The lowest stock allocation you plan to stay with

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john94549
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Re: The lowest stock allocation you plan to stay with

Post by john94549 » Fri Jan 30, 2015 8:24 pm

Since we plan to harvest our IRA CDs for the initial 15 years or so, I suspect our AA will reflect a larger stock allocation going forward. Some refer to it as a "reverse glide path". We're 67, pushing 68, and will probably start taking distributions next year, if my wife (finally) decides to retire.
Last edited by john94549 on Fri Jan 30, 2015 8:28 pm, edited 1 time in total.

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jfn111
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Re: The lowest stock allocation you plan to stay with

Post by jfn111 » Fri Jan 30, 2015 8:25 pm

Stupid question, when people say they have saved X times expenses, what do they mean?
If I want $80,000 per year and I have a $40,000 pension do I just take the remaining $40,000 and divide by portfolio?
Do I ignore future Social Security?
I realized I have answered this in polls but maybe not accurately. :oops:

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joe8d
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Re: The lowest stock allocation you plan to stay with

Post by joe8d » Fri Jan 30, 2015 8:28 pm

50% Stock.
All the Best, | Joe

john94549
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Re: The lowest stock allocation you plan to stay with

Post by john94549 » Fri Jan 30, 2015 8:34 pm

jfn111, you need to add up all sources of income you expect in retirement, then subtract from the total the expenses you expect. For example, it is possible that a two-earner couple might well generate $40,000 (or thereabouts) in Social Security income, which, when coupled with a $40,000 pension, would come close to covering your expenses. You'd need to figure taxes, of course.

Some articles you read might advocate "25 X expenses", but that's some what misleading. It's just a variant on the SWR, and it ignores other sources of income. A more accurate formula might be "25 X expenses not covered by other sources of income".
Last edited by john94549 on Fri Jan 30, 2015 8:46 pm, edited 1 time in total.

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jfn111
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Re: The lowest stock allocation you plan to stay with

Post by jfn111 » Fri Jan 30, 2015 8:38 pm

john94549 wrote:jfn111, you need to add up all sources of income you expect in retirement, then subtract from the total the expenses you expect. For example, it is possible that a two-earner couple might well generate $40,000 (or thereabouts) in Social Security income, which, when coupled with a $40,000 pension, would cover your expenses. Social Security is COLA'd, your pension might, or might not. But this might help your planning.
I appreciate that, thanks!
I was just wondering what the actual formula was when people say they have 30 times expenses saved? If I deduct the pension and future SS I have an infinite amount of expenses saved. :confused

john94549
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Re: The lowest stock allocation you plan to stay with

Post by john94549 » Fri Jan 30, 2015 8:48 pm

I edited my post to anticipate your question.

letsgobobby
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Re: The lowest stock allocation you plan to stay with

Post by letsgobobby » Fri Jan 30, 2015 8:51 pm

so much of this depends on your portfolio size relative to spending.

If you get to 50x spending, your answer will be a lot different than if you only get to 10x spending.

I'm thinking 50/50, but remember I use a tactical allocation model, so if PE10s get really high I will definitely be lowering my stock allocation below 50%. If PE10 were 50 and I were 80, my stock allocation would be 0%.

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jfn111
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Re: The lowest stock allocation you plan to stay with

Post by jfn111 » Fri Jan 30, 2015 9:03 pm

john94549 wrote:jfn111, you need to add up all sources of income you expect in retirement, then subtract from the total the expenses you expect. For example, it is possible that a two-earner couple might well generate $40,000 (or thereabouts) in Social Security income, which, when coupled with a $40,000 pension, would come close to covering your expenses. You'd need to figure taxes, of course.

Some articles you read might advocate "25 X expenses", but that's some what misleading. It's just a variant on the SWR, and it ignores other sources of income. A more accurate formula might be "25 X expenses not covered by other sources of income".
Perfect, Thanks! :sharebeer

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Re: The lowest stock allocation you plan to stay with

Post by lack_ey » Fri Jan 30, 2015 9:03 pm

jfn111 wrote:
john94549 wrote:jfn111, you need to add up all sources of income you expect in retirement, then subtract from the total the expenses you expect. For example, it is possible that a two-earner couple might well generate $40,000 (or thereabouts) in Social Security income, which, when coupled with a $40,000 pension, would cover your expenses. Social Security is COLA'd, your pension might, or might not. But this might help your planning.
I appreciate that, thanks!
I was just wondering what the actual formula was when people say they have 30 times expenses saved? If I deduct the pension and future SS I have an infinite amount of expenses saved. :confused
I'm pretty sure there's little consistency when people say such things, but personally by "expenses" I mean total expenses minus income from sources such as pensions and SS. So 30x saved means thirty times the annual residual expenses, where both are calculated in year Y dollars, whatever Y is. Doesn't matter as long as it's consistent. It gets fuzzy if these income streams are not cost of living (inflation) adjusted because the payout effectively decreases over time. It's also fuzzy if retiring before taking SS and needing to guess at future residual expenses.

