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After reading all the very informative responses, I am thinking Vanguard Wellesley is the right mix for my comfort level in retirement. Although as I advance in years, is a 40/60 mix applicable for say someone in their eighties?
Everyone is different. Vanguard Wellesley could be fine for you. Some may have a mix of Wellesley & Wellington. Maybe have a CD ladder for some of your savings cash. Some may consider municipal bonds if taxes become a problem.
Into your 80's the RMD keeps becoming a larger amount. Watch for total tax implications.
For those who don’t understand the power of compounding , here is a comparison over the decades right up until today of cash instruments vs inflation vs a simple index fund .
For fun let’s look at what a simple s&p fund did over the same time frames with the same 10k.
Those are starting dates up to the start of 2023
1985 cash instruments 32,824. , inflation 27,198 , vanguard s&p index fund 546,236
1990. Cash 23,298. Inflation 22,391 , index fund 220,555
1995 cash 18,368. Inflation 19,203 , index fund 146,682
2000 cash 14,277 inflation 16,995. , index fund. 41,877
2005 cash 12,242. Inflation 14,985, index fund 47,242
2010. Cash 10,858. Inflation13,421, index fund 46,445
2015. Cash10,818. Inflation 12,348 , index fund 22,810
2020 cash. 10,268 , inflation 11,307 , index fund 13,207
So you can see where the real danger is ..it is in trying to hide under a rock in cash as ones only investment .
Cash instruments are behind the curve losing purchasing power buying less Over and over …sure one can always find a year or two cash won but once we look at 5 year periods it is usually a losing deal that grows larger over time
Last edited by mathjak107; 02-18-2023 at 08:41 AM..
Wellesley is perfect ,and yes for most of us investing is still needed all the way through or at least until a decade or two in when you have a good idea of what inflation and returns and interest left you with..
No one knows in advance if they will be The poster child for a poor time frame or high inflationary time frame nor how long you will live
Wellesley is one of the primary funds in our retirement portfolio. It is an excellent all-weather fund. Even with increasing interest rates last year, it still held up relatively well. It is not going to set the world on fire when stocks are soaring, but you will sleep much better when stocks are crashing. I’ve studied much about sequence of return risk and this can be a huge issue for near retirees or 5-10 years post-retirement. I’ve positioned our overall portfolio so that we will not withdraw any from stocks/bonds for the next couple of years and after that, our draw rate will only be about 2.5% nominal for the next 7 or so years. We can do this because the size of our draw is more than sufficient to meet our cash flow needs/wants (even adjusted for inflation). I strongly suggest reading Wade Pfau’s Retirement Planning Guidebook or googling any of Kitces’ articles. They are both excellent.
It really depends on the retirees mix of income streams. If your only income is SS and investments, then your investments should be more conservative overall than if you had pension income or rental income, or annuities, etc. that can cover most of your essentials as a baseline income. But I wouldn't put them all in one big conservative basket.
We have a mix of SS, and pensions which cover our base needs, and then we have rental income that gives us a big comfort zone for large purchases, etc, and market accounts to give us our travel and fun money. We can have a higher risk tolerance in the fun money bucket because we don't HAVE to rely on that money or withdraw from it during down periods.
I would suppose that those with only investments and SS could emulate our strategy by making buckets for short and longer-term investments and allocate them to different risk tolerance profiles. Such as having a money market account for your emergency funds (low risk, very liquid), a moderate risk bucket for mid-term money (something like an income fund that pays dividends), and a higher risk bucket of equities for longer-term investments. In this way you can avoid taking funds from the higher risk bucket in down markets.
Last edited by TheShadow; 02-18-2023 at 08:26 AM..
Wellesley and gold have performed even better over the years and dampening volatility too .
It is as perfect conservative mix for retirement as well as pretty well diversified for high inflation / weak dollar which Wellesley alone does not have alone
It really depends on the retirees mix of income streams. If your only income is SS and investments, then you should be more conservative than if you had pension income or rental income, or annuities, etc. that can cover most of your essentials as a baseline income.
We have a mix of SS, and pensions which cover our base needs, and then we have rental income that gives us a big comfort zone, and market accounts to give us our travel and fun money. We can have a higher risk tolerance in the fun money bucket because we don't HAVE to rely on that money or withdraw from it during down periods. I would suppose that those with only investments and SS could make buckets for short and longer-term investments and allocate them to different risk tolerance profiles. Such as having a money market account for your emergency funds, a moderate risk bucket for mid-term money (something like an income fund that pays quarterly dividends), and a higher risk bucket for longer-term investments.
