30/70 in Accumulation Phase?

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bck63
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30/70 in Accumulation Phase?

Post by bck63 » Sat Jan 11, 2020 6:33 pm

I'm just wondering if there is anyone who is in the 30/70 allocation range in the accumulation phase? I have dialed back fairly quickly, from 60/40 to 40/60. I'm 6-10 years from retirement, with leaving my current job in 5 years and working part-time at something low-stress being more and more appealing.

Am likely to go to 30/70 very soon. My thinking is this: if a 30/70 portfolio performs as in the past, I'll be more than fine. If I get the equivalent of the current SEC yield of an intermediate TBM fund, I'll be okay.

Is 30/70 too conservative if retirement is possibly 5-6 years away (albeit with perhaps small-time, part-time work).

retiredjg
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Re: 30/70 in Accumulation Phase?

Post by retiredjg » Sat Jan 11, 2020 6:35 pm

Doesn't this depend on whether you have an almost adequate amount to retire on? If you need much growth, you will not get it from 30% stocks...unless the growth comes from saving a lot.

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bck63
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Re: 30/70 in Accumulation Phase?

Post by bck63 » Sat Jan 11, 2020 6:42 pm

retiredjg wrote:
Sat Jan 11, 2020 6:35 pm
Doesn't this depend on whether you have an almost adequate amount to retire on? If you need much growth, you will not get it from 30% stocks...unless the growth comes from saving a lot.
When you say I won't get much growth from 30% stocks...I know returns are expected to be muted, but in the past a 30/70 portfolio earned an average annual return of 7.1%. So the potential is there. I could manage on less though.

Including 3.5% employer match I save 38% of my gross income. I've crunched the numbers, have $310,000 saved, and can live on monthly withdrawals of about $1,100 when I factor in SS. I'd love to get out at 62. I'm saving about $2,300 a month.
Last edited by bck63 on Sat Jan 11, 2020 6:43 pm, edited 1 time in total.

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AerialWombat
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Re: 30/70 in Accumulation Phase?

Post by AerialWombat » Sat Jan 11, 2020 6:42 pm

bck63 wrote:
Sat Jan 11, 2020 6:33 pm
I'm just wondering if there is anyone who is in the 30/70 allocation range in the accumulation phase? I have dialed back fairly quickly, from 60/40 to 40/60. I'm 6-10 years from retirement, with leaving my current job in 5 years and working part-time at something low-stress being more and more appealing.

Am likely to go to 30/70 very soon. My thinking is this: if a 30/70 portfolio performs as in the past, I'll be more than fine. If I get the equivalent of the current SEC yield of an intermediate TBM fund, I'll be okay.

Is 30/70 too conservative if retirement is possibly 5-6 years away (albeit with perhaps small-time, part-time work).
I am a 30/70 player. Age 42, recently “semi-retired” but still accumulating. I chose 30/70 because:

-it’s the inflection point on the efficient frontier
-on the ERN rainbow chart, it hits 100% success at my SWR
-my savings rate is 77%
-i take plenty of risk elsewhere, in direct real estate and private equity
“Life doesn’t come with a warranty.” -Michael LeBoeuf

Triple digit golfer
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Re: 30/70 in Accumulation Phase?

Post by Triple digit golfer » Sat Jan 11, 2020 6:51 pm

bck63 wrote:
Sat Jan 11, 2020 6:33 pm
If I get the equivalent of the current SEC yield of an intermediate TBM fund, I'll be okay.
Why not go 100% bonds then, or maybe a very low amount of equities? You don't need to take risk if you can retire with a 0% real return. Why risk your portfolio losing 15% of its value at 30% equity? How detrimental would that be to your retirement plans and how flexible are you?


If retirement is 5-10 years away and you only need the return of the yield of a bond fund of similar duration, why not do it?

I know many may say that 20/80 is less volatile. Sure, maybe, but you likely won't lose 15% of your portfolio balance being 100% high quality intermediate term bonds. Maybe go to 20/80 or 30/70 once you're in retirement. Until you get there, I don't see anything wrong with minimal or no equity exposure if you don't need it.

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AndrewXnn
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Re: 30/70 in Accumulation Phase?

Post by AndrewXnn » Sat Jan 11, 2020 7:03 pm

As is commonly stated, past performance is no guarantee.

Interest rates have been significantly reduced over the last 30 years.
Real interest rates (after subtracting inflation) are near zero.
While some countries have adopted negative rates, this does not appear to be the policy in the US.

Future returns on Bonds will be near zero.
Qualified Nuclear Engineer & NYS Licensed Professional Engineer

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fishandgolf
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Re: 30/70 in Accumulation Phase?

Post by fishandgolf » Sat Jan 11, 2020 7:04 pm

bck63 wrote:
Sat Jan 11, 2020 6:33 pm
I'm just wondering if there is anyone who is in the 30/70 allocation range in the accumulation phase? I have dialed back fairly quickly, from 60/40 to 40/60. I'm 6-10 years from retirement, with leaving my current job in 5 years and working part-time at something low-stress being more and more appealing.

Am likely to go to 30/70 very soon. My thinking is this: if a 30/70 portfolio performs as in the past, I'll be more than fine. If I get the equivalent of the current SEC yield of an intermediate TBM fund, I'll be okay.

Is 30/70 too conservative if retirement is possibly 5-6 years away (albeit with perhaps small-time, part-time work).
I'm at 35/65.... We hit our number a few years ago. I was at 60/40 until October 2019. DW is ready to retire this year so her income will change to SS....got enough......don't need more risk...….

Financologist
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Re: 30/70 in Accumulation Phase?

Post by Financologist » Sat Jan 11, 2020 7:09 pm

If you won the game no need to play it anymore. On the back of this bull you could feel good about shifting to this mix even if the bull ends up running further.

Note that the back testing you referenced doesn't guarantee future returns of this portfolio mix.

Also, I know a lot of people thinking along the same lines. I am finding that fear of a major decline is driving some of this thinking. This becomes a form of market timing if it's not truly based on a change in your circumstances. So again if you've won the game then congratulations and get as conservative as you like. If this feels more like a fear-based decision then think twice.

