Age-based allocation when you don't need the money?

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Diogenes
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Age-based allocation when you don't need the money?

Post by Diogenes » Fri Jan 26, 2018 9:08 am

Much of the prevailing wisdom has an increase in the bond percentage of a portfolio as you approach retirement. Some advocate 'keeping your age in bonds.' This must be customized to many factors.

But if you have other stable inflation-adjusted income (pension, other annuities, etc) that cover say 150 percent of your estimated expenses, not including SS, at retirement, how would that wisdom change? You don't need to worry about the withdrawal rate as you don't need regular withdrawals. RMD's will be forced on you even with QCD's, but regardless of that.

With a significant portfolio, would it then be reasonable to stay at 65 stocks/35 bonds in the three-fund portfolio in your 60's and beyond? Set it and forget it? Would it be wise to do so? Why yes, or why no?

dbr
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Re: Age-based allocation when you don't need the money?

Post by dbr » Fri Jan 26, 2018 9:18 am

Diogenes wrote:
Fri Jan 26, 2018 9:08 am
Much of the prevailing wisdom has an increase in the bond percentage of a portfolio as you approach retirement. Some advocate 'keeping your age in bonds.' This must be customized to many factors.

But if you have other stable inflation-adjusted income (pension, other annuities, etc) that cover say 150 percent of your estimated expenses, not including SS, at retirement, how would that wisdom change? You don't need to worry about the withdrawal rate as you don't need regular withdrawals. RMD's will be forced on you even with QCD's, but regardless of that.

With a significant portfolio, would it then be reasonable to stay at 65 stocks/35 bonds in the three-fund portfolio in your 60's and beyond? Set it and forget it? Would it be wise to do so? Why yes, or why no?
In my opinion you should consider your need, ability, and willingness to take risk. This means that you can't think about asset allocation until you have figured out what you want to do with your money. What is or isn't wise depends on what the consequences of what you do mean to you. No rule about age in bonds or any other rule or anything anyone here says about it can decide that.

Dottie57
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Re: Age-based allocation when you don't need the money?

Post by Dottie57 » Fri Jan 26, 2018 9:27 am

dbr wrote:
Fri Jan 26, 2018 9:18 am
Diogenes wrote:
Fri Jan 26, 2018 9:08 am
Much of the prevailing wisdom has an increase in the bond percentage of a portfolio as you approach retirement. Some advocate 'keeping your age in bonds.' This must be customized to many factors.

But if you have other stable inflation-adjusted income (pension, other annuities, etc) that cover say 150 percent of your estimated expenses, not including SS, at retirement, how would that wisdom change? You don't need to worry about the withdrawal rate as you don't need regular withdrawals. RMD's will be forced on you even with QCD's, but regardless of that.

With a significant portfolio, would it then be reasonable to stay at 65 stocks/35 bonds in the three-fund portfolio in your 60's and beyond? Set it and forget it? Would it be wise to do so? Why yes, or why no?
In my opinion you should consider your need, ability, and willingness to take risk. This means that you can't think about asset allocation until you have figured out what you want to do with your money. What is or isn't wise depends on what the consequences of what you do mean to you. No rule about age in bonds or any other rule or anything anyone here says about it can decide that.


Agree here. Once I take SS at 70, Asset allocation can be adjusted because my need will not be as great. It would be nice to give more to Charity.

DrGoogle2017
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Re: Age-based allocation when you don't need the money?

Post by DrGoogle2017 » Fri Jan 26, 2018 1:38 pm

I’m slowly changing my thinking on AA because I have a floor of income base on various sources, I’m questioning why I have such conservative AA. My liquid assets are for discretionary spending. With that said, I still hate losing money. I still have large cash reserve. I think it still depends on your comfort zone.

radiowave
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Re: Age-based allocation when you don't need the money?

Post by radiowave » Fri Jan 26, 2018 1:49 pm

assuming your portfolio is for discretionary spending, and setting aside RMD for a moment, how would you feel in your 70's if your 100% equity position is now worth half it's value, e.g. you sell your equity mutual for 50 cents on the dollar? If you had say 1M but half was bonds, you could sell bonds without a loss or much less loss than equity, maybe for that new car, replace roof, unexpected medical expenses, etc. Cash can also work in place or in conjunction with bonds (CDs, high yield savings, short term treasury bills, etc.).
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dbr
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Re: Age-based allocation when you don't need the money?

