How Do You Like My New 'Doo

[nedsaid]

I do want to do things for sound reasons and sometimes we fool ourselves.

Sure.

I'll admit half my problem with the portfolio is it offends my sense of elegance. But I'm a minimalist.

You're a collector and like to tinker. Better for you to stick with that.

Because I believe you have to like what your portfolio looks like.

Your criticisms are valid. Yes, I am a collector and a tinkerer.

There might come a time that I would want to greatly simplify this. I track things with Quicken and Morningstar and the recordkeeping does take time. But I am an Accountant by trade, I like to keep records. My portfolio structure hasn't changed a lot in 20 years. I have consolidated my accounts a bit, the monies have grown, and I have branched out somewhat with my investments. I also like to do the analysis.

One reason I tell people not to blindly follow what I am doing. Most people don't want to do the analysis and the record keeping. I have done some quirky things.

What I hope is that people will learn how to use the tools that are out there, many of them are free. I do have a Morningstar subscription and that helps me with the analysis. Perhaps this will give them ideas on how to do some analysis of their own portfolios. I would also hope that people get some ideas on their own retirement planning.

Like I said above, when I do portfolio reviews for others, I will give standard Boglehead advice. I don't get into Factor tilting or talk about too many investment options because the object is to get people to invest in the first place. Too much information and too many options can be really intimidating. I think the simple 3-5 Boglehead portfolios are good.
What is weird is that my simple portfolios are doing better than the more complex ones.

But one reason I know something about investments is that I have done a lot of things and owned a bunch of stuff over
the years. You learn when you have real life money on the line with real life investments. To me, it was almost like getting another Bachelor's Degree, I have learned that much. I have learned an awful lot about business, the markets, and the economy.

The other thing is that I wanted to work with an Advisory service to get good retirement planning. Nothing is perfect and I have looked around for over 20 years. I don't recommend working with stock brokers, but I have for a lot of years and fortunately I wound up with very good people. So American Century seemed worth a try when they started offering their Private Client Group. The quality of their service has improved, I like the fellow that I am working with, a big part of this is working with the software and knowing how to get good results from it. I can log in anytime I want and input so that when I meet with him, everything is as accurate and up to date as possible. It is the old saying that you get out of something what you are willing to put into it.

What I am hoping for is that people who are thinking about using an Advisory service will get an accurate picture of what they can expect. Sometimes all it takes is one or two really good ideas to greatly improve someone's financial situation.

[nedsaid]

Do you plan to simplify things down the road? You are clearly enjoying managing your portfolio, including it's complexity. But what if you are less interested (or less able) in managing a complex portfolio in your 80s or whenever? Is there someone who will be able to take over overall portfolio management for you if needed? Perhaps you've mentioned this previously, sorry if I missed it.

Thanks for being open about what you are doing with your portfolio and why. I've learned from reading your posts, even though I make different choices than you do.

cj

Yes, aging does have its effects upon mental acuity. Dad and mom never had dementia, thank goodness, but I could see
that Dad in particular got past his mental prime as he advanced through his eighties. Dad is gone now, Mom is still around and I am amazed at how sharp she is. Somehow, I got her inspired to do investing and she got to be something of a stock jock. She seems to have picked up some of my bad habits.

This is a big reason that I am working with American Century with part of my portfolio and letting them manage it. They
are pretty much doing what I would do myself. I know that I could get decent management from them along with the ongoing planning and monitoring. I have a place to take everything if I lose the desire to do this for myself.

Fidelity has a good Robo-advisor, Fidelity Go, I could turn my Fidelity portfolio over to the robots. I will probably work with the LPL Advisor until he retires, which might be a while, as he is still raising kids. He is a bit younger than me. If he retires, then I would probably move that account to one of the other two providers.

If I got too concerned about my mental acuity, I could just have American Century run it all. The 0.90% all inclusive fee is high by Boglehead standards but much lower than a local Advisor or Edward Jones or Ameriprise. I could live with that. Their service has been very good, I like their people, pretty much a typical Mid-West based company. They are a firm with decent people. I also like that the Stowers Center for Medical Research owns a majority of the voting stock in the firm and Mr. Stowers stipulated that the shares not be available to be sold until some years after his death. So not likely the firm will change hands for quite a while.

[rossington]

With a duration matching strategy, you rebalance your TIPS funds so that you maintain your desired duration. The reason for this is that your desired duration declines as you age. So if you are targeting payments until age 90 and you start taking payments at age 65, you want to start with an average duration of 12.5, decreasing by 0.5 each year until you reach a duration of 2.5 years at age 85. From then on, your TIPS would all be in a Short Term TIPS fund. You could calculate how much of each of your TIPS funds you need to sell to meet your withdrawal requirements and yet still keep your TIPS at a desired duration. So you have to do a calculation whenever you make a withdrawal, you might also want to rebalance your TIPS from time to time. This is a way of creating a synthetic TIPS ladder.