Good luck!

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Re: 30/70 in Accumulation Phase?

Post by Grt2bOutdoors » Sat Jan 11, 2020 7:30 pm

If you’ve won the game, stop playing. Anything from 30/70 to 40/60 ought to work. I would not count on 7.1% returns for a low equity allocation. Long term bonds are yielding less than 3%, equities are expected to return 4-5%. I see your 30/70 portfolio returning maybe 4%.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

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Re: 30/70 in Accumulation Phase?

Post by retiredjg » Sat Jan 11, 2020 7:34 pm

Grt2bOutdoors wrote:
Sat Jan 11, 2020 7:30 pm
If you’ve won the game, stop playing. Anything from 30/70 to 40/60 ought to work. I would not count on 7.1% returns for a low equity allocation. Long term bonds are yielding less than 3%, equities are expected to return 4-5%. I see your 30/70 portfolio returning maybe 4%.
This is what I was thinking as well.

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Re: 30/70 in Accumulation Phase?

Post by dogagility » Sat Jan 11, 2020 7:45 pm

AerialWombat wrote:
Sat Jan 11, 2020 6:42 pm
I am a 30/70 player. Age 42, recently “semi-retired” but still accumulating. I chose 30/70 because:

-it’s the inflection point on the efficient frontier
I think the EF is at 70% stocks, not 70% bonds.
"The stock market is a device for transferring money from the impatient to the patient" -- Warren Buffett

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bck63
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Re: 30/70 in Accumulation Phase?

Post by bck63 » Sat Jan 11, 2020 7:49 pm

Grt2bOutdoors wrote:
Sat Jan 11, 2020 7:30 pm
If you’ve won the game, stop playing. Anything from 30/70 to 40/60 ought to work. I would not count on 7.1% returns for a low equity allocation. Long term bonds are yielding less than 3%, equities are expected to return 4-5%. I see your 30/70 portfolio returning maybe 4%.
Thanks. 4% would be outstanding.

retiredjg
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Re: 30/70 in Accumulation Phase?

Post by retiredjg » Sat Jan 11, 2020 8:00 pm

dogagility wrote:
Sat Jan 11, 2020 7:45 pm
AerialWombat wrote:
Sat Jan 11, 2020 6:42 pm
I am a 30/70 player. Age 42, recently “semi-retired” but still accumulating. I chose 30/70 because:

-it’s the inflection point on the efficient frontier
I think the EF is at 70% stocks, not 70% bonds.
I think there is one at both places. :D

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dogagility
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Re: 30/70 in Accumulation Phase?

Post by dogagility » Sat Jan 11, 2020 8:04 pm

retiredjg wrote:
Sat Jan 11, 2020 8:00 pm
dogagility wrote:
Sat Jan 11, 2020 7:45 pm
AerialWombat wrote:
Sat Jan 11, 2020 6:42 pm
I am a 30/70 player. Age 42, recently “semi-retired” but still accumulating. I chose 30/70 because:

-it’s the inflection point on the efficient frontier
I think the EF is at 70% stocks, not 70% bonds.
I think there is one at both places. :D
:sharebeer
There are many efficient frontiers making it of little value. http://proactiveadvisormagazine.com/the ... t-of-time/
"The stock market is a device for transferring money from the impatient to the patient" -- Warren Buffett

Razasharpz
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Re: 30/70 in Accumulation Phase?

Post by Razasharpz » Sat Jan 11, 2020 8:12 pm

30/70 good grief...

Even jack himself only did 50-50 in retirement.
Age 31: | 70% VTSAX | 20% VTIAX | 10% VBTLX

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bck63
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Re: 30/70 in Accumulation Phase?

Post by bck63 » Sat Jan 11, 2020 8:21 pm

Razasharpz wrote:
Sat Jan 11, 2020 8:12 pm
30/70 good grief...

Even jack himself only did 50-50 in retirement.
You're age 31. So you were 19 in 2008 and about 11 years old in 2000. Those were brutal times that you might not really understand, at a visceral level.

With a 50% stock allocation, one can lose 25% or more of their life savings. Could be devastating for many people, likely myself as well.

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calmaniac
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Re: 30/70 in Accumulation Phase?

Post by calmaniac » Sat Jan 11, 2020 10:16 pm

bck63 wrote:
Sat Jan 11, 2020 8:21 pm

You're age 31. So you were 19 in 2008 and about 11 years old in 2000. Those were brutal times that you might not really understand, at a visceral level.

With a 50% stock allocation, one can lose 25% or more of their life savings. Could be devastating for many people, likely myself as well.
I was 50 years old in 2008 and 42 in 2000. I was invested >90% equities at the time. A 30/70 asset allocation would be too risky for me in regard to its sub-par growth and poor returns. Right now I'm 62, working and allocated 70/30, and looking to go part time in the next 2 years and maintaining the 70/30 allocation ('til I raise it to 80/20 in 5-10 years). Making me go 30/70 would literally make my skin crawl. YMMV. It's called long-term buy and hold for a reason. :beer
Last edited by calmaniac on Sat Jan 11, 2020 10:50 pm, edited 2 times in total.

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305pelusa
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Re: 30/70 in Accumulation Phase?

Post by 305pelusa » Sat Jan 11, 2020 10:26 pm

bck63 wrote:
Sat Jan 11, 2020 8:21 pm
Razasharpz wrote:
Sat Jan 11, 2020 8:12 pm
30/70 good grief...

Even jack himself only did 50-50 in retirement.
You're age 31. So you were 19 in 2008 and about 11 years old in 2000. Those were brutal times that you might not really understand, at a visceral level.

With a 50% stock allocation, one can lose 25% or more of their life savings. Could be devastating for many people, likely myself as well.
A 30/70 allocation during accumulation is starting to be imprudent due to the large sequence of return risk you start to take on. You'd actually decrease your risk by using a glide path (say, start at 70/30 and ramp down to 10-20/90-80) instead of just a constant 30/70. You take on the same overall weighted stock market risk but are far more immunized against Bear markets like 2008.

