The need for bonds if I have a pension?

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jeffarvon
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Re: The need for bonds if I have a pension?

Post by jeffarvon »

A good story all around.

Of note, Ohio STRS eliminated COLA to their pension payouts a few years back.
"Enough is as good as a feast" - Mary Poppins
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CharlesNorris
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Re: The need for bonds if I have a pension?

Post by CharlesNorris »

jeffarvon wrote: Sat Sep 25, 2021 7:18 am A good story all around.

Of note, Ohio STRS eliminated COLA to their pension payouts a few years back.
Thanks for all that commented. It’s been a lot of hard work, sacrifice, and in my early life blind faith because there were a lot of barriers but I just kept my nose to the grindstone and kept working and saving. As for the COLA elimination, I’m aware of it. Unfortunately, I think the pension will not be as strong 24 years from now which is why I’m been persistent with saving. I hope I’m wrong but I’m planning for otherwise
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CyclingDuo
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Re: The need for bonds if I have a pension?

Post by CyclingDuo »

CharlesNorris wrote: Sat Sep 25, 2021 6:34 amCyclingDuo, thanks for asking. We are doing really well. Although the 2020 meltdown I made a minor overreaction with one of our 529s I was able to stay the course with everything else. We are still 100% stocks and thankful to have stayed that route. At age 39, we joined the 2 comma club and our net worth increased by 285k last year. The pension seems to be intact and funded well. Our combined pension is now estimated to be worth $170k annually. Now that we are entering our 40s I’m trying to save less and live more. We have constantly saved 50-60% of our income and if we don’t save another dollar the accounts should continue to grow at a rate that will fund an amazing retirement. With that being said I’ll always max roth, HSA, and the 14% strs Ohio contribution for my wife and I. Our savings will still be 40% of income but just dialing it back some. I plan on staying 100% stocks for the time being. My wife is back in the work force full time and that has been a major help.

The 2020 meltdown brought out some amateur investors in my school and a lot of people were now curious in individual stocks. So they hyped this stock and that stock but didn’t know when to get in and get out. I just smiled and nodded because my approach was boring to them. Fast forward to tax season and the most vocal of the investors was deflated when he realized he spent all that time stressing when to get in and out and chasing performance for a measly $600 capital gain for the year. Me on the other hand increased my net worth $285k with a Boglehead approach of buy and hold index funds and keep costs low……….Holy [expletive deleted by moderator oldcomputerguy] this site is unbelievable. THANKS TO ALL - I grew up dirt poor in section 8 housing for a good percentage of life and was homeless at one point. My career path was chosen not based on the money I could make but rather the difference I could make. With that being said, with the Boglehead approach I’m doing both and it’s a win-win.
Good to hear your progress has remained on target and you are once again a dual income force!

No doubt that the corrections and drops in the years 2018 and 2020 provided a nice little taste of what markets do from time to time.
https://www.yardeni.com/pub/sp500corrbear.pdf

You might want to point your friends who seem to spend most of their time chasing alpha to listen to this podcast: https://podcasts.apple.com/us/podcast/t ... 0535510369.

Professor Hersh Shefrin: Fear, Hope, and the Psychology of Investing

With your current nest egg, paid off house, future pensions - I would probably agree that you may not need to be saving 50% of your income while the kids are at home. You only get one journey, so enjoy the years with them a bit more.

:sharebeer

CyclingDuo
"Save like a pessimist, invest like an optimist." - Morgan Housel | "Pick a bushel, save a peck!" - Grandpa
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CharlesNorris
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Re: The need for bonds if I have a pension?

Post by CharlesNorris »

CyclingDuo wrote: Sat Sep 25, 2021 8:08 am
CharlesNorris wrote: Sat Sep 25, 2021 6:34 amCyclingDuo, thanks for asking. We are doing really well. Although the 2020 meltdown I made a minor overreaction with one of our 529s I was able to stay the course with everything else. We are still 100% stocks and thankful to have stayed that route. At age 39, we joined the 2 comma club and our net worth increased by 285k last year. The pension seems to be intact and funded well. Our combined pension is now estimated to be worth $170k annually. Now that we are entering our 40s I’m trying to save less and live more. We have constantly saved 50-60% of our income and if we don’t save another dollar the accounts should continue to grow at a rate that will fund an amazing retirement. With that being said I’ll always max roth, HSA, and the 14% strs Ohio contribution for my wife and I. Our savings will still be 40% of income but just dialing it back some. I plan on staying 100% stocks for the time being. My wife is back in the work force full time and that has been a major help.

