you approach and start retirement and then high in stocks again. One easy way to increase your stock holding in retirement is to simply withdraw bonds first and not rebalance.
What Pfau/Kitches found was you're best off with a U shaped asset allocation, high in stocks when you're young, higher in bonds as you approach and start retirement and then high in stocks again. One easy way to increase your stock holding in retirement is to simply withdraw bonds first and not rebalance.
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Re: Should one in Retirement Rebalance
Certainly. 26 years retired, not using investment distributions for living expenses yet. This year I did a lot of re-balancing into bonds; in 2007-9 (and prior downturns) I did a lot of re-balancing (and a little extra) into stocks. I want to control my own allocation; I don't want the market to control it. As for more stock as you get older: everyone's situation is different. For us, we pretty much think we have enough for our needs and wants. I look at my mid- 80's spouse and think 70 or 80% equities at that stage of life? What for? I keep it at my (the younger spouse's) age in bonds.
Re: Should one in Retirement Rebalance
It is unclear if you are asking about rebalancing or changing asset allocation.antiqueman wrote:Please provide your thoughts on whether a person in Retirement should rebalance from fixed income to equities. I have read a number of threads on that question but if there is a consensus I have missed it. I recall Larry S. saying that he does not recommend rebalancing in retirement. (Or at least that's what I think I recall him saying.)
Thanks for any and all comments on this issue.
My distinction is that rebalancing is bringing a portfolio back to some target allocations.
If one is purposely changing basic asset allocations say from a 60/40 stock to bond to a 50/50 allocation that is a change to allocations.
If you believe in the value of rebalancing prior to retirement I can think of no reason not to rebalance after retirement.
Changing asset allocations may be a continuing process throughout ones investing lifetime and I think there is a tendency with valid reasons for one to become more conservative in their investments in later years.
Bob
Re: Should one in Retirement Rebalance
When I first joined this forum there was a poster who wrote that one can rebalance into poverty.
I think this is truer for those who are retired or near retirement than those who are working. It also depends on our asset allocation and how frequently one rebalances. I think in retirement it is a lot safer to rebalance into equities on time basis, for example every 1-3 years, if at all. Also, perhaps one should consider rebalancing only a portion of the %. For example if your plan calls for a 50/50 stock to bond ratio and you are at 40% equities, consider a plan that would increase equities by 5% to get to 45/55.
We have not mastered fiscal and monetary policy (and the politics) in this country, let alone world wide, to exclude the possibility or maybe the likelihood of another great depression like event. I do not think it is a prudent plan to think that one can stay the course using rebalance bands of 5% or 10% as equities decrease by 80% or so over the course of several years. I think our emotions would cause us to bail, especially for those of us who are retired, but for most every one else also.
The over riding rule of thumb of need, ability and willingness to take risk and having a plan B should determine how much money we should be willing to throw down a rat hole.
jim
I think this is truer for those who are retired or near retirement than those who are working. It also depends on our asset allocation and how frequently one rebalances. I think in retirement it is a lot safer to rebalance into equities on time basis, for example every 1-3 years, if at all. Also, perhaps one should consider rebalancing only a portion of the %. For example if your plan calls for a 50/50 stock to bond ratio and you are at 40% equities, consider a plan that would increase equities by 5% to get to 45/55.
We have not mastered fiscal and monetary policy (and the politics) in this country, let alone world wide, to exclude the possibility or maybe the likelihood of another great depression like event. I do not think it is a prudent plan to think that one can stay the course using rebalance bands of 5% or 10% as equities decrease by 80% or so over the course of several years. I think our emotions would cause us to bail, especially for those of us who are retired, but for most every one else also.
The over riding rule of thumb of need, ability and willingness to take risk and having a plan B should determine how much money we should be willing to throw down a rat hole.
jim
Re: Should one in Retirement Rebalance
Staying the course in bad markets is primary. What you do within that parameter during other market conditions is secondary.
The reference point matters. If you are 25/75 stock/bond ratio entering retirement, selling bonds during retirement will extend the longevity of your portfolio. At a steady 65/35, rebalancing throughout retirement, there would be less benefit from reducing your bond exposure.
Eventually the selling bonds in retirement concept will be refined with specific allocations and SWR for those allocations. The 50/50 was the lowest stock allocation (least volatile portfolio) that would sustain the highest historical SWR. Since the turn of the century, some new history may have occurred.
