Is 120 months of expenses in Fixed Income plus 100/0 a viable long term allocation?

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TheTimeLord
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Is 120 months of expenses in Fixed Income plus 100/0 a viable long term allocation?

Post by TheTimeLord »

As a future early retiree I have been spending far too much time and effort trying to figure out an AA while balancing income needs for the years before FRA with those after once we start receiving SS and small pensions. So I think I am settling on something like 120 months (10 years) of full expenses, not basic, with the remainder invested somewhere between 80/20 and 100/0 as my long term asset allocation strategy. This solves the dilemma I was dealing with because once within 120 months of FRA I start replacing months that were Full Expenses in Fixed Income with months that are Full Expenses minus SS and Pension. So 10 or more years from FRA I would have 120 x Full Expenses in Fixed Income with the remainder invested as stated above then at 9 years from FRA I would have 108 x Full Expenses plus 12 x Full Expenses minus SS and Pension in Fixed Income with the remainder invested as stated above. Any reason why this would not be a viable long term asset allocation strategy?
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Re: Is 120 months of expenses in Fixed Income plus 100/0 a viable long term allocation?

Post by maniminto »

Where would you invest 120 months of expenses in FI? How many months of expenses would the 100/0 or 80/20 AA constitute?
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Re: Is 120 months of expenses in Fixed Income plus 100/0 a viable long term allocation?

Post by dbr »

Sure it is probably viable. Whether or not there is a significant benefit to use this plan compared to some other plan, I don't know. To find out you would have to run some models that compare results of interest while putting in different scenarios including the one you propose. I suspect you are not going to see big differences beyond a psychological one involving mental accounting that your short term expenses are coming from a very predictable fund of money while you imagine the lack of return is offset by the long term allocation being more risky.

Your reasoning as to why this is a good idea is not presented, so who knows if your reasoning actually makes sense.
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Re: Is 120 months of expenses in Fixed Income plus 100/0 a viable long term allocation?

Post by TomatoTomahto »

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I get the FI part but not the RE part of FIRE.
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Re: Is 120 months of expenses in Fixed Income plus 100/0 a viable long term allocation?

Post by dbr »

maniminto wrote: Sat Dec 16, 2017 9:34 am Where would you invest 120 months of expenses in FI? How many months of expenses would the 100/0 or 80/20 AA constitute?
Indeed the viability of the result does depend on the details.

I think it is generally true that how much trouble one is or isn't in when financing a bridge to the onset of income streams would depend a lot on how large those income streams are and how much money is allocated to these imaginary "buckets."
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Re: Is 120 months of expenses in Fixed Income plus 100/0 a viable long term allocation?

Post by Alexa9 »

I think you're overanalyzing it in a way that isn't that helpful. What would this allocation be including fixed income? If it's close to the Target Date Funds, it's good.
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Re: Is 120 months of expenses in Fixed Income plus 100/0 a viable long term allocation?

Post by KlangFool »

OP,

Yes if the 100/0 portion represents 30 or more years of annual expense. Then, even if the market drop by 50%, you still have 25 years of expense.

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Re: Is 120 months of expenses in Fixed Income plus 100/0 a viable long term allocation?

Post by TheTimeLord »

Alexa9 wrote: Sat Dec 16, 2017 9:44 am I think you're overanalyzing it in a way that isn't that helpful. What would this allocation be including fixed income? If it's close to the Target Date Funds, it's good.
Personally, I see no reason to believe a generic target date fund would be able to accurately divine an individual's AA. I don't think they are bad or evil, just don't place a lot of stock in their asset allocations related to a specific individual's situation.
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Re: Is 120 months of expenses in Fixed Income plus 100/0 a viable long term allocation?

Post by Sandtrap »

Kudos for having it so well thought out, "TimeLord".
I've been following your "mental math" (buckets) for awhile and while it makes sense and seems very viable, I wonder if it's an attempt to optimize "6" or a "half dozen". . otherwise known as "splitting hairs". To simply have a comprehensive overall allocation sans buckets probably yields similar end results, marginally better or worse than the approach you have now. My simple mind likes your approach, the "bucket thing", but I also can understand the more common "Bogle" approach which is comprehensive and maintains a single allocation.
What you propose makes a lot of sense. I'm trying to better understand it.
Is your approach an attempt to ameliorate the "retirement red zone"? Can't remember. . think it was "Kitces"?
Mahalo.
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Re: Is 120 months of expenses in Fixed Income plus 100/0 a viable long term allocation?

Post by dbr »

To be more clear, this is a scheme that starts with a certain unspecified allocation between fixed income and equities and a certain withdrawal rate where there is a plan to change the allocation over a period of time at the end of which the withdrawal rate will be reduced and the asset allocation will arrive at 100/0.

Pending supplying the missing data such as the initial asset allocation and the two withdrawal rates one would have to model the outcome as a function of the return distributions that could arise in each year as a result of the asset allocation and then compute how the portfolio would evolve in the presence of the given withdrawals. I think the opposite effects of return and variability of return together with the dependence on what the withdrawal rates actually are and what the asset allocations actually are are complex enough that there is no intuition for what benefit this plan has.

