Does pension change allocation of funds?

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Mndiver
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Does pension change allocation of funds?

Post by Mndiver » Fri Jul 14, 2017 11:01 pm

My wife and I are both 46 years old and working in industries with pensions. I am currently investing in a 3 fund portfolio with 70/15/15 index funds total market/total international/total bond. Does having two pensions change our ability to take more risk regarding a higher percentage of stocks? It feels like I wasted a lot of years with Ameriprise annuities and want to make sure I am in the right percentages now.

chrischris
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Re: Does pension change allocation of funds?

Post by chrischris » Fri Jul 14, 2017 11:11 pm

For me, yes. I'm vested in a statewide pension program (law enforcement). While it's possible the government can shut down and a lot can change, I feel reasonably confident my pension is secured. Therefore I feel I can risk more in our Roths/401k.

I'm 100% equities otherwise (31 years old).

Nate79
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Re: Does pension change allocation of funds?

Post by Nate79 » Fri Jul 14, 2017 11:35 pm

I believe that pension, SS, etc are income streams that reduce the need for income in the future. Therefore the amount of income you will need to pull from your nest egg will be less. Your need to take risk is no different with or without the pension and therefore may not affect asset allocation.

MoonOrb
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Re: Does pension change allocation of funds?

Post by MoonOrb » Fri Jul 14, 2017 11:56 pm

Nate79 wrote:I believe that pension, SS, etc are income streams that reduce the need for income in the future. Therefore the amount of income you will need to pull from your nest egg will be less. Your need to take risk is no different with or without the pension and therefore may not affect asset allocation.
+1

Figure out how much income you need in retirement and how much of it will be met by your pensions/social security/annuities/other income streams if any. If all or nearly all of your income needs are met by these income streams, you have the ability to take on as much risk as you feel like, so if you want to be really equities heavy, you can be. You can also look at it as you have no need to take on much risk, which is an argument for fewer equities--when you're in the position of having all or most of your needs met by pensions and SS, you will probably be fine whether you have tons of equities or go more for fixed income.

On the other hand, if your pension and other income streams only cover part of your estimated retirement spending needs and you have a sizeable gap to fill, you need to choose an asset allocation that matches your willingness to take on risk. For many people, this means a fixed income allocation in the 20-40% range, although there are lots of people these days wanting to go 100% equities, too.

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Watty
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Re: Does pension change allocation of funds?

Post by Watty » Sat Jul 15, 2017 12:52 am

Mndiver wrote:My wife and I are both 46 years old ......

Does having two pensions change our ability to take more risk......
One thing to keep in mind is that in all likelyhood your really don't "have" much of a pension that is accrued and vested right now

Unless you are in some special situation where you can retire very earely what you likly have is a pension account that is worth a modest amount now but you have the chance of working another 20 years or so and accuring a lot more pension benifits.

It would be good to figure out just what the pension would be today if you left that job next week.

You really can't count on being covered by the pension until you do retire. I used to have a pension plan until one day when there was a memo from HR saying that the pension plan was being frozen and we would not accrue any more benifits.

The accurued pension benifits that people had was converted to a cash balance pension plan that you could roll out to an IRA when you left the company or retired. You also had the option receive a modest annunity monthly payment when you retired. With a few monor differences this was basically the same as if you had left the company. To replace the pension plan the company started doing a 401k match.

It you will have about 20 years until you can retire with the pension then it won't make a lot of differene in your asset allocation right now since you can't depend on the pension yet.

As the accrued value of your pension increases you might be able to cut back on your retirement account contributions some.

Once you are retired or very near retirement the math changes. For example if you want $100K a year of retirment income and you are willing to risk having to cut your spending back by $10,000 if your portfolio drops by 10% then you might have a certain asset allocation if you have no pension. With a $50,000 pension and a portfolio that is half as large then you would need to get $50,000 from it. If you had to cut that back by 10% that would only be a $5,000. Since you are willing to risk a $10,000 reduction in spending you could invest more agressively since you would be ok with a 20$ drop in your portfolio.

rgs92
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Re: Does pension change allocation of funds?

Post by rgs92 » Sat Jul 15, 2017 2:52 am

Ah, just on principle I like a 60/40 portfolio forever to stomach volatility. That seems to be the efficient frontier. Playing with Firecalc a lot led me to this frame of find.

msk
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Re: Does pension change allocation of funds?

