Questions for Retirees - How many years in fixed income?
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Questions for Retirees - How many years in fixed income?
I have a TIPS bonds ladder through 2031 that is being depleted as I use the money to live from. The rest in equities. My plan has been to add TIPS bonds to the back end at the expense of equities to always have X years in safe investments to fund the retirement.
Question: how many years in TIPS bonds would you feel comfortable (what is you "X" number)?
Question: how many years in TIPS bonds would you feel comfortable (what is you "X" number)?
Re: Questions for Retirees - How many years in fixed income?
I don't own any TIPS bond funds, so I guess my X is zero, since I feel comfortable. We have about 10 years of expenses in non-TIPS bond funds.
To ask a question back at you: How many years of expenses do you have in equities?
To ask a question back at you: How many years of expenses do you have in equities?
Re: Questions for Retirees - How many years in fixed income?
Depends on age/expenses/portfolio value. If you're 95 you don't need 15 years of TIPS, right?
I am not yet retired but my current plan is to hold 5 years in fixed income that, when combined with pension, covers all expenses. For us, that will be around $350-400k. Everything else: index funds.
When we take SS, I'm sure we will reduce our bond holdings. Plan to stop full time work at age 57/58.
I am not yet retired but my current plan is to hold 5 years in fixed income that, when combined with pension, covers all expenses. For us, that will be around $350-400k. Everything else: index funds.
When we take SS, I'm sure we will reduce our bond holdings. Plan to stop full time work at age 57/58.
Re: Questions for Retirees - How many years in fixed income?
I have 1-2 years in FI but I have a pension and I can live on that if needed.
Remember when you wanted what you currently have?
Re: Questions for Retirees - How many years in fixed income?
We have 2 years in cash. Using it mostly for Roth conversions. AA is 65/35.
"I started with nothing and I still have most of it left."
Re: Questions for Retirees - How many years in fixed income?
Depends on many factors but I have 15 years of fix income assets and that does not include SS income.
Re: Questions for Retirees - How many years in fixed income?
I don't relate the safety of my retirement to how many years of fixed income are in the portfolio. I do rate the safety of retirement to what projections can be made regarding the chances of running out of money while withdrawing from that portfolio at the rate I expect to do that.
It turns out the allocation between stocks and bonds has little effect on the result over a wide range as long as there is enough in stocks, so I have also considered other things to set the asset allocation. The result is that we chose a 50/50 stock/bond asset allocation.* As it happens half of that fixed income is in TIPS funds, but I don't think that is really here nor there.
It isn't relevant, but it does turn out that we have actually been withdrawing from the portfolio at a rate of about 3% indexed by inflation of the portfolio value at the beginning, which would mean that at 50/50 we have about 17 years of real dollar withdrawals in fixed income at this time. It would not particularly upset me to see the asset allocation at 70/30 instead of 50/50 and then we would have 10 years of withdrawals. But, as I said, this is not relevant to the plan. I did have occassion recently to donate some money and did it in stocks, which reduced to stock allocation which had gotten a little high. I doubt we would actually sell anything just to rebalance any more. It just isn't a big deal.
*Our method of deciding on an asset allocation has been to think through our need, ability, and willingness to take risk and arrive at an allocation. As I mention above that was not very hard as a fairly wide range would have met the requirements. I doubt it would make sense to us to be less than 50/50 allocated. We have been retired 17 years.
It turns out the allocation between stocks and bonds has little effect on the result over a wide range as long as there is enough in stocks, so I have also considered other things to set the asset allocation. The result is that we chose a 50/50 stock/bond asset allocation.* As it happens half of that fixed income is in TIPS funds, but I don't think that is really here nor there.
It isn't relevant, but it does turn out that we have actually been withdrawing from the portfolio at a rate of about 3% indexed by inflation of the portfolio value at the beginning, which would mean that at 50/50 we have about 17 years of real dollar withdrawals in fixed income at this time. It would not particularly upset me to see the asset allocation at 70/30 instead of 50/50 and then we would have 10 years of withdrawals. But, as I said, this is not relevant to the plan. I did have occassion recently to donate some money and did it in stocks, which reduced to stock allocation which had gotten a little high. I doubt we would actually sell anything just to rebalance any more. It just isn't a big deal.
*Our method of deciding on an asset allocation has been to think through our need, ability, and willingness to take risk and arrive at an allocation. As I mention above that was not very hard as a fairly wide range would have met the requirements. I doubt it would make sense to us to be less than 50/50 allocated. We have been retired 17 years.
