100% stocks w/pension?

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Que1999
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100% stocks w/pension?

Post by Que1999 »

Myself and the wife are 35 years old. I have a very favorable pension that earns 8.25%. After 20 years of service, my pension requirements are met in full and anything that I contribute from there on out are considered 'overage', or excess contributions, which either increase my annual pension payments for life, or I am able to roll this 'excess' into an IRA.. This leads to pensions that meet, or even exceed in many cases your last working years income(I know a few people who bring home more money in retirement then they did while working) To give an idea of how generous the pension would be, right now at 12 working years(if I were to vest out) the pension payouts would be:

$4400 per month if I leave my 'overage' in the pension fund. Or $2800 if I withdraw the excess $120k and roll it into my IRA. ( I still contribute excess, so this will continue to grow over my next 18 or 19 working years)

Household income is around $235,000, and we max 2 tax-deferred 457's, 1 tax-deferred 401k, and 2 Roth IRA's. Myself and the wife are planning on retiring at 54, which would give us both the required 35 years of work for full Social Security benefits. I forgot to mention the wife also has a state pension at 50% of her annual income when she would be retiring.

My real question is this. Although it is impossible to tell the future, when we retire at 54 or 55 all of our living expenses *should* be met entirely by the pensions. The inflated pensions should carry us into Social Security, especially since we're planning to utilize geographic arbitrage and leave NYC for a much lower cost of living locale, and much friendlier tax situation. It doesn't appear we'll need to touch our retirement accounts, maybe only to splurge every now and then but not to live. So is 100% stocks ok for us? In all our retirement accounts we have right now, we are either 100% TSM or 100% S&P index funds, with 0.05% ER.
Jags4186
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Re: 100% stocks w/pension?

Post by Jags4186 »

If all your income needs are covered by pensions and SS, I'd be 100% stocks too at age 55. I would invest for maximum return though which would mean more of a slice and dice, not just a 100% TSM.

Make sure you have appropriate insurance in place (LTC, Umbrella, etc.) so you wouldn't need to dip into the money if it went down 50% though.
alex_686
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Re: 100% stocks w/pension?

Post by alex_686 »

I advocate treating pensions as a bond like asset. As such, putting 100% of your liquid assets into stocks is not unreasonable.
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.
aristotelian
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Re: 100% stocks w/pension?

Post by aristotelian »

Could you risk a 50%+ bear market on the stock side? Do you need to?
CppCoder
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Re: 100% stocks w/pension?

Post by CppCoder »

What is your guarantee that the pension will remain solvent? I too have a *promise* of a very generous pension, but with 15-20 years to go, I'm 70/30 at age 40. First, nothing is guaranteed until they hand you the check. Second, while I like my job, I don't want to financially shackle myself in case I want to pursue other opportunities. Third, the pension promise means I don't need to take as much risk with my money to achieve my goals, so why do it? What the pension does afford for me is the ability to hold to a 70/30 portfolio longer. The closer I get to the pension, the better guarantee I have of receiving it, so I'll keep my risk a little higher than I would without it to hopefully increase returns for my heirs.
BogleBoogie
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Re: 100% stocks w/pension?

Post by BogleBoogie »

Sounds like you have the ability to hold a riskier stock allocation, but do you have the need to?

My personal thought, and this subject is very opinion based, is not to treat the pension like it is yours. It is a contract and will *likely* be yours. I have a pension as well, it is too generous. I hope to collect it one day. In the meantime, I'm setting my allocation as if I don't have one.
Cruise
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Re: 100% stocks w/pension?

Post by Cruise »

OP:

While our life circumstances are different, I asked a similar question a few months ago, and here is the feedback I received:

viewtopic.php?f=1&t=203750&p=3123067#p3123067
travellight
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Re: 100% stocks w/pension?

Post by travellight »

I am doing the same thing although I kept my bonds which is down to 10% and have 100% stocks going forward.
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gorow
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Re: 100% stocks w/pension?

