Is it time for us to get out?

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rbslos36
Posts: 35
Joined: Sat Jan 05, 2013 10:56 pm

Is it time for us to get out?

Post by rbslos36 »

I need some advice from this trusted body. Due to an inheritance we will have 25 times our needed expenses if we were to retire this year at age 66. I expect to retire in the next 2-4 years and claim social security at age 70. My employment in the non-profit sector is unclear given the current COVID-19 crises.

I have been thinking a lot of William Bernstein’s statement: “Stop when you when the game.” We have won the game. We have no debt and have an Emergency fund of 1 year’s salary. So this is the plan I am considering:

Drop from 40/60 portfolio to 20/80 portfolio. The 20% would consist of the index funds (Total US/Total International) in our Roth IRAs which would be the last funds we would use down the road. The rest of the portfolio would be in Total Bond and Short Term Treasury bonds. The portfolio would likely beat inflation and hopefully increase slightly over time.

What are your thoughts? Am I missing anything in the equation? What would you change in this plan?
RB
Call_Me_Op
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Re: Is it time for us to get out?

Post by Call_Me_Op »

When you say you have 25X your needed expenses, does this account for Social Security? In other words, do you have 25X total living expenses or 25X residual living expenses (what is not covered by SS and any pension).

If you have "only" 25X residual expenses, you can use an online calculator with Monte Carlo capability (like Vanguard's Retirement Nest Egg Calculator) to determine the probability of portfolio survival with a 20/80 allocation.
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein
Topic Author
rbslos36
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Re: Is it time for us to get out?

Post by rbslos36 »

Yes, 25 times the amount we would need with social security and pension removed from the total.
Call_Me_Op
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Re: Is it time for us to get out?

Post by Call_Me_Op »

rbslos36 wrote: Sun Apr 26, 2020 7:11 am Yes, 25 times the amount we would need with social security and pension removed from the total.
The Vanguard Calculator gives you about an 86% probability of portfolio surviving 30 years. Going to 30/70 raises that to 89% and going to 40/60 raises it to 90%.

I would say you are OK with the caveat that you should not exceed 4% withdrawal rate. That means if portfolio decreases in value you should spend less.

For the record, you are not strictly following Bernstein, who recommended a "liability matching portfolio" based upon laddered TIPS. Hard to do that today.
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein
goblue100
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Re: Is it time for us to get out?

Post by goblue100 »

rbslos36 wrote: Sun Apr 26, 2020 6:34 am I need some advice from this trusted body. Due to an inheritance we will have 25 times our needed expenses if we were to retire this year at age 66. I expect to retire in the next 2-4 years and claim social security at age 70. My employment in the non-profit sector is unclear given the current COVID-19 crises.

I have been thinking a lot of William Bernstein’s statement: “Stop when you when the game.” We have won the game. We have no debt and have an Emergency fund of 1 year’s salary. So this is the plan I am considering:

Drop from 40/60 portfolio to 20/80 portfolio. The 20% would consist of the index funds (Total US/Total International) in our Roth IRAs which would be the last funds we would use down the road. The rest of the portfolio would be in Total Bond and Short Term Treasury bonds. The portfolio would likely beat inflation and hopefully increase slightly over time.

What are your thoughts? Am I missing anything in the equation? What would you change in this plan?
RB
I'm far from on expert on Dr. Bernstein, but I believe when he says stop playing the game, he really means stop playing the game, and devise a liability matching portfolio(LMP) using TIPS. Your plan is similar but would not be hedged against inflation risk. My own advice is your 40/60 portfolio has taken enough "air out of the ball" already and would be a better hedge against future inflation. But it is just one mans opinion.
Financial planners are savers. They want us to be 95 percent confident we can finance a 30-year retirement even though there is an 82 percent probability of being dead by then. - Scott Burns
capjak
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Re: Is it time for us to get out?

Post by capjak »

So 20 years expenses in Bonds (.8 x 25=20) and 5 Years in Stock, not counting SS and you have a pension.

Not a lot of information but if you are sure about your expenses and/or you have flexibility than with the exception of run away inflation you seem to be good (maybe TIPS at some point in your tax deferred account?). Look at FIREcalc also use the tabs to input pension/SS and the investigate tab as well as portfolio of 20% stock to see estimates of success.

https://www.firecalc.com
Dandy
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Re: Is it time for us to get out?

Post by Dandy »

I like Dr. Bernstein's advice in general. When I was in my later 60's I wondered what my allocation should be -- was 60/40 too aggressive? was 40/60 too conservative? :oops: Facing decades (I hoped) of retirement and no human capital. One Bernstein idea that I roughly followed was putting 20 years worth of estimated draw down dollars in "safe" products. For me that was FDIC products, money markets and short term bond funds. It made some sense to me so I put enough to fund our retirement draw down needs to age 90.

That gave me an overall allocation of 45/55. I can't tell you how this bottom up approach made sense and gave me peace of mind. I also decided to take withdrawals from both "safe" and "risk" assets except when equities have a bad year. Thus my "safe" assets are more like retirement funding insurance rather than an ATM. It fit my desire for more focus on asset preservation than growth. Yet the 45% equity allocation turned out to provide a nice overall portfolio growth.
retiredjg
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Re: Is it time for us to get out?

