If you have plenty of money, why not 100% stocks in retirement?

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ram
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Re: If you have plenty of money, why not 100% stocks in retirement?

Post by ram » Sun Apr 14, 2019 12:03 pm

Once a person has "plenty of money" asset allocation does not matter. Anywhere from 100/0 to 0/100 is fine.
In fact I would propose that the definition of 'plenty of retirement money' should be a number that allows 100% success at 4% withdrawal for 30 years at any asset allocation ratio. (using the usual models).

I will not have that much money when I retire so I am not considering this question for myself.

But I used the same concept for 'college money'. I had 'plenty of money' for college for my kids from current income such that even if stocks went down by 90% (as in 1929) their college education was not in jeopardy.

So 100% of my 529 account balance was always in and continues to be in 100% stocks. It has done well. If after my kids use all that they need there is a balance I will leave it in 100% stocks for 20+ years for the next generation. I will rebalance it on an annual basis. (50% domestic: 50% intt stocks)
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Re: If you have plenty of money, why not 100% stocks in retirement?

Post by sport » Sun Apr 14, 2019 12:18 pm

miamivice wrote:
Sun Apr 14, 2019 10:41 am
Stocks have returned 8% on average. My return on average for 10 years has been right around 11%.
Averages can be misleading. You can drown in a lake with an average depth of 3 inches if you step in a hole.

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Re: If you have plenty of money, why not 100% stocks in retirement?

Post by Dandy » Sun Apr 14, 2019 12:32 pm

In retirement you are usually out of human capital rather quickly so earning money to pay for things is not usually an option for long. You usually have to withdraw money to supplement any pension, annuity or Social Security.

What is the worst down turn for US equities? 90% in the great depression?? Can you manage to withdraw from your portfolio and fund your retirement from a 100% equity position when it is down something like 90%? Recall when the equity market is down in a major way there are other "side effects" e.g. companies fail (so can pensions), the housing market drops and sales are hard to come by, jobs, especially for a retiree -- forget it, etc.

So, even with a pension and a lot of equity in a house - things may not be so rosy. So such an extreme equity allocation in retirement makes little sense for almost anyone. So the question really is what is the need that is driving such an allocation in retirement if you truly have enough or even close to enough?

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miamivice
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Re: If you have plenty of money, why not 100% stocks in retirement?

Post by miamivice » Sun Apr 14, 2019 12:42 pm

Dandy wrote:
Sun Apr 14, 2019 12:32 pm
In retirement you are usually out of human capital rather quickly so earning money to pay for things is not usually an option for long. You usually have to withdraw money to supplement any pension, annuity or Social Security.

What is the worst down turn for US equities? 90% in the great depression?? Can you manage to withdraw from your portfolio and fund your retirement from a 100% equity position when it is down something like 90%? Recall when the equity market is down in a major way there are other "side effects" e.g. companies fail (so can pensions), the housing market drops and sales are hard to come by, jobs, especially for a retiree -- forget it, etc.

So, even with a pension and a lot of equity in a house - things may not be so rosy. So such an extreme equity allocation in retirement makes little sense for almost anyone. So the question really is what is the need that is driving such an allocation in retirement if you truly have enough or even close to enough?
To revise my original question, I probably would do 100% stock. I think it'd be wise to have 5 years living expenses in stable value money, and then 100% stocks for all remainder. That way, I have enough living expenses to weather almost all of the possible downturns and stay the course until the upturn..

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Re: If you have plenty of money, why not 100% stocks in retirement?

Post by TomatoTomahto » Sun Apr 14, 2019 1:06 pm

miamivice wrote:
Sun Apr 14, 2019 12:42 pm
To revise my original question, I probably would do 100% stock. I think it'd be wise to have 5 years living expenses in stable value money, and then 100% stocks for all remainder. That way, I have enough living expenses to weather almost all of the possible downturns and stay the course until the upturn..
In principle, that’s what we do. The amount in “stable value money” might be different than yours, but everything else is equities of one flavor or another.

The best reward is not having to have a sharp pencil to figure out our asset allocation. I will have to figure something out when we no longer have “new” money coming in.
Okay, I get it; I won't be political or controversial. The Earth is flat.

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Re: If you have plenty of money, why not 100% stocks in retirement?

Post by Clever_Username » Sun Apr 14, 2019 1:12 pm

miamivice wrote:
Sun Apr 14, 2019 12:42 pm
To revise my original question, I probably would do 100% stock. I think it'd be wise to have 5 years living expenses in stable value money, and then 100% stocks for all remainder. That way, I have enough living expenses to weather almost all of the possible downturns and stay the course until the upturn..
So... not 100% stocks then?

Some folks do advocate planning the percent in conservative assets around some number of years' living expenses rather than a percent of the total portfolio.
"What was true then is true now. Have a plan. Stick to it." -- XXXX, _Layer Cake_ | | I survived my first downturn and all I got was this signature line.

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Re: If you have plenty of money, why not 100% stocks in retirement?

Post by PowderDay9 » Sun Apr 14, 2019 1:23 pm

TomatoTomahto wrote:
Sun Apr 14, 2019 1:06 pm
miamivice wrote:
Sun Apr 14, 2019 12:42 pm
To revise my original question, I probably would do 100% stock. I think it'd be wise to have 5 years living expenses in stable value money, and then 100% stocks for all remainder. That way, I have enough living expenses to weather almost all of the possible downturns and stay the course until the upturn..
In principle, that’s what we do. The amount in “stable value money” might be different than yours, but everything else is equities of one flavor or another.

