Sanity Check, or does it even matter if I'm sane?

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TomatoTomahto
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Sanity Check, or does it even matter if I'm sane?

Post by TomatoTomahto » Thu Mar 30, 2017 9:54 am

I'm not using the recommended format for portfolio questions, because I don't think it clarifies the situation. If you feel that I'm mistaken, I will oblige.

Background: DW is still employed at a job with a paycheck, makes more than enough. I have been a SAHD for many years; nest is now empty except for pets and visits during breaks. I expect DW to continue working for 1-5 years, but I've been saying that for 5 years. :oops:
Deferred comp, SS, pensions, RMDs will provide more than enough for monthly expenses in retirement
Our current house will sell for enough to buy 2 retirement homes in suitable climates.
Our state tax situation (living in NJ) cannot get worse
College costs for kids will come out of current earnings

Problem: I think about our asset allocation more than I would like. I have read about Liability Matching Portfolios, Wade Pfau's increasing equity portfolios in retirement, Bucket Portfolios, etc. Our asset allocation seems to have a trajectory of its own choosing, in part because I dislike rebalancing with existing funds, and only do so with DW's annual bonus.
Our current AA is around 55/45.

Proposed solution: I call this a modified bucket approach, but maybe it has a formal name.
The cash bucket is filled by DW's salary and my SS/pensions, later by DW's deferred comp, and ultimately by our combined SS/pensions, RMDs, and distributions from taxable.

The fixed income bucket is filled with $2M (TBM in 401k/IRA, some I-Bonds and Intermediate Term Tax-Free in taxable). The amount is what I'm not sure about. It seems sufficient to handle any reasonable event (expensive medical, for example), short of a catastrophic event. The attraction is that it's a dollar amount, rather than a percentage, and it will grow organically with dividends/interest, and come close to tracking inflation.

The equity bucket will start with everything else currently, and going forward will be filled with all "new money" (i.e., whatever we don't spend from the cash bucket). Depending on market results and DW's continuing earnings, this could be a substantial amount.

The immediate benefit is that I can stop thinking about asset allocations and rebalancing. I avoid the "need" to have ever-increasing amounts in bonds just to satisfy an asset allocation plan.

Questions:
Is $2M a sufficient amount in fixed income?
Would additional fixed income provide a meaningful level of increased safety?
Has this plan veered from simple (desirable) to simplistic (undesirable)?
Am I missing something that I should be accounting for?
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livesoft
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Re: Sanity Check, or does it even matter if I'm sane?

Post by livesoft » Thu Mar 30, 2017 10:00 am

You didn't tell us what your annual burn rate is, so we can't know if $2M in bonds is sufficient. It would be double-sufficient for me.

I'll tell another story: I got a SS statement last week in the mail. I'm not even 60 years old yet, but I noticed that SS benefits for me and for my spouse will be huge compared to what we need for our required spending or for a LMP if you want to think that way. So the reality is that our investments only need to get us to ages 62 or 70 or somewhere in-between, then we don't have to think about longevity or much of anything else. That means our investments are all for the non-LMP stuff and totally discretionary once SS starts.

I'll probably just start day trading to spend the money. You can probably do that, too.
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Tamalak
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Re: Sanity Check, or does it even matter if I'm sane?

Post by Tamalak » Thu Mar 30, 2017 10:01 am

Problem: I think about our asset allocation more than I would like.
Isn't this always how it goes? For every issue facing our life, we either ignore it out of intimidated fear, or get good enough at it that we obsess over it way past the point of diminishing returns, trying to be the best. It's a rare human being who has it in him to lead a balanced, healthy life. It's unnatural.

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Re: Sanity Check, or does it even matter if I'm sane?

Post by Sandtrap » Thu Mar 30, 2017 10:06 am

Careful portfolio planning strategy while being careful to be careful is perhaps the "norm" in "BogleWorld". AFAIK, IMHO, FWIW. . .
For myself: LMP with tilt to Bernstein and Swedroe while adjusting for the dreaded inevitable "Black Swans" while keeping everything as simple as possible. 60X with variable 2% WDR.
All this per "Boglehead senior experts" recommendations, advice, patience, ongoing help.
Have not passed a "Sanity Check" up to retirement. OCD is my normal. :shock: :shock:

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TomatoTomahto
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Re: Sanity Check, or does it even matter if I'm sane?

Post by TomatoTomahto » Thu Mar 30, 2017 10:11 am

livesoft wrote:You didn't tell us what your annual burn rate is, so we can't know if $2M in bonds is sufficient. It would be double-sufficient for me.

I'll tell another story: I got a SS statement last week in the mail. I'm not even 60 years old yet, but I noticed that SS benefits for me and for my spouse will be huge compared to what we need for our required spending or for a LMP if you want to think that way. So the reality is that our investments only need to get us to ages 62 or 70 or somewhere in-between, then we don't have to think about longevity or much of anything else. That means our investments are all for the non-LMP stuff and totally discretionary once SS starts.

