Re-assessing risk tolerance if near/in retirement

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restingonmylaurels
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Re-assessing risk tolerance if near/in retirement

Post by restingonmylaurels » Fri Feb 28, 2020 4:57 am

One thing that has constantly amazed me is the number of BHers near to or in retirement who have 70-100% equity exposure.

With the current market volatility, I am wondering, for those near or in retirement, how many have re-assessed their ability to take risk this week?

FYI, I am near retirement, 50:50 AA, and am having flashbacks to 2008-2009, meaning gut check time, some mental re-assessment but no changes.

Chip Shot
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Re: Re-assessing risk tolerance if near/in retirement

Post by Chip Shot » Fri Feb 28, 2020 6:33 am

I always question my risk tolerance. I am 3-4 yrs out from retirement. My AA has been drifting around between 45/55 and 50/50. I never feel comfortable with it. Some days I feel that I am being too conservative (FOMO) , other days I wonder why I am putting so much at risk.

My portfolio is large enough that I might be OK if it was all in CD's making 2-3%, but it would be tight and I would want more cushion.
I was at 48% stock when the drop hit. I am now at 43.9%. I guess the market decided that I needed a more conservative AA..... LOL

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JoeRetire
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Re: Re-assessing risk tolerance if near/in retirement

Post by JoeRetire » Fri Feb 28, 2020 6:45 am

restingonmylaurels wrote:
Fri Feb 28, 2020 4:57 am
One thing that has constantly amazed me is the number of BHers near to or in retirement who have 70-100% equity exposure.
Remember, retirement can last a long time. You are not investing for a point in time, but for 30 years or so.
With the current market volatility, I am wondering, for those near or in retirement, how many have re-assessed their ability to take risk this week?
I am retired. I was about 60-40. I remain 60-40.
It's the end of the world as we know it. | It's the end of the world as we know it. | It's the end of the world as we know it. | And I feel fine.

McDougal
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Re: Re-assessing risk tolerance if near/in retirement

Post by McDougal » Fri Feb 28, 2020 7:46 am

I am (hopefully) < one year from retirement. I had been 90/10 for a long time, and for the last year or 2 drifted on purpose to 50/50 using my normal 401K contributions. I was exactly 50/50 on Jan 28 - last time I checked. Won't check for a while, but I can do the math in my head. I am certainly glad I transitioned. Honestly I also had FOMO about going to 50/50, today I am concerned about the current dip, but not worried. I think sequence of returns risk is my biggest concern at this point. My thoughts are that wee don't have enough data, and it has not been long enough, for me to take any action at this time. Good luck to us all.

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Re: Re-assessing risk tolerance if near/in retirement

Post by Dandy » Fri Feb 28, 2020 8:34 am

for many retirement is a significant financial event. An investment time when human capital fades quickly, and there is no wages, contributions,company matches,bonuses, etc. Instead there are withdrawals for living expenses or funding the wait to collect medicare/SS or both.

Often. especially at times like this, your employer not you determines your retirement date. Risk, degree of asset preservation vs growth and withdrawal strategies need to be addressed.

I was forced to retire at age 60 in 2008 a time similar to what we are going through now. In my late 60's I hit upon Dr. Wm Bernstein's idea of having 20 or more years of drawdown dollars in "safe" fixed income. I decided to "safely" fund drawdown dollars to age 90. I also decided to withdraw from a combination of "safe" and "risk" assets unless equities had a bad drop. This resulted in an overall allocation of 45/55. While I don't like what is happening in the market I sleep well.

Bernstein suggested his idea for those who "had enough" assets. I think it can apply to those with almost enough too. I found guessing whether 60/40 was too aggressive or 40/60 was too conservative to be a problem. I like basing some portion of my assets on the actual retirement funding needed and keeping those dollars at low risk. A ten year bull market makes almost any approach work. Times like now will be a better test.

furwut
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Re: Re-assessing risk tolerance if near/in retirement

Post by furwut » Fri Feb 28, 2020 8:49 am

In early retirement and my allocation is (or was until this week) 70/30. The bond portion alone is enough to meet 2x of my basic needs to age 70 at which point the combined income from a pension and social security should be 2x of needs.

I’m tending towards a Liability Matching Portfolio (LMP) approach so the plan is to spend from the bonds and let the market do what it does.

Anyway, to avoid significant losses via market timing one would have to radically shift out of stocks then time it right and radically shift back in.

B. Wellington
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Re: Re-assessing risk tolerance if near/in retirement

Post by B. Wellington » Fri Feb 28, 2020 9:13 am

Dandy wrote:
Fri Feb 28, 2020 8:34 am
for many retirement is a significant financial event. An investment time when human capital fades quickly, and there is no wages, contributions,company matches,bonuses, etc. Instead there are withdrawals for living expenses or funding the wait to collect medicare/SS or both.

Often. especially at times like this, your employer not you determines your retirement date. Risk, degree of asset preservation vs growth and withdrawal strategies need to be addressed.

I was forced to retire at age 60 in 2008 a time similar to what we are going through now. In my late 60's I hit upon Dr. Wm Bernstein's idea of having 20 or more years of drawdown dollars in "safe" fixed income. I decided to "safely" fund drawdown dollars to age 90. I also decided to withdraw from a combination of "safe" and "risk" assets unless equities had a bad drop. This resulted in an overall allocation of 45/55. While I don't like what is happening in the market I sleep well.

Bernstein suggested his idea for those who "had enough" assets. I think it can apply to those with almost enough too. I found guessing whether 60/40 was too aggressive or 40/60 was too conservative to be a problem. I like basing some portion of my assets on the actual retirement funding needed and keeping those dollars at low risk. A ten year bull market makes almost any approach work. Times like now will be a better test.
I always appreciate posts like this even though I may have a different strategy. Some close to retirement may find some of these ideas very useful.

