My Pension will not have COLA. Plz suggest a Portfolio to act as my COLA

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Stillwater1971
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My Pension will not have COLA. Plz suggest a Portfolio to act as my COLA

Post by Stillwater1971 »

I'll be retiring in 5 years(I'll be 55) and will receive a Pension that will allow me to live within my means for a while. But my Pension won't be receiving COLA and I won't have anything much in SS, if at all.

What would be a good Portfolio that could act as the COLA for my Pension? The less risk/volatility the better, but not necessary.
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ResearchMed
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Re: My Pension will not have COLA. Plz suggest a Portfolio to act as my COLA

Post by ResearchMed »

Stillwater1971 wrote: Sun Nov 21, 2021 4:38 pm I'll be retiring in 5 years(I'll be 55) and will receive a Pension that will allow me to live within my means for a while. But my Pension won't be receiving COLA and I won't have anything much in SS, if at all.

What would be a good Portfolio that could act as the COLA for my Pension? The less risk/volatility the better, but not necessary.
What about every few years adding a small SPIA (immediate life annuity), to bump up each month/year's income a bit. Then, depending upon how inflation is going, do this again, as incremental increases for that inexorable inflation... if that's what happens, of course.

This approach would certainly keep the volatility down, at least for these portions of income.

RM
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dbr
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Re: My Pension will not have COLA. Plz suggest a Portfolio to act as my COLA

Post by dbr »

Stillwater1971 wrote: Sun Nov 21, 2021 4:38 pm I'll be retiring in 5 years(I'll be 55) and will receive a Pension that will allow me to live within my means for a while. But my Pension won't be receiving COLA and I won't have anything much in SS, if at all.

What would be a good Portfolio that could act as the COLA for my Pension? The less risk/volatility the better, but not necessary.
To compensate for loss of puchasing power in your pension income from other sources will have to rise faster than inflation. Even having SS or inflation indexed fixed income does not do that. For conventional portfolios that means increasing withdrawals from stocks and bonds faster than rate of inflation. This violates standard rules of thumb such as 4% safe withdrawal rates.

Fortunately typical retirement spending models are not that naive. You can run something like FireCalc with your income stream and a balanced allocation to stocks and bonds and get long term forecasts of probabilities for your situation. Probably something like 60/40 stocks/bonds is a good guess. In this case low risk and low volatility in investments is not an advantage. You can also shift your fixed income to TIPS to somewhat dilute inflation problems. FireCalc does not include a specific allocation to TIPS in fixed income, though some planners may. TIPS have not been around long enough to have good historical experience. One could try the Monte Carlo simulator in Portfolio Visualizer.

You can also consider reducing planned spending to produce a more conservative plan. This is equivalent to saving current income to pay for future increases.

Disclaimer: I have a fixed pension, SS, a 50/50 allocation, and half of bonds in intermediate TIPS. That seems fine to me.
Last edited by dbr on Sun Nov 21, 2021 4:53 pm, edited 1 time in total.
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JoeRetire
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Re: My Pension will not have COLA. Plz suggest a Portfolio to act as my COLA

Post by JoeRetire »

Stillwater1971 wrote: Sun Nov 21, 2021 4:38 pm I'll be retiring in 5 years(I'll be 55) and will receive a Pension that will allow me to live within my means for a while. But my Pension won't be receiving COLA and I won't have anything much in SS, if at all.

What would be a good Portfolio that could act as the COLA for my Pension? The less risk/volatility the better, but not necessary.
Consider working longer to compensate for the lack of COLA.
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Re: My Pension will not have COLA. Plz suggest a Portfolio to act as my COLA

Post by BolderBoy »

Stillwater1971 wrote: Sun Nov 21, 2021 4:38 pmWhat would be a good Portfolio that could act as the COLA for my Pension? The less risk/volatility the better, but not necessary.
Not enough info. How big is your portfolio? What will be your spending in retirement?

General rule of thumb, a 30/70 asset allocation ought to keep up with inflation over the long term and is lower risk.
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arcticpineapplecorp.
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Re: My Pension will not have COLA. Plz suggest a Portfolio to act as my COLA

Post by arcticpineapplecorp. »

ibonds keep pace with inflation, but unless you've been purchasing them over the years, 5 years of ibonds would amount to either:
$50,000 ($10,000 per year)
$65,000 ($10,000 per year + $5000 in tax refund used to purchase)
$115,000 ($10,000 per year + $5000 in tax refund used to purchase + $10,000 per year in revocable trust).

Could be twice that if you're married.

Read more:
https://thefinancebuff.com/buy-more-i-b ... trust.html

Also, do you have access to a stable value fund in your workplace retirement plan? If so, that will keep pace with inflation.

But really, you should edit your post according to my link below "Asking portfolio questions".
It's hard to accept the truth when the lies were exactly what you wanted to hear. Investing is simple, but not easy. Buy, hold & rebalance low cost index funds & manage taxable events. Asking Portfolio Questions | Wiki
TheDDC
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Re: My Pension will not have COLA. Plz suggest a Portfolio to act as my COLA

Post by TheDDC »

Start investing new funds into stocks 100/0. For the first few years when you collect your pension, continue to invest excess funds 100/0. Many on this forum do not even have a pension. You make up for loss due to inflation by things that underperform (such as bonds, cash, etc.) by investing more into stocks. Is there any way to "spike" the pension prior to retirement if you collect an hourly wage?