The best reward is not having to have a sharp pencil to figure out our asset allocation. I will have to figure something out when we no longer have “new” money coming in.
I think about risk in a similar manner but what do you do if after 1 year stocks decline 90%? Now you have 4 years of expenses in stable value. Do you then sell stocks when they're down 90% to get the stable fund back to 5 years? Do you wait another year and let the stable fund go to 3 years? Isn't this a form of market timing?

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miamivice
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Re: If you have plenty of money, why not 100% stocks in retirement?

Post by miamivice » Sun Apr 14, 2019 1:24 pm

PowderDay9 wrote:
Sun Apr 14, 2019 1:23 pm
TomatoTomahto wrote:
Sun Apr 14, 2019 1:06 pm
miamivice wrote:
Sun Apr 14, 2019 12:42 pm
To revise my original question, I probably would do 100% stock. I think it'd be wise to have 5 years living expenses in stable value money, and then 100% stocks for all remainder. That way, I have enough living expenses to weather almost all of the possible downturns and stay the course until the upturn..
In principle, that’s what we do. The amount in “stable value money” might be different than yours, but everything else is equities of one flavor or another.

The best reward is not having to have a sharp pencil to figure out our asset allocation. I will have to figure something out when we no longer have “new” money coming in.
I think about risk in a similar manner but what do you do if after 1 year stocks decline 90%? Now you have 4 years of expenses in stable value. Do you then sell stocks when they're down 90% to get the stable fund back to 5 years? Do you wait another year and let the stable fund go to 3 years? Isn't this a form of market timing?
I would wait until year 4 or 5, and then sell to replenish. I wouldn't sell at year 2. The reason for 5 years is to allow one to ride out the down market.

We don't really need to consider a 90% decline in the market. That's a highly unusual and unlikley thing to happen.

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Re: If you have plenty of money, why not 100% stocks in retirement?

Post by Independent George » Sun Apr 14, 2019 1:31 pm

I would consider the opposite question - if you have plenty of money, why not 100% TIPS in retirement?

Or, for that matter, why not buy a boat/farm/Ferrari/whatever until you're back down to merely an 'adequate' amount of retirement money, and leave it at the AA of your choice?

If you're at the point where you are no longer at risk of outliving your savings, it makes more sense to me to either go super-safe, or blow some reasonable portion of your savings on something you've always dreamed of.

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Re: If you have plenty of money, why not 100% stocks in retirement?

Post by Thesaints » Sun Apr 14, 2019 1:35 pm

Independent George wrote:
Sun Apr 14, 2019 1:31 pm
I would consider the opposite question - if you have plenty of money, why not 100% TIPS in retirement?
Absolutely!
In fact, there are two distinct cases:
- Plenty of money and one wants a lot more = 100% in stocks.
- Plenty of money and happy with how much one has got = 100% in TIPS, or something along those lines.

In the first case, one would want to maximize expected return regardless of risk. In the second case, one would want to minimize risk, regardless of expected return.

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Re: If you have plenty of money, why not 100% stocks in retirement?

Post by randomguy » Sun Apr 14, 2019 1:36 pm

nisiprius wrote:
Sun Apr 14, 2019 11:54 am

5) except for 1803-1871 (68 years) and 1968-2009 (41 years). (Source: see figure 1)

Even though I think it's a good gamble that stocks will have higher returns than bonds for 2019 through 2050, you still shouldn't reduce a complicated set of facts to a simple "stocks return better than bonds."
So in 1968 instead of buying a S&P 500 fund, buy small value stocks and way outperform long bonds over the next 41 years.:) Notice how we never hear about how total bond has 20+ years of out performing stocks?:) The other thing to think about is, how did the people do that had to sell in year 10,15,20,25,30, 35, and 40. Stocks outperformed long bonds for all but a half dozen years and by noticeable amounts. Meanwhile the bond outperformance was pretty minimal.

That being said, knowing what I know now, I wouldn't invest in any stock market that operates under the rules of 1803-1880 or so. The amount of stuff that we would basically characterize as fraud and market manipulation was insane. Google Jay Gould, Daniel Drew and the like if your not familiar with him. Your opinion on the relevance of those markets might not be the same as mine:)

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Re: If you have plenty of money, why not 100% stocks in retirement?

Post by afan » Sun Apr 14, 2019 1:41 pm

I agree that at some multiple of assets over needs one could be 100% stocks and still sleep just fine. Not many people have that much money.

Warren Buffett famously commented that he was leaving his wife a lot of money, I think $1 billion. He said he would instruct the trustee to put 90% in stocks and the rest in short term treasuries. If that $900M in stocks became $90M, she would still be fine. She would be fine if the entire stock amount evaporated and she had only the $100M in treasuries.

At a billion dollars most would feel safe at 100% equities. Many people would not do it but they would remain wealthy under any scenario that had the US surviving as a country.

When you get far below a billion, you need to ask how safe those other sources of income are

For the OP, I assume the social security contribution takes into account the planned cut in benefits. Of course, that is under the current projections, which are exactly that- projections. If demographics or the economy do not work out as estimated, the total cuts could be larger.