Counterintuitive, I know.

jjface
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Re: 30/70 in Accumulation Phase?

Post by jjface » Sat Jan 11, 2020 11:32 pm

Well even though you have 5-6 yrs until retirement you don',t withdraw everything then. You still probbaly have 20-35 years investing left. So yes long term and able to withstand shocks. But if 30:70 is enough and helps you sleep at night it is fine. I'd still recommend something a little less extreme but still conservative since you have plenty of investing time.

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Re: 30/70 in Accumulation Phase?

Post by Call_Me_Op » Sun Jan 12, 2020 8:34 am

30/70 is fine if you have 50X or greater. It's easy to be tempted when the market just went up by 30% in the last year, but there will be painful down periods.
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein

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Re: 30/70 in Accumulation Phase?

Post by Call_Me_Op » Sun Jan 12, 2020 8:44 am

305pelusa wrote:
Sat Jan 11, 2020 10:26 pm
bck63 wrote:
Sat Jan 11, 2020 8:21 pm
Razasharpz wrote:
Sat Jan 11, 2020 8:12 pm
30/70 good grief...

Even jack himself only did 50-50 in retirement.
You're age 31. So you were 19 in 2008 and about 11 years old in 2000. Those were brutal times that you might not really understand, at a visceral level.

With a 50% stock allocation, one can lose 25% or more of their life savings. Could be devastating for many people, likely myself as well.
A 30/70 allocation during accumulation is starting to be imprudent due to the large sequence of return risk you start to take on. You'd actually decrease your risk by using a glide path (say, start at 70/30 and ramp down to 10-20/90-80) instead of just a constant 30/70. You take on the same overall weighted stock market risk but are far more immunized against Bear markets like 2008.

Counterintuitive, I know.
Yes, very counterintuitive - to the point I don't buy it. He already has way more than enough. How is he in danger from sequence-of-returns risk?
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein

chevca
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Re: 30/70 in Accumulation Phase?

Post by chevca » Sun Jan 12, 2020 10:15 am

bck63 wrote:
Sat Jan 11, 2020 6:42 pm
When you say I won't get much growth from 30% stocks...I know returns are expected to be muted, but in the past a 30/70 portfolio earned an average annual return of 7.1%. So the potential is there. I could manage on less though.
"The past" was really good for bonds, as least from the high inflation 70s/80s to roughly 2010. If you're using those past number to figure you're good or okay being mostly bonds, that may not be a good plan.

If 30/70 would make you sleep better though, go for it. That's all that really counts. Do what's best for you, not what others do or past performance or anything.

chevca
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Re: 30/70 in Accumulation Phase?

Post by chevca » Sun Jan 12, 2020 10:18 am

Plus, while technically still accumulating or adding to your portfolio, you're past the accumulation phase, IMO. You're in the 'I have enough and want to keep most of what I have while still adding some' phase... but, that's too long and boring to say. :happy

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bck63
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Re: 30/70 in Accumulation Phase?

Post by bck63 » Sun Jan 12, 2020 10:29 am

chevca wrote:
Sun Jan 12, 2020 10:15 am
bck63 wrote:
Sat Jan 11, 2020 6:42 pm
When you say I won't get much growth from 30% stocks...I know returns are expected to be muted, but in the past a 30/70 portfolio earned an average annual return of 7.1%. So the potential is there. I could manage on less though.
"The past" was really good for bonds, as least from the high inflation 70s/80s to roughly 2010. If you're using those past number to figure you're good or okay being mostly bonds, that may not be a good plan.

If 30/70 would make you sleep better though, go for it. That's all that really counts. Do what's best for you, not what others do or past performance or anything.
Thanks for both your posts. For planning I use the current SEC yield of a TBM index fund. :happy

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305pelusa
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Re: 30/70 in Accumulation Phase?

Post by 305pelusa » Sun Jan 12, 2020 10:36 am

Call_Me_Op wrote:
Sun Jan 12, 2020 8:44 am
305pelusa wrote:
Sat Jan 11, 2020 10:26 pm
bck63 wrote:
Sat Jan 11, 2020 8:21 pm
Razasharpz wrote:
Sat Jan 11, 2020 8:12 pm
30/70 good grief...

Even jack himself only did 50-50 in retirement.
You're age 31. So you were 19 in 2008 and about 11 years old in 2000. Those were brutal times that you might not really understand, at a visceral level.

With a 50% stock allocation, one can lose 25% or more of their life savings. Could be devastating for many people, likely myself as well.
A 30/70 allocation during accumulation is starting to be imprudent due to the large sequence of return risk you start to take on. You'd actually decrease your risk by using a glide path (say, start at 70/30 and ramp down to 10-20/90-80) instead of just a constant 30/70. You take on the same overall weighted stock market risk but are far more immunized against Bear markets like 2008.

Counterintuitive, I know.
Yes, very counterintuitive - to the point I don't buy it. He already has way more than enough. How is he in danger from sequence-of-returns risk?
I must’ve missed the post where he said he had “way more than enough”. All I saw is that he has 310k and “could live” with 1.1k a month (13.2k a year). That comes out to 4.25% withdrawal rate, which is pushing it for a potentially 33-38 year retirement. And that’s at a “could live”, minimal level. I’d assume OP might want a little more income. Correct me if I misread some of these numbers please.

So clearly OP must save more. And he IS doing that. Whenever you have future savings contributions, you reduce your risk to sequence of returns by using a glide path. OP right now is susceptible to the market staying at records highs for the last 6 years of accumulation, and then plummeting right at retirement. Investing more than 30/70 now and less than 30/70 by retirement in a glide path immunized against that.

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goingup
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Re: 30/70 in Accumulation Phase?

Post by goingup » Sun Jan 12, 2020 10:46 am

bck63 wrote:
Sat Jan 11, 2020 6:33 pm
Is 30/70 too conservative if retirement is possibly 5-6 years away (albeit with perhaps small-time, part-time work).
I think so. The Vanguard TR 2025 is 65/35 and the TR 2030 is 75/25. Even as a rough guide the message is clear---be equity heavy at this age.

