Retired at 50. Staying 100% in stock Index Funds. Anyone else?

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scdevon
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Re: Retired at 50. Staying 100% in stock Index Funds. Anyone else?

Post by scdevon » Sun Feb 04, 2018 12:47 pm

The most dismal period of time I could find for buying and holding the S&P 500 was 1965 to 1983 where you would have been basically flat aside from dividends going into 1983. There was crazy inflation in the 1970s that could happen again, but unlikely. There were almost no Average Joe investors in the markets back then, either. The market is completely a different animal today. Much more stable and predictable. I'm not even sure I would call 2008 a "crash" because the fundamentals in our economy were still pretty solid hence the quick rebound. More like overdone panic selling.

One of my theories is that average working people contributing regularly to the markets in the form of retirement contributions has contributed greatly to market stability and the stock market rising in the 80s 90s and 2000s. People are holding stable mutual funds for the long term which wasn't the case decades ago. Not only that, mutual fund investors have become conditioned to "buy the dips" over the last 30 years which has always paid off given a reasonable time frame. There are a lot of positive tailwinds to the market going forward if you don't allow yourself to get shaken out of it every time a speed bump comes along.

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knpstr
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Re: Retired at 50. Staying 100% in stock Index Funds. Anyone else?

Post by knpstr » Sun Feb 04, 2018 12:47 pm

I'm 100% stocks with paper investments (only 33 years old). Hope to always have that allocation.

I do own some rental real estate. So my entire investment portfolio isn't 100% stocks.
Very little is needed to make a happy life; it is all within yourself, in your way of thinking. -Marcus Aurelius

3funder
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Re: Retired at 50. Staying 100% in stock Index Funds. Anyone else?

Post by 3funder » Sun Feb 04, 2018 12:49 pm

At 33 years old, I'm 80% stocks. That's good enough for me for the next decade or so. Yes, over the long-term, 100% stocks will beat my portfolio; however, the all-equity portfolio can take many years to spread its wings if it takes a particularly nasty nosedive. I'm definitely not a 60/40 person, though (at least at my age). Gotta take a little risk to get a little return. I believe I started out at 90% stocks about a decade ago.

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scdevon
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Re: Retired at 50. Staying 100% in stock Index Funds. Anyone else?

Post by scdevon » Sun Feb 04, 2018 12:54 pm

knpstr wrote:
Sun Feb 04, 2018 12:47 pm
I'm 100% stocks with paper investments (only 33 years old). Hope to always have that allocation.
That's what I'm talking about.

The "experts" say that you should be 70/30 right now. Can you honestly see yourself jumping 30% into bonds right now just because "that's what you're supposed to do"? At age 33? Makes no sense to me. Seems like bad advice honestly.

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Hyperborea
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Re: Retired at 50. Staying 100% in stock Index Funds. Anyone else?

Post by Hyperborea » Sun Feb 04, 2018 1:22 pm

scdevon wrote:
Sun Feb 04, 2018 12:54 pm
knpstr wrote:
Sun Feb 04, 2018 12:47 pm
I'm 100% stocks with paper investments (only 33 years old). Hope to always have that allocation.
That's what I'm talking about.

The "experts" say that you should be 70/30 right now. Can you honestly see yourself jumping 30% into bonds right now just because "that's what you're supposed to do"? At age 33? Makes no sense to me. Seems like bad advice honestly.
Vanguard themselves would have him at 90/10, so even they are more aggressive than the "experts" too. Look at the allocation of their Target Date funds. They would keep him at that until he was 40.
Last edited by Hyperborea on Sun Feb 04, 2018 1:28 pm, edited 1 time in total.
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Re: Retired at 50. Staying 100% in stock Index Funds. Anyone else?

Post by larjen42710 » Sun Feb 04, 2018 1:23 pm

Congratulation! Enjoy.

chevca
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Re: Retired at 50. Staying 100% in stock Index Funds. Anyone else?

Post by chevca » Sun Feb 04, 2018 1:26 pm

scdevon wrote:
Sun Feb 04, 2018 12:47 pm
The most dismal period of time I could find for buying and holding the S&P 500 was 1965 to 1983 where you would have been basically flat aside from dividends going into 1983. There was crazy inflation in the 1970s that could happen again, but unlikely. There were almost no Average Joe investors in the markets back then, either. The market is completely a different animal today. Much more stable and predictable. I'm not even sure I would call 2008 a "crash" because the fundamentals in our economy were still pretty solid hence the quick rebound. More like overdone panic selling.

One of my theories is that average working people contributing regularly to the markets in the form of retirement contributions has contributed greatly to market stability and the stock market rising in the 80s 90s and 2000s. People are holding stable mutual funds for the long term which wasn't the case decades ago. Not only that, mutual fund investors have become conditioned to "buy the dips" over the last 30 years which has always paid off given a reasonable time frame. There are a lot of positive tailwinds to the market going forward if you don't allow yourself to get shaken out of it every time a speed bump comes along.
You do realize most folks, private and public sector, had pensions back then. How do you think the pension funds, or even your pension fund now invest?

You and we haven't discovered anything new.

You ever going to address the parts about how would you invest or would've invested had you not had a secure career and pension now to cover your expenses?

autopeep
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Re: Retired at 50. Staying 100% in stock Index Funds. Anyone else?

Post by autopeep » Sun Feb 04, 2018 1:36 pm

I can't decide which type of "100%er" I'm more amused by: The pensioner or "50% of assets in cash for 'buying opportunites' but I'm totally 100% equities..er"

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Watty
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Re: Retired at 50. Staying 100% in stock Index Funds. Anyone else?

Post by Watty » Sun Feb 04, 2018 1:36 pm

jjface wrote:
Sun Feb 04, 2018 10:18 am
Easy to recommend anything when all your living expenses are met already.
+1

And the stock market is also still near a record high.