As other have noted, not all pensions are safe. Some have pension insurance, others do not. In a crisis the insurance may or may not be enough to make pensioners whole. Usually municipal pensions are not insured but rest on (often inadequate) funds set aside and the ability of the entity to tax and borrow. In bad financial times both taxing and borrowing capacity may fail.

So discount both the pension and SS income by, say, 50%. Then apply a 90% cut in stock values. If the result leaves enough retirement funds that the couple is still in good shape- say assets equal 40X annual income needed from assets- then all stocks could be fine.

To be more conservative, assume SS and pensions go to zero.

Unlikely but not impossible.

If 10% of assets would be 40X annual income needed, then 100% stocks should be safe. Not a good idea, mind you. But safe.
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama

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Re: If you have plenty of money, why not 100% stocks in retirement?

Post by TomatoTomahto » Sun Apr 14, 2019 1:51 pm

PowderDay9 wrote:
Sun Apr 14, 2019 1:23 pm
TomatoTomahto wrote:
Sun Apr 14, 2019 1:06 pm
miamivice wrote:
Sun Apr 14, 2019 12:42 pm
To revise my original question, I probably would do 100% stock. I think it'd be wise to have 5 years living expenses in stable value money, and then 100% stocks for all remainder. That way, I have enough living expenses to weather almost all of the possible downturns and stay the course until the upturn..
In principle, that’s what we do. The amount in “stable value money” might be different than yours, but everything else is equities of one flavor or another.
The best reward is not having to have a sharp pencil to figure out our asset allocation. I will have to figure something out when we no longer have “new” money coming in.
I think about risk in a similar manner but what do you do if after 1 year stocks decline 90%? Now you have 4 years of expenses in stable value. Do you then sell stocks when they're down 90% to get the stable fund back to 5 years? Do you wait another year and let the stable fund go to 3 years? Isn't this a form of market timing?
I don’t know how many years of expenses we have in fixed income. I’m not a mathy guy; I just figured $3M with reinvestment (mostly in tax deferred) would be “sufficient.” In a few years, RMDs will kick in, and if we need to spend the bond money, we will. What we don’t spend will get added to our equities.

In the event of a 90% rout, we will see what we do. We should be fine; our kids will have to make do.
Okay, I get it; I won't be political or controversial. The Earth is flat.

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Re: If you have plenty of money, why not 100% stocks in retirement?

Post by miamivice » Sun Apr 14, 2019 1:53 pm

With regards to social security, forum rules specifically prohibit discussion on what might happen in the future.

For my own purposes as well, I also make decisions based on current law. At the moment, I don't believe Congress has changed social security benefits in the future. If and when they do, I'll adjust my plan then.

I don't plan on pensions going to zero. Pensions are backed by the pension guaranty fund. In the unlikely event that both my pension as well as my spouses pension get axed by our employers, the PBGF will pick them up and we will get most of our pension.

I really don't think it is purposeful to dwell on the worst possible case scenario. For a worst possible case, cash under the mattress is best. That doesn't make sense for the remaining 99.99999% chance that I do not end up in a worst case scenario in my retirement.

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Re: If you have plenty of money, why not 100% stocks in retirement?

Post by Thesaints » Sun Apr 14, 2019 2:20 pm

miamivice wrote:
Sun Apr 14, 2019 1:53 pm
With regards to social security, forum rules specifically prohibit discussion on what might happen in the future.

For my own purposes as well, I also make decisions based on current law. At the moment, I don't believe Congress has changed social security benefits in the future. If and when they do, I'll adjust my plan then.
Well, to be accurate, you’ll “react” then. Proper planning is done in advance of events.

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Re: If you have plenty of money, why not 100% stocks in retirement?

Post by miamivice » Sun Apr 14, 2019 2:24 pm

Thesaints wrote:
Sun Apr 14, 2019 2:20 pm
miamivice wrote:
Sun Apr 14, 2019 1:53 pm
With regards to social security, forum rules specifically prohibit discussion on what might happen in the future.

For my own purposes as well, I also make decisions based on current law. At the moment, I don't believe Congress has changed social security benefits in the future. If and when they do, I'll adjust my plan then.
Well, to be accurate, you’ll “react” then. Proper planning is done in advance of events.
Per forum rules, we are not permitted to discuss speculation of future legislation.

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Re: If you have plenty of money, why not 100% stocks in retirement?

Post by tibbitts » Sun Apr 14, 2019 2:27 pm

miamivice wrote:
Sun Apr 14, 2019 1:53 pm
With regards to social security, forum rules specifically prohibit discussion on what might happen in the future.

For my own purposes as well, I also make decisions based on current law. At the moment, I don't believe Congress has changed social security benefits in the future. If and when they do, I'll adjust my plan then.

I don't plan on pensions going to zero. Pensions are backed by the pension guaranty fund. In the unlikely event that both my pension as well as my spouses pension get axed by our employers, the PBGF will pick them up and we will get most of our pension.

I really don't think it is purposeful to dwell on the worst possible case scenario. For a worst possible case, cash under the mattress is best. That doesn't make sense for the remaining 99.99999% chance that I do not end up in a worst case scenario in my retirement.
Yes, and people break the rule regarding social security all the time and get away with it. The current law is the benefit cut, not current benefits. So all the discussions need to be predicated on the benefit cut, not on benefits as they are now.