Post by msk » Sat Jul 15, 2017 3:22 am

At age 46 you have some 20 years to build wealth. You can squander that opportunity by putting all your savings into 1 to 2% bonds, or you can actually invest the savings in the hope of getting wealthier. Safety costs. A lot. Your employer may go bust, etc. etc. One of you may get incapacitated, whatever. If things work out normally, you can look forward to two pensions and on their own may be enough for a comfortable retirement. IMHO you would be silly to ignore that 20-year, wealth-building opportunity. Use the next 20 years to "invest", not simply park a big chunk of your savings in bonds. Armand Hammer built up Occidental after retirement into a billion $ conglomerate. But he managed to have a long life. IMHO do not waste any bit of the next 20 years in bonds, unless interest rates jack up to a level that makes them look more like an investment rather than just parking your savings. Only you can decide on whether your potential pensions are solid enough to fully replace the safety of parking money in bonds for 20 years.

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BL
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Re: Does pension change allocation of funds?

Post by BL » Sat Jul 15, 2017 7:40 am

If you are thinking of going less than 15% in bonds at age 46, I would suggest you are already quite aggressive and should be considering whether or not to go higher in bonds. As mentioned you don't have much of that pension built up yet, so you can't be sure of the future.

We have been in a great bull market for a good while now, but that says nothing about what the future holds.

Some experts suggest nothing less than 25% bonds; Vanguard Target date holds at 10% for quite a while.

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ruralavalon
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Re: Does pension change allocation of funds?

Post by ruralavalon » Sat Jul 15, 2017 8:00 am

Mndiver wrote:My wife and I are both 46 years old and working in industries with pensions. I am currently investing in a 3 fund portfolio with 70/15/15 index funds total market/total international/total bond. Does having two pensions change our ability to take more risk regarding a higher percentage of stocks? It feels like I wasted a lot of years with Ameriprise annuities and want to make sure I am in the right percentages now.
Without pensions I would probably suggest about 30-35% bonds at age 46.
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midareff
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Re: Does pension change allocation of funds?

Post by midareff » Sat Jul 15, 2017 8:33 am

FWIW... retirement spending comes from income streams. A pension is one stream, SS is another, an annuity would be another and a portfolio is still another. Thereby the portfolio should be structured to be risk appropriate for the income stream it is to produce. You don't want to risk early depletion by having an allocation that is too heavy either towards equities or fixed income. Therefore, IMHO, it does not change the portfolio's asset allocation. Retired 6 years now my pension and portfolio each produce about 40% of my income with SS being the remaining 20%.

I also think being 46 years old and at 15% bonds is not in line with Boglehead asset allocations. If and when the market does what it does every so often you don't have enough dry powder.

carolinaman
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Re: Does pension change allocation of funds?

Post by carolinaman » Sat Jul 15, 2017 9:07 am

Pensions have been declining for years, especially in the private sector. I would be careful to count too heavily on the pensions until you get closer to retirement. A lot can happen. Either of you could lose your job, your pension could be discontinued, you could become disabled, etc. Also, keep in mind that if the pension is not COLA based, the purchasing power of the pension will decline substantially in a long retirement.

As a conservative move, I would suggest discounting the pension benefit. If the pension materializes as promised, you have a bonus. But if not, you are not devastated by the loss.

As others have stated the 70/15/15 seems too heavy. The more certain your pension and the more substantial it is, the more risk you can take. As discussed, the pension is not that certain yet.

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Re: Does pension change allocation of funds?

Post by WoodSpinner » Sat Jul 15, 2017 9:43 am

Mndiver wrote:My wife and I are both 46 years old and working in industries with pensions. I am currently investing in a 3 fund portfolio with 70/15/15 index funds total market/total international/total bond. Does having two pensions change our ability to take more risk regarding a higher percentage of stocks? It feels like I wasted a lot of years with Ameriprise annuities and want to make sure I am in the right percentages now.
OP,

Here is how I approached it. During my accumulation years, I considered the current lump sum value of the pension(e.g. What I could roll into an IRA today if I left work) to be part of my Fixed Income Allocation.