FWIW, ~2-3 years from early retirement we continue to hold at 60/40 regardless of what any radio or T.V. guru suggests. I've been through this before a couple of times and this works for us. As always, YMMV. :beer

csm
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Re: Re-assessing risk tolerance if near/in retirement

Post by csm » Fri Feb 28, 2020 9:14 am

I retired two years ago, and after finally selling our primary residence in December 2019, spent some time late last year tweaking the portfolio to an AA that I thought we'd be comfortable with.

This week's events have taught me that my tolerance for risk is less than I believed. While I will stay the course and try to have ice in my stomach, I think I will be reassessing in the future for my own peace of mind.

We are in the category of having won the game, so risk is unnecessary. We have a COLA-adjusted defined benefit pension that covers all our expenses and comes with access to decent health insurance. We have no heirs and no need to leave a legacy. We are in good health now, but I would say our biggest financial risk in future will be health issues and/or long term care.

I could have easily put everything in bond index funds and a CD ladder, but reading this forum has convinced me that inflation risk is a concern and that a 30/70 portfolio is actually less risky than a 0/100 portfolio. A week ago, our AA was sitting around 35/20/45 (the latter being CDs and iBonds). This morning, the portfolio balance is down by ca. $80k and equity portion is around 31%.

It made me sick to 'lose' $80k in a few days. I don't have the stomach for it. I will not panic and sell anything now, but it has taught me a lesson about my own tolerance for risk. I am better suited to watching the balance grow slowly (2%) than seeing the ups and downs that can result in what happened this week.

Of course, I lived through the 2008-2009 crisis but did not have the significant savings balance that we have today (having spent 2005-2008 paying down the mortgage on our second home), and wasn't retired, so the impact was minimal.

When the dust settles on this latest drop, I know most would say to buy equities and rebalance back to the 35% AA, but I think I will remain conservative and probably eventually get to somewhere between 20/80 and maximum 30/70.

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Ramjet
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Re: Re-assessing risk tolerance if near/in retirement

Post by Ramjet » Fri Feb 28, 2020 9:21 am

restingonmylaurels wrote:
Fri Feb 28, 2020 4:57 am
One thing that has constantly amazed me is the number of BHers near to or in retirement who have 70-100% equity exposure.
70/30 is awfully close to 60/40 which is an allocation that many experts and Bogleheads think is sufficient in retirement

Isn't it natural to perform a glidepath? So 70/30 near retirement would seem right on track to me

Is it possible you are more conservative than the average investor or have "won the game" already

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Re: Re-assessing risk tolerance if near/in retirement

Post by restingonmylaurels » Fri Feb 28, 2020 11:14 am

Chip Shot wrote:
Fri Feb 28, 2020 6:33 am
I always question my risk tolerance. I am 3-4 yrs out from retirement. My AA has been drifting around between 45/55 and 50/50. I never feel comfortable with it. Some days I feel that I am being too conservative (FOMO) , other days I wonder why I am putting so much at risk.

My portfolio is large enough that I might be OK if it was all in CD's making 2-3%, but it would be tight and I would want more cushion.
I was at 48% stock when the drop hit. I am now at 43.9%. I guess the market decided that I needed a more conservative AA..... LOL
I completely agree, I am always questioning my risk tolerance. The idea which I think is prevalent here that one is supposed to be able to set their AA based on their risk tolerance to me has always seemed a bit theoretical, because the plain fact is I really do not know my risk tolerance.

Yes, when the market is up, I feel too conservative but other times I wonder why I am putting so much at risk, as having more would mean very little to me but having less certainly would.

My AA has surprisingly not budged that much and I am not sure why. Perhaps a bit because I use some riskier bonds.

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Re: Re-assessing risk tolerance if near/in retirement

Post by restingonmylaurels » Fri Feb 28, 2020 11:36 am

JoeRetire wrote:
Fri Feb 28, 2020 6:45 am
restingonmylaurels wrote:
Fri Feb 28, 2020 4:57 am
One thing that has constantly amazed me is the number of BHers near to or in retirement who have 70-100% equity exposure.
Remember, retirement can last a long time. You are not investing for a point in time, but for 30 years or so.
With the current market volatility, I am wondering, for those near or in retirement, how many have re-assessed their ability to take risk this week?
I am retired. I was about 60-40. I remain 60-40.
Have recently been thinking, for the reasons you make in your first comment, that perhaps I should be 60:40 instead of 50:50. This week has reminded me that getting closer to the bottom is a lot more scary than getting closer to the top, so I doubt I will change.

Has your 60-40 remained so given this weeks' volatility? If not, over what time period would you bring it back into that range?

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Re: Re-assessing risk tolerance if near/in retirement

Post by Almond » Fri Feb 28, 2020 11:54 am

How did bonds do in the 08 crash.

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Re: Re-assessing risk tolerance if near/in retirement

Post by friar1610 » Fri Feb 28, 2020 12:14 pm

B. Wellington wrote:
Fri Feb 28, 2020 9:13 am
Dandy wrote:
Fri Feb 28, 2020 8:34 am
for many retirement is a significant financial event. An investment time when human capital fades quickly, and there is no wages, contributions,company matches,bonuses, etc. Instead there are withdrawals for living expenses or funding the wait to collect medicare/SS or both.

Often. especially at times like this, your employer not you determines your retirement date. Risk, degree of asset preservation vs growth and withdrawal strategies need to be addressed.

I was forced to retire at age 60 in 2008 a time similar to what we are going through now. In my late 60's I hit upon Dr. Wm Bernstein's idea of having 20 or more years of drawdown dollars in "safe" fixed income. I decided to "safely" fund drawdown dollars to age 90. I also decided to withdraw from a combination of "safe" and "risk" assets unless equities had a bad drop. This resulted in an overall allocation of 45/55. While I don't like what is happening in the market I sleep well.

