Age in Bonds

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dbr
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Re: Age in Bonds

Post by dbr » Thu Dec 24, 2015 12:53 pm

rgs92 wrote:The problem with age in bonds is that it implies that you reduce your stock allocation over time, and a Firecalc/Trinity income-withdrawal scenario assumes a constant asset allocation like 50/50 to 60/40 (stock/bond) over the long term.

If you are 70 and have a 30 year horizon in theory, arbitrarily selling stocks to produce a 30/70 allocation simply due to your age would not support the constant safe inflation-adjusted withdrawal rate.

In other words, Firecalc does not assume a glidepath. In fact, I don't even think it calls for a super high stock allocation when younger.
(Correct me please if I'm off-base here, especially since I myself keep my A/A pretty constant.)
When withdrawing from portfolios the asset allocation has a weak effect. Typically the only strong effect of asset allocation is not having enough in stocks when withdrawal rates are moderate and high. I'm not sure following an age in bonds rule in retirement is an issue as you still have 30% stocks at age 70, which is probably enough. I don't see where there is any great benefit to continuing to reduce stock allocations as one ages however, and there is some evidence one is better off not reducing stock allocation. There is also no benefit holding a high stock allocation in retirement unless the objective is long term growth for legacy purposes. In that case the strategy is different (see Buffett, for example).

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Re: Age in Bonds

Post by trueblueky » Thu Dec 24, 2015 1:23 pm

^

The retirement glidepaths tend to stop at some point.
L Income is 20/80
VG LifeStrategy Income Fund (VASIX) is 20/80
VG Target Retirement Income Fund (VTINX) is 30/70

These are in line with keeping some stocks even when you're 100.

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Re: Age in Bonds

Post by rgs92 » Thu Dec 24, 2015 1:28 pm

But still the question remains is whether the history-based simulations used in Firecalc and other retirement calculators support the target-fund glidepath when the asset allocation changes significantly in the later stages.
And those later stages are the critical periods when the money could run out.

I'm sure some of the scenarios include a big bear market later in life, and a traditional disciplined constant allocation would force buying low through rebalancing (a good thing), while the age-in-bonds approach would do the opposite, and cause you to sell near the bottom (a bad thing). I see this as a danger.

And 30/70 is a lot different than 60/40 or even 50/50. I am guessing that this could have a big impact on Firecalc results. I've always heard that asset allocation is key (as opposed to stock picking or timing).

And you know, target funds haven't been around enough over the really long term as used in the Trinity Study to prove their viability.
So I question the assumption stated above that a low stock allocation later in life could have a "wead effect."
Thanks for the thoughtful comments. (I have been struggling with the concept of target funds in my mind for some time now and have doubts because I think they are unproven. I don't recall Mr. Bogle recommending them ever.)

It's hard enough to make the leap of faith to trust the Trinity study / Firecalc with your financial survival, but at least you have the comfort of strong probability analysis from multiple long term studies and data, but there is little of that (that I'm aware of) for the target/glidepath approach.

So it may be counter-intuitive, but from this perspective, I feel as if there is actually more risk from diverting from a constant asset allocation like 50/50, not less by reducing your stock allocation.

I mean, what if you spent 2001 to 2011 reducing your stock allocation 10% as a glidepath calls for? Wouldn't this have hurt you? That lump of stock would have doubled or more and you would have missed out on it.
Last edited by rgs92 on Thu Dec 24, 2015 1:54 pm, edited 4 times in total.

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Re: Age in Bonds

Post by Index Fan » Thu Dec 24, 2015 1:46 pm

Age in bonds is a great rule of thumb. You won't lose your shirt. I also like Target Retirement Income for those in the mature stage of retirement.

I am more of a 50/50 guy in retirement because I have a good solid pension and my risk tolerance is comfortable with that AA. If I didn't have that, I'd be age in bonds or TR Income.
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dbr
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Re: Age in Bonds

Post by dbr » Thu Dec 24, 2015 1:50 pm

rgs92 wrote:
And 30/70 is a lot different than 60/40 or even 50/50. I am guessing that this could have a big impact on Firecalc results. I've always heard that asset allocation is key (as opposed to stock picking or timing).
The two primary determinants of success or failure of a portfolio in retirement are the withdrawal rate and the year of retirement (aka luck). I doubt there is going to be a definitive finding that one or another particular asset allocation or glide path is indicated. In general sequence of return risk in volatile portfolios is offset by increased expected return in those portfolios. The only sure-fire way to fail is to try to withdraw too much from too conservative a portfolio, or just to try to withdraw too much from a retirement starting in a bad year, not known in advance.

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Re: Age in Bonds

Post by midareff » Thu Dec 24, 2015 1:52 pm

I recently reduced my allocation (@SP500 >2100)to equities from 48% to 38%. I will be 68 on Monday and am retired 4 years with SS and a cola'd pension roughly equal in $ to my 3.6% WR. My WR is from dividends on equity funds and monthly (sales) withdrawal from bond funds in taxable. SS is about 20% of our income. My wife is Thai, also retired and has no income.

I'm nowhere near smart enough to know what the exact right AA% or WR %'s is for me with a Shiller PE where it is, so like the rest of you, I guess.

In 2.5 years I start RMD, which eliminates 15% money income money so I keep re-booking capital gains and using the "back door" for $ from IRA to Roth.

Our biggest enemy, or at least mine (IMHO, is inflation. If it stays below 3% and nearer 2% all will be well.

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Re: Age in Bonds

Post by rgs92 » Thu Dec 24, 2015 1:56 pm

I thought asset allocation was also a major determinant of the probability of long term success for portfolio survival. (Along with withdrawal rate of course.) I also thought that following a Trinity Study approach would minimize the luck factor.
Last edited by rgs92 on Thu Dec 24, 2015 1:59 pm, edited 1 time in total.

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Re: Age in Bonds

Post by midareff » Thu Dec 24, 2015 1:59 pm

rgs92 wrote:I thought asset allocation was also a major determinant of the probability of long term success for portfolio survival. (Along with withdrawal rate of course.)
You are correct, however, Dr. Bernstein's liability matching portfolio must be considered.

rgs92
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Re: Age in Bonds

Post by rgs92 » Thu Dec 24, 2015 2:00 pm

What's that (liability matching portfolio)? Thanks for the lesson :).
[Where I'm coming from is that I feel like readjusting asset allocation for age is like throwing a wrench into to the workings of the Firecalc/Trinity Study engine, albeit a small one. But if that small wrench ends up in in the timing belt, such as in one of the sensitive Monte Carlo scenarios, who knows what could happen? To say it doesn't matter is really just guessing and hoping for the best. Reducing your risk exposure is actually not staying the course.]
Last edited by rgs92 on Thu Dec 24, 2015 2:25 pm, edited 4 times in total.

Dandy
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Re: Age in Bonds

Post by Dandy » Thu Dec 24, 2015 2:14 pm

Age in bonds is a starting point to me not a serious "rule". I don't agree with using SS as part of fixed income.

I like Dr. Bernstein's idea of putting "x" years of drawdown in "safe" fixed income such as CDs, short term bonds or TIPs ladder etc and the rest invest as you wish. He suggested "x" as 20 to 25 years, I would suggest "x" be to age 90 if you can. Building your retirement allocation from "safe" investments up makes sense to me in retirement -- secure your retirement and have it determine what overall allocation is not set an overall allocation and then decide how to fill it.

