Too Conservative???

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Bdog93
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Joined: Fri Aug 17, 2012 1:40 am

Too Conservative???

Post by Bdog93 »

Hi,
I will have a Washington State pension in about a year ( at age 65)~ $4000/mo.
I should also get 2K in SS at age 66 1/2 ( 2 1/2 years from now).

Other assets:
180K in IRAs ( mostly Roth)
160K in a 403B ( pre tax)
Both the above are in Vanguard Balanced Fund ( 60/40) and have been for many years. I know, should have been more aggressive but...
90K in a CD earning practically nothing half of one percent
20K in a savings account/or checking account


My husband, who is already retired, with a small pension (3K/mo).
He will not receive SS; he is Civil Service.
He also has a pre-tax account of 150K (TSP) and a 100K IRA ( half Trad, half Roth). All those accounts are a 60/40 split as well.

I hope to keep working til my pension begins ( tho I'm part time, earning about 50K/year).
We are still maxing out our Roths ( based on my earned income). Again, currently 60/40 on those.

Our cars are old, but our house is paid off.

My question is: since we both have ( or will have) life time income streams, should our non pension/SS money be more "aggressively" invested?
We both have longevity in our families and are okay with "staying the course" during market fluctuations; we sold nothing during 2008/9 for example.
Also, should we think about converting some of our pre tax IRAs to Roth? I don't think our tax bracket will change much from now to when I retire.

THANK YOU for any thoughts/insights!
Triple digit golfer
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Re: Too Conservative???

Post by Triple digit golfer »

Will the guaranteed income streams (pension and Social Security) cover your living expenses? Looks like it'll be around $9k per month once they're all flowing in 2.5 years from now.

There are a couple schools of thought and you can fall into one of these or anywhere in the middle. One is that you don't need your own portfolio, so invest it aggressively. The other is that your income is covered and you don't have a need to take risk and grow your portfolio, so invest it conservatively. I think it's largely left up to personal preference and what allows you to sleep best at night. You're in a good position so I don't think there's a bad choice here.

If your tax brackets will be the same when you retire as they are now, I wouldn't bother converting to Roth. Might as well not pay taxes before you absolutely have to. Did you factor in required minimum distributions from the tax deferred accounts?
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Jon Luskin
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Re: Too Conservative???

Post by Jon Luskin »

Bdog93 wrote: Fri May 14, 2021 12:12 pm
I should also get 2K in SS at age 66 1/2 ( 2 1/2 years from now).
When working with clients, we often find ways to add value outside their portfolio allocation. I call this helping clients find their financial planning blind spots. We can point out things to them that they may not have been thinking about. Moreover, these “other things” can be more impactful than determining the optimal portfolio allocation. (Of course, we help folks figure their investments out too.)

Social Security strategies are one great example of a financial planning blind spot. For many clients, we suggest delaying Social Security until age 70. Delaying Social Security retirement benefits has two advantages:

Firstly, clients can collect higher lifetime benefits. So, you get more money out of Social Security. This strategy can make sense for clients with ample retirement savings and other income streams (such as a pension).

Secondly, delaying income (which includes Social Security) may create a better tax environment for Roth conversions. When income is low(er), there is a stronger case for converting more dollars from traditional, tax-deferred accounts to Roth, tax-free accounts. Like the Social Security strategy, this produces a lifetime benefit. Successfully using this strategy can mean paying fewer taxes over one's entire lifetime (even if that means clients are paying more upfront.)

Of course, that didn’t answer your question. Yet, I hope it’s some valuable information as you put together your financial plan.

Good luck! :D
When there are multiple solutions to a problem, choose the simplest one. ~Jack Bogle
hudson
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Re: Too Conservative???

Post by hudson »

Bdog93,

Maybe read W. Bernstein's book Ages of the Investor, Book 1? https://www.amazon.com/Ages-Investor-Cr ... B008CM2T2A

Maybe this post by Nisiprius? viewtopic.php?p=5922055&sid=1c6ca2bc646 ... b#p5922055

Risk Tolerance is important! Everybody's different. https://www.bogleheads.org/wiki/Assessi ... _tolerance

I think that you would be fine owning more equities with your monthly income as long as you understand the downside.

If it was me, I would lean towards more high quality/low expense fixed income rather than less. I would look hard at inflation protect treasuries.
I would look at duration matching my fixed income. viewtopic.php?p=5810065#p5810065
Last edited by hudson on Fri May 14, 2021 3:03 pm, edited 2 times in total.
sycamore
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Re: Too Conservative???