Nedsaid,
I saw your percentages earlier but I forgot to ask what formula do you use get the necessary percentages for allocating how much money goes to each of the bond funds when duration matching?
Is recalculating these percentages (that is, gradually reducing the long term exposure and increasing the short term exposure) each year what you mean by rebalancing?
Thanks!

This is what I did: I figured on a lifespan of 90 and that payments would start at age 65. I was 63 1/2 years old when I did this. The formula is you take the number of years you are taking payments and divide by two. Then add the number of years you will wait. (25/2) + 1.5 = 14 years. This is a simplified formula, don't know exactly why this works but others on the forum told me to do it this way. I am certain there is a much more complex formula to calculate this more precisely but this gives you a good approximation.

The problem is that this was an excellent way to build a synthetic TIPS ladder but the duration was too high for an annuity that I might buy in the future. As I explained above, the duration of the annuity that I might buy in 2024 should be 10.5 (the Blue Print Income longevity calculator calculated my lifespan to be 86 or 21 years of payments). Bobcat2, pulled a quote from an insurance company for a 65 year old male, plugged the information into an annuity calculator and figured that the insurance company expected the lifespan of a 65 year old male to be about 18 years, which would imply a duration of 9.

So at the low end my calculation should have been (18/2) + 1.5 = 10.5 years or even (21/2) + 1.5 = 12 years. I picked
a duration of 14 years at age 63 1/2 vs. a range of 10.5 years to 12 years. So because I didn't match the duration well enough with an annuity I might want to purchase, I was taking interest rate risk. The trick is that it is hard to know for certain how long the insurance company thinks that people my age are going to live. Bobcat2 by using the quote and plugging the numbers into a calculator to get a pretty good approximation. You aren't going to get this precise but fairly close.

The thing is, I probably won't buy an annuity with the funds but I might want to build a synthetic TIPS ladder to lock in a real yield on my TIPS investments. Looks like I can still lock in more than 2%.

Thanks now I understand that part.

So these percentages are what I was curious about too:

Pimco 61.4% x 19.47 years = 11.95 years.
Schwab 10% x 6.68 years = 0.69 years
Individual TIPS 28.6% x 0.7 years = 0.2 years

Did you use any particular formula to determine the allocations here?
I assume you will have to recalculate the percentages of the allocations each year to glide the duration down to all short term TIPS. But I am not clear how to do that.
Thanks.

[james22]

I also like to do the analysis. ....

But one reason I know something about investments is that I have done a lot of things and owned a bunch of stuff over
the years. You learn when you have real life money on the line with real life investments.

I really am good with you doing whatever works for you.

I'd only ask, given finite bandwidth, how much time you've left for analysis after just keeping up with your portfolio?

And given the allocation size, are you motivated to?

Do you really analyze the performance of these asset classes and make decisions as to whether they should remain in your portfolio or grow?

American Century Mid-Cap Value Y 0.96%
Fidelity Real Estate Index 0.87%
iShares Micro-Cap ETF 0.62%
iShares Core Growth Allocation ETF 0.32%

How do you even understand the performance of these?

Fidelity Freedom Index 2025 3.01%
American Funds Capital Income Builder A 1.83%
PERS III Account 0.55%

When did you last make a change based on what you'd learned?

[nedsaid]

With a duration matching strategy, you rebalance your TIPS funds so that you maintain your desired duration. The reason for this is that your desired duration declines as you age. So if you are targeting payments until age 90 and you start taking payments at age 65, you want to start with an average duration of 12.5, decreasing by 0.5 each year until you reach a duration of 2.5 years at age 85. From then on, your TIPS would all be in a Short Term TIPS fund. You could calculate how much of each of your TIPS funds you need to sell to meet your withdrawal requirements and yet still keep your TIPS at a desired duration. So you have to do a calculation whenever you make a withdrawal, you might also want to rebalance your TIPS from time to time. This is a way of creating a synthetic TIPS ladder.

Nedsaid,
I saw your percentages earlier but I forgot to ask what formula do you use get the necessary percentages for allocating how much money goes to each of the bond funds when duration matching?
Is recalculating these percentages (that is, gradually reducing the long term exposure and increasing the short term exposure) each year what you mean by rebalancing?
Thanks!