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Re: Age in Bonds

Post by IPer » Thu Dec 24, 2015 11:03 pm

Ok I first saw this and said "no way" but then I kept seeing it and checked things.

1. Age in bonds would work for me beginning at about a portfolio size of 25x annual expenses.
2. I would definitely consider Age in bonds at 33x annual expenses and almost for sure at 40x.
3. I am working towards that as I have grown quite fond of how bonds work in my portfolio,
actually I believe I have an emotional attachment to bond holdings which also might not be good,
but I do like them. Conversely I feel a bit of a thrill when my dollar is divided to the components
of VTSAX as well.
4. I am currently at Age minus 25 in bonds though it is gradually shifting, this would happen
faster when earnings are accelerated.
5. I believe Age in bonds as an appropriate AA expresses a certain luxury of accomplishment
and kudos to those that have obtained it!
6. Thank you http://cfiresim.com/ for helping me explore this question!
7. I am getting close to the 25x mark and will keep this post in mind on the way there
and on the way to 33x.
8. Super Kudos to the 33x'ers and above! Happy holidays to you and all the rest of us!
Read the Wiki Wiki !

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Re: Age in Bonds

Post by Dandy » Fri Dec 25, 2015 7:39 am

Trying to determine your risk tolerance is an iffy guess at best. Translating that into an overall equity/fixed income allocation is another iffy guess. In retirement you have some real financial data to base your allocation -- you know your current withdrawal dollar amount. Why not use that more relevant data to construct your portfolio and determine the risk you feel comfortable with?

If at 65 you need 40k per year before taxes and feel you have a good chance to live until 85 to fully fund that retirement you need $800k. If you have more than that why not put 800k in "safe" fixed income and the rest in equities and let that determine your overall allocation from the actual funding requirements you have vs guessing that X% of equities is conservative enough?

So a 65 year old with $1.2 million in retirement assets you could put 800k in CDs, short term bonds, Stable Value etc and 400k in equities. That would be a 33%/67% overall allocation. Pretty close to age in bonds but based on your specific needs not a rule of thumb. Also the quality of the fixed income is important.

Can this approach fail - sure no plan is perfect or set it and forget it. You need to review it and adjust if necessary.

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Re: Age in Bonds

Post by Jpg » Fri Dec 25, 2015 2:12 pm

Merry Christmas Bogleheads: I agree with approximately age in bonds for age 25 -55. I am 54 with approximately 50/50 where I intend to stay for a long time.I agree with previous posts that once you reach retirement and age 55 you can stay at 50/50 because Firecalc assumes a 60/40 or 50/50 allocation for the rest of your life.Also remember Ben Graham believed that no matter what your age always stay between 25%-75% stocks.Some people do not believe in rules of thumb, although I would argue that if some people do not know what to do- then a 50/50 rule of thumb is a good fallback position because you participate in bull markets, and never get burned by the Bears, and you can sleep at night.Happy Holidays

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Re: Age in Bonds

Post by dbr » Fri Dec 25, 2015 3:37 pm

Jpg wrote:Merry Christmas Bogleheads: I agree with approximately age in bonds for age 25 -55. I am 54 with approximately 50/50 where I intend to stay for a long time.I agree with previous posts that once you reach retirement and age 55 you can stay at 50/50 because Firecalc assumes a 60/40 or 50/50 allocation for the rest of your life.Also remember Ben Graham believed that no matter what your age always stay between 25%-75% stocks.Some people do not believe in rules of thumb, although I would argue that if some people do not know what to do- then a 50/50 rule of thumb is a good fallback position because you participate in bull markets, and never get burned by the Bears, and you can sleep at night.Happy Holidays
FireCalc assumes no such thing. The asset allocation is adjustable on the "portfolio" tab. The default if you don't do anything is 75% equities/25% long bonds. The Trinity study, which was probably the first of a set of studies that underly the rationale for FireCalc looks at a range of asset allocations. Anyone who likes can peruse the data in the tables in that study or run a range of options in FireCalc.

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Re: Age in Bonds

Post by Jpg » Fri Dec 25, 2015 3:54 pm

I believe Firecalc assumed an allocation of 75% stocks/ 25% bonds.

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Re: Age in Bonds

Post by randomguy » Fri Dec 25, 2015 7:52 pm

midareff wrote:
rgs92 wrote:I thought asset allocation was also a major determinant of the probability of long term success for portfolio survival. (Along with withdrawal rate of course.)
You are correct, however, Dr. Bernstein's liability matching portfolio must be considered.
Asset allocation in trinity studies has little to no effect (talking 20/80 to 80/20) when you are looking at 30 years and 4%. As you up the term and payout rate, you need to add more stocks . This is a result of the fact that the performance difference between bonds and stocks in the 66-80 period was minimal. The volatility wasn't:)

Liability portfolio's require more cash in most cases and a lot have longevitity issues (if you buy 30 years worth of tips, you better be dead when those 30 years are up. The market portfolio guy is likely to last pretty much forever). It is also real tough sell to pass up that opportunity costs versus risk for a lot of people. How much is it worth it for me to sleep well at night for the chance to set up the next generations for a long time. For example, imagine I shove all my 1 million bucks into a inflation adjust SPIA paying 4%. I am not at zero (about) risk and have secured my retirement. Go with the portfolio and I win the lottery and don't die until 30 years have passed. 5% of the time I am broke (well in reality I would have cut spending long before getting close) and 50% of the time, I am leaving 2 million real to either heirs or charity. Thats a real tough choice to make for most people I have talked to about it.

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Re: Age in Bonds

Post by midareff » Sat Dec 26, 2015 9:01 am

randomguy wrote:
midareff wrote:
rgs92 wrote:I thought asset allocation was also a major determinant of the probability of long term success for portfolio survival. (Along with withdrawal rate of course.)
You are correct, however, Dr. Bernstein's liability matching portfolio must be considered.
Asset allocation in trinity studies has little to no effect (talking 20/80 to 80/20) when you are looking at 30 years and 4%. As you up the term and payout rate, you need to add more stocks . This is a result of the fact that the performance difference between bonds and stocks in the 66-80 period was minimal. The volatility wasn't:)

Liability portfolio's require more cash in most cases and a lot have longevitity issues (if you buy 30 years worth of tips, you better be dead when those 30 years are up. The market portfolio guy is likely to last pretty much forever). It is also real tough sell to pass up that opportunity costs versus risk for a lot of people. How much is it worth it for me to sleep well at night for the chance to set up the next generations for a long time. For example, imagine I shove all my 1 million bucks into a inflation adjust SPIA paying 4%. I am not at zero (about) risk and have secured my retirement. Go with the portfolio and I win the lottery and don't die until 30 years have passed. 5% of the time I am broke (well in reality I would have cut spending long before getting close) and 50% of the time, I am leaving 2 million real to either heirs or charity. That's a real tough choice to make for most people I have talked to about it.
Interesting POV randomguy. I'm not a big fan of the Trinity Study since today's market conditions, especially bonds, are not yielding anything like what they were for the study. If I recall properly Bengen did a WR study using then current market average returns of 10.3% for equities and 5.1% for five year treasuries against a 3.0% inflation rate. If anyone wants to start burning 4% on a 25 times portfolio retiring now they might want to have a read through some of Dr. Pfau's writings on funding retirements before pulling the plug. I've have been raising my WR annually since I retired 4 years ago, and it looks like this year will finalize near 3.0%, which allows lots of $$ for travel, which age will not allow to go on indefinitely. I also have a 16 year younger wife (also retired) to consider who is creatively rather than mathematically blessed, so account management in my later years is more of a concern than poverty. FWIW, if we assume (always a bad thing) a period from five years to a decade of near 2% CPI-U, with normalization of the Shiller PE and Fed interest rates, we can expect a period where returns will be minimal compared to the last six years. That would seem to create risk of exposure to the sequence of return's risks. Additionally, I think you have to swap the use of the word "cash" in your quote for "fixed income". You might also want to have a read of Jim Otar's writings which last I looked were still available on his web site at a minimal cost. Of course, much of this depends on your expectations of life style in retirement. If your ideal is a porch and a library card all funded by SS and a small nest egg vs. extended international travel and a more upscale life your income and asset bases will have different requirements.

