112K pension- need help w/the rest

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zz4
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112K pension- need help w/the rest

Post by zz4 » Wed Dec 06, 2017 1:58 pm

Hello, I'm new.

I have a great annual pension but, how about the rest of my plan. I'll treat the annual pension payout I am currently receiving ($112k) as a safe bond type portfolio. The rest of my proposed IRA as follows: 80% fidelity total stock index and 20% fidelity international index. I have 20 years before RMD. Is this aggressive allocation sound? Is there a better way?

0 debt
0 mortgage
210 IRA (core account for now) as I just rolled it away from a AXA 401k.

Blessed (pension) but confused about the rest. Thank you for your advice.

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BolderBoy
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Re: 112K pension- need help w/the rest

Post by BolderBoy » Wed Dec 06, 2017 6:03 pm

zz4 wrote:
Wed Dec 06, 2017 1:58 pm
Hello, I'm new.

I have a great annual pension but, how about the rest of my plan. I'll treat the annual pension payout I am currently receiving ($112k) as a safe bond type portfolio. The rest of my proposed IRA as follows: 80% fidelity total stock index and 20% fidelity international index. I have 20 years before RMD. Is this aggressive allocation sound? Is there a better way?
So you are 50ish? What is your ultimate plan for the account from which you'll be taking RMDs? (leave as inheritance?)

You'll get lots of opinions here, but IMO a 100% stock allocation at age 50 is folly. You need some other fixed income to mitigate the effects of the next market downturn.

Congratulations on your generous pension at your young age.
"Never underestimate one's capacity to overestimate one's abilities" - The Dunning-Kruger Effect

Olemiss540
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Re: 112K pension- need help w/the rest

Post by Olemiss540 » Wed Dec 06, 2017 6:06 pm

zz4 wrote:
Wed Dec 06, 2017 1:58 pm
Hello, I'm new.

I have a great annual pension but, how about the rest of my plan. I'll treat the annual pension payout I am currently receiving ($112k) as a safe bond type portfolio. The rest of my proposed IRA as follows: 80% fidelity total stock index and 20% fidelity international index. I have 20 years before RMD. Is this aggressive allocation sound? Is there a better way?

0 debt
0 mortgage
210 IRA (core account for now) as I just rolled it away from a AXA 401k.

Blessed (pension) but confused about the rest. Thank you for your advice.
Wholly depends on your expenses? If they are under 120k, could be 100% stock.

What does 210 IRA stand for? Is that 210k? Is that your entire nest egg?

Grt2bOutdoors
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Re: 112K pension- need help w/the rest

Post by Grt2bOutdoors » Wed Dec 06, 2017 6:48 pm

Is the payer of the pension financially secure? The IRA, put it all in a fund like Lifestrategy Moderate or Lifestrategy Growth or Target Retirement 2035 and leave it alone.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

zz4
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Re: 112K pension- need help w/the rest

Post by zz4 » Wed Dec 06, 2017 6:50 pm

Yes I am 50. Yes I have 210k in an IRA (late start). I earn an additional 65k in a new career and my new wife earns 350k and has her own pension plus IRA. I am not sure what my expenses will be in 20 years so I am not sure how to answer that question. Currently we spend about 170k per year. HCOL area for now but will definitely relocate in retirement. I thought I might be ok with the 100% equity as the pension was large. It is a government pension so it should be stable-but you never know :shock:

Grt2bOutdoors
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Re: 112K pension- need help w/the rest

Post by Grt2bOutdoors » Wed Dec 06, 2017 6:59 pm

zz4 wrote:
Wed Dec 06, 2017 6:50 pm
Yes I am 50. Yes I have 210k in an IRA (late start). I earn an additional 65k in a new career and my new wife earns 350k and has her own pension plus IRA. I am not sure what my expenses will be in 20 years so I am not sure how to answer that question. Currently we spend about 170k per year. HCOL area for now but will definitely relocate in retirement. I thought I might be ok with the 100% equity as the pension was large. It is a government pension so it should be stable-but you never know :shock:
Not all municipalities are financially stable. Ultimately it is the underlying tax base that provides the ultimate backstop. If the tax base erodes the taxing ability of government, then the paying ability can be compromised, leaving the pensioner mainly reliant on the funding of underlying pension.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

zz4
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Re: 112K pension- need help w/the rest

Post by zz4 » Wed Dec 06, 2017 7:41 pm

I just checked the Fidelity equivalent to Lifestrategy Moderate, which is the Fidelity Freedom 2035 Fund I believe. At .75 e/r, couldn't I do much better with the Fidelity four index fund? I was under the impression index funds consistently outperform managed funds.

