Recent Retiree using rising equity glide path - only increase equity during crashes?

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rockAction
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Recent Retiree using rising equity glide path - only increase equity during crashes?

Post by rockAction »

I retired in April 2019, and am using the rising equity glide path to reduce SOR risk. My plan is to go from 25% to 55% stocks over 20 years (1.5% per year).

In terms of when and by how much to increase my equity allocation, I'm wondering if it would be more favorable to increase my equity portion in larger chunks (e.g. 5-8% increase vs 1.5%) ONLY when there are major crashes (like this year). Basically, I'd always just be waiting for the fire sales (drops of 20-30% or more?), and then when it comes, loading up as the market drops.

Just toying with the idea, but would love to hear some thoughts on that.
tibbitts
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Re: Recent Retiree using rising equity glide path - only increase equity during crashes?

Post by tibbitts »

rockAction wrote: Tue Apr 28, 2020 9:01 am I retired in April 2019, and am using the rising equity glide path to reduce SOR risk. My plan is to go from 25% to 55% stocks over 20 years (1.5% per year).

In terms of when and by how much to increase my equity allocation, I'm wondering if it would be more favorable to increase my equity portion in larger chunks (e.g. 5-8% increase vs 1.5%) ONLY when there are major crashes (like this year). Basically, I'd always just be waiting for the fire sales (drops of 20-30% or more?), and then when it comes, loading up as the market drops.

Just toying with the idea, but would love to hear some thoughts on that.
I think you have to define "crash." You have mentioned "crashes" and then separately "fire sales." Crashes are by no means normal or regular market behavior- rrelatively recent market behavior aside, it would be possible to go the rest of your life without one. As for 20+% drops, these are not necsessarily "fire sales" - remember that you might have rejected buying at these "fire sale" prices while equities where on the rise, passing through those same ranges.
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rockAction
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Re: Recent Retiree using rising equity glide path - only increase equity during crashes?

Post by rockAction »

Good point. For simplicity, let's just say it's triggered every time we enter a bear market (20% drop from the high).

Just throwing this out as a starting point, but let's say it looked something like the following:

20% market drop - increase equity % by 4%
30% drop - increase equity % by 6% (meaning 4% at the 20% drop and another 2% at the 30% drop)
40% drop - increase equity % by 8%
50% drop or more - increase equity % by 10%

It seems like doing something like that gives you the value of rebalancing during a crash (buying low), but basically on steroids because I'm increasing my equity allocation at lower prices, not just coming back to the fixed allocation value.

I would be curious how something like that would play out over any 30-40 yr timeframe (assuming a retirement withdrawal of ~4%) over the last 100 yrs compared to an annual equity increase of 1.5% for someone using the rising equity glidepath.
BigJohn
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Re: Recent Retiree using rising equity glide path - only increase equity during crashes?

Post by BigJohn »

I started retirement 5 years ago at 35/65 to mitigate SORR. I’d make two comments for you to consider...

I think 1.5% per year is too small a change to be worth fiddling with. It’s far lower than my rebalancing tolerance bands which are set at 5%. My plan is to hold here for 10 years and then reevaluate whether I want to hold or increase.

Are you OK with getting to 55% sooner, later or never? By turning this change over to the whims of market drops you are giving up control of the timing. For example, market drops 50% next week, you go to 35%, bull market ensues and has you at 55% in far less than 20 years.
terran
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Re: Recent Retiree using rising equity glide path - only increase equity during crashes?

Post by terran »

Barring new studies in the meantime, I plan to start with a higher equity allocation (60/40) and increase equities at a fast rate (10-11 years). I'm basing this on https://earlyretirementnow.com/2017/09/ ... lidepaths/
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amp
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Re: Recent Retiree using rising equity glide path - only increase equity during crashes?

Post by amp »

This is heavily dependent on market conditions. If you started with a 25/75 stock/bond ratio in 2009, you'd have hit 50/50 by 2020 without ever doing any rebalancing: https://www.portfoliovisualizer.com/bac ... tion2_1=75

Yet, if you'd started just one year earlier in 2008, you'd only be at 37/68 in 2020: https://www.portfoliovisualizer.com/bac ... tion2_1=75

(see the 'Allocation Drift' tab in the two links)

I'm also using a rising equity glide path, and I think all I can really do is play it by ear and see how my allocation matches my planned glide path over the coming years.
Last edited by amp on Tue Apr 28, 2020 2:03 pm, edited 1 time in total.
randomguy
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Re: Recent Retiree using rising equity glide path - only increase equity during crashes?

Post by randomguy »

BigJohn wrote: Tue Apr 28, 2020 1:34 pm I started retirement 5 years ago at 35/65 to mitigate SORR. I’d make two comments for you to consider...