If it takes your last dime to buy 30 years of TIPS I think there was a retirement planning shortfall before anything else. Liability matching does not by it's nature imply the use of all assets. The same goes for a SPIA, and 4% isn't the least bit tempting on that either. There are lots of ways to navigate retirement IMHO, and none of them call for spending, or planning to spend your last dime as you draw your last breath.

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Re: Age in Bonds

Post by FCM » Sat Dec 26, 2015 9:34 am

My age is 69 (retired 3 years ago), and my wife is 67. We have about 38% in equities and the remainder in a stable value fund, Vanguard bond funds, CDs, and money market funds. My modest pension and our social security incomes cover our living expenses since we no longer have a mortgage. This is a "sleep well at night" asset allocation for us. The fixed income assets will more than take care of us for the rest of our lives since we haven't even been taking 2% out of our portfolio post retirement and probably won't need to going forward. The equities are there for modest portfolio growth and for long term legacy purposes.

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Re: Age in Bonds

Post by randomguy » Sat Dec 26, 2015 10:41 am

midareff wrote:
randomguy wrote:
midareff wrote:
rgs92 wrote:I thought asset allocation was also a major determinant of the probability of long term success for portfolio survival. (Along with withdrawal rate of course.)
You are correct, however, Dr. Bernstein's liability matching portfolio must be considered.
Asset allocation in trinity studies has little to no effect (talking 20/80 to 80/20) when you are looking at 30 years and 4%. As you up the term and payout rate, you need to add more stocks . This is a result of the fact that the performance difference between bonds and stocks in the 66-80 period was minimal. The volatility wasn't:)

Liability portfolio's require more cash in most cases and a lot have longevitity issues (if you buy 30 years worth of tips, you better be dead when those 30 years are up. The market portfolio guy is likely to last pretty much forever). It is also real tough sell to pass up that opportunity costs versus risk for a lot of people. How much is it worth it for me to sleep well at night for the chance to set up the next generations for a long time. For example, imagine I shove all my 1 million bucks into a inflation adjust SPIA paying 4%. I am not at zero (about) risk and have secured my retirement. Go with the portfolio and I win the lottery and don't die until 30 years have passed. 5% of the time I am broke (well in reality I would have cut spending long before getting close) and 50% of the time, I am leaving 2 million real to either heirs or charity. That's a real tough choice to make for most people I have talked to about it.
Interesting POV randomguy. I'm not a big fan of the Trinity Study since today's market conditions, especially bonds, are not yielding anything like what they were for the study. If I recall properly Bengen did a WR study using then current market average returns of 10.3% for equities and 5.1% for five year treasuries against a 3.0% inflation rate. If anyone wants to start burning 4% on a 25 times portfolio retiring now they might want to have a read through some of Dr. Pfau's writings on funding retirements before pulling the plug. I've have been raising my WR annually since I retired 4 years ago, and it looks like this year will finalize near 3.0%, which allows lots of $$ for travel, which age will not allow to go on indefinitely. I also have a 16 year younger wife (also retired) to consider who is creatively rather than mathematically blessed, so account management in my later years is more of a concern than poverty. FWIW, if we assume (always a bad thing) a period from five years to a decade of near 2% CPI-U, with normalization of the Shiller PE and Fed interest rates, we can expect a period where returns will be minimal compared to the last six years. That would seem to create risk of exposure to the sequence of return's risks. Additionally, I think you have to swap the use of the word "cash" in your quote for "fixed income". You might also want to have a read of Jim Otar's writings which last I looked were still available on his web site at a minimal cost. Of course, much of this depends on your expectations of life style in retirement. If your ideal is a porch and a library card all funded by SS and a small nest egg vs. extended international travel and a more upscale life your income and asset bases will have different requirements.

If it takes your last dime to buy 30 years of TIPS I think there was a retirement planning shortfall before anything else. Liability matching does not by it's nature imply the use of all assets. The same goes for a SPIA, and 4% isn't the least bit tempting on that either. There are lots of ways to navigate retirement IMHO, and none of them call for spending, or planning to spend your last dime as you draw your last breath.
Your understanding of the trinity study is wrong. They used historical data which included periods which had similiar interests as today(see the late 30s to mid 50s). Historical data has issues (small sample size). Monte Carlo simulations like Pfau uses also have issues. Slight changes in the assumptions they make (you pay .1% in fees instead of 1%, stocks return 4% instead of 3%,....) can lead to drastically different results when you are looking at the worst cases.

As far as a shortfall, If 30x of expenses with a 50/50 portfolio lasts you 50 years and 30 years of TIPs last you 30 years, is that retirement planning shortfall OR an unwillingness to take risk? Yes in the real world people hedge between the two extremes (you want a100k/yr. You set it up to get 60k/yr from a SPIA/TIPS and SS and the other 40k from the portfolio) but that has opportunity costs (if less extreme). What do to do depends a lot on your situation. If you have a sub 3.5% SWR, you can do pretty much anything. If you are north of 6%, you should be buying lottery tickets:). the people in the 3.0-5% range have interesting choices to make.

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Re: Age in Bonds

Post by ruralavalon » Sat Dec 26, 2015 10:45 am

stemikger wrote:How many folks hold age in bonds?
Here are 217 answers to the question "What ratio are you stocks/bonds and how old are you?"

stemikger wrote: . . . . . However, if we listen to Jack and view Social Security as part of our fixed income allocation what do you think would be appropriate. My guess is 50/50 or 60/40 forever would be appropriate.
The idea is roughly age in bonds as a crude starting point, during retirement adjusted per your SS and pension if any.
wiki wrote:John Bogle recommends "roughly your age in bonds"; . . . . Mr. Bogle describes the idea as just "a crude starting point" which "[c]learly . . .must be adjusted to reflect an investor's objectives, risk tolerance, and overall financial position". Bogle also suggests that, during the retirement distribution phase, you include as a bond-like component of your wealth and asset allocation the value of any future pension and Social Security payment you expect to receive
stemikger wrote:What do you think.
We are age 70, drawing Social Security, with no pension or annuity. Our asset collocation is at 50/50, where we intend to keep it for the foreseeable future.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

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Re: Age in Bonds

Post by TheTimeLord » Sat Dec 26, 2015 11:20 am

stemikger wrote:How many folks hold age in bonds?