Disclaimer: I will be receiving a fixed pension when I retire, though I don't know that I would be retiring at 55. Maybe 58-60 at the earliest? My AA is 100/0 for new funds and has been since I have been investing. I would still most likely be investing at that AA even without a pension. However, with a pension it's a no brainer since many here would consider that your "fixed income" portion of your AA.

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Re: My Pension will not have COLA. Plz suggest a Portfolio to act as my COLA

Post by single2019 »

JoeRetire wrote: Sun Nov 21, 2021 4:52 pm
Stillwater1971 wrote: Sun Nov 21, 2021 4:38 pm I'll be retiring in 5 years(I'll be 55) and will receive a Pension that will allow me to live within my means for a while. But my Pension won't be receiving COLA and I won't have anything much in SS, if at all.

What would be a good Portfolio that could act as the COLA for my Pension? The less risk/volatility the better, but not necessary.
Consider working longer to compensate for the lack of COLA.
Huh?
Would your response be the same if op was retiring at 57 or 58 or ….
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Re: My Pension will not have COLA. Plz suggest a Portfolio to act as my COLA

Post by Wiggums »

We have a fixed pension as well. Retired at 56. Our AA is 65/35. Our withdrawal rate starts low, so we should be fine over our retirement years.

If you are not retiring early with a tight budget, the equity portion should cover reasonable levels of inflation. 30 equities would be a safe starting point.
Last edited by Wiggums on Sun Nov 21, 2021 11:23 pm, edited 1 time in total.
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Re: My Pension will not have COLA. Plz suggest a Portfolio to act as my COLA

Post by AnnetteLouisan »

Pair series EE with I bonds for a DIY annuity / pension supplement.
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JoeRetire
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Re: My Pension will not have COLA. Plz suggest a Portfolio to act as my COLA

Post by JoeRetire »

single2019 wrote: Sun Nov 21, 2021 11:01 pm
JoeRetire wrote: Sun Nov 21, 2021 4:52 pm
Stillwater1971 wrote: Sun Nov 21, 2021 4:38 pm I'll be retiring in 5 years(I'll be 55) and will receive a Pension that will allow me to live within my means for a while. But my Pension won't be receiving COLA and I won't have anything much in SS, if at all.

What would be a good Portfolio that could act as the COLA for my Pension? The less risk/volatility the better, but not necessary.
Consider working longer to compensate for the lack of COLA.
Huh?
Would your response be the same if op was retiring at 57 or 58 or ….
Of course.
Worried about lack of COLA? Work longer, save more. No risk. No volatility. Seems obvious to me.
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Re: My Pension will not have COLA. Plz suggest a Portfolio to act as my COLA

Post by Grt2bOutdoors »

AnnetteLouisan wrote: Sun Nov 21, 2021 11:15 pm Pair series EE with I bonds for a DIY annuity / pension supplement.
That won’t work for a person retiring 5 years from now. Series EE bonds pay scant interest unless you hold for exactly 20 years, he needs the money in 5-10 years and will lose to inflation over the short run.
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Re: My Pension will not have COLA. Plz suggest a Portfolio to act as my COLA

Post by TomatoTomahto »

JoeRetire wrote: Mon Nov 22, 2021 7:10 am
single2019 wrote: Sun Nov 21, 2021 11:01 pm
JoeRetire wrote: Sun Nov 21, 2021 4:52 pm
Stillwater1971 wrote: Sun Nov 21, 2021 4:38 pm I'll be retiring in 5 years(I'll be 55) and will receive a Pension that will allow me to live within my means for a while. But my Pension won't be receiving COLA and I won't have anything much in SS, if at all.

What would be a good Portfolio that could act as the COLA for my Pension? The less risk/volatility the better, but not necessary.
Consider working longer to compensate for the lack of COLA.
Huh?
Would your response be the same if op was retiring at 57 or 58 or ….
Of course.
Worried about lack of COLA? Work longer, save more. No risk. No volatility. Seems obvious to me.
+1
OP hasn’t given specifics. But, OP is worried about COLA. So, other than going long equities, not retiring so early is the best call in the dark.
I get the FI part but not the RE part of FIRE.
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Re: My Pension will not have COLA. Plz suggest a Portfolio to act as my COLA

Post by CyclingDuo »

Stillwater1971 wrote: Sun Nov 21, 2021 4:38 pm I'll be retiring in 5 years(I'll be 55) and will receive a Pension that will allow me to live within my means for a while. But my Pension won't be receiving COLA and I won't have anything much in SS, if at all.

