Ideal allocation for someone who has reached their "number"

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retiringtype
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Ideal allocation for someone who has reached their "number"

Post by retiringtype » Wed Jul 06, 2016 9:25 am

Hi all. I'm 61 years old and have accumulated about $6 million, INCLUDING IRAs and the lump-sum value of my pension. However, I'm having difficulty determining an ideal stock-bond-cash ratio. Right now, I'm sitting at 40% stocks, 35% fixed income and a whopping 25% cash, mostly due to inability to commit. I DON'T want to take a big hit if there's a severe market downturn; I've worked very hard, and saved very long, for this money. Is there an ideal allocation that will leave me room for growth but mostly protect me at the same time?

livesoft
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Re: Ideal allocation for someone who has reached their "number"

Post by livesoft » Wed Jul 06, 2016 9:30 am

I don't think there is an ideal allocation, so give up on finding one. Anything from 40/60 to 60/40 would probably work for you. You will take a hit if stocks goes down if you own equities, that's a simple fact. You have to decide if it will even matter to your lifestyle or if is mostly matters in your head.
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Taylor Larimore
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Re: Ideal allocation for someone who has reached their "number"

Post by Taylor Larimore » Wed Jul 06, 2016 9:41 am

retiringtype wrote:Hi all. I'm 61 years old and have accumulated about $6 million, INCLUDING IRAs and the lump-sum value of my pension. However, I'm having difficulty determining an ideal stock-bond-cash ratio. Right now, I'm sitting at 40% stocks, 35% fixed income and a whopping 25% cash, mostly due to inability to commit. I DON'T want to take a big hit if there's a severe market downturn; I've worked very hard, and saved very long, for this money. Is there an ideal allocation that will leave me room for growth but mostly protect me at the same time?

retiringtype:

Welcome to the Bogleheads Forum!

Now that you have reached your "number," your #1 consideration is not to lose what you've got. You might do what I did. Put the money you cannot afford to lose in a low-cost, diversified, high quality bond fund(s), and put the rest in stock funds.

You should sleep like a baby with no financial worries.

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

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Re: Ideal allocation for someone who has reached their "number"

Post by qwertyjazz » Wed Jul 06, 2016 9:42 am

There is less risk in bonds and minimal capital gains - although a good thing as it implies gains. While deciding you can move your cash to bonds with a look to type based on tax considerations.
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Re: Ideal allocation for someone who has reached their "number"

Post by dbr » Wed Jul 06, 2016 9:45 am

retiringtype wrote: I DON'T want to take a big hit if there's a severe market downturn; I've worked very hard, and saved very long, for this money. Is there an ideal allocation that will leave me room for growth but mostly protect me at the same time?


There is no ideal allocation. Growth and protecting yourself from a downward fluctuation are contradictory objectives. Asset allocation is a matter of selecting a point along a continuum from highest expected return and greatest fluctuations in value to lowest fluctuations in value and least expected return. You have to make a choice based on judgement and preference. 40% stocks is rather on the safe and lower return side, but people can certainly justify lots of choices here.

As for cash compared to fixed income. You are probably operating under a false impression that cash is safer than other fixed income. In fact a lot of people don't even distinguish cash from fixed income generally. That is because all fixed income is a big gap lower in both risk and return than stocks. In your situation your cash should probably just be in whatever the rest of your fixed income might be. (It would be good to list what that is for comment from the group.)

A more complicated concept about growth and fluctuations is that higher returning investments generally outrun lower returning investments but with less certainty about the outcome. Being able to live with ups and downs or not is a different question from deciding what you want the end result to look like. Higher equity allocations will generally result in greater wealth across the board but not with certainty. Very low equity allocations are more certain in outcome but also abandon growth altogether. Honestly, this really does circle back to a good argument for the 40% stock allocation, but it is not because it is ideal but because it avoids the evils of the extremes. Also what Taylor said makes lots of sense.

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Re: Ideal allocation for someone who has reached their "number"

Post by Lafder » Wed Jul 06, 2016 9:48 am

I would do 60/40 or 50/50 stocks/bonds.

I would keep a year or 2 of expenses very safe cash. I prefer the simplicity of a 3 fund portfolio. But I would also own some real estate for my own diversity :).

