Retirees: Who's increasing their equities as they age?

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
User avatar
tennisplyr
Posts: 1900
Joined: Tue Jan 28, 2014 1:53 pm
Location: Sarasota, FL

Retirees: Who's increasing their equities as they age?

Post by tennisplyr » Tue Apr 10, 2018 7:22 am

Currently in my 60s and am retired 7 years with a 45/55 AA. Been thinking about increasing my equity side a bit. Are there retirees who are/or are planning to up their equity proportion as they age and why they would be doing that?
Those who move forward with a happy spirit will find that things always work out.

marcopolo
Posts: 1280
Joined: Sat Dec 03, 2016 10:22 am

Re: Retirees: Who's increasing their equities as they age?

Post by marcopolo » Tue Apr 10, 2018 7:40 am

tennisplyr wrote:
Tue Apr 10, 2018 7:22 am
Currently in my 60s and am retired 7 years with a 45/55 AA. Been thinking about increasing my equity side a bit. Are there retirees who are/or are planning to up their equity proportion as they age and why they would be doing that?
I am recently retired, early 50s. Haven't fully committed to it yet, but I am considering a rising equity glide path based on the work done by ERN (part 19 and 20 focus on equity glide paths):

https://earlyretirementnow.com/2017/09/ ... lidepaths/
Once in a while you get shown the light, in the strangest of places if you look at it right.

Frisco Kid
Posts: 370
Joined: Sun Nov 16, 2014 6:18 pm
Location: San Francisco Peninsula

Re: Retirees: Who's increasing their equities as they age?

Post by Frisco Kid » Tue Apr 10, 2018 7:50 am

I think the answer to your question depends on where one is now. About your age but at 70/30. In our case would NOT increase equities.

User avatar
munemaker
Posts: 3581
Joined: Sat Jan 18, 2014 6:14 pm

Re: Retirees: Who's increasing their equities as they age?

Post by munemaker » Tue Apr 10, 2018 8:06 am

I think this decision hinges on whether you are living off your money or mainly living off a pension.

indexonlyplease
Posts: 1298
Joined: Thu Apr 30, 2015 12:30 pm
Location: Florida

Re: Retirees: Who's increasing their equities as they age?

Post by indexonlyplease » Tue Apr 10, 2018 8:14 am

I am close to your AA. Retired early 50s. I just plan to rebalance if the market has a large drop. But I do live off a pension that pays the bills.i just decided I don’t need the extra risk.

User avatar
House Blend
Posts: 4516
Joined: Fri May 04, 2007 1:02 pm

Re: Retirees: Who's increasing their equities as they age?

Post by House Blend » Tue Apr 10, 2018 8:42 am

tennisplyr wrote:
Tue Apr 10, 2018 7:22 am
Currently in my 60s and am retired 7 years with a 45/55 AA. Been thinking about increasing my equity side a bit.
What problem is this going to solve? If your withdrawal rate is "safe", and you have a system that works well for you, why make changes?

(Yes, I am aware of the academic papers that discuss a bathtub-shaped equity glide path, with the bottom of the tub centered around the retirement date. My recollection is that these papers fall short of recommending that investors do this.)

My anecdote:

I've been managing my 84yo mother's investments since 2011. Settled on a static 30/70 portfolio, and in 2013 did a small rebalance from equity to bonds.

However, given her age/health, the location of her equities (all in taxable), and tiny withdrawal rate, my judgement is that it no longer makes sense to rebalance if it means paying taxes.

Technically this is not the same thing as increasing her equity target, but the net effect is that her equity allocation has drifted upwards with the latest bull run. I think at the January peak it was around 39% equity; currently (as of Friday close) it is around 36%.

If a crash does take the equity portion below 30%, I'll probably use some of her RMDs to buy more equities in taxable.

JBTX
Posts: 4263
Joined: Wed Jul 26, 2017 12:46 pm

Re: Retirees: Who's increasing their equities as they age?

Post by JBTX » Tue Apr 10, 2018 8:43 am

I’ve thrown this out there before and never really had a response that would convince me otherwise,
But IMHO the concept of rising glidepaths in retirement has the following problems:

1. It assumes conventional decreasing glidepaths are constructed to optimize lifetime outcomes. I would argue they aren’t. They are constructed to reflect the decreasing term of your investment horizon and corresponding changing risk aversion. At a fundamental level does it make sense for an 80 or 85 year old to have a high stock allocation in any scenario?

2. It measures outcomes in binary fashion. You either run out of money or you don’t. 1 or 0. It doesn’t matter if you miss your goal by $1 or $500,000. Both are failures. In reality, you are 85 years old, and you don’t have enough money to get you through 10 years at a very conservative allocation (20-30%) equities. What do you do, double down and increase equity and hope the market bails you out, or do you cut back? The upward sloping glidepath assumes you double down and in maybe more than half of the times that works. But if it doesn’t, it probably fails badly.

3. It mathematically works because it is based upon historical data and is in essence is an automated form of market timing. If the market goes down when you retire (sequence risk) it historically tends to go up years later. It seems generally non Boglehead to adjust ones go forward strategy based upon what has happened in the past, and this strategy does it, albeit in an automated fashion. It also assumes the market will follow historical trends, and that isn’t necessarily a given.

To be clear, I understand the math, and understand the concept of sequence risk, it is some of the conceptual underpinnings I’m not buying into.