I'll probably just start day trading to spend the money. You can probably do that, too.
Our annual burn rate, ex college expenses, taxes, and vacations, is maybe $80k per year. I expect that vacation/travel expenses will go up considerably when DW retires. We are currently all set for autos, but I will buy another Tesla someday :D

I should have stated my question re $2M better. We have enough to support our lifestyle with just the cash bucket, but I want to be sure that we can handle an otherwise ruinous medical situation, a tragic car accident where innocents are injured/killed, etc.
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TomatoTomahto
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Re: Sanity Check, or does it even matter if I'm sane?

Post by TomatoTomahto » Thu Mar 30, 2017 10:13 am

Tamalak wrote:Isn't this always how it goes? For every issue facing our life, we either ignore it out of intimidated fear, or get good enough at it that we obsess over it way past the point of diminishing returns, trying to be the best. It's a rare human being who has it in him to lead a balanced, healthy life. It's unnatural.
When you put it that way, I'm a natural :D
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livesoft
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Re: Sanity Check, or does it even matter if I'm sane?

Post by livesoft » Thu Mar 30, 2017 10:16 am

At $80K burn rate, (how can that be? Aren't your property taxes already $50K a year? :twisted:), then $2M bonds is sufficient.
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why3not
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Re: Sanity Check, or does it even matter if I'm sane?

Post by why3not » Thu Mar 30, 2017 10:19 am

TomatoTomahto wrote: Our annual burn rate, ex college expenses, taxes, and vacations, is maybe $80k per year. I expect that vacation/travel expenses will go up considerably when DW retires.
I can tell you my plan (if all goes well & no guarantee that I am sane): end my working days with about 25-30x in fixed income (excluding cash), 2-4x in cash & the remainder in equities.

So, my plan on your numbers would look like 2-2.5 million in bonds. So I looks like you have a plan similar to mine, so at least your insanity has company.

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Re: Sanity Check, or does it even matter if I'm sane?

Post by cadreamer2015 » Thu Mar 30, 2017 10:27 am

We have enough to support our lifestyle with just the cash bucket, but I want to be sure that we can handle an otherwise ruinous medical situation, a tragic car accident where innocents are injured/killed, etc.
For myself, this risk is why I buy insurance, including medical and umbrella. I don't try to self insure for very low risk / huge economic loss events with my portfolio.

But said and done your AA is similar to ours just about to enter full retirement. So if you enjoy thinking about your asset allocation by all means keep on thinking about it, but you might find greater enjoyment in planning the travel you and your DW will do when she/you have the time.
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livesoft
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Re: Sanity Check, or does it even matter if I'm sane?

Post by livesoft » Thu Mar 30, 2017 10:33 am

Actually, I hope you are traveling now if that is what you like to do. My spouse and I travel separately as much as we travel together. My spouse just went to Manhattan last weekend and my daughter joined her. I got to stay home with the dog.
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Re: Sanity Check, or does it even matter if I'm sane?

Post by Chadnudj » Thu Mar 30, 2017 10:38 am

TomatoTomahto wrote: I should have stated my question re $2M better. We have enough to support our lifestyle with just the cash bucket, but I want to be sure that we can handle an otherwise ruinous medical situation, a tragic car accident where innocents are injured/killed, etc.
On the latter, maybe just buy a large umbrella insurance policy and/or up your auto insurance coverage? That way you'll spend a relatively small fraction to protect yourself, compared to deploying your assets in a suboptimal way.

Ditto the "otherwise ruinous medical situation," to the extent that situation is the massive costs of long-term care....if you're both healthy, it might make sense to start exploring long-term care insurance.

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TomatoTomahto
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Re: Sanity Check, or does it even matter if I'm sane?

Post by TomatoTomahto » Thu Mar 30, 2017 10:46 am

livesoft wrote:Actually, I hope you are traveling now if that is what you like to do. My spouse and I travel separately as much as we travel together. My spouse just went to Manhattan last weekend and my daughter joined her. I got to stay home with the dog.
It's always about the dog! Seriously, it was the first bump in the road when we thought about retiring in Grand Cayman. :annoyed

I should travel more, but unless I'm with loved ones, I'd rather be home with the dogs. I traveled solo as a youth, but even then, I enjoyed it more with company.
At $80K burn rate, (how can that be? Aren't your property taxes already $50K a year? :twisted:), then $2M bonds is sufficient.
I said ex college expenses, taxes, and vacations, but I almost included property taxes. Our property tax, pending this year's reassessment, appears to be $24k/year. [edit: dyslexia, number should be $42k] I also realized that I didn't include the increased medical expenses. Maybe I should call it $100k per year.
Last edited by TomatoTomahto on Fri Jun 16, 2017 9:49 am, edited 2 times in total.
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TomatoTomahto
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Re: Sanity Check, or does it even matter if I'm sane?

Post by TomatoTomahto » Thu Mar 30, 2017 10:56 am

Chadnudj wrote:
TomatoTomahto wrote: I should have stated my question re $2M better. We have enough to support our lifestyle with just the cash bucket, but I want to be sure that we can handle an otherwise ruinous medical situation, a tragic car accident where innocents are injured/killed, etc.
On the latter, maybe just buy a large umbrella insurance policy and/or up your auto insurance coverage? That way you'll spend a relatively small fraction to protect yourself, compared to deploying your assets in a suboptimal way.