Post by retiredjg »

rbslos36 wrote: Sun Apr 26, 2020 7:11 am Yes, 25 times the amount we would need with social security and pension removed from the total.
What does this mean? Maybe you could give an example.

My feeling is that a 4% withdrawal rate (if that is what you are considering) requires more than a 20% stock allocation.
260chrisb
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Re: Is it time for us to get out?

Post by 260chrisb »

If it were me I would be done working last Friday!
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tennisplyr
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Re: Is it time for us to get out?

Post by tennisplyr »

Finances notwithstanding, don't forget the challenge of having all that time on your hands. What are your plans/goals?
Those who move forward with a happy spirit will find that things always work out.
MotoTrojan
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Re: Is it time for us to get out?

Post by MotoTrojan »

I wouldn’t touch >60% bonds myself.
hudson
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Re: Is it time for us to get out?

Post by hudson »

rbslos36 wrote: Sun Apr 26, 2020 6:34 am I need some advice from this trusted body. Due to an inheritance we will have 25 times our needed expenses if we were to retire this year at age 66. I expect to retire in the next 2-4 years and claim social security at age 70. My employment in the non-profit sector is unclear given the current COVID-19 crises.

I have been thinking a lot of William Bernstein’s statement: “Stop when you when the game.” We have won the game. We have no debt and have an Emergency fund of 1 year’s salary. So this is the plan I am considering:

Drop from 40/60 portfolio to 20/80 portfolio. The 20% would consist of the index funds (Total US/Total International) in our Roth IRAs which would be the last funds we would use down the road. The rest of the portfolio would be in Total Bond and Short Term Treasury bonds. The portfolio would likely beat inflation and hopefully increase slightly over time.

What are your thoughts? Am I missing anything in the equation? What would you change in this plan?
RB
No debt...big emergency fund...social security and pension...check, check, check, check!
I'm ok with 20/80. I am 0/100.
Have you read Bernstein's books? Ages of the Investor and Pillars....? Did you read this recent discussion? viewtopic.php?p=5159748#p5155705
I liked Bernstein's replies in the discussion better than the interview.

Also consider reading Larry Swedroe's Bond book if you haven't already.

Total Bond is kind of OK. I don't like the investment grade holdings. Take a look at Vanguard's GNMA fund...although it has it's risks....as does everything.

Treasuries fit Bernstein's plan.
CDs to me are as good as treasuries.

What can tie inflation? Only iBonds and TIPS. Stocks and short term treasuries....maybe yes, maybe not.
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Watty
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Re: Is it time for us to get out?

Post by Watty »

rbslos36 wrote: Sun Apr 26, 2020 6:34 am Due to an inheritance we will have 25 times our needed expenses if we were to retire this year at age 66
.....
Am I missing anything in the equation?
.....
Yes, 25 times the amount we would need with social security and pension removed from the total.
Be sure you are including taxes in your calculations. It is not unusual for people to post and say "needed expenses" when they are referring to how much they spend each year after taxes.

You will also need to budget for occasional large expenses like replacement cars, new roofs, new water mains etc.

You may also have some home equity if you are not a renter and while you may not plan on using the home equity it is still a good safety net for things like long term care. If you have mortgage or other debt then paying that off might make sense.

Your expenses will also be different at different ages and I have seen relatives that got to be in their mid 70s who naturally slowed down even though they were in relatively good health. They had a paid off house so their expenses were mainly just things like food and utilities so there were often months when they did not spend all of their Social Security check. Since you are 66 you may not have a lot of high energy years until you slow down too.

When I was looking at my retirement budget there were also different levels of retirement spending that I could adapt to if I needed to like;

1) Bare bones but I don't need help from my kid.
2) Modest but frugal.
3) Comfortable with some extras but I still need to be careful.
4) My planned retirement budget.
5) Better than I expected.
6) Do I really want a yacht or not?

Anyway since you are 66 and in the middle of a pandemic I would try to go on and retire unless there is something about your job that you love and would do for free until you are 90 if you could.

Retiring might also allow you to minimize your possible exposure to COVID-19.
Last edited by Watty on Sun Apr 26, 2020 8:31 am, edited 1 time in total.
Paradise
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Re: Is it time for us to get out?

Post by Paradise »

A key component of retirement allocation is having enough gains to sustain 30+ years. Sometimes a good defense is a strong offense. If bonds return about 5% annually, and you are withdrawing 4%, you would theoretically make it, but if there is a bond downturn it could head south fast. You also won’t have much extra to leave behind if that matters to you.

I personally wouldn’t run anything more than 50% bonds, ever. I think 40% is the actual max that someone should run.

But run the numbers using https://www.firecalc.com/ and see which allocation gives you the best chance to make it.

Here are a few sample portfolios backtested since 1987 https://www.portfoliovisualizer.com/bac ... tion2_3=80

Compares your 20/80 Versus popular retiree 50/50 and 60/40. As you can see, 20/80 performs half as well as 60/40 based on historical data.
aristotelian
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Re: Is it time for us to get out?