Bernstein suggested his idea for those who "had enough" assets. I think it can apply to those with almost enough too. I found guessing whether 60/40 was too aggressive or 40/60 was too conservative to be a problem. I like basing some portion of my assets on the actual retirement funding needed and keeping those dollars at low risk. A ten year bull market makes almost any approach work. Times like now will be a better test.
I always appreciate posts like this even though I may have a different strategy. Some close to retirement may find some of these ideas very useful.
I've been in the 40-ish to 50-ish equity range for the past several years. In trying to lock in an AA more tightly while simplifying my port AND ensuring the financial security of my wife if I go first, I read a lot of older posts by a number of BHs. I found dandy's approach to be as compelling as any. I've since committed to 50/50 with a Bernstein "floor". That is, I will rebalance to 50/50'when predetermined criteria are met but I won't do so if it takes my fixed income amount below a certain dollar level. That dollar level is predicated on providing a specific annual amount for my wife for 20 years, taking her into her 90s. In the worst circumstances, that may mean I will drop below 50% equities and not have sufficient free FI to rebalance back into equities. If that happens, so be it. We hope that our equity, all of which is in taxable at present, will never have to be touched and can go to our kids and charity but realize it may have to pay for long-term care at some point.

All of that being said, I'm not feeling at all anxious now. We're fine with pension/SS for virtually all expenses as long as I'm kicking. Even if I drop dead tomorrow, that Bernstein floor of fixed income should mean my wife won't be eating cat food.
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Re: Re-assessing risk tolerance if near/in retirement

Post by Fallible » Fri Feb 28, 2020 1:12 pm

Chip Shot wrote:
Fri Feb 28, 2020 6:33 am
I always question my risk tolerance. I am 3-4 yrs out from retirement. My AA has been drifting around between 45/55 and 50/50. I never feel comfortable with it. Some days I feel that I am being too conservative (FOMO) , other days I wonder why I am putting so much at risk.
...
And I also always question my risk tolerance and for a good reason: personal risk tolerance changes often throughout our lives. Even if we could find the exact amount of risk we can tolerate, I've found it best to settle for as close to exact as possible and then prepare for that to change (although this won't necessarily mean changing an AA).

One of the best books I've read on risk and risk tolerance is Your Money & Your Brain by WSJ columnist Jason Zweig: "To an astonishing degree, how much risk you can stand depends on what mood you happen to be in."

Another book that has been helpful in deciding how much risk to take in retirement is Jane Bryant Quinn's How To Make Your Money Last (see "Risk and the Older Investor"): "When you're pushing 80 or 85, should you still be in stocks? The answer depends on your temperament, financial resources, and when you're likely to need the money."

There also is a "Risk tolerance" page in our wiki where more reading material is recommended: https://www.bogleheads.org/wiki/Risk_tolerance
The first principle is that you must not fool yourself – and you are the easiest person to fool. ~Richard Feynman

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Re: Re-assessing risk tolerance if near/in retirement

Post by sailaway » Fri Feb 28, 2020 1:28 pm

Ramjet wrote:
Fri Feb 28, 2020 9:21 am
restingonmylaurels wrote:
Fri Feb 28, 2020 4:57 am
One thing that has constantly amazed me is the number of BHers near to or in retirement who have 70-100% equity exposure.
70/30 is awfully close to 60/40 which is an allocation that many experts and Bogleheads think is sufficient in retirement

Isn't it natural to perform a glidepath? So 70/30 near retirement would seem right on track to me

Is it possible you are more conservative than the average investor or have "won the game" already
We are planning to leave the workforce in two years and are comfortable with 70/30. According to firecalc, it has a higher success rate than 50/50.

We were actually much more aggressive until about a year ago. We started discussing a CD ladder and decided to buy bonds, instead.

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Re: Re-assessing risk tolerance if near/in retirement

Post by restingonmylaurels » Fri Feb 28, 2020 1:42 pm

Ramjet wrote:
Fri Feb 28, 2020 9:21 am
restingonmylaurels wrote:
Fri Feb 28, 2020 4:57 am
One thing that has constantly amazed me is the number of BHers near to or in retirement who have 70-100% equity exposure.
70/30 is awfully close to 60/40 which is an allocation that many experts and Bogleheads think is sufficient in retirement

Isn't it natural to perform a glidepath? So 70/30 near retirement would seem right on track to me

Is it possible you are more conservative than the average investor or have "won the game" already
Is 50:50 more conservative than the average retired investor? Maybe, I don't know.

What I do know is that I evaluate risk in a broader calculation than just the AA of my investment portfolio.

I consider an enhanced AA, which looks at total financial assets at risk, including capitalizing future salary, pensions, and SS and home equity, in addition to just investment assets.

It is discussed here: viewtopic.php?f=10&t=297690&p=4893328#p4893328

Because my total financial assets at risk comes out so high, my investment AA is lower than others similarly situated.

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Re: Re-assessing risk tolerance if near/in retirement

Post by cyclist » Fri Feb 28, 2020 2:00 pm

DW and I both retired within the last 2 years.

My IPS says 45-50% stock. We were pushing 50%, now we’re not.

We’re still about 7 years from collecting Social Security. We’ve got about 10 years of spending in FI and cash, and we like that reassurance.

My challenge will be deciding how much (if any) I’m willing to take from that cushion to buy stock at reduced prices to maintain my AA...

Cyclist

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Re: Re-assessing risk tolerance if near/in retirement

Post by Dottie57 » Fri Feb 28, 2020 2:12 pm

Late in summer I made 2 moves to lower stock allocation. I need to get to SS Which will provide 80% of basic need. At that point I want to end up with upward glide path to 50/50 tp 60/40.