Re: Questions for Retirees - How many years in fixed income?
This may sound weird, but I approach it from the other direction. How much am I willing to invest in potentially volatile stocks? The rest we invest in more stable assets.
edit: Currently we have more than enough stable assets to see us through till I claim SS. I guess we will always keep at least a few years of expenses in stable assets.
edit: Currently we have more than enough stable assets to see us through till I claim SS. I guess we will always keep at least a few years of expenses in stable assets.
Last edited by dknightd on Sun Dec 05, 2021 8:21 am, edited 1 time in total.
Retired 2019. So far, so good. I want to wake up every morning. But I want to die in my sleep. Just another conundrum. I think the solution might be afternoon naps ;)
Re: Questions for Retirees - How many years in fixed income?
On the contrary this would be totally rational. What is your need, ability, and willingness to take risk?
Larry Swedroe's comment about need and ability is that you take no more risk than you need because risk is often underestimated and because the marginal utility of wealth is a decreasing function of wealth. Understanding how well a portfolio will meet one's need is not necessarily an obvious calculation, however.
Last edited by dbr on Sun Dec 05, 2021 8:22 am, edited 1 time in total.
Re: Questions for Retirees - How many years in fixed income?
I have interpreted your question as related to SORR. If that wasn't your premise, I apologize for misunderstanding.
We are in the SORR window. I'm 58; DW is 62. I'm still working.
Our current thinking, which may change based on future conditions, is to address SORR through the following: (1) robust savings (we are currently at 50x not including RE); (2) my still working; (3) an AA target that we are comfortable with (currently 65/33/2); and (4) use of a planned perpetual withdrawal rate (or lower) in retirement. I recognize this is wildly conservative but we would like to leave an inheritance. There are other factors at play, too, that aren't relevant here (HC, no pension, the future is always uncertain, etc.).
I haven't yet thought through all of the mechanics of the decumulation phase, to include tax efficient approaches and potential Roth conversions. I'm currently disinclined to do the latter.
Stated another way, we aren't specifically using "number of years in fixed income" as a metric. As it so happens though, we have about 16x in fixed income at the moment, most of it in BND and similar. We don't have TIPs.
We are in the SORR window. I'm 58; DW is 62. I'm still working.
Our current thinking, which may change based on future conditions, is to address SORR through the following: (1) robust savings (we are currently at 50x not including RE); (2) my still working; (3) an AA target that we are comfortable with (currently 65/33/2); and (4) use of a planned perpetual withdrawal rate (or lower) in retirement. I recognize this is wildly conservative but we would like to leave an inheritance. There are other factors at play, too, that aren't relevant here (HC, no pension, the future is always uncertain, etc.).
I haven't yet thought through all of the mechanics of the decumulation phase, to include tax efficient approaches and potential Roth conversions. I'm currently disinclined to do the latter.
Stated another way, we aren't specifically using "number of years in fixed income" as a metric. As it so happens though, we have about 16x in fixed income at the moment, most of it in BND and similar. We don't have TIPs.
Re: Questions for Retirees - How many years in fixed income?
I would support the idea that asset allocation is an issue of understanding what to expect from a portfolio under different choices for asset allocation, withdrawals, and time. It does not reduce to a "number of years in fixed income," but usually reasonable plans have a significant amount of fixed income in the portfolio because most retirees don't want to see so much volatility in their assets. It is still true that too much in stocks is not expected to harm a retirement to the degree that too little in stocks will.Zeno wrote: ↑Sun Dec 05, 2021 8:21 am I have interpreted your question as related to SORR. If that wasn't your premise, I apologize for misunderstanding.
We are in the SORR window. I'm 58; DW is 62. I'm still working.
Our current thinking, which may change based on future conditions, is to address SORR through the following: (1) robust savings (we are currently at 50x not including RE); (2) my still working; (3) an AA target that we are comfortable with (currently 65/33/2); and (4) use of a planned perpetual withdrawal rate (or lower) in retirement. I recognize this is wildly conservative but we would like to leave an inheritance. There are other factors at play, too, that aren't relevant here (HC, no pension, the future is always uncertain, etc.).
I haven't yet thought through all of the mechanics of the decumulation phase, to include tax efficient approaches and potential Roth conversions. I'm currently disinclined to do the latter.
Stated another way, we aren't using specifically using "number of years in fixed income" as a metric. As it so happens though, we have about 16x in fixed income at the moment, most of it in BND and similar. We don't have TIPs.
Alternatives such as buying one or more SPIA or setting up a long term ladder of TIPS might be helpful to some people. Existing pensions and SS also fill that role. At this time SPIAs, TIPS, and I bonds are expensive relative to historical conditions.