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Re: If you have plenty of money, why not 100% stocks in retirement?

Post by KlangFool » Sun Apr 14, 2019 2:27 pm

miamivice wrote:
Sun Apr 14, 2019 1:53 pm

I really don't think it is purposeful to dwell on the worst possible case scenario.
miamivice,

But, to plan based on 100% best possible scenario is not reasonable too.

KlangFool

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Re: If you have plenty of money, why not 100% stocks in retirement?

Post by Thesaints » Sun Apr 14, 2019 2:31 pm

tibbitts wrote:
Sun Apr 14, 2019 2:27 pm
Yes, and people break the rule regarding social security all the time and get away with it. The current law is the benefit cut, not current benefits. So all the discussions need to be predicated on the benefit cut, not on benefits as they are now.
Where does the current law cuts benefits ? Other than the FRA gradual increase to age 67 ?

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Re: If you have plenty of money, why not 100% stocks in retirement?

Post by Will do good » Sun Apr 14, 2019 2:37 pm

grabiner wrote:
Sun Apr 14, 2019 10:27 am
If you have more than enough money, your portfolio in retirement is not for you, but for your heirs. In particular, some retirees have more than enough to live on from Social Security, pensions, and annuities.

And in that situation, the asset allocation should depend on the needs of the people who will spend it. If your portfolio will be part of the retirement fund for your son who is far from retirement, and the college fund for your not-yet-born great-granddaughter, it can be 100% in stock.
Bingo.

If I have 50x -75x expenses I might be at 80%+ in equity. Why not think of future generations?

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Re: If you have plenty of money, why not 100% stocks in retirement?

Post by Thesaints » Sun Apr 14, 2019 2:41 pm

Will do good wrote:
Sun Apr 14, 2019 2:37 pm
If I have 50x -75x expenses I might be at 80%+ in equity. Why not think of future generations?
Yeah. That, or buying a yacht!

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Re: If you have plenty of money, why not 100% stocks in retirement?

Post by goodenyou » Sun Apr 14, 2019 2:49 pm

ram wrote:
Sun Apr 14, 2019 12:03 pm
Once a person has "plenty of money" asset allocation does not matter. Anywhere from 100/0 to 0/100 is fine.
In fact I would propose that the definition of 'plenty of retirement money' should be a number that allows 100% success at 4% withdrawal for 30 years at any asset allocation ratio. (using the usual models).

I will not have that much money when I retire so I am not considering this question for myself.

But I used the same concept for 'college money'. I had 'plenty of money' for college for my kids from current income such that even if stocks went down by 90% (as in 1929) their college education was not in jeopardy.

So 100% of my 529 account balance was always in and continues to be in 100% stocks. It has done well. If after my kids use all that they need there is a balance I will leave it in 100% stocks for 20+ years for the next generation. I will rebalance it on an annual basis. (50% domestic: 50% intt stocks)
I also had enough to cash flow college from "current income". But, I did just the opposite. One I had "enough +" to fund all 3 of my kids for all 4 years and some graduate school, I converted my 529 to FDIC. Anything remaining after 12-16+ college-years for the 3 children will be in 100% stocks for more graduate school or the next generation for the grandchildren in >25 years. If it tanks, it's their problem.
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Re: If you have plenty of money, why not 100% stocks in retirement?

Post by Katietsu » Sun Apr 14, 2019 3:07 pm

MIL is in 70’s and is over 85% stocks. She has plenty of money as pension and social security covers her expense. Bond income provides for extras. No desire to change lifestyle. So portfolio continues to grow as it is used only to pay for occasional extras, ie a new moderately priced automobile. Excellent LTC and health insurance. A very bad stock market combined with over a decade of full time at home private care is the only way I can see giving by this asset allocation a second thought.

So without a pension, I think I would need 100X expenses to feel comfortable with such an AA. That is why I am 50/50 at a much younger age.

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Re: If you have plenty of money, why not 100% stocks in retirement?

Post by 22twain » Sun Apr 14, 2019 3:33 pm

MathIsMyWayr wrote:
Sun Apr 14, 2019 11:56 am
Money is not everything, but you should not settle down with your imagined retirement expenses. As your income/asset increases, you will find no difficulty in seeing your expenses go up.
Some people do have difficulty with this. I've seen plenty of posts here from people who have trouble shifting from accumulation to decumulation when they retire.
My investing princiPLEs do not include absolutely preserving princiPAL.

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Re: If you have plenty of money, why not 100% stocks in retirement?

Post by SGM » Sun Apr 14, 2019 3:53 pm

Despite having multiple income streams in retirement I am no longer 100% in stock. When I had human capital left I could always increase my savings by being a little more frugal or working more hours every week or spending a few more years in the work force.

It would be unpleasant to see my portfolio drop considerably now. When I was working I saw market drops as opportunities to buy more stocks at low valuations with every paycheck. I didn't mind the drops, now I would. This is despite having more than enough to live on from income streams outside my portfolio.

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Re: If you have plenty of money, why not 100% stocks in retirement?

Post by afan » Sun Apr 14, 2019 5:49 pm

miamivice wrote:
Sun Apr 14, 2019 1:53 pm
With regards to social security, forum rules specifically prohibit discussion on what might happen in the future.
The cut in Social Security benefits is a combination of CURRENT law, which is fine for discussion, and current projections, which are also fine for discussion. Speculation about future changes in the law are off limits, but that is not what I was doing.