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Re: Re-assessing risk tolerance if near/in retirement

Post by restingonmylaurels » Fri Feb 28, 2020 2:48 pm

McDougal wrote:
Fri Feb 28, 2020 7:46 am
I am (hopefully) < one year from retirement. I had been 90/10 for a long time, and for the last year or 2 drifted on purpose to 50/50 using my normal 401K contributions. I was exactly 50/50 on Jan 28 - last time I checked. Won't check for a while, but I can do the math in my head. I am certainly glad I transitioned.

Honestly I also had FOMO about going to 50/50, today I am concerned about the current dip, but not worried. I think sequence of returns risk is my biggest concern at this point. My thoughts are that wee don't have enough data, and it has not been long enough, for me to take any action at this time. Good luck to us all.
I can certainly related to FOMO about about being 50/50, especially when so many others close to or in retirement claim a much higher allocation to stocks.

But I always come back in my mind to Bernstein's if you have won the game. So I play less then others, some of whom also may have won.

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Re: Re-assessing risk tolerance if near/in retirement

Post by restingonmylaurels » Fri Feb 28, 2020 2:58 pm

Dandy wrote:
Fri Feb 28, 2020 8:34 am
In my late 60's I hit upon Dr. Wm Bernstein's idea of having 20 or more years of drawdown dollars in "safe" fixed income. I decided to "safely" fund drawdown dollars to age 90. I also decided to withdraw from a combination of "safe" and "risk" assets unless equities had a bad drop. This resulted in an overall allocation of 45/55. While I don't like what is happening in the market I sleep well.

Bernstein suggested his idea for those who "had enough" assets. I think it can apply to those with almost enough too. I found guessing whether 60/40 was too aggressive or 40/60 was too conservative to be a problem. I like basing some portion of my assets on the actual retirement funding needed and keeping those dollars at low risk. A ten year bull market makes almost any approach work. Times like now will be a better test.
I too like the idea of a liability matching portfolio but with SS/pensions addressing most of those expenses, that would leave me with a rather large equity allocation.

So I am back to trying to find a proper AA that feels sufficiently risk adverse in times like these and 2008/09, instead of one that gets the highest possible return.

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Re: Re-assessing risk tolerance if near/in retirement

Post by restingonmylaurels » Fri Feb 28, 2020 3:09 pm

furwut wrote:
Fri Feb 28, 2020 8:49 am
In early retirement and my allocation is (or was until this week) 70/30. The bond portion alone is enough to meet 2x of my basic needs to age 70 at which point the combined income from a pension and social security should be 2x of needs.

I’m tending towards a Liability Matching Portfolio (LMP) approach so the plan is to spend from the bonds and let the market do what it does.

Anyway, to avoid significant losses via market timing one would have to radically shift out of stocks then time it right and radically shift back in.
You know, one of the things that is crossed my mind is that if I had sold all of my stock funds last Friday, the proceeds net of the significant tax cost from the immense capital gains would be more than my current funds balance this Friday.

So I would be quite a bit ahead and with zero stress instead of keeping one eye on the S&P 500 Index as it bounces down and up and down.

This week so reminds me of 11 years ago.

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Re: Re-assessing risk tolerance if near/in retirement

Post by Dandy » Fri Feb 28, 2020 3:15 pm

My "safe" assets are FDIC products, money market funds, and short term bond funds.

My "risk" assets are intermediate bond funds and equities.

There is nothing forcing you to have an equity allocation that is too high.

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Re: Re-assessing risk tolerance if near/in retirement

Post by Artful Dodger » Fri Feb 28, 2020 3:19 pm

I was 60/40 mostly up until I hit 60. I had planned retirement around 65, and gradually reduced to 52/48. My thought was as I got into retirement I wanted enough fixed income to fund my expenses until we both were 70 (which I certainly had at 52/48), then I would probably shift back to 60/40 as pension and SS would more than cover essential expenses. I do want the extra potential of equities in my mix in my retirement years.

As it turned out, I'm still working (self-employed) at age 65 but more at a 75% FTE, and have plenty of time off for travel. I'm still funding new contributions at 50/50. I expect with this downturn I'll rebalance sometime in March close to 52/48, then let that be my AA til 70. I'm ahead of plan as far as needed assets.

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Re: Re-assessing risk tolerance if near/in retirement

Post by MN-Investor » Fri Feb 28, 2020 3:24 pm

My sweetie retired in 2016. We discussed how we wanted to change our asset allocation a couple of years before he actually retired and we decided to move from a 90/10 AA to a 40/60 AA. Once he retired and rolled his 401(k) into an IRA, we finalized our reallocation. Our discussions also included having enough in money market funds and short term bond funds in our taxable accounts to cover expenses for the next 7 years or so.

My sweetie passed away in 2018 at age 63, so now I am receiving Social Security. That, plus interest and dividends from my taxable account, are sufficient for my modest lifestyle. It will be a long time before I have to consider selling any stocks, so I'm doing fine during this stock market downturn.

By the way, our portfolio lost 1/3 of its value during the Great Recession. However, we stayed the course, even buying stock at the bottom, so we ended up just fine over time.
The key to success - Save early, save often, invest well.

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Re: Re-assessing risk tolerance if near/in retirement

Post by Gemini1962 » Fri Feb 28, 2020 3:24 pm

I am (was? hahaha) 2.5 years away from retirement and still 100% in equities (85% in the S&P500). I have never owned bonds and don't have any cash in the account. I consider that I'm still in the accumulation phase and even when I retire I don't think I will change my 100% allocation. I will need to draw 50% of my income from my fund when I retire as I have a couple of final salary pensions. I don't have any trouble at all sleeping at nights so I'm beginning to wonder if there's something wrong with me!

