My Pension will not have COLA. Plz suggest a Portfolio to act as my COLA

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BernardShakey
Posts: 477
Joined: Tue Jun 25, 2019 10:52 pm
Location: CA

Re: My Pension will not have COLA. Plz suggest a Portfolio to act as my COLA

Post by BernardShakey »

JoeRetire wrote: Tue Nov 23, 2021 7:13 am
BernardShakey wrote: Mon Nov 22, 2021 11:44 pm
JoeRetire wrote: Mon Nov 22, 2021 11:18 am
TomatoTomahto wrote: Mon Nov 22, 2021 9:24 am
JoeRetire wrote: Mon Nov 22, 2021 8:16 am I know it often isn't received well here, but working longer is a good solution for a lot of financial problems. Many times it's far more effective than any wacky investment/withdrawal strategy.
It saddens me that so many people here can’t seem to wait to retire, even if the numbers are thin. I can understand it in some cases, but we were lucky enough to get satisfaction from work and I’d wish that for everyone.
Agreed, although I suspect some of that is more of a "let's see who can retire soonest" humblebrag thing here that doesn't represent the wider community of working people.

I like to enjoy every year - those when working, and those when retired. I thoroughly enjoyed my careers. I worked hard, I was well compensated in both salary, and a sense of accomplishment and satisfaction. At the same time, I thoroughly enjoyed my family life as well. Life is good!

I feel bad for those who can't seem to do both. Maybe it's luck. Maybe there are other factors involved.
Hmm, you seem to be implying the OP isn't also balancing a great career and life balance.
I didn't imply that about the OP at all. I wasn't talking about the OP with those comments. It was in response to the "It saddens me that so many people here can’t seem to wait to retire, even if the numbers are thin." Sorry if that was confusing. Sometimes nested comments like we have in this forum can be hard for people to follow.
Gotcha, thanks for pointing that out.
An important key to investing is having a well-calibrated sense of your future regret.
TN_Boy
Posts: 2472
Joined: Sat Jan 17, 2009 12:51 pm

Re: My Pension will not have COLA. Plz suggest a Portfolio to act as my COLA

Post by TN_Boy »

grok87 wrote: Tue Nov 23, 2021 9:18 am
JoeRetire wrote: Tue Nov 23, 2021 7:08 am
grok87 wrote: Mon Nov 22, 2021 10:24 pm 1) consider Social Security to be your COLA'd pension and supplement as needed with TIPS and Ibonds.
OP: "I won't have anything much in SS, if at all."

So, lots of TIPS and iBonds?
thanks, i had missed that in the OP.
yes, if anything that would lead me to double down on my suggestion.
cheers,
grok
It seems hard to make a portfolio recommendation without knowing what the OP's expenses are, how much of those expenses will be covered by the pension upon retirement, and whether the SS is truly nothing/insignificant (even if OP waits until 70 to claim), or say 10 to 20% of yearly expenses. And how big the portfolio is.

Among other things, a portfolio heavy in TIPs right now doesn't have a very good real return ....
RickyAZ
Posts: 107
Joined: Sun Dec 08, 2019 6:27 pm

Re: My Pension will not have COLA. Plz suggest a Portfolio to act as my COLA

Post by RickyAZ »

JoeRetire wrote: Tue Nov 23, 2021 7:07 am
bhsince87 wrote: Mon Nov 22, 2021 10:17 pm There are no guarantees, unfortunately.
Right. If someone is looking for guarantees, this is the wrong forum.
"Working longer" might not be a bad idea, but it is not related (or correlated) to inflation in any way.
True. But the money earned by working longer, and a consequently larger portfolio, can help compensate for the loss of earning power due to inflation.
I would say an 80/20 or 90/10 stock/bond portfolio, with rebalancing, might be a good approach for a pension supplemental portfolio.
So "take on more risk than you otherwise would" as an approach? That seems reasonable.
Not more risk, just different risk. There is no escaping taking some risk when choosing retirement

As of now, inflation risk is virtually certain to diminish the value over time. This needs to be balanced with equities/REITs or other assets or behaviors (ie work longer or part time) that survive and grow during inflation.