Post by dbr » Fri Jan 26, 2018 1:54 pm

radiowave wrote:
Fri Jan 26, 2018 1:49 pm
assuming your portfolio is for discretionary spending, and setting aside RMD for a moment, how would you feel in your 70's if your 100% equity position is now worth half it's value, e.g. you sell your equity mutual for 50 cents on the dollar? If you had say 1M but half was bonds, you could sell bonds without a loss or much less loss than equity, maybe for that new car, replace roof, unexpected medical expenses, etc. Cash can also work in place or in conjunction with bonds (CDs, high yield savings, short term treasury bills, etc.).
I would feel better if over that course of time I had started with $1M, it had grown to $4M, and it had crashed to $2M than if it had grown to $1.3M and never crashed. The numbers are made up because in reality you do have to do a lot of work to see what all the chances of what are. For example, I would not feel so good if instead of growing to $4M it had grown only to $2M and then crashed to $1M. There is also the consideration of what happens after it crashes. If I die at 75, I don't care anyway. If I live to 95, there are another 20 years to see what happens.

radiowave
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Re: Age-based allocation when you don't need the money?

Post by radiowave » Fri Jan 26, 2018 1:58 pm

I hear you, if I were in my 30s or 40s I'd agree whole heartedly, let it ride. But getting dangerously close to retirement, that increasing conservation thinking creeps in and I'm less inclined to have a high equity position. If you're won the game . . . :)
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DrGoogle2017
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Re: Age-based allocation when you don't need the money?

Post by DrGoogle2017 » Fri Jan 26, 2018 2:03 pm

What the heck is "you won the game" mean? You might think you do, but you may not. I don't know what my expenses in 20 years from now. High nursing home cost, who knows? It's hard to predict the future and inflationary pressure. Right now, we have low inflation, but will that continue.
But the way I set up, my Roth is always 100% in equities, so eventually I'm inching higher toward equities anyway, by slowly converting my rollerover IRA to Roth IRA every year.

Yenah
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Re: Age-based allocation when you don't need the money?

Post by Yenah » Fri Jan 26, 2018 2:08 pm

dbr wrote:
Fri Jan 26, 2018 1:54 pm
I would feel better if over that course of time I had started with $1M, it had grown to $4M, and it had crashed to $2M than if it had grown to $1.3M and never crashed...
+1

Totally Agree. I'm new to this board, and I've been struck by how "selling stocks when they are down" seems to be regarded as something that must be avoided at all costs.

I would rather DCA $200K into stocks over a period of time, watch it grow to $1M, watch it fall to $500K, and have to sell some stocks for an unexpected expense than DCA $200K into a more conservative allocation, watch it grow to $450K, and then sell some bonds for that same unexpected expense.

smesman
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Re: Age-based allocation when you don't need the money?

Post by smesman » Fri Jan 26, 2018 5:52 pm

Definitely agree with dbr that you should think about what you might want to use the money for.

If you truely don't need/want the money and don't have heirs, it doesn't matter what you do with it.

If you want to see it as some kind of big "emergency" fund that you might one day find a purpose for, then it would seem prudent to take a very safe AA that allows your portfolio to stay with inflation but not have too much risk, e.g. 35 stocks/65 bonds.

Dandy
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Re: Age-based allocation when you don't need the money?

Post by Dandy » Sat Jan 27, 2018 7:57 am

You have more than enough income. So what is your goal for your nest egg? Money for heirs? charity? vacation home? private island? If you don't have a goal - maybe that is step #1.

Nowizard
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Re: Age-based allocation when you don't need the money?

Post by Nowizard » Sat Jan 27, 2018 9:03 am

One issue those who have the good fortune of facing is moving from an acquisition to consumption mentality during retirement. Having been strong savers with a positive outcome in terms of investments presents a challenge in accepting those axioms that apply when you have "Won the game." Yes, moving to a much more conservative allocation makes "sense," but, just as with other complex tasks, arriving at that destination often involves experience of various types. Our approach has been to remain somewhat more aggressive than required. We are disciplined and would change our allocation if we reached a "stop-loss" point in a market down turn. Not what the Boglehead philosophy would recommend but fits into the category of making decisions based on personal history and expectation for us.

Tim

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CyclingDuo
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Re: Age-based allocation when you don't need the money?

Post by CyclingDuo » Sat Jan 27, 2018 9:14 am

Diogenes wrote:
Fri Jan 26, 2018 9:08 am
Much of the prevailing wisdom has an increase in the bond percentage of a portfolio as you approach retirement. Some advocate 'keeping your age in bonds.' This must be customized to many factors.