This is what I did: I figured on a lifespan of 90 and that payments would start at age 65. I was 63 1/2 years old when I did this. The formula is you take the number of years you are taking payments and divide by two. Then add the number of years you will wait. (25/2) + 1.5 = 14 years. This is a simplified formula, don't know exactly why this works but others on the forum told me to do it this way. I am certain there is a much more complex formula to calculate this more precisely but this gives you a good approximation.

The problem is that this was an excellent way to build a synthetic TIPS ladder but the duration was too high for an annuity that I might buy in the future. As I explained above, the duration of the annuity that I might buy in 2024 should be 10.5 (the Blue Print Income longevity calculator calculated my lifespan to be 86 or 21 years of payments). Bobcat2, pulled a quote from an insurance company for a 65 year old male, plugged the information into an annuity calculator and figured that the insurance company expected the lifespan of a 65 year old male to be about 18 years, which would imply a duration of 9.

So at the low end my calculation should have been (18/2) + 1.5 = 10.5 years or even (21/2) + 1.5 = 12 years. I picked
a duration of 14 years at age 63 1/2 vs. a range of 10.5 years to 12 years. So because I didn't match the duration well enough with an annuity I might want to purchase, I was taking interest rate risk. The trick is that it is hard to know for certain how long the insurance company thinks that people my age are going to live. Bobcat2 by using the quote and plugging the numbers into a calculator to get a pretty good approximation. You aren't going to get this precise but fairly close.

The thing is, I probably won't buy an annuity with the funds but I might want to build a synthetic TIPS ladder to lock in a real yield on my TIPS investments. Looks like I can still lock in more than 2%.

Thanks now I understand that part.

So these percentages are what I was curious about too:

Pimco 61.4% x 19.47 years = 11.95 years.
Schwab 10% x 6.68 years = 0.69 years
Individual TIPS 28.6% x 0.7 years = 0.2 years

Did you use any particular formula to determine the allocations here?
I assume you will have to recalculate the percentages of the allocations each year to glide the duration down to all short term TIPS. But I am not clear how to do that.
Thanks.

Hi Rossington:

It is easier to do this with two funds. dcabler posted a formula in response to my question and you might fund this helpful. I actually constructed an Excel worksheet for this purpose. In my case, I used two ETFs and a batch of individual TIPS that would mature in a year and a half from the time I bought them. I just tweaked the percentages of the three investments until I came up with the duration I wanted.

My original calculation was this:

PIMCO 65% x 20.04 years = 13.026 years
Schwab 9% x 6.88 years = 0.619 years
Individual TIPS 26% X 1.5 years= 0.39 years

13.026 years + 0.619 years + 0.39 years = 14.035 years. I had to buy the TIPS Individually and couldn't buy them in fractional shares as I could with the TIPS ETFs. So once I had the purchase made, then I adjusted the percentages of the ETFs until I had the duration I wanted.

I was supposed to rebalance between my two ETFs to stay at my desired duration but I just let things float. Notice how the effective duration of the PIMCO ETF went from 20.04 years down to 19.47 years and how the Schwab ETF went from 6.88 years down to 6.68 years. So not only does your desired duration decline each quarter but the effective duration of the TIPS ETFs that you are using will fluctuate a bit as well.

So in theory, here was my desired durations:

1/1/2023 14.00 Years
4/1/2023 13.75 Years
7/1/2023 13.50 Years
10/1/2023 13.25 Years
1/1/2024 13.00 Years
4/1/2024 12.75 Years
7/1/2024 12.5 Years (start payments)
10/1/2024 12.375 Years
1/1/2025 12.25 Years
4/1/2025 12.125 Years
7/1/2025 12.00 Years

And so on.

Notice that as I am waiting to take payments that the desired duration of my TIPS goes down one year each year or 1/4 of a year per quarter. Once I start taking payments then my desired duration drops 0.5 years each year or 1/8 of a year per quarter. By the time I reach age 85, my desired duration drops to 2.5 years which is about the duration of a Short Term TIPS fund. This would imply a life expectancy of 5 years. My desired duration would be 2.5 years for the remainder of my life.

I let things float thus I now have a duration of 12.84 years versus a desired duration of 13.2 years. So had I actually executed my original plan I should have done small trades between the PIMCO ETF and the Schwab ETF each quarter. I would also have to check Morningstar for the effective duration of those two funds so that I could keep my desired duration and the duration of my TIPS investments in balance. The idea is to lock in a real rate of return, in my case it was 1.4% over the life of the synthetic ladder, and to eliminate interest rate risk. If I was to do this perfectly, I would be doing this every month or in theory daily. For most of us, every quarter would be close enough.

So this is how you create a synthetic TIPS ladder using ETFs. See dcabler's post below for the formula he uses to
calculate the percentages using two funds.

You only have to do the algebra once, then put it into a formula, shown below.