I think 1.5% per year is too small a change to be worth fiddling with. It’s far lower than my rebalancing tolerance bands which are set at 5%. My plan is to hold here for 10 years and then reevaluate whether I want to hold or increase.

Are you OK with getting to 55% sooner, later or never? By turning this change over to the whims of market drops you are giving up control of the timing. For example, market drops 50% next week, you go to 35%, bull market ensues and has you at 55% in far less than 20 years.
I would also worry that you end up upping the stock allocation at a poor time. Was upping the stock allocation in 2018 so that you had an extra 4% exposure to the 30% 2020 a good move? What about upping it in 2000,2001, and 2002 and then getting hit by 2007-9? 5-10% changes in AA are pretty meaningless (i.e. 50/50 and 60/40 isn't likely to make much of a difference) so I don't think it is going to help or hurt a ton. Start being aggressive (say you go from 50/50 to 70/30 after a 25% drop) and I would start worrying that you are rebalancing into a falling market.

The rising equity glide path does very little to mitigate SOR risk in the papers that Pfau published. You can look at the charts and picking out the perfect path tended to only be a couple tenths higher than just holding 50/50. I doubt trying to market time it will radically change your results.
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rockAction
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Re: Recent Retiree using rising equity glide path - only increase equity during crashes?

Post by rockAction »

BigJohn wrote: Tue Apr 28, 2020 1:34 pm I started retirement 5 years ago at 35/65 to mitigate SORR. I’d make two comments for you to consider...

I think 1.5% per year is too small a change to be worth fiddling with. It’s far lower than my rebalancing tolerance bands which are set at 5%. My plan is to hold here for 10 years and then reevaluate whether I want to hold or increase.

Are you OK with getting to 55% sooner, later or never? By turning this change over to the whims of market drops you are giving up control of the timing. For example, market drops 50% next week, you go to 35%, bull market ensues and has you at 55% in far less than 20 years.
Both good points. I'm not dead set on the timing of getting to 55% in 20 yrs. From what I can tell from the studies seen, there's very little difference in outcomes whether one takes 10, 15, 20, or 30 yrs to get there. So, the timing is less important to me than being able to take advantage of buying opportunities as they arise. Make sense?
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rockAction
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Re: Recent Retiree using rising equity glide path - only increase equity during crashes?

Post by rockAction »

terran wrote: Tue Apr 28, 2020 1:38 pm Barring new studies in the meantime, I plan to start with a higher equity allocation (60/40) and increase equities at a fast rate (10-11 years). I'm basing this on https://earlyretirementnow.com/2017/09/ ... lidepaths/
Thanks for this. I saw this as well, but didn't have the balls to start out at 60% at the height of a 12 yr market bull run (which is when I entered). Thus, my 25% starting point. I tend to be more conservative/risk-averse in general as well. I may re-evaluate things later, though, as this article makes some really good points.
Last edited by rockAction on Tue Apr 28, 2020 3:13 pm, edited 1 time in total.
reln
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Re: Recent Retiree using rising equity glide path - only increase equity during crashes?

Post by reln »

rockAction wrote: Tue Apr 28, 2020 9:01 am I retired in April 2019, and am using the rising equity glide path to reduce SOR risk. My plan is to go from 25% to 55% stocks over 20 years (1.5% per year).

In terms of when and by how much to increase my equity allocation, I'm wondering if it would be more favorable to increase my equity portion in larger chunks (e.g. 5-8% increase vs 1.5%) ONLY when there are major crashes (like this year). Basically, I'd always just be waiting for the fire sales (drops of 20-30% or more?), and then when it comes, loading up as the market drops.

Just toying with the idea, but would love to hear some thoughts on that.
Don't market time.

As you withdraw from bonds and equity returns beat bond returns, you're equity % will glide up.
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rockAction
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Re: Recent Retiree using rising equity glide path - only increase equity during crashes?

Post by rockAction »

amp wrote: Tue Apr 28, 2020 2:02 pm This is heavily dependent on market conditions. If you started with a 25/75 stock/bond ratio in 2009, you'd have hit 50/50 by 2020 without ever doing any rebalancing: https://www.portfoliovisualizer.com/bac ... tion2_1=75

Yet, if you'd started just one year earlier in 2008, you'd only be at 37/68 in 2020: https://www.portfoliovisualizer.com/bac ... tion2_1=75

(see the 'Allocation Drift' tab in the two links)

I'm also using a rising equity glide path, and I think all I can really do is play it by ear and see how my allocation matches my planned glide path over the coming years.
Wow, I had never noticed that "Allocation Drift" tab in Port Visualizer! That's awesome, and I'll be able to use that if I want to check out certain scenarios. Thank you!