The Target Retirement Income Funds hold 30% in stocks and stays there for the remainder of our lifetime. However, if we listen to Jack and view Social Security as part of our fixed income allocation what do you think would be appropriate. My guess is 50/50 or 60/40 forever would be appropriate.

What do you think.
This is a bit of a threadjack but a question I toss around in my mind. If I have a $1.5 million portfolio and between SS, pensions and annuities I only need $30K/year in income from my portfolio, why not be a 100% S&P 500 and 0% bonds relying on the dividends? It seems even if the value of the equities drop that the dividends are fairly stable? Besides you are at 50 times expenses and could withstand a hit.

Looking forward to learning the deficiencies of such a plan.
IMHO, Investing should be about living the life you want, not avoiding the life you fear. | Run, You Clever Boy! [9085]

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Re: Age in Bonds

Post by randomguy » Sat Dec 26, 2015 12:01 pm

TheTimeLord wrote:
stemikger wrote:How many folks hold age in bonds?

The Target Retirement Income Funds hold 30% in stocks and stays there for the remainder of our lifetime. However, if we listen to Jack and view Social Security as part of our fixed income allocation what do you think would be appropriate. My guess is 50/50 or 60/40 forever would be appropriate.

What do you think.
This is a bit of a threadjack but a question I toss around in my mind. If I have a $1.5 million portfolio and between SS, pensions and annuities I only need $30K/year in income from my portfolio, why not be a 100% S&P 500 and 0% bonds relying on the dividends? It seems even if the value of the equities drop that the dividends are fairly stable? Besides you are at 50 times expenses and could withstand a hit.

Looking forward to learning the deficiencies of such a plan.
The question is why are you doing it? To try and have the biggest possible pile of cash when you die? It is a pretty solid plan (well you should diversify your equities a bit).

And no dividends are not stable. Seriously just go back and look at 2009-2011 to see how they can drop like a rock.

In a lot of ways though this questions gets to a problem with age in bonds. Lets take a 90 year old with 30x in expenses. Does he really need 27 years of expenses in bonds? Wouldn't he be pretty good with 15 (50/50 portfolio)? In any of the cases where the portfolio grows (the most common case) and the people are aging (very normal. The exception would be when you pick up a much younger spouse), you are running into a case where you are getting more fixed equity over time AND having less time to worry about. If you only care about yourself, then this is fine. If you have any outside concerns you need to factor them in

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Re: Age in Bonds

Post by TravelforFun » Sat Dec 26, 2015 12:08 pm

I hold 10 years worth of net annual living expenses in bonds, CDs, and cash. Age doesn't make a difference to me.

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Re: Age in Bonds

Post by Dandy » Sat Dec 26, 2015 12:09 pm

If I have a $1.5 million portfolio and between SS, pensions and annuities I only need $30K/year in income from my portfolio, why not be a 100% S&P 500 and 0% bonds relying on the dividends? It seems even if the value of the equities drop that the dividends are fairly stable? Besides you are at 50 times expenses and could withstand a hit.
$1.5 million and drawing down $30k per year - you are in great shape. Assuming you are 65 you might have 30 years of spending to fiancé. I would assume pension and annuity are not COLA. High inflation, early onset illness that has you spend years in a nursing home, the return of the Great Depression type stock market all could make having 100% in equities be problematic. a 100% equity allocation might still be ok - and adjustments could and probably would be made before the portfolio flamed out.

My question is if you have more than enough why put it in a very risky allocation? You only need about a 2% withdrawal so any heirs would likely get a decent inheritance since that initial portfolio would likely grow despite your withdrawals. Why try to triple you retirement portfolio if you can fully fund it and take even less risk of a problem? While all plans should be subject to change -- there are no do overs and human capital will be zero relatively soon for most. The Pot is all you've got. :happy

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Re: Age in Bonds

Post by TheTimeLord » Sat Dec 26, 2015 12:29 pm

randomguy wrote:
TheTimeLord wrote:
stemikger wrote:How many folks hold age in bonds?

The Target Retirement Income Funds hold 30% in stocks and stays there for the remainder of our lifetime. However, if we listen to Jack and view Social Security as part of our fixed income allocation what do you think would be appropriate. My guess is 50/50 or 60/40 forever would be appropriate.

What do you think.
This is a bit of a threadjack but a question I toss around in my mind. If I have a $1.5 million portfolio and between SS, pensions and annuities I only need $30K/year in income from my portfolio, why not be a 100% S&P 500 and 0% bonds relying on the dividends? It seems even if the value of the equities drop that the dividends are fairly stable? Besides you are at 50 times expenses and could withstand a hit.

Looking forward to learning the deficiencies of such a plan.
The question is why are you doing it? To try and have the biggest possible pile of cash when you die? It is a pretty solid plan (well you should diversify your equities a bit).

And no dividends are not stable. Seriously just go back and look at 2009-2011 to see how they can drop like a rock.

In a lot of ways though this questions gets to a problem with age in bonds. Lets take a 90 year old with 30x in expenses. Does he really need 27 years of expenses in bonds? Wouldn't he be pretty good with 15 (50/50 portfolio)? In any of the cases where the portfolio grows (the most common case) and the people are aging (very normal. The exception would be when you pick up a much younger spouse), you are running into a case where you are getting more fixed equity over time AND having less time to worry about. If you only care about yourself, then this is fine. If you have any outside concerns you need to factor them in
If I am looking at it correctly they dropped 25% and stay below the 2008 level for 3 years and are now about 30% higher than 2008.
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Re: Age in Bonds

Post by midareff » Sat Dec 26, 2015 1:27 pm

randomguy wrote:
midareff wrote:
randomguy wrote:
midareff wrote:
rgs92 wrote:I thought asset allocation was also a major determinant of the probability of long term success for portfolio survival. (Along with withdrawal rate of course.)
You are correct, however, Dr. Bernstein's liability matching portfolio must be considered.
Asset allocation in trinity studies has little to no effect (talking 20/80 to 80/20) when you are looking at 30 years and 4%. As you up the term and payout rate, you need to add more stocks . This is a result of the fact that the performance difference between bonds and stocks in the 66-80 period was minimal. The volatility wasn't:)

Liability portfolio's require more cash in most cases and a lot have longevitity issues (if you buy 30 years worth of tips, you better be dead when those 30 years are up. The market portfolio guy is likely to last pretty much forever). It is also real tough sell to pass up that opportunity costs versus risk for a lot of people. How much is it worth it for me to sleep well at night for the chance to set up the next generations for a long time. For example, imagine I shove all my 1 million bucks into a inflation adjust SPIA paying 4%. I am not at zero (about) risk and have secured my retirement. Go with the portfolio and I win the lottery and don't die until 30 years have passed. 5% of the time I am broke (well in reality I would have cut spending long before getting close) and 50% of the time, I am leaving 2 million real to either heirs or charity. That's a real tough choice to make for most people I have talked to about it.
Interesting POV randomguy. I'm not a big fan of the Trinity Study since today's market conditions, especially bonds, are not yielding anything like what they were for the study. If I recall properly Bengen did a WR study using then current market average returns of 10.3% for equities and 5.1% for five year treasuries against a 3.0% inflation rate. If anyone wants to start burning 4% on a 25 times portfolio retiring now they might want to have a read through some of Dr. Pfau's writings on funding retirements before pulling the plug. I've have been raising my WR annually since I retired 4 years ago, and it looks like this year will finalize near 3.0%, which allows lots of $$ for travel, which age will not allow to go on indefinitely. I also have a 16 year younger wife (also retired) to consider who is creatively rather than mathematically blessed, so account management in my later years is more of a concern than poverty. FWIW, if we assume (always a bad thing) a period from five years to a decade of near 2% CPI-U, with normalization of the Shiller PE and Fed interest rates, we can expect a period where returns will be minimal compared to the last six years. That would seem to create risk of exposure to the sequence of return's risks. Additionally, I think you have to swap the use of the word "cash" in your quote for "fixed income". You might also want to have a read of Jim Otar's writings which last I looked were still available on his web site at a minimal cost. Of course, much of this depends on your expectations of life style in retirement. If your ideal is a porch and a library card all funded by SS and a small nest egg vs. extended international travel and a more upscale life your income and asset bases will have different requirements.