The reference point matters. If you are 25/75 stock/bond ratio entering retirement, selling bonds during retirement will extend the longevity of your portfolio. At a steady 65/35, rebalancing throughout retirement, there would be less benefit from reducing your bond exposure.
Eventually the selling bonds in retirement concept will be refined with specific allocations and SWR for those allocations. The 50/50 was the lowest stock allocation (least volatile portfolio) that would sustain the highest historical SWR. Since the turn of the century, some new history may have occurred.
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Re: Should one in Retirement Rebalance
Similar to CAbob, I wonder if we're missing the OP's question.
I think he might mean that it's OK to sell stock funds to maintain a 50/50 AA in retirement, during bull market years like we've had lately.
But he's asking about an ASYMMETRIC concept when stocks fall in value during a bear market: the idea being not to sell bonds to buy more stocks and get back closer to 50/50.
I don't plan to do this. My plan is to maintain a stock percentage between 45% and 55% for my remaining years...
I think he might mean that it's OK to sell stock funds to maintain a 50/50 AA in retirement, during bull market years like we've had lately.
But he's asking about an ASYMMETRIC concept when stocks fall in value during a bear market: the idea being not to sell bonds to buy more stocks and get back closer to 50/50.
I don't plan to do this. My plan is to maintain a stock percentage between 45% and 55% for my remaining years...
Attempted new signature...
Re: Should one in Retirement Rebalance
So, Equities take a dive -- what do to if you are in retirement ?antiqueman wrote:Please provide your thoughts on whether a person in Retirement should rebalance from fixed income to equities.
- Larry Swedroe talks about *Plan B* in this long thread.
http://www.bogleheads.org/forum/viewtop ... b#p1234483 - Bill Bernstein had particularly interesting posts [somewhat] related to this.
http://www.bogleheads.org/forum/viewtop ... d#p1761836wbern » Sun Jul 28, 2013 3:02 pm wrote: "Large hoard" =
1) Pre-retirement: The smaller of a) 25% of your portfolio (short bonds count) or b) 5 years living expenses
2) Retirement: Residual *basic* living expenses (after SS + pensions) for 20 years. - Each person is different: different goals & objectives, different personal circumstances, different....
- DW and I have a *fixed income floor* to consume and meet our goals & objectives.
- No, we wouldn't breach that *floor* to rebalance from FI to Equities.
Landy |
Be yourself, everyone else is already taken -- Oscar Wilde
Re: Should one in Retirement Rebalance
I like what Landy said above.
Remember also that part of this depends on how you are positioned. A person who will not rebalance into stocks might have a higher stock allocation in the first place. Larry Swedroe takes rather the opposite approach in his "Larry" portfolio having a heavy small and value tilt but offset by a much higher allocation to bonds. I assume this portfolio would be rebalanced, but he has also mentioned personally taking the no rebalance approach. These things are all about managing downside tail risk or the consequences of large stock market crashes that don't recover except over a very long period of time. In general it is hard to see how less stock rebalanced is better or worse than more stock not rebalanced. The issue would have to be modeled and the results may not be significant against margin of error in the estimates.
Liability matching comes from a different perspective but evidently implies some of the same consequences, ie to not rebalance into stocks. I am not convinced liability matching actually generates a different portfolio or a different process for managing investments in the end. I think that point of view really only becomes different when it causes the investor to make sure a substantial part of the income stream is annuitized. Those who read Bodie and Milevsky would not find any new news in this.
Remember also that part of this depends on how you are positioned. A person who will not rebalance into stocks might have a higher stock allocation in the first place. Larry Swedroe takes rather the opposite approach in his "Larry" portfolio having a heavy small and value tilt but offset by a much higher allocation to bonds. I assume this portfolio would be rebalanced, but he has also mentioned personally taking the no rebalance approach. These things are all about managing downside tail risk or the consequences of large stock market crashes that don't recover except over a very long period of time. In general it is hard to see how less stock rebalanced is better or worse than more stock not rebalanced. The issue would have to be modeled and the results may not be significant against margin of error in the estimates.
Liability matching comes from a different perspective but evidently implies some of the same consequences, ie to not rebalance into stocks. I am not convinced liability matching actually generates a different portfolio or a different process for managing investments in the end. I think that point of view really only becomes different when it causes the investor to make sure a substantial part of the income stream is annuitized. Those who read Bodie and Milevsky would not find any new news in this.
Re: Should one in Retirement Rebalance
So, topic of the week seems to be rebalancing.
The first question to answer is: "What is the purpose of rebalancing?"
