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I am about 4 years from retirement and think about NOT having a whole lot of my retirement money in the stock market when I retire. Yes, I know the idea is to be invested in the market to keep up with inflation but dislike the inevitable market swings that go with it. I know that is part of the game but want to have as stress-free of retirement as possible.
I am thinking maybe 25-30% at the most invested in the market upon retirement. I realize that might be too conservative but want don't want to take big hits in account value. We live in an ever-changing world and the market seems so volatile and wonder if and when stability will happen. I don't want this to become a political thread, but it seems government actions affect the market so much more than good old-fashioned company earnings.
I know there are people invested 50/50 in retirement but that just seems too rich for me. Curious of views from current and future retirees.
Everyone has their own limits on what will make them comfortable and stress free when investing. I’m going to go with a 60-40 set up when I’m done with the accumulation years and head into retirement. History shows me it’s a good, safe mix for me to stomach.
It isn’t a question of how YOU want to allocate …it is a question of how much you want to draw as a safe withdrawal rate .
You can use fixed income only but don’t expect a 4% inflation adjusted withdrawal rate either ….you would need to cut that down to a max of about 3% initially . That is a 25% pay cut so the question is can you take that cut to 3% .
You need at least 35% equities for a 4% swr and that is at the low end
You could maybe get by with 25% in a portfolio like the permanent portfolio which has 3 very powerful asset classes .
But moves at time can act like high equity levels when all assets that generally don’t move together do so .
There is no magic here and how you allocate is directly tied to what a safe withdrawal rate will be.
I prefer 3 separate portfolios, each optimized for the time I will need the money .
My first level is similar to the permanent portfolio….we live off that by rebalancing each year .
For intermediate term money we run the fidelity insight growth and income portfolio which is 60/40.
The longest term money is in the fidelity insight unique opportunity portfolio which is an aggressive 100% equity portfolio.
We average about 35-40% equities as a whole , we also have 15% gold as a whole .
We own long term treasuries as well in the model , so there are assets that can thrive in recession , depression and prosperity as swell as high inflation/ weak dolllar.
Keep in mind the swings in dollars can be quite high even at low levels of equities depending on the dollars involved .
Our 35% equity portfolios as a whole have seen 100k swings in one day when all assets move together the same way , which is rare.
But while percentage wise that kind of move is small , dollar wise those are still crazy moves
Last edited by mathjak107; 02-18-2023 at 05:13 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.
One can never go by interest or dividends spinning off to determine what can be spent if a sustainable safe secure income stream is desired .
That is only determined by portfolio value vs inflation vs the sequence of inflation coming in and what is being spent down.
So as an example trying to spend 4% inflation adjusted from fixed income has already failed to last a full 30 years so many times it is considered unsafe… .
It already failed 64x out of the 122 30 year rolling retirement cycles we have had to date and has gone bust before 30 years .
That is horrible results and completely unsafe .
The whole idea of finding a safe withdrawal rate is it is a safe , consistent,secure income stream you can count on in good and bad times .
Drawing out 4.50% from a portfolio of cds would be insane and unsustainable nor an investment one could count on since even half the inflation levels are are seeing would crushed that income stream in short order..
Just to hold a 4% safe withdrawal rate takes a minimum of a 2% inflation adjusted real return over the first 15 years of a 30 year retirement.
CDs can’t do that ,
Longer term they defy the math needed .
There is a big difference between pulling out some fun money vs pensionizing your own pile of money to spin off a safe , secure ,consistent income that last as long as you or a spouse does .
Last edited by mathjak107; 02-18-2023 at 05:51 AM..
Here are the allocations needed at various inflation adjusted draw rates ..
A 90% success rate is the minimum that is generally regarded as acceptable ..you can see 25% equities is pretty much going to be a 3% draw for 30 years which is a 25% pay cut from 4%
Zero equities struggles to even be acceptable at 3% with only a 80% success rate .in practice it would have to be less regardless of what short term interest rate you may be getting .
Keep in mind the term safe withdrawal rate means you are based on the worst of the worst outcomes ..anything better is a plus .
So while one can draw any amount they like that is not considered a safe withdrawal rate , it is just a draw rate and it may or may not leave you with too little left .
So it’s important to understand what the term means ….you have many who think because they are getting 4 or 5% interstate or dividends that they can spend it .
They are rolling the dice and that is why the industry uses safe withdrawal rates , since that is pretty close to the minimum you can count on .
It is always better to plan for the worst and hope for the best then to count on the best outcomes or even average outcomes to support that level of spending .
Last edited by mathjak107; 02-18-2023 at 06:06 AM..
Here are some graphs to help with your decision. 30 years with inflation adjustment is the usual standard. Looking at that graph, it shows 25% stocks is historically safe with a 3.5% initial draw.
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