I would be interested in someone pointing out the flaws in my logic. It wouldn’t be the first time I’m wrong.

dbr
Posts: 27207
Joined: Sun Mar 04, 2007 9:50 am

Re: Retirees: Who's increasing their equities as they age?

Post by dbr » Tue Apr 10, 2018 8:47 am

Not me. I don't see what problem exists to be solved. I think if someone is considering messing around with their asset allocation over time as they age there needs to be a specific reason to do that and a credible analysis why this is a helpful solution. Of course it can always be that over time one's situation changes and the reasons to take more or less risk change.

Broken Man 1999
Posts: 1578
Joined: Wed Apr 08, 2015 11:31 am

Re: Retirees: Who's increasing their equities as they age?

Post by Broken Man 1999 » Tue Apr 10, 2018 8:50 am

I would consider increasing equities (currently about 50%) when wife and I are a bit older (both 65 this year). One thing that might prompt/allow such a change is when we annuitize our Vanguard annuity. Funds from annuity would lower our withdrawals from our equities/bonds mix.

Broken Man 1999
“If I cannot drink Bourbon and smoke cigars in Heaven than I shall not go. " -Mark Twain

User avatar
Flobes
Posts: 997
Joined: Tue Feb 16, 2010 12:40 am

Re: Retirees: Who's increasing their equities as they age?

Post by Flobes » Tue Apr 10, 2018 8:54 am

tennisplyr wrote:
Tue Apr 10, 2018 7:22 am
Are there retirees who are/or are planning to up their equity proportion as they age and why they would be doing that?
I maintained a "lowered" risk portfolio in retirement from 57 to 65. Because of the uncertainties of health, health care, and heath insurance, I felt more comfortable with more bonds and CDs.

When I graduated to Medicare, I increased equity. As it happened, the market rise accomplished the reallocation.
Last edited by Flobes on Sun Apr 29, 2018 2:27 pm, edited 1 time in total.

eli80
Posts: 28
Joined: Thu Dec 08, 2016 10:49 am

Re: Retirees: Who's increasing their equities as they age?

Post by eli80 » Tue Apr 10, 2018 8:57 am

Once one is at the point where they can safely withdraw the funds they need to live, why not increase equities to get more? Get more in order to leave more to their heirs, charities. Get more to increase spending -for themselves for those that they care to share.

During my working career, even though I could live on what I was making, I sought promotions and employment changes to be able to increase my income. why settle?

ionball
Posts: 115
Joined: Wed Jan 31, 2018 12:17 pm

Re: Retirees: Who's increasing their equities as they age?

Post by ionball » Tue Apr 10, 2018 9:02 am

Yes it's my plan, but I have time to review and change course. Reasons are to defend sequence of return risk and protect bridge to age 70 social security benefit (SSB). After age 70 SSB, portfolio withdrawal rate is expected to be very low. Recently retired, age late 50s, AA currently 50/50. I want to study sequence of return risk and glide path in greater detail.

User avatar
nisiprius
Advisory Board
Posts: 37072
Joined: Thu Jul 26, 2007 9:33 am
Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry

Re: Retirees: Who's increasing their equities as they age?

Post by nisiprius » Tue Apr 10, 2018 9:14 am

tennisplyr wrote:
Tue Apr 10, 2018 7:22 am
Been thinking about increasing my equity side a bit.
The last time I thought about that was around 2007 (years before retirement), but my point is that long periods of a rising stock market due tend to make one "think about increasing my equity side a little." I eventually decided not to. I was glad I didn't. Although I thought I'd been planning for the possibility of a 50% decline all along, when it actually happened the pain was much worse than I'd expected it to be.

Too many writers seem to have pounced gleefully on the rising-stock-allocation feature, unfortunately mentioned in the title of a Pfau and Kitces study, Reducing Retirement Risk with a Rising Equity Glide Path. The study appeared to show a small improvement over traditional glide paths. But, compared to traditional paths, it didn't rise until after it had first gone to a lower stock allocation around retirement age.

Other writers emphasized only the "rising" part, e.g. Scott Burns "Target Mutual Funds: Oops, They Glide the Wrong Way."

They failed to mention that Kitces and Pfau did not make any recommendation, they merely suggested it would be worth further study.

They failed to mention Kitces and Pfau's note that
The clear caveat of this approach is that it may create concerns for seniors in their later years. Seniors may not be comfortable, from a risk tolerance perspective, handling the greater equity exposures implied by this approach.
Kitces now describes the strategy as a "bond tent," not a "rising stock allocation."
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

RadAudit
Posts: 3092
Joined: Mon May 26, 2008 10:20 am
Location: Second star on the right and straight on 'til morning

Re: Retirees: Who's increasing their equities as they age?

Post by RadAudit » Tue Apr 10, 2018 9:33 am

nisiprius wrote:
Tue Apr 10, 2018 9:14 am
my point is that long periods of a rising stock market due tend to make one "think about increasing my equity side a little." I eventually decided not to. I was glad I didn't. Although I thought I'd been planning for the possibility of a 50% decline all along, when it actually happened the pain was much worse than I'd expected it to be.
I too am concerned about my reaction when the next downturn comes. But, I'm also concerned about how my DW will react, after I die, and she is met with a big downturn that hits the portfolio. If she guesses wrong it could have implications for the longevity of the portfolio, her lifestyle and the size of the inheritance for the heirs. Might be better to stay with a less aggressive AA and try to minimize the volatility that may be really upsetting to me and to her.
FI is the best revenge. LBYM. Invest the rest. Stay the course. - PS: The calvary isn't coming, kids. You are on your own.