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Duckie
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Re: 112K pension- need help w/the rest

Post by Duckie » Wed Dec 06, 2017 8:09 pm

zz4 wrote:I'll treat the annual pension payout I am currently receiving ($112k) as a safe bond type portfolio.
I disagree with this. Some people think of a pension as a bond which means they feel they can take more risks and therefore hold fewer actual bonds. Some think of it as a reliable income stream which means they have less need for risk and therefore hold fewer stocks. I've always thought of my pension as an income stream which lessens my need to pull money from my other retirement assets, but it doesn't affect my AA either way.
I just checked the Fidelity equivalent to Lifestrategy Moderate, which is the Fidelity Freedom 2035 Fund I believe. At .75 e/r, couldn't I do much better with the Fidelity four index fund? I was under the impression index funds consistently outperform managed funds.
First, (FFTHX) Fidelity Freedom 2035 Fund (0.75%) is not an index fund. But (FIHFX) Fidelity Freedom Index 2035 Fund (0.15%) is.

Second, (VSMGX) Vanguard LifeStrategy Moderate Growth Fund (0.14%) has an AA of 60% stocks and 40% bonds, while the two 2035 funds are closer to 90/10. They're not equivalent. If you want 60/40, (FPIFX) Fidelity Freedom Index 2020 Fund (0.15%) would be closer. Here is a comparison. You pick a target-date fund by the AA inside, not the date in the title.

BV3273
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Re: 112K pension- need help w/the rest

Post by BV3273 » Wed Dec 06, 2017 8:24 pm

You don’t have to answer my question here. You can PM me if you’d like. I’m just curious as to your line of work to receive such a generous pension. I am extremely jealous LOL. I wish you all the best!

BV3273
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Re: 112K pension- need help w/the rest

Post by BV3273 » Wed Dec 06, 2017 8:25 pm

You don’t have to answer my question here. You can PM me if you’d like. I’m just curious as to your line of work to receive such a generous pension. I am extremely jealous LOL. I wish you all the best!

zz4
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Re: 112K pension- need help w/the rest

Post by zz4 » Wed Dec 06, 2017 8:47 pm

Duckie wrote:
Wed Dec 06, 2017 8:09 pm
zz4 wrote:I'll treat the annual pension payout I am currently receiving ($112k) as a safe bond type portfolio.
I disagree with this. Some people think of a pension as a bond which means they feel they can take more risks and therefore hold fewer actual bonds. Some think of it as a reliable income stream which means they have less need for risk and therefore hold fewer stocks. I've always thought of my pension as an income stream which lessens my need to pull money from my other retirement assets, but it doesn't affect my AA either way.


Very valid point. I want to be a bit more aggressive with the IRA though. I am considering either the fidelity four in one index FFNOX or simply using a combination of 60% total stock index 25% total international index 15% total bond index. I tend to be a set it and forget type of person so I am heavily leaning towards the FFNOX route. If this is too risky, is there an alternative that is more aggressive than the previous suggestions but more stable than my idea?

2pedals
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Re: 112K pension- need help w/the rest

Post by 2pedals » Wed Dec 06, 2017 9:21 pm

The only problem I see with the Fidelity four-in-one approach is that your will be stuck with that asset allocation and most people do not recommend a AA of 70% to 85% equity in retirement as you get older you may want less stocks i.e. 50%. I would rather have the control of defining my AA by using the 3 fund portfolio. Nothing terribly wrong with selecting the four-in-one fund since you want mostly stocks. If are planning use the money, say in the next few years in your early retirement years I would be much more conservative.

zz4
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Re: 112K pension- need help w/the rest

Post by zz4 » Thu Dec 07, 2017 9:48 am

The more I think about the pension the more worried I get. Banking on the government is too risky. Perhaps I will allocate more to a bond index in addition to the FFNOX. Slower growth I suppose is to be expected.

Shallowpockets
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Re: 112K pension- need help w/the rest

Post by Shallowpockets » Thu Dec 07, 2017 11:04 am

You said zero debt, zero mortgage. Yet you spend 170k a year. Even in HCOL that seems like a huge amount. Maybe it is just me down here in "regular land". That is something you could evaluate.
Otherwise, be happy, a governemt pension of 112k is as good as it gets for pensions. Worried about the security of that pension? Then a reevaluation of your expenses might give you some wiggle room.

chicagoan23
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Re: 112K pension- need help w/the rest