My suggestion would be stay at 50/50, save more, and don't stare at your portfolio balance. Are you sure you have enough to be so conservative at such a young age?

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bck63
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Re: 30/70 in Accumulation Phase?

Post by bck63 » Sun Jan 12, 2020 10:47 am

305pelusa wrote:
Sun Jan 12, 2020 10:36 am
Call_Me_Op wrote:
Sun Jan 12, 2020 8:44 am
305pelusa wrote:
Sat Jan 11, 2020 10:26 pm
bck63 wrote:
Sat Jan 11, 2020 8:21 pm
Razasharpz wrote:
Sat Jan 11, 2020 8:12 pm
30/70 good grief...

Even jack himself only did 50-50 in retirement.
You're age 31. So you were 19 in 2008 and about 11 years old in 2000. Those were brutal times that you might not really understand, at a visceral level.

With a 50% stock allocation, one can lose 25% or more of their life savings. Could be devastating for many people, likely myself as well.
A 30/70 allocation during accumulation is starting to be imprudent due to the large sequence of return risk you start to take on. You'd actually decrease your risk by using a glide path (say, start at 70/30 and ramp down to 10-20/90-80) instead of just a constant 30/70. You take on the same overall weighted stock market risk but are far more immunized against Bear markets like 2008.

Counterintuitive, I know.
Yes, very counterintuitive - to the point I don't buy it. He already has way more than enough. How is he in danger from sequence-of-returns risk?
I must’ve missed the post where he said he had “way more than enough”. All I saw is that he has 310k and “could live” with 1.1k a month (13.2k a year). That comes out to 4.25% withdrawal rate, which is pushing it for a potentially 33-38 year retirement. And that’s at a “could live”, minimal level. I’d assume OP might want a little more income. Correct me if I misread some of these numbers please.

So clearly OP must save more. And he IS doing that. Whenever you have future savings contributions, you reduce your risk to sequence of returns by using a glide path. OP right now is susceptible to the market staying at records highs for the last 6 years of accumulation, and then plummeting right at retirement. Investing more than 30/70 now and less than 30/70 by retirement in a glide path immunized against that.
Thank you very much. And yes I'm saving about 38% of my salary, including employer 3.5% match. Question. In your last paragraph, do you think a 30/70 current allocation is wise or unwise? Thanks again.

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305pelusa
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Re: 30/70 in Accumulation Phase?

Post by 305pelusa » Sun Jan 12, 2020 10:54 am

bck63 wrote:
Sun Jan 12, 2020 10:47 am
305pelusa wrote:
Sun Jan 12, 2020 10:36 am
Call_Me_Op wrote:
Sun Jan 12, 2020 8:44 am
305pelusa wrote:
Sat Jan 11, 2020 10:26 pm
bck63 wrote:
Sat Jan 11, 2020 8:21 pm


You're age 31. So you were 19 in 2008 and about 11 years old in 2000. Those were brutal times that you might not really understand, at a visceral level.

With a 50% stock allocation, one can lose 25% or more of their life savings. Could be devastating for many people, likely myself as well.
A 30/70 allocation during accumulation is starting to be imprudent due to the large sequence of return risk you start to take on. You'd actually decrease your risk by using a glide path (say, start at 70/30 and ramp down to 10-20/90-80) instead of just a constant 30/70. You take on the same overall weighted stock market risk but are far more immunized against Bear markets like 2008.

Counterintuitive, I know.
Yes, very counterintuitive - to the point I don't buy it. He already has way more than enough. How is he in danger from sequence-of-returns risk?
I must’ve missed the post where he said he had “way more than enough”. All I saw is that he has 310k and “could live” with 1.1k a month (13.2k a year). That comes out to 4.25% withdrawal rate, which is pushing it for a potentially 33-38 year retirement. And that’s at a “could live”, minimal level. I’d assume OP might want a little more income. Correct me if I misread some of these numbers please.

So clearly OP must save more. And he IS doing that. Whenever you have future savings contributions, you reduce your risk to sequence of returns by using a glide path. OP right now is susceptible to the market staying at records highs for the last 6 years of accumulation, and then plummeting right at retirement. Investing more than 30/70 now and less than 30/70 by retirement in a glide path immunized against that.
Thank you very much. And yes I'm saving about 38% of my salary, including employer 3.5% match. Question. In your last paragraph, do you think a 30/70 current allocation is wise or unwise? Thanks again.
With the glide path recommendation out of the way, as for what allocation one can use, 30/70 is probably as low as I would ever go. Stocks provide valuable long term inflation protection. Plus, they provide returns in the face of potentially low and negative real returns. Which is a possibility during your retirement. In other words, bonds have their own risks and I would be uncomfortable concentrating so much on them. The safe withdrawal rate of the Trinity study begins to dip below 4% at very low stock allocations.

If I were you, I would up my allocation somewhat now and then glide down to the 30/70.

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bck63
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Re: 30/70 in Accumulation Phase?

Post by bck63 » Sun Jan 12, 2020 11:00 am

305pelusa wrote:
Sun Jan 12, 2020 10:54 am
bck63 wrote:
Sun Jan 12, 2020 10:47 am
305pelusa wrote:
Sun Jan 12, 2020 10:36 am
Call_Me_Op wrote:
Sun Jan 12, 2020 8:44 am
305pelusa wrote:
Sat Jan 11, 2020 10:26 pm


A 30/70 allocation during accumulation is starting to be imprudent due to the large sequence of return risk you start to take on. You'd actually decrease your risk by using a glide path (say, start at 70/30 and ramp down to 10-20/90-80) instead of just a constant 30/70. You take on the same overall weighted stock market risk but are far more immunized against Bear markets like 2008.