Always passive
Posts: 318
Joined: Fri Apr 14, 2017 4:25 am
Location: Israel

Re: Retirees: Who's increasing their equities as they age?

Post by Always passive » Tue Apr 10, 2018 9:35 am

I am retired and i think that have funded our (my wife and I) retirement with a ladder of TIPS and other bonds. I consider my equity portfolio to be inheritance to my daughter and grandchildren (since I assume I will not need these funds) and plan to let it grow without restrains. Except that I plan to rebalance the funds to hold a 40/40/20 allocation between the three ETFs: US equity, Developed World ex US equity, and Emerging Markets equity. The allocation is based on valuations (PE10s).

User avatar
Meg77
Posts: 2420
Joined: Fri May 22, 2009 1:09 pm
Location: Dallas, TX
Contact:

Re: Retirees: Who's increasing their equities as they age?

Post by Meg77 » Tue Apr 10, 2018 9:47 am

There is evidence in some of the most recent retirement studies that starting lower and increasing equity exposure throughout retirement - as opposed to the traditional advice to decrease equity exposure steadily over time - is actually preferable. I can't remember the exact metrics (I think it decreased the likelihood of running out of money and/or enabled a slightly higher safe withdrawal rate), but I believe the original was a Michael Kitces study if you want to google it.

I get the Journal of Financial Planning, and multiple studies and articles have addressed this over the last year. I manage my mother's retirement accounts as of this year and plan to increase her equity exposure over the next 10 years. She's currently at 50/50 and I'm going to have her draw down bonds until she's back to appx 70/30. That may never even happen depending on her withdrawal rate and equity performance over the next decade, but effectively I'm going to have her live off the bonds for the first 5 years of retirement and re-evaluate continually.
"An investment in knowledge pays the best interest." - Benjamin Franklin

zengolf2011
Posts: 116
Joined: Tue Jul 21, 2015 1:27 pm

Re: Retirees: Who's increasing their equities as they age?

Post by zengolf2011 » Tue Apr 10, 2018 9:52 am

Everyone's situation is unique. We are 72 and 69, amateur and defensive investors in good health, with sufficient guaranteed incomes to cover expenses. Some would recommend a 100% equities allocation. But we plan to stick with 40% stocks for the foreseeable future, maybe for life. Everyone's life span is uncertain. We may plan on a 20-yr. horizon, but wake up tomorrow and discover things are radically different. There is no guarantee that a larger equity allocation would provide superior returns for an uncertain investment horizon. And, I don't believe we know more than the fund managers at Wellesley, who have a very successful long-term track record and have provided a secure retirement investing strategy for so many.

User avatar
Sandtrap
Posts: 5472
Joined: Sat Nov 26, 2016 6:32 pm
Location: Hawaii😀 Northern AZ.😳 Retired.

Re: Retirees: Who's increasing their equities as they age?

Post by Sandtrap » Tue Apr 10, 2018 10:00 am

tennisplyr wrote:
Tue Apr 10, 2018 7:22 am
Currently in my 60s and am retired 7 years with a 45/55 AA. Been thinking about increasing my equity side a bit. Are there retirees who are/or are planning to up their equity proportion as they age and why they would be doing that?
Excellent question.
I suspect that many retirees here are pondering the same thing.

My thoughts:
1
It depends on alternate income streams to offset the volatility of one's equity percentage. IE: Pension size, SS, Annuities, Rental Income, etc.
The more state and sizeable income streams outside of the "fund portfolio", the greater one might increase equity percentage.
2
It depends on portfolio size. IE: If one has 25X in fixed alone (bond, CD's, etc) , then the equity percentage can be large indeed. (extreme? example).
3
It depends on total net worth. IE: there is a difference between those that have "more to gain than to lose" and those that have "more to lose than to gain".

I have known retirees with substantial net worth that have held a 100% equity for 30-50 years, and others that have 50/50 to 20/80 to 0/100. All have done well but had different proportions of #1 and #2 and #3.

aloha
j

User avatar
onthecusp
Posts: 513
Joined: Mon Aug 29, 2016 3:25 pm

Re: Retirees: Who's increasing their equities as they age?

Post by onthecusp » Tue Apr 10, 2018 10:09 am

nisiprius wrote:
Tue Apr 10, 2018 9:14 am
tennisplyr wrote:
Tue Apr 10, 2018 7:22 am
Been thinking about increasing my equity side a bit.
The last time I thought about that was around 2007 (years before retirement), but my point is that long periods of a rising stock market due tend to make one "think about increasing my equity side a little." I eventually decided not to. I was glad I didn't. Although I thought I'd been planning for the possibility of a 50% decline all along, when it actually happened the pain was much worse than I'd expected it to be.

Too many writers seem to have pounced gleefully on the rising-stock-allocation feature, unfortunately mentioned in the title of a Pfau and Kitces study, Reducing Retirement Risk with a Rising Equity Glide Path. The study appeared to show a small improvement over traditional glide paths. But, compared to traditional paths, it didn't rise until after it had first gone to a lower stock allocation around retirement age.

Other writers emphasized only the "rising" part, e.g. Scott Burns "Target Mutual Funds: Oops, They Glide the Wrong Way."