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Re: Re-assessing risk tolerance if near/in retirement

Post by restingonmylaurels » Fri Feb 28, 2020 4:04 pm

csm wrote:
Fri Feb 28, 2020 9:14 am
I retired two years ago, and after finally selling our primary residence in December 2019, spent some time late last year tweaking the portfolio to an AA that I thought we'd be comfortable with.

This week's events have taught me that my tolerance for risk is less than I believed. While I will stay the course and try to have ice in my stomach, I think I will be reassessing in the future for my own peace of mind.

We are in the category of having won the game, so risk is unnecessary. We have a COLA-adjusted defined benefit pension that covers all our expenses and comes with access to decent health insurance. We have no heirs and no need to leave a legacy. We are in good health now, but I would say our biggest financial risk in future will be health issues and/or long term care.

I could have easily put everything in bond index funds and a CD ladder, but reading this forum has convinced me that inflation risk is a concern and that a 30/70 portfolio is actually less risky than a 0/100 portfolio. A week ago, our AA was sitting around 35/20/45 (the latter being CDs and iBonds). This morning, the portfolio balance is down by ca. $80k and equity portion is around 31%.

It made me sick to 'lose' $80k in a few days. I don't have the stomach for it. I will not panic and sell anything now, but it has taught me a lesson about my own tolerance for risk. I am better suited to watching the balance grow slowly (2%) than seeing the ups and downs that can result in what happened this week.

Of course, I lived through the 2008-2009 crisis but did not have the significant savings balance that we have today (having spent 2005-2008 paying down the mortgage on our second home), and wasn't retired, so the impact was minimal.

When the dust settles on this latest drop, I know most would say to buy equities and rebalance back to the 35% AA, but I think I will remain conservative and probably eventually get to somewhere between 20/80 and maximum 30/70.
I wish I was only down by $80k but that sounds like yesterday's unrealized loss alone.

I agree these times certainly do teach you what is only theoretical during times when the market is advancing.

I also still invest in stocks largely for the two reasons you mention but as one gets older, the desire for this kind of excitement diminishes.

Not sure where I will be AA-wise at year end, when at least one Wall Street firm claims the S&P will be at 3500.

Sounds unlikely but who knows? Some algorithm just hit the buy switch and the S&P 500 went from a loss of over 3% to a loss of merely 0.83%, all in the last 15 minutes of trading.

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Re: Re-assessing risk tolerance if near/in retirement

Post by David Jay » Fri Feb 28, 2020 4:10 pm

I retired in January of 2019 with an AA of 45/55. I have enough in bonds to cover expenses to age 70. As I spend bonds my AA will gradually climb to 60/40 by age 70, where I intend 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

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Re: Re-assessing risk tolerance if near/in retirement

Post by Rosencrantz1 » Fri Feb 28, 2020 4:22 pm

restingonmylaurels wrote:
Fri Feb 28, 2020 4:57 am
One thing that has constantly amazed me is the number of BHers near to or in retirement who have 70-100% equity exposure.

With the current market volatility, I am wondering, for those near or in retirement, how many have re-assessed their ability to take risk this week?

FYI, I am near retirement, 50:50 AA, and am having flashbacks to 2008-2009, meaning gut check time, some mental re-assessment but no changes.
I'm one with 70% exposure - but, fortunately, we also have 3 pensions (2 of them COLA). I've had some folks here comment that they'd be 100% equities if they had pensions that covered all their expenses and then some - But, at the moment, I'm pretty glad we have some bonds :sharebeer

I do have to admit, though, several weeks back I was VERY tempted to adjust the AA more heavily favoring stocks. Now, of course, I'm glad I 'stayed the course'....

Who knows, though.... in another few weeks, I could be kicking myself that I have such heavy equity exposure. :shock:

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JoeRetire
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Re: Re-assessing risk tolerance if near/in retirement

Post by JoeRetire » Fri Feb 28, 2020 4:40 pm

restingonmylaurels wrote:
Fri Feb 28, 2020 11:36 am
JoeRetire wrote:
Fri Feb 28, 2020 6:45 am
restingonmylaurels wrote:
Fri Feb 28, 2020 4:57 am
One thing that has constantly amazed me is the number of BHers near to or in retirement who have 70-100% equity exposure.
Remember, retirement can last a long time. You are not investing for a point in time, but for 30 years or so.
With the current market volatility, I am wondering, for those near or in retirement, how many have re-assessed their ability to take risk this week?
I am retired. I was about 60-40. I remain 60-40.
Have recently been thinking, for the reasons you make in your first comment, that perhaps I should be 60:40 instead of 50:50. This week has reminded me that getting closer to the bottom is a lot more scary than getting closer to the top, so I doubt I will change.

Has your 60-40 remained so given this weeks' volatility? If not, over what time period would you bring it back into that range?
I haven't checked. It's probably drifted a bit from 60/40 this week.

But I don't feel compelled to check every day, week, or month. At some point I will, and it will get rebalanced if needed.
It's the end of the world as we know it. | It's the end of the world as we know it. | It's the end of the world as we know it. | And I feel fine.

pop77
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Re: Re-assessing risk tolerance if near/in retirement

Post by pop77 » Fri Feb 28, 2020 5:28 pm

I wonder whether it is better to think about AA more in terms of # times in annual expenses that are in safe assets (Bond,Cash) instead of a %.

For example, I can target 5 years of expenses in Bond + Cash and have remaining in stocks. It could be 10 years if you are more risk averse. I can relate to this rather than aiming for either a 40% or 50% allocation to bonds..

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Re: Re-assessing risk tolerance if near/in retirement

Post by Unladen_Swallow » Fri Feb 28, 2020 5:50 pm

We are almost 100% stock (spouse has some bonds).