% of the longer duration fund = (desired_duration - shorter_fund_duration)/(longer_fund_duration - shorter_fund_duration)
% of the shorter duration fund = 1 - % of the longer duration fund

Example.
Desired duration = 17.75 years
longer_fund_duration = 20.02 years
shorter_fund_duration = 7.19 years

% of the longer duration fund = (17.75 - 7.19)/(20.02 - 7.19) = 82.3%
% of the shorter duration fund = 1 - 82.3% = 17.7%

Cheers.

[nedsaid]

I also like to do the analysis. ....

But one reason I know something about investments is that I have done a lot of things and owned a bunch of stuff over
the years. You learn when you have real life money on the line with real life investments.

I really am good with you doing whatever works for you.

I'd only ask, given finite bandwidth, how much time you've left for analysis after just keeping up with your portfolio?

And given the allocation size, are you motivated to?

Do you really analyze the performance of these asset classes and make decisions as to whether they should remain in your portfolio or grow?

American Century Mid-Cap Value Y 0.96%
Fidelity Real Estate Index 0.87%
iShares Micro-Cap ETF 0.62%
iShares Core Growth Allocation ETF 0.32%

How do you even understand the performance of these?

Fidelity Freedom Index 2025 3.01%
American Funds Capital Income Builder A 1.83%
PERS III Account 0.55%

When did you last make a change based on what you'd learned?

Fair questions.

First I use Quicken for the recordkeeping and Morningstar for the analysis. I keep Morningstar updated, I keep a portfolio for each of my accounts, one for the retirement portfolio as a whole, and one for the individual stocks. So once everything is in there, analysis is actually pretty easy. I can look at things account by account and as a whole. I have regarded my retirement portfolio as one portfolio for years and years though I look at the individual accounts as well.

I made two big changes based upon what I learned recently. First, I rolled over a Cash Balance Pension from a previous employer to Fidelity based upon warnings regarding annuities and inflation from Bill Bernstein. Second, I used TIPS ETFs and individual TIPS to construct a synthetic TIPS ladder with the rollover proceeds. I want to see if I want to do this with the rest of my TIPS. I have increased the allocation of fixed income dedicated to TIPS from 12% up to 40% over the last three years or so. I wanted better inflation protection for the fixed income part of my portfolio.

I don't obsess over the percentages of the component investments, I look at the broad asset allocation and the Morningstar Styleboxes. If the broad allocation and the Styleboxes look good, then I am good with the portfolio.

[watchnerd]

I have used a targeted 7% return for my portfolio for a long time, as I found that to be realistic without being too risky. I toggle between equity and FI in order to try to set myself up for that. bad equity returns years are opportunities to increase equity exposure and vice versa. lately (69 yo) I have shied away from duration in FI and the recent increase in short term rates has gotten me almost entirely to my 7% target with no credit/interest rate risk. amazing, given the past 15 years or so. like everything else, this wont persist, but while it does I am beating the cash drum.

I assume you're using nominal numbers?

Because 7% nominal return on 2% inflation is different from 7% on top of 3-4% inflation (where we're at now)

[james22]

Fair questions.

I appreciate you not taking offense. I hesitate every time I post fearing it'll be taken the wrong way.

I don't obsess over the percentages of the component investments, I look at the broad asset allocation and the Morningstar Styleboxes. If the broad allocation and the Styleboxes look good, then I am good with the portfolio.

Ah, that I can understand.

[rossington]

Hi Rossington:
It is easier to do this with two funds. dcabler posted a formula in response to my question and you might fund this helpful. I actually constructed an Excel worksheet for this purpose. In my case, I used two ETFs and a batch of individual TIPS that would mature in a year and a half from the time I bought them. I just tweaked the percentages of the three investments until I came up with the duration I wanted.

My original calculation was this:

PIMCO 65% x 20.04 years = 13.026 years
Schwab 9% x 6.88 years = 0.619 years
Individual TIPS 26% X 1.5 years= 0.39 years

13.026 years + 0.619 years + 0.39 years = 14.035 years. I had to buy the TIPS Individually and couldn't buy them in fractional shares as I could with the TIPS ETFs. So once I had the purchase made, then I adjusted the percentages of the ETFs until I had the duration I wanted.

I was supposed to rebalance between my two ETFs to stay at my desired duration but I just let things float. Notice how the effective duration of the PIMCO ETF went from 20.04 years down to 19.47 years and how the Schwab ETF went from 6.88 years down to 6.68 years. So not only does your desired duration decline each quarter but the effective duration of the TIPS ETFs that you are using will fluctuate a bit as well.