I was 80/20 during much of this time, but the pension represented the entire Fixed Income portion. From my perspective, I was at the right AA level, but with a non-bond holding.

Once I made a decision to Annuitize the pension, rather than taking it as a lump sum, I no longer counted it in my Asset Allocation. By this time, I was closer to 70/30 and decided to shift to 60/40 as part of the restructuring.

Good luck! 8-)

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Bodacious
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Re: Does pension change allocation of funds?

Post by Bodacious » Sat Jul 15, 2017 10:50 am

I've been employed for 21 years with Riverside County and am vested in a CalPers pension (3% at 60) with COLA. I was 100% equities in my 457b until 2 years ago because I assumed my pension was bullet proof. I stayed 100% equities during the dot com bubble and stayed 100% equities in 2008 (it was very stressful).

I no longer believe that my pension is bullet proof and have changed my AA to AGE minus 20 in bonds/fixed income (I'm currently 51). This seems to be a much more reasonable strategy and I will be 60/40 when I retire in 9 years.

I'm expecting a pension when I retire, but I'm hedging my bets a bit with a more conservative AA.

Mike Scott
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Re: Does pension change allocation of funds?

Post by Mike Scott » Sat Jul 15, 2017 11:34 am

Knowing that I am vested in a fairly stable pension changes the way I feel about my AA but I don't try to put specific numbers on the future value of the pension or social security. I have run the respective calculators for their estimated future income level but they do not have any real value until I begin receiving them.

Mndiver
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Re: Does pension change allocation of funds?

Post by Mndiver » Sat Jul 15, 2017 11:57 am

A lot of great advice here. Some posters are stating I have 20 years to go and have a lot of time. This is not necessarily correct. I plan on retiring in 10 years. I have a teacher pension in MN that I believe is quite solid. Part of the reason I am wanting to be more aggressive is in addition to Ameriprise annuity issues mentioned earlier I also had a slower start to adding funds early in career. Wife had and still has a great match at work so we decided to contribute a majority of money her way. My total non pension retirement fund is now at around $155,000. I would need to see a 5% annual return along with my current contributions to reach my goal from this part of my retirement portfolio.

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ruralavalon
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Re: Does pension change allocation of funds?

Post by ruralavalon » Sat Jul 15, 2017 12:23 pm

Mndiver wrote:A lot of great advice here. Some posters are stating I have 20 years to go and have a lot of time. This is not necessarily correct. I plan on retiring in 10 years. I have a teacher pension in MN that I believe is quite solid. Part of the reason I am wanting to be more aggressive is in addition to Ameriprise annuity issues mentioned earlier I also had a slower start to adding funds early in career. Wife had and still has a great match at work so we decided to contribute a majority of money her way. My total non pension retirement fund is now at around $155,000. I would need to see a 5% annual return along with my current contributions to reach my goal from this part of my retirement portfolio.
Given the slow start and being just ten years from retirement, in my opinion the better strategy is increasing contributions to retirement investing rather than increasing risk.

You are already at very high risk with 85% of investments in stocks. In your case having pensions does not warrant any further increase in risk in my opinion. My suggestion to someone 10 years from retirement (usually someone about 57 years old) without a pension would be an asset allocation around 60/40.

Increasing risk trying to play catch up could easily backfire and leave you more distant from your goal.

Are you also eligible for Social Security? What annual income stream do you think you will need from your investments? What annual contributions are you making to retirement investing?
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Helo80
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Re: Does pension change allocation of funds?

Post by Helo80 » Sat Jul 15, 2017 12:39 pm

Bodacious wrote: I no longer believe that my pension is bullet proof....

I'm curious how other people in your department feel. CALPERS has been fascinating to watch from the sidelines.

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Re: Does pension change allocation of funds?

Post by Cyclesafe » Sat Jul 15, 2017 2:31 pm

Another vote for not considering pensions too soon. My career was going fine until it wasn't: successively laid off / fired twice more until I dropped out of the labor force.

Asset allocation is a function of risk tolerance. Risk tolerance is a function of skill marketability; age and resistance to retraining; years to social security; and personal (and spousal) makeup - mostly due to upbringing. If you "can sleep at night" at 85% equity good for you. Don't think yourself out of it. But remember that efficient frontier theory argues for a minimum of 20% fixed: you are already taking on a little more risk than warranted for the expected (based on the past) return.