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Re: Ideal allocation for someone who has reached their "number"

Post by Theseus » Wed Jul 06, 2016 10:00 am

retiringtype wrote:Hi all. I'm 61 years old and have accumulated about $6 million, INCLUDING IRAs and the lump-sum value of my pension. However, I'm having difficulty determining an ideal stock-bond-cash ratio. Right now, I'm sitting at 40% stocks, 35% fixed income and a whopping 25% cash, mostly due to inability to commit. I DON'T want to take a big hit if there's a severe market downturn; I've worked very hard, and saved very long, for this money. Is there an ideal allocation that will leave me room for growth but mostly protect me at the same time?


Without knowing your retirement expenses it is hard to say. Based on how much money you plan to spend on an annual basis, your allocation will be very different. However I would think $6M is a lot of money for most people to live very comfortably. So assuming that you have a lot more than you actually need, I agree with the earlier recommendation. You go conservative (bond funds) on the money that you can not afford to loose. And then rest in S&P 500 index fund. Everyone (especially Jack Bogle) says that stocks return much higher over a long period of time, so why not take advantage of it . If you estimate that you have 30 years to live, I would think fire and forget S&P 500 index fund for the surplus money is the best approach. That is what I have done. That way if you end up with a lot more money towards the end of your life, you can leave them to your family or your specific cause.

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Re: Ideal allocation for someone who has reached their "number"

Post by Aptenodytes » Wed Jul 06, 2016 10:01 am

Your immobilization reflects a core problem with the whole idea of the "the number." You think it means something specific but then when you try to work out the details you realize it doesn't. For what it's worth, my suggestions are:

1) forget about "the number" -- this won't be easy and may take several years. I think the special significance you attach to "the number" is what is leading you to chase such chimera as an AA that generates growth without risk.

2) spend time going back to basics -- what are your anticipated spending needs year-by-year, over the next 30 years? year-by-year, where will the spending needs come from (pension, SS, Roths, IRA/401-k, taxable)? what unpredictable spending needs, e.g. long-term care, do you want your portfolio to provide for, and what level of provision do you require to be comfortable? What are the tax implications, year-by-year, for withdrawals from different accounts?

3) Having done (2) you'll have a sense of what level of real returns are needed in each account to achieve your goals. It is only then that you can start figuring out a suitable AA. If 2% meets your needs, that opens up safe options very different than if you need 7%.

4) I am still about 8 years from retirement, but I've tried to go through the exercises above. I'm finding that I can plausibly generate a very large percentage of my anticipated needs through a combination of social security and a weird kind of annuity offered at TIAA (which would take about a third of my expected portfolio). So I don't plan to worry much about my AA once the anuity is purchased and SS kicks in, though I worry about it a lot now. The scenario that Pfau and others recommend in which the equity fraction goes up post-retirement is most likely for me, not because I'll be targeting a specific rise but because I won't be rebalancing.

5) If safety + growth are both highly important to you, you may be a very good candidate for annuities. You are probably too young for them to be cost-effective now, but you could plan to buy some in stages, perhaps a small one at 65, a larger one at 70, and another small one at 75. The more such annuities, in concert with pension and SS, meet your needs, the less it matters what gyrations your other holdings go through. You will still need to train yourself that those gyrations don't matter, because it sounds from what you say that you currently obsess a bit about them.

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Re: Ideal allocation for someone who has reached their "number"

Post by Tamarind » Wed Jul 06, 2016 10:24 am

If you can more than fund your needs, wants, and have an emergency cushion with 0% real growth...

I would suggest you put as many years of expenses as makes you feel safe into FDIC-insured savings or laddered CDs. 5 years? 20 years? This duration is how long you can wait before ever having to sell from the remainder even if markets are down for an extended period.

Put the rest - money you do not expect ever to need - into somewhere between 20/80 and 80/20. It doesn't matter much which you choose. Don't worry about its performance, because you are going to distribute it as part of your estate or donate it as you go.

Then stop worrying about allocations and ENJOY! I am 30 and could retire right now, comfortably, on half of what you've built. Congratulations!