Also, notice what I said below in response to Big John in regard to his question about the timing of getting to 55%:

"I'm not dead set on the timing of getting to 55% in 20 yrs. From what I can tell from the studies seen, there's very little difference in outcomes whether one takes 10, 15, 20, or 30 yrs to get there. So, the timing is less important to me than being able to take advantage of buying opportunities as they arise."

My point of that is, we will likely have enough bear market over the next 30 years to get me to 55% (or somewhere near it) using what I'm proposing. And if not, I certainly won't be complaining! Win-win?

Like I said, I'm just beating this around at this point, and I haven't worked through the details (I still have my initial plan). However, the responses are helping me and providing good insight. Much appreciated.
Last edited by rockAction on Tue Apr 28, 2020 2:47 pm, edited 1 time in total.
prairieman
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Re: Recent Retiree using rising equity glide path - only increase equity during crashes?

Post by prairieman »

rockAction wrote: Tue Apr 28, 2020 9:01 am I retired in April 2019, and am using the rising equity glide path to reduce SOR risk. My plan is to go from 25% to 55% stocks over 20 years (1.5% per year).

In terms of when and by how much to increase my equity allocation, I'm wondering if it would be more favorable to increase my equity portion in larger chunks (e.g. 5-8% increase vs 1.5%) ONLY when there are major crashes (like this year). Basically, I'd always just be waiting for the fire sales (drops of 20-30% or more?), and then when it comes, loading up as the market drops.

Just toying with the idea, but would love to hear some thoughts on that.
I am doing exactly this because I see no real downside. In essence, as I get older and SS and Medicare kick in, I can afford to be less conservative over time.
Another aspect, though, is that RMDs will actually require the selling of bonds (which should be held mostly in IRA accounts). I don’t like the idea of selling stock and buying bonds in a taxable account just to keep AA fixed.
“As long as the roots are not severed, all is well.” Chauncey Gardner
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rockAction
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Re: Recent Retiree using rising equity glide path - only increase equity during crashes?

Post by rockAction »

prairieman wrote: Tue Apr 28, 2020 2:46 pm
rockAction wrote: Tue Apr 28, 2020 9:01 am I retired in April 2019, and am using the rising equity glide path to reduce SOR risk. My plan is to go from 25% to 55% stocks over 20 years (1.5% per year).

In terms of when and by how much to increase my equity allocation, I'm wondering if it would be more favorable to increase my equity portion in larger chunks (e.g. 5-8% increase vs 1.5%) ONLY when there are major crashes (like this year). Basically, I'd always just be waiting for the fire sales (drops of 20-30% or more?), and then when it comes, loading up as the market drops.

Just toying with the idea, but would love to hear some thoughts on that.
I am doing exactly this because I see no real downside. In essence, as I get older and SS and Medicare kick in, I can afford to be less conservative over time.
Another aspect, though, is that RMDs will actually require the selling of bonds (which should be held mostly in IRA accounts). I don’t like the idea of selling stock and buying bonds in a taxable account just to keep AA fixed.
Are you doing both the rising equity glidepath AND upping your equity % more aggressively in bear markets, or are you just re-balancing to a higher equity % (1.5% or so) every year?
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rockAction
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Re: Recent Retiree using rising equity glide path - only increase equity during crashes?

Post by rockAction »

reln wrote: Tue Apr 28, 2020 2:31 pm
Don't market time.

As you withdraw from bonds and equity returns beat bond returns, you're equity % will glide up.
I do get that and fully appreciate what you are saying. And that's how I pretty much anticipate my initial plan to go. However, I guess I am just trying to determine if there's a significant upside in taking advantage of buying opportunities in bear markets vs just increasing equity % steady-eddie annually.
BigJohn
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Re: Recent Retiree using rising equity glide path - only increase equity during crashes?

Post by BigJohn »

rockAction wrote: Tue Apr 28, 2020 2:24 pm
BigJohn wrote: Tue Apr 28, 2020 1:34 pm I started retirement 5 years ago at 35/65 to mitigate SORR. I’d make two comments for you to consider...

I think 1.5% per year is too small a change to be worth fiddling with. It’s far lower than my rebalancing tolerance bands which are set at 5%. My plan is to hold here for 10 years and then reevaluate whether I want to hold or increase.

Are you OK with getting to 55% sooner, later or never? By turning this change over to the whims of market drops you are giving up control of the timing. For example, market drops 50% next week, you go to 35%, bull market ensues and has you at 55% in far less than 20 years.
Both good points. I'm not dead set on the timing of getting to 55% in 20 yrs. From what I can tell from the studies seen, there's very little difference in outcomes whether one takes 10, 15, 20, or 30 yrs to get there. So, the timing is less important to me than being able to take advantage of buying opportunities as they arise. Make sense?
If this is the case then your suggested approach become a “buy on the dips” strategy which is quite a departure from your original worry and plan. I’m not saying either is right or wrong, just recognized that this isn’t a minor tweak of your original plan.
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KEotSK66
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Re: Recent Retiree using rising equity glide path - only increase equity during crashes?