Under CURRENT law and CURRENT projections, SS benefits are expected to be cut by 21% starting in 2034. The exact size of the projected cuts vary, a little, with each year's trustee's report. Only major demographic changes, which are ripe for discussion here, or changes in the law, which topic is off limits, can avoid the cuts. The size of the cuts depend on what happens with payments into the system and demands for payouts. Payments in depend on demographics, how many people are working and paying in, as well as how much they are earning. So demographics and the state of the economy. Payouts depend on how many people are drawing benefits and what they have earned in the way of benefits. Again, demographics and the state of the economy.

If one is planning under CURRENT law, then one's plans must include at least the current projected cut.

As for pensions, it is easy to look up the challenges that many pensions face. The PBGC has more liabilities than assets and there is a cap on payments to individuals.

One plans for adverse contingencies when contemplating a risky action that could have severe consequences if circumstances beyond one's control go poorly.

With investing, most people hold risk positions less than 100% stocks because things could go wrong. If things go wrong and one has a billion dollars, then one would still be fine at 100% stocks. Pensions and SS would not matter. A huge persistent drop in the stock market would not matter.

For everyone else, it is safer to live at lower risk.
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama

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Re: If you have plenty of money, why not 100% stocks in retirement?

Post by sc9182 » Sun Apr 14, 2019 5:57 pm

SGM wrote:
Sun Apr 14, 2019 3:53 pm
Despite having multiple income streams in retirement I am no longer 100% in stock. When I had human capital left I could always increase my savings by being a little more frugal or working more hours every week or spending a few more years in the work force.

It would be unpleasant to see my portfolio drop considerably now. When I was working I saw market drops as opportunities to buy more stocks at low valuations with every paycheck. I didn't mind the drops, now I would. This is despite having more than enough to live on from income streams outside my portfolio.
Hear you, may be as we also gracefully age, our ideation could change/adopt as well. While being productive, earning active w2 income (and savings) may be folks tend to have more aggressive/stock-heavy tilts. One of my about to retire Elder cohorts indicates their family keeps 3-4 years worth of emergency expenses (fully paid off house, low tax state), and some in bonds, and some in div stocks, and remaining in stocks. Yes - you go thru swings but he feels the need to be invested in stocks as inflation hedge (along with growth), as longevity runs deep on both sides of his/spouse families - 94+ years iirc. They gotta be batting for 30 plus years in retirement, and his best bet against inflation and raising costs (especially medical), seems to be - to maintain decent portfolio in indexes/stocks.

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Re: If you have plenty of money, why not 100% stocks in retirement?

Post by Mel Lindauer » Sun Apr 14, 2019 6:11 pm

Losing 50% of "a lot of money" (let's say $10 million) is a lot of money ($5 million). I'd bet it would be way too much pain for most folks to stand before bailing out and locking in the loss.
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Re: If you have plenty of money, why not 100% stocks in retirement?

Post by marcopolo » Sun Apr 14, 2019 6:26 pm

Thesaints wrote:
Sun Apr 14, 2019 2:31 pm
tibbitts wrote:
Sun Apr 14, 2019 2:27 pm
Yes, and people break the rule regarding social security all the time and get away with it. The current law is the benefit cut, not current benefits. So all the discussions need to be predicated on the benefit cut, not on benefits as they are now.
Where does the current law cuts benefits ? Other than the FRA gradual increase to age 67 ?
I believe Soc Sec laws do not allow it to operate at a defecit.
For years, it has been taking in more each year than it pays out. The excess is saved in special treasury bonds as a reserve. But, as the baby boomer cohort retires, that has shifted just recently to Soc Sec paying out more than it takes in each years, so the plan is starting redeem those bonds in reserve. That reserve is projected to run out I 2034. At that time, Soc Sec, by current law, will only be able to pay out what it takes in each year. The projections say that will only be ~75% of what has been promised. So, absent any changes to current law, the aggregate payout will be have to be to 75% of what is due. My understanding is that the law does not specify how the payouts are to be reduced (across the board equally by percentage, by dollar, means testing etc.) How that would be done is also speculation.
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Re: If you have plenty of money, why not 100% stocks in retirement?

Post by Ben Mathew » Sun Apr 14, 2019 6:37 pm

When you have more money, you are more able to take on the risk of stocks. But you also don't value the reward as much. So it's not entirely clear how stock allocation should change with wealth. If you have CRRA preferences, your asset allocation does not change with wealth.

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Re: If you have plenty of money, why not 100% stocks in retirement?

Post by afan » Sun Apr 14, 2019 6:56 pm

marcopolo wrote:
Sun Apr 14, 2019 6:26 pm
Thesaints wrote:
Sun Apr 14, 2019 2:31 pm
tibbitts wrote:
Sun Apr 14, 2019 2:27 pm
Yes, and people break the rule regarding social security all the time and get away with it. The current law is the benefit cut, not current benefits. So all the discussions need to be predicated on the benefit cut, not on benefits as they are now.
Where does the current law cuts benefits ? Other than the FRA gradual increase to age 67 ?
I believe Soc Sec laws do not allow it to operate at a defecit.
For years, it has been taking in more each year than it pays out. The excess is saved in special treasury bonds as a reserve. But, as the baby boomer cohort retires, that has shifted just recently to Soc Sec paying out more than it takes in each years, so the plan is starting redeem those bonds in reserve. That reserve is projected to run out I 2034. At that time, Soc Sec, by current law, will only be able to pay out what it takes in each year. The projections say that will only be ~75% of what has been promised. So, absent any changes to current law, the aggregate payout will be have to be to 75% of what is due. My understanding is that the law does not specify how the payouts are to be reduced (across the board equally by percentage, by dollar, means testing etc.) How that would be done is also speculation.