Offhand it is not obvious that the result is different from just investing at 60/40 or some such thing and just taking the withdrawals, until one can actually show there is a difference that matters. Otherwise it is all just mental accounting.
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Re: Is 120 months of expenses in Fixed Income plus 100/0 a viable long term allocation?

Post by TheTimeLord »

KlangFool wrote: Sat Dec 16, 2017 9:44 am OP,

Yes if the 100/0 portion represents 30 or more years of annual expense. Then, even if the market drop by 50%, you still have 25 years of expense.

KlangFool
I guess I am not really worrying about addressing the edge case of all equity markets I am invested in dropping by 50% and staying there for more than 10 years. More focused on addressing the case where my equities drop 30%-40% and takes 3 years to recover. Nuclear winter, is nuclear winter, you ain't going outside to build snowmen.
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Re: Is 120 months of expenses in Fixed Income plus 100/0 a viable long term allocation?

Post by Watty »

TheTimeLord wrote: Sat Dec 16, 2017 9:26 am Any reason why this would not be a viable long term asset allocation strategy?
Inflation could be an issue. If you bought a ten year ladder of individual TIPS bonds in a retirement account where a year's worth of expenses matured every year that would eliminate that problem.
TheTimeLord wrote: Sat Dec 16, 2017 9:26 am with the remainder invested somewhere between 80/20 and 100/0
That is way too aggressive. For comparison the Vanguard 2030 fund is 75/25.

The money in the TIPS ladder, or whatever you use, can't be counted as part of your other retirement asset allocation since you are committed to spending it and you would not liquidate part of the TIPS ladder to rebalance.

You might be able to simplify the way you are saying this to just be.

1) Ten years expenses in a TIPS ladder to get you to FRA.
2) The rest in a target date fund to match your FRA.

That would be pretty(very?) conservative but should be workable.

A big question is what growth assumption to use for the target date fund since you don't know what it will be worth in ten years.
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Re: Is 120 months of expenses in Fixed Income plus 100/0 a viable long term allocation?

Post by dbr »

Sandtrap wrote: Sat Dec 16, 2017 9:51 am Kudos for having it so well thought out, "TimeLord".
I've been following your "mental math" (buckets) for awhile and while it makes sense and seems very viable, I wonder if it's an attempt to optimize "6" or a "half dozen". . otherwise known as "splitting hairs". To simply have a comprehensive overall allocation sans buckets probably yields similar end results, marginally better or worse than the approach you have now. My simple mind likes your approach, the "bucket thing", but I also can understand the more common "Bogle" approach which is comprehensive and maintains a single allocation.
What you propose makes a lot of sense. I'm trying to better understand it.
Is your approach an attempt to ameliorate the "retirement red zone"? Can't remember. . think it was "Kitces"?
Mahalo.
j :D
Reading Kitces might elucidate something with some actual analytic support behind it. I believe the topic relates to having a "tent" of increasing fixed income up to retirement and then reducing it again in stages after retirement. People can certainly go read his paper and see what they think.

As I am saying, first the devil may be in the details, and second it takes a lot of proving to find a magic bullet.
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Re: Is 120 months of expenses in Fixed Income plus 100/0 a viable long term allocation?

Post by KlangFool »

TheTimeLord wrote: Sat Dec 16, 2017 9:55 am
KlangFool wrote: Sat Dec 16, 2017 9:44 am OP,

Yes if the 100/0 portion represents 30 or more years of annual expense. Then, even if the market drop by 50%, you still have 25 years of expense.

KlangFool
I guess I am not really worrying about addressing the edge case of all equity markets I am invested in dropping by 50% and staying there for more than 10 years. More focused on addressing the case where my equities drop 30%-40% and takes 3 years to recover. Nuclear winter, is nuclear winter, you ain't going outside to build snowmen.
TheTimeLord,

<< I guess I am not really worrying about addressing the edge case of all equity markets I am invested in dropping by 50% and staying there for more than 10 years.>>

Why not?

<< Nuclear winter, is nuclear winter, you ain't going outside to build snowmen.>>

1) How much physical gold do you own? I would at least make sure that I have enough to get plane tickets to get my family out of the country.

2) Do you have enough food in the pantry to stay in-door for 2 weeks?

You have the luxury of working OMY. So, why won't you make sure that you are protected under all circumstances?

Diversification is the only free lunch.

KlangFool
Last edited by KlangFool on Sat Dec 16, 2017 10:06 am, edited 1 time in total.
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Re: Is 120 months of expenses in Fixed Income plus 100/0 a viable long term allocation?

Post by TomatoTomahto »

Teachers say “use words,” so I’ll add some to my pictorial approval above.

We are in a situation not too different from yours, basically having won the game. I found it very freeing to convert to our personal form of Liability Matching Portfolio. Bernstein would discourage the use of Total Bond, but we’ve loaded a dollar amount (mostly in tax deferred) of TBM, some Stable Value, some I Bonds, and some Intermediate Tax Free. The dollar amount is, I think, 30x residual expenses, but your 10x total expenses is similar.

I’m not sure when, and how much, to draw down the fixed income part of our portfolio, but figuring that DW won’t retire for 5 years (I gave up trying to talk her into it), I’ll worry about that later.