Post by KEotSK66 »

20 years is a lot of opportunity cost

it also seems like too clever a plan to defend against sorr, just start off with a fund like wellesley income (35/65) and dca into it over a period much shorter than 20 yrs

wellesley lost about 20% recently and is close to recovered, your sorr worries will be minimal unless you have a high draw %

if you want to be more aggressive then use wellington
"i just got fluctuated out of $1,500", jerry
printer86
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Re: Recent Retiree using rising equity glide path - only increase equity during crashes?

Post by printer86 »

KEotSK66 wrote: Tue Apr 28, 2020 7:50 pm 20 years is a lot of opportunity cost

it also seems like too clever a plan to defend against sorr, just start off with a fund like wellesley income (35/65) and dca into it over a period much shorter than 20 yrs

wellesley lost about 20% recently and is close to recovered, your sorr worries will be minimal unless you have a high draw %

if you want to be more aggressive then use wellington
I'm about to start early retirement later this year at 56yo. Our investments are equally split between taxable and tax deferred.

Our tax deferred accounts are invested in Wellington (65/35), and I hope they will be there for life. We don't expect to touch our tax deferred accounts until sometime closer to the time we claim my small pension and our SS.

Our taxable accounts are currently 65% cash / 35% stock. Our taxable accounts are positioned to fund our early retirement years. Our early retirement spending plan will automatically result in a rising glide path as it transitions over to our tax deferred accounts.

While I'd like more of the taxable funds to be invested in stocks, I'm having trouble allocating any of it to stocks right now due to our short to medium term spending needs and my concerns about the economic impact a second wave of this virus might cause.

To the OP, do you really think you will have the willpower to buy the dips in early retirement? What I've found out is that I can't get myself to do it.
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rockAction
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Re: Recent Retiree using rising equity glide path - only increase equity during crashes?

Post by rockAction »

BigJohn wrote: Tue Apr 28, 2020 6:26 pm
rockAction wrote: Tue Apr 28, 2020 2:24 pm
BigJohn wrote: Tue Apr 28, 2020 1:34 pm I started retirement 5 years ago at 35/65 to mitigate SORR. I’d make two comments for you to consider...

I think 1.5% per year is too small a change to be worth fiddling with. It’s far lower than my rebalancing tolerance bands which are set at 5%. My plan is to hold here for 10 years and then reevaluate whether I want to hold or increase.

Are you OK with getting to 55% sooner, later or never? By turning this change over to the whims of market drops you are giving up control of the timing. For example, market drops 50% next week, you go to 35%, bull market ensues and has you at 55% in far less than 20 years.
Both good points. I'm not dead set on the timing of getting to 55% in 20 yrs. From what I can tell from the studies seen, there's very little difference in outcomes whether one takes 10, 15, 20, or 30 yrs to get there. So, the timing is less important to me than being able to take advantage of buying opportunities as they arise. Make sense?
If this is the case then your suggested approach become a “buy on the dips” strategy which is quite a departure from your original worry and plan. I’m not saying either is right or wrong, just recognized that this isn’t a minor tweak of your original plan.
Agreed. I think I just needed a chance to sleep on it to start to "come back to the light". I think simply having the lower equity AA and rebalancing using 5% bands, as you mentioned, will for the most part achieve my desired effect of mitigating SORR and also gives me a chance to "buy the dips". I'm also liking the idea of keeping a lower AA for 5-10 years and then re-evaluating AA at that time vs increasing by 1.5% per year. It's just simpler, and will likely yield a similar outcome.

Thank you!
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rockAction
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Re: Recent Retiree using rising equity glide path - only increase equity during crashes?

Post by rockAction »

printer86 wrote: Tue Apr 28, 2020 8:51 pm
To the OP, do you really think you will have the willpower to buy the dips in early retirement? What I've found out is that I can't get myself to do it.
I think I could do it if I have a written plan that I believe in. Although it wasn't easy at the time, I did re-balance this year near the lows, which is paying off handsomely (so far anyway). I will admit it, though, that it was much more difficult than I thought it would be!
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KEotSK66
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rock

Post by KEotSK66 »

hi

1) by increasing your stock allocation as you get older you're increasing your exposure to sorr later in life

2) by increasing your stock allocation as you get older you're betting stocks will do better later in life


re 1) sorr (more generally, draw risk) persists for some time after the first few years of retirement, there's no rule stating after so many years of retirement sorr disappears. as we get really old any damage done by an sorr/draw event may not matter but you don't want to incur irreparable damage late in life and then go on to live another 15 years

re 2) what makes you think stocks are going to cooperate 30 or 40 yrs from now ?


by keeping portfolio volatility low or moderate and getting income (cap gains too) >= your draw you can do a good job of beating sorr without sacrificing sufficient growth, and to realize the benefits of an asset allocation you have to hold it for a long time, 25/75 and 55/45 are two different animals

whatever you decide I wish you luck, of course
"i just got fluctuated out of $1,500", jerry
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KEotSK66
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rock

Post by KEotSK66 »

duplicate post ???
"i just got fluctuated out of $1,500", jerry
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Re: Recent Retiree using rising equity glide path - only increase equity during crashes?