Post by chicagoan23 » Thu Dec 07, 2017 11:27 am

zz4 wrote:
Wed Dec 06, 2017 6:50 pm
I earn an additional 65k in a new career and my new wife earns 350k and has her own pension plus IRA. I am not sure what my expenses will be in 20 years so I am not sure how to answer that question. Currently we spend about 170k per year.
Does the pension have a COLA? If not, the annual payout may not go very far in 40 years. But it really won't matter if you're now making $525k+ annually and spending $170k, with no debt. I'd just try to do whatever I could to minimize my tax hit and then enjoy life if I were you.
I’m just curious as to your line of work to receive such a generous pension. I am extremely jealous LOL. I wish you all the best!
Government job with presumably low salary (hence the low savings for the OP) but with a great pension. Higher earners who were able to save about $2.2 million by age 50 (difficult but not all that unusual for many around here) could purchase a life annuity with the same annual payout, even with the low current interest rates.

KyleAAA
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Re: 112K pension- need help w/the rest

Post by KyleAAA » Thu Dec 07, 2017 12:33 pm

Four in one index fund is fine. Doesn't sound like you'll need to touch if for another decadence two and it's in an IRA so you can sell it in favor of a more conservative fund later if you wish. I would definitely encourage you to take your wife's pension and portfolio into account. before making any decisions. Best to treat everything as one big portfolio.

wrongfunds
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Re: 112K pension- need help w/the rest

Post by wrongfunds » Thu Dec 07, 2017 12:49 pm

BV3273 wrote:
Wed Dec 06, 2017 8:25 pm
You don’t have to answer my question here. You can PM me if you’d like. I’m just curious as to your line of work to receive such a generous pension. I am extremely jealous LOL. I wish you all the best!
Why not ask him how he was able to grab "a new wife who makes $350K per year" while you are it it? I am sure everybody is waiting for that answer!

zz4
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Re: 112K pension- need help w/the rest

Post by zz4 » Thu Dec 07, 2017 1:16 pm

wrongfunds wrote:
Thu Dec 07, 2017 12:49 pm
BV3273 wrote:
Wed Dec 06, 2017 8:25 pm
You don’t have to answer my question here. You can PM me if you’d like. I’m just curious as to your line of work to receive such a generous pension. I am extremely jealous LOL. I wish you all the best!
Why not ask him how he was able to grab "a new wife who makes $350K per year" while you are it it? I am sure everybody is waiting for that answer!
Ha! Match.com.....true story. :happy

Grt2bOutdoors
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Re: 112K pension- need help w/the rest

Post by Grt2bOutdoors » Thu Dec 07, 2017 1:25 pm

zz4 wrote:
Thu Dec 07, 2017 9:48 am
The more I think about the pension the more worried I get. Banking on the government is too risky. Perhaps I will allocate more to a bond index in addition to the FFNOX. Slower growth I suppose is to be expected.
Federal government pension? - no worries.
State of Illinois - are you the praying type?
State of Kentucky - get back to work!
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

wrongfunds
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Re: 112K pension- need help w/the rest

Post by wrongfunds » Thu Dec 07, 2017 1:29 pm

since you are playing along, you should have mentioned that she is also a Victoria Secret model and that is where her large paycheck is coming from :-)

Once again, it was NOT necessary to disclose that you have "new wife" for the original topic but since you did, do not be offended if people get curious about the bits you provided.

zz4
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Re: 112K pension- need help w/the rest

Post by zz4 » Thu Dec 07, 2017 3:02 pm

wrongfunds wrote:
Thu Dec 07, 2017 1:29 pm
since you are playing along, you should have mentioned that she is also a Victoria Secret model and that is where her large paycheck is coming from :-)

Once again, it was NOT necessary to disclose that you have "new wife" for the original topic but since you did, do not be offended if people get curious about the bits you provided.
I only disclosed it was a new marriage to explain the low balance of my personal IRA at my age. :sharebeer

Thanks for the great feedback!

wrongfunds
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Re: 112K pension- need help w/the rest

Post by wrongfunds » Thu Dec 07, 2017 4:34 pm

Ha! But in that case it was the end of the "old marriage" which made your IRA balance low regardless of the "new marriage" :-)

But I am glad that you are taking my friendly jabs in the spirit those were intended.

Getting back to your original question. I think you are in great shape financially. You won't go wrong with any asset allocation which makes you feel comfortable. As somebody else already computed, that pension is equivalent of having over $2.8M in your retirement account at 4% draw rate. To put it differently, somebody who has no pension would need to have over $2.8M in their portfolio to generate $112K in income stream.