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Re: Ideal allocation for someone who has reached their "number"

Post by Fclevz » Wed Jul 06, 2016 10:24 am

Rick Ferri wrote an article at Forbes entitled The Center of Gravity for Retirees that seems like it may answer your question.

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Re: Ideal allocation for someone who has reached their "number"

Post by Toons » Wed Jul 06, 2016 10:25 am

50/50 :happy
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HomerJ
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Re: Ideal allocation for someone who has reached their "number"

Post by HomerJ » Wed Jul 06, 2016 10:57 am

Number 1 ... what are you expected expenses? $50k a year? $100k a year? $300k a year?

The way I plan to handle my AA in retirement is...

5 years of expenses in a CD-ladder.
Everything left is 50/50 stocks/bonds.

To put it in numbers... our expenses won't be any higher than $84,000 a year. Wife's SS will be around $24,000 a year (My SS will come later - it's just another buffer in our planning).

So we will need $60,000 a year from investments when we first retire.

We will have $300,000 in CDs, $60,000 coming due in 1 year, another $60,000 coming due in 2 years, etc.

So each year, we cash in a $60,000 CD, and then buy a new $60,000 5-year CD using money from the 50/50 portfolio (selling whichever asset is higher - basically rebalancing back to 50/50 each year).


But again, it comes back to YOUR expenses...

The 4% rule of thumb states that you can safely withdraw 4% of your starting portfolio and the money should last 30 years. That assumes a 50/50 stocks/bonds portfolio (you can just use simple index funds like Total Stock Market Index, and Total Bond Market Index). But there will be some ups and downs, and a bad bear market right at the beginning of your retirement will be scary and dangerous.

4% of $6 million is $240,000 a year. If your expenses are a lot lower than this, you could easily go more conservative (say 30/70 stocks/bonds) and you won't have to worry as much about bear markets.
Last edited by HomerJ on Wed Jul 06, 2016 11:13 am, edited 1 time in total.

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Re: Ideal allocation for someone who has reached their "number"

Post by KyleAAA » Wed Jul 06, 2016 11:09 am

There's no such thing as an ideal asset allocation because there are just too many variables at play. If you've truly hit your number, you probably only need to invest to keep up with inflation. TIPS seem ideal at first glance, but I'd be extremely wary of putting my entire portfolio in any one asset class, even treasuries. I think the asset allocation of the Target Retirement Income fund might be as close to ideal as you'll get. You might only get 3-4% per year over the next decade and you'll occasionally have a down year (down ~10% in 2008), but that should be plenty in your case.
Last edited by KyleAAA on Wed Jul 06, 2016 11:11 am, edited 1 time in total.

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Re: Ideal allocation for someone who has reached their "number"

Post by goingup » Wed Jul 06, 2016 11:10 am

If I had 1.5M in cash right now I'd probably put it in Vanguard's Limited Term muni fund and not worry about it.

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Re: Ideal allocation for someone who has reached their "number"

Post by Christine_NM » Wed Jul 06, 2016 3:11 pm

I DON'T want to take a big hit if there's a severe market downturn; I've worked very hard, and saved very long, for this money.


Sometimes, in order to keep the whole, you have to sacrifice a part. With money it usually grows back.

As long as you do not want to take a big hit, you can stay in CDs and take a small hit every year in purchasing power. That would work for you for many years. But I'd put 30% in stocks and the rest in CDs and/or bonds.
10% cash 45% stock 45% bond. Retired, w/d rate 1.5%

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Re: Ideal allocation for someone who has reached their "number"

Post by azanon » Wed Jul 06, 2016 3:21 pm

Taylor Larimore wrote:
retiringtype wrote:Hi all. I'm 61 years old and have accumulated about $6 million, INCLUDING IRAs and the lump-sum value of my pension. However, I'm having difficulty determining an ideal stock-bond-cash ratio. Right now, I'm sitting at 40% stocks, 35% fixed income and a whopping 25% cash, mostly due to inability to commit. I DON'T want to take a big hit if there's a severe market downturn; I've worked very hard, and saved very long, for this money. Is there an ideal allocation that will leave me room for growth but mostly protect me at the same time?

retiringtype:

Welcome to the Bogleheads Forum!

