Asset allocation for early retirement vs late retirement

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notsobright
Posts: 68
Joined: Thu Jun 28, 2012 9:07 pm

Asset allocation for early retirement vs late retirement

Post by notsobright » Wed Mar 13, 2019 9:15 am

Could someone point me in the direction of some literature on how typically bogleheads might adjust (If at all) asset allocations post retirement? Would also be very helpful if there could be some discussion on if there are differences between early retirement vs normal retirement.

Should there a step function change in risk tolerance the day of retirement? I'm assuming Yes right? I Mean you've JUST removed your main income stream instantly, so asset allocation should probably also instantly change... well maybe not? since your income hopefully at this point is only a fraction of your nest egg.

In any case, any help would be appreciated.

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WoodSpinner
Posts: 919
Joined: Mon Feb 27, 2017 1:15 pm

Re: Asset allocation for early retirement vs late retirement

Post by WoodSpinner » Wed Mar 13, 2019 10:08 am

OP,

Been wrestling with this question myself. The answer will ultimately depend on your specific circumstances and risk profile. FWIW, here is how I am handling it.

Pre-Retirement - Shifted to a 50/50 AA (in my case I decided to retire earlier than I originally planned but made this shift overnight once I committed to a retirement date - a year out). This was a significant shift in assets but it was clear I didn’t have the right AA for someone about to retire.

Retirement - Decided to take a rising glide path for the next 10 years from 50/50 to 60/40. Shift 1% a year so it’s not a radical change.

Here are some articles worth a read.

https://www.kitces.com/blog/should-equi ... ly-better/

viewtopic.php?t=210476

https://earlyretirementnow.com/2017/05/ ... turn-risk/

https://earlyretirementnow.com/2017/09/ ... lidepaths/

Good luck, let us know more about your journey.

WoodSpinner

Ron
Posts: 6557
Joined: Fri Feb 23, 2007 7:46 pm

Re: Asset allocation for early retirement vs late retirement

Post by Ron » Wed Mar 13, 2019 10:26 am

While both me/wife were still employed, we had a joint AA target of 90/10 (90% equities).

A couple of years before our joint retirement age of 59 (we're the same age), we shifted to a 50/50 mix.

Over the years, we've shifted to a 60/40 (60% equities) AA since we're looking at our remainder joint portfolio going to our (disabled) adult son for his care after we're gone.

At our joint age of 71, we've been in retirement for a good bit of years and our various income sources have all come on-line (age 70 SS, pensions, SPIA, etc.), resulting in not depending on our joint retirement portfolio for required income. While we've started RMD's last year, we've used the proceeds to pay FIT tax due on our respective RMD's, paid FIT on all our other sources of income, and splitting the remainder between savings and spending on "fun stuff" (such as upgrading to business class on our journeys).

FWIW,

- Ron

Jon H
Posts: 125
Joined: Sun Jan 21, 2018 2:50 pm

Re: Asset allocation for early retirement vs late retirement

Post by Jon H » Wed Mar 13, 2019 11:30 am

I’m about 5 years away from retirement and am about 50:50. Once retired, I plan to adjust gradually to 60:40 as the previous posters have done.
Consider gain and loss, but never be greedy and everything will be alright (fortune cookie)

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Phineas J. Whoopee
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Joined: Sun Dec 18, 2011 6:18 pm

Re: Asset allocation for early retirement vs late retirement

Post by Phineas J. Whoopee » Wed Mar 13, 2019 6:49 pm

I decoupled asset allocation from years to (projected - all too often it happens involuntarily prior to plan) retirement.

Here's what I did, and a couple of years later I answered some questions about it.

For the record, I think an age-based asset allocation will be more practical for most investors to commit to and manage.

PJW

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