One problem is that even though all the your expenses are covered that does not mean that your will not decide to spend a good chunk of your money on something a boat or a fancy retirement home.

There are also permutations of life events like divorces and remarriages that I have seen change peoples plans.

At some point though you are investing your excess funds for whoever will eventually inherit it and you should consider using an asset allocation that is appropriate for them. Few people would recommend 100% stocks if the money was already in a trust for a charity or a newborn grandkid that might need the money for college in 18 years.
Last edited by Watty on Sun Feb 04, 2018 1:37 pm, edited 1 time in total.

rgs92
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Re: Retired at 50. Staying 100% in stock Index Funds. Anyone else?

Post by rgs92 » Sun Feb 04, 2018 1:37 pm

So are you saying that the pension covers your living expenses alone even without considering your future Social Security benefits? If so, that puts you in an especially fine sweet spot. So sure, why not go all in with the market and let it ride?
Good luck and congrats on constructing a top-notch financial foundation.

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Re: Retired at 50. Staying 100% in stock Index Funds. Anyone else?

Post by TN_Boy » Sun Feb 04, 2018 1:43 pm

scdevon wrote:
Sun Feb 04, 2018 11:56 am
chevca wrote:
Sun Feb 04, 2018 11:43 am
OP doesn't seem to realize that their situation doesn't apply to very many folks out there and it's just not simple and easy for most to say, no bonds while retiring at 50. You really feel that's in touch with the majority of folks out there.

OP didn't ask anything about their own situation and really only asked about others. :wink:
I was pointing out that historically a "Buy and Hold" 60/40 (or whatever) portfolio can't keep up with a 100% index fund portfolio if you have a time horizon longer than the typical market correction. Yes, "this time could be different", but it probably won't be. I'm not talking about an actively traded bond portfolio. I'm talking about buy and hold which is what most retirement savers do with bond funds.

Given market history, I can't see a good case for anyone under 65 of 70 holding a significant % of bonds. History also shows that you leave a lot of money on the table long term with a 60/40 portfolio.
OP,

You are getting some negative feedback here because you keep looking at things through the prism of your situation. Let's try some numbers.

Investor "fearless" retires at age 58 with a cool $2,000,000 portfolio. Fearless will get some SS, and expects to draw $60k to $70k a year from the portfolio. This is pretty conservative. But fearless doesn't have a pension -- until SS, fearless needs the money from the investments to live on. Our hero goes with a 100% stock portfolio, because only cowards like bonds.

Shortly after retirement, the market begins a two-year slide where the total loss is 50%. After being retired two years, fearless now has a portfolio of $880,000 dollars (50% drop, $120k in withdrawals), after starting with $2,000,000.

Now, given the relatively conservative draw (3%) and the fact there is some SS in the future, fearless will *likely* still be okay. But looking at this example, can you see how somebody younger than 65 *might* want a significant % of bonds??

The idiots with a 50-50 $2M stock/bond portfolio and similar withdrawals would have about $1,380,000* now (assumes 0 bond appreciation during the crash). But heck, what is $500,000 to somebody fearless!

* Okay, that is not quite fair. If you start retirement with a conservative portfolio, then you may have less money to start with than somebody who has stuck with a more aggressive portfolio during the accumulation years. But the problem is real -- whatever you start retirement with, if you need that money, watching it vaporize without a bond cushion can be pretty painful, and in cases very damaging to your retirement living standards. Thus some people feel that moving to a less aggressive allocation near retirement a good idea.

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Re: Retired at 50. Staying 100% in stock Index Funds. Anyone else?

Post by Hyperborea » Sun Feb 04, 2018 1:53 pm

TN_Boy wrote:
Sun Feb 04, 2018 1:43 pm
Now, given the relatively conservative draw (3%) and the fact there is some SS in the future, fearless will *likely* still be okay. But looking at this example, can you see how somebody younger than 65 *might* want a significant % of bonds??
3% withdrawal rate is incredibly conservative. For 40 year or less retirements and allocations from 25% to 100% equity the survival is about 100% historically. If your portfolio is big enough or your living costs are low enough then you've more than won the game. Increase the WR or the duration from there and your equity percentage needs to rise or your survivability falls.
It’s hard to win an argument with a smart person, it's damn near impossible to win an argument with a stupid person. - Bill Murray

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Re: Retired at 50. Staying 100% in stock Index Funds. Anyone else?

Post by Hyperborea » Sun Feb 04, 2018 1:55 pm

Watty wrote:
Sun Feb 04, 2018 1:36 pm
There are also permutations of life events like divorces and remarriages that I have seen change peoples plans.
Pretty much a non sequitur. Whether the OP had 100% stock or 50/50 his spouse in any hypothetical divorce would get the same percentage of the assets.
It’s hard to win an argument with a smart person, it's damn near impossible to win an argument with a stupid person. - Bill Murray

TN_Boy
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Re: Retired at 50. Staying 100% in stock Index Funds. Anyone else?

Post by TN_Boy » Sun Feb 04, 2018 2:06 pm

Hyperborea wrote:
Sun Feb 04, 2018 1:53 pm
TN_Boy wrote:
Sun Feb 04, 2018 1:43 pm
Now, given the relatively conservative draw (3%) and the fact there is some SS in the future, fearless will *likely* still be okay. But looking at this example, can you see how somebody younger than 65 *might* want a significant % of bonds??
3% withdrawal rate is incredibly conservative. For 40 year or less retirements and allocations from 25% to 100% equity the survival is about 100% historically. If your portfolio is big enough or your living costs are low enough then you've more than won the game. Increase the WR or the duration from there and your equity percentage needs to rise or your survivability falls.
I agree. I was using very conservative numbers. I personally think 4% is pretty conservative.