This accounting is consistent with baseline generic calculations about safe withdrawal rates and so on—retirement portfolio withdrawals, with the famous 4% withdrawal rate guideline (adjusted every year for inflation) that's perhaps considered a wee bit optimistic for 30+ year horizons and today's market conditions. In practice, virtually everyone withdraws some kind of variable amount per year, so this is just for rough planning. Savings equal to 30x savings would imply a 3.33% withdrawal rate, which should be on the safe(r) side but not bulletproof at all. I think the research shows more consistent success in the long run and some nontrivial legacy left with some combination of stocks and SPIAs (not so much regular fixed income), hence my reasoning. I haven't done more than a superficial reading and investigation of that, as plans and optimal strategies are likely to change a couple decades from now.

tldr: I'd say you have "infinite" expenses covered, but maybe that's just me. Maybe not quite infinite with a pension that's not COLA'd, in which case I guess inflation hedges sound like a fine idea. And "infinite" in a simplified model can turn into not-very-infinite-at-all in the real world if something bad happens.

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Texas Radio
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Re: The lowest stock allocation you plan to stay with

Post by Texas Radio » Fri Jan 30, 2015 9:23 pm

for simplicity will probably move all to Wellesley due to my future feeble mind and for uneducated heirs, so 40/60
A portfolio is like a bar of soap. The more you handle it the smaller it gets.

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Sheepdog
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Re: The lowest stock allocation you plan to stay with

Post by Sheepdog » Fri Jan 30, 2015 9:26 pm

My stock allocation has been 100 minus my age since I was 66. (34% at 66). (I was at 55% at 65.) I continued that formula until I was 78 (22%). I have remained at 22% since. I will be 82 this year. I have lived off my investments and SS only. My investment value has grown since retiring at 65, so I can say that that has been successful for me. You can read more about my retirement investment experience in this recent thread, viewtopic.php?f=10&t=156867
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Ged
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Re: The lowest stock allocation you plan to stay with

Post by Ged » Fri Jan 30, 2015 9:26 pm

I do not plan to go lower than 40%. I am there right now, at age 65. I will likely increase my stock holdings to 50, maybe as high as 60% as I age depending on how my children are making out.

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Re: The lowest stock allocation you plan to stay with

Post by hoops777 » Fri Jan 30, 2015 10:01 pm

At 63 and owning a small mom and pop business the plan is to work until 70 and maybe longer if I feel like it.I am currently attempting to adjust to 30/70 and keep that going forward until retirement.At that point I would like to have whatever pct in risk free is necessary to fund my retirement and the rest in stocks.
K.I.S.S........so easy to say so difficult to do.

john94549
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Re: The lowest stock allocation you plan to stay with

Post by john94549 » Fri Jan 30, 2015 10:27 pm

hoops777 wrote:At 63 and owning a small mom and pop business the plan is to work until 70 and maybe longer if I feel like it.I am currently attempting to adjust to 30/70 and keep that going forward until retirement.At that point I would like to have whatever pct in risk free is necessary to fund my retirement and the rest in stocks.
We did the same thing, in a way, by having enough in IRA CDs to cover the first 15 years (from 70 - 85). FDIC- or NCUA-CDs are about as good as it gets for "risk-free". Should we outlive those CDs, the tax-deferred stock and bond funds are tapped, then after-tax assets. At age 63, with projected retirement at 70, you have more than enough time to build a five-year ladder of five-year CDs. Feel free to PM.

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burt
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Re: The lowest stock allocation you plan to stay with

Post by burt » Sat Jan 31, 2015 8:31 am

Texas Radio wrote:for simplicity will probably move all to Wellesley due to my future feeble mind and for uneducated heirs, so 40/60
Very Good !
There is wisdom in that simple sentence.

burt

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Re: The lowest stock allocation you plan to stay with

Post by sambb » Sat Jan 31, 2015 9:27 am

I think I will stay at 60/40 or 50/50
It appears that the worst yearly return of 60/40 is -30%
I hope to accumulate 50% more than I plan on needing, so i should be able to weather a downturn.