If, having won the game, you obsess over 50/50, or should it be 30/70, or perhaps 70/30, or what should my rebalancing strategy be, etc., then you’re missing the best part of the victory. Wheeee!

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Re: Is 120 months of expenses in Fixed Income plus 100/0 a viable long term allocation?

Post by TheTimeLord »

Sandtrap wrote: Sat Dec 16, 2017 9:51 am Kudos for having it so well thought out, "TimeLord".
I've been following your "mental math" (buckets) for awhile and while it makes sense and seems very viable, I wonder if it's an attempt to optimize "6" or a "half dozen". . otherwise known as "splitting hairs". To simply have a comprehensive overall allocation sans buckets probably yields similar end results, marginally better or worse than the approach you have now. My simple mind likes your approach, the "bucket thing", but I also can understand the more common "Bogle" approach which is comprehensive and maintains a single allocation.
What you propose makes a lot of sense. I'm trying to better understand it.
Is your approach an attempt to ameliorate the "retirement red zone"? Can't remember. . think it was "Kitces"?
Mahalo.
j :D
To some degree. I left out a lot of the detail because frankly I think I am even boring myself by repeating it but here goes. I feel I am financially independent and assume that to be fact in my planning. I believe it is most likely that I will be more physically fit and active in the next ten years of my life, than in subsequence years thereafter and that this statement will remain true throughout the rest of my years. As a result of that belief I have a desire to maximize the 10 years I am on the cusp of instead of focusing on maximizing the years that follow those. So since I value these next 10 years above all other years I have remaining I want to protect them to the best of my ability from the risk of a negative sequence of returns and have decided to do this by setting aside the funds needed for those years in fixed income. Realizing that doing this slants my portfolio conservatively and recognizing this means the time horizon for my remaining portfolio is a minimum of 10 years I feel justified by historical data in believing equities will likely outperform during this period and should be the primary focus of my AA. This leads me to an equity heavy asset allocation (80/20-100/0) for the remainder of my portfolio. Finally, since I will retire well prior to FRA by my definition, I need a way to adjust the funds in the 120 month fixed income bucket as to protect my portfolio from being overly conservative once some of the months covered by this period included SS and pension income streams. So there is my walk from point A-B. Knowing there are many roads to Dublin I am not asking if mine is the fastest, just if it will take me to Dublin.
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Re: Is 120 months of expenses in Fixed Income plus 100/0 a viable long term allocation?

Post by Sandtrap »

TheTimeLord wrote: Sat Dec 16, 2017 10:12 am
Sandtrap wrote: Sat Dec 16, 2017 9:51 am Kudos for having it so well thought out, "TimeLord".
I've been following your "mental math" (buckets) for awhile and while it makes sense and seems very viable, I wonder if it's an attempt to optimize "6" or a "half dozen". . otherwise known as "splitting hairs". To simply have a comprehensive overall allocation sans buckets probably yields similar end results, marginally better or worse than the approach you have now. My simple mind likes your approach, the "bucket thing", but I also can understand the more common "Bogle" approach which is comprehensive and maintains a single allocation.
What you propose makes a lot of sense. I'm trying to better understand it.
Is your approach an attempt to ameliorate the "retirement red zone"? Can't remember. . think it was "Kitces"?
Mahalo.
j :D
To some degree. I left out a lot of the detail because frankly I think I am even boring myself by repeating it but here goes. I feel I am financially independent and assume that to be fact in my planning. I believe it is most likely that I will be more physically fit and active in the next ten years of my life, than in subsequence years thereafter and that this statement will remain true throughout the rest of my years. As a result of that belief I have a desire to maximize the 10 years I am on the cusp of instead of focusing on maximizing the years that follow those. So since I value these next 10 years above all other years I have remaining I want to protect them to the best of my ability from the risk of a negative sequence of returns and have decided to do this by setting aside the funds needed for those years in fixed income. Realizing that doing this slants my portfolio conservatively and recognizing this means the time horizon for my remaining portfolio is a minimum of 10 years I feel justified by historical data in believing equities will likely outperform during this period and should be the primary focus of my AA. This leads me to an equity heavy asset allocation (80/20-100/0) for the remainder of my portfolio. Finally, since I will retire well prior to FRA by my definition, I need a way to adjust the funds in the 120 month fixed income bucket as to protect my portfolio from being overly conservative once some of the months covered by this period included SS and pension income streams. So there is my walk from point A-B. Knowing there are many roads to Dublin I am not asking if mine is the fastest, just if it will take me to Dublin.
Thanks. Not boring. In fact, in repeating you've summarized it better.
When you detail your 10 year window, I thought of an awesome write-up recently posted by "Garlandwizzer". It may segue into your projected plans.
With "Garlandwizzer"s "non permission" 'l'll risk posting it here because I forgot the link to it, and it was "that" good. ("garlandwizzer" apologies)
<snip>
MARKET MOVEMENT BY GARLAND WIZZER

Corporate profit growth has been tepid by historical bull market standards during the current bull market. Most of the market gains have come from PE multiple expansion. There are reasons why PE might rationally expand: secular low interest rates and low inflation, slow but stable economic and corporate profit growth. My take is that valuations are generous but we're not in a bubble. Bear markets defined as drops of 20% or greater are generally associated with recessions. There are no indications now of a recession in the foreseeable future. Currently there is co-ordinated world wide economic and corporate profit growth. Instead the economy is now and has been for most of this bull market run in the "Goldilocks zone"--low inflation, modest and stable corporate profit growth, modest and stable economic growth. Historically slow stable growth coupled low inflation has been good for equity markets and our very low interest rates make this one more so.