Now that you have reached your "number," your #1 consideration is not to lose what you've got. You might do what I did. Put the money you cannot afford to lose in a low-cost, diversified, high quality bond fund(s), and put the rest in stock funds.

You should sleep like a baby with no financial worries.

Best wishes.
Taylor


Taylor, have you ever fleshed the details of your plan out somewhere else, because I'm not exactly sure I follow. Are you saying you have two portfolios; one 100% bonds, and one 100% stocks, so you don't ever really rebalance, since they're both pure bonds or stocks that are not mixed? And for the bonds that you cannot afford to lose, do you withdraw from those? If so, I assume only the interest cause you "cant afford to lose" from that pile? None of that is a criticism; I genuinely don't understand your system.

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Re: Ideal allocation for someone who has reached their "number"

Post by azanon » Wed Jul 06, 2016 3:33 pm

retiringtype wrote:Hi all. I'm 61 years old and have accumulated about $6 million, INCLUDING IRAs and the lump-sum value of my pension. However, I'm having difficulty determining an ideal stock-bond-cash ratio. Right now, I'm sitting at 40% stocks, 35% fixed income and a whopping 25% cash, mostly due to inability to commit. I DON'T want to take a big hit if there's a severe market downturn; I've worked very hard, and saved very long, for this money. Is there an ideal allocation that will leave me room for growth but mostly protect me at the same time?


That's a pretty sizable stash, but of course what one needs vs. what someone else needs can vary by quite a bit. So what I would recommend is first, have a ballpark idea of how much income you need and want to have for your retirement. Then based upon that amount, I'd recommend you implement a portfolio with no more risk than what is required to comfortably produce that level of risk-adjusted return.

So, for example, if you only needed 120K/year (a 2% withdrawal rate) inflation adjusted annually, I'd go for a minimum variable/super high Sharpe ratio portfolio. So in that instance, if it were me, I'd feel pretty comfortable with a 30/70, but even as low as 20/80 isn't out of the question.

Now if you're wanting more 4% withdrawal rate (240k/year), now you need to consider something higher, at least 40/60, and as high as 60/40 or so.

I would just use one portfolio though, so you'd need to rebalance according to some schedule. So that would mean you'd be buying more stocks when stocks are dropping.

As for how to withdrawal year-to-year, I'm a big fan of the VPW method, which I believe is on the boglehead wiki.

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Re: Ideal allocation for someone who has reached their "number"

Post by HotRod » Wed Jul 06, 2016 6:03 pm

Fclevz wrote:Rick Ferri wrote an article at Forbes entitled The Center of Gravity for Retirees that seems like it may answer your question.


Thanks for posting the link to this article, I found it to be very informative.

Rick is proposing a 30/70 AA for those who have won the game. I would like to increase my Bond allocation, but if I sold my stock funds (IVV - S&P 500) I would immediately incur a 15% long term capital gains hit.

I'm not sure how to justify losing 15% as a defensive move against a market loss. :confused

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Re: Ideal allocation for someone who has reached their "number"

Post by azanon » Wed Jul 06, 2016 7:04 pm

SteveB1 wrote:
Fclevz wrote:Rick Ferri wrote an article at Forbes entitled The Center of Gravity for Retirees that seems like it may answer your question.


Thanks for posting the link to this article, I found it to be very informative.

Rick is proposing a 30/70 AA for those who have won the game. I would like to increase my Bond allocation, but if I sold my stock funds (IVV - S&P 500) I would immediately incur a 15% long term capital gains hit.

I'm not sure how to justify losing 15% as a defensive move against a market loss. :confused


That's a good article, and I agree with most everything there. I do think it can be improved upon a bit more by something more along the lines of 40/45/15 (so up the stocks, but add alternatives). Per calculators around the net, that change to the 30/70 should both juice the return and actually lower the risk (raise the Sharpe).

...

I don't do much taxable investing, but is it really a big deal to sell a stock fund provided you've held it for 1 year (thus, qualify for the lower capital gains rate)? I assume that in a taxable fund, you're still not getting the deferral that, say, an IRA gets, so why not just pay it? Or are you holding it to potentially offset some losses somewhere else?

