Asset Allocation in 60s

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MP173
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Asset Allocation in 60s

Post by MP173 » Mon May 13, 2019 2:31 pm

Standard advise a couple of decades ago was "age in bonds" for asset allocation. Then it crept to "110 minus age" etc.

Let's assume the following:
1. Early 60s in age.
2. Healthy.
3. No debt
4. Working with plans to do so into late 60s. SS planned to be started at 70.
5. Unless a black swan event, retirement is fully funded with 401k, Roth, and IRA accounts plus sizeable non deferred accounts including stocks, ETFs and I bonds (due to redeem in 12 years).

What AA would be suggested (or applied to your accounts) for:
1. Overall portfolio.
2. Retirement portion (401k, IRA, Roth).

Hope this makes sense. In other words, as Bob Brinker would state "critical mass has been reached."

Ed

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mhadden1
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Re: Asset Allocation in 60s

Post by mhadden1 » Mon May 13, 2019 2:39 pm

You are right that a lot of people have soured on the idea of "age in bonds", likely due to the low bond yields of the last ten years. I don't think Mr. Bogle ever backed far away from it, though.

The catchphrase for a lot of Bogleheads is to evaluate your "need, desire, and ability to take risk". So, let's say your living expenses are covered by pension/SS income. That means your need to take risk is low, but your ability is high. In the end only you can determine what you are comfortable with. Among Bogleheads in general I will guess that there is a definite clustering between 40-60% bonds for those in retirement.
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retiredjg
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Re: Asset Allocation in 60s

Post by retiredjg » Mon May 13, 2019 3:11 pm

I'd consider 60% stock/40% bonds while working and about 50/50 after that.

bradshaw1965
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Re: Asset Allocation in 60s

Post by bradshaw1965 » Mon May 13, 2019 3:15 pm

mhadden1 wrote:
Mon May 13, 2019 2:39 pm
You are right that a lot of people have soured on the idea of "age in bonds", likely due to the low bond yields of the last ten years. I don't think Mr. Bogle ever backed far away from it, though.
Not sure, there was definitely some conversation from Mr. Bogle about taking Social Security into account which would have changed the "age in bonds" arithmetic substantially.

delamer
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Re: Asset Allocation in 60s

Post by delamer » Mon May 13, 2019 6:48 pm

Bill Bernstein might suggest that you put 20 to 25 years of expenses in TIPS and the rest in stocks.

This is excerpted from an interview printed in whitecoatinvestor.com:

How Much Is Enough?
Bernstein recommends a rule of thumb, based on annuity payouts and spending patterns late in life, that you should have 20-25 times your residual living expenses (after pensions/Social Security) invested solely in safe assets. No stocks at all. This should be in TIPS, SPIAs, and short-term bonds. If you have more than that, that’s your “risk portfolio,” which he describes this way:

Anything above that, you can invest in risky assets. That’s your risk portfolio. If you dream about taking an around-the-world trip, and the risk portfolio does well, you can use it for that. If the risk portfolio doesn’t do well, at least you’re not pushing a shopping cart under an overpass.

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vineviz
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Re: Asset Allocation in 60s

Post by vineviz » Mon May 13, 2019 6:50 pm

Retirement portfolio for a typical 60-year old investor should probably be about 35% to 40% long-term bonds.
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Re: Asset Allocation in 60s

Post by radiowave » Mon May 13, 2019 7:24 pm

The other consideration on asset allocation is what does x% in bonds provide in retirement, e.g. if you are 50% bonds, how many years will that support at projected expenses?
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MP173
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Re: Asset Allocation in 60s

Post by MP173 » Tue May 14, 2019 6:53 am

Original poster here....

Thanks for views. With Social Security projected at age 70, (DW already retired and drawing SS), those monthly payments will pretty much cover living expenses. Plus there are other streams of income - small pension for wife plus farm/mineral rights income. Of course the big unkonwn on the expense side is health care costs.

I have tried to self annuitize on the taxable side with dividend producing ETFs, stocks, and munis.

My recent thoughts have been to go heavy with bonds on the 401k/IRA side to create ballast. My overall AA at this time, according to Morningstar is 56 equity, 35% bond and 9% cash.

The big holding in my retirement account is Fidelity 2020 retirement fund. It is about 60/40 if memory is correct.

Thanks for help on this.

Ed

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tennisplyr
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Re: Asset Allocation in 60s

Post by tennisplyr » Tue May 14, 2019 6:59 am

I believe current thinking is that bonds should cover roughly 10 years of expenses. We're retired, in late 60s and are at 50/50.
Last edited by tennisplyr on Tue May 14, 2019 11:32 am, edited 1 time in total.
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Re: Asset Allocation in 60s

Post by 272 Sheep » Tue May 14, 2019 7:23 am

retiredjg wrote:
Mon May 13, 2019 3:11 pm
I'd consider 60% stock/40% bonds while working and about 50/50 after that.
+2
While working, you can take more risk, if you want to. Saving more than spending. Or at least mitigating the effects of spending.
Once you've stopped working, you are now spending entirely instead of saving. How can you make up for a market calamity?
Or how long are you willing to wait in recovery for it to subside? Go back to work?