But if you have other stable inflation-adjusted income (pension, other annuities, etc) that cover say 150 percent of your estimated expenses, not including SS, at retirement, how would that wisdom change? You don't need to worry about the withdrawal rate as you don't need regular withdrawals. RMD's will be forced on you even with QCD's, but regardless of that.

With a significant portfolio, would it then be reasonable to stay at 65 stocks/35 bonds in the three-fund portfolio in your 60's and beyond? Set it and forget it? Would it be wise to do so? Why yes, or why no?
As mentioned, more color on your goals for those funds would be needed to answer the allocation question.

If all your expenses/needs are covered 150% by your income stream from pension/annuities, it might be a good time to think about getting the investments you feel you "don't need" into the best locations - tax wise - for those who will inherit them. That is, if that is one of your goals.
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chambers136
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Re: Age-based allocation when you don't need the money?

Post by chambers136 » Sat Jan 27, 2018 10:06 am

I agree. My thought is keep about 10 years of spending in bonds, regardless of what percentage of the portfolio this is.

MoonOrb
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Re: Age-based allocation when you don't need the money?

Post by MoonOrb » Sat Jan 27, 2018 10:19 am

I'm having this discussion right now with my father, whose yearly expenses are easily met by his pension and SS. He doesn't have an enormous sum invested, but it seems reasonable to me that what he chooses depends significantly on what he thinks his investments could ultimately be used for:

If his desire is to leave behind an estate, either to heirs or charity, he might as well be heavily weighted in equities, even up to 100%. Even a market downturn of 50% would still leave him with more money than he needs.

If he doesn't care about leaving an estate, he might want to have a significant amount in fixed income vehicles like CDs and MMAs so he can increase his standard of living and spend money now while he can find ways to enjoy it.

dbr
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Re: Age-based allocation when you don't need the money?

Post by dbr » Sat Jan 27, 2018 10:21 am

chambers136 wrote:
Sat Jan 27, 2018 10:06 am
I agree. My thought is keep about 10 years of spending in bonds, regardless of what percentage of the portfolio this is.
In this case that would be a negative number as the OP has more income from pensions and annuities than they are spending. I would not go so far as to suggest that the OP should leverage a "greater than 100%" stock allocation though.

dbr
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Re: Age-based allocation when you don't need the money?

Post by dbr » Sat Jan 27, 2018 10:24 am

MoonOrb wrote:
Sat Jan 27, 2018 10:19 am
I'm having this discussion right now with my father, whose yearly expenses are easily met by his pension and SS. He doesn't have an enormous sum invested, but it seems reasonable to me that what he chooses depends significantly on what he thinks his investments could ultimately be used for:

If his desire is to leave behind an estate, either to heirs or charity, he might as well be heavily weighted in equities, even up to 100%. Even a market downturn of 50% would still leave him with more money than he needs.

If he doesn't care about leaving an estate, he might want to have a significant amount in fixed income vehicles like CDs and MMAs so he can increase his standard of living and spend money now while he can find ways to enjoy it.
It can be that people in situations like this should consider spending more money. Having a significant amount of money in cash rather than in something else has no relationship to spending more money and having a higher standard of living. Where are you getting that?

IlliniDave
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Re: Age-based allocation when you don't need the money?

Post by IlliniDave » Sat Jan 27, 2018 11:04 am

My philosophy is pseudo "liability matching". Money beyond 2X my conservatively estimated future liability is earmarked (if things go well) for children and grandchildren. So I'm more growth focused with it. In a sense, although it's not part of my actual thought process, I could say I allocate that portion in a way that is age-appropriate for them rather than me. From a practical perspective, with about 30 seconds worth of simple arithmetic, all that gets rolled into a single AA that I manage the portfolio to maintain. So I'm a bit more aggressive than the conventional wisdom would suggest I be given my proximity to retirement.
Last edited by IlliniDave on Sat Jan 27, 2018 11:16 am, edited 1 time in total.
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IlliniDave
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Re: Age-based allocation when you don't need the money?

Post by IlliniDave » Sat Jan 27, 2018 11:15 am

dbr wrote:
Sat Jan 27, 2018 10:24 am

It can be that people in situations like this should consider spending more money. Having a significant amount of money in cash rather than in something else has no relationship to spending more money and having a higher standard of living. Where are you getting that?
It might make sense if the goal is twofold: to set up a plan (via a "standard of living" increase) to exhaust the money at a reasonable point in the future and maintains a steady spending rate up until the planned exhaustion point. How good or bad a plan like that is is in the eyes of the beholder, of course, but it's one situation where stability of the funds could be a high priority.
Don't do something. Just stand there!

retire57
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Re: Age-based allocation when you don't need the money?