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A very simple portfolio

Post by Taylor Larimore » Wed Jul 06, 2016 9:20 pm

azanon wrote:
Taylor Larimore wrote:
Now that you have reached your "number," your #1 consideration is not to lose what you've got. You might do what I did. Put the money you cannot afford to lose in a low-cost, diversified, high quality bond fund(s), and put the rest in stock funds.


Taylor, have you ever fleshed the details of your plan out somewhere else, because I'm not exactly sure I follow. Are you saying you have two portfolios; one 100% bonds, and one 100% stocks, so you don't ever really rebalance, since they're both pure bonds or stocks that are not mixed? And for the bonds that you cannot afford to lose, do you withdraw from those? If so, I assume only the interest cause you "cant afford to lose" from that pile? None of that is a criticism; I genuinely don't understand your system.

azanon:

Over the years I have streamlined to a very simple portfolio with two accounts: Bond funds in the IRA account. Stock funds in the taxable account.

Each year I withdraw the Required Minimum Deduction (RMD) from the IRA account plus whatever else I need from the taxable account.

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

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Re: Ideal allocation for someone who has reached their "number"

Post by young-ish » Wed Jul 06, 2016 9:36 pm

I've developed a simple guideline to determine how much of an investment portfolio needs to be invested in risky assets (mainly equities).

The main assumption is that you want your savings to provide enough income to maintain your current standard of living for 30 years.

For instance if you have saved only 13 times your annual expenses then you should invest 80% of your portfolio in stocks (the other 20% in bonds/cash). This is the safest portfolio that will give you a better than 50/50 chance of not running out of money in those 30 years.

If you have saved 15 times annual expenses then you can reduce your equity exposure to 70%.

If you have saved 17 times annual expenses then you can reduce your equity exposure to 50%.

If you have saved 20 times annual expenses then you can reduce your equity exposure to 35%.

If you have saved 25 times annual expenses then you can reduce your equity exposure to 30%.

You can see the less volatile portfolio options as rewards for increasing your level of savings.

*Data and inspiration from Portfoliocharts.com*

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Re: A very simple portfolio

Post by azanon » Wed Jul 06, 2016 10:58 pm

Taylor Larimore wrote:
azanon wrote:
Taylor Larimore wrote:
Now that you have reached your "number," your #1 consideration is not to lose what you've got. You might do what I did. Put the money you cannot afford to lose in a low-cost, diversified, high quality bond fund(s), and put the rest in stock funds.


Taylor, have you ever fleshed the details of your plan out somewhere else, because I'm not exactly sure I follow. Are you saying you have two portfolios; one 100% bonds, and one 100% stocks, so you don't ever really rebalance, since they're both pure bonds or stocks that are not mixed? And for the bonds that you cannot afford to lose, do you withdraw from those? If so, I assume only the interest cause you "cant afford to lose" from that pile? None of that is a criticism; I genuinely don't understand your system.

azanon:

Over the years I have streamlined to a very simple portfolio with two accounts: Bond funds in the IRA account. Stock funds in the taxable account.

Each year I withdraw the Required Minimum Deduction (RMD) from the IRA account plus whatever else I need from the taxable account.

Best wishes.
Taylor


Oh okay. Something like that may also be feasible for the OP given his stash size. If I had a large enough stash myself, I doubt I'd use stocks either for needed retirement income.

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Re: Ideal allocation for someone who has reached their "number"

Post by Watty » Wed Jul 06, 2016 11:29 pm

One thing I like doing is comparing asset allocations to what the pros pick out for mutual funds with similar goals. You are at 40% stocks right now.

Here is the Vanguard Target Retirement Income Fund which is about 30% stocks/ 70% bonds

https://personal.vanguard.com/us/funds/ ... IntExt=INT

and the Vanguard Lifestragety Income Fund which is about 20% stocks / 80% bonds

https://personal.vanguard.com/us/funds/ ... IntExt=INT

There is also a school of thought that says that once you have won the game then you don't need to play.

If you have a lot of money in retirement accounts where taxes are not a issue you could just buy a ladder of individual TIPS bonds that have $100K(or whatever you expect to spend each year) mature each year for the next 30 years when you would be 92. (There are several ways to handle the ages past 92)

This is not incompatible with something like a 20/80 stock and bond asset allocation since the TIPS would be part of the 80% bonds.