Post by gorow »

Just a couple of thoughts -
As noted earlier, you are betting on the pension remaining solvent, and that your career will continue in a way that you will be there to realize the full value. As you get closer to actually realizing the pension as income, then the 100% makes sense. Somewhere in between you might might want to consider a more conservative mix. But as long as you feel strongly about the pension, then go for it.
Also, your Social Security benefit is based on the highest 35 years of compensation. So if there are years in the past you didn't earn the max taxable amount for social security deductions, then you might want to consider working longer of you have a goal to maximize your ss benefit.
Retired 1/1/2019. Not concerned about sequence of returns because two years here taught me what I need to know.
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Que1999
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Re: 100% stocks w/pension?

Post by Que1999 »

Thanks for all the input.

I think I could probably weather a 50% drop, as long as I've still got my pension and/or SS payments coming in, only because there is really no need for the money.. In regards to the pension still being solvent, it is backed by the City of NY and I guess technically anything can happen, but I don't think it is likely that we would lose the pension... A few years back there were changes to the pension fund for new hires, like reduction in interest rate from 8.25% to 5%, along with many other changes to reduce the pension benefit across the board. Thanks for the link to the other thread, very helpful... I guess it all comes down to how secure the pension is, which I believe to be very secure personally..
BigJohn
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Re: 100% stocks w/pension?

Post by BigJohn »

Que1999 wrote:I guess it all comes down to how secure the pension is, which I believe to be very secure personally..
Don't mean to be a wet blanket but are you really that sure? Many state and local pensions are strained because of very generous benefits coupled with years of low returns. Took me about 30 seconds to find this from 2014
https://www.nytimes.com/2014/08/04/nyre ... itics.html
and this from 2016
https://www.nytimes.com/2016/01/27/nyre ... -says.html

I'm no expert but I don't think the PGBC covers public sector pensions and I unaware of any similar Federal agency that does.
Last edited by BigJohn on Fri Mar 24, 2017 7:08 am, edited 1 time in total.
jebmke
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Re: 100% stocks w/pension?

Post by jebmke »

I agree. This far out I wouldn't assume the pension is a sure thing. I have a pension from a private company. I start drawing next year. It is well funded but when I was 35 I excluded the pension from my retirement planning.
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Dandy
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Re: 100% stocks w/pension?

Post by Dandy »

Looks like financially you have got it made. If, and it is still a bit of an if, the wonderful pension deal comes through you will be set for life. You have the ability and desire to take a lot of risk -- but what is the need? What is the goal? Are you looking to live like a billionaire? you know buy a private island or collect expensive cars? I didn't get that impression based on the comment that moving to a lower cost of living area might be a future plan.

What ever event or series of events would cause your wonderful pension plan to not be so wonderful would also likely affect equities to a large degree. So, I like diversifying from just relying on the pension plan but don't know if you need 100% equities to reach your goal - do you? So think about your financial goal and what level of risk is needed to get you there. If you can get there with less risk than 100% equities why take that level of risk?
mckaydw
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Re: 100% stocks w/pension?

Post by mckaydw »

I'm in the military and we are fortunate to have a nice pension plan (if you stay 20+ years in the service). I'll *probably* stay 20+ years and the pension will *probably* still be as good when I get there and it will *maybe* stay as good through the years until old age.

Given all those probably's and maybe's we invest 15% of our income toward retirement and treat the investments as if the pension didn't exist. If we don't get the pension we should be fine. If we do get the pension early retirement will probably be an option.
Raploch
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Re: 100% stocks w/pension?

Post by Raploch »

After a 25 + year career I retired with a pension, and started a second career. My adviser at the time told me, I should go 100% stocks as I could "afford the risk". I told him, "I could afford not to". Am slowly moving to a 45%-45%-10% (cash, CD -ladder, & Precious Metals) life long portfolio.
It's a real luxury not to need any over-sized gains.

So my heirs will get a few hundred grand less, I can live with that. Maybe that is more important to you.
Grt2bOutdoors
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Re: 100% stocks w/pension?

Post by Grt2bOutdoors »

Have fun in North Carolina - very popular with NYC exiles. :P
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corysold
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Re: 100% stocks w/pension?

Post by corysold »

Is a PBGC covered pension really that much more secure than a public pension?

I understand the PBGC is insurance to cover pensions that go bust, but they don't, to my knowledge, have enough money to cover numerous pensions going bust. It appears based on their website, that they are currently underfunded for liability like many states are. Would the US Government step in at that point and guarantee the pensions? So isn't the government the last line of defense in either case? If a public pension comes up short, the state could raise taxes to cover the difference to a degree.