This.

Every year the Social Security trustees issue a report on the status of the system, including when and by how much the cuts are anticipated. Most recent was 21% in 2034. Current law.
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama

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miamivice
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Re: If you have plenty of money, why not 100% stocks in retirement?

Post by miamivice » Sun Apr 14, 2019 7:21 pm

afan wrote:
Sun Apr 14, 2019 6:56 pm
Every year the Social Security trustees issue a report on the status of the system, including when and by how much the cuts are anticipated. Most recent was 21% in 2034. Current law.
No, current law specifies the formula on how much social security recipients are paid, and that formula doesn't take into account revenue. The formula will be unchanged until Congress changes it.

At some point in the future, the social security trust fund will decrease to (eventually zero) and Congress will have difficult choices in front of it. However, there is not a law that automatically cuts payouts to social security recipients by any amount. At the moment, the formula is unchanged and will remain unchanged until Congress changes it.

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Re: If you have plenty of money, why not 100% stocks in retirement?

Post by miamivice » Sun Apr 14, 2019 7:24 pm

marcopolo wrote:
Sun Apr 14, 2019 6:26 pm
Thesaints wrote:
Sun Apr 14, 2019 2:31 pm
tibbitts wrote:
Sun Apr 14, 2019 2:27 pm
Yes, and people break the rule regarding social security all the time and get away with it. The current law is the benefit cut, not current benefits. So all the discussions need to be predicated on the benefit cut, not on benefits as they are now.
Where does the current law cuts benefits ? Other than the FRA gradual increase to age 67 ?
I believe Soc Sec laws do not allow it to operate at a defecit.
For years, it has been taking in more each year than it pays out. The excess is saved in special treasury bonds as a reserve. But, as the baby boomer cohort retires, that has shifted just recently to Soc Sec paying out more than it takes in each years, so the plan is starting redeem those bonds in reserve. That reserve is projected to run out I 2034. At that time, Soc Sec, by current law, will only be able to pay out what it takes in each year. The projections say that will only be ~75% of what has been promised. So, absent any changes to current law, the aggregate payout will be have to be to 75% of what is due. My understanding is that the law does not specify how the payouts are to be reduced (across the board equally by percentage, by dollar, means testing etc.) How that would be done is also speculation.
My understanding is dramatically different. My understanding is that the payment formula is set by Congress and has not changed in many years, despite the looming issue when outflow exceeds inflow and the trust is exhausted. However, until Congress changes the law, we do not know how Congress will make up the shortfall.

afan
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Re: If you have plenty of money, why not 100% stocks in retirement?

Post by afan » Sun Apr 14, 2019 8:04 pm

miamivice wrote:
Sun Apr 14, 2019 7:21 pm
afan wrote:
Sun Apr 14, 2019 6:56 pm
Every year the Social Security trustees issue a report on the status of the system, including when and by how much the cuts are anticipated. Most recent was 21% in 2034. Current law.
No, current law specifies the formula on how much social security recipients are paid, and that formula doesn't take into account revenue. The formula will be unchanged until Congress changes it.

At some point in the future, the social security trust fund will decrease to (eventually zero) and Congress will have difficult choices in front of it. However, there is not a law that automatically cuts payouts to social security recipients by any amount. At the moment, the formula is unchanged and will remain unchanged until Congress changes it.
Sorry, but you are not correct.

How much is paid out is a function of both law and available funds. So far available funds have been sufficient. CURRENT projections are a 21% cut in 2034. It is all in the trustee's report.

Here on bogleheads, we don't speculate about what Congress might do in the future.
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama

afan
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Re: If you have plenty of money, why not 100% stocks in retirement?

Post by afan » Sun Apr 14, 2019 8:33 pm

From the current trustee's report
Current law precludes payment of any benefits beyond the amount that can be financed by the trust funds, that is, from annual income and trust fund reserves. In years after trust fund depletion, the amount of benefits that would be payable is lower than shown because OASDI and HI, by law, cannot borrow money or pay benefits that exceed the asset reserves in their trust funds.
.The financial outlooks for both OASDI and HI depend on a number of demographic and economic assumptions. Nevertheless, the actuarial deficit in each of these programs is large enough that averting trust fund depletion under current-law financing is extremely unlikely.
The combined OASDI trust funds have a projected depletion date of 2034, the same as in last year’s report. After the depletion of reserves, continuing tax income would be sufficient to pay 79 percent of scheduled benefits in 2034 and 74 percent in 2092.
https://www.ssa.gov/oact/TRSUM/index.html
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama

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Re: If you have plenty of money, why not 100% stocks in retirement?