So in theory, here was my desired durations:

1/1/2023 14.00 Years
4/1/2023 13.75 Years
7/1/2023 13.50 Years
10/1/2023 13.25 Years
1/1/2024 13.00 Years
4/1/2024 12.75 Years
7/1/2024 12.5 Years (start payments)
10/1/2024 12.375 Years
1/1/2025 12.25 Years
4/1/2025 12.125 Years
7/1/2025 12.00 Years

And so on.

Notice that as I am waiting to take payments that the desired duration of my TIPS goes down one year each year or 1/4 of a year per quarter. Once I start taking payments then my desired duration drops 0.5 years each year or 1/8 of a year per quarter. By the time I reach age 85, my desired duration drops to 2.5 years which is about the duration of a Short Term TIPS fund. This would imply a life expectancy of 5 years. My desired duration would be 2.5 years for the remainder of my life.

I let things float thus I now have a duration of 12.84 years versus a desired duration of 13.2 years. So had I actually executed my original plan I should have done small trades between the PIMCO ETF and the Schwab ETF each quarter. I would also have to check Morningstar for the effective duration of those two funds so that I could keep my desired duration and the duration of my TIPS investments in balance. The idea is to lock in a real rate of return, in my case it was 1.4% over the life of the synthetic ladder, and to eliminate interest rate risk. If I was to do this perfectly, I would be doing this every month or in theory daily. For most of us, every quarter would be close enough.

So this is how you create a synthetic TIPS ladder using ETFs. See dcabler's post below for the formula he uses to
calculate the percentages using two funds.

You only have to do the algebra once, then put it into a formula, shown below.

% of the longer duration fund = (desired_duration - shorter_fund_duration)/(longer_fund_duration - shorter_fund_duration)
% of the shorter duration fund = 1 - % of the longer duration fund

Example.
Desired duration = 17.75 years
longer_fund_duration = 20.02 years
shorter_fund_duration = 7.19 years

% of the longer duration fund = (17.75 - 7.19)/(20.02 - 7.19) = 82.3%
% of the shorter duration fund = 1 - 82.3% = 17.7%

Cheers.

Nedsaid,
Thank you very much for answering all my questions!

I have one more if you feel like answering it:
Is your 1.4% real return before or after taxes?

Thanks!!

[nedsaid]

Hi Rossington:
It is easier to do this with two funds. dcabler posted a formula in response to my question and you might fund this helpful. I actually constructed an Excel worksheet for this purpose. In my case, I used two ETFs and a batch of individual TIPS that would mature in a year and a half from the time I bought them. I just tweaked the percentages of the three investments until I came up with the duration I wanted.

My original calculation was this:

PIMCO 65% x 20.04 years = 13.026 years
Schwab 9% x 6.88 years = 0.619 years
Individual TIPS 26% X 1.5 years= 0.39 years

13.026 years + 0.619 years + 0.39 years = 14.035 years. I had to buy the TIPS Individually and couldn't buy them in fractional shares as I could with the TIPS ETFs. So once I had the purchase made, then I adjusted the percentages of the ETFs until I had the duration I wanted.

I was supposed to rebalance between my two ETFs to stay at my desired duration but I just let things float. Notice how the effective duration of the PIMCO ETF went from 20.04 years down to 19.47 years and how the Schwab ETF went from 6.88 years down to 6.68 years. So not only does your desired duration decline each quarter but the effective duration of the TIPS ETFs that you are using will fluctuate a bit as well.

So in theory, here was my desired durations:

1/1/2023 14.00 Years
4/1/2023 13.75 Years
7/1/2023 13.50 Years
10/1/2023 13.25 Years
1/1/2024 13.00 Years
4/1/2024 12.75 Years
7/1/2024 12.5 Years (start payments)
10/1/2024 12.375 Years
1/1/2025 12.25 Years
4/1/2025 12.125 Years
7/1/2025 12.00 Years

And so on.

Notice that as I am waiting to take payments that the desired duration of my TIPS goes down one year each year or 1/4 of a year per quarter. Once I start taking payments then my desired duration drops 0.5 years each year or 1/8 of a year per quarter. By the time I reach age 85, my desired duration drops to 2.5 years which is about the duration of a Short Term TIPS fund. This would imply a life expectancy of 5 years. My desired duration would be 2.5 years for the remainder of my life.

I let things float thus I now have a duration of 12.84 years versus a desired duration of 13.2 years. So had I actually executed my original plan I should have done small trades between the PIMCO ETF and the Schwab ETF each quarter. I would also have to check Morningstar for the effective duration of those two funds so that I could keep my desired duration and the duration of my TIPS investments in balance. The idea is to lock in a real rate of return, in my case it was 1.4% over the life of the synthetic ladder, and to eliminate interest rate risk. If I was to do this perfectly, I would be doing this every month or in theory daily. For most of us, every quarter would be close enough.