Post by Call_Me_Op »

rockAction wrote: Tue Apr 28, 2020 9:01 am I retired in April 2019, and am using the rising equity glide path to reduce SOR risk. My plan is to go from 25% to 55% stocks over 20 years (1.5% per year).
Not sure why you would have to increase your equities to avoid SOR risk.
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein
terran
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Re: Recent Retiree using rising equity glide path - only increase equity during crashes?

Post by terran »

Call_Me_Op wrote: Wed Apr 29, 2020 7:47 am
rockAction wrote: Tue Apr 28, 2020 9:01 am I retired in April 2019, and am using the rising equity glide path to reduce SOR risk. My plan is to go from 25% to 55% stocks over 20 years (1.5% per year).
Not sure why you would have to increase your equities to avoid SOR risk.
I believe it's actually kind of the opposite. You need equities to avoid inflation (long term) risk, so a glide path is actually temporarily decreasing equities to avoid sequence of return (short term) risk.
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rockAction
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Re: Recent Retiree using rising equity glide path - only increase equity during crashes?

Post by rockAction »

terran wrote: Wed Apr 29, 2020 7:56 am
Call_Me_Op wrote: Wed Apr 29, 2020 7:47 am
rockAction wrote: Tue Apr 28, 2020 9:01 am I retired in April 2019, and am using the rising equity glide path to reduce SOR risk. My plan is to go from 25% to 55% stocks over 20 years (1.5% per year).
Not sure why you would have to increase your equities to avoid SOR risk.
I believe it's actually kind of the opposite. You need equities to avoid inflation (long term) risk, so a glide path is actually temporarily decreasing equities to avoid sequence of return (short term) risk.
Perhaps it would be better stated to say that I'm starting with a lower equity allocation to reduce my SORR (starting at 25/75 vs 55/45.). I'm referring to the Kitces article on the topic (which I'm sure you are probably aware):
https://www.kitces.com/blog/should-equi ... ly-better/
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rockAction
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Re: rock

Post by rockAction »

KEotSK66 wrote: Wed Apr 29, 2020 7:44 am hi

1) by increasing your stock allocation as you get older you're increasing your exposure to sorr later in life

2) by increasing your stock allocation as you get older you're betting stocks will do better later in life


re 1) sorr (more generally, draw risk) persists for some time after the first few years of retirement, there's no rule stating after so many years of retirement sorr disappears. as we get really old any damage done by an sorr/draw event may not matter but you don't want to incur irreparable damage late in life and then go on to live another 15 years

re 2) what makes you think stocks are going to cooperate 30 or 40 yrs from now ?


by keeping portfolio volatility low or moderate and getting income (cap gains too) >= your draw you can do a good job of beating sorr without sacrificing sufficient growth, and to realize the benefits of an asset allocation you have to hold it for a long time, 25/75 and 55/45 are two different animals

whatever you decide I wish you luck, of course
I guess the assumption is that I will likely need to eventually increase my equity AA at some point in order to get me through a 30-40 yr retirement. That may not end up being the case, and I'll probably need to re-evaluate as I go. By pushing this exposure to SORR out several years, I increase my likelihood that it will last to the end. I'm referring to the Kitces article on the topic (which you are probably aware):
https://www.kitces.com/blog/should-equi ... ly-better/
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KEotSK66
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hi rock

Post by KEotSK66 »

I suspected you referenced some studies/papers (and possibly return forecasts)

:moneybag :moneybag :moneybag
"i just got fluctuated out of $1,500", jerry
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rockAction
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Re: Recent Retiree using rising equity glide path - only increase equity during crashes?

Post by rockAction »

Thanks to everyone for your input! It gave me much clarity and confidence in my plan going forward. :sharebeer
BigJohn
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Re: Recent Retiree using rising equity glide path - only increase equity during crashes?

Post by BigJohn »

rockAction wrote: Wed Apr 29, 2020 6:59 am
BigJohn wrote: Tue Apr 28, 2020 6:26 pm
rockAction wrote: Tue Apr 28, 2020 2:24 pm
BigJohn wrote: Tue Apr 28, 2020 1:34 pm I started retirement 5 years ago at 35/65 to mitigate SORR. I’d make two comments for you to consider...