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Re: Questions for Retirees - How many years in fixed income?
OP,
Our goal in using an x-Years approach is to insure we have sufficient funds for our Mandatory and Discretionary expenses, especially in our GoGo years. Based on our finances this equates to covering us till I claim SS at 70. After 70 my Pension and our SS should cover all of our expected expenses.
At the same time, We do not have the need or willingness to be at 100% equities in Retirement—at least not at this point. This lead us to a second target of an overall AA of 60/40.
Lastly we also have a goal of simplifying our overall portfolio and see this as a source of Alpha, especially as we age.
To accomplish these goals we manage 2 portfolios, an LMP for expected expenses and a Growth for Unexpected Expenses, LTC, Charitable Donations and Inheritance. Overall these portfolios combined are at a 60/40 AA using a 3 Fund portfolio ( 45% Total US Stock Market, 15% Total International Stock Market, 40% Intermediate Treasuries).
Within the LMP portfolio we set up a declining 8 year floor of Fixed income investments (in our case VGIT, Vanguard Intermediate Treasuries) since they are duration matched to our expected expenses. This represents a floor of bonds which we will not rebalance below.
The remaining Growth portfolio is not managed to a specific AA, instead we manage both portfolios to fit into a 60/40 AA. For simplicity, the additional bonds are also held in VGIT.
At some point we will dial up the risk and shift to a higher equity allocation but this seems to work well for now.
WoodSpinner
Our goal in using an x-Years approach is to insure we have sufficient funds for our Mandatory and Discretionary expenses, especially in our GoGo years. Based on our finances this equates to covering us till I claim SS at 70. After 70 my Pension and our SS should cover all of our expected expenses.
At the same time, We do not have the need or willingness to be at 100% equities in Retirement—at least not at this point. This lead us to a second target of an overall AA of 60/40.
Lastly we also have a goal of simplifying our overall portfolio and see this as a source of Alpha, especially as we age.
To accomplish these goals we manage 2 portfolios, an LMP for expected expenses and a Growth for Unexpected Expenses, LTC, Charitable Donations and Inheritance. Overall these portfolios combined are at a 60/40 AA using a 3 Fund portfolio ( 45% Total US Stock Market, 15% Total International Stock Market, 40% Intermediate Treasuries).
Within the LMP portfolio we set up a declining 8 year floor of Fixed income investments (in our case VGIT, Vanguard Intermediate Treasuries) since they are duration matched to our expected expenses. This represents a floor of bonds which we will not rebalance below.
The remaining Growth portfolio is not managed to a specific AA, instead we manage both portfolios to fit into a 60/40 AA. For simplicity, the additional bonds are also held in VGIT.
At some point we will dial up the risk and shift to a higher equity allocation but this seems to work well for now.
WoodSpinner
WoodSpinner
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Re: Questions for Retirees - How many years in fixed income?
Per Bernstein's (not the bears) LMP, you would back calculate, less non portfolio income streams in retirement (SS, Annuities, Pensions, etc) at age 65, 25X minus that, as your baseline for "fixed" (vs equities).Always passive wrote: ↑Sun Dec 05, 2021 1:24 am I have a TIPS bonds ladder through 2031 that is being depleted as I use the money to live from. The rest in equities. My plan has been to add TIPS bonds to the back end at the expense of equities to always have X years in safe investments to fund the retirement.
Question: how many years in TIPS bonds would you feel comfortable (what is you "X" number)?
OP:
Do you have that in your TIPS bond ladder?
j
Re: Questions for Retirees - How many years in fixed income?
Completely agree. We were 100/0/0 until age 50. I’ve always been an equity guy, with the ballast benefits of fixed income only recently slapping me on the forehead. I don’t envision going below 65% equities ever, and indeed would like to ratchet that back up once our canoe is through the rapids of the SORR window.dbr wrote: ↑Sun Dec 05, 2021 8:27 amI would support the idea that asset allocation is an issue of understanding what to expect from a portfolio under different choices for asset allocation, withdrawals, and time. It does not reduce to a "number of years in fixed income," but usually reasonable plans have a significant amount of fixed income in the portfolio because most retirees don't want to see so much volatility in their assets. It is still true that too much in stocks is not expected to harm a retirement to the degree that too little in stocks will.Zeno wrote: ↑Sun Dec 05, 2021 8:21 am I have interpreted your question as related to SORR. If that wasn't your premise, I apologize for misunderstanding.