The 2020 meltdown brought out some amateur investors in my school and a lot of people were now curious in individual stocks. So they hyped this stock and that stock but didn’t know when to get in and get out. I just smiled and nodded because my approach was boring to them. Fast forward to tax season and the most vocal of the investors was deflated when he realized he spent all that time stressing when to get in and out and chasing performance for a measly $600 capital gain for the year. Me on the other hand increased my net worth $285k with a Boglehead approach of buy and hold index funds and keep costs low……….Holy [expletive deleted by moderator oldcomputerguy] this site is unbelievable. THANKS TO ALL - I grew up dirt poor in section 8 housing for a good percentage of life and was homeless at one point. My career path was chosen not based on the money I could make but rather the difference I could make. With that being said, with the Boglehead approach I’m doing both and it’s a win-win.
Good to hear your progress has remained on target and you are once again a dual income force!

No doubt that the corrections and drops in the years 2018 and 2020 provided a nice little taste of what markets do from time to time.
https://www.yardeni.com/pub/sp500corrbear.pdf

You might want to point your friends who seem to spend most of their time chasing alpha to listen to this podcast: https://podcasts.apple.com/us/podcast/t ... 0535510369.

Professor Hersh Shefrin: Fear, Hope, and the Psychology of Investing

With your current nest egg, paid off house, future pensions - I would probably agree that you may not need to be saving 50% of your income while the kids are at home. You only get one journey, so enjoy the years with them a bit more.

:sharebeer

CyclingDuo
Thanks for the podcast, I will be sure to share. The dual income is a game changer. As is enjoying the moment now and not saving every last penny. It took me about 40 years to figure that out, but old life saving habits are hard to break. I’m just trying to find the balance between living, saving, and sleeping comfortably at night. For me, it’s saving between 35-40% of income and enjoying the rest. Thanks for the advice
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CharlesNorris
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Re: The need for bonds if I have a pension?

Post by CharlesNorris »

Thanks for the advice. Good call on the survivorship. I used to have that info but can’t seem to locate it right now. Off the top of my head it was similar but I can’t recall the exact number and I don’t want to throw out something incorrect. I need to find it
Beehave
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Re: The need for bonds if I have a pension?

Post by Beehave »

Peter Foley wrote: Mon Feb 20, 2017 7:04 pm Having some bonds will not hurt you and will provide you with some dry powder if you need to rebalance. 20% is probably the minimum - a little lower than the usual 25% because you have a pension.
+1

When the market tumbles badly, rebalancing can take much of the angst out of the situation, because you focus on your control of the situation - - (a) buying stocks on sale,and (b) having placed yourself in a condition where you can buy stocks on sale when others have to dump them. You face the downturn as the master of the situation, and not as a human punching bag.

Pensions are a great enabler for this because of the financial stability they provide. But they cannot be used for rebalancing, so bonds (or stable value/money market funds) in some reasonable proportion to stocks are, in my opinion, an excellent component in an asset allocation.

For me, the OP's question also illustrates something deep about "the safe withdrawal rate for FIRE" threads. There the questions run along the lines of "Is 3% too conservative?," or Can you start with a 5% withdrawal rate?." A pension (or an annuity) blows these questions away because of the stability it provides and because of the longevity protection it provides. Were I advising anyone with FIRE on their minds, I'd urge them to figure out how to include an annuity so that the concerns so obviously associated with relying on stocks as the foundation for early retirement are somewhat alleviated both fiscally and emotionally.
Stoic9
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Re: The need for bonds if I have a pension?

Post by Stoic9 »

Retired almost 5 years. My pension (cola) provides more per year than my yearly income ever did (I saved every raise and promotion to the tune of 30-40% of income the last 15 years of work). Way over living expenses, I'll collect SS in little more than 5 years and that will give me a 28% raise. My AA is currently 81/19. In our case the bonds come from a 401K fund the wifeiod had from 10 years of working when we were younger. She was very risk averse and HR convinced her to go bonds.
chemocean
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Re: The need for bonds if I have a pension?

Post by chemocean »

Wade Pfau answers your question in "Safety-first retirement"
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ApeAttack
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Re: The need for bonds if I have a pension?

Post by ApeAttack »

I haven't read all the posts so this might have been covered already.

Both my wife and I have pensions in a pretty solid pension plan, but we are saving and investing at a high rate that allows us to retire at a reasonable age in case the pension plan doesn't do so well and we take a severe haircut. Bonds help us stay the course in our investments. Plus, if the pension plan struggles it might be because the stock market is down for a long period of time, which would impact a 100% stock strategy too.

If the pension plan does well, we can retire earlier then expected. We'll know in about 10 years. :)
May all your index funds gain +0.5% today.
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ApeAttack
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Re: The need for bonds if I have a pension?

Post by ApeAttack »

Beehave wrote: Sat Sep 25, 2021 10:09 am
Peter Foley wrote: Mon Feb 20, 2017 7:04 pm Having some bonds will not hurt you and will provide you with some dry powder if you need to rebalance. 20% is probably the minimum - a little lower than the usual 25% because you have a pension.
+1

When the market tumbles badly, rebalancing can take much of the angst out of the situation, because you focus on your control of the situation - - (a) buying stocks on sale,and (b) having placed yourself in a condition where you can buy stocks on sale when others have to dump them. You face the downturn as the master of the situation, and not as a human punching bag.