I think 1.5% per year is too small a change to be worth fiddling with. It’s far lower than my rebalancing tolerance bands which are set at 5%. My plan is to hold here for 10 years and then reevaluate whether I want to hold or increase.

Are you OK with getting to 55% sooner, later or never? By turning this change over to the whims of market drops you are giving up control of the timing. For example, market drops 50% next week, you go to 35%, bull market ensues and has you at 55% in far less than 20 years.
Both good points. I'm not dead set on the timing of getting to 55% in 20 yrs. From what I can tell from the studies seen, there's very little difference in outcomes whether one takes 10, 15, 20, or 30 yrs to get there. So, the timing is less important to me than being able to take advantage of buying opportunities as they arise. Make sense?
If this is the case then your suggested approach become a “buy on the dips” strategy which is quite a departure from your original worry and plan. I’m not saying either is right or wrong, just recognized that this isn’t a minor tweak of your original plan.
Agreed. I think I just needed a chance to sleep on it to start to "come back to the light". I think simply having the lower equity AA and rebalancing using 5% bands, as you mentioned, will for the most part achieve my desired effect of mitigating SORR and also gives me a chance to "buy the dips". I'm also liking the idea of keeping a lower AA for 5-10 years and then re-evaluating AA at that time vs increasing by 1.5% per year. It's just simpler, and will likely yield a similar outcome.

Thank you!
You’re welcome. Glad you found it useful. FWIW, I hit my rebalancing bands back in March and had no problem pulling the trigger on selling bonds and buying stocks “on sale” to get back to my target AA. Best of luck :beer
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Re: Recent Retiree using rising equity glide path - only increase equity during crashes?

Post by prairieman »

rockAction wrote: Tue Apr 28, 2020 3:18 pm
prairieman wrote: Tue Apr 28, 2020 2:46 pm
rockAction wrote: Tue Apr 28, 2020 9:01 am I retired in April 2019, and am using the rising equity glide path to reduce SOR risk. My plan is to go from 25% to 55% stocks over 20 years (1.5% per year).

In terms of when and by how much to increase my equity allocation, I'm wondering if it would be more favorable to increase my equity portion in larger chunks (e.g. 5-8% increase vs 1.5%) ONLY when there are major crashes (like this year). Basically, I'd always just be waiting for the fire sales (drops of 20-30% or more?), and then when it comes, loading up as the market drops.

Just toying with the idea, but would love to hear some thoughts on that.
I am doing exactly this because I see no real downside. In essence, as I get older and SS and Medicare kick in, I can afford to be less conservative over time.
Another aspect, though, is that RMDs will actually require the selling of bonds (which should be held mostly in IRA accounts). I don’t like the idea of selling stock and buying bonds in a taxable account just to keep AA fixed.
Are you doing both the rising equity glidepath AND upping your equity % more aggressively in bear markets, or are you just re-balancing to a higher equity % (1.5% or so) every year?
I’m doing both, and used the recent downturn to implement an increase in equity percentage. I bought in a little sooner than optimal, but better than if I had just followed a rule.
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galeno
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Re: Recent Retiree using rising equity glide path - only increase equity during crashes?

Post by galeno »

To keep investing simple and significant the smallest "chunk" I deal with is 5% of port.

When retired the best way to increase equity allocation (glide path) is to draw your AWR from the fixed income allocation.

We have been 40/60 since 2017. The BEAR took us to 35/65. On Mar 31 we over rebalanced to 45/55. Today we are 47/53. Hopefully we'll be at 50/50 by year's end. If not we're over-rebalancing to 50/50. That's where we want to be for the foreseeable future.
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Re: Recent Retiree using rising equity glide path - only increase equity during crashes?

Post by rockAction »

prairieman wrote: Wed Apr 29, 2020 11:26 am
rockAction wrote: Tue Apr 28, 2020 3:18 pm
prairieman wrote: Tue Apr 28, 2020 2:46 pm
rockAction wrote: Tue Apr 28, 2020 9:01 am I retired in April 2019, and am using the rising equity glide path to reduce SOR risk. My plan is to go from 25% to 55% stocks over 20 years (1.5% per year).

In terms of when and by how much to increase my equity allocation, I'm wondering if it would be more favorable to increase my equity portion in larger chunks (e.g. 5-8% increase vs 1.5%) ONLY when there are major crashes (like this year). Basically, I'd always just be waiting for the fire sales (drops of 20-30% or more?), and then when it comes, loading up as the market drops.