I guess I just wonder if counting on any pension makes sense until you actually have it, PBGC or not.
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sergeant
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Re: 100% stocks w/pension?

Post by sergeant »

Doesn't NYPD have a clause that reduces the pension by part of the expected social security benefit? Either way I think you are better served by investing like you will only receive 50% of what you're currently "promised." I'm on the other side of the country and also receive a too generous pension. My plan within PERS is better funded than NYPD's and though I retired last year after 32 years of service I still bank 50% of my pension and live on the other half. I will be surprised if I don't eventually take a 20-25% hit someday.

To answer your question I think you can certainly be 100% stocks. I don't think you need to be though. You're maxing out your various accounts and probably have little debt and will be fine when you pull the plug. Good luck.
AA- 20+ Years of Expenses Fixed Income/The remainder in Equities.
alex_686
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Re: 100% stocks w/pension?

Post by alex_686 »

corysold wrote:Is a PBGC covered pension really that much more secure than a public pension?
A more fruitful line of inquire would be to figure out how well funded the pension plan is. Most state pension plans have decent protection but as Detroit proves not full-proof. I have some vague memory that mayors Giuliani and Bloomberg got the pension on a firmer footing. The pension plan must publish it funding level and its assumptions. It is going to be a dry read but it will have the info that you need.

As I said in a earlier post I would treat the pension as a bond-like asset. I might discount it 20% because it is a illiquid asset. I might discount it 50% if I was in Detroit. I suspect that NYC is closer to 20% than 50%
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Que1999
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Re: 100% stocks w/pension?

Post by Que1999 »

The Social Security offset is for the latest tier of hires post-2009. Luckily, I'm the previous tier.

http://www.nyc.gov/html/nycppf/download ... 202016.pdf

I think I need to read through this, I found the financials around page 88. It looks like for 2016 the fund is worth $35.3 billion... Sounds pretty healthy to me.
Cruise
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Re: 100% stocks w/pension?

Post by Cruise »

OP: You are age 35. At what age are you planning on retiring? If your timeframe to start drawing down your investments is 20+ years (and you have a pension fallback for emergencies), it seems a like a no-brainer to me that now invest 100% in equities. Whether or not you want to change that allocation in 10, 15, or 20 years is another discussion.
rgs92
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Re: 100% stocks w/pension?

Post by rgs92 »

The other concern may be the amount of risk in your job that may make it hard to work if you are injured. I don't know what kind of work is involved, but if your risk is above a normal probability, you may want a conventional, say, 60/40 asset allocation.

Another thought is that your line of work may become too stressful when you are 10+ years older. I know a couple of fellows and 2 women in lucrative but stressful public sector work positions that plan to get out very early despite the financial impact because they say it just got to be too much for them. I did not hear this sentiment when they were 5-7 years younger than now. They are in their 40s and early 50s now.
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Que1999
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Re: 100% stocks w/pension?

Post by Que1999 »

Cruise wrote:OP: You are age 35. At what age are you planning on retiring? If your timeframe to start drawing down your investments is 20+ years (and you have a pension fallback for emergencies), it seems a like a no-brainer to me that now invest 100% in equities. Whether or not you want to change that allocation in 10, 15, or 20 years is another discussion.
Minimum retirement age of 50, max of 55 is what we're aiming for. I guess it depends on what the pensions/401k's/457's and IRAs are looking like at age 50 that will determine whether or not we decide to pull the plug earlier rather than later. As I said, we aren't planning to stay in NYC... Just on that alone, our money will go much further. I think for now we will stay 100% equities and re-assess every few years. As someone said in an earlier post, it's all a matter of perspective and pension solvency(There have been many changes to City pensions since 2009 in order to increase pension sustainability.... They are no where near as generous as pre-2009. Nowhere.) You may look at the pension/SS income and say, "I don't need to take any more risk in my retirement accounts.. Lets be more conservative", while I may say, "I don't really see a need for ever needing to withdraw from these retirement accounts... Lets hop on the 100% roller coaster ride and not even look!"