They failed to mention that Kitces and Pfau did not make any recommendation, they merely suggested it would be worth further study.

They failed to mention Kitces and Pfau's note that
The clear caveat of this approach is that it may create concerns for seniors in their later years. Seniors may not be comfortable, from a risk tolerance perspective, handling the greater equity exposures implied by this approach.
Kitces now describes the strategy as a "bond tent," not a "rising stock allocation."
Are not the articles mentioned, and Kitces new description, arguments in favor of "rising stock allocation"? If it is a good idea then giving it new names and arguments is a way of getting seniors to think about their risk tolerance. I'm not saying to fool them into an allocation that they subsequently bail on in a downturn, I'm saying that thoughtful seniors should think about it.

gmaynardkrebs
Posts: 937
Joined: Sun Feb 10, 2008 11:48 am

Re: Retirees: Who's increasing their equities as they age?

Post by gmaynardkrebs » Tue Apr 10, 2018 10:35 am

Even though I think it makes sense for some people with a great deal more wealth than me, I'm more comfortable with a conservative allocation. But, I also have to wonder how it makes sense for the non-wealthy, because if the market crashes when you are 80, you probably can't go back to work, and you also have less time to hope for a rebound. Not for me, anyway.

User avatar
SpringMan
Posts: 5370
Joined: Wed Mar 21, 2007 11:32 am
Location: Michigan

Re: Retirees: Who's increasing their equities as they age?

Post by SpringMan » Tue Apr 10, 2018 10:46 am

Our 40/60 portfolio has gradually been shifting towards 50/50 because we take RMDs from bonds and invest it in Tax Managed Small Cap fund in our taxable account.
Best Wishes, SpringMan

User avatar
Toons
Posts: 13054
Joined: Fri Nov 21, 2008 10:20 am
Location: Hills of Tennessee

Re: Retirees: Who's increasing their equities as they age?

Post by Toons » Tue Apr 10, 2018 10:49 am

I let the market adjust my asset allocation.
The last 8 years my asset allocation has gradually tilted more towards equity side,
71/29.
The next extended bear market will adjust that for me,,,,
Temporarily
:mrgreen:
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee

User avatar
David Jay
Posts: 5791
Joined: Mon Mar 30, 2015 5:54 am
Location: Michigan

Re: Retirees: Who's increasing their equities as they age?

Post by David Jay » Tue Apr 10, 2018 10:54 am

I am doing a classic "bond tent" (Kitces), I was 100% equities at age 58. I will be approximately 45% equities at retirement next year. I will live out of my portfolio until age 70, spending bonds to move towards 70/30 which is where I expect to remain.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

stressed
Posts: 55
Joined: Mon Feb 26, 2018 6:28 am

Re: Retirees: Who's increasing their equities as they age?

Post by stressed » Tue Apr 10, 2018 11:09 am

Here's another thought.
Equities generally do well during economic growth.
Bonds do well in deflationary periods.
A young worker's employment/income prospects are positively correlated with economic growth. Retirees' not so much. In fact, in relative terms a retiree is worse off in periods of rapid economic expansion. It won't show in inflation figures and they certainly won't suffer in absolute terms, but they may be priced out of some higher end consumer goods/services. Equities could provide a hedge against that.
Conversely, a young person could justify having a higher allocation in bonds because it would provide a hedge against a recession that would disproportionally affect them (via reduced earnings potential) compared to the average person. This is especially true for certain professions (finance, real estate, tech executives).
A bit unconventional then but may be justified to start from 30/70 and work your way to 70/30 in retirement.
(Please be gentle, I know what I've said is practically a blasphemy! I apologize in advance!)

gmaynardkrebs
Posts: 937
Joined: Sun Feb 10, 2008 11:48 am

Re: Retirees: Who's increasing their equities as they age?

Post by gmaynardkrebs » Tue Apr 10, 2018 11:15 am

We got a lot people here who are a lot braver than this retiree. I guess, as Mel Gibson didn't say in Hamlet, "To thyself be true."

User avatar
Christine_NM
Posts: 2636
Joined: Tue Feb 20, 2007 1:13 am
Location: New Mexico

Re: Retirees: Who's increasing their equities as they age?

Post by Christine_NM » Tue Apr 10, 2018 11:27 am

When I retired I had 35% equities, lowest ever. Now it's theoretically 45%, like OP, and in reality 47%. No desire to put new money in equities -- I'm looking for enjoyable/useful ways to spend extra income and dividends.

I've added relatively small amounts to riskier equity funds from the distributions on balanced funds, but not enough to seriously affect the allocation.
17% cash 47% stock 36% bond. Retired, w/d rate 2.85%

User avatar
friar1610
Posts: 1313
Joined: Sat Nov 29, 2008 9:52 pm
Location: MA South Shore

Re: Retirees: Who's increasing their equities as they age?