Post by ohai » Sun Apr 14, 2019 8:39 pm

A lot of rich people won't spend all their money by the time they die - they intend to leave it for heirs. So, in this sense, it makes sens to adopt the heirs' investment time horizon, which can be very long, and this could very well justify a high stock allocation. I find that most of the investment goals on Bogleheads focus on subsistence to the point of mortality, and this is not always the case for people of substantial means.

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Re: If you have plenty of money, why not 100% stocks in retirement?

Post by scottinmet » Sun Apr 14, 2019 8:41 pm

KyleAAA wrote:
Sun Apr 14, 2019 12:03 pm
Sure, if you have so much that a 2% withdrawal rate will meet your needs, there’s little reason not to go all in on stocks and real estate. But why would you accumulate that much money to begin with? Most would stop when they got to 3-4%. If you enjoy your work, go for it. But most here would rather retire sooner with a smaller nest egg. Stocks could very well under perform bonds over the next 50 years so you’d need to account for that possibility, however small.
That's an interesting point. I would love to stop at 3-4%. The problem is I know how much I spend now but my estimated future needs are hazy at best. I don't think I would be comfortable at retiring with 3-4% unless I was close to SS age or had an annuity or pension that covered most of my basic needs. With my basic needs covered, I would then probably be at a 2-3% withdrawal rate.

If I had a 1-2% withdrawal requirement, I would retire immediately and do something like 70/30.

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Re: If you have plenty of money, why not 100% stocks in retirement?

Post by marcopolo » Sun Apr 14, 2019 8:48 pm

miamivice wrote:
Sun Apr 14, 2019 7:24 pm
marcopolo wrote:
Sun Apr 14, 2019 6:26 pm
Thesaints wrote:
Sun Apr 14, 2019 2:31 pm
tibbitts wrote:
Sun Apr 14, 2019 2:27 pm
Yes, and people break the rule regarding social security all the time and get away with it. The current law is the benefit cut, not current benefits. So all the discussions need to be predicated on the benefit cut, not on benefits as they are now.
Where does the current law cuts benefits ? Other than the FRA gradual increase to age 67 ?
I believe Soc Sec laws do not allow it to operate at a defecit.
For years, it has been taking in more each year than it pays out. The excess is saved in special treasury bonds as a reserve. But, as the baby boomer cohort retires, that has shifted just recently to Soc Sec paying out more than it takes in each years, so the plan is starting redeem those bonds in reserve. That reserve is projected to run out I 2034. At that time, Soc Sec, by current law, will only be able to pay out what it takes in each year. The projections say that will only be ~75% of what has been promised. So, absent any changes to current law, the aggregate payout will be have to be to 75% of what is due. My understanding is that the law does not specify how the payouts are to be reduced (across the board equally by percentage, by dollar, means testing etc.) How that would be done is also speculation.
My understanding is dramatically different. My understanding is that the payment formula is set by Congress and has not changed in many years, despite the looming issue when outflow exceeds inflow and the trust is exhausted. However, until Congress changes the law, we do not know how Congress will make up the shortfall.
I am quite sure you are mistaken. Please consider looking at the Soc Sec trustees report.
Once in a while you get shown the light, in the strangest of places if you look at it right.

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Re: If you have plenty of money, why not 100% stocks in retirement?

Post by Thesaints » Sun Apr 14, 2019 8:53 pm

The fact that SSA funds may run out at some future date and the formula used to pay benefits are two separate issues.
The formula used is set by law.

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Re: If you have plenty of money, why not 100% stocks in retirement?

Post by marcopolo » Sun Apr 14, 2019 8:59 pm

Thesaints wrote:
Sun Apr 14, 2019 8:53 pm
The fact that SSA funds may run out at some future date and the formula used to pay benefits are two separate issues.
The formula used is set by law.
The cap based on available finds IS part of the "formula set by law".
Once in a while you get shown the light, in the strangest of places if you look at it right.

nix4me
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Re: If you have plenty of money, why not 100% stocks in retirement?

Post by nix4me » Sun Apr 14, 2019 9:45 pm

why not 100% stocks all the time?

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Re: If you have plenty of money, why not 100% stocks in retirement?

Post by 2pedals » Sun Apr 14, 2019 9:59 pm

miamivice wrote:
Sun Apr 14, 2019 10:20 am
2pedals wrote:
Sun Apr 14, 2019 10:05 am
miamivice wrote:
Sun Apr 14, 2019 9:21 am
If you have ample resources that you can afford to weather downturns, why not keep your money 100% stocks in retirement?

Stocks return better than bonds, so you would have better overall portfolio returns. You would have to be willing to sell stocks/funds during downturns to pay for your expenses.
1) You may not outlive a downturn.
I am not sure why not outliving a downturn is a problem. If I (or my wife if she outlives me) die during a downturn, it won't hurt us at all. It just means the kids have a smaller inheritance. But if they keep the money invested 100% stocks, then the stock market will rebound and they'll ride the upswing.
End of life expenses can become extreme for some that want to live in a quality long term care facility so you may need to sell stocks in a down market. If the kids get stocks, most likely they will be sold in a down market to buy other things unless it is in a trust.

You say it won't hurt you but I have to question if you have had the time to think things through. If I had total net worth of 10 million all in stocks (no real estate, no bonds, no cash, no CDs, no TIPS) that I saved and invested my whole life for and watched it drop to 5 million and didn't recover in my lifetime it would definitely make the list of regrets while I was still alive.