What would be a good Portfolio that could act as the COLA for my Pension? The less risk/volatility the better, but not necessary.
Article on creating a DIY COLA that is good food for thought:

https://grumpusmaximus.com/pension-seri ... eate-cola/
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JoeRetire
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Re: My Pension will not have COLA. Plz suggest a Portfolio to act as my COLA

Post by JoeRetire »

TomatoTomahto wrote: Mon Nov 22, 2021 7:41 am
JoeRetire wrote: Mon Nov 22, 2021 7:10 am
single2019 wrote: Sun Nov 21, 2021 11:01 pm
JoeRetire wrote: Sun Nov 21, 2021 4:52 pm
Stillwater1971 wrote: Sun Nov 21, 2021 4:38 pm I'll be retiring in 5 years(I'll be 55) and will receive a Pension that will allow me to live within my means for a while. But my Pension won't be receiving COLA and I won't have anything much in SS, if at all.

What would be a good Portfolio that could act as the COLA for my Pension? The less risk/volatility the better, but not necessary.
Consider working longer to compensate for the lack of COLA.
Huh?
Would your response be the same if op was retiring at 57 or 58 or ….
Of course.
Worried about lack of COLA? Work longer, save more. No risk. No volatility. Seems obvious to me.
+1
OP hasn’t given specifics. But, OP is worried about COLA. So, other than going long equities, not retiring so early is the best call in the dark.
I know it often isn't received well here, but working longer is a good solution for a lot of financial problems. Many times it's far more effective than any wacky investment/withdrawal strategy.
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Re: My Pension will not have COLA. Plz suggest a Portfolio to act as my COLA

Post by retiredjg »

Stillwater1971 wrote: Sun Nov 21, 2021 4:38 pm What would be a good Portfolio that could act as the COLA for my Pension? The less risk/volatility the better, but not necessary.
Any good well rounded portfolio of sufficient size should do. There is no portfolio magic that will make things automatically work better.

You either have enough money to retire at 55 with your non-COLAd pension or you don't. I assume you do (or will) or you would not be planning this. If it turns out you do not have sufficient assets, you'll have to figure something out (like working again).

You will will need enough stock for the portfolio to continue growing. But not so much stock that the portfolio takes huge dips - initial thoughts are something between 40% stock and 60% stock depending on your risk tolerance.

Will your pension cover your living expenses for at least the 5 years until you can take from your tax-deferred accounts? Or do you have assets in taxable or Roth IRA that will be available?

I think a SPIA (immediate income annuity) with part of your savings would be appropriate down the line, but closer to 65 or 70 when you will get more return. Or maybe buy one at 65 and one at 75.

So what about some version of a 3 fund portfolio? What about sticking with the portfolio you are currently using? Again, what will assure your success is the size of your portfolio, not the exact things you hold in it.
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Re: My Pension will not have COLA. Plz suggest a Portfolio to act as my COLA

Post by valleyrock »

ResearchMed wrote: Sun Nov 21, 2021 4:47 pm
Stillwater1971 wrote: Sun Nov 21, 2021 4:38 pm I'll be retiring in 5 years(I'll be 55) and will receive a Pension that will allow me to live within my means for a while. But my Pension won't be receiving COLA and I won't have anything much in SS, if at all.

What would be a good Portfolio that could act as the COLA for my Pension? The less risk/volatility the better, but not necessary.
What about every few years adding a small SPIA (immediate life annuity), to bump up each month/year's income a bit. Then, depending upon how inflation is going, do this again, as incremental increases for that inexorable inflation... if that's what happens, of course.

This approach would certainly keep the volatility down, at least for these portions of income.

RM
I've been wondering how quickly SPIA sellers respond to inflation changes. Maybe there's historical information on that which they'd use in actuarial calculations. On the other hand, with current inflation changes, perhaps they're going to wait a few years to see what happens before increasing annuity payouts. I suppose a lot of people will wait now before purchasing an SPIA to see if payouts do indeed go up to reflect inflation, which could drive the companies to increase payouts to get people to buy their products. Anybody have a handle on this matter?
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Re: My Pension will not have COLA. Plz suggest a Portfolio to act as my COLA

Post by BitTooAggressive »

valleyrock wrote: Mon Nov 22, 2021 8:30 am
ResearchMed wrote: Sun Nov 21, 2021 4:47 pm
Stillwater1971 wrote: Sun Nov 21, 2021 4:38 pm I'll be retiring in 5 years(I'll be 55) and will receive a Pension that will allow me to live within my means for a while. But my Pension won't be receiving COLA and I won't have anything much in SS, if at all.

What would be a good Portfolio that could act as the COLA for my Pension? The less risk/volatility the better, but not necessary.
What about every few years adding a small SPIA (immediate life annuity), to bump up each month/year's income a bit. Then, depending upon how inflation is going, do this again, as incremental increases for that inexorable inflation... if that's what happens, of course.

This approach would certainly keep the volatility down, at least for these portions of income.