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Re: Asset Allocation in 60s

Post by Kayakr » Tue May 14, 2019 10:17 am

- If you have fixed income streams that cover expenses, then you could take at % of assets instead of a fixed rate like 4% rule which reduces risk
- If you are pulling at only 3-4% of assets, you can think of your assets more in terms of long term, total returns.
- lower risk assets to cover first 5-10 years help reduce sequence of returns risk
- the more you have, the more you might want to keep in stocks if your timeline is being extended to provide for heirs
- you could get screwed over being all in bonds if inflation spikes like it did in the 80's. Even with 3% inflation the dollar loses 60% of spending power over 30 years. Some money in stocks is lower risk.
- you need to manage risk (e.g. % stocks) to make sure you won't lose your nerve and sell if stocks go down 40% because if you do, you're screwed.
- check out portfoliovisualizer monte carlo.

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Re: Asset Allocation in 60s

Post by Jack FFR1846 » Tue May 14, 2019 10:23 am

What do YOU feel is a reasonable allocation?

Most rules of thumb are a starting point for those who have no clue at all. I would expect most would hone in on what works best for them.

Me: 62, working for some small amount of time. 1 kid heading to grad school, another starting college in the fall.

50% total stock (75 US, 25 int developed)
50% total bond, in which I include a big chunk of US Savings bonds.

Approaching 50X spending if ignoring college costs.
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Re: Asset Allocation in 60s

Post by bloom2708 » Tue May 14, 2019 10:27 am

I like 60/40 now, 50/50 when you retire.

If retirement is fully funded now, why work 6-8 more years? You state you are healthy now.

Never a better time than "now". A lot of health changes between low 60s and late/early 70s (from my parents and observations).
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Re: Asset Allocation in 60s

Post by Dandy » Tue May 14, 2019 10:40 am

You need to look at what your "normal" retirement withdrawal amount and rate will be - before and after collecting any pension/social security. If it is less than 4% you probably don't need to take much equity risk. If it is 4% or higher you might look for additional income and/or look at how you could trim retirement expenses rather than pursue an aggressive allocation. I would like the equity allocation to range from 35 to 55% in my 60's (I'm 71).

Without doing some of these calculations what allocation would be recommended would be guesswork and/or depend on your risk tolerance. Since you can't take it with you (darn) I feel most retirement investing should be geared at securely funding your retirement rather than maximizing growth.

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MP173
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Re: Asset Allocation in 60s

Post by MP173 » Tue May 14, 2019 8:40 pm

bloom:

Good question...."why continue working?" I enjoy my career. I have a number of hobbies and interests and execute most of them. So, it is not about retirement to __________ (fill in the blank). If and when the career creates stress and it is not enjoyable I will probably pull the pin.

Dandy - thanks for the rule of thumb. The normal withdrawl rate would probably need to be about 4% before SS and about 2% with SS factored in. There is no need to stretch for growth.

Interestingly, DW and I sat down with Fidelity to do some general cleaning up of the accounts and I asked the rep what his opinion was. He stated they cannot give advise without a 1% fee (no thanks) but he did run some general numbers in an app. It came up with about 65% equity. I expressed doubt at the high level and he agreed but shrugged and something to the effect of that is "what the program shows."

So, I am wondering...what motivation is there to continue to chase return and growth when the financial finish line is in sight?

Ed

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Re: Asset Allocation in 60s

Post by Dandy » Wed May 15, 2019 5:33 am

So, I am wondering...what motivation is there to continue to chase return and growth when the financial finish line is in sight?
If the financial finish line is in sight that usually means decades of saving/investing and watching your money grow. Usually this involved a bit of an aggressive allocation. You watch your nest egg grow based on how you have invested so you ask why would you change? In retirement you start to withdraw and maybe see the nest egg shrink a bit. That can be unnerving.

I also think there is a subtle feeling that you will need growth for the future and in reality the future at 65 is more like a decade or 2 not 4 or 5.

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Re: Asset Allocation in 60s

Post by dbr » Wed May 15, 2019 9:07 am

MP173 wrote:
Tue May 14, 2019 8:40 pm

So, I am wondering...what motivation is there to continue to chase return and growth when the financial finish line is in sight?

Ed
The finish line is when you die, maybe even when your heirs die. You have to pay attention to the consequences of what asset allocation you choose for as long as you still care. That result could be anything depending on your personal situation and it can change over time and as personal circumstances change. Age in bonds rules are not helpful. Any benefit such a rule would provide is something you would arrive at using a more thoughtful process anyway.

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Re: Asset Allocation in 60s

Post by Ron » Wed May 15, 2019 10:20 am

dbr wrote:
Wed May 15, 2019 9:07 am
MP173 wrote:
Tue May 14, 2019 8:40 pm

So, I am wondering...what motivation is there to continue to chase return and growth when the financial finish line is in sight?

Ed
The finish line is when you die, maybe even when your heirs die.
That's our case. While we're in our early 70's we keep a 60/40 AA target. While some/most would say that is too aggressive, our situation is driven to take care of our adult disabled "child" after we're gone, by subtracting 22 years (our age at his birth) from our own joint age to define a current AA. That means that we're investing as if we were in our late 40's - early 50's.

Every situation is unique, and there is no standard definition of what you should/must do in all situations.

BTW, when we were both actively employed, our target AA consisted of 90% equities.

- Ron

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