We are in the SORR window. I'm 58; DW is 62. I'm still working.
Our current thinking, which may change based on future conditions, is to address SORR through the following: (1) robust savings (we are currently at 50x not including RE); (2) my still working; (3) an AA target that we are comfortable with (currently 65/33/2); and (4) use of a planned perpetual withdrawal rate (or lower) in retirement. I recognize this is wildly conservative but we would like to leave an inheritance. There are other factors at play, too, that aren't relevant here (HC, no pension, the future is always uncertain, etc.).
I haven't yet thought through all of the mechanics of the decumulation phase, to include tax efficient approaches and potential Roth conversions. I'm currently disinclined to do the latter.
Stated another way, we aren't using specifically using "number of years in fixed income" as a metric. As it so happens though, we have about 16x in fixed income at the moment, most of it in BND and similar. We don't have TIPs.
Alternatives such as buying one or more SPIA or setting up a long term ladder of TIPS might be helpful to some people. Existing pensions and SS also fill that role. At this time SPIAs, TIPS, and I bonds are expensive relative to historical conditions.
Re: Questions for Retirees - How many years in fixed income?
The more conventional understanding of a TIPS LMP would be that it would last as long as you expect to still be alive and end then. Since the maximum TIPS maturity available is 30 years, then that is the length most people would want, presumably. Of course, the ladder is constantly depleting and getting shorter as time goes on. The purpose of doing this is to have an inflation indexed income stream that has no volatility due to stock and bond markets. A downside is that one is subject to the bond market at the time the ladder is purchased, which is a terrible market for TIPS now.Always passive wrote: ↑Sun Dec 05, 2021 1:24 am I have a TIPS bonds ladder through 2031 that is being depleted as I use the money to live from. The rest in equities. My plan has been to add TIPS bonds to the back end at the expense of equities to always have X years in safe investments to fund the retirement.
Question: how many years in TIPS bonds would you feel comfortable (what is you "X" number)?
It does not sound like your plan is any different from just maintaining a fixed stock and bond asset allocation with some set withdrawal rate. In other words, the idea that you have set up "constantly ten years of safe investments to fund retirement" is a mirage which is neither here nor there. Any asset allocation intended to support withdrawals for an extended time and allocating a balance to stocks and bonds amounts to the same thing. Note that a rolling ladder of TIPS and a TIPS bond fund of constant duration aren't different.
Re: Questions for Retirees - How many years in fixed income?
+1,000.
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Re: Questions for Retirees - How many years in fixed income?
+1. Similar approach for me, but more like 8-9 years of fixed income. Almost 59 and planning to retire within a couple years.Admiral wrote: ↑Sun Dec 05, 2021 7:28 am Depends on age/expenses/portfolio value. If you're 95 you don't need 15 years of TIPS, right?
I am not yet retired but my current plan is to hold 5 years in fixed income that, when combined with pension, covers all expenses. For us, that will be around $350-400k. Everything else: index funds.
When we take SS, I'm sure we will reduce our bond holdings. Plan to stop full time work at age 57/58.
An important key to investing is having a well-calibrated sense of your future regret.
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Re: Questions for Retirees - How many years in fixed income?
How are I-Bonds expensive?dbr wrote: ↑Sun Dec 05, 2021 8:27 amI would support the idea that asset allocation is an issue of understanding what to expect from a portfolio under different choices for asset allocation, withdrawals, and time. It does not reduce to a "number of years in fixed income," but usually reasonable plans have a significant amount of fixed income in the portfolio because most retirees don't want to see so much volatility in their assets. It is still true that too much in stocks is not expected to harm a retirement to the degree that too little in stocks will.Zeno wrote: ↑Sun Dec 05, 2021 8:21 am I have interpreted your question as related to SORR. If that wasn't your premise, I apologize for misunderstanding.
We are in the SORR window. I'm 58; DW is 62. I'm still working.
Our current thinking, which may change based on future conditions, is to address SORR through the following: (1) robust savings (we are currently at 50x not including RE); (2) my still working; (3) an AA target that we are comfortable with (currently 65/33/2); and (4) use of a planned perpetual withdrawal rate (or lower) in retirement. I recognize this is wildly conservative but we would like to leave an inheritance. There are other factors at play, too, that aren't relevant here (HC, no pension, the future is always uncertain, etc.).
I haven't yet thought through all of the mechanics of the decumulation phase, to include tax efficient approaches and potential Roth conversions. I'm currently disinclined to do the latter.