Post by friar1610 » Tue Apr 10, 2018 11:33 am

RadAudit wrote:
Tue Apr 10, 2018 9:33 am
nisiprius wrote:
Tue Apr 10, 2018 9:14 am
my point is that long periods of a rising stock market due tend to make one "think about increasing my equity side a little." I eventually decided not to. I was glad I didn't. Although I thought I'd been planning for the possibility of a 50% decline all along, when it actually happened the pain was much worse than I'd expected it to be.
I too am concerned about my reaction when the next downturn comes. But, I'm also concerned about how my DW will react, after I die, and she is met with a big downturn that hits the portfolio. If she guesses wrong it could have implications for the longevity of the portfolio, her lifestyle and the size of the inheritance for the heirs. Might be better to stay with a less aggressive AA and try to minimize the volatility that may be really upsetting to me and to her.
+1
Although I may let equities drift from about 42% to something just under 50% (if that's the way the market decides to go) I have no plans to go any higher than that for the same reasons RadAudit expresses. If the market takes me down to 35% I'll rebalance back to 40% and see if the market takes me any higher (but with the same upper limit).
Friar1610

User avatar
Svensk Anga
Posts: 442
Joined: Sun Dec 23, 2012 5:16 pm

Re: Retirees: Who's increasing their equities as they age?

Post by Svensk Anga » Tue Apr 10, 2018 11:36 am

We are executing the bond tent concept in early retirement. This is not so much to optimize our own retirement, but more for the benefit of our heirs. We apparently worked too long and/or are too frugal and so have a much lower than Bengen withdrawal rate.

Six years out from retirement we were 90-95% equity. I worked this down to 58% by retirement, mostly with new funds at a very high savings rate, but with some equity sales too. After two years of drawing mostly on the bond side of the portfolio and very nice stock returns, we are up to 66% equity. We are following the Bernstein prescription of LMP + RP. (Liability matching portfolio + risk portfolio) The LMP is all bonds and will be largely spent down by age 70 when we plan to take SS. Half of the dividends from the equity share are also considered liability matching. Once we are drawing SS with maximal delayed retirement credits and assuming no policy change, expected inflation damage to our pensions, and no extravagant spending, the draw on our portfolio will be minimal. Failure on these assumptions will prompt an adjustment to more bonds. The bridge to SS is a short to intermediate investment horizon, so bonds make sense. The horizon for the rest of the portfolio probably extends into our heirs' retirements (or to some extent to our own long-term care needs), so very equity heavy makes sense for them. (Vanguard would have them in 90% equity target date funds. I consider our paid-off home our first offset against long-term care costs.)

I do question if I should lighten up on equities if valuations seem stretched as I understand Jack Bogle did in 2000. So far, I have been judging whether there still seems to be an equity risk premium, no matter if it is now smaller than historical premiums. If there still seems to be a premium, however small, it is better to be in equities given the long horizon. If we see 3.5% real TIPS again, this calculus could change.

I do not foresee us rebalancing into equities.

The Wizard
Posts: 12449
Joined: Tue Mar 23, 2010 1:45 pm
Location: Reading, MA

Re: Retirees: Who's increasing their equities as they age?

Post by The Wizard » Tue Apr 10, 2018 11:38 am

I retired in 2013 with seven years until starting SS at age 70. I maintained a 50/50 AA for the first four years but last year decided not to rebalance for a while and to let my AA drift up to 60% stocks for my new target.

When I start full SS in 23 months, my income should be reasonably in excess of my expenses most of the time without needing to spend anything from portfolio withdrawals, so that's a good situation...
Attempted new signature...

John Z
Posts: 329
Joined: Sun Nov 14, 2010 5:42 pm

Re: Retirees: Who's increasing their equities as they age?

Post by John Z » Tue Apr 10, 2018 11:44 am

tennisplyr wrote:
Tue Apr 10, 2018 7:22 am
Currently in my 60s and am retired 7 years with a 45/55 AA. Been thinking about increasing my equity side a bit. Are there retirees who are/or are planning to up their equity proportion as they age and why they would be doing that?
Been retired for 6 years. Wife and I feel like we've won the game so aren't taking any more risk with our AA which is 45-55 currently. We use the Prime Harvesting described in McClung's book Living Off Your Money. But we don't wait for stocks to reach 120% but instead use 110%. You have to know the strategy for this info to make sense. The strategy sort of dictates what our AA is and will be in the future and our withdrawal rate is about 1-1.5% per quarter from bonds.

Now that I've shown you mine, what withdrawal strategy do you use? Does it allow you to change your AA at any time?

User avatar
cfs
Posts: 4154
Joined: Fri Feb 23, 2007 1:22 am
Location: ~ Mi Propio Camino ~

Re: Retirees: Who's increasing their equities as they age?

Post by cfs » Tue Apr 10, 2018 11:48 am

Retired for four years. I do not discuss my portfolio asset allocation or composition, but I can say this, Miss Market is doing a good job adjusting my asset allocation!

Note, my mantra on "You just don't want to be out of this market for ONE day" should not be confused with having a 100% equity allocation. Muchas gracias por leer ~cfs~

p.s. You just don't want to be out of this market for ONE day !!!

p.p.s. The Bulls are Running . . . what are YOU doing?
~ Member of the Active Retired Force since 2014 ~

pascalwager
Posts: 1272
Joined: Mon Oct 31, 2011 8:36 pm

Re: Retirees: Who's increasing their equities as they age?

Post by pascalwager » Tue Apr 10, 2018 12:02 pm

I'm retired and 52/37/11 AA, but intend to withdraw only from bonds and cash. My external income covers my living expenses and I don't expect any large purchases, so my portfolio may drift for awhile with changes occurring mainly in the stock portion. I may not rebalance between stocks and bonds/cash, so it's possible that my stock portion will increase.

remomnyc
Posts: 599
Joined: Mon Jan 04, 2016 4:27 pm

Re: Retirees: Who's increasing their equities as they age?