RM
I've been wondering how quickly SPIA sellers respond to inflation changes. Maybe there's historical information on that which they'd use in actuarial calculations. On the other hand, with current inflation changes, perhaps they're going to wait a few years to see what happens before increasing annuity payouts. I suppose a lot of people will wait now before purchasing an SPIA to see if payouts do indeed go up to reflect inflation, which could drive the companies to increase payouts to get people to buy their products. Anybody have a handle on this matter?
I am sure the insurance companies are very afraid of inflation. If you are able to purchase an annuity with inflation protection that option will not be cheap.
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Re: My Pension will not have COLA. Plz suggest a Portfolio to act as my COLA

Post by aristotelian »

My advice would be to fit your pension into your plan rather than design your plan around your pension. You could put your bond allocation in TIPS and calculate how much you would need but they currently have negative yields and you would lose money in a deflation scenario (i.e. market crash when you might need income the most). Your best long term bet to counter inflation risk is an equity heavy portfolio.
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Re: My Pension will not have COLA. Plz suggest a Portfolio to act as my COLA

Post by fortunefavored »

BitTooAggressive wrote: Mon Nov 22, 2021 8:56 am I am sure the insurance companies are very afraid of inflation. If you are able to purchase an annuity with inflation protection that option will not be cheap.
These no longer exist. Every time someone mentions one I feel obligated to jump in. They are in the category of "good long term care insurance" and "good private health care insurance" - they are now mythical.

The best you can do is get an annuity with a fixed COLA rider of ~2% per year, which is better than nothing but obviously isn't great if inflation is running 5%+ - and you pay a significant premium.

Annuities sound like a terrible idea for inflation unless you are 70+

To the OP, the thread covered it: hold a diversified portfolio, work longer, save more, spend less.
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Re: My Pension will not have COLA. Plz suggest a Portfolio to act as my COLA

Post by TomatoTomahto »

JoeRetire wrote: Mon Nov 22, 2021 8:16 am I know it often isn't received well here, but working longer is a good solution for a lot of financial problems. Many times it's far more effective than any wacky investment/withdrawal strategy.
It saddens me that so many people here can’t seem to wait to retire, even if the numbers are thin. I can understand it in some cases, but we were lucky enough to get satisfaction from work and I’d wish that for everyone.
I get the FI part but not the RE part of FIRE.
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Re: My Pension will not have COLA. Plz suggest a Portfolio to act as my COLA

Post by TN_Boy »

Stillwater1971 wrote: Sun Nov 21, 2021 4:38 pm I'll be retiring in 5 years(I'll be 55) and will receive a Pension that will allow me to live within my means for a while. But my Pension won't be receiving COLA and I won't have anything much in SS, if at all.

What would be a good Portfolio that could act as the COLA for my Pension? The less risk/volatility the better, but not necessary.
I skimmed this thread, but cannot see where enough information has been provided to answer your question.

What will your likely expenses be in retirement? How much savings do you have? What will your SS be if you retire in five years? How will you pay for health care between retirement and medicare? Etc. Lots of unknowns.

Without more data, no-one can provide useful input. Well, working longer is AN answer, but nobody has enough information to tell you if retiring at 55 is feasible right now.
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Re: My Pension will not have COLA. Plz suggest a Portfolio to act as my COLA

Post by dbr »

valleyrock wrote: Mon Nov 22, 2021 8:30 am
ResearchMed wrote: Sun Nov 21, 2021 4:47 pm
Stillwater1971 wrote: Sun Nov 21, 2021 4:38 pm I'll be retiring in 5 years(I'll be 55) and will receive a Pension that will allow me to live within my means for a while. But my Pension won't be receiving COLA and I won't have anything much in SS, if at all.

What would be a good Portfolio that could act as the COLA for my Pension? The less risk/volatility the better, but not necessary.
What about every few years adding a small SPIA (immediate life annuity), to bump up each month/year's income a bit. Then, depending upon how inflation is going, do this again, as incremental increases for that inexorable inflation... if that's what happens, of course.

This approach would certainly keep the volatility down, at least for these portions of income.

RM
I've been wondering how quickly SPIA sellers respond to inflation changes. Maybe there's historical information on that which they'd use in actuarial calculations. On the other hand, with current inflation changes, perhaps they're going to wait a few years to see what happens before increasing annuity payouts. I suppose a lot of people will wait now before purchasing an SPIA to see if payouts do indeed go up to reflect inflation, which could drive the companies to increase payouts to get people to buy their products. Anybody have a handle on this matter?
Sure. They don't and haven't sold inflation indexed annuities and when interest rates are low the payout on fixed annuities is also low. Low real interest rates are punitive to retirees unless somehow they get a windfall in stock returns, which has happened over the last ten years.
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Re: My Pension will not have COLA. Plz suggest a Portfolio to act as my COLA

Post by Jack FFR1846 »

Are you able to roll a lump sum into an IRA instead of taking the pension payments? My pension is coming up and I did the analysis and between taxes, control and ability to have my non-cola money grow, I'll see my money on Feb 1 of 2022.
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Re: My Pension will not have COLA. Plz suggest a Portfolio to act as my COLA

Post by tibbitts »

Stillwater1971 wrote: Sun Nov 21, 2021 4:38 pm I'll be retiring in 5 years(I'll be 55) and will receive a Pension that will allow me to live within my means for a while. But my Pension won't be receiving COLA and I won't have anything much in SS, if at all.

What would be a good Portfolio that could act as the COLA for my Pension? The less risk/volatility the better, but not necessary.