But while I think that "fearless" will be okay, my larger point is that watching your portfolio go from $2m to $880k in two years is a big deal. It would be to me, anyway :-). That's a gigantic drop of funds percentage-wise in early retirement. And while it is happening, you only know historically that the market has always come back in the US. You don't know what will happen next year.

Plus, if there was an emergency (for you or a family member) requiring a six figure one-time draw from the portfolio about that time, well, it would kinda suck to have to pull when the portfolio was down so far. I like the downsides of volatility are sometimes overlooked. During the accumulation phase, it maybe isn't such a big deal. But when you are drawing down, it is more worrisome. You might have to pull out money when you really didn't want to.

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scdevon
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Re: Retired at 50. Staying 100% in stock Index Funds. Anyone else?

Post by scdevon » Sun Feb 04, 2018 2:13 pm

TN_Boy wrote:
Sun Feb 04, 2018 1:43 pm
Shortly after retirement, the market begins a two-year slide where the total loss is 50%. After being retired two years, fearless now has a portfolio of $880,000 dollars (50% drop, $120k in withdrawals), after starting with $2,000,000.
Yes, but none of those doom and gloom scenarios ever materialize long term especially over the last 3 decades. The stock market is not the same as it was in the 1960s and 1970s. There is a lot of stable money in stocks for the long haul. I wouldn't call Index Fund investing particularly exciting or innovative or even risky if you have reasonable risk tolerance over the long term. There is definitely a reward for risk tolerance. Old news, but I'm just saying......

In the 1980s, people told me that SS was going away and wouldn't be around when I reached retirement age which is total nonsense and another doom and gloom rumor that just won't quit. Co-workers would put their retirement savings into the money market option in our deferred comp because they "didn't want to lose everything" if the market tanked and this was also in the 1980s.

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Re: Retired at 50. Staying 100% in stock Index Funds. Anyone else?

Post by MNS CA » Sun Feb 04, 2018 2:17 pm

scdevon wrote:
Sun Feb 04, 2018 10:16 am
I've been investing since 1984. Current age is 53. I have a State Government Pension that covers all of my living expenses +. . . .
My point is that Bond returns are boring long-term even if they are more stable and act as sort of a "shock absorber" against stock volatility. I'm a big fan of Fidelity's FSTVX fund which is a broad index fund that tends to mimic the Dow Jones Total Market Index almost to the penny and has a current yield of 1.6% and has a low expense ratio of .05%. I have almost everything ($780k) in FSTVX and I keep about $55k in cash (Money Market) for emergencies.
With a lifetime defined benefit pension that fully covers your living expenses, you would not be crazy. Does your pension fully cover your living expenses including healthcare? If you retire, your employer provided coverage might cease or become more expensive--worth checking on.

FSTVX is a pretty good fund for a tax-free account, but for taxable I'd go with Vanguard's total market fund, VTSAX. The expense ratio is slightly higher, but vanguard funds have a much lower tax-cost ratio (look it up on morningstar). This means if you own VTSAX in a taxable account vs. FSTVX, VTSAX will give you less in the way of passed through capital gains distributions so you won't have to pay as much in taxes. The difference won't show up in a comparison chart, but you can see tax cost ratio on Morningstar's website.

For a tax free account, I like Schwab's total market fund better. SWTSX.
Expense ratio is only 0.035%, lower than Fidelity or Vanguard.

I might not trigger cap gains to switch from the fidelity fund, but for new money, I'd go another way.

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Re: Retired at 50. Staying 100% in stock Index Funds. Anyone else?

Post by TravelGeek » Sun Feb 04, 2018 2:18 pm

chevca wrote:
Sun Feb 04, 2018 1:26 pm
You ever going to address the parts about how would you invest or would've invested had you not had a secure career and pension now to cover your expenses?
Apparently not. The whole topic is pretty pointless if only part of the data is considered in the discussion.

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Re: Retired at 50. Staying 100% in stock Index Funds. Anyone else?

Post by hiddensee » Sun Feb 04, 2018 2:20 pm

The main reason to be very heavily in stocks at your age would be to leave more money to your heirs, and you don't have any.

But 50 is not that old, and you seem to have a lot of fixed income that just isn't called bonds, so your allocation probably is not that far from the recommended in reality.

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Re: Retired at 50. Staying 100% in stock Index Funds. Anyone else?

Post by SimplicityNow » Sun Feb 04, 2018 2:27 pm

FRANK2009 wrote:
Sun Feb 04, 2018 12:31 pm
Here is a NY Times article by an economist that agrees with the OP:


https://www.nytimes.com/2016/02/13/your ... of-it.html
Here is one that doesn't.

http://www.fifthsetinvestment.com/dange ... ng-advice/

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Re: Retired at 50. Staying 100% in stock Index Funds. Anyone else?

Post by bikechuck » Sun Feb 04, 2018 2:35 pm

If I had a pension like yours I would adopt a far more aggressive mix than my current 50/50 Equity to Fixed Income mix that I am maintaining at the age of 64.5. Probably starting at 70/30 and I would likely not let my equities drift any higher than 80%.

What a nice problem to have, you will most likely be fine whatever you decide to do!

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Re: Retired at 50. Staying 100% in stock Index Funds. Anyone else?

Post by Chip » Sun Feb 04, 2018 2:37 pm

scdevon wrote:
Sun Feb 04, 2018 12:47 pm
I'm not even sure I would call 2008 a "crash" because the fundamentals in our economy were still pretty solid hence the quick rebound. More like overdone panic selling.
Fundamentals solid? You gotta be kidding me.

3 bank failures in 2007. 25 bank failures in 2008. 140 bank failures in 2009. 157 bank failures in 2010.

Unemployment more than doubled.

2.87 million foreclosure filings in 2010 vs. 718 thousand in 2006.