Counterintuitive, I know.
Yes, very counterintuitive - to the point I don't buy it. He already has way more than enough. How is he in danger from sequence-of-returns risk?
I must’ve missed the post where he said he had “way more than enough”. All I saw is that he has 310k and “could live” with 1.1k a month (13.2k a year). That comes out to 4.25% withdrawal rate, which is pushing it for a potentially 33-38 year retirement. And that’s at a “could live”, minimal level. I’d assume OP might want a little more income. Correct me if I misread some of these numbers please.

So clearly OP must save more. And he IS doing that. Whenever you have future savings contributions, you reduce your risk to sequence of returns by using a glide path. OP right now is susceptible to the market staying at records highs for the last 6 years of accumulation, and then plummeting right at retirement. Investing more than 30/70 now and less than 30/70 by retirement in a glide path immunized against that.
Thank you very much. And yes I'm saving about 38% of my salary, including employer 3.5% match. Question. In your last paragraph, do you think a 30/70 current allocation is wise or unwise? Thanks again.
With the glide path recommendation out of the way, as for what allocation one can use, 30/70 is probably as low as I would ever go. Stocks provide valuable long term inflation protection. Plus, they provide returns in the face of potentially low and negative real returns. Which is a possibility during your retirement. In other words, bonds have their own risks and I would be uncomfortable concentrating so much on them. The safe withdrawal rate of the Trinity study begins to dip below 4% at very low stock allocations.

If I were you, I would up my allocation somewhat now and then glide down to the 30/70.
Thank you. I'm currently 40/60 and could stay there. I'm uncomfortable with a 20% loss of my current savings but I think I need to re-adjust my thinking and just try and tough it out. Funny, in 2008 I really didn't even look at my (very modest) investments.

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305pelusa
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Re: 30/70 in Accumulation Phase?

Post by 305pelusa » Sun Jan 12, 2020 11:13 am

bck63 wrote:
Sun Jan 12, 2020 11:00 am
305pelusa wrote:
Sun Jan 12, 2020 10:54 am
bck63 wrote:
Sun Jan 12, 2020 10:47 am
305pelusa wrote:
Sun Jan 12, 2020 10:36 am
Call_Me_Op wrote:
Sun Jan 12, 2020 8:44 am


Yes, very counterintuitive - to the point I don't buy it. He already has way more than enough. How is he in danger from sequence-of-returns risk?
I must’ve missed the post where he said he had “way more than enough”. All I saw is that he has 310k and “could live” with 1.1k a month (13.2k a year). That comes out to 4.25% withdrawal rate, which is pushing it for a potentially 33-38 year retirement. And that’s at a “could live”, minimal level. I’d assume OP might want a little more income. Correct me if I misread some of these numbers please.

So clearly OP must save more. And he IS doing that. Whenever you have future savings contributions, you reduce your risk to sequence of returns by using a glide path. OP right now is susceptible to the market staying at records highs for the last 6 years of accumulation, and then plummeting right at retirement. Investing more than 30/70 now and less than 30/70 by retirement in a glide path immunized against that.
Thank you very much. And yes I'm saving about 38% of my salary, including employer 3.5% match. Question. In your last paragraph, do you think a 30/70 current allocation is wise or unwise? Thanks again.
With the glide path recommendation out of the way, as for what allocation one can use, 30/70 is probably as low as I would ever go. Stocks provide valuable long term inflation protection. Plus, they provide returns in the face of potentially low and negative real returns. Which is a possibility during your retirement. In other words, bonds have their own risks and I would be uncomfortable concentrating so much on them. The safe withdrawal rate of the Trinity study begins to dip below 4% at very low stock allocations.

If I were you, I would up my allocation somewhat now and then glide down to the 30/70.
Thank you. I'm currently 40/60 and could stay there. I'm uncomfortable with a 20% loss of my current savings but I think I need to re-adjust my thinking and just try and tough it out. Funny, in 2008 I really didn't even look at my (very modest) investments.
I mean you’ll have to pick your poison. Using a glide path would increase the potential losses of your current savings, but it will reduce your lifetime risk (less uncertainty of your terminal wealth before retirement). Personally, that’s a good trade off for me. It will feel like you’re investing more in the market than you want but it’s not actually that risky because you have an income (that acts like a “bond” so to speak).

Staying 40/60 now and gliding down to 30/70 might be a reasonable compromise. But do realize that by saving 2100 a month (that’s 151000 over the next 6 years), a sizable amount of your estate is in this human capital bond that is hopefully fairly safe and secure. So you could be quite aggressive with your savings and still be ok for retirement. So anything above 40/60 right now is a step in the right direction. You’ll have to balance your emotions with the marh

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Re: 30/70 in Accumulation Phase?

Post by Triple digit golfer » Sun Jan 12, 2020 11:28 am

bck63 wrote:
Sun Jan 12, 2020 11:00 am
Thank you. I'm currently 40/60 and could stay there. I'm uncomfortable with a 20% loss of my current savings but I think I need to re-adjust my thinking and just try and tough it out. Funny, in 2008 I really didn't even look at my (very modest) investments.
I think this is a terrible idea. If you are uncomfortable with a 20% loss, then you should not hold 40% equities. You say you could stay there. That is in conflict with "I'm uncomfortable with a 20% loss of my current savings."

You say you have enough that if you simply earn the current yield in intermediate term bonds, you'll be fine. So why risk the other 40% of your portfolio when you don't have the need?

Risk should be taken based on need, willingness, and ability.

Need: No.
Willingness: Debatable; you seem uneasy.
Ability: Again, debatable. If the market dropped 25% and your portfolio went down 10%, the news headlines were all doom and gloom, bears are coming, 2008 is repeating, would you be able to sell bonds and rebalance into equity to go back up to 40%? It seems highly unlikely that you would.

You are very close to winning the game, needing only a 0% real return over the next 6-10 years. Why take risk with 40% of your portfolio?

Once you get to the point where you are retired and can live on a reasonable withdrawal rate, then I'd maybe go back up to 20-30% equities. For now, why not just get to that point? It sounds counterintuitive, and maybe it is. To me, you have the luxury to just coast into retirement with minimal or no risk, then reevaluate what you want your retirement portfolio to be.

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Re: 30/70 in Accumulation Phase?