Of course easy for me to say now, it will depend on life and world events, tax changes, and other unrecognized issues in the future, and that is impossible to predict

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Re: The lowest stock allocation you plan to stay with

Post by YDNAL » Sat Jan 31, 2015 10:07 am

stemikger wrote:Hey folks,

Don't get nervous, this is not whether I should go into a 100% stock portfolio. I was looking at the Vanguard Target Retirement Income fund which settles at 30% stocks and I remember in another thread Taylor was saying how 60/40 Balanced Index Fund is too aggressive for an older person. My plan was to settle at 50/50 or 60/40 for life because I think 30% stocks is not enough exposure if I want to leave some behind. For the record, I'm currently at 65/35.
Mike,

Recent significant Equity declines (2001/02, 2008/09), with relatively swift recoveries, are a recency bias trap.
  • 1. A $1 million portfolio, invested 650/350 split (your AA), takes a $325K hit in a 50% Stock correction.
    2. We should ask ourselves..... A prolonged subsequent period of lackluster returns does WHAT to goals such as funding retirement and yours to "leave some behind"???
stemikger wrote:Would love to hear where you folks plan to settle at.
Percentages are nothing but a simple Math equation. I personally use *multiples* values of need for money to meet ALL goals. But, to answer your question, a 40/60 Equity/Fixed split. Fixed income provides sufficiently to meet ALL goals and then some. In a large (like 50%) Stock correction, I could easily buy more Stocks, depending on many other factors.
Landy | Be yourself, everyone else is already taken -- Oscar Wilde

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Re: The lowest stock allocation you plan to stay with

Post by antiqueman » Sat Jan 31, 2015 10:32 am

This a great thread.

I am only 15% equities of total portfolio with 20 years CD's , short term bond funds and Tips. Hopefully will not need equity money for at least 15 years.

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Re: The lowest stock allocation you plan to stay with

Post by BostonBoy » Sat Jan 31, 2015 10:58 am

50/50 and have been at this allocation since retirement in June 2007.

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Re: The lowest stock allocation you plan to stay with

Post by B'Falls_JT » Sat Jan 31, 2015 10:59 am

We are currently retired and in our early sixties. The target allocation for our portfolio is 40/60. This seems to be appropriate to meet our goals while not exceeding our appetite for risk. (with the understanding that we do not have a crystal ball to know how things will work out). Depending on future economic conditions, we would consider a range of 30% minimum to 50% maximum for equities. We are currently a bit above our 40% target for stocks.

JT

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Re: The lowest stock allocation you plan to stay with

Post by novicemoney » Sat Jan 31, 2015 11:06 am

CABob wrote:This is an interesting conversation. The comparison between the "youngsters" looking years down the road and the "seniors" looking at the near term is especially interesting to me.
I am 75 and been retired for over 10 years and am currently at a 45% equity allocation. I don't anticipate going below 30% equity but you never know until you are there.
When you look at what recommendations are for AA the assumptions made are that you far away from retirement or close to in retirement. We are in a in between positions in that we are 10 years out from retirement but think we are "there" for our nest egg. So a lot of scenarios don't quite fit our situation. We are electing to go 35/65 and to scale back our "play time". Now if you go that route, you have to pay more attention to what do with your FI portion. Another set of thorny problems (but a good problem to have vs. not having enough).

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jfn111
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Re: The lowest stock allocation you plan to stay with

Post by jfn111 » Sat Jan 31, 2015 11:21 am

Age 58 and currently at 46/54. I'm working my way to 50/50 after realizing I went a little to conservative when I retired.

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Re: The lowest stock allocation you plan to stay with

Post by malabargold » Sat Jan 31, 2015 11:23 am

For us, never less than 95% stocks.

Our rationale:


1. Early on you have time on your side to be aggressive if things crash for a protracted period.
Depressed stock prices work to your advantage with continued investments.

2.Mid-cycle you have good earnings, and a good dividend stream to support your confidence
If things crash for a protracted period. Depressed stock prices still work to your advantage

3. Later life. A life time of saving and investing in stock has created a huge dividend stream,
It doesn't matter if stock prices slump severely. You are now investing for future generations with lots
Of time on their side and the dividend stream, if stock prices slump for a long period

Pass this outlook along with the stocks ( at a stepped up basis) when you exit the stage

Rinse and repeat

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Re: The lowest stock allocation you plan to stay with

Post by Sconie » Sat Jan 31, 2015 11:31 am

The great investor, Benjamin Graham, once said that---in relation to bonds, that one should never hold less than 25% common stocks---and never more than 75%. I believe that is good advice.