There is no portfolio that can compensate for not having a cola. I don't have a cola for my pension either. There are portfolios that can give you a chance to compensate (as would buying lottery tickets, visiting a casino, etc.) but those are completely unrelated to having a pension with a cola.
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Re: My Pension will not have COLA. Plz suggest a Portfolio to act as my COLA

Post by AnnetteLouisan »

Grt2bOutdoors wrote: Mon Nov 22, 2021 7:29 am
AnnetteLouisan wrote: Sun Nov 21, 2021 11:15 pm Pair series EE with I bonds for a DIY annuity / pension supplement.
That won’t work for a person retiring 5 years from now. Series EE bonds pay scant interest unless you hold for exactly 20 years, he needs the money in 5-10 years and will lose to inflation over the short run.
True. But the principal and 3.54 annualized will be there for the OP when the OP is 70 and older if he starts now.
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Re: My Pension will not have COLA. Plz suggest a Portfolio to act as my COLA

Post by CyclingDuo »

Stillwater1971 wrote: Sun Nov 21, 2021 4:38 pm I'll be retiring in 5 years(I'll be 55) and will receive a Pension that will allow me to live within my means for a while. But my Pension won't be receiving COLA and I won't have anything much in SS, if at all.

What would be a good Portfolio that could act as the COLA for my Pension? The less risk/volatility the better, but not necessary.
Are you an educator or state employee working in a state that does not have you paying into SS?

If so, do you have the option of seeking other employment in a related or different field to earn some income - even on a part-time basis - to act as a buffer and way to build some more equity for a DIY COLA? Since you mention you are currently 50, do you have the means to sock it away in investment accounts over the next 5 years to grow your nest egg?

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Re: My Pension will not have COLA. Plz suggest a Portfolio to act as my COLA

Post by ScubaHogg »

What would be amazing is if one could purchase just the inflation adjustments from a tips ladder. Then you’d just buy a ladder of these “tips inflation coupons” equal to the value of your pension. But as far as I know, these don’t exist.

But to answer your question, you could buy a ladder of tips with some sort of assumed inflation. If you have a $100,000 year pension you could assume some interest rate (let’s say 2%) and do something like the following:

Year 1: $100,000 pension
Year 2: $100,000 pension but $2000 in maturing tips
Year 3: $100,000 pension plus $4,040 in maturing tips ($100,000*1.02^2)
Etc.
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Re: My Pension will not have COLA. Plz suggest a Portfolio to act as my COLA

Post by Mr.BB »

This post really got me thinking. My DW will start taking her a pension (no cola) at age 70. It will be approximately $25,000 a year.($2083 monthly).
If I assume a 3% inflation rate. If we automatically deposited $65 (3%) of the $2,083 and put it in our taxable Total Stock Market Fund (VTSAX) for growth. Would that work as a self-funded cola for her pension, assuming holding it long term through market ups and downs?
Last edited by Mr.BB on Mon Nov 22, 2021 10:53 am, edited 1 time in total.
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Re: My Pension will not have COLA. Plz suggest a Portfolio to act as my COLA

Post by dbr »

Yes, invest some money in stocks is likely necessary to compensate for a non-cola income stream. That would be a standard retirement income model after losing the idea that you have to exactly align some subset of your assets with the pension. Note any device that replaces income without an insurance benefit of an annuity is not really building an annuity.

A method that always works mathematically is to not spend from the pension any money you need to save for the future to offset inflation. In other words you "fix" the pension by spending less.
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Re: My Pension will not have COLA. Plz suggest a Portfolio to act as my COLA

Post by JoeRetire »

TomatoTomahto wrote: Mon Nov 22, 2021 9:24 am
JoeRetire wrote: Mon Nov 22, 2021 8:16 am I know it often isn't received well here, but working longer is a good solution for a lot of financial problems. Many times it's far more effective than any wacky investment/withdrawal strategy.
It saddens me that so many people here can’t seem to wait to retire, even if the numbers are thin. I can understand it in some cases, but we were lucky enough to get satisfaction from work and I’d wish that for everyone.
Agreed, although I suspect some of that is more of a "let's see who can retire soonest" humblebrag thing here that doesn't represent the wider community of working people.

I like to enjoy every year - those when working, and those when retired. I thoroughly enjoyed my careers. I worked hard, I was well compensated in both salary, and a sense of accomplishment and satisfaction. At the same time, I thoroughly enjoyed my family life as well. Life is good!

I feel bad for those who can't seem to do both. Maybe it's luck. Maybe there are other factors involved.
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rgs92
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Re: My Pension will not have COLA. Plz suggest a Portfolio to act as my COLA

Post by rgs92 »

Run your numbers through Firecalc or cFIREsim (which is easier to use) and see what the results say.
Both of these accept constant (never changing) income streams.