At some unpredictable point in the future this bull market is going to end. As long as our economy keeps growing and inflation remains under control, I suspect that it will not end in a major bear market like the last two (2000-3, 2007-9) but rather in a more modest correction. Our most likely risk IMO is a long period of positive but lower than historical market returns going forward. Drastic changes in asset allocation based on fear on a market collapse in the near future is a bet I wouldn't make now.
<snip>
If indeed this scenario plays out, how well would your 10 year plan do?
j :D
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Re: Is 120 months of expenses in Fixed Income plus 100/0 a viable long term allocation?

Post by TheTimeLord »

KlangFool wrote: Sat Dec 16, 2017 10:03 am
TheTimeLord wrote: Sat Dec 16, 2017 9:55 am
KlangFool wrote: Sat Dec 16, 2017 9:44 am OP,

Yes if the 100/0 portion represents 30 or more years of annual expense. Then, even if the market drop by 50%, you still have 25 years of expense.

KlangFool
I guess I am not really worrying about addressing the edge case of all equity markets I am invested in dropping by 50% and staying there for more than 10 years. More focused on addressing the case where my equities drop 30%-40% and takes 3 years to recover. Nuclear winter, is nuclear winter, you ain't going outside to build snowmen.
TheTimeLord,

<< I guess I am not really worrying about addressing the edge case of all equity markets I am invested in dropping by 50% and staying there for more than 10 years.>>

Why not?

<< Nuclear winter, is nuclear winter, you ain't going outside to build snowmen.>>

1) How much physical gold do you own? I would at least make sure that I have enough to get plane tickets to get my family out of the country.

2) Do you have enough food in the pantry to stay in-door for 2 weeks?

You have the luxury of working OMY. So, why won't you make sure that you are protected under all circumstances?

Diversification is the only free lunch.

KlangFool
2 reasons mainly. Reason 1, to protect yourself from the 0.1% of outcomes has a real negative effect on the 99.9% of outcomes. Reason 2, if we really do have some sort of apocalyptic scenario then even if I was correct life will still be awful so why bet on something where you are a loser even if you win. I have always believed betting on the end of the world is a sucker's bet.
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Re: Is 120 months of expenses in Fixed Income plus 100/0 a viable long term allocation?

Post by technovelist »

TheTimeLord wrote: Sat Dec 16, 2017 11:21 am
KlangFool wrote: Sat Dec 16, 2017 10:03 am
TheTimeLord wrote: Sat Dec 16, 2017 9:55 am
KlangFool wrote: Sat Dec 16, 2017 9:44 am OP,

Yes if the 100/0 portion represents 30 or more years of annual expense. Then, even if the market drop by 50%, you still have 25 years of expense.

KlangFool
I guess I am not really worrying about addressing the edge case of all equity markets I am invested in dropping by 50% and staying there for more than 10 years. More focused on addressing the case where my equities drop 30%-40% and takes 3 years to recover. Nuclear winter, is nuclear winter, you ain't going outside to build snowmen.
TheTimeLord,

<< I guess I am not really worrying about addressing the edge case of all equity markets I am invested in dropping by 50% and staying there for more than 10 years.>>

Why not?

<< Nuclear winter, is nuclear winter, you ain't going outside to build snowmen.>>

1) How much physical gold do you own? I would at least make sure that I have enough to get plane tickets to get my family out of the country.

2) Do you have enough food in the pantry to stay in-door for 2 weeks?

You have the luxury of working OMY. So, why won't you make sure that you are protected under all circumstances?

Diversification is the only free lunch.

KlangFool
2 reasons mainly. Reason 1, to protect yourself from the 0.1% of outcomes has a real negative effect on the 99.9% of outcomes. Reason 2, if we really do have some sort of apocalyptic scenario then even if I was correct life will still be awful so why bet on something where you are a loser even if you win. I have always believed betting on the end of the world is a sucker's bet.
I think you could buy "end of the world insurance" at a very reasonable price! :mrgreen:
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Re: Is 120 months of expenses in Fixed Income plus 100/0 a viable long term allocation?

Post by Alexa9 »

Unless someone is very wealthy or poor, I don't see a need to deviate from a traditional retirement allocation. If you're very rich, you can afford to be very conservative or aggressive. If you haven't saved enough, you likely have to be more aggressive or delay retirement. 10 years in fixed income may be fine depending on how much you've saved.
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Re: Is 120 months of expenses in Fixed Income plus 100/0 a viable long term allocation?

Post by chevca »

TimeLord, all these threads of your asking what about this or that... I can't help but think, the quest for the perfect plan is the enemy of a good plan. Why don't you just go 50/50 and call it good? You've won the game... stop playing.