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Re: Ideal allocation for someone who has reached their "number"

Post by Watty » Wed Jul 06, 2016 11:42 pm

SteveB1 wrote:
Fclevz wrote:Rick Ferri wrote an article at Forbes entitled The Center of Gravity for Retirees that seems like it may answer your question.


Thanks for posting the link to this article, I found it to be very informative.

Rick is proposing a 30/70 AA for those who have won the game. I would like to increase my Bond allocation, but if I sold my stock funds (IVV - S&P 500) I would immediately incur a 15% long term capital gains hit.

I'm not sure how to justify losing 15% as a defensive move against a market loss. :confused


If you have not done it already then one thing to do would be to stop automatically reinvesting the stock dividends. You could then put those into Bonds along with any new contributions.

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Re: Ideal allocation for someone who has reached their "number"

Post by kolea » Wed Jul 06, 2016 11:57 pm

retiringtype wrote:I DON'T want to take a big hit if there's a severe market downturn;


Of course with most bonds, cash and other FI instruments, you always take a hit due to inflation. Personally, I fear inflation more than I fear a bear market. Inflation loss is permanent; you never recover from it. It is just slow so you don't really notice it much. But over the years it adds up. Equity losses due to a market downturn have never been permanent, although sometimes it requires some patience for the recovery. I would (and do) own enough bonds to wait for the recovery.
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Re: Ideal allocation for someone who has reached their "number"

Post by Nearing_Destination » Thu Jul 07, 2016 12:23 am

Since you can't rebalance the "lump-sum value" of the pension -- it is only a stream of income-- what is the actual value of IRA, 401k, etc plus taxable, that's what you concern yourself with. So if those are 3 million, at 3.5 - 4%, would give about 105-120k plus pension. Taxable amount would vary depending on source, etc. and your state taxes.

What your expenses are and how it relates to that potential draw is what matters: if below 2.5 or 3, you can have almost any reasonable allocation (say 60/40 all the way to probably 30/70, if you don't have more than 30 years withdrawal). If it is ~3.5 - 4, then 50/50 (between 60/40 to 40/60) is probably best, as some growth is needed.
Your 40% stocks may be alright, if you can SWAN, otherwise reduce it. As for cash, start a 3 or 4 year CD ladder ( beyond that we're not really getting compensated for extra duration even those that are "bumpable" ). { I've put the latter years into 3 year bumpable with low withdrawal penalty}

[My SWR is now estimated at about 2.5 (we may push it to 3) with 55/45 allocation. ]

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Re: Ideal allocation for someone who has reached their "number"

Post by itstoomuch » Thu Jul 07, 2016 12:50 am

I use Income Stream buckets:
1)SS and small pension bucket: Base Income.
2)The deferred GLWB annuity bucket is laddered in time and amounts. Each deferred annuity can be turned on/off. Secondary bucket. A base bucket but with more flexibility than SS and fixed pension. Fixed Income lifetime can be pulled without annuitizing. A remainder is possible. Guaranteed step-ups and Market rollups have made these deferred annuities an important tool in achieving and keeping our retirement goals. The same can be said of SS and to a lesser extent the pension.
3)Discretionary Bucket holding whatever I think can make money or protect its purchasing value. It is the hedge to deflation and inflation. Now regulated to deflation hedge with the acquisition of the rental. This bucket is not absolutely required for future retirement needs. This bucket is now approximately 60% cash. A week ago, it was about 85% cash.
4)Rental Condo bucket, newly acquired thru an inheritance. Extra ordinary and not absolutely required for future retirement needs. Inflation hedge.

BH models use only a stock/bond model. Firecalc you can manipulate the fixed incomes to mimic annuities and rentals.e
Market movements only affect the Discretionary account. Macro economics will of course affect all buckets but hopefully only affect the Discretionary.

Total assets cash equivalent, with SS and pension to have an assumed 3.5% yield is, less than $2mil. Homestead and idle & illiquid bareland are assumed to be nonretirement assets, not counted, and have no cash equivalence.