You can create some what-if scenarios (such as adjusting your portfolio asset allocation).
Good luck.
single2019
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Re: My Pension will not have COLA. Plz suggest a Portfolio to act as my COLA

Post by single2019 »

JoeRetire wrote: Mon Nov 22, 2021 8:16 am
TomatoTomahto wrote: Mon Nov 22, 2021 7:41 am
JoeRetire wrote: Mon Nov 22, 2021 7:10 am
single2019 wrote: Sun Nov 21, 2021 11:01 pm
JoeRetire wrote: Sun Nov 21, 2021 4:52 pm

Consider working longer to compensate for the lack of COLA.
Huh?
Would your response be the same if op was retiring at 57 or 58 or ….
Of course.
Worried about lack of COLA? Work longer, save more. No risk. No volatility. Seems obvious to me.
+1
OP hasn’t given specifics. But, OP is worried about COLA. So, other than going long equities, not retiring so early is the best call in the dark.
I know it often isn't received well here, but working longer is a good solution for a lot of financial problems. Many times it's far more effective than any wacky investment/withdrawal strategy.
OP never used the word “worried”.

I am in a similar situation. Retired with nice pension without COLA. Working longer would have been the worst advice for me. I worked hard and earned my retirement.

My advice to OP with the limited information provided: draw down your assets as needed. This 401k generation is going to be a part of humorous wealth transfer.
Beehave
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Re: My Pension will not have COLA. Plz suggest a Portfolio to act as my COLA

Post by Beehave »

If you will be getting both pension and Social Security, then both together comprise guaranteed monthly income, and the SS portion is COLA'd.

In that case, you have some level of monthly income that is COLA'd, and over time the COLA'd portion grows percentage-wise in proportion and significance relative to non-COLA's portion. So regarding inflation, the monthly income protection scenario, if it includes SS, is not at all as bleak as it may appear when considering the pension alone.

Recommendations of:

- part-time work you enjoy
- laddered small SPIA or QLAC annuity investments (check the mortality credit growth per increasing age to cherry pick the ladder steps)
- likelihood that long-term stock growth will provide protection
- TIPS
- maxing SS payments

each make sense to me. There are no investing guarantees, so diversify. Part-time work is not necessary, but if there is part-time work you enjoy it can have great financial and other benefits.

Best wishes.
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Re: My Pension will not have COLA. Plz suggest a Portfolio to act as my COLA

Post by sycamore »

single2019 wrote: Mon Nov 22, 2021 9:10 pm ...My advice to OP with the limited information provided: draw down your assets as needed. This 401k generation is going to be a part of humorous wealth transfer.
And laughing all the way to the bank? :-)
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Re: My Pension will not have COLA. Plz suggest a Portfolio to act as my COLA

Post by bhsince87 »

There are no guarantees, unfortunately.

"Working longer" might not be a bad idea, but it is not related (or correlated) to inflation in any way.

I would say an 80/20 or 90/10 stock/bond portfolio, with rebalancing, might be a good approach for a pension supplemental portfolio.
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grok87
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Re: My Pension will not have COLA. Plz suggest a Portfolio to act as my COLA

Post by grok87 »

the way i would think about this is as follows:

1) ideally you would have:
1) a COLA's pension to cover basic living costs: aka Liability matching portfoilio aka LMP
2) a "risk" portfolio aka RP that is invested say 70/30 stocks/bonds from which you could do say a 4% Safe withdrawal rate (SWR) strategy to generate other retirement income

As you have pointed out a non-COLA'd pension doesn't really fit the bill for 1). There is no magical way to turn a non-cola'd pension into a COLA'd pension.

Instead i would recommend the following:

1) consider Social Security to be your COLA'd pension and supplement as needed with TIPS and Ibonds.
2) figure out the present value of your non-cola'd pension and use that as part or all of the bond piece of your 70/30 stock/bond allocation for your risk portfolio.

cheers,
grok
RIP Mr. Bogle.
single2019
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Re: My Pension will not have COLA. Plz suggest a Portfolio to act as my COLA

Post by single2019 »

sycamore wrote: Mon Nov 22, 2021 9:44 pm
single2019 wrote: Mon Nov 22, 2021 9:10 pm ...My advice to OP with the limited information provided: draw down your assets as needed. This 401k generation is going to be a part of humorous wealth transfer.
And laughing all the way to the bank? :-)
Yes. The ones who inherit
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Re: My Pension will not have COLA. Plz suggest a Portfolio to act as my COLA

Post by BernardShakey »

JoeRetire wrote: Mon Nov 22, 2021 11:18 am
TomatoTomahto wrote: Mon Nov 22, 2021 9:24 am
JoeRetire wrote: Mon Nov 22, 2021 8:16 am I know it often isn't received well here, but working longer is a good solution for a lot of financial problems. Many times it's far more effective than any wacky investment/withdrawal strategy.
It saddens me that so many people here can’t seem to wait to retire, even if the numbers are thin. I can understand it in some cases, but we were lucky enough to get satisfaction from work and I’d wish that for everyone.
Agreed, although I suspect some of that is more of a "let's see who can retire soonest" humblebrag thing here that doesn't represent the wider community of working people.

I like to enjoy every year - those when working, and those when retired. I thoroughly enjoyed my careers. I worked hard, I was well compensated in both salary, and a sense of accomplishment and satisfaction. At the same time, I thoroughly enjoyed my family life as well. Life is good!