The Federal Reserve, in a completely unprecedented move, purchased over 2.5 trillion in Treasuries and MBS in an attempt to lower interest rates and stimulate the economy.

From any point of view but that of a secure government job it looked like the entire financial system was going to fail, taking the rest of the economy with it. And in my opinion it would have without the unprecedented interventions.

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scdevon
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Re: Retired at 50. Staying 100% in stock Index Funds. Anyone else?

Post by scdevon » Sun Feb 04, 2018 2:41 pm

TravelGeek wrote:
Sun Feb 04, 2018 2:18 pm
chevca wrote:
Sun Feb 04, 2018 1:26 pm
You ever going to address the parts about how would you invest or would've invested had you not had a secure career and pension now to cover your expenses?
Apparently not. The whole topic is pretty pointless if only part of the data is considered in the discussion.
I would not have been able to retire at 50 if it weren't for a pension at least not comfortably. If I were in the private sector, I could see myself working until around 60 and contributing aggressively to a 401k and my IRA dollar cost averaging into a 100% stock core position just like always. History shows that I would have been just fine doing that. I haven't even factored any SS payments into my outlook. My medical insurance is paid for now (you get a credit for each month worked), but nobody can guarantee that we won't have to kick in something as the years go by.

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scdevon
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Re: Retired at 50. Staying 100% in stock Index Funds. Anyone else?

Post by scdevon » Sun Feb 04, 2018 2:44 pm

Chip wrote:
Sun Feb 04, 2018 2:37 pm
Fundamentals solid? You gotta be kidding me.

3 bank failures in 2007. 25 bank failures in 2008. 140 bank failures in 2009. 157 bank failures in 2010.

Yet we recovered and here we are. (?)

"The market is always right".

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scdevon
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Re: Retired at 50. Staying 100% in stock Index Funds. Anyone else?

Post by scdevon » Sun Feb 04, 2018 2:44 pm

SimplicityNow wrote:
Sun Feb 04, 2018 2:27 pm
FRANK2009 wrote:
Sun Feb 04, 2018 12:31 pm
Here is a NY Times article by an economist that agrees with the OP:


https://www.nytimes.com/2016/02/13/your ... of-it.html
Here is one that doesn't.

http://www.fifthsetinvestment.com/dange ... ng-advice/
Both good reads. Thanks.

TN_Boy
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Re: Retired at 50. Staying 100% in stock Index Funds. Anyone else?

Post by TN_Boy » Sun Feb 04, 2018 2:55 pm

scdevon wrote:
Sun Feb 04, 2018 2:13 pm
TN_Boy wrote:
Sun Feb 04, 2018 1:43 pm
Shortly after retirement, the market begins a two-year slide where the total loss is 50%. After being retired two years, fearless now has a portfolio of $880,000 dollars (50% drop, $120k in withdrawals), after starting with $2,000,000.
Yes, but none of those doom and gloom scenarios ever materialize long term especially over the last 3 decades. The stock market is not the same as it was in the 1960s and 1970s. There is a lot of stable money in stocks for the long haul. I wouldn't call Index Fund investing particularly exciting or innovative or even risky if you have reasonable risk tolerance over the long term. There is definitely a reward for risk tolerance. Old news, but I'm just saying......

In the 1980s, people told me that SS was going away and wouldn't be around when I reached retirement age which is total nonsense and another doom and gloom rumor that just won't quit. Co-workers would put their retirement savings into the money market option in our deferred comp because they "didn't want to lose everything" if the market tanked and this was also in the 1980s.
I don't think what people told you about SS 30 years ago is relevant to stock market investing. Do you believe people telling you the stock market could take a 50% drop over a couple of years is "gloom and doom?" That is an interesting viewpoint. What do you believe the draw-down on the S&P 500 was in the 2000 - 2002 crash, and the 2007 - 2009 crash, respectively?

I think you are missing my point. I am not saying the US market would not come back after a 50% drubbing. It has, twice in very recent memory. What I am saying is that such a severe downturn, accompanied by withdrawals from the portfolio in early retirement is at best alarming, at worst can lead to a sequence of returns issue where the portfolio never recovers. Left alone long enough it might. But the withdrawals can damage it severely. Or you do generally not believe in sequence of return issues?

Your faith in stock market stability is heartwarming.

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Re: Retired at 50. Staying 100% in stock Index Funds. Anyone else?

Post by Hyperborea » Sun Feb 04, 2018 3:09 pm

TN_Boy wrote:
Sun Feb 04, 2018 1:43 pm
I think you are missing my point. I am not saying the US market would not come back after a 50% drubbing. It has, twice in very recent memory. What I am saying is that such a severe downturn, accompanied by withdrawals from the portfolio in early retirement is at best alarming, at worst can lead to a sequence of returns issue where the portfolio never recovers. Left alone long enough it might. But the withdrawals can damage it severely. Or you do generally not believe in sequence of return issues?
In the historical record the SOR is already taken account of by the initial low SWR. If you want to as an optimization take a glide path down and then back up. This can counter a bad initial return sequence allowing one to increase the initial SWR, cover the small percent one is away from historical 100% success (many/most use high but not 100% success rates in their planning) or reduce the effect of an ahistorical bad market.

For the OP with a pension that covers all or most of his living costs that's not a complication that he needs to worry about. For those of us with no pension and living entirely on an investment portfolio that is an issue.
It’s hard to win an argument with a smart person, it's damn near impossible to win an argument with a stupid person. - Bill Murray

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Re: Retired at 50. Staying 100% in stock Index Funds. Anyone else?

Post by investorpeter » Sun Feb 04, 2018 3:29 pm

You are not really 100% allocated to stock index funds if you include the current value of your pension in your net worth, which for all practical purposes should be considered on the fixed income (bond) side of your allocation.