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nedsaid
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Re: Does pension change allocation of funds?

Post by nedsaid » Sat Jul 15, 2017 3:02 pm

Mndiver wrote:My wife and I are both 46 years old and working in industries with pensions. I am currently investing in a 3 fund portfolio with 70/15/15 index funds total market/total international/total bond. Does having two pensions change our ability to take more risk regarding a higher percentage of stocks? It feels like I wasted a lot of years with Ameriprise annuities and want to make sure I am in the right percentages now.
Yes, if you have secure pensions, you should be able to invest more aggressively than someone who does not. I say "should" because the key to all of this is "secure." We had one poster here asking a similar question whose pension was actually funded at about 50%. That, my friend, is not a secure pension even if it is a government pension. I delivered the bad news that the poster should save more and consider the possibility of receiving reduced benefits. Not the way to win a popularity contest, but it needs to be said.

You also have to understand that you and a pension have exactly the same investment risks. The pension plan has a couple of advantages over an individual, that is a theoretically unlimited time horizon and the ability to spread the risks over many investors. There is also the issue of mortality credits, that is the pension plan will benefit from those who die early. But the investment risks are still there. To a person with a 401k, IRA, or other such retirement savings plans, the risks are very apparent to the investor. With a pension plan, those risks are still there, but hidden behind a "pension curtain". Pretty much, even in a pension, if the money ain't there, it won't get paid.

I think of the actor Frank Morgan, who played the Wizard of Oz in the famous movie. He put up quite the front with the flames, billowing smoke, and the image of a fearsome wizard but as Toto discovered; he was a little man behind the curtain pulling on levers and bellowing into a microphone. To a degree, pensions are like that. Investments don't gain magic powers just because they are held within a pension plan, they are subject to market risk just as investments that are held in individual savings plans.

Fortunately, there is the Pension Benefit Guaranty Corporation that insures private pensions. Pensions pay a premium to the PBGC to finance it. According to Wikipedia, the PBGC has an impressive $88 billion in assets but $164 billion in obligations. Hardly sounds like a guild edged guarantee, but so far, so good. There are public pensions that are in trouble, one well known state has a funding ratio of about 50%. Pubic pensions are ultimately backed by the ability to tax and so far the courts have protected guaranteed benefits pretty well even in the case of Detroit. So there are backstops to pensions and hopefully (fingers crossed) it will all hold up. As you can see, I have my doubts.

My advice would be to count on the promised benefits but allow for the possibility that your actual future benefits might be somewhat less. My best guess is that if funding ratios are over 80%, you will likely be fine. If the funding ratio is below 80%, factor that into your planning.

I am also beginning to believe that investors should take into account the underlying asset allocation of the pension rather than considering the pension as a bond. The traditional pension model is the 60% stock/40% bond balanced portfolio though you see pension plans invest in such things as private equity, direct real estate, alternative investments, etc. As I said, the investment risk is there whether it is behind the "pension curtain" or not. We have developed the belief that if we can't see the risk, or if "someone else" is assuming the risk, that the risk is not there for us. I say baloney, we have to take into consideration investment risk wherever it resides.

Where I am going with this is that you make the pension a "shadow asset" in your retirement portfolio and assign to that shadow asset the same asset allocation as the pension itself. Include the shadow asset as part of your asset allocation. I would also consider the possibility that benefits will be less than promised. This is conservative advice and not what people want to hear, but it needs to be explained to people. Better to be disappointed now when you can do something about it than at retirement age when your options are much more limited. With a financial calculator, you could calculate the dollar value of your pension.
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Re: Does pension change allocation of funds?

Post by MNGopher » Sat Jul 15, 2017 3:12 pm

Mndiver wrote:A lot of great advice here. Some posters are stating I have 20 years to go and have a lot of time. This is not necessarily correct. I plan on retiring in 10 years. I have a teacher pension in MN that I believe is quite solid. Part of the reason I am wanting to be more aggressive is in addition to Ameriprise annuity issues mentioned earlier I also had a slower start to adding funds early in career. Wife had and still has a great match at work so we decided to contribute a majority of money her way. My total non pension retirement fund is now at around $155,000. I would need to see a 5% annual return along with my current contributions to reach my goal from this part of my retirement portfolio.
I'm also a MN teacher. I am slightly more aggressive in my AA than I would be without our TRA pension. I'm 75/25 at age 52, but am gradually shifting this to 60/40 over the next 5 or 6 years until retirement.