Stated another way, we aren't using specifically using "number of years in fixed income" as a metric. As it so happens though, we have about 16x in fixed income at the moment, most of it in BND and similar. We don't have TIPs.
Alternatives such as buying one or more SPIA or setting up a long term ladder of TIPS might be helpful to some people. Existing pensions and SS also fill that role. At this time SPIAs, TIPS, and I bonds are expensive relative to historical conditions.
Re: Questions for Retirees - How many years in fixed income?
The real interest rate is 0%, which is historically low and the minimum amount which can be offered. It is not as bad as current real rates on TIPS or on ordinary cash deposits which are as bad as -1% to -2% right now. It is terrible compared to periods in which the real interest rate on I bonds was as much as 3%. Enthusiasts for I bonds should realize that they missed the boat by about fifteen to twenty years. Someone retired today should have been loading up on I bonds twenty years ago. Of course there was no way to know that then, and it does not help someone today. That doesn't mean I bonds are not generally a useful asset to hold if one can accumulate enough to matter and wants to hold the extra account at Treasury Direct.Escapevelocity wrote: ↑Sun Dec 05, 2021 10:08 amHow are I-Bonds expensive?dbr wrote: ↑Sun Dec 05, 2021 8:27 amI would support the idea that asset allocation is an issue of understanding what to expect from a portfolio under different choices for asset allocation, withdrawals, and time. It does not reduce to a "number of years in fixed income," but usually reasonable plans have a significant amount of fixed income in the portfolio because most retirees don't want to see so much volatility in their assets. It is still true that too much in stocks is not expected to harm a retirement to the degree that too little in stocks will.Zeno wrote: ↑Sun Dec 05, 2021 8:21 am I have interpreted your question as related to SORR. If that wasn't your premise, I apologize for misunderstanding.
We are in the SORR window. I'm 58; DW is 62. I'm still working.
Our current thinking, which may change based on future conditions, is to address SORR through the following: (1) robust savings (we are currently at 50x not including RE); (2) my still working; (3) an AA target that we are comfortable with (currently 65/33/2); and (4) use of a planned perpetual withdrawal rate (or lower) in retirement. I recognize this is wildly conservative but we would like to leave an inheritance. There are other factors at play, too, that aren't relevant here (HC, no pension, the future is always uncertain, etc.).
I haven't yet thought through all of the mechanics of the decumulation phase, to include tax efficient approaches and potential Roth conversions. I'm currently disinclined to do the latter.
Stated another way, we aren't using specifically using "number of years in fixed income" as a metric. As it so happens though, we have about 16x in fixed income at the moment, most of it in BND and similar. We don't have TIPs.
Alternatives such as buying one or more SPIA or setting up a long term ladder of TIPS might be helpful to some people. Existing pensions and SS also fill that role. At this time SPIAs, TIPS, and I bonds are expensive relative to historical conditions.
Re: Questions for Retirees - How many years in fixed income?
I do not know if you were asking me specifically, or as just a general question everybody should consider.dbr wrote: ↑Sun Dec 05, 2021 8:19 amOn the contrary this would be totally rational. What is your need, ability, and willingness to take risk?
Larry Swedroe's comment about need and ability is that you take no more risk than you need because risk is often underestimated and because the marginal utility of wealth is a decreasing function of wealth. Understanding how well a portfolio will meet one's need is not necessarily an obvious calculation, however.
I assume Larry Swedroe was talking about taking "risk" by investing in stocks. There are many other kinds of risks, as I'm sure he knows.
Everything is risky, so, like it or not, we have the need to accept risks. I want to avoid the risk of having to live on a truly fixed income for the rest of my live. So, I need to spread my assets. Some risk volatility. Some risk losing real spending power. Some risks I'm sure I have never even considered. The most dangerous risk is likely one I have never considered!
So, I "need" to have some money invested in stocks. Currently my "ability" to invest in stocks is probably greater than my "willingness". When I eventually (hopefully) collect SS, and purchase another SPIA, my "willingness" to accept volatility will be about the same as my "ability". Probably about 50/50.
To the OP. Do not confuse "fixed income investments" with actual "fixed income". I have enough "fixed income investments" to carry me over till I can collect a "fixed income". And hopefully enough so I never have to live on a fixed income!
@dbr said "Understanding how well a portfolio will meet one's need is not necessarily an obvious calculation, however."
agreed!!!!!
Retired 2019. So far, so good. I want to wake up every morning. But I want to die in my sleep. Just another conundrum. I think the solution might be afternoon naps ;)
Re: Questions for Retirees - How many years in fixed income?