You can get a decent estimate of the current value of your pension by looking up the cost to purchase an annuity that starts paying at a future point in time for your given age and location. For example, using the immediateannuities.com website, assuming you are living in Texas, married, 53 years old, and retiring in 7 years, $1,000,000 today will purchase a joint annuity that pays $62,000 per year beginning in 7 years. So in this scenario, if you had $500,000 in retirement accounts, 100% invested in index equity funds, your asset allocation is not really 100%/0% stock/fixed income, but rather it is 33%/66% stock/fixed income.
Last edited by investorpeter on Sun Feb 04, 2018 3:37 pm, edited 1 time in total.

TN_Boy
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Re: Retired at 50. Staying 100% in stock Index Funds. Anyone else?

Post by TN_Boy » Sun Feb 04, 2018 3:32 pm

Hyperborea wrote:
Sun Feb 04, 2018 3:09 pm
TN_Boy wrote:
Sun Feb 04, 2018 1:43 pm
I think you are missing my point. I am not saying the US market would not come back after a 50% drubbing. It has, twice in very recent memory. What I am saying is that such a severe downturn, accompanied by withdrawals from the portfolio in early retirement is at best alarming, at worst can lead to a sequence of returns issue where the portfolio never recovers. Left alone long enough it might. But the withdrawals can damage it severely. Or you do generally not believe in sequence of return issues?
In the historical record the SOR is already taken account of by the initial low SWR. If you want to as an optimization take a glide path down and then back up. This can counter a bad initial return sequence allowing one to increase the initial SWR, cover the small percent one is away from historical 100% success (many/most use high but not 100% success rates in their planning) or reduce the effect of an ahistorical bad market.

For the OP with a pension that covers all or most of his living costs that's not a complication that he needs to worry about. For those of us with no pension and living entirely on an investment portfolio that is an issue.
Honestly, I think you are missing my main point, but maybe I wasn't making it very well. I wasn't arguing about best withdrawal strategies, withdrawal rates, etc.

The OP is saying things like "50% drawdown is gloom & doom. Stock markets are different now." I was trying to point out the massive portfolio hit a severe crash + withdrawals will cause. And point that out major draw downs still happen, as recent history shows.

As I noted back early in the thread, if OP doesn't need the money from the portfolio, sure it doesn't matter what asset allocation is used. But the OP seems to think 100% is okay for everybody, with no differentiation of situations. I also think the OP's claim that the markets are inherently somehow more stable than they used to be really odd; I'd be interested in data supporting such a proposition.

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Re: Retired at 50. Staying 100% in stock Index Funds. Anyone else?

Post by FrugalInvestor » Sun Feb 04, 2018 3:34 pm

scdevon wrote:
Sun Feb 04, 2018 2:13 pm
Yes, but none of those doom and gloom scenarios ever materialize long term...
Until they do. Never say 'never.'
IGNORE the noise! | Our life is frittered away by detail... simplify, simplify. - Henry David Thoreau

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Re: Retired at 50. Staying 100% in stock Index Funds. Anyone else?

Post by SimplicityNow » Sun Feb 04, 2018 3:41 pm

TN_Boy wrote:
Sun Feb 04, 2018 3:32 pm
Hyperborea wrote:
Sun Feb 04, 2018 3:09 pm
TN_Boy wrote:
Sun Feb 04, 2018 1:43 pm
I think you are missing my point. I am not saying the US market would not come back after a 50% drubbing. It has, twice in very recent memory. What I am saying is that such a severe downturn, accompanied by withdrawals from the portfolio in early retirement is at best alarming, at worst can lead to a sequence of returns issue where the portfolio never recovers. Left alone long enough it might. But the withdrawals can damage it severely. Or you do generally not believe in sequence of return issues?
In the historical record the SOR is already taken account of by the initial low SWR. If you want to as an optimization take a glide path down and then back up. This can counter a bad initial return sequence allowing one to increase the initial SWR, cover the small percent one is away from historical 100% success (many/most use high but not 100% success rates in their planning) or reduce the effect of an ahistorical bad market.

For the OP with a pension that covers all or most of his living costs that's not a complication that he needs to worry about. For those of us with no pension and living entirely on an investment portfolio that is an issue.
Honestly, I think you are missing my main point, but maybe I wasn't making it very well. I wasn't arguing about best withdrawal strategies, withdrawal rates, etc.

The OP is saying things like "50% drawdown is gloom & doom. Stock markets are different now." I was trying to point out the massive portfolio hit a severe crash + withdrawals will cause. And point that out major draw downs still happen, as recent history shows.

As I noted back early in the thread, if OP doesn't need the money from the portfolio, sure it doesn't matter what asset allocation is used. But the OP seems to think 100% is okay for everybody, with no differentiation of situations. I also think the OP's claim that the markets are inherently somehow more stable than they used to be really odd; I'd be interested in data supporting such a proposition.
I also don't buy into the thinking that markets are different now. And as you say, everyone's situation is different. There are few things in life where one size fits all.

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scdevon
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Re: Retired at 50. Staying 100% in stock Index Funds. Anyone else?

Post by scdevon » Sun Feb 04, 2018 4:00 pm

I guess I never looked upon a pension as a fixed income substitute for bonds because that's not really what it is. I view it as a sort of deferred paycheck that was part of an employment agreement between my employer and me when I was hired. Kind of like record royalties, etc.

We didn't have the ability to negotiate pay raises in the public sector like private sector employees. We were compensated in pay "bands" that only improved by legislative funding increases and a few other factors. A pension is a compensation tool that helps level the playing field and helps retain public employees. Comparing the fixed income of a pension to bonds is fair I guess, but I never thought of it like that.

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Re: Retired at 50. Staying 100% in stock Index Funds. Anyone else?