You are obviously obsessed with your portfolio and how to arrange it, so I doubt you will stop coming up with different bucket plans. But, there's more to life...
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Re: Is 120 months of expenses in Fixed Income plus 100/0 a viable long term allocation?

Post by surfstar »

You're not retiring. Early. Or ever, it seems.

You spend all of your time thinking, and planning it, have more than enough money to pull the cord, yet do not.

I truly hope that you do not become one of the horribly sad and ironic tales of someone who has a health issue within months of retirement after waiting for years.

Best of luck to your planning (although it is readily apparent that you do not need to expend so much effort in planning something which seems to get put off indefinitely with each new thread)
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Re: Is 120 months of expenses in Fixed Income plus 100/0 a viable long term allocation?

Post by alec »

TheTimeLord wrote: Sat Dec 16, 2017 9:26 am As a future early retiree I have been spending far too much time and effort trying to figure out an AA while balancing income needs for the years before FRA with those after once we start receiving SS and small pensions. So I think I am settling on something like 120 months (10 years) of full expenses, not basic, with the remainder invested somewhere between 80/20 and 100/0 as my long term asset allocation strategy. This solves the dilemma I was dealing with because once within 120 months of FRA I start replacing months that were Full Expenses in Fixed Income with months that are Full Expenses minus SS and Pension. So 10 or more years from FRA I would have 120 x Full Expenses in Fixed Income with the remainder invested as stated above then at 9 years from FRA I would have 108 x Full Expenses plus 12 x Full Expenses minus SS and Pension in Fixed Income with the remainder invested as stated above. Any reason why this would not be a viable long term asset allocation strategy?
TL,

I'm not exactly clear about how many years you plan to retire before you plan to start SS and your pension, but what you're proposing seems similar to what Whiggish Boffin did a few years ago. I think he goes over it in this thread.

viewtopic.php?f=10&t=124218&p=1820618#p1820618

If your full expenses will be covered by the "120 months of bonds" and then SS and pension, then I don't think that throwing the rest in 100% equities or 80% equities would risk the chance that 10 years of meager equities returns would decrease your standard of living.

-Alec
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Re: Is 120 months of expenses in Fixed Income plus 100/0 a viable long term allocation?

Post by TheTimeLord »

Alexa9 wrote: Sat Dec 16, 2017 11:39 am Unless someone is very wealthy or poor, I don't see a need to deviate from a traditional retirement allocation. If you're very rich, you can afford to be very conservative or aggressive. If you haven't saved enough, you likely have to be more aggressive or delay retirement. 10 years in fixed income may be fine depending on how much you've saved.
Guess I am a sucker for the "Won the game" philosophy, the belief that liability matching is a good idea, the hope that I will be very active retirement in my early retirement years. Combined that with the fact I wouldn't trust a company that mixed its R&D budget with its Marketing budget in one nondescript budget called "What we have to spend" and you can understand me. I have spent my career mainly being paid for my ability to understand and follow the interactions between systems. Rightly or wrongly this has preconditioned me to break things down mentally looking for the crucial interactions and relationships and risks. That makes looking at my portfolio in a vacuum as related to its uses in my life very uncomfortable for me so I decompose, adjust and reassemble. It is just who I am at this point it my life after years of being compensated for finding a better way.
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Re: Is 120 months of expenses in Fixed Income plus 100/0 a viable long term allocation?

Post by TheTimeLord »

chevca wrote: Sat Dec 16, 2017 11:41 am I can't help but think, the quest for the perfect plan is the enemy of a good plan.
A true and applicable observation, this plan is intended to be a departure from that tendency.
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Re: Is 120 months of expenses in Fixed Income plus 100/0 a viable long term allocation?

Post by TomatoTomahto »

chevca wrote: Sat Dec 16, 2017 11:41 am TimeLord, all these threads of your asking what about this or that... I can't help but think, the quest for the perfect plan is the enemy of a good plan. Why don't you just go 50/50 and call it good? You've won the game... stop playing.
You are obviously obsessed with your portfolio and how to arrange it, so I doubt you will stop coming up with different bucket plans. But, there's more to life...
The game's not over until it's over, but it might be time to let some of the bench warmers in to get the decal on the helmet. If the bench warmers suffer an interception or fumble, meh, so what? You've worked hard for the cushion, so relax.
I get the FI part but not the RE part of FIRE.
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Re: Is 120 months of expenses in Fixed Income plus 100/0 a viable long term allocation?

Post by friar1610 »

TomatoTomahto wrote: Sat Dec 16, 2017 10:05 am
If, having won the game, you obsess over 50/50, or should it be 30/70, or perhaps 70/30, or what should my rebalancing strategy be, etc., then you’re missing the best part of the victory. Wheeee!

🍅🍅
I really like this.
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Re: Is 120 months of expenses in Fixed Income plus 100/0 a viable long term allocation?

Post by Sandtrap »

Here's a back of the envelope golf pencil scribble.
120 mos = 10 years expenses. = 10X
At $100k/year expenses, that's 1 million dollars in fixed income.
Then 100% equities.
If a 50/50 allocation that's 2 million. Spending the first 50% in 10 years on the fixed side.
Or. 1 million in fixed. Then, "plus" the retirement portfolio which is 25x?
Is this correct?
j :D
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Re: Is 120 months of expenses in Fixed Income plus 100/0 a viable long term allocation?