If you think of the pension as the bond portion of an overall portfolio then adding the equities is the obvious move.

Cheers
dbr
Posts: 37901
Joined: Sun Mar 04, 2007 9:50 am

Re: My Pension will not have COLA. Plz suggest a Portfolio to act as my COLA

Post by dbr »

The issue is very simple. If part of the income is not inflation indexed, then one cannot spend as much as one could if the pension were inflation indexed. You can run a model like FireCalc and start, for example, with a $1M portfolio and $60k spending and a $20k pension, and if the pension is inflation indexed the portfolio failure rate is 5%. If the pension is not inflation indexed the portfolio failure rate is 22%. To get back to 5% failure rate you have to reduce the overall inflation indexed spending to $51k. This is at 75% stocks. At 50% stocks the numbers are the same. You cannot asset allocate your way out of this kind of problem. Note these numbers say that the pension is initially worth only $11k in real income over 30 years, which suggests the model is applying a loss to inflation of about 2.7%/year though how inflation enters a model like FireCalc with output being a failure rate is a little more complicated than that. Also, note that the investor could also gain even by getting the pension increased to $36k.

Why would one think you can spend the same in real dollars when part of the income is not inflation indexed as one can when it is?
grok87
Posts: 9750
Joined: Tue Feb 27, 2007 9:00 pm

Re: My Pension will not have COLA. Plz suggest a Portfolio to act as my COLA

Post by grok87 »

TN_Boy wrote: Tue Nov 23, 2021 10:45 am
grok87 wrote: Tue Nov 23, 2021 9:18 am
JoeRetire wrote: Tue Nov 23, 2021 7:08 am
grok87 wrote: Mon Nov 22, 2021 10:24 pm 1) consider Social Security to be your COLA'd pension and supplement as needed with TIPS and Ibonds.
OP: "I won't have anything much in SS, if at all."

So, lots of TIPS and iBonds?
thanks, i had missed that in the OP.
yes, if anything that would lead me to double down on my suggestion.
cheers,
grok
It seems hard to make a portfolio recommendation without knowing what the OP's expenses are, how much of those expenses will be covered by the pension upon retirement, and whether the SS is truly nothing/insignificant (even if OP waits until 70 to claim), or say 10 to 20% of yearly expenses. And how big the portfolio is.

Among other things, a portfolio heavy in TIPs right now doesn't have a very good real return ....
I Bonds are looking good though...
RIP Mr. Bogle.
TN_Boy
Posts: 2472
Joined: Sat Jan 17, 2009 12:51 pm

Re: My Pension will not have COLA. Plz suggest a Portfolio to act as my COLA

Post by TN_Boy »

grok87 wrote: Tue Nov 23, 2021 7:41 pm
TN_Boy wrote: Tue Nov 23, 2021 10:45 am
grok87 wrote: Tue Nov 23, 2021 9:18 am
JoeRetire wrote: Tue Nov 23, 2021 7:08 am
grok87 wrote: Mon Nov 22, 2021 10:24 pm 1) consider Social Security to be your COLA'd pension and supplement as needed with TIPS and Ibonds.
OP: "I won't have anything much in SS, if at all."

So, lots of TIPS and iBonds?
thanks, i had missed that in the OP.
yes, if anything that would lead me to double down on my suggestion.
cheers,
grok
It seems hard to make a portfolio recommendation without knowing what the OP's expenses are, how much of those expenses will be covered by the pension upon retirement, and whether the SS is truly nothing/insignificant (even if OP waits until 70 to claim), or say 10 to 20% of yearly expenses. And how big the portfolio is.

Among other things, a portfolio heavy in TIPs right now doesn't have a very good real return ....
I Bonds are looking good though...
True enough, if you can buy enough to satisfy your needs. Though I got rid of our I-bonds a couple of years ago, despite their attractive features. They were perhaps 2% of the portfolio, and I decided they were not worth the extra account (dealing with Treasury Direct) and complexity. They just didn't affect the portfolio behavior enough to be very interesting. Had I the ability to do it over, I might have bought more in years past.