Post by Chip » Sun Feb 04, 2018 4:08 pm

scdevon wrote:
Sun Feb 04, 2018 2:44 pm
"The market is always right".
So if "the market is always right" and "fundamentals were solid", why did the market drop 50% between 2007 and 2009?

If you're so convinced of your position why haven't you taken on some debt and bought more equity? Historically the stock market always eventually returns more than the cost of debt, right?

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Re: Retired at 50. Staying 100% in stock Index Funds. Anyone else?

Post by GCD » Sun Feb 04, 2018 4:13 pm

investorpeter wrote:
Sun Feb 04, 2018 3:29 pm
You are not really 100% allocated to stock index funds if you include the current value of your pension in your net worth, which for all practical purposes should be considered on the fixed income (bond) side of your allocation.

You can get a decent estimate of the current value of your pension by looking up the cost to purchase an annuity that starts paying at a future point in time for your given age and location. For example, using the immediateannuities.com website, assuming you are living in Texas, married, 53 years old, and retiring in 7 years, $1,000,000 today will purchase a joint annuity that pays $62,000 per year beginning in 7 years. So in this scenario, if you had $500,000 in retirement accounts, 100% invested in index equity funds, your asset allocation is not really 100%/0% stock/fixed income, but rather it is 33%/66% stock/fixed income.
Investorpeter beat me to it. OP isn't as aggressive as he thinks he is.

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Re: Retired at 50. Staying 100% in stock Index Funds. Anyone else?

Post by ionball » Sun Feb 04, 2018 4:14 pm

FrugalInvestor wrote:
Sun Feb 04, 2018 3:34 pm
scdevon wrote:
Sun Feb 04, 2018 2:13 pm
Yes, but none of those doom and gloom scenarios ever materialize long term...
Until they do. Never say 'never.'
This.

Sometimes I wonder how much gloom my parents felt from the onset of the great depression through WWII. Don't know if that's classified as long term to others, but the thought certainly influences my outlook. If I had extra money with no particular purpose, I would seek purpose which would cause me to be protective and diversify across more than one asset class. That's me, and I'm sure OP has a completely different outlook.

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Re: Retired at 50. Staying 100% in stock Index Funds. Anyone else?

Post by indexonlyplease » Sun Feb 04, 2018 4:35 pm

I am in the same situation as you. I retired last year at 52 now 53. My high risk pension covers all family expenses plus more. Wife still working.

I was 100% stocks up to 3 years ago when I found this site and the 3 fund portfolio. When I retired I decided I had enough and read about if you have won the game why keep playing (something like that). So, I adjusted my AA and now sits around 45/55 stocks bonds. I don't plan on spending the investments anytime soon. But after reading and educating myself I think this is best for me. I also have a large emergency fund.

So, I thinks some say take the risk if your income covers the bills and some say why take the risk. I decided why take the risk that will not make any change in my lifestyle. But another large stock market drop will hurt when I can't touch the money that I may want to spend.

chevca
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Re: Retired at 50. Staying 100% in stock Index Funds. Anyone else?

Post by chevca » Sun Feb 04, 2018 5:03 pm

scdevon wrote:
Sun Feb 04, 2018 2:41 pm
TravelGeek wrote:
Sun Feb 04, 2018 2:18 pm
chevca wrote:
Sun Feb 04, 2018 1:26 pm
You ever going to address the parts about how would you invest or would've invested had you not had a secure career and pension now to cover your expenses?
Apparently not. The whole topic is pretty pointless if only part of the data is considered in the discussion.
I would not have been able to retire at 50 if it weren't for a pension at least not comfortably. If I were in the private sector, I could see myself working until around 60 and contributing aggressively to a 401k and my IRA dollar cost averaging into a 100% stock core position just like always. History shows that I would have been just fine doing that. I haven't even factored any SS payments into my outlook. My medical insurance is paid for now (you get a credit for each month worked), but nobody can guarantee that we won't have to kick in something as the years go by.
So, you had a secure government career, early retirement option, pension that covers your expense, health care is paid for, and SS still to come?? That's about as much of a cake walk as one can get. Congrats to you, no doubt! But, you really shouldn't brag about your ability to take risk and go 100/0. You are perfectly able to. Others are not or should not.

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Re: Retired at 50. Staying 100% in stock Index Funds. Anyone else?

Post by TN_Boy » Sun Feb 04, 2018 5:05 pm

investorpeter wrote:
Sun Feb 04, 2018 3:29 pm
You are not really 100% allocated to stock index funds if you include the current value of your pension in your net worth, which for all practical purposes should be considered on the fixed income (bond) side of your allocation.

You can get a decent estimate of the current value of your pension by looking up the cost to purchase an annuity that starts paying at a future point in time for your given age and location. For example, using the immediateannuities.com website, assuming you are living in Texas, married, 53 years old, and retiring in 7 years, $1,000,000 today will purchase a joint annuity that pays $62,000 per year beginning in 7 years. So in this scenario, if you had $500,000 in retirement accounts, 100% invested in index equity funds, your asset allocation is not really 100%/0% stock/fixed income, but rather it is 33%/66% stock/fixed income.
Well, sorta. The OP is saying ALL his needs are met by a pension. If his pension is a "bond" then you are saying he can live only off the "bond" portion of his portfolio. Which gets us back to pointing out that if you don't need the money in your investments, sure, invest however you want -- you'll be fine.

Personally I do not like the notion of viewing a pension or SS as a bond (on this board, I think we have a lot of folks on both sides of the notion), though I agree it can affect your portfolio asset allocation. But suppose you need five years worth of income from your pension tomorrow. You cannot call up the folks giving you a pension and ask them for that money (well, I guess you can, but they will not give it to you).

In contrast, I can sell enough bonds in my portfolio for five years of living expenses tomorrow if I wanted. You cannot leave a pension or SS to your children, or a charity either. A pension is bond-like because it produces a stream of income, but I do not think it a bond.

chevca
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Re: Retired at 50. Staying 100% in stock Index Funds. Anyone else?