Post by bck63 » Sun Jan 12, 2020 12:12 pm

Triple digit golfer wrote:
Sun Jan 12, 2020 11:28 am
bck63 wrote:
Sun Jan 12, 2020 11:00 am
Thank you. I'm currently 40/60 and could stay there. I'm uncomfortable with a 20% loss of my current savings but I think I need to re-adjust my thinking and just try and tough it out. Funny, in 2008 I really didn't even look at my (very modest) investments.
I think this is a terrible idea. If you are uncomfortable with a 20% loss, then you should not hold 40% equities. You say you could stay there. That is in conflict with "I'm uncomfortable with a 20% loss of my current savings."

You say you have enough that if you simply earn the current yield in intermediate term bonds, you'll be fine. So why risk the other 40% of your portfolio when you don't have the need?

Risk should be taken based on need, willingness, and ability.

Need: No.
Willingness: Debatable; you seem uneasy.
Ability: Again, debatable. If the market dropped 25% and your portfolio went down 10%, the news headlines were all doom and gloom, bears are coming, 2008 is repeating, would you be able to sell bonds and rebalance into equity to go back up to 40%? It seems highly unlikely that you would.

You are very close to winning the game, needing only a 0% real return over the next 6-10 years. Why take risk with 40% of your portfolio?

Once you get to the point where you are retired and can live on a reasonable withdrawal rate, then I'd maybe go back up to 20-30% equities. For now, why not just get to that point? It sounds counterintuitive, and maybe it is. To me, you have the luxury to just coast into retirement with minimal or no risk, then reevaluate what you want your retirement portfolio to be.
Tdg - thanks for taking the time to respond again. I hear you. Question: What if I'm not comfortable with 100% bonds? What might be a reasonable equity allocation? I'm sure I'm the one who has to answer that, but your further thoughts would be appreciated.

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Re: 30/70 in Accumulation Phase?

Post by Triple digit golfer » Sun Jan 12, 2020 12:21 pm

bck63 wrote:
Sun Jan 12, 2020 12:12 pm
Triple digit golfer wrote:
Sun Jan 12, 2020 11:28 am
bck63 wrote:
Sun Jan 12, 2020 11:00 am
Thank you. I'm currently 40/60 and could stay there. I'm uncomfortable with a 20% loss of my current savings but I think I need to re-adjust my thinking and just try and tough it out. Funny, in 2008 I really didn't even look at my (very modest) investments.
I think this is a terrible idea. If you are uncomfortable with a 20% loss, then you should not hold 40% equities. You say you could stay there. That is in conflict with "I'm uncomfortable with a 20% loss of my current savings."

You say you have enough that if you simply earn the current yield in intermediate term bonds, you'll be fine. So why risk the other 40% of your portfolio when you don't have the need?

Risk should be taken based on need, willingness, and ability.

Need: No.
Willingness: Debatable; you seem uneasy.
Ability: Again, debatable. If the market dropped 25% and your portfolio went down 10%, the news headlines were all doom and gloom, bears are coming, 2008 is repeating, would you be able to sell bonds and rebalance into equity to go back up to 40%? It seems highly unlikely that you would.

You are very close to winning the game, needing only a 0% real return over the next 6-10 years. Why take risk with 40% of your portfolio?

Once you get to the point where you are retired and can live on a reasonable withdrawal rate, then I'd maybe go back up to 20-30% equities. For now, why not just get to that point? It sounds counterintuitive, and maybe it is. To me, you have the luxury to just coast into retirement with minimal or no risk, then reevaluate what you want your retirement portfolio to be.
Tdg - thanks for taking the time to respond again. I hear you. Question: What if I'm not comfortable with 100% bonds? What might be a reasonable equity allocation? I'm sure I'm the one who has to answer that, but your further thoughts would be appreciated.
First, I'm 34 year old accumulator, so take my advice with a grain of salt.

In my opinion, logically speaking, if you're not comfortable at 40% and not comfortable at 0%, perhaps a good equity allocation is 20%. But ask yourself what you'd do if it drops 25%, your portfolio drops 5%, and the news is all doom and gloom and it feels like 2008 all over again. Would you "cut your losses" and sell your remaining equity? Would you rebalance by buying more? Would you do nothing and let it all ride?

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Re: 30/70 in Accumulation Phase?

Post by Wiggums » Sun Jan 12, 2020 12:48 pm

Your savings rate is very good. I personally think it would be fine to continue with you current AA of 40/60. Especially since you are still working. I don’t think it would be the end of the world to go to 30/70 if you can’t sleep. I would not go any lower. That mean you need to try not to worry about the market going up and down in retirement, because it will.

I had a coworker who wanted zero risk, so he had zero stock. Stable value was his only friend. Everyone has a different risk tolerance. You are doing so much better than my coworker.

Good luck to you.

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Re: 30/70 in Accumulation Phase?

Post by AerialWombat » Sun Jan 12, 2020 1:04 pm

bck63 wrote:
Sun Jan 12, 2020 12:12 pm
What if I'm not comfortable with 100% bonds? What might be a reasonable equity allocation? I'm sure I'm the one who has to answer that, but your further thoughts would be appreciated.
This is the ERN rainbow chart I referenced earlier. 30/70 is perfectly fine if your withdrawal rate is reasonable. No need to overthink this.

Percentages in the chart are the probability of “success”, meaning not running out of money, based on Monte Carlo historical backtesting. Yes, the future can be different, etc.

Image
Last edited by AerialWombat on Sun Jan 12, 2020 1:10 pm, edited 1 time in total.
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Re: 30/70 in Accumulation Phase?

Post by JakeyLee » Sun Jan 12, 2020 1:07 pm

Maybe this is a dumb question... Why not just go 100% Wellesley, and be done with it? Set and forget. Can anyone tell me if this would be a bad idea, say for the OP, who is considering going 30/70?

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Re: 30/70 in Accumulation Phase?