Post by TheTimeLord »

surfstar wrote: Sat Dec 16, 2017 11:44 am You're not retiring. Early. Or ever, it seems.

You spend all of your time thinking, and planning it, have more than enough money to pull the cord, yet do not.

I truly hope that you do not become one of the horribly sad and ironic tales of someone who has a health issue within months of retirement after waiting for years.

Best of luck to your planning (although it is readily apparent that you do not need to expend so much effort in planning something which seems to get put off indefinitely with each new thread)
:sharebeer
I truly appreciate the sentiment, but I am very fortunate to have been able to do so many of the things I have wanted while employed that there really isn't any terribly urgent items on the bucket list. Also, I do really enjoy the people and social aspect of my work and in my pseudo retirement that aspect was tremendously lacking. So while I can understand while people would doubt my ability to pull the trigger I personally feel like I am just starting to begin my approach for landing. Still a ways off from the runway but beginning descent.
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Re: Is 120 months of expenses in Fixed Income plus 100/0 a viable long term allocation?

Post by TheTimeLord »

alec wrote: Sat Dec 16, 2017 11:47 am
TheTimeLord wrote: Sat Dec 16, 2017 9:26 am As a future early retiree I have been spending far too much time and effort trying to figure out an AA while balancing income needs for the years before FRA with those after once we start receiving SS and small pensions. So I think I am settling on something like 120 months (10 years) of full expenses, not basic, with the remainder invested somewhere between 80/20 and 100/0 as my long term asset allocation strategy. This solves the dilemma I was dealing with because once within 120 months of FRA I start replacing months that were Full Expenses in Fixed Income with months that are Full Expenses minus SS and Pension. So 10 or more years from FRA I would have 120 x Full Expenses in Fixed Income with the remainder invested as stated above then at 9 years from FRA I would have 108 x Full Expenses plus 12 x Full Expenses minus SS and Pension in Fixed Income with the remainder invested as stated above. Any reason why this would not be a viable long term asset allocation strategy?
TL,

I'm not exactly clear about how many years you plan to retire before you plan to start SS and your pension, but what you're proposing seems similar to what Whiggish Boffin did a few years ago. I think he goes over it in this thread.

viewtopic.php?f=10&t=124218&p=1820618#p1820618

If your full expenses will be covered by the "120 months of bonds" and then SS and pension, then I don't think that throwing the rest in 100% equities or 80% equities would risk the chance that 10 years of meager equities returns would decrease your standard of living.

-Alec
Pretty sure 10 years of meager returns in equities risks decreasing most BH standard of living. Just to point out it is an ever rolling 10 window.
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Re: Is 120 months of expenses in Fixed Income plus 100/0 a viable long term allocation?

Post by hoops777 »

TheTimeLord wrote: Sat Dec 16, 2017 11:50 am
Alexa9 wrote: Sat Dec 16, 2017 11:39 am Unless someone is very wealthy or poor, I don't see a need to deviate from a traditional retirement allocation. If you're very rich, you can afford to be very conservative or aggressive. If you haven't saved enough, you likely have to be more aggressive or delay retirement. 10 years in fixed income may be fine depending on how much you've saved.
Guess I am a sucker for the "Won the game" philosophy, the belief that liability matching is a good idea, the hope that I will be very active retirement in my early retirement years. Combined that with the fact I wouldn't trust a company that mixed its R&D budget with its Marketing budget in one nondescript budget called "What we have to spend" and you can understand me. I have spent my career mainly being paid for my ability to understand and follow the interactions between systems. Rightly or wrongly this has preconditioned me to break things down mentally looking for the crucial interactions and relationships and risks. That makes looking at my portfolio in a vacuum as related to its uses in my life very uncomfortable for me so I decompose, adjust and reassemble. It is just who I am at this point it my life after years of being compensated for finding a better way.
You have put a lot of thought and time into this plan and you are comfortable with it so just go with it.It doesn’t matter if others like it or not.
K.I.S.S........so easy to say so difficult to do.
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Re: Is 120 months of expenses in Fixed Income plus 100/0 a viable long term allocation?

Post by Ron »

chevca wrote: Sat Dec 16, 2017 11:41 am TimeLord, all these threads of your asking what about this or that... I can't help but think, the quest for the perfect plan is the enemy of a good plan. Why don't you just go 50/50 and call it good? You've won the game... stop playing.

You are obviously obsessed with your portfolio and how to arrange it, so I doubt you will stop coming up with different bucket plans. But, there's more to life...
I would agree.

It's time to put the boat in the water and see if it floats.

And if it doesn't? Make a submarine out of it.

Truthfully, I've been retired a bit over a decade. In that time, I've gone through so many changes to my original "plan" (due to life events) that it hardly portrays my current life, from a financial prospective.

A retirement plan is just that. It's a plan and in most cases (IMHO) the actual financial conditions when retired over the long term wind up to be much different.

BTW, my "submarine" is doing quite well, TYVM; much more so if my "boat" would have floated with my original plan "written in stone" on May 1st, 2007.