Post by remomnyc » Tue Apr 10, 2018 12:05 pm

Retiring early 50s at 55% equities. Will rebalance to 60% at age 60. Will rebalance again at age 70 when I get SS, but SS will then be included as part of my fixed income, significantly increasing the share of equities in my portfolio. That's the plan, but a lot could change between now and then.

Youngblood
Posts: 509
Joined: Fri Jan 04, 2008 7:18 am

Re: Retirees: Who's increasing their equities as they age?

Post by Youngblood » Tue Apr 10, 2018 12:14 pm

Two different investors, one has 500k and the other has 5m. Both are sixty-five.
Which one loses more when the market tanks?
Which one gains more when the market advances?
The former loses or gains more in regards to the financial consequences of his allocation.
The latter loses or gains more in actual dollars.

If I were in the 500k example, I would not want increase the risk of losing more of my limited assets.

If I were in the 5m example, I would not want to lose 2.5m in a 50% bear market loss.

Therefore, under most situations, I would not increase my equity allocation.

Dear wife, just had to tell you, either of the above, is not going to happen!

I also don't want to waste the remaining years of life hoping for the market to go up 100% just to break even.
"I made my money by selling too soon." | Bernard M. Baruch

Sophia1884
Posts: 119
Joined: Mon Aug 05, 2013 10:23 pm

Re: Retirees: Who's increasing their equities as they age?

Post by Sophia1884 » Tue Apr 10, 2018 12:24 pm

munemaker wrote:
Tue Apr 10, 2018 8:06 am
I think this decision hinges on whether you are living off your money or mainly living off a pension.
Munemaker, can you explain this please?

User avatar
munemaker
Posts: 3581
Joined: Sat Jan 18, 2014 6:14 pm

Re: Retirees: Who's increasing their equities as they age?

Post by munemaker » Tue Apr 10, 2018 12:30 pm

Sophia1884 wrote:
Tue Apr 10, 2018 12:24 pm
munemaker wrote:
Tue Apr 10, 2018 8:06 am
I think this decision hinges on whether you are living off your money or mainly living off a pension.
Munemaker, can you explain this please?
When you are living off of your investment portfolio, you should maintain a balanced portfolio so you do not have to sell investments when the market is down (to cover your living expenses).

If most of your living expenses are covered by pensions (or other guaranteed income such as SS), you do not have to be concerned about cashing in your investments when the market is down. Also, you can afford to take more risks, since you do not need to be concerned with running out of money.

Sure, if you are living off of your investments, you may be able to increase your equity allocation a tad, but you are more constrained than someone whose pension covers their living expenses.

User avatar
nisiprius
Advisory Board
Posts: 37072
Joined: Thu Jul 26, 2007 9:33 am
Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry

Re: Retirees: Who's increasing their equities as they age?

Post by nisiprius » Tue Apr 10, 2018 12:46 pm

Meg77 wrote:
Tue Apr 10, 2018 9:47 am
There is evidence in some of the most recent retirement studies that starting lower and increasing equity exposure throughout retirement - as opposed to the traditional advice to decrease equity exposure steadily over time - is actually preferable. I can't remember the exact metrics (I think it decreased the likelihood of running out of money and/or enabled a slightly higher safe withdrawal rate), but I believe the original was a Michael Kitces study if you want to google it.

I get the Journal of Financial Planning, and multiple studies and articles have addressed this over the last year. I manage my mother's retirement accounts as of this year and plan to increase her equity exposure over the next 10 years. She's currently at 50/50 and I'm going to have her draw down bonds until she's back to appx 70/30. That may never even happen depending on her withdrawal rate and equity performance over the next decade, but effectively I'm going to have her live off the bonds for the first 5 years of retirement and re-evaluate continually.
Yes, the study was Reducing Retirement Risk with a Rising Equity Glide Path.. But it is not a hugely convincing study and it suffers from a problem that many SWR studies have, which is a hidden risk tolerance assumption that is smuggled in, in the form of the choices made, in this case, for a withdrawal rate.

If you think about it, you can easily see that there is a regular pattern that results from the fact that stocks have had a higher average return but a wider spread of returns. If you choose a conservative withdrawal rate, the findings for almost any strategy are a) a low failure rate, and b) almost no dependence on allocation except at the extremes. As you choose a more and more aggressive withdrawal rate, two things happen. The failure rates increase at all allocations, but increase more at low stock allocations. That's because a high withdrawal rate is at least possible with a high stock allocation, but you are counting on luck to achieve it.

With more aggressive withdrawal rates, the failure rate is relatively lower at higher stock allocations, but it is absolutely higher than with conservative withdrawal rates--at any allocation.

One of their charts, for example, explores a "90% success rate." A 90% success rate sounds high, but in real life a 10% failure rate is not acceptable as a planning assumption. Few would ever board a plane if they thought it had a 10% chance of crashing.

Pfau and Kitces never discuss why they chose to examine the 4% withdrawal rate assumption in some charts, or the 10% failure rate in others. They do not ask the question of whether these numbers are in line with the actual risk tolerances of actual retirees.

Your mother, for example.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

Sophia1884
Posts: 119
Joined: Mon Aug 05, 2013 10:23 pm

Re: Retirees: Who's increasing their equities as they age?