So this is how you create a synthetic TIPS ladder using ETFs. See dcabler's post below for the formula he uses to
calculate the percentages using two funds.

You only have to do the algebra once, then put it into a formula, shown below.

% of the longer duration fund = (desired_duration - shorter_fund_duration)/(longer_fund_duration - shorter_fund_duration)
% of the shorter duration fund = 1 - % of the longer duration fund

Example.
Desired duration = 17.75 years
longer_fund_duration = 20.02 years
shorter_fund_duration = 7.19 years

% of the longer duration fund = (17.75 - 7.19)/(20.02 - 7.19) = 82.3%
% of the shorter duration fund = 1 - 82.3% = 17.7%

Cheers.

Nedsaid,
Thank you very much for answering all my questions!

I have one more if you feel like answering it:
Is your 1.4% real return before or after taxes?

Thanks!!

It would be before taxes. This is held in an IRA account at Fidelity.

[rossington]

Nedsaid,
Thank you very much for answering all my questions!

I have one more if you feel like answering it:
Is your 1.4% real return before or after taxes?

Thanks!!

It would be before taxes. This is held in an IRA account at Fidelity.

Appreciate it.
Looking forward to the next update.

[rule of law guy]

I have used a targeted 7% return for my portfolio for a long time, as I found that to be realistic without being too risky. I toggle between equity and FI in order to try to set myself up for that. bad equity returns years are opportunities to increase equity exposure and vice versa. lately (69 yo) I have shied away from duration in FI and the recent increase in short term rates has gotten me almost entirely to my 7% target with no credit/interest rate risk. amazing, given the past 15 years or so. like everything else, this wont persist, but while it does I am beating the cash drum.

I assume you're using nominal numbers?

Because 7% nominal return on 2% inflation is different from 7% on top of 3-4% inflation (where we're at now)

I am a nominal kind of guy

[watchnerd]

I have used a targeted 7% return for my portfolio for a long time, as I found that to be realistic without being too risky. I toggle between equity and FI in order to try to set myself up for that. bad equity returns years are opportunities to increase equity exposure and vice versa. lately (69 yo) I have shied away from duration in FI and the recent increase in short term rates has gotten me almost entirely to my 7% target with no credit/interest rate risk. amazing, given the past 15 years or so. like everything else, this wont persist, but while it does I am beating the cash drum.

I assume you're using nominal numbers?

Because 7% nominal return on 2% inflation is different from 7% on top of 3-4% inflation (where we're at now)

I am a nominal kind of guy

So 7% nominal return with 7% inflation, AKA 0% real, is cool?

[rule of law guy]

I have used a targeted 7% return for my portfolio for a long time, as I found that to be realistic without being too risky. I toggle between equity and FI in order to try to set myself up for that. bad equity returns years are opportunities to increase equity exposure and vice versa. lately (69 yo) I have shied away from duration in FI and the recent increase in short term rates has gotten me almost entirely to my 7% target with no credit/interest rate risk. amazing, given the past 15 years or so. like everything else, this wont persist, but while it does I am beating the cash drum.

I assume you're using nominal numbers?

Because 7% nominal return on 2% inflation is different from 7% on top of 3-4% inflation (where we're at now)

I am a nominal kind of guy

So 7% nominal return with 7% inflation, AKA 0% real, is cool?

for some reason you seem to have a hair crosswise. for the last 10 years, I have gotten >6% annual appreciation per the Vanguard performance calculation with very high allocation to cash (which was my objective), and during these 10 years we have had very little inflation. a quick search came up with "The average inflation rate for the past 10 years is 2.65%." that actually seems high to me but we can go with it...and it is not 7%.

[watchnerd]

I have used a targeted 7% return for my portfolio for a long time, as I found that to be realistic without being too risky. I toggle between equity and FI in order to try to set myself up for that. bad equity returns years are opportunities to increase equity exposure and vice versa. lately (69 yo) I have shied away from duration in FI and the recent increase in short term rates has gotten me almost entirely to my 7% target with no credit/interest rate risk. amazing, given the past 15 years or so. like everything else, this wont persist, but while it does I am beating the cash drum.

I assume you're using nominal numbers?

Because 7% nominal return on 2% inflation is different from 7% on top of 3-4% inflation (where we're at now)

I am a nominal kind of guy

So 7% nominal return with 7% inflation, AKA 0% real, is cool?

for some reason you seem to have a hair crosswise. for the last 10 years, I have gotten >6% annual appreciation per the Vanguard performance calculation with very high allocation to cash (which was my objective), and during these 10 years we have had very little inflation. a quick search came up with "The average inflation rate for the past 10 years is 2.65%." that actually seems high to me but we can go with it...and it is not 7%.