YMMV
Rev90517; 4 Incm stream buckets: SS+pension; dfr'd GLWB VA & FI anntys, by time & $$ laddered; Discretionary; Rentals. LTCi. Own, not asset. Tax 25%. Early SS. FundRatio (FR) >1.1 67/70yo

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Re: Ideal allocation for someone who has reached their "number"

Post by sperry8 » Thu Jul 07, 2016 1:26 am

After hitting my number I went all in on stocks. Stocks dropped 50%+ and I couldn't sleep at night. Got a mulligan (since stocks came back post 08/09) and decided on an AA of 70/30. I now expect a 50% loss on my 70% which could leave me with 65% of what I have. I'm OK with this and can sleep at night now.

The formula you should use (imo) is assume you could lose 50% of your stock allocation. Whatever is left... are you OK with that? Can you sleep and live/wait x years (I use 10 years) until it comes back? If so - that's your AA.

And yes, I know some claim a Japan style L could come here... but I can sleep at night since it's never happened.
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HomerJ
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Re: Ideal allocation for someone who has reached their "number"

Post by HomerJ » Thu Jul 07, 2016 10:35 am

sperry8 wrote:The formula you should use (imo) is assume you could lose 50% of your stock allocation. Whatever is left... are you OK with that? Can you sleep and live/wait x years (I use 10 years) until it comes back? If so - that's your AA.


This is exactly how I look at it as well.

Assume possibility for 50% stock loss for 10 years. I make sure I can survive that event without a job or in retirement. That's why my house is paid off, and a I have a large amount of money in CDs and bonds.

That lets me sleep at night.

retiringtype
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Re: Ideal allocation for someone who has reached their "number"

Post by retiringtype » Tue Jul 12, 2016 1:10 pm

Wow, thanks to everyone for all the amazing advice. There's so much to consider.

I think, for now, I'll go with a stock allocation of no more than 40%. Now have to decide what to do with all the remaining cash — CDs or limited-term (or short-term) tax exempt.

Managing your money can be as hard as earning it.

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Re: Ideal allocation for someone who has reached their "number"

Post by dad2000 » Tue Jul 12, 2016 1:37 pm

retiringtype wrote:Managing your money can be as hard as earning it.


I agree. It was a lot easier when I had little to lose and had many more years of potential income. And the market doesn't seem cheap right now.

Though I'm only about 50, I've done well enough that early retirement in the next 3-5 years is a possibility. I had a ~70/30 allocation which served me well for many years, but have decided to start de-risking fairly aggressively. I dropped to 64/36 this year and plan to continue with 6% annual decreases until I get to 40/60.

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Abe
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Re: Ideal allocation for someone who has reached their "number"

Post by Abe » Tue Jul 12, 2016 5:50 pm

At your age and with 6 million, it's highly unlikely that you will ever run out of money. It sounds like you are fairly comfortable with no more than 40% stocks, so maybe that is the right number for you. Forty percent of 6 million is $2.4 million. If the market drops 50%, you would lose half of that. If that would make you lose sleep, you probably need to lower your stock allocation to the point where you can sleep. As Taylor has suggested, you may want to put some of your fixed income in a diversified, high quality bond fund. I'm a little older than you, but my situation is similar to yours. That's why I know how you feel. It's very easy for me to advise you, but it's not that easy when it's my money. Wonder why it works that way? Good luck and enjoy some of it. :happy
Slow and steady wins the race.

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Rick Ferri
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Re: Ideal allocation for someone who has reached their "number"

Post by Rick Ferri » Tue Jul 12, 2016 6:05 pm

How would you invest money for the next generation? That's who you're investing for.

Divide you money between what you need and what you'll be passing on. Come up with two allocations, combine the two using a weighted average and you'll find your overall allocation.

For example, if you need $2 million and don't need the remaining $4 million, allocate $2 million to 40-60 and $4 million to 70-30. The weighted average of these two portfolios is 60-40. That's your overall allocation. Now retire and relax!

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Re: Ideal allocation for someone who has reached their "number"

Post by Sand Dune » Tue Jan 03, 2017 8:41 pm

Now that you have reached your "number," your #1 consideration is not to lose what you've got. You might do what I did. Put the money you cannot afford to lose in a low-cost, diversified, high quality bond fund(s), and put the rest in stock funds.