Thanks for the great input. Maybe in a 5 or 10 years i'll dig this thread up from the grave and we'll see how everything is looking then... Cheers :beer
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Re: 100% stocks w/pension?

Post by Grt2bOutdoors »

Que1999 wrote:The Social Security offset is for the latest tier of hires post-2009. Luckily, I'm the previous tier.

http://www.nyc.gov/html/nycppf/download ... 202016.pdf

I think I need to read through this, I found the financials around page 88. It looks like for 2016 the fund is worth $35.3 billion... Sounds pretty healthy to me.
Really? OP - read pages 124-130. Enlightening, really it is. It shows the fund has liabilities of $51.1 billion and net assets of $35.3 billion. Still sound healthy to you? Further, the net funding position of the fund has been deteriorating over the last 3 fiscal years - that means, that liabilities are growing faster than the sum of net contributions to the pension plans and asset growth. The stock market, heck, nearly all markets have been rising over the last three years, yet the NYPP has failed to meet it's own performance benchmarks. Keep saving in the 401k/457 plans, while a 69.42% funding rate is still healthy, it's concerning that the funding ratio has fallen from the 73.32% funding ratio at June 30, 2015. Think of it this way, if the plan fails to deliver - you can count on about 70 cents on the dollar in retirement, sounds just like the Social Security plan.......
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inbox788
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Re: 100% stocks w/pension?

Post by inbox788 »

Raploch wrote:After a 25 + year career I retired with a pension, and started a second career. My adviser at the time told me, I should go 100% stocks as I could "afford the risk". I told him, "I could afford not to". Am slowly moving to a 45%-45%-10% (cash, CD -ladder, & Precious Metals) life long portfolio.
It's a real luxury not to need any over-sized gains.

So my heirs will get a few hundred grand less, I can live with that. Maybe that is more important to you.
You keep 45% in cash? What type of account with what return? How did you come upon such a plan? How do you invest in precious metals? Do you hold them or use a fund? It's tops in capital preservation, but is there something more to it?

And how much of your Income Allocation (IA) in retirement do you expect to come from pension vs investments? 4% SWR on your retirement holdings and compare to annual pension salary (COLA mucks thing up).

OP, same question. If IA is 50/50, with all stocks allocated 100% and equal to pension income, then you have an equivalent to a 50/50 AA. If the pension bringing in only 10% the pension salary, you're looking at a 10/90 stock/bond equivalent portfolio, so 100% stocks doesn't seem so risky. If on the other hand, you have a huge stake in stocks at 100% bringing in 9X what your pension is bringing in, even though you might survive on pension alone, chances are you want a little less volatility on the entire portfolio that's less than a 90/10 AA.

Or you could invert this line of thinking and calculate the buy out value of your pension today and use that for your overall AA calculations. For the most part, I think you'll find your overall AA this way with 100% pension to be appropriate when compared to someone without a pension for the age.
ztn
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Re: 100% stocks w/pension?

Post by ztn »

I will suggest a contrary point of view (based on responses thus far): Your NYC govt pension is largely dependent on the solvency of the NYC pension fund and NYC itself. The NYC pension fund is nearly 70% invested in equities. Further, NYC gets a significant share of its municipal revenue from a healthy stock market - both directly from taxes and and indirectly from real estate tax revenue. So, if the equity markets decline significantly both the pension fund and the city's financial health will be hit. Therefore I suggest you consider the pension to be equity, not fixed income, and to significantly overweight your personal holdings to fixed income.
robertalpert
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Re: 100% stocks w/pension?

Post by robertalpert »

Que1999 wrote:Myself and the wife are 35 years old. I have a very favorable pension that earns 8.25%. After 20 years of service, my pension requirements are met in full
You should not treat your pension as a bond until the 20 years of service is actually completed.
MoonOrb
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Re: 100% stocks w/pension?

Post by MoonOrb »

The line of reasoning in which a pension is "treated like a bond" doesn't make tons of sense to me although maybe I reach the same answer in the end.

It seems to me that what we're trying to figure out is the amount of money that we need in retirement, and this amount is driven by the difference between our anticipated income in retirement from whatever income streams we have and our anticipated expenses in retirement.