I feel bad for those who can't seem to do both. Maybe it's luck. Maybe there are other factors involved.
Hmm, you seem to be implying the OP isn't also balancing a great career and life balance. OP is simply looking to retire at 55 (no mention of any job dissatisfaction) with a non-COLA pension. Retirement at 55 should be taken by other posters as a constraint and help he / she manage to that goal. OP could have a myriad of reasons for wanting to retire at 55. Granted, not enough information given to evaluate, but also isn't any suggestion that OP is dissatisfied with work or life. Early Retirement does not necessarily equate to "I hate my job".
An important key to investing is having a well-calibrated sense of your future regret.
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Re: My Pension will not have COLA. Plz suggest a Portfolio to act as my COLA

Post by willthrill81 »

dbr wrote: Sun Nov 21, 2021 4:51 pm
Stillwater1971 wrote: Sun Nov 21, 2021 4:38 pm I'll be retiring in 5 years(I'll be 55) and will receive a Pension that will allow me to live within my means for a while. But my Pension won't be receiving COLA and I won't have anything much in SS, if at all.

What would be a good Portfolio that could act as the COLA for my Pension? The less risk/volatility the better, but not necessary.
To compensate for loss of puchasing power in your pension income from other sources will have to rise faster than inflation. Even having SS or inflation indexed fixed income does not do that. For conventional portfolios that means increasing withdrawals from stocks and bonds faster than rate of inflation.
This is very true, and there is no simple solution to the problem that I am aware of. Basically, a fixed nominal pension combined with fixed real spending will result in a gap that increases at the compounded rate of inflation.

As an example, a retiree at the beginning of the year 2000 with a $40,000 nominal pension would have needed an additional $1,355 a year later to have the same buying power (according to CPI). By the end of 2009, a decade into the retirement, the annual gap would have increased to $11,325. By the end of this year, the annual gap would be around $25,000 nominal dollars (i.e., 2022 dollars). Due to the cumulative nature of inflation, the nominal pension becomes worth progressively less and less. And the last 22 years have generally seen historically very low inflation. The future could see a meaningfully higher inflation rate. Using the rule of 72, 2% steady inflation would halve the buying power of a nominal pension after 36 years, and 3% steady inflation would do the same in 24 years. And since the effect of inflation in this manner is cumulative, the length of the retirement has a far bigger impact on the needed initial 'side portfolio' size needed to fund the gap than what is seen in the safe withdrawal rate research. Given enough time and/or high enough inflation, the buying power of the nominal pension would become progressively smaller until it became essentially zero. This is where longevity risk and inflation risk combine in a fantastically negative way for retirees who are relying on a fixed nominal pension.

A potential saving grace here could be that retirees' spending seems to decline, on average, by roughly 1% in real dollars each year, which significantly reduces the cumulative effects of low inflation over lengthy periods of time. Effectively reducing a 2% inflation rate to just 1% is a big help. But reducing 5% inflation to 4%, for instance, would still result in a rapidly shrinking gap between the starting and subsequent buying power of the nominal pension.

Determining the inflation-adjusted value of a nominal pension so that one could estimate how large of a 'side portfolio' one needed to fund the above inflation gap is entirely dependent on future inflation and how long one will live, both of which are entirely unknown.

The best means of dealing with this strategy that I can think of offhand is to start with a side portfolio heavily tilted toward equities and other asset classes likely to outpace inflation over the long-term. What I'm not sure of yet is what a reasonable starting size for that side portfolio should be. Without really digging into the historic data, my guess is that, assuming historic rates of inflation and a 30 year retirement, the starting size would be somewhere in the vicinity of 10 times the annual starting payout of the fixed pension.
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Ben Mathew
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Re: My Pension will not have COLA. Plz suggest a Portfolio to act as my COLA

Post by Ben Mathew »

Stillwater1971 wrote: Sun Nov 21, 2021 4:38 pm I'll be retiring in 5 years(I'll be 55) and will receive a Pension that will allow me to live within my means for a while. But my Pension won't be receiving COLA and I won't have anything much in SS, if at all.

What would be a good Portfolio that could act as the COLA for my Pension? The less risk/volatility the better, but not necessary.
This is not about the asset allocation of your portfolio. Rather, this is about your withdrawal strategy.

Whatever assets you hold, you would need to withdraw less from the portfolio in early retirement and more in late retirement to compensate for the declining real pension payouts.
heyyou
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Re: My Pension will not have COLA. Plz suggest a Portfolio to act as my COLA

Post by heyyou »

One alternative to buffer a no-COLA pension is to work at an easier job after retiring, if that suits the retiree. In my town, a military retiree is stocking at WalMart. I suspect the aggravations there are a magnitude less than at a career job.
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JoeRetire
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Re: My Pension will not have COLA. Plz suggest a Portfolio to act as my COLA

Post by JoeRetire »

single2019 wrote: Mon Nov 22, 2021 9:10 pm OP never used the word “worried”.
True. The OP was motivated for some reason to post here indicating that their pension will not have a COLA. Included that in their title. And asked for help. But they didn't actually use the term "worried". I did.
I am in a similar situation. Retired with nice pension without COLA. Working longer would have been the worst advice for me. I worked hard and earned my retirement.
Nobody ever said you haven't earned your retirement. And I'm sure the OP earned their retirement too. And everyone who finds themselves looking at a future that may be negatively impacted by inflation probably earned their retirement too.