So which Vanguard bond fund best fits the bill of diversified and high quality?

dbr
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Re: Ideal allocation for someone who has reached their "number"

Post by dbr » Tue Jan 03, 2017 9:02 pm

Sand Dune wrote:
Now that you have reached your "number," your #1 consideration is not to lose what you've got. You might do what I did. Put the money you cannot afford to lose in a low-cost, diversified, high quality bond fund(s), and put the rest in stock funds.


So which Vanguard bond fund best fits the bill of diversified and high quality?


You won't get agreement that there is a "best" fund, but a good starting point would be the Total Bond Index Fund VBMFX (etc.).

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Taylor Larimore
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Re: Ideal allocation for someone who has reached their "number"

Post by Taylor Larimore » Tue Jan 03, 2017 10:07 pm

Managing your money can be as hard as earning it.

It doesn't need to be that way. I spend no more than 2 hours a year managing my simple portfolio.

Bill Schulthies, author of "The Coffeehouse Investor": "When you simplify your investment decisions, not only do you enrich your life by spending more time on families, friends and careers, but you enhance portfolio returns in the process."


Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

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Re: Ideal allocation for someone who has reached their "number"

Post by eddot98 » Tue Jan 03, 2017 10:40 pm

retiringtype wrote:Hi all. I'm 61 years old and have accumulated about $6 million, INCLUDING IRAs and the lump-sum value of my pension. However, I'm having difficulty determining an ideal stock-bond-cash ratio. Right now, I'm sitting at 40% stocks, 35% fixed income and a whopping 25% cash, mostly due to inability to commit. I DON'T want to take a big hit if there's a severe market downturn; I've worked very hard, and saved very long, for this money. Is there an ideal allocation that will leave me room for growth but mostly protect me at the same time?

The way that I look at it is once you have "won the game", there's no real reason to keep playing. Once we felt that we won, we reduced our allocation to 40 stocks 60 fixed. I say fixed as most is in a Stable Value Fund paying 1.9%, the rest is in 1% online accounts and that helps us sleep well at night. On the other hand, what we don't know from your post is what your "number" really represents. $6 million is a lot more that most will ever need for 30+ years of retirement, unless you have various homes, exotic cars, and yachts. That is, a life style that needs $240,000 per year. Or, do you want to leave funds to children or charity? Will you collect the lump-sum value of your pension or did you just calculate its value? Are you eligible to collect Social Security? Do you have debt, probably not due to your assets, but one never knows - look at Donald Trump.

Several folks have tried to offer sage advice to you, but unless you fill in a few more blanks, you will have to be satisfied with "you should be 40/60" or "you should be 50/50" or since you have so much, it really doesn't matter too much where you are.

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David Jay
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Re: Ideal allocation for someone who has reached their "number"

Post by David Jay » Tue Jan 03, 2017 11:23 pm

I put all of the money that I need to pay living expenses from retirement to Social Security (6 years) in bonds. My plan is for 2 years in Short Term bonds and the remainder in Intermediate Term (moving a year at a time from IT to ST).

I intend to spend down to and then hold at 60:40 as I expend those "bridge" funds. My living expenses after SS starts will be minimal so I am not worried about withdrawals. My remaining portfolio will not be needed until the death of one spouse (when SS drops by a third).
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

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Re: Ideal allocation for someone who has reached their "number"

Post by acura301 » Tue Jan 03, 2017 11:49 pm

Retiring Type,
I've listened to this discussion time and again and the most sensible conclusion I have heard here thus far is a liability matching portfolio. Figure out your annual living expenses (for you and spouse if there is one) - social security (for you and spouse if there is one) - pension (for you and spouse if there is one) x 20-25 years and that's how much you should have in fixed income. 2-5 years of that fixed income should be CD's/I-Bonds/Short Term Bonds (VCSH comes to mind if you want to reach for yield with low risk), with the remainder in an Intermediate Term Bond Fund (Total Bond Market Comes to mind) or split 50% TBM/50% TIPS. The remainder of your portfolio should be in stocks. This produces a portfolio that you can definitely sleep well at night with. All of this is with the caveat that you should follow the William Bernstein principle, which is that no less than than 25% of your portfolio should be in stock.

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