I'm just clarifying.

6% nominal - 2.65% inflation = 3.35% real

But if we have higher inflation than we've had in the past, 7% nominal may not give you >3.35% real.

This is why I target real returns, because nominal numbers don't tell you how much you're keeping ahead of inflation, which is a typical goal of a retirement portfolio.

[rule of law guy]

"This is why I target real returns, because nominal numbers don't tell you how much you're keeping ahead of inflation, which is a typical goal of a retirement portfolio."

my spending in retirement is a function of a number of factors that I can control. and one factor I cant control, inflation. unexpected health costs is another factor I cant control, but I can control my wellness, so there is some mitigation there.

if inflation is high, I spend less. not rocket science.

[nedsaid]

"This is why I target real returns, because nominal numbers don't tell you how much you're keeping ahead of inflation, which is a typical goal of a retirement portfolio."

my spending in retirement is a function of a number of factors that I can control. and one factor I cant control, inflation. unexpected health costs is another factor I cant control, but I can control my wellness, so there is some mitigation there.

if inflation is high, I spend less. not rocket science.

I am still working through the issue of real returns with my own retirement planning. My current plan projects returns of
about 5.25% annually compared to 2% inflation, which is a 3% real return above inflation. Of course, no one knows what market returns, interest rates, or inflation rates will be in the future but we can make reasonable projections based on history. If I can get 3% real returns then my plan will hold up.

Not satisfied with saying that if inflation is high then I will spend less. I will adjust spending in response to market and economic conditions but there is a point where you need to eat and to have a roof over your head. So I am building some room for error in my plan so that there is flexibility. I also have about 40% of my fixed income investments in TIPS and in I Bonds. I do need protection of my purchasing power over time. Another thing I can do is work longer, an extra year or two in the work force can make a big difference. Fortunately, Social Security comes with inflation adjustments and that will help, the longer I work, the higher the amount of inflation adjusted guaranteed income.

This is also why I am putting together a budget. I need to know what retirement will cost, so I am taking this more seriously than I did before.

But yes, there are things beyond my control but I am better off approaching the future with a plan instead of essentially winging it with my retirement. I can at least prepare for some things.

I did check with the Advisor regarding tax planning. They have opened up a tax planning option. We did a projection regarding ROTH conversions in retirement and found that ROTH conversions would make no difference. At this point, I
am not concerned about Required Minimum Distributions being too high.

[rule of law guy]

"This is also why I am putting together a budget. I need to know what retirement will cost, so I am taking this more seriously than I did before."

one of the things that surprised me was that health care insurance (including medigap) cost was about as much as our pre-retirement insurance cost. somehow I had thought 40 years of medicare payroll payments would leave me with a lesser health insurance cost burden...silly me.

so if as is usual your post retirement income goes down, your share of health care costs will go up.

[tj]

"This is also why I am putting together a budget. I need to know what retirement will cost, so I am taking this more seriously than I did before."

one of the things that surprised me was that health care insurance (including medigap) cost was about as much as our pre-retirement insurance cost. somehow I had thought 40 years of medicare payroll payments would leave me with a lesser health insurance cost burden...silly me.

so if as is usual your post retirement income goes down, your share of health care costs will go up.

Your 40 years of Medicare payroll payments pays for everyone who gets hospitalized (except the folks who didn't pay premiums long enough) - including you - that's Part A.

[nedsaid]

I have continued the process of retirement planning though I plan to keep working for a while.

A big step was establishing my Social Security account at SSA.gov. I had the choice of logging in with ID.me or Login.gov. The set-up for the account was easy and I downloaded such things as my earnings record and my latest Social Security statement. My projected benefit at full retirement age went up by 3.2%, which is the announced increase in benefits for 2023. I also found that I could apply for Medicare in April 2024. The Advisor that I once worked for said that I should apply for Medicare A at that time and delay
Medicare B since I plan to keep on working. I now have health coverage at work.

I keep updating my information in the MoneyGuidePro software that I have access to through my Advisory service at American Century. I am getting an 88% success rate with the Monte Carlo simulations and that puts me in the Confidence Zone.

Soon I will be starting the process of applying for a pension from my first career, the payments will start on August 1, 2024.

So this is all new to me. What seemed so distant and far away is getting closer and closer.

[watchnerd]

I have continued the process of retirement planning though I plan to keep working for a while.