Post by aristotelian »

Keep in mind market risk is not the only risk. The more you have in bonds and cash, the more you are subject to inflation risk. Some people think we are in for inflation due to printing money for stimulus. Of course, some people thing we are in for a secondary market crash when the virus explodes in the reopening. That said, if you really continue working to 70 I think your timeframe is short enough you can probably do whatever you want.
Blue456
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Re: Is it time for us to get out?

Post by Blue456 »

rbslos36 wrote: Sun Apr 26, 2020 6:34 am I need some advice from this trusted body. Due to an inheritance we will have 25 times our needed expenses if we were to retire this year at age 66. I expect to retire in the next 2-4 years and claim social security at age 70. My employment in the non-profit sector is unclear given the current COVID-19 crises.

I have been thinking a lot of William Bernstein’s statement: “Stop when you when the game.” We have won the game. We have no debt and have an Emergency fund of 1 year’s salary. So this is the plan I am considering:

Drop from 40/60 portfolio to 20/80 portfolio. The 20% would consist of the index funds (Total US/Total International) in our Roth IRAs which would be the last funds we would use down the road. The rest of the portfolio would be in Total Bond and Short Term Treasury bonds. The portfolio would likely beat inflation and hopefully increase slightly over time.

What are your thoughts? Am I missing anything in the equation? What would you change in this plan?
RB
Why not just take appropriate risk on equity side only?
reln
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Re: Is it time for us to get out?

Post by reln »

rbslos36 wrote: Sun Apr 26, 2020 6:34 am I need some advice from this trusted body. Due to an inheritance we will have 25 times our needed expenses if we were to retire this year at age 66. I expect to retire in the next 2-4 years and claim social security at age 70. My employment in the non-profit sector is unclear given the current COVID-19 crises.

I have been thinking a lot of William Bernstein’s statement: “Stop when you when the game.” We have won the game. We have no debt and have an Emergency fund of 1 year’s salary. So this is the plan I am considering:

Drop from 40/60 portfolio to 20/80 portfolio. The 20% would consist of the index funds (Total US/Total International) in our Roth IRAs which would be the last funds we would use down the road. The rest of the portfolio would be in Total Bond and Short Term Treasury bonds. The portfolio would likely beat inflation and hopefully increase slightly over time.

What are your thoughts? Am I missing anything in the equation? What would you change in this plan?
RB
Consider using vanguard's target retirement date fund that is already in final stage (30/70 I think). Keeping things simple is pretty valuable.
petulant
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Re: Is it time for us to get out?

Post by petulant »

Retire, stay in 40/60, but take withdrawals from stock side until you begin SS or reach target allocation, whichever comes sooner. Delay SS to 70. I recommend 30/70 as minimum stock allocation. Good luck!
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iceport
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Re: Is it time for us to get out?

Post by iceport »

rbslos36 wrote: Sun Apr 26, 2020 6:34 am What are your thoughts? Am I missing anything in the equation? What would you change in this plan?
RB
It appears that you are measuring the ability of your portfolio to sustain your retirement needs based on the "25 x expenses" rule of thumb, aka "the 4% rule." However, you also propose dropping to an extremely low equity allocation.

If that's true, then what you seem to be missing is that the analysis the 4% rule is based on shows clearly that a higher equity allocation is far safer.

A 4% withdrawal rate, adjusted for inflation, can be supported with a wide range of equity allocations, but not really with equity allocations very far below 50% or 40%.

See the inflation-adjusted table from the Trinity Study here: https://www.bogleheads.org/wiki/File:TrinityTable3.jpg

If your time horizon is 25 years or less, it will probably work out just fine. But for a 30 year horizon, a 20% equity allocation looks too risky.
"Discipline matters more than allocation.” ─William Bernstein
BigJohn
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Re: Is it time for us to get out?

Post by BigJohn »

I agree with comments above that at very high bond allocations, inflation risk becomes a bigger worry. As a result, I’d consider putting maybe half of your bond allocation in TIPS. For background, I used Bernstien’s approach to set my retirement AA at 35/65 about 5 years ago. Initially didn’t use TIPS but have reconsidered and am moving toward to 50% of bonds in TIPs target.
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cashboy
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Re: Is it time for us to get out?

Post by cashboy »

congratulations! if it is not time, you are certainly very close.

ensure that what you 'think' are your expenses (that you have 25x of) are 'actually' all inclusive of what you spend now and will (or might ) spend later (unplanned expenses). also consider your 'expected' lifespan (family history, etc.), if you have not done so.

if it was me, i would go (no lower than) 25/75 or 30/70. maybe move from 40/60 to one of those in stages. just opinion. :happy

here is a good article from a well known expert (who also posts here on BH) on what 30/70 gets you.

https://seekingalpha.com/article/303663 ... r-retirees



best of luck to you!

:sharebeer
Three-Fund Portfolio: FSPSX - FXAIX - FXNAX (with slight tilt of CDs - CASH - Canned Beans - Rice - Bottled Water)
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