But "earning" has nothing to do with anything.

Some folks would be better served by working longer. Perhaps the OP, if not you.
My advice to OP with the limited information provided: draw down your assets as needed. This 401k generation is going to be a part of humorous wealth transfer.
I don't see how this helps a non-COLA situation. And I don't understand the connection to "wealth transfer"?
Are you suggesting that the OP shouldn't be concerned about inflation because an inheritance will surely be coming their way? If so, on what basis do you make that assumption?
Last edited by JoeRetire on Tue Nov 23, 2021 7:15 am, edited 1 time in total.
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Re: My Pension will not have COLA. Plz suggest a Portfolio to act as my COLA

Post by JoeRetire »

Beehave wrote: Mon Nov 22, 2021 9:31 pm If you will be getting both pension and Social Security, then both together comprise guaranteed monthly income, and the SS portion is COLA'd.
OP: "I won't have anything much in SS, if at all."
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JoeRetire
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Re: My Pension will not have COLA. Plz suggest a Portfolio to act as my COLA

Post by JoeRetire »

bhsince87 wrote: Mon Nov 22, 2021 10:17 pm There are no guarantees, unfortunately.
Right. If someone is looking for guarantees, this is the wrong forum.
"Working longer" might not be a bad idea, but it is not related (or correlated) to inflation in any way.
True. But the money earned by working longer, and a consequently larger portfolio, can help compensate for the loss of earning power due to inflation.
I would say an 80/20 or 90/10 stock/bond portfolio, with rebalancing, might be a good approach for a pension supplemental portfolio.
So "take on more risk than you otherwise would" as an approach? That seems reasonable.
Last edited by JoeRetire on Tue Nov 23, 2021 7:17 am, edited 2 times in total.
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Re: My Pension will not have COLA. Plz suggest a Portfolio to act as my COLA

Post by JoeRetire »

grok87 wrote: Mon Nov 22, 2021 10:24 pm 1) consider Social Security to be your COLA'd pension and supplement as needed with TIPS and Ibonds.
OP: "I won't have anything much in SS, if at all."

So, lots of TIPS and iBonds?
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JoeRetire
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Re: My Pension will not have COLA. Plz suggest a Portfolio to act as my COLA

Post by JoeRetire »

BernardShakey wrote: Mon Nov 22, 2021 11:44 pm
JoeRetire wrote: Mon Nov 22, 2021 11:18 am
TomatoTomahto wrote: Mon Nov 22, 2021 9:24 am
JoeRetire wrote: Mon Nov 22, 2021 8:16 am I know it often isn't received well here, but working longer is a good solution for a lot of financial problems. Many times it's far more effective than any wacky investment/withdrawal strategy.
It saddens me that so many people here can’t seem to wait to retire, even if the numbers are thin. I can understand it in some cases, but we were lucky enough to get satisfaction from work and I’d wish that for everyone.
Agreed, although I suspect some of that is more of a "let's see who can retire soonest" humblebrag thing here that doesn't represent the wider community of working people.

I like to enjoy every year - those when working, and those when retired. I thoroughly enjoyed my careers. I worked hard, I was well compensated in both salary, and a sense of accomplishment and satisfaction. At the same time, I thoroughly enjoyed my family life as well. Life is good!

I feel bad for those who can't seem to do both. Maybe it's luck. Maybe there are other factors involved.
Hmm, you seem to be implying the OP isn't also balancing a great career and life balance.
I didn't imply that about the OP at all. I wasn't talking about the OP with those comments. It was in response to the "It saddens me that so many people here can’t seem to wait to retire, even if the numbers are thin." Sorry if that was confusing. Sometimes nested comments like we have in this forum can be hard for people to follow.
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Re: My Pension will not have COLA. Plz suggest a Portfolio to act as my COLA

Post by Point »

Let me take a stab at this…

Let’s say you’re making a pension of 100k a year and inflation averages 2% per year. You need to make up a shortfall of 2k per year.

To produce that 2K yield for life, you would need to have invested 57,143 in a good index fund at the onset.

100,000 x .02 = annual inflation makeup target.
Target / .035 = initial investment.

Pick the investment mix you are comfortable with realizing you’re going to have to have growth (risk) to produce yield.

If inflation averages higher, adjust the equation.
Last edited by Point on Tue Nov 23, 2021 3:41 pm, edited 1 time in total.
grok87
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Re: My Pension will not have COLA. Plz suggest a Portfolio to act as my COLA

Post by grok87 »

JoeRetire wrote: Tue Nov 23, 2021 7:08 am
grok87 wrote: Mon Nov 22, 2021 10:24 pm 1) consider Social Security to be your COLA'd pension and supplement as needed with TIPS and Ibonds.
OP: "I won't have anything much in SS, if at all."

So, lots of TIPS and iBonds?
thanks, i had missed that in the OP.
yes, if anything that would lead me to double down on my suggestion.
cheers,
grok
RIP Mr. Bogle.
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