Right. It is a general question and not whether or not your choice is well founded -- it sounds like it is anyway,dknightd wrote: ↑Sun Dec 05, 2021 11:00 amI do not know if you were asking me specifically, or as just a general question everybody should consider.dbr wrote: ↑Sun Dec 05, 2021 8:19 amOn the contrary this would be totally rational. What is your need, ability, and willingness to take risk?
Larry Swedroe's comment about need and ability is that you take no more risk than you need because risk is often underestimated and because the marginal utility of wealth is a decreasing function of wealth. Understanding how well a portfolio will meet one's need is not necessarily an obvious calculation, however.
I assume Larry Swedroe was talking about taking "risk" by investing in stocks. There are many other kinds of risks, as I'm sure he knows.
Everything is risky, so, like it or not, we have the need to accept risks. I want to avoid the risk of having to live on a truly fixed income for the rest of my live. So, I need to spread my assets. Some risk volatility. Some risk losing real spending power. Some risks I'm sure I have never even considered. The most dangerous risk is likely one I have never considered!
So, I "need" to have some money invested in stocks. Currently my "ability" to invest in stocks is probably greater than my "willingness". When I eventually (hopefully) collect SS, and purchase another SPIA, my "willingness" to accept volatility will be about the same as my "ability". Probably about 50/50.
To the OP. Do not confuse "fixed income investments" with actual "fixed income". I have enough "fixed income investments" to carry me over till I can collect a "fixed income". And hopefully enough so I never have to live on a fixed income!
@dbr said "Understanding how well a portfolio will meet one's need is not necessarily an obvious calculation, however."
agreed!!!!!
Yes, Larry is addressing the specific question regarding how much to allocate to stocks, risk being the allocation to stocks, but it is implied that the standard definition that risk is volatility applies here. No one imagines that there are not lots of different kinds of risks. Probably the word should only be used in the form "risk of X" where we have to say what X is.
An example of a risk that increases when stocks are too little is that safe withdrawal rates go down when there are not enough stocks but are not much improved or are even harmed a little by having a lot of stock.
Last edited by dbr on Sun Dec 05, 2021 11:25 am, edited 1 time in total.
Re: Questions for Retirees - How many years in fixed income?
Totally rational could be considered weird by some people
Retired 2019. So far, so good. I want to wake up every morning. But I want to die in my sleep. Just another conundrum. I think the solution might be afternoon naps ;)
Re: Questions for Retirees - How many years in fixed income?
This might be controversial. But I'll throw it out there. I think "safe withdrawal rates" aka SWR is a flawed concept. Useful as guidance perhaps, but nothing is safe.
My ideal allocation would be 50/50/50. But unfortunately I do not have an extra 50
Retired 2019. So far, so good. I want to wake up every morning. But I want to die in my sleep. Just another conundrum. I think the solution might be afternoon naps ;)
Re: Questions for Retirees - How many years in fixed income?
I like it - very similar to what we are doing but slightly ahead in the time period.WoodSpinner wrote: ↑Sun Dec 05, 2021 9:04 am OP,
Our goal in using an x-Years approach is to insure we have sufficient funds for our Mandatory and Discretionary expenses, especially in our GoGo years. Based on our finances this equates to covering us till I claim SS at 70. After 70 my Pension and our SS should cover all of our expected expenses.
At the same time, We do not have the need or willingness to be at 100% equities in Retirement—at least not at this point. This lead us to a second target of an overall AA of 60/40.
Lastly we also have a goal of simplifying our overall portfolio and see this as a source of Alpha, especially as we age.
To accomplish these goals we manage 2 portfolios, an LMP for expected expenses and a Growth for Unexpected Expenses, LTC, Charitable Donations and Inheritance. Overall these portfolios combined are at a 60/40 AA using a 3 Fund portfolio ( 45% Total US Stock Market, 15% Total International Stock Market, 40% Intermediate Treasuries).
Within the LMP portfolio we set up a declining 8 year floor of Fixed income investments (in our case VGIT, Vanguard Intermediate Treasuries) since they are duration matched to our expected expenses. This represents a floor of bonds which we will not rebalance below.
The remaining Growth portfolio is not managed to a specific AA, instead we manage both portfolios to fit into a 60/40 AA. For simplicity, the additional bonds are also held in VGIT.
At some point we will dial up the risk and shift to a higher equity allocation but this seems to work well for now.
WoodSpinner
Re: Questions for Retirees - How many years in fixed income?