If you don't have a gap because your pension + social security + any other income streams exceed your expenses, I guess you may as well be 100% in equities because you can afford to take on greater amounts of risk. If you have an enormous gap that you're unlikely to be able to fill via investing in low-risk investments I guess you may as well be 100% in equities or close to it in that case because you must take on greater amounts of risk.

Short version is, the larger the gap the greater the amount you'll need and the greater the amount you'll need probably the more risk-averse you want to be. The smaller the gap, the less you'll need and the less risk-averse you can afford to be.

So although it doesn't make sense to me to think of a pension "as a bond"--I just think of it as an income stream that funds retirement--the net result is basically the same. If you have a large amount of guaranteed income you can probably take on more risk if you want to.
xilex
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Re: 100% stocks w/pension?

Post by xilex »

BigJohn wrote:
Que1999 wrote:I guess it all comes down to how secure the pension is, which I believe to be very secure personally..
Don't mean to be a wet blanket but are you really that sure? Many state and local pensions are strained because of very generous benefits coupled with years of low returns. Took me about 30 seconds to find this from 2014
https://www.nytimes.com/2014/08/04/nyre ... itics.html
and this from 2016
https://www.nytimes.com/2016/01/27/nyre ... -says.html
Likewise, this guy has a blog called Pension Tsunami, sourced from here. Every day he posts articles from around the news outlets that discuss about impending pension doom. He was also blogging in the days leading to the housing meltdown as he tracked the hundreds of mortgage lender collapses.

Anyway, I'm not too familiar with pensions, but my feeling is don't count on it being a sure-fire path to living the good life. Some companies now offer a choice between 401k or pension, or only a 401k. Pension plans have optimistic returns (7-10% range). Now if they (the company) offers 401k instead, and no longer offer pension or make the pension less desirable, you have no new money flowing into the pension plan.

I was looking at a website that discloses the pension compensation for public sector employees and it is ridiculous. They are getting $300-400k a year! Now, these are physicians, so their salary would tend to be higher, and they have been with the hospital for about 30-40 years. Can you imagine paying new physician salaries while trying to figure out a way to pay these retired doctors more than their original full salary for the next 10-20 years? :sharebeer
freebeer
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Re: 100% stocks w/pension?

Post by freebeer »

ztn wrote:I will suggest a contrary point of view (based on responses thus far): Your NYC govt pension is largely dependent on the solvency of the NYC pension fund and NYC itself. The NYC pension fund is nearly 70% invested in equities. Further, NYC gets a significant share of its municipal revenue from a healthy stock market - both directly from taxes and and indirectly from real estate tax revenue. So, if the equity markets decline significantly both the pension fund and the city's financial health will be hit. Therefore I suggest you consider the pension to be equity, not fixed income, and to significantly overweight your personal holdings to fixed income.
+1 to this, although as a fine point I think the risk/reward of the pension will be more like a junk bond than equity (but then junk bonds behave more like equity in terms of volatility than what we normally consider fixed income so it doesn't change the recommendation to overweight fixed in personal holdings, especially because this is like holding a single junk bond rather than like holding a high-yield fund, so you have lack of diversification risk as well).
alex_686
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Re: 100% stocks w/pension?

Post by alex_686 »

Grt2bOutdoors wrote:Really? OP - read pages 124-130. Enlightening, really it is. It shows the fund has liabilities of $51.1 billion and net assets of $35.3 billion. Still sound healthy to you? Further, the net funding position of the fund has been deteriorating over the last 3 fiscal years - that means, that liabilities are growing faster than the sum of net contributions to the pension plans and asset growth. The stock market, heck, nearly all markets have been rising over the last three years, yet the NYPP has failed to meet it's own performance benchmarks. Keep saving in the 401k/457 plans, while a 69.42% funding rate is still healthy, it's concerning that the funding ratio has fallen from the 73.32% funding ratio at June 30, 2015. Think of it this way, if the plan fails to deliver - you can count on about 70 cents on the dollar in retirement, sounds just like the Social Security plan.......
Honestly, being funded at 69% is very healthy for a public pension fund. Anything over 80% is considered to be fully funded. There are many estimates in the projected liabilities so that number is not firm. It is assumed that there will be political will to make up the numbers latter on.