My retirement date is not written in stone. We will consider retirement in 5 years. If something isn't to our satisfaction, we will work a bit more. Or just adjust our expectations.

When we retire, we expect changes with how we hold money.
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Re: Re-assessing risk tolerance if near/in retirement

Post by Cousin Eddie » Fri Feb 28, 2020 6:06 pm

I'm 80/20 and nearing retirement. My portfolio has plummeted like a rock, but I have no intention of changing my AA as my expenses in retirement will be met by a pension and SS. I am getting a little excited about my first TLH next week, if all goes according to plan I'll have carryover losses for the 2021 tax year.

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Re: Re-assessing risk tolerance if near/in retirement

Post by ImUrHuckleberry » Fri Feb 28, 2020 6:18 pm

Gemini1962 wrote:
Fri Feb 28, 2020 3:24 pm
I am (was? hahaha) 2.5 years away from retirement and still 100% in equities (85% in the S&P500). I have never owned bonds and don't have any cash in the account. I consider that I'm still in the accumulation phase and even when I retire I don't think I will change my 100% allocation. I will need to draw 50% of my income from my fund when I retire as I have a couple of final salary pensions. I don't have any trouble at all sleeping at nights so I'm beginning to wonder if there's something wrong with me!
You crazy! No way I could do that and sleep well unless I had pensions/SS paying a lot more than 50% of my income needs.

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JAZZISCOOL
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Re: Re-assessing risk tolerance if near/in retirement

Post by JAZZISCOOL » Fri Feb 28, 2020 6:19 pm

Almond wrote:
Fri Feb 28, 2020 11:54 am
How did bonds do in the 08 crash.
BND (Vanguard total bond market index ETF) was +5.18% in 2008.

:happy

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Re: Re-assessing risk tolerance if near/in retirement

Post by retire57 » Fri Feb 28, 2020 6:25 pm

We are retired and at 50/50 AA (or were before today - haven't looked and I'm not gonna). We have enough income between pensions and DH's SS to meet our expenses. This is our first drop since retirement, though we weathered 1987, 1999, 9/11, and 2008.

So we are calm. But I feel for folks that are relying mostly on their nest eggs for income.

Just goes to show (duh ...) how critical guaranteed income streams are after retirement no matter how many shares one has amassed.

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Re: Re-assessing risk tolerance if near/in retirement

Post by beehivehave » Fri Feb 28, 2020 6:26 pm

Gemini1962 wrote:
Fri Feb 28, 2020 3:24 pm
I am (was? hahaha) 2.5 years away from retirement and still 100% in equities (85% in the S&P500). I have never owned bonds and don't have any cash in the account. I consider that I'm still in the accumulation phase and even when I retire I don't think I will change my 100% allocation. I will need to draw 50% of my income from my fund when I retire as I have a couple of final salary pensions. I don't have any trouble at all sleeping at nights so I'm beginning to wonder if there's something wrong with me!
No, you are just the financial equivalent of this guy:
https://www.nationalgeographic.com/adve ... -capitan//

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restingonmylaurels
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Re: Re-assessing risk tolerance if near/in retirement

Post by restingonmylaurels » Sat Feb 29, 2020 5:12 am

Dottie57 wrote:
Fri Feb 28, 2020 2:12 pm
Late in summer I made 2 moves to lower stock allocation. I need to get to SS Which will provide 80% of basic need. At that point I want to end up with upward glide path to 50/50 tp 60/40.
I am interested in your point. Does this say that when you get to SS, you will increase your equity allocation? What is your reasoning for doing so?

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restingonmylaurels
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Re: Re-assessing risk tolerance if near/in retirement

Post by restingonmylaurels » Sat Feb 29, 2020 5:25 am

David Jay wrote:
Fri Feb 28, 2020 4:10 pm
I retired in January of 2019 with an AA of 45/55. I have enough in bonds to cover expenses to age 70. As I spend bonds my AA will gradually climb to 60/40 by age 70, where I intend to remain.
Several posters above has more or less said the same thing, lower AA at retirement, enough bonds to cover until SS, then raising AA to 60/40 when SS starts. Are you essentially capitalizing your future SS PIA cash flows as fixed income, so you can then hold more equities in your investment portfolio?

And what is the attraction of the 60/40 AA (as opposed to the 45/55 you started retirement with)?

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restingonmylaurels
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Re: Re-assessing risk tolerance if near/in retirement

Post by restingonmylaurels » Sat Feb 29, 2020 5:39 am

retire57 wrote:
Fri Feb 28, 2020 6:25 pm
We are retired and at 50/50 AA (or were before today - haven't looked and I'm not gonna). We have enough income between pensions and DH's SS to meet our expenses. This is our first drop since retirement, though we weathered 1987, 1999, 9/11, and 2008.

So we are calm. But I feel for folks that are relying mostly on their nest eggs for income.

Just goes to show (duh ...) how critical guaranteed income streams are after retirement no matter how many shares one has amassed.
Are you retired and taking SS or retired and delaying SS? In the latter case, the nest egg becomes more critical during the delay window.

Agree that guaranteed income streams after retirement are important but if you look closely at potential impairments to those guaranteed streams (financial health of the pension funding organization, funding level of the pension's trust fund, PBGC guarantees, and the current law reduction of SS benefits in 2034), all are outside one's control.

Then maintaining the value of the nest egg becomes even more important. This is why I am at 50:50, starting the SS delay period soon.