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Duckie
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Re: 112K pension- need help w/the rest

Post by Duckie » Thu Dec 07, 2017 5:10 pm

zz4 wrote:I am considering either the fidelity four in one index FFNOX or simply using a combination of 60% total stock index 25% total international index 15% total bond index. I tend to be a set it and forget type of person so I am heavily leaning towards the FFNOX route. If this is too risky, is there an alternative that is more aggressive than the previous suggestions but more stable than my idea?
How about (FXIFX) Fidelity Freedom Index 2030 Fund (0.15%). It has an AA of 54% US stocks, 23% international stocks, and 23% bonds. That's about halfway between 90/10 and 60/40. Or just go with FFNOX which is a good fund.

GCD
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Re: 112K pension- need help w/the rest

Post by GCD » Thu Dec 07, 2017 6:37 pm

This is my "wisdom" which is apparently NOT conventional. :D

The argument that a pension shouldn't change your AA is incomprehensible to me. If you have a pension providing X income and your expenses are less than X how can that not let you tolerate more risk in your AA? To the extent it doesn't cover all your expenses how does it still not allow you to take more risk than if it didn't exist?

You have to decide how secure your pension is. If you think the entity paying it will outlast you without getting into financial difficulty then I would jack up the equities in your portfolio. I'm not going to quibble over small cap vs. international vs. S&P500.

ulrichw
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Re: 112K pension- need help w/the rest

Post by ulrichw » Thu Dec 07, 2017 6:51 pm

GCD wrote:
Thu Dec 07, 2017 6:37 pm
This is my "wisdom" which is apparently NOT conventional. :D

The argument that a pension shouldn't change your AA is incomprehensible to me. If you have a pension providing X income and your expenses are less than X how can that not let you tolerate more risk in your AA? To the extent it doesn't cover all your expenses how does it still not allow you to take more risk than if it didn't exist? [...]
+1

I'm completely on board with this. In fact there's another way of looking at this - your AA should be based on what percentage of your investments you need to pull out in the near future. If you need to pull out a lot of money soon, you need a conservative AA - if you don't need to pull out money until a long time from now, you will likely do better with an aggressive AA.

This also applies to people who have a large nest-egg with smaller expenses (without a pension). If you can cover your expenses three times over, you can afford to be fairly aggressive with your AA without risking your retirement. If you only have enough to meet expenses, you need to be a lot more careful.

In this case, you can think of the pension as simply reducing the expenses you'll need to pay from your nest egg - therefore you can afford to invest more aggressively.

OP: The one caveat is that your expenses will go up with inflation, while your pension probably won't - make sure you've allowed for that in planning.

I'd also recommend you do a little more work on the expense side of the equation: This side can have a much bigger effect on retirement outcomes for people than the investment side, I think. Get a good idea of what you're spending on now, and map that to what you think you'll be spending money on in 20 years. Account for eventualities like health-related expenses.

zz4
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Re: 112K pension- need help w/the rest

Post by zz4 » Thu Dec 07, 2017 8:44 pm

Well thought out response. Thank you.

cherijoh
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Re: 112K pension- need help w/the rest

Post by cherijoh » Thu Dec 07, 2017 9:20 pm

GCD wrote:
Thu Dec 07, 2017 6:37 pm
This is my "wisdom" which is apparently NOT conventional. :D

The argument that a pension shouldn't change your AA is incomprehensible to me. If you have a pension providing X income and your expenses are less than X how can that not let you tolerate more risk in your AA? To the extent it doesn't cover all your expenses how does it still not allow you to take more risk than if it didn't exist?

You have to decide how secure your pension is. If you think the entity paying it will outlast you without getting into financial difficulty then I would jack up the equities in your portfolio. I'm not going to quibble over small cap vs. international vs. S&P500.
You seem to be assuming that because you CAN take more risk you SHOULD. I like Larry Swedroe's take on this. To paraphrase, your AA should be based on your need, ability and willingness to take risk.

With a large pension, your need to take risk is low and your ability to take risk is high. (This is a much better proposition that someone who is 50 and hasn't saved anything for retirement - they have a strong need to take risk, but a low ability to do so). But your willingness to take risk is personal - which is why the OP will get advice to be very aggressive from some and very conservative from others.

From a practical standpoint, the funding for your pension is itself in part derived from investments, so the greatest risk to both your personal portfolio and your pension is when the stock market has sub-par performance for an extended period. In the past, state pension funds have taken on additional risk to make up for low returns and insufficient funding which only exacerbates the issue.

The other issue with pensions is that they can be frozen. It sounds like OP is already drawing his pension, but a lot of posts related to treating a pension like bonds refer to future benefits that have not yet been accrued. In some cases, the poster isn't even vested in the pension. Talk about counting your chickens before they hatch! :oops:

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