Just toying with the idea, but would love to hear some thoughts on that.
I am doing exactly this because I see no real downside. In essence, as I get older and SS and Medicare kick in, I can afford to be less conservative over time.
Another aspect, though, is that RMDs will actually require the selling of bonds (which should be held mostly in IRA accounts). I don’t like the idea of selling stock and buying bonds in a taxable account just to keep AA fixed.
Are you doing both the rising equity glidepath AND upping your equity % more aggressively in bear markets, or are you just re-balancing to a higher equity % (1.5% or so) every year?
I’m doing both, and used the recent downturn to implement an increase in equity percentage. I bought in a little sooner than optimal, but better than if I had just followed a rule.
Very cool. Yeah, I think it makes sense to do it if a market crash happens to align somewhere around the time one is looking to increase equity % anyway, even if the timing is less than optimal or not exactly according to plan. Thanks for sharing your experience!
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Re: Recent Retiree using rising equity glide path - only increase equity during crashes?

Post by rockAction »

galeno wrote: Wed Apr 29, 2020 11:37 am To keep investing simple and significant the smallest "chunk" I deal with is 5% of port.

When retired the best way to increase equity allocation (glide path) is to draw your AWR from the fixed income allocation.

We have been 40/60 since 2017. The BEAR took us to 35/65. On Mar 31 we over rebalanced to 45/55. Today we are 47/53. Hopefully we'll be at 50/50 by year's end. If not we're over-rebalancing to 50/50. That's where we want to be for the foreseeable future.
Thanks for the input, Galeno. It's very helpful to hear how others are making adjustments and approaching the glide up to reach higher equity allocations over time. I'll be incorporating much of the feedback I've received on this thread into my overall plan. :happy
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Re: Recent Retiree using rising equity glide path - only increase equity during crashes?

Post by reln »

rockAction wrote: Tue Apr 28, 2020 3:35 pm
reln wrote: Tue Apr 28, 2020 2:31 pm
Don't market time.

As you withdraw from bonds and equity returns beat bond returns, you're equity % will glide up.
I do get that and fully appreciate what you are saying. And that's how I pretty much anticipate my initial plan to go. However, I guess I am just trying to determine if there's a significant upside in taking advantage of buying opportunities in bear markets vs just increasing equity % steady-eddie annually.
Yeah I hear you. We will always have temptation to take advantage of opportunities. Think about how likely is it that deviation activity will lead to materially more beneficial outcome than the steady pre-planned approach.
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Re: Recent Retiree using rising equity glide path - only increase equity during crashes?

Post by Call_Me_Op »

rockAction wrote: Wed Apr 29, 2020 8:02 am
terran wrote: Wed Apr 29, 2020 7:56 am
Call_Me_Op wrote: Wed Apr 29, 2020 7:47 am
rockAction wrote: Tue Apr 28, 2020 9:01 am I retired in April 2019, and am using the rising equity glide path to reduce SOR risk. My plan is to go from 25% to 55% stocks over 20 years (1.5% per year).
Not sure why you would have to increase your equities to avoid SOR risk.
I believe it's actually kind of the opposite. You need equities to avoid inflation (long term) risk, so a glide path is actually temporarily decreasing equities to avoid sequence of return (short term) risk.
Perhaps it would be better stated to say that I'm starting with a lower equity allocation to reduce my SORR (starting at 25/75 vs 55/45.). I'm referring to the Kitces article on the topic (which I'm sure you are probably aware):
https://www.kitces.com/blog/should-equi ... ly-better/
I read the article a while back. I think a rising glide path is an unnecessary complexity that brings with it behavioral risks.
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Re: Recent Retiree using rising equity glide path - only increase equity during crashes?

Post by rockAction »

Call_Me_Op wrote: Wed Apr 29, 2020 5:57 pm
I read the article a while back. I think a rising glide path is an unnecessary complexity that brings with it behavioral risks.
What would you suggest besides that to mitigate SORR for an early retiree?
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Re: Recent Retiree using rising equity glide path - only increase equity during crashes?

Post by OffGridder »

I am using a limited rising glide path to fund the delay of Social Security to age 70. I am currently age 63, so 7 years to go. My target asset allocation is 50/50 for life. I carved out the amount of social security I expect to receive at age 70 and added it to my bond allocation. That puts me at a current target AA of 40/50 stocks to bonds. Rising to 50/50 at age 70. I also use 5% rebalance bands. So I do not do a hard rebalance just because my target equity allocation has increased. I just withdraw from whatever is above target. As long as my actual allocation at any point in time falls within the 5% bands of my target allocation, I just keep cruising along.

If I was not funding delayed social security and just planned a relatively steady withdrawal rate, I would not use a rising glide path. I would just pick an asset allocation that fits your personal risk tolerance and stick with it for life, subject to changes in life circumstances. In my case that is 50/50.
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Re: Recent Retiree using rising equity glide path - only increase equity during crashes?