But we don't know if the OP has 40k in annual retirement expenses, a non-COLA'ed pension which pays 45k and a 1M portfolio. Or 100k in annual expenses with a pension paying 45k and a 200k portfolio. There are situations where the OP might be able to buy enough I-bonds to be useful in the context of the overall income desired. Then again, maybe not :-).
valleyrock
Posts: 296
Joined: Sun Aug 12, 2018 7:12 am

Re: My Pension will not have COLA. Plz suggest a Portfolio to act as my COLA

Post by valleyrock »

BitTooAggressive wrote: Mon Nov 22, 2021 8:56 am
valleyrock wrote: Mon Nov 22, 2021 8:30 am
ResearchMed wrote: Sun Nov 21, 2021 4:47 pm
Stillwater1971 wrote: Sun Nov 21, 2021 4:38 pm I'll be retiring in 5 years(I'll be 55) and will receive a Pension that will allow me to live within my means for a while. But my Pension won't be receiving COLA and I won't have anything much in SS, if at all.

What would be a good Portfolio that could act as the COLA for my Pension? The less risk/volatility the better, but not necessary.
What about every few years adding a small SPIA (immediate life annuity), to bump up each month/year's income a bit. Then, depending upon how inflation is going, do this again, as incremental increases for that inexorable inflation... if that's what happens, of course.

This approach would certainly keep the volatility down, at least for these portions of income.

RM
I've been wondering how quickly SPIA sellers respond to inflation changes. Maybe there's historical information on that which they'd use in actuarial calculations. On the other hand, with current inflation changes, perhaps they're going to wait a few years to see what happens before increasing annuity payouts. I suppose a lot of people will wait now before purchasing an SPIA to see if payouts do indeed go up to reflect inflation, which could drive the companies to increase payouts to get people to buy their products. Anybody have a handle on this matter?
I am sure the insurance companies are very afraid of inflation. If you are able to purchase an annuity with inflation protection that option will not be cheap.
Not exactly what I'm getting at. I'm not asking about inflation indexed annuities, which do exist. I'm asking whether there's information on what conditions lead to an increase in payout, and how, for fixed premium annuities. Surely the companies respond over time to changes in inflation, and other factors as well, no doubt.

SPIAs spread the risk, and so offer a higher rate of return than bank accounts, CDs, even many bonds. Right now, I figure they are paying something equivalent to 4.5% over 23 years or so. In other words, if you put your money in an account earning 4.5% per year, and withdraw over 23 years an amount that will result in a zero balance at the end of 23 years. That's what I get comparing options using immediateannuities.com to a bankrate simple savings withdrawal calculator. But when inflation was higher, surely annuities paid out more than this 4.5% benchmark, no? If I had to guess, I suppose inflation will have to stay high for a number of years before insurance companies would increase payouts for fixed annuities. (And I don't figure inflation will stay high after everybody buys the stuff they want when the shipping logjam opens up, and when all the musical chairs with job changing slows down. I hope.)
longinvest
Posts: 4795
Joined: Sat Aug 11, 2012 8:44 am

Re: My Pension will not have COLA. Plz suggest a Portfolio to act as my COLA

Post by longinvest »

Stillwater1971 wrote: Sun Nov 21, 2021 4:38 pm I'll be retiring in 5 years(I'll be 55) and will receive a Pension that will allow me to live within my means for a while. But my Pension won't be receiving COLA and I won't have anything much in SS, if at all.

What would be a good Portfolio that could act as the COLA for my Pension? The less risk/volatility the better, but not necessary.
Stillwater1971, here's the link to a detailed answer for a similar question: The derived simple formula is used within our wiki's VPW Retirement Worksheet. The Variable Percentage Withdrawal (VPW) approach to retirement is an adaptive approach which considers the retiree's age, portfolio balance, asset allocation, and pensions (current and delayed, with and without cost of living adjustments) to suggest a portfolio withdrawal amount for the current year. Conveniently, the worksheet provides an estimate of the impact on the plan of stocks losing -50% of their value to help the retiree prepare for market fluctuations. It is illustrated with an ongoing example where the retiree has a small pension without cost-of-living adjustments (a post like this one explains how all the pieces are combined).
Bogleheads investment philosophy | One-ETF global balanced index portfolio | VPW
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