PS: It will be interesting to see the TRA funded ratio number for the fiscal year, that should be released shortly. Should be some improvement from last year.

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Re: Does pension change allocation of funds?

Post by MnD » Sat Jul 15, 2017 4:01 pm

For us yes. We are 70/30 now and for life only 15 months (possibly 3 months) from retirement.
Current ages 54 and 55.
When we blow up both our careers our financial standard of living will go up by 2% with our current investment spending plan (% of annual portfolio value plan) and other income streams including 1 immediate pension and 2 future claims on social security versus both working full time. If the market drops 50% the day we retire and never recovers and only grows by inflation we will have 17% less disposable income than we do working. A related thing that affects our AA is the fact that we are not even remotely frugal, have few fixed expenses, no debt, paid off house, both sets of parents are gone and kids are educated and moved out. We can afford to take risks and as early soon to be retirees choose to do so in the hopes of benefitting from equity growth for possibly 4 decades. Wife has extreme longevity or her side and I have a few real old-timers on my side. We do not deep discount pensions and other revenue streams like is popular here. I figure unexpected good things and bad things happen - I'm not going to serially discount everything so i can end up working 10 more years and/or have a 2.8% SWR.

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Re: Does pension change allocation of funds?

Post by Thesaints » Sat Jul 15, 2017 4:24 pm

Of course!
Somebody with a million, who wants to draw 30k in perpetuity, has to allocate 70/30, 60/40, or something around those values.
Somebody with a million and a 30k pension can allocate 100 to stocks.
yet someone with half a million and a 15k pension has to allocate as the first somebody.

Mndiver
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Re: Does pension change allocation of funds?

Post by Mndiver » Sat Jul 15, 2017 11:01 pm

ruralavalon wrote:
Mndiver wrote:A lot of great advice here. Some posters are stating I have 20 years to go and have a lot of time. This is not necessarily correct. I plan on retiring in 10 years. I have a teacher pension in MN that I believe is quite solid. Part of the reason I am wanting to be more aggressive is in addition to Ameriprise annuity issues mentioned earlier I also had a slower start to adding funds early in career. Wife had and still has a great match at work so we decided to contribute a majority of money her way. My total non pension retirement fund is now at around $155,000. I would need to see a 5% annual return along with my current contributions to reach my goal from this part of my retirement portfolio.
Given the slow start and being just ten years from retirement, in my opinion the better strategy is increasing contributions to retirement investing rather than increasing risk.



Are you also eligible for Social Security? What annual income stream do you think you will need from your investments? What annual contributions are you making to retirement investing?
Yes, both wife and I will be eligible for social security. Both pensions at this points projections will be between 3-$3,500. So $7,000/ month right there. We currently contribute about $40,000 a year combined to retirement funds above pensions. House will be paid off in about 7 years and kids colleges are covered. Currently have about $650,000 in retirement funds outside of pensions.

Mndiver
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Re: Does pension change allocation of funds?

Post by Mndiver » Sat Jul 15, 2017 11:15 pm

MNGopher wrote:
Mndiver wrote:A lot of great advice here. Some posters are stating I have 20 years to go and have a lot of time. This is not necessarily correct. I plan on retiring in 10 years. I have a teacher pension in MN that I believe is quite solid. Part of the reason I am wanting to be more aggressive is in addition to Ameriprise annuity issues mentioned earlier I also had a slower start to adding funds early in career. Wife had and still has a great match at work so we decided to contribute a majority of money her way. My total non pension retirement fund is now at around $155,000. I would need to see a 5% annual return along with my current contributions to reach my goal from this part of my retirement portfolio.
I'm also a MN teacher. I am slightly more aggressive in my AA than I would be without our TRA pension. I'm 75/25 at age 52, but am gradually shifting this to 60/40 over the next 5 or 6 years until retirement.