Post by Sophia1884 » Tue Apr 10, 2018 12:49 pm

munemaker wrote:
Tue Apr 10, 2018 12:30 pm
Sophia1884 wrote:
Tue Apr 10, 2018 12:24 pm
munemaker wrote:
Tue Apr 10, 2018 8:06 am
I think this decision hinges on whether you are living off your money or mainly living off a pension.
Munemaker, can you explain this please?
When you are living off of your investment portfolio, you should maintain a balanced portfolio so you do not have to sell investments when the market is down (to cover your living expenses).

If most of your living expenses are covered by pensions (or other guaranteed income such as SS), you do not have to be concerned about cashing in your investments when the market is down. Also, you can afford to take more risks, since you do not need to be concerned with running out of money.

Sure, if you are living off of your investments, you may be able to increase your equity allocation a tad, but you are more constrained than someone whose pension covers their living expenses.
Thank you...I understand the need to maintain a balanced portfolio and why AA matters. I guess my understanding of using the investments as income is non-existent. I understand the higher equity means more volatility and once earning potential is down, you want to decrease any type of volatility. However, at the end of the day, don't you sell bonds AND stocks for income?

Iliketoridemybike
Posts: 572
Joined: Wed Jun 28, 2017 11:03 am

Re: Retirees: Who's increasing their equities as they age?

Post by Iliketoridemybike » Tue Apr 10, 2018 12:54 pm

Use a planner. I use the Fidelity RPM. It tells me my optimal AA for my expenses, expected age, etc is 40% equities. If I run the planner using higher equity percentages, my results actually drop.

RAchip
Posts: 264
Joined: Sat May 07, 2016 7:31 pm

Re: Retirees: Who's increasing their equities as they age?

Post by RAchip » Tue Apr 10, 2018 1:00 pm

My parents passed away recently (both in their 80's). They were 100% equities (mostly individual stocks) their whole lives up until they died except they built up a little more cash than normal when it became apparent they were getting sick. Through this approach they amassed a large amount of wealth.

sschullo
Posts: 2437
Joined: Sun Apr 01, 2007 8:25 am
Location: Rancho Mirage, CA
Contact:

Re: Retirees: Who's increasing their equities as they age?

Post by sschullo » Tue Apr 10, 2018 1:10 pm

Nope, sticking with my 30/70 plan like I have since 2007 when I was a youngster at 59 when I suffered a 70% loss during the tech crash when I had about 98% in tech stocks. That loss really affected me in more good ways than negative.
Public School K-12 Educators: "Ask NOT what your annuity sales person can do for you, ask what you can do to be a Do-It-Yourselfer (DIY)."

User avatar
munemaker
Posts: 3581
Joined: Sat Jan 18, 2014 6:14 pm

Re: Retirees: Who's increasing their equities as they age?

Post by munemaker » Tue Apr 10, 2018 1:11 pm

RAchip wrote:
Tue Apr 10, 2018 1:00 pm
My parents passed away recently (both in their 80's). They were 100% equities (mostly individual stocks) their whole lives up until they died except they built up a little more cash than normal when it became apparent they were getting sick. Through this approach they amassed a large amount of wealth.
Were they living off of their investments? If they had a big pension or a very low withdrawal rate, it is easy to be 100% in equities and build up a large estate.

Otherwise, it comes down to the luck of the draw. I don't want to depend on luck.
Last edited by munemaker on Tue Apr 10, 2018 1:15 pm, edited 2 times in total.

User avatar
munemaker
Posts: 3581
Joined: Sat Jan 18, 2014 6:14 pm

Re: Retirees: Who's increasing their equities as they age?

Post by munemaker » Tue Apr 10, 2018 1:14 pm

Sophia1884 wrote:
Tue Apr 10, 2018 12:49 pm
However, at the end of the day, don't you sell bonds AND stocks for income?
Yes, you do. The concept is you don't want to be trapped into selling stocks when the market is down.

The book "Living off of Your Money" by McLung evaluates many withdrawal strategies. I recommend it.

Shamb3
Posts: 25
Joined: Mon Apr 09, 2018 8:58 pm

Re: Retirees: Who's increasing their equities as they age?

Post by Shamb3 » Tue Apr 10, 2018 1:23 pm

I am not retired but it is part of my current plan.
If you retire at 65 and have social security and a pension to fall back on maybe it doesn't make sense to you guys.

The big risk you may not have that I do is longevity risk.
I am 38 and want to have the option of retiring at 52-55. All my grandparents also lived to be over 90 years old, I might live past 100. Social security may provide even less by the time I am eligible and I have at least a 10 year bridge before I can collect anything. My portfolio doesn't need to last 30 years, it needs to last 50+ years / forever.

So a steep glide into bonds is part of my plan to handle sequence of returns, but then also a glide back to more equity to eliminate longevity risk.

User avatar
Hyperborea
Posts: 746
Joined: Sat Apr 15, 2017 10:31 am
Location: Osaka, Japan

Re: Retirees: Who's increasing their equities as they age?

Post by Hyperborea » Tue Apr 10, 2018 1:49 pm

The big reason for the glide back up, as has been mentioned by some and ignored by others, is longevity risk. I retired at 51 about a year and a half ago. Joint life expectancy with my spouse means that I'm looking at a 50 year retirement. I'm currently at roughly 60/40 and will over the next 7-10 years move towards an 80/20 allocation and then remain there. The 60/40 allocation was a glide down from the pre-retirement roughly 100/0 allocation. The glide down was to avoid the sequence of return risk problem.