Pensions are a great enabler for this because of the financial stability they provide. But they cannot be used for rebalancing, so bonds (or stable value/money market funds) in some reasonable proportion to stocks are, in my opinion, an excellent component in an asset allocation.

For me, the OP's question also illustrates something deep about "the safe withdrawal rate for FIRE" threads. There the questions run along the lines of "Is 3% too conservative?," or Can you start with a 5% withdrawal rate?." A pension (or an annuity) blows these questions away because of the stability it provides and because of the longevity protection it provides. Were I advising anyone with FIRE on their minds, I'd urge them to figure out how to include an annuity so that the concerns so obviously associated with relying on stocks as the foundation for early retirement are somewhat alleviated both fiscally and emotionally.
One of the reasons I have some bonds is because it gives me something to do in a downturn. It isn't a completely rational reason, but humans are not governed by reason much of the time.
May all your index funds gain +0.5% today.
DonFifer
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Re: The need for bonds if I have a pension?

Post by DonFifer »

This is just slightly off-topic. I had planned on two pensions from different companies that I worked for. The one pension went belly-up, but I was able to get 12K from PBGC, which is better than nothing and I was able to directly roll that over into my 401K. The other pension was with the Teamsters. That pension, like social security, had Delayed Retirement Credits. My benefit went up 9.5%/year from 65 to 70 years old. While SS went up 32% from 66 to 70 years old, the teamster pension went up 47.5%. You might want to check the small print on your pension(s) to see if it also has Delayed Retirement Credits. Unfortunately there is no COLA with the teamster pension. The teamster pension also allows the Delayed Retirement Credits to be passed to my survivor upon my demise or pops up if my DW predeceases me.
My pension along with SS pays 100%+ of my day to day needs, but I still feel better with bonds and have a 60/40 AA.
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bertilak
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Re: The need for bonds if I have a pension?

Post by bertilak »

CharlesNorris wrote: Tue Feb 21, 2017 6:42 am How often do people rebalance their portfolio? Do they rebalance once/twice a year or whenever it has strayed?
In one sense I never rebalance but in another sense I am always rebalancing.

I use normal cashflow to always nudge my actual AA towards the target. There is cash-flow everywhere I look! (pension, SS, dividends, expenses, gifting, RMDs, etc.) That's been enough to maintain the AA. There is never a need to make the occasional big change.

It helps that I look at target AAs as very broad guestimates of the ideal (who really knows?) so I put up with a lot of drift. There is something to be said for momentum, so I embrace it! Life's easier that way, too.
May neither drought nor rain nor blizzard disturb the joy juice in your gizzard. -- Squire Omar Barker (aka S.O.B.), the Cowboy Poet
Fishing2retire
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Re: The need for bonds if I have a pension?

Post by Fishing2retire »

OP I think you need to calculate your pension numbers again. According to STRS benefits calculator a teacher with FAS of 100K with 40 years of service is $3333 a month $40000 a year how do you calculate $170000 from the pension? I’m I missing something?
pedalman701
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Re: The need for bonds if I have a pension?

Post by pedalman701 »

I'm vested in a Texas Teacher Retirement System pension. But it's non-COLA, and my employer doesn't pay into Social Security. Therefore, a bond fund is in my portfolio.
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Bayliss
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Re: The need for bonds if I have a pension?

Post by Bayliss »

pedalman701 wrote: Sun Sep 26, 2021 5:39 pm I'm vested in a Texas Teacher Retirement System pension. But it's non-COLA, and my employer doesn't pay into Social Security. Therefore, a bond fund is in my portfolio.
I teach in Texas too. I worked for one of the handful of ISDs that paid into social security. I had 16 years with that district so I had enough quarters to draw social security. I had to switch to another district that doesn't pay into social security so under WEP, when I reach retirement age they will cut my social security by like 1/2. So I started paying into a Roth when I started the new district to try and make up the difference.

The Texas Teacher Retirement is very sound. I don't have a clue about other states, but I suggest creating a Roth. You might want to splurge and use that money for something else after 59 1/2. But the tax free growth would be worth it. Same with withdrawals. And I do feel the need for bonds because I have a weak stomach, but I put my bond funds in my brokerage account.
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CharlesNorris
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Re: The need for bonds if I have a pension?

Post by CharlesNorris »

Fishing2retire wrote: Sun Sep 26, 2021 4:30 pm OP I think you need to calculate your pension numbers again. According to STRS benefits calculator a teacher with FAS of 100K with 40 years of service is $3333 a month $40000 a year how do you calculate $170000 from the pension? I’m I missing something?

I’ve never used the STRS calculator. Are you using STRS Ohio or a different states calculator? 40 years in STRS Ohio gets you 88% of FAS. I received my annual statement from STRS the other day and my projected annual amount was $90k. My wife is also in STRS Ohio so that puts us in the $170kish range
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