Post by retire57 » Sat Jan 27, 2018 12:31 pm

We fit the scenario in the original post at ages 60 and 65. Our allocation is now 60/40. On the one hand, we can stop playing the game. On the other hand, we can take more risk as our pensions and SS more than cover our expenses. Ultimately, 60/40 feels right.

Diogenes
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Re: Age-based allocation when you don't need the money?

Post by Diogenes » Sat Jan 27, 2018 2:37 pm

Good thoughts.
Well, currently I’m at 65/35. Reasonable to continue into my 60’s? Spending more isn’t an option as I’ve found I don’t want more stuff, and already travel a great deal.
The suggestion to move more into Roth’s is good, but my tax bracket makes that a wash at best.

Goals? Recently nearly paid cash for an overseas second home, but decided to still lease instead because of issues with the market/political situation there. Will use QCD, and only wish to leave a modest estate to one adult child.

Other goals would simply be to leave things on automatic so I need only check in once a year.
Having 10 years of expenses in bonds, as was also suggested, seems too much given pension/annuities. But also don’t I want to be careless.

_D_

dbr
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Re: Age-based allocation when you don't need the money?

Post by dbr » Sat Jan 27, 2018 2:45 pm

Diogenes wrote:
Sat Jan 27, 2018 2:37 pm
Good thoughts.
Well, currently I’m at 65/35. Reasonable to continue into my 60’s? Spending more isn’t an option as I’ve found I don’t want more stuff, and already travel a great deal.
The suggestion to move more into Roth’s is good, but my tax bracket makes that a wash at best.

Goals? Recently nearly paid cash for an overseas second home, but decided to still lease instead because of issues with the market/political situation there. Will use QCD, and only wish to leave a modest estate to one adult child.

Other goals would simply be to leave things on automatic so I need only check in once a year.
Having 10 years of expenses in bonds, as was also suggested, seems too much given pension/annuities. But also don’t I want to be careless.

_D_
Absolutely you can just leave it alone. The simple answer to age based asset allocation when you don't need the money or even if you do is no or also yes. Roths, bonds, etc. are red herrings. In short, your question is actually addressing a problem that for you does not exist.

MoonOrb
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Re: Age-based allocation when you don't need the money?

Post by MoonOrb » Sat Jan 27, 2018 6:50 pm

dbr wrote:
Sat Jan 27, 2018 10:24 am
MoonOrb wrote:
Sat Jan 27, 2018 10:19 am
I'm having this discussion right now with my father, whose yearly expenses are easily met by his pension and SS. He doesn't have an enormous sum invested, but it seems reasonable to me that what he chooses depends significantly on what he thinks his investments could ultimately be used for:

If his desire is to leave behind an estate, either to heirs or charity, he might as well be heavily weighted in equities, even up to 100%. Even a market downturn of 50% would still leave him with more money than he needs.

If he doesn't care about leaving an estate, he might want to have a significant amount in fixed income vehicles like CDs and MMAs so he can increase his standard of living and spend money now while he can find ways to enjoy it.
It can be that people in situations like this should consider spending more money. Having a significant amount of money in cash rather than in something else has no relationship to spending more money and having a higher standard of living. Where are you getting that?
My line of reasoning was that as my dad ages, there's a premium on current ability to spend that decreases with each advancing year. He's in his 70s, and there are only so many years left that he's likely to spend money on things like travel or hobbies. I suppose by analogy it's a little bit like when people want to know where to put their money when they want to buy a house in the next few years.

I guess it makes sense to me that if you want to prioritize increasing your standard of living right now/in the fairly near future, it makes sense to put a significant amount of that money into somewhere that you won't be affected by a market decline.

But at the end of the day, this is the classic investing paradox involving need and ability to take risk: it really doesn't matter much one way or the other what you do as long as you're happy with your decision, since you're likely to be fine no matter what. In my dad's case, I think he'd get a lot more utility out of raising his standard of living and taking trips and doing other things while he's still healthy enough to do it/(or, alive, for that matter) than he would if he kept it invested. He's also the kind of person that pays a lot of attention to the market and frets when the market declines--he dumped a bunch of equities in 2009, for instance. In any event, I think there is a relationship between wanting to raise your standard of living and spend money now when you can find ways to enjoy it and putting that money somewhere that it's not going to decline by a bunch if the market changes rapidly.

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