- Ron
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Re: Is 120 months of expenses in Fixed Income plus 100/0 a viable long term allocation?

Post by TheTimeLord »

Sandtrap wrote: Sat Dec 16, 2017 11:56 am Here's a back of the envelope golf pencil scribble.
120 mos = 10 years expenses. = 10X
At $100k/year expenses, that's 1 million dollars in fixed income.
Then 100% equities.
If a 50/50 allocation that's 2 million. Spending the first 50% in 10 years on the fixed side.
Or. 1 million in fixed. Then, "plus" the retirement portfolio which is 25x?
Is this correct?
j :D
It is a 120 months forward rolling cushion that in your example would be $100K for pre-FRA years and $100K-SS-Pension for post-FRA years. The goal would be to maintain the 120 month cushion unless there is a pronoun market downturn (let's not argue about the definition of pronounced). This would be accomplished from 2 sources, returns from equities and the fact that every month that goes by until I reach FRA (67) the amount I would need for my 120 month cushion would be reduced by 1 month's SS and pension benefits. For illustration purposes let's say SS and pension totals $35K a year. So at 10 years prior to retirement the cushion would be $1,000K but at FRA the 10 year cushion would be ($100K-$35K)*10 or $650K and because of the income streams of SS and pension I would still have a 10 year cushion. So whether 57 or 67 absent a pronounced downturn I still have a 10 years worth of expenses in fixed income as a cushion against negative returns and have had the possibility of benefiting from my equity allocation to that point.
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Re: Is 120 months of expenses in Fixed Income plus 100/0 a viable long term allocation?

Post by chevca »

Sounds a bit like WB's words to keep enough in cash to be comfortable and put the rest in stocks. If you're FI already, that's probably perfectly reasonable. I didn't mean to say this plan sounds bad. Just pick something. :happy
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Re: Is 120 months of expenses in Fixed Income plus 100/0 a viable long term allocation?

Post by bigred77 »

Putting 10 years expenses into fixed income and then spending solely from that bucket over the first 10 years of retirement with the remaining assets in equities is just using mental accounting to describe a rising equity glidepath. Going with a conservative AA upon retirement and then gradually ramping up risk SHOULD reduce sequence of return risk. Then the question is after 10 years of spending you have another decision point: do you continue on with all of your remaining assets in 100% equities or do you adjust your AA yet again?

A rising equity glidepath has been studied and written about. You could start your research there.
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Re: Is 120 months of expenses in Fixed Income plus 100/0 a viable long term allocation?

Post by dbr »

bigred77 wrote: Sat Dec 16, 2017 12:27 pm Putting 10 years expenses into fixed income and then spending solely from that bucket over the first 10 years of retirement with the remaining assets in equities is just using mental accounting to describe a rising equity glidepath. Going with a conservative AA upon retirement and then gradually ramping up risk SHOULD reduce sequence of return risk. Then the question is after 10 years of spending you have another decision point: do you continue on with all of your remaining assets in 100% equities or do you adjust your AA yet again?

A rising equity glidepath has been studied and written about. You could start your research there.
Exactly. I have been trying to make that point over and over again. I have also added the observation that to reduce sequence of returns risk (a term I hate) you also have to reduce return altogether. Where there is an optimum in that is a subtle question that is not answered by presumptions.
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Re: Is 120 months of expenses in Fixed Income plus 100/0 a viable long term allocation?

Post by TheTimeLord »

bigred77 wrote: Sat Dec 16, 2017 12:27 pm Putting 10 years expenses into fixed income and then spending solely from that bucket over the first 10 years of retirement with the remaining assets in equities is just using mental accounting to describe a rising equity glidepath. Going with a conservative AA upon retirement and then gradually ramping up risk SHOULD reduce sequence of return risk. Then the question is after 10 years of spending you have another decision point: do you continue on with all of your remaining assets in 100% equities or do you adjust your AA yet again?

A rising equity glidepath has been studied and written about. You could start your research there.
I see your point but that is not what I have described. Have you read my response to Sandtrap 2 posts up. Again this is a long term allocation not a starting point where you spend down the fixedi come assets. They are really more of insurance for bear markets. Also not the original post mention AA between 80/20 and 100/0.
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Re: Is 120 months of expenses in Fixed Income plus 100/0 a viable long term allocation?

Post by hoops777 »

WB’s won the game philosophy,to me, is the best retirement advice I have seen for a person who is risk adverse.Simple,logical and stress free.
K.I.S.S........so easy to say so difficult to do.
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Re: Is 120 months of expenses in Fixed Income plus 100/0 a viable long term allocation?

Post by bigred77 »

TheTimeLord wrote: Sat Dec 16, 2017 12:51 pm
bigred77 wrote: Sat Dec 16, 2017 12:27 pm Putting 10 years expenses into fixed income and then spending solely from that bucket over the first 10 years of retirement with the remaining assets in equities is just using mental accounting to describe a rising equity glidepath. Going with a conservative AA upon retirement and then gradually ramping up risk SHOULD reduce sequence of return risk. Then the question is after 10 years of spending you have another decision point: do you continue on with all of your remaining assets in 100% equities or do you adjust your AA yet again?