If it takes your last dime to buy 30 years of TIPS I think there was a retirement planning shortfall before anything else. Liability matching does not by it's nature imply the use of all assets. The same goes for a SPIA, and 4% isn't the least bit tempting on that either. There are lots of ways to navigate retirement IMHO, and none of them call for spending, or planning to spend your last dime as you draw your last breath.
Your understanding of the trinity study is wrong. They used historical data which included periods which had similiar interests as today(see the late 30s to mid 50s). Historical data has issues (small sample size). Monte Carlo simulations like Pfau uses also have issues. Slight changes in the assumptions they make (you pay .1% in fees instead of 1%, stocks return 4% instead of 3%,....) can lead to drastically different results when you are looking at the worst cases.

As far as a shortfall, If 30x of expenses with a 50/50 portfolio lasts you 50 years and 30 years of TIPs last you 30 years, is that retirement planning shortfall OR an unwillingness to take risk? Yes in the real world people hedge between the two extremes (you want a100k/yr. You set it up to get 60k/yr from a SPIA/TIPS and SS and the other 40k from the portfolio) but that has opportunity costs (if less extreme). What do to do depends a lot on your situation. If you have a sub 3.5% SWR, you can do pretty much anything. If you are north of 6%, you should be buying lottery tickets:). the people in the 3.0-5% range have interesting choices to make.

You might want to reread what I wrote. I didn't say the Trinity Study was based on those numbers, I said Bengen's Study was. Regardless, the Trinity was not based on today's markets. You can find Bengen's Study online and read it yourself, if you care to. It's title was Determining Withdrawal Rates Using Historical Data. As far as interest rates, they have never been this low as far back as 1871 https://www.google.com/search?q=histori ... l5XBcpE%3D so I guess your understanding of them is wrong.

Regardless, best wishes to you for a happy and fulfilling retirement and a wonderful New Year.
Last edited by midareff on Sat Dec 26, 2015 1:33 pm, edited 1 time in total.

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Re: Age in Bonds

Post by tibbitts » Sat Dec 26, 2015 1:29 pm

Going back to the original question, I only remember the "age in bonds" from many years ago. I'm not sure the history of how we got to all the modern derivatives (-10, -20, -30), or when the "SS as a bond" came to be. Anyone?

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Re: Age in Bonds

Post by randomguy » Sat Dec 26, 2015 2:03 pm

midareff wrote:

You might want to reread what I wrote. I didn't say the Trinity Study was based on those numbers, I said Bengen's Study was. Regardless, the Trinity was not based on today's markets. You can find Bengen's Study online and read it yourself, if you care to. It's title was Determining Withdrawal Rates Using Historical Data. As far as interest rates, they have never been this low as far back as 1871 https://www.google.com/search?q=histori ... l5XBcpE%3D so I guess your understanding of them is wrong.

Regardless, best wishes to you for a happy and fulfilling retirement and a wonderful New Year.

No Bergens study wasn't based on those numbers either. He uses them in the opening pages as baseline and then demonstrates how they are too optimistic since they fail to account for sequence of risks. He then comes up with his numbers by using the historical returns of various bad periods. The one "cheat" he did was to extend out the returns so that he could calculate the failure rates for the early 70s cases You can debate if that was a good move or if he should have just stopped in 1964 or so. Making up data is bad but ignoring the worst period ever wasn't a great solution either. There is another paper with the updated numbers (something like Bergen revisited) and that assumption didn't matter (the returns turned out to be higher than the estimate and inflation lower) much.

Your link is largely fed fund rates not bond rates. If you find the one with bonds you will see that we are well above the early 1940 levels for most bonds. See http://www.multpl.com/10-year-treasury- ... le/by-year and see the sub 2% (lower than today) and the lenghty duration of those low rates (<3% for something like 1935-155). Our current rates look horribly low because we are used to the 1970-2000 bond prices. Those were as abnormal as our current rates.

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Re: Age in Bonds

Post by burt » Sat Dec 26, 2015 5:04 pm

Dandy wrote:
If I have a $1.5 million portfolio and between SS, pensions and annuities I only need $30K/year in income from my portfolio, why not be a 100% S&P 500 and 0% bonds relying on the dividends? It seems even if the value of the equities drop that the dividends are fairly stable? Besides you are at 50 times expenses and could withstand a hit.
$1.5 million and drawing down $30k per year - you are in great shape. Assuming you are 65 you might have 30 years of spending to fiancé. I would assume pension and annuity are not COLA. High inflation, early onset illness that has you spend years in a nursing home, the return of the Great Depression type stock market all could make having 100% in equities be problematic. a 100% equity allocation might still be ok - and adjustments could and probably would be made before the portfolio flamed out.

My question is if you have more than enough why put it in a very risky allocation? You only need about a 2% withdrawal so any heirs would likely get a decent inheritance since that initial portfolio would likely grow despite your withdrawals. Why try to triple you retirement portfolio if you can fully fund it and take even less risk of a problem? While all plans should be subject to change -- there are no do overs and human capital will be zero relatively soon for most. The Pot is all you've got. :happy
Recently realized what the "Ability to Take Risk" means.
Was talking to a relative. Large Pension covers his retirement expenses. SS and Savings are gravy.
He has the "ability" to go 100% stocks. (he also has the ability to wager it in Las Vegas.)

I however, do not have the "ability" to take that kind of risk. I need to put food on the table.

burt

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Re: Age in Bonds

Post by itstoomuch » Sat Dec 26, 2015 6:20 pm

Until very recently, I never counted SS as bondlike...not even part of our portfolio; other than we can survive on SS. But BHers convinced me that SS is a bond, as are pensions. I also, now include fixed-indexed annuities and GLWB variable annuities as bonds.. Had I counted these products as bonds,with the discretionary stock and equity portfolio would have been more aggressively invested thereby resulting in more wealth today. :annoyed
Last edited by itstoomuch on Sat Dec 26, 2015 6:56 pm, edited 1 time in total.
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Re: Age in Bonds

Post by midareff » Sat Dec 26, 2015 6:38 pm

randomguy wrote:
midareff wrote:

You might want to reread what I wrote. I didn't say the Trinity Study was based on those numbers, I said Bengen's Study was. Regardless, the Trinity was not based on today's markets. You can find Bengen's Study online and read it yourself, if you care to. It's title was Determining Withdrawal Rates Using Historical Data. As far as interest rates, they have never been this low as far back as 1871 https://www.google.com/search?q=histori ... l5XBcpE%3D so I guess your understanding of them is wrong.