At age 66, my personal allocation is 2/3 equity and 1/3 fixed, with a generous cash holding, in addition.
I know that you think you understand what you thought I said, but I don't think you realize that what I said is necessarily what I meant......

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Phineas J. Whoopee
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Re: The lowest stock allocation you plan to stay with

Post by Phineas J. Whoopee » Sat Jan 31, 2015 1:11 pm

jfn111 wrote:Stupid question, when people say they have saved X times expenses, what do they mean?
...
It has a usual meaning in corporate speak, but maybe not in personal finance. Usage here does vary, I notice.

When I say expenses I mean outgo including projected income tax, but not to buy capital assets (like a rental apartment building, for example, which I've no plans to invest in anyway). I don't plan to own a car again, but if I bought one, for my own purposes I'd probably think of it as expense-like rather than capital-like. I have done otherwise in the past. Depreciation is the accounting solution but more complex than I need in my life, because I wouldn't decide to do anything different either way.

When I mean planned withdrawals from my retirement portfolio I say planned withdrawals. The portfolio includes taxable assets, so an eventual RMD that I decide not to spend all of won't count, in its entirety, as a withdrawal, although it will generate an income tax expense.

When I mean cash flow that's what I say.

My lowest equity level is 40%, by the way, according to current plans. If things go really well and I'm still alive it may drop to 30% somewhere around age 75 - 85. There's plenty of time left for me to think about that, and perhaps switch to something like a LifeStrategy or Target Retirement Income fund then to make my setup less error prone. The time to plan for the possibility of cognitive decline is before it sets in, if it's ever going to, it seems to me.

PJW

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Re: The lowest stock allocation you plan to stay with

Post by YDNAL » Sun Feb 01, 2015 1:43 pm

jfn111 wrote:Stupid question, when people say they have saved X times expenses, what do they mean?
If I want $80,000 per year and I have a $40,000 pension do I just take the remaining $40,000 and divide by portfolio?
Do I ignore future Social Security?
I realized I have answered this in polls but maybe not accurately. :oops:
It means a savings *multiple* of expenses -- which have been reduced by all other sources of income.

In your example, if pension is $40K and social security is $20K (for instance), it is "saving X times" $20K ($80K - $60K).
Landy | Be yourself, everyone else is already taken -- Oscar Wilde

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jfn111
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Re: The lowest stock allocation you plan to stay with

Post by jfn111 » Sun Feb 01, 2015 2:33 pm

YDNAL wrote:
jfn111 wrote:Stupid question, when people say they have saved X times expenses, what do they mean?
If I want $80,000 per year and I have a $40,000 pension do I just take the remaining $40,000 and divide by portfolio?
Do I ignore future Social Security?
I realized I have answered this in polls but maybe not accurately. :oops:
It means a savings *multiple* of expenses -- which have been reduced by all other sources of income.

In your example, if pension is $40K and social security is $20K (for instance), it is "saving X times" $20K ($80K - $60K).
I appreciate the response. We sometimes throw out concepts and assume everyone is interpreting the same way.

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Re: The lowest stock allocation you plan to stay with

Post by YDNAL » Tue Feb 03, 2015 6:32 am

jfn111 wrote:
YDNAL wrote:
jfn111 wrote:Stupid question, when people say they have saved X times expenses, what do they mean?
If I want $80,000 per year and I have a $40,000 pension do I just take the remaining $40,000 and divide by portfolio?
Do I ignore future Social Security?
I realized I have answered this in polls but maybe not accurately. :oops:
It means a savings *multiple* of expenses -- which have been reduced by all other sources of income.

In your example, if pension is $40K and social security is $20K (for instance), it is "saving X times" $20K ($80K - $60K).
I appreciate the response. We sometimes throw out concepts and assume everyone is interpreting the same way.
If you want to read more about it, Bill Bernstein refers to this as a multiple of "residual expenses."
Landy | Be yourself, everyone else is already taken -- Oscar Wilde

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Re: The lowest stock allocation you plan to stay with

Post by zzcooper123 » Tue Feb 03, 2015 7:36 am

Just retired this year. Currently at 35/65. Anticipate going to 30/70 in 2016 with another capital gain harvest. Then rising equity glidepath to 50/50 over next 5 years.

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Re: The lowest stock allocation you plan to stay with

Post by obgyn65 » Tue Feb 03, 2015 8:00 am

I have never owned stocks and do not plan to buy any. Therefore my answer is 0%.
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