PS: It will be interesting to see the TRA funded ratio number for the fiscal year, that should be released shortly. Should be some improvement from last year.
You may have one big agvantage over me if you have been teaching since you were young. Unfortunately I will not qualify for the rule of 90. This does cut my pension dramatically. TRA considers full retirement age to be 67 if you don't qualify for rule of 90. Because I started teaching at 22 that means I will hit 90 (years of service plus age) at 56. Because of this I need to work another 11 years for full retirement. Do you know ANY teachers that have taught for 45 years? Just doesn't happen for several reasons. Always wanted and planned to retire from education at 56 so need to make good financial decisions now.

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Re: Does pension change allocation of funds?

Post by ruralavalon » Sun Jul 16, 2017 9:42 am

About what annual income stream do you think that you may need/want from your investments?
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Mndiver
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Re: Does pension change allocation of funds?

Post by Mndiver » Sun Jul 16, 2017 10:55 am

ruralavalon wrote:About what annual income stream do you think that you may need/want from your investments?
This is something I will need to put more thought into. With house paid off, kids through college and no major expenses we feel we could have a good retirement and be able to do the things we want if our income stream is around $110,000/year.

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Re: Does pension change allocation of funds?

Post by ruralavalon » Sun Jul 16, 2017 12:05 pm

Mndiver wrote:My wife and I are both 46 years old and working in industries with pensions. I am currently investing in a 3 fund portfolio with 70/15/15 index funds total market/total international/total bond. Does having two pensions change our ability to take more risk regarding a higher percentage of stocks? It feels like I wasted a lot of years with Ameriprise annuities and want to make sure I am in the right percentages now.
Mndiver wrote:A lot of great advice here. Some posters are stating I have 20 years to go and have a lot of time. This is not necessarily correct. I plan on retiring in 10 years. I have a teacher pension in MN that I believe is quite solid. Part of the reason I am wanting to be more aggressive is in addition to Ameriprise annuity issues mentioned earlier I also had a slower start to adding funds early in career. Wife had and still has a great match at work so we decided to contribute a majority of money her way. My total non pension retirement fund is now at around $155,000. I would need to see a 5% annual return along with my current contributions to reach my goal from this part of my retirement portfolio.
Mndiver wrote:Yes, both wife and I will be eligible for social security. Both pensions at this points projections will be between 3-$3,500. So $7,000/ month right there. We currently contribute about $40,000 a year combined to retirement funds above pensions. House will be paid off in about 7 years and kids colleges are covered. Currently have about $650,000 in retirement funds outside of pensions.
Mndiver wrote:
ruralavalon wrote:About what annual income stream do you think that you may need/want from your investments?
This is something I will need to put more thought into. With house paid off, kids through college and no major expenses we feel we could have a good retirement and be able to do the things we want if our income stream is around $110,000/year.
The reason I asked is with two pensions ($7k/month x 12 = $84k/yr) plus Social Security starting later, $155k or $650k??? in retirement investments in addition to pensions, adding $40k per year, 10 years until retirement, house paid off and children through college -- you may be fairly close to what is needed, and may not have the need to take more risk as you thought.

Are your pensions indexed for inflation? What will your Social Security benefits be if you start at 62? At 67? At 70?

Here is a calculator that you can use ( http://www.firecalc.com ) once you have those numbers and a solid figure for retirement spending.

Try to determine a fairly solid number for your retirement spending. What I did was based on actual current spending, using our check register and credit card statements. I looked back over a couple of years so as to not miss expenses that didn't occur monthly or on any regular basis. Then adjust by subtracting expenses that will end by retirement (such as house payments, retirement contributions), and add expenses that may increase on retirement (such as travel, premiums for medical insurance).
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Mndiver
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Re: Does pension change allocation of funds?