Regardless, best wishes to you for a happy and fulfilling retirement and a wonderful New Year.

No Bergens study wasn't based on those numbers either. He uses them in the opening pages as baseline and then demonstrates how they are too optimistic since they fail to account for sequence of risks. He then comes up with his numbers by using the historical returns of various bad periods. The one "cheat" he did was to extend out the returns so that he could calculate the failure rates for the early 70s cases You can debate if that was a good move or if he should have just stopped in 1964 or so. Making up data is bad but ignoring the worst period ever wasn't a great solution either. There is another paper with the updated numbers (something like Bergen revisited) and that assumption didn't matter (the returns turned out to be higher than the estimate and inflation lower) much.

Your link is largely fed fund rates not bond rates. If you find the one with bonds you will see that we are well above the early 1940 levels for most bonds. See http://www.multpl.com/10-year-treasury- ... le/by-year and see the sub 2% (lower than today) and the lenghty duration of those low rates (<3% for something like 1935-155). Our current rates look horribly low because we are used to the 1970-2000 bond prices. Those were as abnormal as our current rates.
Sure it was, ignoring Bengen's data to make your point is not beneficial to anyone. By saying he ignored sequence of return risk you are simply agreeing with part of my postulation. I looked at your bond link and with the exception of a single year's war time number what you claim your data shows isn't supported. At the end of the day you run your portfolio your way and I will run mine my way. If I accumulate too much excess $$ I'll simply book another cruise suite. Enjoy your holiday.

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Re: Age in Bonds

Post by longinvest » Sat Dec 26, 2015 7:09 pm

Another debate about a broken (SWR)* retirement withdrawal model that no sane human would follow in the heart of a bear market?

* Safe Withdrawal Rate.

I thought that Bogleheads knew better, by now.

*** News flash! News flash! News flash! ***

Professor Philip L. Cooley, senior author of the paper referred to in this forum as "the Trinity study" (one of the sources for the "4% rule" or SWR) wrote:
viewtopic.php?t=53956#p717195
Stay flexible my friend!, which is the advice we should give to retirees.
Variable withdrawal methods do not suffer from a risk of ruin in face of a bad sequence of return.

One of the simplest variable withdrawal method is the one used by Taylor Larimore:
viewtopic.php?t=73249#p1028206
I retired in June of 1982 at the age of 57. We had about a $1 million dollar portfolio to last us the rest of our lives. I didn't know about safe withdrawal rates (the Trinity Study wasn't published until 1998). We had no computers, Internet, Monte Carlo, or sophisticated calculators. We only knew that we had to be careful to make our money last ($1M at 4% = $40,000/year before tax).

So what happened? We simply withdrew what we needed and kept an eye on our portfolio balance. Most years our balance went up and we spent the money on vacations, luxuries and charity. When our balance went down we tightened our belt and economized.

This is what most people do and it works.
For those of us who need something more precise, our wiki has a complete page on Withdrawal methods. My preferred one, is VPW which adapts withdrawals to the retiree's retirement horizon, asset allocation, and portfolio returns during retirement.

Could we keep the SWR model as a retirement planning tool (e.g. How much do I need?), and drop it as a retirement withdrawal method along with sequence of return risk once and for all?
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Re: Age in Bonds

Post by randomguy » Sat Dec 26, 2015 11:22 pm

longinvest wrote:
Variable withdrawal methods do not suffer from a risk of ruin in face of a bad sequence of return.
Depends on your definition of ruin. If you house gets repossed because your plan gave you 20k instead of the 30k you needed, I would consider that a failure. You have to pick the risks you care about (not having enough money now versus not having enough money in 20 years) and decide which ones you can live with.

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Re: Age in Bonds

Post by longinvest » Sun Dec 27, 2015 12:04 am

randomguy wrote:
longinvest wrote:
Variable withdrawal methods do not suffer from a risk of ruin in face of a bad sequence of return.
Depends on your definition of ruin. If you house gets repossed because your plan gave you 20k instead of the 30k you needed, I would consider that a failure. You have to pick the risks you care about (not having enough money now versus not having enough money in 20 years) and decide which ones you can live with.
RandomGuy,

My definition of ruin is an empty portfolio with not enough residual income (like Social Security) to live a decent life.

We've discussed this before. Social Security, pensions, and Single Premium Immediate Annuities (SPIAs) do exist to provide a lifelong base income. People without any flexibility should consider buying an inflation-indexed SPIA. But this will significantly reduce the size of their portfolio.

For most Bogleheads, Professor Philip L. Cooley's suggestion to remain flexible strikes me as sensible. Don't you agree?
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Re: Age in Bonds

Post by randomguy » Sun Dec 27, 2015 1:00 am

longinvest wrote:
randomguy wrote:
longinvest wrote:
Variable withdrawal methods do not suffer from a risk of ruin in face of a bad sequence of return.
Depends on your definition of ruin. If you house gets repossed because your plan gave you 20k instead of the 30k you needed, I would consider that a failure. You have to pick the risks you care about (not having enough money now versus not having enough money in 20 years) and decide which ones you can live with.
RandomGuy,

My definition of ruin is an empty portfolio with not enough residual income (like Social Security) to live a decent life.

We've discussed this before. Social Security, pensions, and Single Premium Immediate Annuities (SPIAs) do exist to provide a lifelong base income. People without any flexibility should consider buying an inflation-indexed SPIA. But this will significantly reduce the size of their portfolio.

For most Bogleheads, Professor Philip L. Cooley's suggestion to remain flexible strikes me as sensible. Don't you agree?
Is there a difference between a portfolio that is empty and one that is not generating enough income to live a decent life? Where would failure happen for you in that case?

Flexibility is important. The tough question has always been how flexible. The 4% rule gives one guideline tell you where you can go. You can say just play it by ear but that has the same problems of not having an IPS. People tend to irrational with money so getting things in writing can help them stay the course.

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Re: Age in Bonds

Post by FreddieG » Sun Dec 27, 2015 8:48 am

I am 58 and have my 401k in Wellington (60/40 stocks-bonds). My taxable funds are still 90% stocks and 10% cash.

Except for Cap Opp fund, they're pretty conservative stocks

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Re: Age in Bonds

Post by William Million » Sun Dec 27, 2015 8:53 am

I'm in my 50s and age in bonds.

6 years into a bull market, lots of people nowadays think it's too conservative. Even finding creative ways to justify ever larger stock holdings, such as counting social security or utilities stocks as "bonds." Same thing happened back in 2007.

I suspect that'll all change during the next recession.

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Re: Age in Bonds

Post by dbr » Sun Dec 27, 2015 9:35 am

William Million wrote:I'm in my 50s and age in bonds.

6 years into a bull market, lots of people nowadays think it's too conservative. Even finding creative ways to justify ever larger stock holdings, such as counting social security or utilities stocks as "bonds." Same thing happened back in 2007.

I suspect that'll all change during the next recession.
You will probably be right about the next large downturn changing the immediate conversation. However, I think income as bonds is a persistent conversation starting with Mr. Bogle himself explicitly attaching that concept to the age in bonds rule. If he hadn't said that I doubt the idea would go anywhere at all. Any kind of stock as bonds is different, though.

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Re: Age in Bonds

Post by randomguy » Sun Dec 27, 2015 11:08 am

William Million wrote:I'm in my 50s and age in bonds.

