sidekick wrote:Getting around to my final AA this week after moving almost everything into VG and have read thru this thread and so other pointed to with interest.
So, sorry for what might seem so simple a question for you experienced Bogleheads but a 3 fund reads to me as 33/33/33 using Total Stock, Total Bond and Total Intl with no consideration for age or closeness to retirement. But everything I have read says that bonds % should be your age using either 100-age or 120-age calc, in my case I'm 60 and heading to 50/50 for equites and fixed. I'm mostly there w/ a very small smattering of REIT (1%) and TIPS (1%) both in taxable. So in a 3 fund how do Total Stock, Total Bond and Total Intl allocate out for a 60 year old, 6 years from retirement?
To each, his own. And, no, the 3 fund portfolio does not prescribe a recommended allocation among the funds.
That said, I have decided to go with 35% Total Market, 25% Total International and 40% Total Bond. I have decided not to tinker with it by adding REIT, TIPS or natural resources. I am 61, retired with a part time job, as is my wife. I have a pension (she does not), and we have enough cash flow that we have not had to tap savings these past two years since my retirement.
My own feeling is that age in bonds is too conservative. Also, I am probably more biased (in my thinking) to global than most people.
The real question, I suppose, is to look at your own glide path to retirement. How are you doing?
1. If you're about there, and are good with that, you may want to be more conservative. Take money off the table.
2. If you're not there, you must save more, take more risk, and / or lower your expectations.
3. If you're comfortably done, perversely, you can take more risk. That's where I am. If the market tanks 40% this year, I can take it. Been there twice in the last decade. (Actually, I am now much better insulated against a crash than I was then. Lessons were learned!)
But, all in all, I'd recommend 40% or more in bonds. And, this is hand grenades, not sniping. Plus minus 5% in either of the three allocations makes little difference.
The basic calculation is easy to do. Assume 3% growth per year, plus your extra retirement savings (in today's dollars) until you retire. What is your nest egg?
Assume a 3.5% annual withdrawal from your nest egg after you retire. Is that enough? If so, you're golden. If not, and your required withdrawal rate is above 4.0%, you have some choices to make.
By the way, the Social Security decision is also (I think) quite easy. What are your cash flow needs? The crossover point for SS is about age 80. If you plan to live beyond age 80, delay taking benefits until age 70. If you plan to live less than age 80, take them at age 62. (This omits any complications from disability, multiple spouses, ...)