Post by chevca » Sun Feb 04, 2018 5:17 pm

It's income, and safe and guaranteed income. You can't even get fired from the income stream. Government and pension troubles in some places aside. It's about as safe as it gets. There's probably an argument to be made that a pension is better than the bond portion of a portfolio. That's why those folks can take more risk and be fine that way. Especially if they have paid for health care.

I wonder if the OP would have retired so early, or if they would be so risky if they had a $1000/month health insurance payment?

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Re: Retired at 50. Staying 100% in stock Index Funds. Anyone else?

Post by jebmke » Sun Feb 04, 2018 5:23 pm

chevca wrote:
Sun Feb 04, 2018 5:17 pm
It's income, and safe and guaranteed income. You can't even get fired from the income stream. Government and pension troubles in some places aside. It's about as safe as it gets. There's probably an argument to be made that a pension is better than the bond portion of a portfolio. That's why those folks can take more risk and be fine that way. Especially if they have paid for health care.

I wonder if the OP would have retired so early, or if they would be so risky if they had a $1000/month health insurance payment?
The other side of the equation is expenses. The pension may cover expenses now but things have a way of changing. A fellow I know is now burning through about $10K a month on uncovered medical expenses and in-home care after a stroke (age 58). Things have a way of going great until they don't.
When you discover that you are riding a dead horse, the best strategy is to dismount.

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Re: Retired at 50. Staying 100% in stock Index Funds. Anyone else?

Post by hulburt1 » Sun Feb 04, 2018 5:28 pm

I looked today. 97% stocks 3% cash. I've been retired for 10 years In those 10 years with little pension up 1.5m live on 60000. SS will give us 45000 in 5 years from now. If I we lost 50% we would still have more then we had 10 years ago. I'm at 2.5m and in the last 2 years have made 600000.

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facepalm
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Re: Retired at 50. Staying 100% in stock Index Funds. Anyone else?

Post by facepalm » Sun Feb 04, 2018 5:41 pm

First of all, congratulations. You find yourself in an excellent position, even if/when the market tanks.
scdevon wrote:
Sun Feb 04, 2018 11:56 am
I was pointing out that historically a "Buy and Hold" 60/40 (or whatever) portfolio can't keep up with a 100% index fund portfolio if you have a time horizon longer than the typical market correction. Yes, "this time could be different", but it probably won't be. I'm not talking about an actively traded bond portfolio. I'm talking about buy and hold which is what most retirement savers do with bond funds.
I would think that the majority here do not own bonds for the returns, but because in small amounts, they reduce volatility without affecting earnings. You could add some small portion of bonds to your portfolio, without taking much of a hit, and cut your volatility.

Your pension is guaranteed. Remove that from the equation, then ask yourself: Would you be in equities 100% if you did not have the pension and were following the 4% rule?

Also: What about healthcare? How is that covered?

Some further thoughts: I'm in your position, except for the retired part. When I retire in a few years, I'll have a "guaranteed" pension that will cover all living expenses and then some. I'll also have $$$ in my 457(b) and 403(b), and will at some point collect SSI. And at that point, I'm going to look long and hard at taking a lump sum, rather than the pension. Why? because I am concerned about the state clawing back some of my pension. It has happened in at least two jurisdictions in CA in the past two years, when either a city or local agency went broke. When the agency stops paying into the system, the retirees take the hit.

I live in CA, so your state might be different. Both CALpers and CALstrs are woefully underfunded. Their solution: charge the shortfall to local governments/LEA. . By law, they cannot lower pensions (written into state law), but that can be changed. in ten years, when agencies start going broke, I will take it as a given that the law will be changed and my pension will be reduced--because when your agency stops paying, CA cuts your pension.

Anyway, it is probably a longshot that anything would happen to your pension.

Congratulations, again, on your good fortune!

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Re: Retired at 50. Staying 100% in stock Index Funds. Anyone else?

Post by Juice3 » Sun Feb 04, 2018 5:42 pm

scdevon wrote:
Sun Feb 04, 2018 11:56 am
chevca wrote:
Sun Feb 04, 2018 11:43 am
OP doesn't seem to realize that their situation doesn't apply to very many folks out there and it's just not simple and easy for most to say, no bonds while retiring at 50.
Given market history, I can't see a good case for anyone under 65 of 70 holding a significant % of bonds. History also shows that you leave a lot of money on the table long term with a 60/40 portfolio.
Perhaps a slight more sophisticated definition of AA would help clear this up. The second number is not necessary bonds but rather Fixed Income. Defined benefit plans fit the definition FI.

Thus the real question is what is the OPs pension NPV compared to his other retirement funds. That would give a more proper current AA for the OP.

I think this thread somewhat ironic when the OP is saying 100% equities but OP has a pension.

Our wiki is unfortunately not very clear on this point, perhaps making an DIY assumption and DB plans are not really in the picture for DIYers other than perhaps Annuities.

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Re: Retired at 50. Staying 100% in stock Index Funds. Anyone else?

Post by KSOC » Sun Feb 04, 2018 5:52 pm

Wife & I at 59 take nothing for granted. Both getting SS & pensions. Main investment 50/50. Trying to knock down last bit of debt (house). We just can't gamble a hit right now. Good for you if you're comfortable. Everything is relative, & nobody knows nothing.
Too soon old, too late smart.

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Re: Retired at 50. Staying 100% in stock Index Funds. Anyone else?

Post by runner540 » Sun Feb 04, 2018 6:19 pm

scdevon wrote:
Sun Feb 04, 2018 12:47 pm
I'm not even sure I would call 2008 a "crash" because the fundamentals in our economy were still pretty solid hence the quick rebound. More like overdone panic selling.