As for the falling ratios, I bet we can trace that to the rock bottom long term treasury rates that future liabilities are calculated from. If low long term rates is just a short term thing then the plan will be fine. If low rates are around for the next 20 years maybe not.
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.
orca91
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Re: 100% stocks w/pension?

Post by orca91 »

Que1999 wrote:You may look at the pension/SS income and say, "I don't need to take any more risk in my retirement accounts.. Lets be more conservative", while I may say, "I don't really see a need for ever needing to withdraw from these retirement accounts... Lets hop on the 100% roller coaster ride and not even look!"
What is your purpose or intentions for this money then? To pass it onto heirs someday? What is your reasoning for taking max. risk... just because you can?

It is a personal decision, of course. And, if you're banking on your pensions and they will cover your expenses, it's tough to argue your point. But, your argument of, just because, isn't real strong either. What might you need this money for someday?
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sergeant
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Re: 100% stocks w/pension?

Post by sergeant »

alex_686 wrote:
Grt2bOutdoors wrote:Really? OP - read pages 124-130. Enlightening, really it is. It shows the fund has liabilities of $51.1 billion and net assets of $35.3 billion. Still sound healthy to you? Further, the net funding position of the fund has been deteriorating over the last 3 fiscal years - that means, that liabilities are growing faster than the sum of net contributions to the pension plans and asset growth. The stock market, heck, nearly all markets have been rising over the last three years, yet the NYPP has failed to meet it's own performance benchmarks. Keep saving in the 401k/457 plans, while a 69.42% funding rate is still healthy, it's concerning that the funding ratio has fallen from the 73.32% funding ratio at June 30, 2015. Think of it this way, if the plan fails to deliver - you can count on about 70 cents on the dollar in retirement, sounds just like the Social Security plan.......
Honestly, being funded at 69% is very healthy for a public pension fund. Anything over 80% is considered to be fully funded. There are many estimates in the projected liabilities so that number is not firm. It is assumed that there will be political will to make up the numbers latter on.

As for the falling ratios, I bet we can trace that to the rock bottom long term treasury rates that future liabilities are calculated from. If low long term rates is just a short term thing then the plan will be fine. If low rates are around for the next 20 years maybe not.
69% is not "very healthy." It isn't even healthy. 80% funded is NOT fully funded. Confused reporters often say 80% is healthy but they're incorrect. The above mentioned Pension Tsunami site has a section called the 80% Hall of Shame where actuaries try to educate reporters on this fallacy.
AA- 20+ Years of Expenses Fixed Income/The remainder in Equities.
kjvmartin
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Re: 100% stocks w/pension?

Post by kjvmartin »

alex_686 wrote:
corysold wrote:Is a PBGC covered pension really that much more secure than a public pension?
A more fruitful line of inquire would be to figure out how well funded the pension plan is. Most state pension plans have decent protection but as Detroit proves not full-proof
Isn't Detroit a city plan, not a state plan?

kjvm
likegarden
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Re: 100% stocks w/pension?

Post by likegarden »

I did not read here that your pension is inflation adjusted. All generous public pensions seem to be inflation adjusted though. I have a pension from a large US company which is not inflation adjusted, therefore I look to my investments to provide for that difference. The last years we had low inflation, but in the past there was 8% inflation and that would be a problem then.
TIAX
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Re: 100% stocks w/pension?

Post by TIAX »

Que1999 wrote:Myself and the wife are planning on retiring at 54, which would give us both the required 35 years of work for full Social Security benefits. I forgot to mention the wife also has a state pension at 50% of her annual income when she would be retiring.
Keep in mind that, past the second bend point, your AIME only increases by 15% of your earnings up to the social security wage base. Generally, once you hit the second bend point, it makes sense to no longer consider the minimal increases to your social security pension to decide when to retire.
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Re: 100% stocks w/pension?

Post by alex_686 »

sergeant wrote:69% is not "very healthy." It isn't even healthy. 80% funded is NOT fully funded. Confused reporters often say 80% is healthy but they're incorrect. The above mentioned Pension Tsunami site has a section called the 80% Hall of Shame where actuaries try to educate reporters on this fallacy.
Lets run through some points.