Indeed. SWR is the output of a modeling exercise to help people understand what is involved in planning to support retirement spending by taking withdrawals from a portfolio. The word "safe" in SWR is no more meaningful in general than broadly using such words in any other context. In the context of an SWR model analysis the word has a specifically defined meaning. With respect to that meaning the SWR calculation is not flawed, but it may not mean what one thinks it does. I do think the example I quoted about the relationship between technical SWR model results and asset allocation is an insight that could be helpful to people planning a retirement, especially if there is confusion that "safe" investments imply a "safe" plan for funding retirement.
Re: Questions for Retirees - How many years in fixed income?
Our portfolio is around 33x expenses.
AA is 50/50. Most of the bond allocation is in a TBM fund.
A TIPS fund is about 3-years of expenses.
AA is 50/50. Most of the bond allocation is in a TBM fund.
A TIPS fund is about 3-years of expenses.
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Re: Questions for Retirees - How many years in fixed income?
Well there’s at least two of us then (confirmation bias at work, ) ….smitcat wrote: ↑Sun Dec 05, 2021 12:44 pmI like it - very similar to what we are doing but slightly ahead in the time period.WoodSpinner wrote: ↑Sun Dec 05, 2021 9:04 am OP,
Our goal in using an x-Years approach is to insure we have sufficient funds for our Mandatory and Discretionary expenses, especially in our GoGo years. Based on our finances this equates to covering us till I claim SS at 70. After 70 my Pension and our SS should cover all of our expected expenses.
At the same time, We do not have the need or willingness to be at 100% equities in Retirement—at least not at this point. This lead us to a second target of an overall AA of 60/40.
Lastly we also have a goal of simplifying our overall portfolio and see this as a source of Alpha, especially as we age.
To accomplish these goals we manage 2 portfolios, an LMP for expected expenses and a Growth for Unexpected Expenses, LTC, Charitable Donations and Inheritance. Overall these portfolios combined are at a 60/40 AA using a 3 Fund portfolio ( 45% Total US Stock Market, 15% Total International Stock Market, 40% Intermediate Treasuries).
Within the LMP portfolio we set up a declining 8 year floor of Fixed income investments (in our case VGIT, Vanguard Intermediate Treasuries) since they are duration matched to our expected expenses. This represents a floor of bonds which we will not rebalance below.
The remaining Growth portfolio is not managed to a specific AA, instead we manage both portfolios to fit into a 60/40 AA. For simplicity, the additional bonds are also held in VGIT.
At some point we will dial up the risk and shift to a higher equity allocation but this seems to work well for now.
WoodSpinner
FWIW, another very useful expercise is to examine the likelihood of hitting the Bond rebalancing floor. Not too difficult to model but it helps with mental preparation. In our case, we would need a loss in equities of about 70% next year which means it’s a very, very, very unlikely outcome. It’s become another important metric for considering shifting our AA in the future.
WoodSpinner
WoodSpinner
Re: Questions for Retirees - How many years in fixed income?
I agree. Nothing is safe. So diversify to spread the risk around.dbr wrote: ↑Sun Dec 05, 2021 12:45 pm I do think the example I quoted about the relationship between technical SWR model results and asset allocation is an insight that could be helpful to people planning a retirement, especially if there is confusion that "safe" investments imply a "safe" plan for funding retirement.
Retired 2019. So far, so good. I want to wake up every morning. But I want to die in my sleep. Just another conundrum. I think the solution might be afternoon naps ;)
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Re: Questions for Retirees - How many years in fixed income?
Stocks 60% bonds 40% and use 3.5 SWR indexed to inflation. Pull from account to work in direction of keeping or moving back to the 60-40 asset allocation. Keep a few months expenses in cash.
Facts are stubborn things. Everything works until it doesn’t.
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Re: Questions for Retirees - How many years in fixed income?
We're 60 and 65, retired
We keep just a little over 6 years worth of withdrawal needs in cash and fixed income
Of that, cash represents about 1 year of withdrawal needs at most, sometimes less
About 20% of all that is in TIPs
There are at least a dozen factors underlying these choices for us. A few examples: social security decisions, small pensions, inflation protection needs, risk tolerance, very low debt levels, expense flexibility, insurance protections against catastrophic risks, moderate cost of living area, and so on.
We keep just a little over 6 years worth of withdrawal needs in cash and fixed income
Of that, cash represents about 1 year of withdrawal needs at most, sometimes less
About 20% of all that is in TIPs
There are at least a dozen factors underlying these choices for us. A few examples: social security decisions, small pensions, inflation protection needs, risk tolerance, very low debt levels, expense flexibility, insurance protections against catastrophic risks, moderate cost of living area, and so on.