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Re: If you have plenty of money, why not 100% stocks in retirement?

Post by heyyou » Sun Apr 14, 2019 11:18 pm

For the OP:
Instead of a 60/40 with ten years of retirement spending in bonds at 4% annual spending, consider having ten years of spending in bonds with the rest in stock funds--regardless of whatever that percentage happens to be. You could spend the bonds during a stock crash, delaying spending any stocks for a decade.

The historical optimal performing allocation without leverage, is near 90/10 for rebalancing after a stock market crash, not 100% stocks. The precise numbers were 93/7 or 87/13, but I can't remember which.

Warren Buffett's widow will be able to live on just the dividends from her large S&P500 fund holdings since all of his Berkshire Hathaway stock is going to the Gates Foundation. There is a marker for you, living on just the dividends and cap gains from a S&P500 index fund, not from a dividend focused fund. I haven't looked but that might be a 1-2% withdrawal rate. Anyone is welcome to correct that number with data instead of my speculation.

afan
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Re: If you have plenty of money, why not 100% stocks in retirement?

Post by afan » Mon Apr 15, 2019 9:20 am

We have earmarked funds that we anticipate never spending. If all goes according to plan, those are destined to go to our heirs. The time horizon may be college funds for yet to be conceived grandchildren, retirement funds for our children or perhaps retirement funds for grandchildren. A long time in any case. That money is heavily in stocks, but nowhere close to 100%.

Since it is possible that a need could arise earlier than planned, there his a limit to how much of it we would be willing to risk in a major meltdown.

For mental accounting, one could subdivide these earmarked funds into tranches based on anticipated time till they will be used. The grandchildren's retirement accounts might be 100% stock now. The children's retirement amounts less aggressive and the grandchildren's college funds less aggressive still. But that would mean the overall portfolio would be less than 100% stocks.
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama

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Re: If you have plenty of money, why not 100% stocks in retirement?

Post by dbr » Mon Apr 15, 2019 9:24 am

In the end there is always a balance between the overall chances of higher return and more wealth against greater uncertainty as to what will actually happen. 100% stocks is one extreme of that trade-off and like all extremes is not likely to be preferred by very many people. That is why not.

afan
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Re: If you have plenty of money, why not 100% stocks in retirement?

Post by afan » Mon Apr 15, 2019 9:41 am

miamivice wrote:
Sun Apr 14, 2019 12:42 pm


To revise my original question, I probably would do 100% stock. I think it'd be wise to have 5 years living expenses in stable value money, and then 100% stocks for all remainder. That way, I have enough living expenses to weather almost all of the possible downturns and stay the course until the upturn..
So that is not 100% stocks. The proportion of stocks would depend on the ratio of 5 years expenses to total assets. If five years of expenses, including taxes, are $500,000 and the total portfolio is $5M then one could be at 90% stocks.

Repeat the above discussion about factoring in the cut in SS benefits and the possibility of collecting less than promised be efits from pensions. These considerations would raise the amount in stable value and reduce the % in stock.

Since the stable fund would there to protect against a severe downturn, it would only be spent when such a drop took place. Until then it would remain. Thus, the % stock allocation would stay below 100%.

How do you get to 5 years as the longest plausible severe downturn? The Depression lasted a lot longer than that.
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama

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miamivice
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Re: If you have plenty of money, why not 100% stocks in retirement?

Post by miamivice » Mon Apr 15, 2019 9:47 am

afan wrote:
Mon Apr 15, 2019 9:41 am
Repeat the above discussion about factoring in the cut in SS benefits and the possibility of collecting less than promised be efits from pensions.
No, I am not factoring in a rumored cut to social security. To my understanding, there are no cuts to social security codified in the law and any decision on cutting social security is speculation. I don't make decisions based on speculation.

I am also not factoring in cuts to pension benefits. I don't expect that either my pension nor my wife's pension will be cut during our retirement. If it happens, I will replan then.

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Re: If you have plenty of money, why not 100% stocks in retirement?

Post by fourwheelcycle » Mon Apr 15, 2019 9:49 am

I keep about 20% of our portfolio in bond index funds, mostly in our retirement accounts, for two reasons. First, I want to be able to assure my wife that no matter what the stock market does we will have sufficient savings in bonds to "see us through". Second, if the market is down when we are ready to take our RMDs I would prefer to sell bonds rather than down stocks. If needed, I can rebalance later when (if) stocks are back up.

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Re: If you have plenty of money, why not 100% stocks in retirement?

Post by LiveSimple » Mon Apr 15, 2019 10:20 am

nix4me wrote:
Sun Apr 14, 2019 9:45 pm
why not 100% stocks all the time?
This is us and it works for us !!!! Let us see the future.
Our human capital is good and will lead to a better retirement life for sure.
There will be upsides and some surprises in life, but all should be manageable / enjoy the journey and adapt and adjust.
Last edited by LiveSimple on Mon Apr 15, 2019 10:28 am, edited 1 time in total.

afan
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Re: If you have plenty of money, why not 100% stocks in retirement?

Post by afan » Mon Apr 15, 2019 10:21 am

.No, I am not factoring in a rumored cut to social security. To my understanding, there are no cuts to social security codified in the law and any decision on cutting social security is speculation. I don't make decisions based on speculation.
Not a rumor.
Not speculation.

Read the trustee's report.
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama

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