6 years into a bull market, lots of people nowadays think it's too conservative. Even finding creative ways to justify ever larger stock holdings, such as counting social security or utilities stocks as "bonds." Same thing happened back in 2007.

I suspect that'll all change during the next recession.
And of course there is age in bonds -15.

To some extend none of these changes matter a ton. A 65-70 year old holding 30/70 or 50/50 or even 60/40 in diversified funds is going to be ok. 10 years of fixed income gets you through the worst of any stock market crash we have seen. While individual markets (see Japan) have had 20 year down periods, global markets haven't. No when people start talking about 90/10 portfolios for 70 year olds, you probably have crossed the line to taking on enough risk to cause problems. And when they start saying that investing that 90% in stock/sector/country X, you are well past the point of taking on too much risk.

Is a 90 year old with 25x in spending and a 50/50 portfolio holding too much risk? 2 ways of looking at:
a) no need for risk. shove it all in bonds and you are good to 115+
b) go 50/50. Fixed income to 103 is plenty and might as well try and get a bit more money for future needs (charity/kids)

There is nothing wrong with either approach.

I am unaware of many studies that compare things like age in bonds to holding a fixed amount of bonds (say 10 years) but I am guessing it doesn't matter much. I know there are some studies that compare fixed amount of bonds to a fixed AA and it didn't matter much. The rebalancing bonus either way didn't matter.

For the people in the marginal cases (your 80 with 10-15 years of expenses left), these asset allocations matter a ton. This is also the group of people that need to be looking into SPIAs.

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Re: Age in Bonds

Post by burt » Sun Dec 27, 2015 6:14 pm

[/quote]
For the people in the marginal cases (your 80 with 10-15 years of expenses left), these asset allocations matter a ton. This is also the group of people that need to be looking into SPIAs.[/quote]

Single Premium Immediate Annuities (SPIA) aren't just for people in their 80's.
They are also a good option for those considered financially "marginal".

burt

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Re: Age in Bonds

Post by TheTimeLord » Sun Dec 27, 2015 7:41 pm

burt wrote: For the people in the marginal cases (your 80 with 10-15 years of expenses left), these asset allocations matter a ton. This is also the group of people that need to be looking into SPIAs.

Single Premium Immediate Annuities (SPIA) aren't just for people in their 80's.
They are also a good option for those considered financially "marginal".

burt
What is the maximum percentage of your expenses you be willing to have satisfied by a SPIA?
Last edited by TheTimeLord on Sun Dec 27, 2015 10:19 pm, edited 2 times in total.
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Re: Age in Bonds

Post by NHRATA01 » Sun Dec 27, 2015 8:02 pm

36, 77/23 stocks to bonds. I was doing age in bonds -10 for a couple of years, but now I've basically frozen it at 23% and will probably keep it there until I get close to 50 where retirement is somewhat in view. I honestly don't think I'd have the tolerance for 36% bonds when I'm in the prime accumulation years right now. I also (to some extent) say bring on the bears so I can continue to accumulate more stocks at a lower price despite seeing a significant drop in my portfolio.

I cringe a little bit when I look at past 401K statements from very early in my career starting age 21 when not knowing much better, I had about a 50/50 stock/bond allocation - at least I was lucky enough to have chosen basically low cost index funds. Somewhat fortunate on the timeframe too I imagine since this was '01-'05 so I had a lot of bonds during that '01/'02 bear market.

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Re: Age in Bonds

Post by William Million » Sun Dec 27, 2015 10:05 pm

randomguy wrote:
William Million wrote:I'm in my 50s and age in bonds.

6 years into a bull market, lots of people nowadays think it's too conservative. Even finding creative ways to justify ever larger stock holdings, such as counting social security or utilities stocks as "bonds." Same thing happened back in 2007.

I suspect that'll all change during the next recession.
And of course there is age in bonds -15.

To some extend none of these changes matter a ton. A 65-70 year old holding 30/70 or 50/50 or even 60/40 in diversified funds is going to be ok. 10 years of fixed income gets you through the worst of any stock market crash we have seen. While individual markets (see Japan) have had 20 year down periods, global markets haven't. No when people start talking about 90/10 portfolios for 70 year olds, you probably have crossed the line to taking on enough risk to cause problems. And when they start saying that investing that 90% in stock/sector/country X, you are well past the point of taking on too much risk.

Is a 90 year old with 25x in spending and a 50/50 portfolio holding too much risk? 2 ways of looking at:
a) no need for risk. shove it all in bonds and you are good to 115+
b) go 50/50. Fixed income to 103 is plenty and might as well try and get a bit more money for future needs (charity/kids)

There is nothing wrong with either approach.

I am unaware of many studies that compare things like age in bonds to holding a fixed amount of bonds (say 10 years) but I am guessing it doesn't matter much. I know there are some studies that compare fixed amount of bonds to a fixed AA and it didn't matter much. The rebalancing bonus either way didn't matter.

For the people in the marginal cases (your 80 with 10-15 years of expenses left), these asset allocations matter a ton. This is also the group of people that need to be looking into SPIAs.
I believe the problem is not the 90 year old who is 50/50 rather than 10/90. Most 90 year olds spend mostly on care. They know their needs. If they can still do luxury cruises, more power to them.

Problem is 60 year old who is still 80/20, rather than 40/60 (or perhaps 50/50). A 50-60% downturn in the stock market would really hurt at 80/20 with impending retirement.

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Re: Age in Bonds

Post by itstoomuch » Sun Dec 27, 2015 10:08 pm

TheTimeLord wrote:
stemikger wrote:How many folks hold age in bonds?

The Target Retirement Income Funds hold 30% in stocks and stays there for the remainder of our lifetime. However, if we listen to Jack and view Social Security as part of our fixed income allocation what do you think would be appropriate. My guess is 50/50 or 60/40 forever would be appropriate.

What do you think.
This is a bit of a threadjack but a question I toss around in my mind. If I have a $1.5 million portfolio and between SS, pensions and annuities I only need $30K/year in income from my portfolio, why not be a 100% S&P 500 and 0% bonds relying on the dividends? It seems even if the value of the equities drop that the dividends are fairly stable? Besides you are at 50 times expenses and could withstand a hit.

Looking forward to learning the deficiencies of such a plan.
Mulled it a every way, We (65/68), will be counting SS, pensions, and deferred GMWB annuities (even if Variable Annuity) as Bonds.
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Re: Share your current asset allocation?
Postby itstoomuch » Sun Dec 27, 2015 9:58 am

itstoomuch wrote:
allisonwalker wrote:
Hi all. Simple request, can some of you post your asset allocations here? I would like to see some examples from Bogleheads.
OP, Your request is not as "simple" as you may think.

We (65/68) have a secured base income in SS, annuities, and now a rental. If inflation happens or if equities fall, our base Income goes up. If deflation, the base stays the same and the equities in the other buckets increase in value. I actively manage our taxes and to some extent, manage the trading accounts in a gross sort of way.