A big step was establishing my Social Security account at SSA.gov. I had the choice of logging in with ID.me or Login.gov. The set-up for the account was easy and I downloaded such things as my earnings record and my latest Social Security statement. My projected benefit at full retirement age went up by 3.2%, which is the announced increase in benefits for 2023. I also found that I could apply for Medicare in April 2024. The Advisor that I once worked for said that I should apply for Medicare A at that time and delay
Medicare B since I plan to keep on working. I now have health coverage at work.

I keep updating my information in the MoneyGuidePro software that I have access to through my Advisory service at American Century. I am getting an 88% success rate with the Monte Carlo simulations and that puts me in the Confidence Zone.

Soon I will be starting the process of applying for a pension from my first career, the payments will start on August 1, 2024.

So this is all new to me. What seemed so distant and far away is getting closer and closer.

Wow, I must be a mega early planner.

I'm 14+ years away from SS and I started pulling statements years ago.

[tj]

I have continued the process of retirement planning though I plan to keep working for a while.

A big step was establishing my Social Security account at SSA.gov. I had the choice of logging in with ID.me or Login.gov. The set-up for the account was easy and I downloaded such things as my earnings record and my latest Social Security statement. My projected benefit at full retirement age went up by 3.2%, which is the announced increase in benefits for 2023. I also found that I could apply for Medicare in April 2024. The Advisor that I once worked for said that I should apply for Medicare A at that time and delay
Medicare B since I plan to keep on working. I now have health coverage at work.

I keep updating my information in the MoneyGuidePro software that I have access to through my Advisory service at American Century. I am getting an 88% success rate with the Monte Carlo simulations and that puts me in the Confidence Zone.

Soon I will be starting the process of applying for a pension from my first career, the payments will start on August 1, 2024.

So this is all new to me. What seemed so distant and far away is getting closer and closer.

Wow, I must be a mega early planner.

I'm 14+ years away from SS and I started pulling statements years ago.

I think I created my SS online account in my 20s.

[watchnerd]

I have continued the process of retirement planning though I plan to keep working for a while.

A big step was establishing my Social Security account at SSA.gov. I had the choice of logging in with ID.me or Login.gov. The set-up for the account was easy and I downloaded such things as my earnings record and my latest Social Security statement. My projected benefit at full retirement age went up by 3.2%, which is the announced increase in benefits for 2023. I also found that I could apply for Medicare in April 2024. The Advisor that I once worked for said that I should apply for Medicare A at that time and delay
Medicare B since I plan to keep on working. I now have health coverage at work.

I keep updating my information in the MoneyGuidePro software that I have access to through my Advisory service at American Century. I am getting an 88% success rate with the Monte Carlo simulations and that puts me in the Confidence Zone.

Soon I will be starting the process of applying for a pension from my first career, the payments will start on August 1, 2024.

So this is all new to me. What seemed so distant and far away is getting closer and closer.

Wow, I must be a mega early planner.

I'm 14+ years away from SS and I started pulling statements years ago.

I think I created my SS online account in my 20s.

I wasn't that young, but by my late 30s

[nedsaid]

I have continued the process of retirement planning though I plan to keep working for a while.

A big step was establishing my Social Security account at SSA.gov. I had the choice of logging in with ID.me or Login.gov. The set-up for the account was easy and I downloaded such things as my earnings record and my latest Social Security statement. My projected benefit at full retirement age went up by 3.2%, which is the announced increase in benefits for 2023. I also found that I could apply for Medicare in April 2024. The Advisor that I once worked for said that I should apply for Medicare A at that time and delay
Medicare B since I plan to keep on working. I now have health coverage at work.

I keep updating my information in the MoneyGuidePro software that I have access to through my Advisory service at American Century. I am getting an 88% success rate with the Monte Carlo simulations and that puts me in the Confidence Zone.

Soon I will be starting the process of applying for a pension from my first career, the payments will start on August 1, 2024.

So this is all new to me. What seemed so distant and far away is getting closer and closer.

Wow, I must be a mega early planner.

I'm 14+ years away from SS and I started pulling statements years ago.

I think I created my SS online account in my 20s.

I wasn't that young, but by my late 30s

Social Security mailed me statements some years ago, stopped and then started mailing them again. I have in hand the 2021, 2022, and 2023 statements, so I haven't been ignorant of my future benefits. The reason I set up the account was to be ready to sign up for Medicare in a few months. Oh man, I have never been older before, seems weird to be in the later stages of my career and putting the finishing touches on my retirement planning. In reality, I have been preparing for this with my first job, opening
an IRA and funding it. I also started my workplace savings plans really early as well, I have done a lot of rollovers over the years.

The internet wasn't really a thing until the early nineties, didn't own a computer until 1996, so couldn't have even opened a Social Security account in my twenties. But yes, I have been a financial planning nerd for a long time. I realized that if was to be that it was up to me.