Post by AerialWombat » Sun Jan 12, 2020 1:11 pm

JakeyLee wrote:
Sun Jan 12, 2020 1:07 pm
Maybe this is a dumb question... Why not just go 100% Wellesley, and be done with it? Set and forget. Can anyone tell me if this would be a bad idea, say for the OP, who is considering going 30/70?
This has become my solution, more or less. My 401k is 100% Wellesley.
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Re: 30/70 in Accumulation Phase?

Post by mikeyzito22 » Sun Jan 12, 2020 1:20 pm

Grt2bOutdoors wrote:
Sat Jan 11, 2020 7:30 pm
If you’ve won the game, stop playing. Anything from 30/70 to 40/60 ought to work. I would not count on 7.1% returns for a low equity allocation. Long term bonds are yielding less than 3%, equities are expected to return 4-5%. I see your 30/70 portfolio returning maybe 4%.
I find different returns moving forward. I know no one knows anything, but we are at a demographic shift wherein Millenials are starting to invest. We could be on an exponential move forward for the next few years after 2000-2008 being return neutral. Why wouldn't we be bullish, especially after the downturn in Q4 2018? I would expect more than a 4-5% equity return in the next few years. Again, no nobody knows nothing, but the fact that Vanguard and others keep "predicting 4-5% returns" just means if it's higher then they are not in the wrong.

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Re: 30/70 in Accumulation Phase?

Post by BalancedJCB19 » Sun Jan 12, 2020 4:41 pm

JakeyLee wrote:
Sun Jan 12, 2020 1:07 pm
Maybe this is a dumb question... Why not just go 100% Wellesley, and be done with it? Set and forget. Can anyone tell me if this would be a bad idea, say for the OP, who is considering going 30/70?
Nothing wrong at all. I'm personally a fan of the 60/40 Vanguard Balanced Fund for life!! I have been doing this a long time and it works wonderfully!!

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Re: 30/70 in Accumulation Phase?

Post by Grt2bOutdoors » Sun Jan 12, 2020 10:16 pm

mikeyzito22 wrote:
Sun Jan 12, 2020 1:20 pm
Grt2bOutdoors wrote:
Sat Jan 11, 2020 7:30 pm
If you’ve won the game, stop playing. Anything from 30/70 to 40/60 ought to work. I would not count on 7.1% returns for a low equity allocation. Long term bonds are yielding less than 3%, equities are expected to return 4-5%. I see your 30/70 portfolio returning maybe 4%.
I find different returns moving forward. I know no one knows anything, but we are at a demographic shift wherein Millenials are starting to invest. We could be on an exponential move forward for the next few years after 2000-2008 being return neutral. Why wouldn't we be bullish, especially after the downturn in Q4 2018? I would expect more than a 4-5% equity return in the next few years. Again, no nobody knows nothing, but the fact that Vanguard and others keep "predicting 4-5% returns" just means if it's higher then they are not in the wrong.
Millennial investing would not be the reason for equity prices to rise. Earnings growth/decline will drive it. I don't base my estimates on speculative return of a certain generational cohort investing. As it is, one could say that certain sectors are priced for perfection, should there be a hiccup, no amount of millennial investing is going to move prices upwards. Another thing, far better to be conservative than to reach for it and find yourself flat on your face.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

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Re: 30/70 in Accumulation Phase?

Post by mikeyzito22 » Sun Jan 12, 2020 10:23 pm

Grt2bOutdoors wrote:
Sun Jan 12, 2020 10:16 pm
mikeyzito22 wrote:
Sun Jan 12, 2020 1:20 pm
Grt2bOutdoors wrote:
Sat Jan 11, 2020 7:30 pm
If you’ve won the game, stop playing. Anything from 30/70 to 40/60 ought to work. I would not count on 7.1% returns for a low equity allocation. Long term bonds are yielding less than 3%, equities are expected to return 4-5%. I see your 30/70 portfolio returning maybe 4%.
I find different returns moving forward. I know no one knows anything, but we are at a demographic shift wherein Millenials are starting to invest. We could be on an exponential move forward for the next few years after 2000-2008 being return neutral. Why wouldn't we be bullish, especially after the downturn in Q4 2018? I would expect more than a 4-5% equity return in the next few years. Again, no nobody knows nothing, but the fact that Vanguard and others keep "predicting 4-5% returns" just means if it's higher then they are not in the wrong.
Millennial investing would not be the reason for equity prices to rise. Earnings growth/decline will drive it. I don't base my estimates on speculative return of a certain generational cohort investing. As it is, one could say that certain sectors are priced for perfection, should there be a hiccup, no amount of millennial investing is going to move prices upwards. Another thing, far better to be conservative than to reach for it and find yourself flat on your face.
Absolutely! I couldn't agree more. I love that comment. "Better to be conservative than to find yourself flat on your face." Although no one knows where the market is headed, we can both agree that a prudent allocation can be stalwart and also forward-thinking.

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Re: 30/70 in Accumulation Phase?

Post by tennisplyr » Mon Jan 13, 2020 8:57 am

Why not run these 2 scenarios through this simulator and see if it meets your needs.

www.portfoliovisualizer.com
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Re: 30/70 in Accumulation Phase?

Post by wolf359 » Mon Jan 13, 2020 9:11 am

bck63 wrote:
Sat Jan 11, 2020 6:42 pm
retiredjg wrote:
Sat Jan 11, 2020 6:35 pm
Doesn't this depend on whether you have an almost adequate amount to retire on? If you need much growth, you will not get it from 30% stocks...unless the growth comes from saving a lot.
When you say I won't get much growth from 30% stocks...I know returns are expected to be muted, but in the past a 30/70 portfolio earned an average annual return of 7.1%. So the potential is there. I could manage on less though.

Including 3.5% employer match I save 38% of my gross income. I've crunched the numbers, have $310,000 saved, and can live on monthly withdrawals of about $1,100 when I factor in SS. I'd love to get out at 62. I'm saving about $2,300 a month.
Just curious -- How does your plan hold up if Social Security takes a 25% haircut? What about if inflation starts rising again? What if both happen simultaneously?