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Re: Re-assessing risk tolerance if near/in retirement

Post by Dottie57 » Sat Feb 29, 2020 6:55 am

restingonmylaurels wrote:
Sat Feb 29, 2020 5:12 am
Dottie57 wrote:
Fri Feb 28, 2020 2:12 pm
Late in summer I made 2 moves to lower stock allocation. I need to get to SS Which will provide 80% of basic need. At that point I want to end up with upward glide path to 50/50 tp 60/40.
I am interested in your point. Does this say that when you get to SS, you will increase your equity allocation? What is your reasoning for doing so?
Yes I intend to move to either to 50/50 or even 60/40. I see the time between now and SS as my biggest sequence of return risk so I want to have less risk. This week you can see the risk in the market. When SS is part of my income, I have the ability to take a bit more risk. So I am planning on a rising glide path. But will always have an adequate amount per year of fixed income.

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Re: Re-assessing risk tolerance if near/in retirement

Post by Sandtrap » Sat Feb 29, 2020 7:15 am

I learned a lot in the market/drop/correction of 2019.
Allocation was 50/50.
I shifted funds over a period of time until the allocation shifted to 40/60.
Did this by turning off auto reinvest dividends and interest, then investing the runoff into the fixed portion.
Plan to do this over time until it glides to 30/70 when I'm a super duper senior.
SS kicks in, late as possible, for DW and I in a few years. It will help offset the reduced dividend/interest yields from the allocation shift as far as income.
. . . . OTOH, may leave it at 40/60 forever. . . we'll see. :annoyed

j :happy
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restingonmylaurels
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Re: Re-assessing risk tolerance if near/in retirement

Post by restingonmylaurels » Sat Feb 29, 2020 8:24 am

Dottie57 wrote:
Sat Feb 29, 2020 6:55 am
restingonmylaurels wrote:
Sat Feb 29, 2020 5:12 am
Dottie57 wrote:
Fri Feb 28, 2020 2:12 pm
Late in summer I made 2 moves to lower stock allocation. I need to get to SS Which will provide 80% of basic need. At that point I want to end up with upward glide path to 50/50 tp 60/40.
I am interested in your point. Does this say that when you get to SS, you will increase your equity allocation? What is your reasoning for doing so?
Yes I intend to move to either to 50/50 or even 60/40. I see the time between now and SS as my biggest sequence of return risk so I want to have less risk. This week you can see the risk in the market. When SS is part of my income, I have the ability to take a bit more risk. So I am planning on a rising glide path. But will always have an adequate amount per year of fixed income.
What you are doing seems to be the opposite of VG's general approach.

Not sure if your user name indicates your birth year, but assuming you, like me, would use the Target Retirement 2020 fund, it is 55% equities.

The product summary states "The funds... incrementally decreasing exposure to stocks and increasing exposure to bonds as each fund’s target retirement date approaches. The funds continue to adjust for approximately seven years after that date until their allocations match that of the Target Retirement Income Fund."

The income fund is 30% equities. Why have you chosen an approach different than VG's?

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Re: Re-assessing risk tolerance if near/in retirement

Post by David Jay » Sat Feb 29, 2020 9:23 am

restingonmylaurels wrote:
Sat Feb 29, 2020 5:25 am
David Jay wrote:
Fri Feb 28, 2020 4:10 pm
I retired in January of 2019 with an AA of 45/55. I have enough in bonds to cover expenses to age 70. As I spend bonds my AA will gradually climb to 60/40 by age 70, where I intend to remain.
Several posters above has more or less said the same thing, lower AA at retirement, enough bonds to cover until SS, then raising AA to 60/40 when SS starts. Are you essentially capitalizing your future SS PIA cash flows as fixed income, so you can then hold more equities in your investment portfolio?

And what is the attraction of the 60/40 AA (as opposed to the 45/55 you started retirement with)?
For me, 60/40 is for a legacy objective (I want to continue to grow my portfolio). I only went down to 45/55 to reduce sequence-of-risk issues, putting all my spending in bonds so I would not need to sell any stocks for living expenses.

[edit] I was 100/0 until age 58 - 4 years before retirement. For me, 60/40 is becoming risk-averse in retirement.
Last edited by David Jay on Sat Feb 29, 2020 12:29 pm, edited 1 time in total.
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Re: Re-assessing risk tolerance if near/in retirement

Post by EnjoyTheJourney » Sat Feb 29, 2020 9:49 am

It wouldn't be surprising if your risk tolerance changes over time.

When you're near retirement and you'd rather not have the volatility of markets add more years spent working to your "to do" list, your risk tolerance might (understandably) decline. It's probably better to realign your asset allocation when you realize your underlying risk tolerance has changed, rather than endure huge amounts of stress every time stocks start to decline.

It can also help to build into your investment policy statement (discussed in the wiki here) a provision that you'll always wait 90 days after wanting to make a change to your asset allocation before following through. It cuts down on the odds of panic selling, which may end up being very helpful.

Finally, there are excellent books that help for better understanding cycles in financial markets that can help during difficult times to reduce stress and to maintain a more even-keeled approach to managing investments. For example, Devil Take the Hindmost is a good read, along with The Great Depression: A Diary. Both of these books are commonly available from a local library for free, as a bonus.

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Re: Re-assessing risk tolerance if near/in retirement

Post by Dottie57 » Sat Feb 29, 2020 11:47 am

restingonmylaurels wrote:
Sat Feb 29, 2020 8:24 am
Dottie57 wrote:
Sat Feb 29, 2020 6:55 am
restingonmylaurels wrote:
Sat Feb 29, 2020 5:12 am
Dottie57 wrote:
Fri Feb 28, 2020 2:12 pm
Late in summer I made 2 moves to lower stock allocation. I need to get to SS Which will provide 80% of basic need. At that point I want to end up with upward glide path to 50/50 tp 60/40.
I am interested in your point. Does this say that when you get to SS, you will increase your equity allocation? What is your reasoning for doing so?
Yes I intend to move to either to 50/50 or even 60/40. I see the time between now and SS as my biggest sequence of return risk so I want to have less risk. This week you can see the risk in the market. When SS is part of my income, I have the ability to take a bit more risk. So I am planning on a rising glide path. But will always have an adequate amount per year of fixed income.
What you are doing seems to be the opposite of VG's general approach.