Ditto the "otherwise ruinous medical situation," to the extent that situation is the massive costs of long-term care....if you're both healthy, it might make sense to start exploring long-term care insurance.
We have a $5M umbrella policy. I'm a belt and suspenders kind of guy :D

Every time I've looked into long-term care insurance, I've come to the conclusion that I missed that boat, and that, even had I caught the boat in time, it would probably be taking on water now. It just doesn't appear that what they pay out, relative to the (ever increasing) premiums and exclusions, is sensible. This might offend some readers, and that's not my intention, but I come from a long line of people who have taken the path of making a rational decision (i.e., agreed by close family members that they're not depressed or irrational, which is funny considering the thread title) on when it is time to exit. I will not deny myself the kindness and dignity that I show my dogs when the time comes. "Normal" nursing care should be covered by our portfolio.
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TomatoTomahto
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Re: Sanity Check, or does it even matter if I'm sane?

Post by TomatoTomahto » Thu Mar 30, 2017 11:03 am

cadreamer2015 wrote: For myself, this risk is why I buy insurance, including medical and umbrella. I don't try to self insure for very low risk / huge economic loss events with my portfolio.

But said and done your AA is similar to ours just about to enter full retirement. So if you enjoy thinking about your asset allocation by all means keep on thinking about it, but you might find greater enjoyment in planning the travel you and your DW will do when she/you have the time.
Umbrella insurance covered; medical is currently employer-based, and who knows what the future will hold in that regard. It's more complicated than anyone knew :D

I would rather think about living in a different place than obsessing about my AA. I live in NJ, so that's not a stretch :D Tbh, NJ is nicer than people give it credit for, but I spend time on Zillow viewing real estate porn, and man oh man can you get a really nice house in many places for what our house in NJ would sell for!
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aristotelian
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Re: Sanity Check, or does it even matter if I'm sane?

Post by aristotelian » Thu Mar 30, 2017 11:08 am

I think you are right to focus on the amount rather than the % of fixed income. If you have enough sufficient for your needs, it doesn't matter what % of the rest is in equities. You could have $1M in equities or $21M, it doesn't matter as long as your needs are covered by the fixed income.

I can't say if $2M is your number or not. You may have a higher standard of living than me and you definitely live in a more expensive area. That said, combined with SS and pension, that sounds like a good plan for sure.

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Re: Sanity Check, or does it even matter if I'm sane?

Post by TomatoTomahto » Mon Apr 03, 2017 8:42 am

Well, it is official. I asked DW to sit with me for a minute as I explained what I planned on doing. $2M in bonds or bond funds, allowed to grow organically with dividends and interest, sufficient funds in cash accounts to cover living expenses, and the rest in equity funds (TSM and the limited PRIMECAP additions).

I don't want to say that she was bored during the talk, but if a teenager had her expression, the caption would have been "Whatever."
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Re: Sanity Check, or does it even matter if I'm sane?

Post by TomatoTomahto » Mon May 15, 2017 5:51 pm

Our property tax, pending this year's reassessment, appears to be $24k/year.
This thread is not current, but in case someone finds it in passing, I apparently was dyslexic when entering our property tax. It's $42k, NOT $24k. Wishful thinking, I guess.
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livesoft
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Re: Sanity Check, or does it even matter if I'm sane?

Post by livesoft » Mon May 15, 2017 5:58 pm

TomatoTomahto wrote:I don't want to say that she was bored during the talk, but if a teenager had her expression, the caption would have been "Whatever."
Better than "Ugh!"

Then there's the new Google Home TV spot, with "Is he gone?"
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Re: Sanity Check, or does it even matter if I'm sane?

Post by Tom1320 » Mon May 15, 2017 9:47 pm

TomatoTomahto wrote:
Our property tax, pending this year's reassessment, appears to be $24k/year.
This thread is not current, but in case someone finds it in passing, I apparently was dyslexic when entering our property tax. It's $42k, NOT $24k. Wishful thinking, I guess.
.
$42K ??? So THAT'S what it's like to live on the other side of the tracks :wink: .
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Re: Sanity Check, or does it even matter if I'm sane?

Post by TomatoTomahto » Mon May 15, 2017 10:03 pm

Tom1320 wrote:
TomatoTomahto wrote:
Our property tax, pending this year's reassessment, appears to be $24k/year.
This thread is not current, but in case someone finds it in passing, I apparently was dyslexic when entering our property tax. It's $42k, NOT $24k. Wishful thinking, I guess.
.
$42K ??? So THAT'S what it's like to live on the other side of the tracks :wink: .
It's funny that you mention the tracks. One reason that homes in our town cost so much is the proximity to the Midtown Direct line (commuter train line to midtown NYC). The joke is that, due to neglected maintenance, the commute to NYC has been a goat rodeo lately, with derailments, switching problems, and every inconvenience known to man.
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