Not exactly the case …
It is more a myth then reality that somehow high equity levels are dangerous in retirement…
They may be mentally more stressful but actually over the 122 Existing rolling 30 year retirement periods to date 100% equities has pretty much the same success rate as 50/50 .
The higher up years without cash and bonds make spending in down years not a problem .
So whether conservative or not is more a personal issue then one based on financial outcomes…
Some are investing for legacy money. ,some don’t mind the short term swings , so it is more a mental choice then one grounded in what someone should do based on other income streams.
In fact popular thinking today by those who shape the financial world is kind of a reduced equity level 5 to 8 years pre retirement, then hold for the first 5-8 years into retirement, then increase equities after that building equity levels higher .
Again that has nothing to do with other income sources.
Other income sources may just reduce the demands on the portfolio increasing options to go more conservative or more aggressive
Last edited by mathjak107; 02-18-2023 at 08:31 AM..
It really depends on the retirees mix of income streams. If your only income is SS and investments, then you should be more conservative than if you had pension income or rental income, or annuities, etc. that can cover most of your essentials as a baseline income.
We have a mix of SS, and pensions which cover our base needs, and then we have rental income that gives us a big comfort zone, and market accounts to give us our travel and fun money. We can have a higher risk tolerance in the fun money bucket because we don't HAVE to rely on that money or withdraw from it during down periods. I would suppose that those with only investments and SS could make buckets for short and longer-term investments and allocate them to different risk tolerance profiles. Such as having a money market account for your emergency funds, a moderate risk bucket for mid-term money (something like an income fund that pays quarterly dividends), and a higher risk bucket for longer-term investments.
Once we get past the sequence of return risk stage (pre and 5-10 years post-retirement), we will not be using the bucket approach, Pfau cites research showing that you’re no better off (and maybe not as good as there’s a cost to not being invested) by using the bucket approach than by just withdrawing straight from your equity/bond portfolio. It’s mainly a behavioral thing.
Pretty much all the top researchers feel the same about cash buckets …..they are a mental thing and not really needed ..
Even spending down from 100% equities has not been a problem.
But 5-8 years in to retirement one can pretty much do as they like if they are not on a path for a worst outcome.
Higher equities has improved success and life style though. Life is filled with unexpected spending and emergency spending not accounted for.
Even at 65 one may have 3 decades of life left …much of our money won’t be used to eat for decades if ever and that portion can still be invested like any long term money
Last edited by mathjak107; 02-18-2023 at 08:40 AM..
During my almost 40 year career, I had my 401k for most of that time in a total stock market index or S&P 500 index fund. I also had most of my post-tax personal investments in a total stock market index. At age 63 retirement, my nest egg investments were in the multi-millions. I got a generous corporate pension, plenty for me to live on without tapping my investments. I have not withdrawn or spent anything from my investments in the 5+ years I've been retired.
Not long after retirement, I got out of all stocks. Not interested in the drama or anxiety. My fixed income allocations did not yield much for many years up until the past 6 months. Now I have a bunch of CDs (purchased through Schwab) that are yielding above 4.5%. This year I'll bring in $145K in interest income on CDs or money market accounts. I can't even figure out how to spend a fraction of that.
I am 68 and still not drawing social security. If I start SS at age 69, I'll be earning another $4500 per month, roughly $52K annually. Don't ask me what I am going to do with that on top of my interest earnings and my pension. And the next thing after that comes at age 73, when my $70K annual RMDs begin. I guess I'll use a chunk of SS to pay taxes on RMDs.
I need to get started on spending - trying to build up my investments is what I did when I was working, not something I am interested in any more. I have no heirs to hand off my treasure to, so no need for me to accumulate more.
I changed our allocation (stocks, bonds, etc) to the Permanent Portfolio a couple years ago after looking (again) at many different choices. The biggest hurdle I and many others needed to get over is the 25% Gold part. Looking at the long term returns convinced me that gold was not a crazy addition.
Permanent Portfolio consists of: 25% total stock market, 25% Gold, 25% Short Term Cash, 25% Long Term Bonds
I sleep fine with this allocation. We do not have an expensive lifestyle but earlier in retirement did a lot of traveling that cost money. Early in retirement many people spend money on travel, late in retirement it will be assisted living. We are in-between these two spending areas right now. We don't have kids so that's always an area people spend money on too.
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