The SS is almost enough for us. Add in the Annuities, we will more than enough. Add the rental, and we will be unknown territory in using the funds. The trading accounts are not even touched, hence I could be very discretionary on how I use these investments.
GL


We (65/68, retired) have been analyzing our "portfolio" and EofY tax: Current Values.
68% - SS+pension (assumed 3.5% bond equivalences) , deferred Fixed-Indexed annuity, deferred Variable annuity (annuities are GLWB, Income values)
18% -Rental (at cost)
13% -Trading accounts and discretionary MF/Indexes (current values, mostly utility stocks & utility indexes)
1% - Cash
If the BH does not count our SS+pension+annuities, then our bond AA is 0% and equity =100%. Bogle is correct in that we should be counting SS & like as bonds and that BH should be therefore more in equity. :annoyed
intangible asssets: debt free home, small PLUS @3%, LTCi
The analysis has revealed, no matter how I allocate the 13% trading/discretionary, our future income will be only slightly impacted.
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Re: Age in Bonds

Post by siamond » Sun Dec 27, 2015 11:01 pm

William Million wrote:Problem is 60 year old who is still 80/20, rather than 40/60 (or perhaps 50/50). A 50-60% downturn in the stock market would really hurt at 80/20 with impending retirement.
Well, not so sure about it. It would certainly hurt from a psychological (and maybe behavioral) standpoint. But investment life doesn't stop when you retire, and deep risk can still strike. A 60yrs old probably should plan for 40+ years ahead nowadays to be safe. Run cFIREsim for such scenario with 80/20 vs 50/50, and you may be surprised... Bonds are just quite risky over multiple decades. And of course, adding a modicum of common sense (i.e. some international diversification, reduce discretionary spend during bear markets) should make such picture even more in favor of stock exposure. I'm not advocating for 80/20, mind you, but I don't think 50/50 is terribly wise either.

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Re: Age in Bonds

Post by dbr » Sun Dec 27, 2015 11:08 pm

siamond wrote:
William Million wrote:Problem is 60 year old who is still 80/20, rather than 40/60 (or perhaps 50/50). A 50-60% downturn in the stock market would really hurt at 80/20 with impending retirement.
Well, not so sure about it. It would certainly hurt from a psychological (and maybe behavioral) standpoint. But investment life doesn't stop when you retire, and deep risk can still strike. A 60yrs old probably should plan for 40+ years ahead nowadays to be safe. Run cFIREsim for such scenario with 80/20 vs 50/50, and you may be surprised... Bonds are just quite risky over multiple decades. And of course, adding a modicum of common sense (i.e. some international diversification, reduce discretionary spend during bear market) should make such picture even more in favor of stock exposure.
In agree. All of the results of the models and studies show that it is not a disaster on prospective average to enter retirement with high stock allocations. Assuming the investor does not make the one single behavioral blunder of panic selling at the bottom of a crash there is not disaster here in general. What might be true is that failed retirements that do fail due to stock markets that crash and do not recover for an extended time is that he failure is drastic and fast. This is in contract to the slower but certain death of overspending from a too conservative portfolio. However, it is not necessary to take even that risk when 50/50 is good enough and there is not that much to be gained by higher stock allocations. How things depend on the allocation also depends on the withdrawal rate and length of time. It seems that when it ismore helpful to have high stock allocations one is also flirting with failure rates that are significant no matter what one does.

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Re: Age in Bonds

Post by siamond » Sun Dec 27, 2015 11:32 pm

dbr wrote:
siamond wrote:
William Million wrote:Problem is 60 year old who is still 80/20, rather than 40/60 (or perhaps 50/50). A 50-60% downturn in the stock market would really hurt at 80/20 with impending retirement.
Well, not so sure about it. It would certainly hurt from a psychological (and maybe behavioral) standpoint. But investment life doesn't stop when you retire, and deep risk can still strike. A 60yrs old probably should plan for 40+ years ahead nowadays to be safe. Run cFIREsim for such scenario with 80/20 vs 50/50, and you may be surprised... Bonds are just quite risky over multiple decades. And of course, adding a modicum of common sense (i.e. some international diversification, reduce discretionary spend during bear market) should make such picture even more in favor of stock exposure.
However, it is not necessary to take even that risk when 50/50 is good enough and there is not that much to be gained by higher stock allocations. How things depend on the allocation also depends on the withdrawal rate and length of time. It seems that when it is more helpful to have high stock allocations one is also flirting with failure rates that are significant no matter what one does.
Yes, agreed, if one has enough money saved, the exact AA becomes less important, and one might as well address shallow risk. The last point you mention is where Trinity-like analysis (Firecalc, cFIREsim) introduces significant distortion though, and significantly exaggerates actual risks. Again, with a modicum of common sense (diversify + variable spending), a lot of those theoretical failure scenarios just go away. I am just increasingly wary of 'common wisdom' that makes shallow risk paramount against deep risk, this seems backwards and very misguided to me.

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Re: Age in Bonds

Post by randomguy » Sun Dec 27, 2015 11:48 pm

siamond wrote:
William Million wrote:Problem is 60 year old who is still 80/20, rather than 40/60 (or perhaps 50/50). A 50-60% downturn in the stock market would really hurt at 80/20 with impending retirement.
Well, not so sure about it. It would certainly hurt from a psychological (and maybe behavioral) standpoint. But investment life doesn't stop when you retire, and deep risk can still strike. A 60yrs old probably should plan for 40+ years ahead nowadays to be safe. Run cFIREsim for such scenario with 80/20 vs 50/50, and you may be surprised... Bonds are just quite risky over multiple decades. And of course, adding a modicum of common sense (i.e. some international diversification, reduce discretionary spend during bear markets) should make such picture even more in favor of stock exposure. I'm not advocating for 80/20, mind you, but I don't think 50/50 is terribly wise either.
When 2030 comes around, we might get a different answer to how much AA matters. In the past it didn't (largely because bonds and stocks both had roughly the same return over the 1966-1980 period) matter much. That could change. Realisitically the bigger risk with high stock allocations is always going to be staying the course. If you do that so far recovery to over 90% always has happened with in 5 or so years (accounting for dividends and inflation). Of course the 2nd dip is often right around the corner and everyone on this board is fearing the 3rd dip.

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Re: Age in Bonds

Post by siamond » Mon Dec 28, 2015 12:18 am

randomguy wrote:When 2030 comes around, we might get a different answer to how much AA matters. In the past it didn't (largely because bonds and stocks both had roughly the same return over the 1966-1980 period) matter much. That could change.
Actually, my statements were centered on the past (cf. cFIREsim simulations + my own testing), where the AA did matter (deep risk) much more than is often thought of. Now yes, if we care to speculate about a future where low-yield bonds might be the norm, then the problem may indeed become more acute.

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Re: Age in Bonds

Post by abuss368 » Mon Dec 28, 2015 8:57 am

trueblueky wrote:^

The retirement glidepaths tend to stop at some point.
L Income is 20/80
VG LifeStrategy Income Fund (VASIX) is 20/80
VG Target Retirement Income Fund (VTINX) is 30/70

These are in line with keeping some stocks even when you're 100.
Hi trueblueky,

I would agree with this. I do like Jack Bogle's overall advice of "age in bonds" or as Mr. Bogle explains, something that becomes more conservative with age. However, at some point, personally, I expect to reach a static allocation in the investment portfolio. Vanguard experts designed the Target fund to be a 30% equity and 70% bonds allocation. The LifeStrategy allocation is 20% equity and 80% bonds. This decision is personal in nature and what works for one investor may not work for another investor.

Best.
John C. Bogle: Two Fund Portfolio - Total Stock & Total Bond - “Simplicity is the master key to financial success."

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