Post by Mndiver » Sun Jul 16, 2017 12:44 pm

ruralavalon wrote:
Mndiver wrote:My wife and I are both 46 years old and working in industries with pensions. I am currently investing in a 3 fund portfolio with 70/15/15 index funds total market/total international/total bond. Does having two pensions change our ability to take more risk regarding a higher percentage of stocks? It feels like I wasted a lot of years with Ameriprise annuities and want to make sure I am in the right percentages now.
Mndiver wrote:A lot of great advice here. Some posters are stating I have 20 years to go and have a lot of time. This is not necessarily correct. I plan on retiring in 10 years. I have a teacher pension in MN that I believe is quite solid. Part of the reason I am wanting to be more aggressive is in addition to Ameriprise annuity issues mentioned earlier I also had a slower start to adding funds early in career. Wife had and still has a great match at work so we decided to contribute a majority of money her way. My total non pension retirement fund is now at around $155,000. I would need to see a 5% annual return along with my current contributions to reach my goal from this part of my retirement portfolio.
Mndiver wrote:Yes, both wife and I will be eligible for social security. Both pensions at this points projections will be between 3-$3,500. So $7,000/ month right there. We currently contribute about $40,000 a year combined to retirement funds above pensions. House will be paid off in about 7 years and kids colleges are covered. Currently have about $650,000 in retirement funds outside of pensions.
Mndiver wrote:
ruralavalon wrote:About what annual income stream do you think that you may need/want from your investments?
This is something I will need to put more thought into. With house paid off, kids through college and no major expenses we feel we could have a good retirement and be able to do the things we want if our income stream is around $110,000/year.
The reason I asked is with two pensions ($7k/month x 12 = $84k/yr) plus Social Security starting later, $155k or $650k??? in retirement investments in addition to pensions, adding $40k per year, 10 years until retirement, house paid off and children through college -- you may be fairly close to what is needed, and may not have the need to take more risk as you thought.

Are your pensions indexed for inflation? What will your Social Security benefits be if you start at 62? At 67? At 70?

Here is a calculator that you can use ( http://www.firecalc.com ) once you have those numbers and a solid figure for retirement spending.

Try to determine a fairly solid number for your retirement spending. What I did was based on actual current spending, using our check register and credit card statements. I looked back over a couple of years so as to not miss expenses that didn't occur monthly or on any regular basis. Then adjust by subtracting expenses that will end by retirement (such as house payments, retirement contributions), and add expenses that may increase on retirement (such as travel, premiums for medical insurance).
Yes, both pensions are indexed for inflation. The $650k in retirement investments is combined with my wife. I am only at 155k on my own. My pension is likely a "sure thing". As much as it can be anyway. Wife had an option 7 years ago to have her pension dissolved into a lump sum 401k fund or keep going with the pension. New employees are no longer eligible for the pension. She decided to stick with pension fund. She will have the opportunity to take it as a lump sum when she retires. This will have to be considered heavily due to unsurety of pension funds. Although I do think it may be safe since they no longer are offering it to new employees?? Probably faulty thinking.

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ruralavalon
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Re: Does pension change allocation of funds?

Post by ruralavalon » Sun Jul 16, 2017 1:07 pm

Mndiver wrote:
ruralavalon wrote:
Mndiver wrote:My wife and I are both 46 years old and working in industries with pensions. I am currently investing in a 3 fund portfolio with 70/15/15 index funds total market/total international/total bond. Does having two pensions change our ability to take more risk regarding a higher percentage of stocks? It feels like I wasted a lot of years with Ameriprise annuities and want to make sure I am in the right percentages now.
Mndiver wrote:A lot of great advice here. Some posters are stating I have 20 years to go and have a lot of time. This is not necessarily correct. I plan on retiring in 10 years. I have a teacher pension in MN that I believe is quite solid. Part of the reason I am wanting to be more aggressive is in addition to Ameriprise annuity issues mentioned earlier I also had a slower start to adding funds early in career. Wife had and still has a great match at work so we decided to contribute a majority of money her way. My total non pension retirement fund is now at around $155,000. I would need to see a 5% annual return along with my current contributions to reach my goal from this part of my retirement portfolio.
Mndiver wrote:Yes, both wife and I will be eligible for social security. Both pensions at this points projections will be between 3-$3,500. So $7,000/ month right there. We currently contribute about $40,000 a year combined to retirement funds above pensions. House will be paid off in about 7 years and kids colleges are covered. Currently have about $650,000 in retirement funds outside of pensions.
Mndiver wrote:
ruralavalon wrote:About what annual income stream do you think that you may need/want from your investments?
This is something I will need to put more thought into. With house paid off, kids through college and no major expenses we feel we could have a good retirement and be able to do the things we want if our income stream is around $110,000/year.
The reason I asked is with two pensions ($7k/month x 12 = $84k/yr) plus Social Security starting later, $155k or $650k??? in retirement investments in addition to pensions, adding $40k per year, 10 years until retirement, house paid off and children through college -- you may be fairly close to what is needed, and may not have the need to take more risk as you thought.