Post by sycamore »

Triple digit golfer wrote: Fri May 14, 2021 12:19 pm Will the guaranteed income streams (pension and Social Security) cover your living expenses? Looks like it'll be around $9k per month once they're all flowing in 2.5 years from now.
+1

The main question is how much of your expenses are covered by income streams, so subtract your SS and pension amounts from your expenses. What's leftover is your "residual living expenses" and that's what you need your portfolio to cover. If your RLE is relatively low, say 1% of your investments balance, then you can take more stock risk knowing that even with a stock market drop, you'll still have enough to cover your withdrawal needs.

Regarding when to claim SS for you and your spouse, try out https://opensocialsecurity.com/ to get a recommendation on the ideal claiming ages.
whereskyle
Posts: 1911
Joined: Wed Jan 29, 2020 9:29 am

Re: Too Conservative???

Post by whereskyle »

Bdog93 wrote: Fri May 14, 2021 12:12 pm Hi,
I will have a Washington State pension in about a year ( at age 65)~ $4000/mo.
I should also get 2K in SS at age 66 1/2 ( 2 1/2 years from now).

Other assets:
180K in IRAs ( mostly Roth)
160K in a 403B ( pre tax)
Both the above are in Vanguard Balanced Fund ( 60/40) and have been for many years. I know, should have been more aggressive but...
90K in a CD earning practically nothing half of one percent
20K in a savings account/or checking account


My husband, who is already retired, with a small pension (3K/mo).
He will not receive SS; he is Civil Service.
He also has a pre-tax account of 150K (TSP) and a 100K IRA ( half Trad, half Roth). All those accounts are a 60/40 split as well.

I hope to keep working til my pension begins ( tho I'm part time, earning about 50K/year).
We are still maxing out our Roths ( based on my earned income). Again, currently 60/40 on those.

Our cars are old, but our house is paid off.

My question is: since we both have ( or will have) life time income streams, should our non pension/SS money be more "aggressively" invested?
We both have longevity in our families and are okay with "staying the course" during market fluctuations; we sold nothing during 2008/9 for example.
Also, should we think about converting some of our pre tax IRAs to Roth? I don't think our tax bracket will change much from now to when I retire.

THANK YOU for any thoughts/insights!
I see no reason to take more risk with $9k/month in guaranteed retirement income. I'd keep your asset allocation right where it is and delay social security until you're at full retirement age, especially if you have reason to believe that you'll live for a very long time. Draw from the traditional IRAs early rather than the Roths to avoid hefty RMDs later on and have some fun while you're at it! Let the Roths grow as much as possible.

Looks good to me!
"I am better off than he is – for he knows nothing and thinks that he knows. I neither know nor think that I know." - Socrates. "Nobody knows nothing." - Jack Bogle
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retiredjg
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Re: Too Conservative???

Post by retiredjg »

You are 64 and nearing retirement. I didn't see an age for your husband, but he is already retired. I do not believe that 60% stocks and 40% bonds is in any way "too conservative" at this point.

Once you are both retired and once is it clear that you are investing entirely for your heirs, maybe you could jack it up some then. But I'd wait. You have a nice comfortable retirement cushion, but if both of you ended up in long term care for an extended time, your assets could dwindle somewhat quickly. It would be different if you have $2 or $3 million in savings.

To me, this is a "better safe than sorry" scenario.
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Lee_WSP
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Location: Arizona

Re: Too Conservative???

Post by Lee_WSP »

I think it comes down to your willingness to take risk since you have the ability, but not the need. You have to sleep at night and not bail out during the next crisis.
namajones
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Re: Too Conservative???

Post by namajones »

JonL wrote: Fri May 14, 2021 12:32 pm
Social Security strategies are one great example of a financial planning blind spot. For many clients, we suggest delaying Social Security until age 70. Delaying Social Security retirement benefits has two advantages:

Firstly, clients can collect higher lifetime benefits. So, you get more money out of Social Security. This strategy can make sense for clients with ample retirement savings and other income streams (such as a pension).

Secondly, delaying income (which includes Social Security) may create a better tax environment for Roth conversions. When income is low(er), there is a stronger case for converting more dollars from traditional, tax-deferred accounts to Roth, tax-free accounts. Like the Social Security strategy, this produces a lifetime benefit. Successfully using this strategy can mean paying fewer taxes over one's entire lifetime (even if that means clients are paying more upfront.)

Of course, that didn’t answer your question. Yet, I hope it’s some valuable information as you put together your financial plan.

Good luck! :D
What do you tell clients who worry that if they delay social security to 70, social security benefits may be cut shortly before they finally take it?
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Jon Luskin
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Re: Too Conservative???