Do I like how pension accounting, in particular public pension accounting, is handled in the US? No. However examining that would be probably a different topic and highly political. So I will leave it there.

Does the pension plan have liabilities of $51.1 billion? Probably not. It is a estimate of future payments with a average duration of 30 years. Want to take a crack at future life experience, employee retention, and real income growth over the next 30 years? No, it is a best guess. With guess we should included a margin of error.

When the market swoons should we massively rejigger our accounts? When we have a time horizon of 30 years? As they say around here, stay the course.

Factor in these 2 and 80% looks O.K.

Then take a look at the 69% level of funding. Relative speaking, this is well funded compared to most other public pension plans. Are we talking about the best of the worst? Lets think about what would happen in a time distress. There tends to be a fair amount of political will for things like this. Bankruptcy courts have historically been lenient to pension holders.

Is there risk? Yes. Junk bond level, as others have suggested? I don’t think so.
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.
Mudpuppy
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Re: 100% stocks w/pension?

Post by Mudpuppy »

CalPERS over here and I don't count my pension as a bond in my asset allocation. I do account for it in determining if I am saving enough to reach my retirement goals. However, I do not use my current CalPERS formula in that calculation. I assume that at some point in the future, the pension will be reformed to put everyone at the new-hire formula. There is ample case law though that says current employees will be allowed to keep the pensions they've accrued to-date and then their future pensions will be reduced to the new-hire formula.

So, in determining how much I should save annually, I first determine how much I have accrued under my current CalPERS formula. Then I assume the remaining years will be determined with the new-hire formula. That gives me a projected pension, which then I deduct from my projected costs, which gives me the projected gap of income to cover with investments. I keep my calculations conservative (4% real rate of return on investments) in order to give myself a "goal number" for annual contributions. It's not so much a goal number as it is a goal matrix, where each row is a retirement age and each column is an assumption on SS including no SS at all. Right now, my annual contributions are at 100% of what I'd need to retire at age 63 with no SS ever (complete insolvency), so I figure I'm on the right path to retiring at age 65 with some wiggle room for bad market conditions.

I actually also have another matrix that just uses my current CalPERS formula, and it says I'm contributing 100% of what I'd need to retire at age 55 with 35% of the current SS rate taken at age 62. That's a whole different ballgame than being able to retire at age 63 with no SS. If I were solely using it, I'd think I'm doing wonderfully and would have no issue with putting everything at 100% stocks. That could be quite catastrophic if the pensions end up getting adjusted and we have another market crash as I get closer to retirement.

As the old saying goes, hope for the best but plan for the worst. That applies pretty strongly in this scenario.
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cfs
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Re: 100% stocks w/pension?

Post by cfs »

Back from my LUng Distance Workout and ready to contribute my Dos Reales. Good problem to have, all the bases covered by pensions and a good amount invested. IF you are battle tested during the bear [without hitting the panic button] then more power to you with the 100% equities portfolio. Your money, your responsibility, your decision. Good luck and thanks for reading ~cfs~
~ Member of the Active Retired Force since 2014 ~
ztn
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Re: 100% stocks w/pension?

Post by ztn »

The NYC pension funds are 'guaranteed' by the NY State constitution which states that once vested a pension can't be diminished or impaired. HOWEVER, the NY State constitution does get reviewed every 20 years if voters approve. The vote just happens to be this year in November on whether to convene the constitutional convention. Public sector unions are strongly urging their membership to vote 'No' - this way there is no convention and no possible legal change to pensions. If voters vote 'Yes', there will convene a constitutional convention next year and ANY NY State law is then up for grabs. Fun times!
Grt2bOutdoors
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Re: 100% stocks w/pension?

Post by Grt2bOutdoors »

ztn wrote:The NYC pension funds are 'guaranteed' by the NY State constitution which states that once vested a pension can't be diminished or impaired. HOWEVER, the NY State constitution does get reviewed every 20 years if voters approve. The vote just happens to be this year in November on whether to convene the constitutional convention. Public sector unions are strongly urging their membership to vote 'No' - this way there is no convention and no possible legal change to pensions. If voters vote 'Yes', there will convene a constitutional convention next year and ANY NY State law is then up for grabs. Fun times!


Yes, indeed, fun times. Looking forward to voting.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
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