A rising equity glidepath has been studied and written about. You could start your research there.
I see your point but that is not what I have described. Have you read my response to Sandtrap 2 posts up. Again this is a long term allocation not a starting point where you spend down the fixedi come assets. They are really more of insurance for bear markets. Also not the original post mention AA between 80/20 and 100/0.
So your then planning on a target absolute dollar amount in fixed income that would gradually be reduced over 10 years and then held constant with remaining assets in equities (or at least 80% in equities).

That’s still describing a rising equity glidepath (unless equities drastically underperform) although more muted than I first described. I think the research would still be relevant.

I think it’s less efficient than more standard approaches (and simply using mental accounting) but I don’t think it’s necessarily dangerous or imprudent.
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Re: Is 120 months of expenses in Fixed Income plus 100/0 a viable long term allocation?

Post by TheTimeLord »

bigred77 wrote: Sat Dec 16, 2017 1:07 pm
TheTimeLord wrote: Sat Dec 16, 2017 12:51 pm
bigred77 wrote: Sat Dec 16, 2017 12:27 pm Putting 10 years expenses into fixed income and then spending solely from that bucket over the first 10 years of retirement with the remaining assets in equities is just using mental accounting to describe a rising equity glidepath. Going with a conservative AA upon retirement and then gradually ramping up risk SHOULD reduce sequence of return risk. Then the question is after 10 years of spending you have another decision point: do you continue on with all of your remaining assets in 100% equities or do you adjust your AA yet again?

A rising equity glidepath has been studied and written about. You could start your research there.
I see your point but that is not what I have described. Have you read my response to Sandtrap 2 posts up. Again this is a long term allocation not a starting point where you spend down the fixedi come assets. They are really more of insurance for bear markets. Also not the original post mention AA between 80/20 and 100/0.
So your then planning on a target absolute dollar amount in fixed income that would gradually be reduced over 10 years and then held constant with remaining assets in equities (or at least 80% in equities).

That’s still describing a rising equity glidepath (unless equities drastically underperform) although more muted than I first described. I think the research would still be relevant.

I think it’s less efficient than more standard approaches (and simply using mental accounting) but I don’t think it’s necessarily dangerous or imprudent.
I did intend for it to produce a rising equity glide path, so glad to hear you validate that. And I really don't see a case for not having an equity aggressive AA for assets with a 10+ year time horizon, and personally I will SWAN knowing I have the assets on hand to do what I have planned for the next decade at any given point in time.
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Re: Is 120 months of expenses in Fixed Income plus 100/0 a viable long term allocation?

Post by garlandwhizzer »

Personally, I think 10 times a generous estimate of annual living expenses in fixed income is adequate with the rest 100/0 or 80/20 in equity. This seems to me a rational approach but not the only rational approach. It depends on your emotional makeup. If you get emotionally overwrought when your portfolio declines in value in a bear market, even if you have plenty of fixed income to live on for a decade, it might not be right for you from the point of view of emotional comfort and sleepless nights. However, if you have a long time horizon in terms of expected lifespan and you can tolerate riding out bear markets without undue emotional distress, it's important to have significant exposure to assets expected to considerably outperform inflation. With current bonds yields as a starting point, that means equity exposure.

Estimating annual living expenses 10, 15, or 20 years into the future is a tricky proposition with a very wide range of outcomes due to unforeseen events like Alzheimer's or strokes which may require round the clock expensive care, long term care even if you don't have Alzheimer's or a stroke, other severe health issues, divorce or remarriage, lawsuits, severe financial distress among sons, daughters and grandchildren who need help, etc.. In making estimates of future living expenses it is wise IMO to build in a generous margin of error up front. Unexpected bad financial things happen not only in markets but in our lives.

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Re: Is 120 months of expenses in Fixed Income plus 100/0 a viable long term allocation?

Post by Sandtrap »

garlandwhizzer wrote: Sat Dec 16, 2017 1:37 pm . . . . .
Estimating annual living expenses 10, 15, or 20 years into the future is a tricky proposition with a very wide range of outcomes due to unforeseen events like Alzheimer's or strokes which may require round the clock expensive care, long term care even if you don't have Alzheimer's or a stroke, other severe health issues, divorce or remarriage, lawsuits, severe financial distress among sons, daughters and grandchildren who need help, etc.. In making estimates of future living expenses it is wise IMO to build in a generous margin of error up front. Unexpected bad financial things happen not only in markets but in our lives.

Garland Whizzer
Outstanding! . . . "prepare for the worst, hope for the best. . . "
mahalo,
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Re: Is 120 months of expenses in Fixed Income plus 100/0 a viable long term allocation?

Post by David Jay »

I like the way the plan lines up with a lot of research about rising equity allocations in retirement. Decrease allocation as you enter retirement and the move the allocation up over the first 10 years of retirement. ERN (Early Retirement Now blog) has an excellent evaluation: https://earlyretirementnow.com/2017/09/ ... lidepaths/

As you spend down the 120 months of fixed income, you will be implementing this strategy.

BTW - look at LifeStrategy Aggressive if you want a fund that will hold an 80-20. I intend to put all of my "Legacy" [inheritance] assets in LS aggressive at the start of SS benefits.
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