Not sure if your user name indicates your birth year, but assuming you, like me, would use the Target Retirement 2020 fund, it is 55% equities.

The product summary states "The funds... incrementally decreasing exposure to stocks and increasing exposure to bonds as each fund’s target retirement date approaches. The funds continue to adjust for approximately seven years after that date until their allocations match that of the Target Retirement Income Fund."

The income fund is 30% equities. Why have you chosen an approach different than VG's?
There are definitely people here in bogleheads who do what I said. Invest according to need, willingness and ability to take risk. So right now , with no income coming I want a higher amount of bonds. This is a risky time for me. With SS, I have less need of $ from my portfolio so I can risk a bit more. It is all a tradeoff. Today. After the downturn of last week, I have current AA of 36/65 stocks to bonds.

And of course. Coronavirus may kill me and my AA makes no difference.

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Re: Re-assessing risk tolerance if near/in retirement

Post by Dottie57 » Sat Feb 29, 2020 11:49 am

David Jay wrote:
Sat Feb 29, 2020 9:23 am
restingonmylaurels wrote:
Sat Feb 29, 2020 5:25 am
David Jay wrote:
Fri Feb 28, 2020 4:10 pm
I retired in January of 2019 with an AA of 45/55. I have enough in bonds to cover expenses to age 70. As I spend bonds my AA will gradually climb to 60/40 by age 70, where I intend to remain.
Several posters above has more or less said the same thing, lower AA at retirement, enough bonds to cover until SS, then raising AA to 60/40 when SS starts. Are you essentially capitalizing your future SS PIA cash flows as fixed income, so you can then hold more equities in your investment portfolio?

And what is the attraction of the 60/40 AA (as opposed to the 45/55 you started retirement with)?
For me, 60/40 is for a legacy objective (I want to continue to grow my portfolio). I only went down to 45/55 to reduce sequence-of-risk issues, putting all my spending in bonds so I would not need to sell any stocks for living expenses.
I like your style!

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restingonmylaurels
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Re: Re-assessing risk tolerance if near/in retirement

Post by restingonmylaurels » Sun Mar 01, 2020 3:37 am

Thanks for everyone who posted their stories.

In summary, it seems that those near to or in retirement take several AA approaches:

1. Permanently lowering equity exposure to moderate, either once or on a glide path.
2. Setting an minimum exposure to equities to address inflation.
3. Setting up a liability matching portfolio in bonds/cash and allocating the remainder to equity.
4. Temporarily lowering equity exposure while delaying SS, then raising it again after SS begins.
5. Staying with a high equity exposure through retirement, addressing longevity or legacy.

So many choices, lots for me to think about in the months and years ahead.

One point that came through is that many feel uncertain about setting their AA and that it may change over time and circumstances.

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Re: Re-assessing risk tolerance if near/in retirement

Post by J295 » Sun Mar 01, 2020 7:59 am

Retired in 2013 at age 53. Would have retired a bit earlier, but was 100% equities and then the great recession came along 2008-09.

At retirement settled into an age-based allocation, which is 110 minus my age equals our percentage of equity. So, now at age 60, we have 110-60 = 50% equity.

We don’t have a need to maximize our returns and do intend to leave reasonably material amounts to our children/grandchildren.

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Re: Re-assessing risk tolerance if near/in retirement

Post by gamboolman » Sun Mar 01, 2020 10:34 am

I just posted this in a thread on If you are glad you have bonds in your portfolio. Not sure how to link ?

Age 60 and on the verge of retiring. Yes we are glad we have Bonds and for us Cash also.

We had planned to retire 1-Jan-20 but got asked to stay on a little longer....so we did.

In preparation for retirement we had drifted to 35 equities / 51 bonds / 14 cash. So we need to ease back to get the equities into the lower to mid 40's but will do so slowly. We have 2 to 3 years of Cash available. Once we do retire and get comfortable I imagine we'll reduce that to the 1 yearish.... range.

We are not big tinkerers and obsessed with maintaining the AA obsessively.

Our target AA is ~45/45/10

Now with the current status of the market, we are considering working the rest of 2020 and potentially retiring 1-Jan-21. I'll admit to being abit skittish about giving up the paycheck after 42 years of working the oil patch.....even though the numbers and calculators say go, it's a big step for us.

But glad we have bonds funds in our portfolio for sure.

Retirement for me is a big step as I do not want to have to come back to working as a Contract Consultant / Contractor.

When I go, I want to stay gone and concentrate on chasing ms gamboolgal around the old 4 poster back in Texas buck neckid and devoting all my remaining time to being with her.

Lifes A Dance And You Learn As You Go....

gamboolman

Gemini1962
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Re: Re-assessing risk tolerance if near/in retirement

Post by Gemini1962 » Mon Mar 02, 2020 9:48 am

beehivehave wrote:
Fri Feb 28, 2020 6:26 pm
Gemini1962 wrote:
Fri Feb 28, 2020 3:24 pm
I am (was? hahaha) 2.5 years away from retirement and still 100% in equities (85% in the S&P500). I have never owned bonds and don't have any cash in the account. I consider that I'm still in the accumulation phase and even when I retire I don't think I will change my 100% allocation. I will need to draw 50% of my income from my fund when I retire as I have a couple of final salary pensions. I don't have any trouble at all sleeping at nights so I'm beginning to wonder if there's something wrong with me!
No, you are just the financial equivalent of this guy:
https://www.nationalgeographic.com/adve ... -capitan//
Is that just before he fell to his death by any chance? Hahaha

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