I believe 30% stocks should allow your portfolio to keep up with inflation, but just barely. Social Security is projecting a 20-25% cut if there is no action by Congress/President by 2030-35. If you face this 10-15 years after retiring, you probably will just have to roll with it. Is there sufficient margin of safety to do so?

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Re: 30/70 in Accumulation Phase?

Post by CyclingDuo » Mon Jan 13, 2020 9:20 am

bck63 wrote:
Sat Jan 11, 2020 6:33 pm
I'm just wondering if there is anyone who is in the 30/70 allocation range in the accumulation phase? I have dialed back fairly quickly, from 60/40 to 40/60. I'm 6-10 years from retirement, with leaving my current job in 5 years and working part-time at something low-stress being more and more appealing.

Am likely to go to 30/70 very soon. My thinking is this: if a 30/70 portfolio performs as in the past, I'll be more than fine. If I get the equivalent of the current SEC yield of an intermediate TBM fund, I'll be okay.

Is 30/70 too conservative if retirement is possibly 5-6 years away (albeit with perhaps small-time, part-time work).
A view worth reading. Asset Allocation, Years in the Accumulation Phase, Years in the Retirement Phase, % of replacement income in retirement, and safe minimum saving rate for the number of years one has to work with is covered in Wade Pfau's research:

https://www.onefpa.org/journal/Pages/Sa ... Cycle.aspx

Image

30/70 is not covered, but the view from 40/60 certainly is worth viewing in Wade's research.
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Re: 30/70 in Accumulation Phase?

Post by CWRadio » Mon Jan 13, 2020 1:32 pm

You may find this article from Rick Ferri interesting.
The Center Of Gravity For Retirees
https://www.forbes.com/sites/rickferri/ ... c87cc25dae
Paul

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Re: 30/70 in Accumulation Phase?

Post by rkhusky » Mon Jan 13, 2020 1:50 pm

JakeyLee wrote:
Sun Jan 12, 2020 1:07 pm
Maybe this is a dumb question... Why not just go 100% Wellesley, and be done with it? Set and forget. Can anyone tell me if this would be a bad idea, say for the OP, who is considering going 30/70?
Wellesley is 40/60 and not very diversified (Large Value mostly-US stocks and Corporate bonds). It is also not tax efficient, if you are investing in a taxable account. Vanguard Target Retirement Income is 30/70 and well-diversified, so also set it and forget it.

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Re: 30/70 in Accumulation Phase?

Post by bck63 » Mon Jan 13, 2020 2:17 pm

wolf359 wrote:
Mon Jan 13, 2020 9:11 am
Just curious -- How does your plan hold up if Social Security takes a 25% haircut?
It doesn't. I'd have to go back to work. Or, I could work longer now in anticipation thereof.

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Re: 30/70 in Accumulation Phase?

Post by wolf359 » Tue Jan 14, 2020 8:59 am

bck63 wrote:
Mon Jan 13, 2020 2:17 pm
wolf359 wrote:
Mon Jan 13, 2020 9:11 am
Just curious -- How does your plan hold up if Social Security takes a 25% haircut?
It doesn't. I'd have to go back to work. Or, I could work longer now in anticipation thereof.
If you're that close to the margins, then I'd suggest working beyond 62. Both of the scenarios I posed are very likely.

We've been at historic lows for inflation. If you have a hopefully long and prosperous retirement, then inflation is likely to return in the next 30-40+ years.

The Social Security Trustees report already projects a 20-25% reduction in benefits. Returning to work in 15 years is probably tougher than just working longer now. Working longer has another benefit -- your Social Security benefit goes up as you work. You both claim later, and earnings get added to the payout.

It's a good idea to stress test your retirement plan and build in margins of safety BEFORE you retire and lose your ability to make any changes.

Also, be mentally prepared for your bonds to lose money when interest rates go back up. While the smaller amount that they fluctuate makes much more stable than stocks, they can and do lose money from time to time. It sounds like you have a high bond position because you're really sensitive to losses. Don't be alarmed if you see bonds lose money, too.

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Re: 30/70 in Accumulation Phase?

Post by Sandi_k » Tue Jan 14, 2020 12:16 pm

AerialWombat wrote:
Sun Jan 12, 2020 1:04 pm

This is the ERN rainbow chart I referenced earlier. 30/70 is perfectly fine if your withdrawal rate is reasonable. No need to overthink this.

Percentages in the chart are the probability of “success”, meaning not running out of money, based on Monte Carlo historical backtesting. Yes, the future can be different, etc.

Image
But 30/70 is NOT perfectly fine if his withdrawal rate is 4.25% as noted in an earlier post. And it is NOT fine if/when SocSec takes a dive in benefits, circa 2035. (Open Social Security assumes a 23% reduction in benefits, FYI).

If the OP is unwilling to reallocate the current portfolio...what about directing new funds into something like VTI and BND, at a 50/50 split? This means the new money (which will be spent, presumably, in your later retirement, once it's had a chance to compound) will be more like the Bogle retirement plan of 50/50 - but the funds needed more immediately are "safer" allocation ratios?

I understand that it's merely mental math - but if it helps the OP deal with the behavioral flaws he's evidencing, that might be one approach that could split the investing hair...

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Re: 30/70 in Accumulation Phase?

Post by Johnsson » Tue Jan 14, 2020 12:39 pm

There has been a lot of discussion of percentages and how you'll feel if the market drops, but not dollars and cents.

I suggest putting your information into the extended I-ORP... https://www.i-orp.com/TaxRepeal/extended.html and see what you learn. You can change percentages and see what you'll be comfortable with. It works from 'average' market increases. There's also a Monte Carlo option to see further possibilities.

Have you looked at Firecalc to see how historic markets would have worked out (as you vary percentages)?… https://firecalc.com/

Another way to look at the numbers is with RPM... https://www.bogleheads.org/wiki/Retiree_Portfolio_Model

These sites require varying amount of work on your part, but, I think you need to see the numbers to get a real feel for your chance of success. You're close enough to retirement that you need to start developing a tactical plan you're comfortable with.
'In theory there is no difference between theory and practice. In practice there is.' Yogi Berra

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