If the OP can answer that, we can explore possible answers.
L.
The first question to answer is: "What is the purpose of rebalancing?"
If the OP can answer that, we can explore possible answers.
L.
You can get what you want, or you can just get old. (Billy Joel, "Vienna")
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Re: Should one in Retirement Rebalance
I am the OP. I should have made the question more clear.
I am asking what the consensus is concerning whether a person who goes into retirement today with an allocation of 40/60 stock bond ratio ( or any other allocation below that) and stocks take a significant decrease ( 2008-2009 for example) should the retired person continue to rebalance INTO EQUITIES all the way to the bottom of the bear market--wherever that might be. Or should the retired person not take money from bonds to buy stocks but wait for the stocks to hopefully return to the original investment amount of the 40/60 portfolio. ( I understand the theory of rebalancing while one is accumulating but not sure the same theory applies once one is in retirement .)
I am asking what the consensus is concerning whether a person who goes into retirement today with an allocation of 40/60 stock bond ratio ( or any other allocation below that) and stocks take a significant decrease ( 2008-2009 for example) should the retired person continue to rebalance INTO EQUITIES all the way to the bottom of the bear market--wherever that might be. Or should the retired person not take money from bonds to buy stocks but wait for the stocks to hopefully return to the original investment amount of the 40/60 portfolio. ( I understand the theory of rebalancing while one is accumulating but not sure the same theory applies once one is in retirement .)
Re: Should one in Retirement Rebalance
Landy,
How do you manage to retrieve those gems so quickly? Nevermind. Just keep doing what you're doing. Oh, and thanks
How do you manage to retrieve those gems so quickly? Nevermind. Just keep doing what you're doing. Oh, and thanks
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Re: Should one in Retirement Rebalance
At age 70 I carry a 60/40 AA and only actively rebalance if stocks get higher...........worked fine for us in 2008/09. I did rebalance some then with new money but once you are retired the new money stops.antiqueman wrote: I am the OP. I should have made the question more clear.
I am asking what the consensus is concerning whether a person who goes into retirement today with an allocation of 40/60 stock bond ratio ( or any other allocation below that) and stocks take a significant decrease ( 2008-2009 for example) should the retired person continue to rebalance INTO EQUITIES all the way to the bottom of the bear market--wherever that might be. Or should the retired person not take money from bonds to buy stocks but wait for the stocks to hopefully return to the original investment amount of the 40/60 portfolio. ( I understand the theory of rebalancing while one is accumulating but not sure the same theory applies once one is in retirement .)
If the market pulls another Japan 1990 I would not think of selling any bonds to rebalance. That would be very reckless at my age.
JW
Retired at Last
Re: Should one in Retirement Rebalance
I don't have the data to prove it but my intuition is that not rebalancing as you say should be equivalent to holding a lesser allocation to stocks but with rebalancing, considering the effect on portfolio failure. So you can go 40/60 and not rebalance or go 30/70 and rebalance or go 20/80 but with the 20 heavily tilted to small value stocks (I guess rebalanced). This is a guess about what might be expected to happen and the numbers mentioned are just SWAGs.antiqueman wrote:I am the OP. I should have made the question more clear.
I am asking what the consensus is concerning whether a person who goes into retirement today with an allocation of 40/60 stock bond ratio ( or any other allocation below that) and stocks take a significant decrease ( 2008-2009 for example) should the retired person continue to rebalance INTO EQUITIES all the way to the bottom of the bear market--wherever that might be. Or should the retired person not take money from bonds to buy stocks but wait for the stocks to hopefully return to the original investment amount of the 40/60 portfolio. ( I understand the theory of rebalancing while one is accumulating but not sure the same theory applies once one is in retirement .)
Re: Should one in Retirement Rebalance
You should rebalance.antiqueman wrote:I am the OP. I should have made the question more clear.
I am asking what the consensus is concerning whether a person who goes into retirement today with an allocation of 40/60 stock bond ratio ( or any other allocation below that) and stocks take a significant decrease ( 2008-2009 for example) should the retired person continue to rebalance INTO EQUITIES all the way to the bottom of the bear market--wherever that might be. Or should the retired person not take money from bonds to buy stocks but wait for the stocks to hopefully return to the original investment amount of the 40/60 portfolio. ( I understand the theory of rebalancing while one is accumulating but not sure the same theory applies once one is in retirement .)
L.
You can get what you want, or you can just get old. (Billy Joel, "Vienna")