Perhaps with all your free time and no financial worries, you might consider reading more about the 2008 crash, recession and near-depression. Your statements indicate you think it was a psychological/behavioral problem, and that a quick recovery was a foregone conclusion. It was not. As others have pointed out, your pension and secure job insulated you from personal worries, but if certain decisions had been different, we very well could still be in an extended depression. The fundamentals were not sound: it was all built on credit, and employment dropped, consumption and capital investment also dropped. Every week we went to work expecting to get laid off. Credit froze up completely, and almost took down the entire financial system and banking that underpins all economic activity. I don't mean a freeze like the Equifax freeze, but rather even companies like GE could not borrow money at any rate until the Fed stepped in.

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Re: Retired at 50. Staying 100% in stock Index Funds. Anyone else?

Post by dbr » Sun Feb 04, 2018 6:32 pm

scdevon wrote:
Sun Feb 04, 2018 12:54 pm
knpstr wrote:
Sun Feb 04, 2018 12:47 pm
I'm 100% stocks with paper investments (only 33 years old). Hope to always have that allocation.
That's what I'm talking about.

The "experts" say that you should be 70/30 right now. Can you honestly see yourself jumping 30% into bonds right now just because "that's what you're supposed to do"? At age 33? Makes no sense to me. Seems like bad advice honestly.
The "experts" say no such thing.

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Re: Retired at 50. Staying 100% in stock Index Funds. Anyone else?

Post by dbr » Sun Feb 04, 2018 6:35 pm

Juice3 wrote:
Sun Feb 04, 2018 5:42 pm
scdevon wrote:
Sun Feb 04, 2018 11:56 am
chevca wrote:
Sun Feb 04, 2018 11:43 am
OP doesn't seem to realize that their situation doesn't apply to very many folks out there and it's just not simple and easy for most to say, no bonds while retiring at 50.
Given market history, I can't see a good case for anyone under 65 of 70 holding a significant % of bonds. History also shows that you leave a lot of money on the table long term with a 60/40 portfolio.
Perhaps a slight more sophisticated definition of AA would help clear this up. The second number is not necessary bonds but rather Fixed Income. Defined benefit plans fit the definition FI.

Thus the real question is what is the OPs pension NPV compared to his other retirement funds. That would give a more proper current AA for the OP.

I think this thread somewhat ironic when the OP is saying 100% equities but OP has a pension.

Our wiki is unfortunately not very clear on this point, perhaps making an DIY assumption and DB plans are not really in the picture for DIYers other than perhaps Annuities.
A pension or annuity is not a stock and bond portfolio asset, but the presence of such an income stream would certainly affect what stock and bond portfolio asset allocation a person might have. That obvious fact is one reason so many of the responses on this thread are verging on the snarky.

Juice3
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Re: Retired at 50. Staying 100% in stock Index Funds. Anyone else?

Post by Juice3 » Sun Feb 04, 2018 6:53 pm

dbr wrote:
Sun Feb 04, 2018 6:35 pm
A pension or annuity is not a stock and bond portfolio asset, but the presence of such an income stream would certainly affect what stock and bond portfolio asset allocation a person might have. That obvious fact is one reason so many of the responses on this thread are verging on the snarky.
My point was that pensions and annuities are Fixed Income investments. It is often more precise to look at an asset allocation as Equity/Fixed Income.

Sources outside of our wiki often talk asset allocation in terms of Equities, fixed income and cash for example:
https://www.investopedia.com/terms/a/as ... cation.asp

This board often states AA as stock / bond ... readers should note this is a simplification.

OP likely has a very high Fixed Income percentage as he stated his pensions covers his expected expenses.

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Re: Retired at 50. Staying 100% in stock Index Funds. Anyone else?

Post by SeeMoe » Sun Feb 04, 2018 7:14 pm

Not me! To risky at 100% stocks and I/ we retired at the same age with an AA of 60/40 that we kept until RMD time. Now it’s 40/60. Both of us had full pensions and benefits from the git go too! Still invest excess monies like the RMD year end distributions, keeping the AA in mind.

SeeMoe.. :mrgreen:
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Re: Retired at 50. Staying 100% in stock Index Funds. Anyone else?

Post by tibbitts » Sun Feb 04, 2018 7:23 pm

Hyperborea wrote:
Sun Feb 04, 2018 1:55 pm
Watty wrote:
Sun Feb 04, 2018 1:36 pm
There are also permutations of life events like divorces and remarriages that I have seen change peoples plans.
Pretty much a non sequitur. Whether the OP had 100% stock or 50/50 his spouse in any hypothetical divorce would get the same percentage of the assets.
You're missing the point that the 50% the OP might lose wouldn't come at a time the OP could choose, so that might amount to selling low.

And if 50% of the pension goes away too... maybe now it's not such a comfortable situation.

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Re: Retired at 50. Staying 100% in stock Index Funds. Anyone else?

Post by tibbitts » Sun Feb 04, 2018 7:26 pm

Hyperborea wrote:
Sun Feb 04, 2018 1:53 pm
TN_Boy wrote:
Sun Feb 04, 2018 1:43 pm
Now, given the relatively conservative draw (3%) and the fact there is some SS in the future, fearless will *likely* still be okay. But looking at this example, can you see how somebody younger than 65 *might* want a significant % of bonds??
3% withdrawal rate is incredibly conservative. For 40 year or less retirements and allocations from 25% to 100% equity the survival is about 100% historically. If your portfolio is big enough or your living costs are low enough then you've more than won the game. Increase the WR or the duration from there and your equity percentage needs to rise or your survivability falls.
You're correct in that the OP has stated that he can make do fine even with losing 100% of his portfolio, but realistically I think the consensus guesstimate has moved to a 3% or below SWR for a 40 year retirement, with the allocations you mention.

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