Post by Jon Luskin »

namajones wrote: Sat May 15, 2021 4:20 pm What do you tell clients who worry that if they delay social security to 70, social security benefits may be cut shortly before they finally take it?
Great question. After all, some predict that Social Security is slated to need to reduce benefits by 20% in 2035, at its current rate of funding/spending. Yet, as any Boglehead knows, predicting the future is rarely successful.

I don't have a good answer to that question. That is often the case in financial planning. There are always trade-offs.

Ask yourself how founded you are in this conviction. Are you so confident that you're willing to risk thousands in lifetime income? What's the consequence if you're wrong? Do you have sufficient assets that you'll be just fine anyway?

I encourage you to ask yourself these questions. :D
When there are multiple solutions to a problem, choose the simplest one. ~Jack Bogle
tibbitts
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Re: Too Conservative???

Post by tibbitts »

JonL wrote: Sat May 15, 2021 8:17 pm
namajones wrote: Sat May 15, 2021 4:20 pm What do you tell clients who worry that if they delay social security to 70, social security benefits may be cut shortly before they finally take it?
Great question. After all, some predict that Social Security is slated to need to reduce benefits by 20% in 2035, at its current rate of funding/spending. Yet, as any Boglehead knows, predicting the future is rarely successful.

I don't have a good answer to that question. That is often the case in financial planning. There are always trade-offs.

Ask yourself how founded you are in this conviction. Are you so confident that you're willing to risk thousands in lifetime income? What's the consequence if you're wrong? Do you have sufficient assets that you'll be just fine anyway?

I encourage you to ask yourself these questions. :D
Although there may be some debate over the exact mechanism by which social security payments could actually be reduced (like whether the SSA would or wouldn't have the authority to do that), at least based on current law the SSA seems intent on reducing payments, barring legislation to the contrary.

However, I've noticed that with the planning tools I've used that try to optimize social security, it surprisingly doesn't matter a lot whether I specify with or without the projected benefit cut: the optimal age to claim benefits shifts by relatively little either way.

I'm sure you have more scenarios that you're familiar with, and more planning tools (not just free ones), so what differences have you seen in some examples you've run?
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Jon Luskin
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Re: Too Conservative???

Post by Jon Luskin »

tibbitts wrote: Sat May 15, 2021 9:07 pm
However, I've noticed that with the planning tools I've used that try to optimize social security, it surprisingly doesn't matter a lot whether I specify with or without the projected benefit cut: the optimal age to claim benefits shifts by relatively little either way.
That absolutely makes sense. As long as everything is cut proportionally, that should be the case.

The challenge comes in measuring the advantages of each strategy when one is able to take a fully-funded benefit earlier, which later transitions to a partially funded early benefit, versus claiming later when Social Security supposedly has to cut benefits across the board.

Of course, such an exercise is so highly theoretical, given such a unique input of possible future circumstances. Said another way, why bother forecasting (which in itself is arguably valuable) with such arguably likely to occur circumstances?
tibbitts wrote: Sat May 15, 2021 9:07 pm I'm sure you have more scenarios that you're familiar with, and more planning tools (not just free ones), so what differences have you seen in some examples you've run?
In my time using Money Guide Pro, NaviPlan, and eMoneyAdvisor, the biggest tweaks I've done is explore scenarios with future Social Security under-funding. i.e., "Mr. Mrs. Client, what happens if we assume fewer/no future Social Security benefits? Will you still make it? Do you have enough resources outside of Social Security to fund your retirement?"
When there are multiple solutions to a problem, choose the simplest one. ~Jack Bogle
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abuss368
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Re: Too Conservative???

Post by abuss368 »

JonL wrote: Sat May 15, 2021 8:17 pm
Great question. After all, some predict that Social Security is slated to need to reduce benefits by 20% in 2035, at its current rate of funding/spending. Yet, as any Boglehead knows, predicting the future is rarely successful.
Hi Jon -

When I look at financial planning, I often take the expected Social Security benefit at 75%. This is a conservative estimate in my opinion. I rationalize that is actual is higher, that is the plus.

Tony
Last edited by abuss368 on Sun May 16, 2021 5:46 pm, edited 1 time in total.
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Jon Luskin
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Re: Too Conservative???

Post by Jon Luskin »

abuss368 wrote: Sun May 16, 2021 2:02 pm

Hi Jon -

When I look at financial planning, I often take the expected Social Security benefit at 75%. This is is a conservative estimate in my opinion. I rationalize that is actual is higher, that is the plus.

Tony
In playing with financial planning software in the past, I normally cut SS benefits as a function of client age. For really young clients, I've sometimes modeled no SS benefits. For clients closer to retirement, I'll sometimes model a similar cut as you suggest above.
When there are multiple solutions to a problem, choose the simplest one. ~Jack Bogle
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