Are your pensions indexed for inflation? What will your Social Security benefits be if you start at 62? At 67? At 70?

Here is a calculator that you can use ( http://www.firecalc.com ) once you have those numbers and a solid figure for retirement spending.

Try to determine a fairly solid number for your retirement spending. What I did was based on actual current spending, using our check register and credit card statements. I looked back over a couple of years so as to not miss expenses that didn't occur monthly or on any regular basis. Then adjust by subtracting expenses that will end by retirement (such as house payments, retirement contributions), and add expenses that may increase on retirement (such as travel, premiums for medical insurance).
Yes, both pensions are indexed for inflation. The $650k in retirement investments is combined with my wife. I am only at 155k on my own. My pension is likely a "sure thing". As much as it can be anyway. Wife had an option 7 years ago to have her pension dissolved into a lump sum 401k fund or keep going with the pension. New employees are no longer eligible for the pension. She decided to stick with pension fund. She will have the opportunity to take it as a lump sum when she retires. This will have to be considered heavily due to unsurety of pension funds. Although I do think it may be safe since they no longer are offering it to new employees?? Probably faulty thinking.
I am still thinking that at 10 years to retirement with pensions a reasonable asset allocation might be in the area of 70/30 or 60/40.

Please let us know what you come up with in figures for Social Security and expected retirement spending.
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Thesaints
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Re: Does pension change allocation of funds?

Post by Thesaints » Sun Jul 16, 2017 2:30 pm

Mndiver wrote:
ruralavalon wrote:About what annual income stream do you think that you may need/want from your investments?
This is something I will need to put more thought into. With house paid off, kids through college and no major expenses we feel we could have a good retirement and be able to do the things we want if our income stream is around $110,000/year.
Therefore, deducting the ~80k you get from your pensions, there are 30k which your capital has to generate.
You may probably want to reach around the million mark and you've got 650k right now. If you keep contributing 40k/yr you would get there "brute force" in 9 years, which seems consistent with your retirement in 10 years target.
As such, your present allocation is way too aggressive. You could even be 100% in TIPS and you would make it to where you want to be with absolute certainty.
On the other hand, your million would not generate 30k/year with only TIPS, so you also want to look farther ahead to the necessary allocation when in retirement.
Since that is 10 years from now, we can't say today what an allocation that will be exactly. It will depend on real yields in 2027, which nobody knows.

Depending on exactly how important is for you to retire in 10 years, as opposed to 12/15, I'd take up to 30/40% in stocks now, to be reevaluated as time goes by and 2027 gets closer.
Any more than that, you are likely taking on unnecessary risk, which may allow you to retire on a larger capital, perhaps even a little sooner, but may also force you to wait a lot longer.

runner540
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Re: Does pension change allocation of funds?

Post by runner540 » Sun Jul 16, 2017 2:53 pm

Mndiver wrote:
ruralavalon wrote:
Mndiver wrote:A lot of great advice here. Some posters are stating I have 20 years to go and have a lot of time. This is not necessarily correct. I plan on retiring in 10 years. I have a teacher pension in MN that I believe is quite solid. Part of the reason I am wanting to be more aggressive is in addition to Ameriprise annuity issues mentioned earlier I also had a slower start to adding funds early in career. Wife had and still has a great match at work so we decided to contribute a majority of money her way. My total non pension retirement fund is now at around $155,000. I would need to see a 5% annual return along with my current contributions to reach my goal from this part of my retirement portfolio.
Given the slow start and being just ten years from retirement, in my opinion the better strategy is increasing contributions to retirement investing rather than increasing risk.



Are you also eligible for Social Security? What annual income stream do you think you will need from your investments? What annual contributions are you making to retirement investing?
Yes, both wife and I will be eligible for social security. Both pensions at this points projections will be between 3-$3,500. So $7,000/ month right there. We currently contribute about $40,000 a year combined to retirement funds above pensions. House will be paid off in about 7 years and kids colleges are covered. Currently have about $650,000 in retirement funds outside of pensions.
Edit- just saw that $3500/month is pension plus SS.

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