There is a lot of hope here that a low equity allocation is safer but the real risk is that it kills your retirement slowly - boiling the frog style. By the time you notice that it's happened it's too late to fix. As nisiprius points out correctly, if you are willing and able to drop your withdrawal rate then almost any equity amount is acceptable. If you drop the withdrawal rate low enough then cash in the mattress will work too. The question is how low are you willing to drop that withdrawal rate and/or how much longer are you willing to work to make that rate acceptable?

Allocation, withdrawal rate, and expected retirement time horizon are inextricably linked. If you want to adjust one the others are impacted too.
"Plans are worthless, but planning is everything." - Dwight D. Eisenhower

Pops1860
Posts: 78
Joined: Thu Mar 14, 2013 4:05 pm

Re: Retirees: Who's increasing their equities as they age?

Post by Pops1860 » Tue Apr 10, 2018 2:13 pm

Just our 2 cts. DW and I may be bogleheads with an aversion to risk-aversion?? If such a thing exists...

DW and I have always been 95+% equities since we started investing, back when we were in our mid to late 30's. 401Ks, trad and Roth IRAs, taxable, didn't matter. Kept 95+% during entire working career, kept it for 'between years' from 66 to 70 while we did some Roth IRA conversions, still keeping it now 70+ and now getting both SS (DW and I) as well as 3 pensions (that started at or before 66). Doing the 'spousal restricted SS claim' for me, full SS claim for DW between 66-70 helped. Between working, pensions, and (two step) SS claiming strategy, always had the cash flow we needed.

Yes, just sat on AA during 2008-2009 excitement, saw it drop and then come back and then some. Have no regrets so far. I vaguely remember one or two other 'significant market drops' that happened before then as well. So, yes, I think we know our risk tolerance limits.

We have never (so far) had to draw on our investments, so we fit the category 'have enough cash flow to cover everything comfortably without drawing down investments.' We have bought into the long-term equities vision, and we see our investments at this point as estate assets (family beneficiaries and some charities), as well as 'emergency fund' for medical expenses if we end up needing it for this purpose. Will probably start pulling some out and spending (more) on ourselves and special family activities as well, we'll see.

So, we just sit and watch, enjoy the excitement, and go along for the ride. Not recommending this approach, just sayin' that's what we've been doing, and each to his/her own.
RAchip wrote:
Tue Apr 10, 2018 1:00 pm
My parents passed away recently (both in their 80's). They were 100% equities (mostly individual stocks) their whole lives up until they died except they built up a little more cash than normal when it became apparent they were getting sick. Through this approach they amassed a large amount of wealth.
Just wanted RAchip to note we probably would have enjoyed meeting your parents to trade stories. Always looking for 'confirmation bias' feedback when we can get it.

User avatar
munemaker
Posts: 3581
Joined: Sat Jan 18, 2014 6:14 pm

Re: Retirees: Who's increasing their equities as they age?

Post by munemaker » Tue Apr 10, 2018 2:18 pm

Pops1860 wrote:
Tue Apr 10, 2018 2:13 pm
DW and I may be bogleheads with an aversion to risk-aversion?? If such a thing exists...

We have never (so far) had to draw on our investments, so we fit the category 'have enough cash flow to cover everything comfortably without drawing down investments.
It is easy to be averse to risk aversion when you are not taking much of a risk, i.e. you are not risking not having enough money to eat and cover your basic living expenses.

Pops1860
Posts: 78
Joined: Thu Mar 14, 2013 4:05 pm

Re: Retirees: Who's increasing their equities as they age?

Post by Pops1860 » Tue Apr 10, 2018 2:21 pm

munemaker wrote:
Tue Apr 10, 2018 2:18 pm
Pops1860 wrote:
Tue Apr 10, 2018 2:13 pm
DW and I may be bogleheads with an aversion to risk-aversion?? If such a thing exists...

We have never (so far) had to draw on our investments, so we fit the category 'have enough cash flow to cover everything comfortably without drawing down investments.
It is easy to be averse to risk aversion when you are not taking much of a risk, i.e. you are not risking not having enough money to eat and cover your basic living expenses.
Agree. Well said.

curmudgeon
Posts: 1658
Joined: Thu Jun 20, 2013 11:00 pm

Re: Retirees: Who's increasing their equities as they age?

Post by curmudgeon » Tue Apr 10, 2018 2:24 pm

I expect to have an increasing equity allocation over the next 10 years as the result of spending from FI in taxable to cover the time period until we draw SS. I could maintain a particular balance by shifting in my IRA/401K, but I don't choose to. After starting SS, I don't expect to change allocation further.

User avatar
John151
Posts: 386
Joined: Fri Mar 02, 2007 6:03 pm

Re: Retirees: Who's increasing their equities as they age?

Post by John151 » Tue Apr 10, 2018 4:31 pm

I’m seventy, and my equity exposure is increasing all by itself. The stock funds I’m invested in have doubled in value, and I’m currently about six percentage points above my allocation target for stocks. I could sell enough shares to get down to my target, but I’d have to pay substantial capital gains taxes, and I prefer not to do that. So I’ve decided to leave my stocks alone. If retirees should increase their equity exposure as they age, I guess I’m doing the right thing.

Post Reply