Post by 2pedals »

If your current bond+MM+cash amounts covers your 7 years of living expenses and SS covers you from then on, in my opinion you can stop worrying about SOR and AA. Your AA can be anything you want be (80/20 or 20/80 is fine) as long as you are happy with it and can sleep well at night. I plan on letting AA float (within 65% to 30%) and selling equity after they go up over a threshold amount after reading a book called Living of Your Money by McClung. For example if my equity amount goes up above 120% the initial value I retired at I can sell equity to replenish some bonds or buy an expensive travel excursion. If equity drops I don't plan on overbalancing or re-balancing on the way down. There are additional SOR risks in buying stocks on the way down.
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Re: Recent Retiree using rising equity glide path - only increase equity during crashes?

Post by Call_Me_Op »

rockAction wrote: Wed Apr 29, 2020 6:46 pm
Call_Me_Op wrote: Wed Apr 29, 2020 5:57 pm
I read the article a while back. I think a rising glide path is an unnecessary complexity that brings with it behavioral risks.
What would you suggest besides that to mitigate SORR for an early retiree?
Just keep equity allocation low. SORR is only an issue when equity allocation is high. It is associated with large relatively-fast drops in portfolio value, which should not occur if equity allocation is low. There is nothing wrong with retiring at 40/60 and staying right there.

Keep it simple.
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Re: Recent Retiree using rising equity glide path - only increase equity during crashes?

Post by rockAction »

Call_Me_Op wrote: Thu Apr 30, 2020 8:02 am
rockAction wrote: Wed Apr 29, 2020 6:46 pm
Call_Me_Op wrote: Wed Apr 29, 2020 5:57 pm
I read the article a while back. I think a rising glide path is an unnecessary complexity that brings with it behavioral risks.
What would you suggest besides that to mitigate SORR for an early retiree?
Just keep equity allocation low. SORR is only an issue when equity allocation is high. It is associated with large relatively-fast drops in portfolio value, which should not occur if equity allocation is low. There is nothing wrong with retiring at 40/60 and staying right there.

Keep it simple.
That makes sense, and I totally understand that. For me, I wasn't comfortable coming into retirement last year at anything higher than 25/75, but I knew that allocation probably wouldn't be able to sustain a 30-40 yr retirement. So, a rising equity glidepath seemed appropriate, and I didn't see a downside to it. I know this isn't in line with boglehead philosophy, but I had to do what made sense for me. Thanks for the feedback.
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Re: Recent Retiree using rising equity glide path - only increase equity during crashes?

Post by galeno »

40/60 is a great cruising AA for retirement. It's my wife's prefered split.

I prefer 60/40. So we use 50/50.
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Re: Recent Retiree using rising equity glide path - only increase equity during crashes?

Post by Call_Me_Op »

rockAction wrote: Thu Apr 30, 2020 8:32 am
Call_Me_Op wrote: Thu Apr 30, 2020 8:02 am
rockAction wrote: Wed Apr 29, 2020 6:46 pm
Call_Me_Op wrote: Wed Apr 29, 2020 5:57 pm
I read the article a while back. I think a rising glide path is an unnecessary complexity that brings with it behavioral risks.
What would you suggest besides that to mitigate SORR for an early retiree?
Just keep equity allocation low. SORR is only an issue when equity allocation is high. It is associated with large relatively-fast drops in portfolio value, which should not occur if equity allocation is low. There is nothing wrong with retiring at 40/60 and staying right there.

Keep it simple.
That makes sense, and I totally understand that. For me, I wasn't comfortable coming into retirement last year at anything higher than 25/75, but I knew that allocation probably wouldn't be able to sustain a 30-40 yr retirement. So, a rising equity glidepath seemed appropriate, and I didn't see a downside to it. I know this isn't in line with boglehead philosophy, but I had to do what made sense for me. Thanks for the feedback.
If 25/75 is not enough (have you verified this using retirement calculator) then you can bump up the equities a bit. However, be sure to verify that first. If 25/75 is too low, I would be concerned that you may not have accumulated enough for the withdrawal rate you are planning and may need to reduce spending a bit.
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein
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Re: Recent Retiree using rising equity glide path - only increase equity during crashes?

Post by KEotSK66 »

Just keep equity allocation low. SORR is only an issue when equity allocation is high. It is associated with large relatively-fast drops in portfolio value, which should not occur if equity allocation is low. There is nothing wrong with retiring at 40/60 and staying right there.

to add to this, also try to cover your draw with income

iow if you're drawing 3% try to put back 3% by the end of the year, income is a relatively reliable way do that

so moderate volatility combined with healthy income and sor risk isn't the threat it's made out to be


allocations between 30/70 and 40/60 are highly efficient, they typically tradeoff one unit of risk for one unit of return, think sharpe ratios close to 1.00
"i just got fluctuated out of $1,500", jerry
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