Re: Questions for Retirees - How many years in fixed income?
My goals are to:
1. Have 20 years of a specific annual sum available for my wife in the event I predecease her. (Current income streams would decline if I were to go first). She is 75 now.
2. Maintain an AA of about 50/50 going forward.
Because of 2, the annual amount needed to fulfill 1 currently exceeds 20 years.
1. Have 20 years of a specific annual sum available for my wife in the event I predecease her. (Current income streams would decline if I were to go first). She is 75 now.
2. Maintain an AA of about 50/50 going forward.
Because of 2, the annual amount needed to fulfill 1 currently exceeds 20 years.
Friar1610 |
50-ish/50-ish - a satisficer, not a maximizer
Re: Questions for Retirees - How many years in fixed income?
Not retired yet. But the plan is:Always passive wrote: ↑Sun Dec 05, 2021 1:24 am I have a TIPS bonds ladder through 2031 that is being depleted as I use the money to live from. The rest in equities. My plan has been to add TIPS bonds to the back end at the expense of equities to always have X years in safe investments to fund the retirement.
Question: how many years in TIPS bonds would you feel comfortable (what is you "X" number)?
Total savings >= 25x
Bonds >= 10x
Stocks >= 15x
Stocks: Bonds ratio 15:10 or 60:40
The underlying belief is that stocks are "unlikely" to be down for >10yrs.
The "X" will be robust and can decrease if adverse conditions persist longer than anticipated.
Ram
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Re: Questions for Retirees - How many years in fixed income?
I am nearing retirement with 50/50 equity/fixed. My plan is to stay like that forever if things go reasonably well.Always passive wrote: ↑Sun Dec 05, 2021 1:24 am I have a TIPS bonds ladder through 2031 that is being depleted as I use the money to live from. The rest in equities. My plan has been to add TIPS bonds to the back end at the expense of equities to always have X years in safe investments to fund the retirement.
Question: how many years in TIPS bonds would you feel comfortable (what is you "X" number)?
However, I have a brake on the rebalancing engine: I will always keep at least 10X in fixed, in the safest, most inflation-friendly ways possible.
The X in that sentence is my "reasonably comfortable forever X", and it assumes SS is turned on for me and DW.
The basic idea is that if 1966 (or whatever) starts to happen again, I have 10 years to figure it out and make some lifestyle adjustments (downsize the house, get rid of second car....). No need react to short term (<5 yr) crises.
Re: Questions for Retirees - How many years in fixed income?
Retired this year at 53 and I have 10-12 years of FI. 6 years are CD's and ibonds to get me to 59.5.
The fool, with all his other faults, has this also - he is always getting ready to live. - Seneca Epistles < c. 65AD
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Re: Questions for Retirees - How many years in fixed income?
No TIPS.Always passive wrote: ↑Sun Dec 05, 2021 1:24 am I have a TIPS bonds ladder through 2031 that is being depleted as I use the money to live from. The rest in equities. My plan has been to add TIPS bonds to the back end at the expense of equities to always have X years in safe investments to fund the retirement.
Question: how many years in TIPS bonds would you feel comfortable (what is you "X" number)?
Amount in bonds are somewhere between 21 to 30 years of expenses. Remainder of portfolio is in equities. Somewhere around 50/50 to 57/43 allocation. I don’t include cash amounts in all of that, but it is a few years’ worth if I had to count it. House is paid off.
I think I retired last year. Age 43.
Most experiences are better imagined.
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Re: Questions for Retirees - How many years in fixed income?
I have a 70/30 AA, and at my present withdrawal rate, roughly 34 years expenses. So…math says… 34 * 30% = about 10 years? I’m 58, wife is older.
The fixed income portion has a variety of things in it, generally whatever was the best deal at the time I was investing.
The fixed income portion has a variety of things in it, generally whatever was the best deal at the time I was investing.
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Re: Questions for Retirees - How many years in fixed income?
age 52, 2nd year in retirement. I keep 20x in FI but hating it and might dump 10x back in equities.
Re: Questions for Retirees - How many years in fixed income?
75/25 gives me 8 years of fixed income withdrawing at 3% for hopefully 40 year retirement. Limited funds till 59.5 and keeping my spending low to keep the ACA affordable is most of the reason for the low withdraw rate. However a low withdraw rate does help me sleep comfortably and probably good for assessing SORR on a fresh retirement.
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Re: Questions for Retirees - How many years in fixed income?
Not retired yet, but I’d imagine my target will be 8 to 10X in Bond funds across all accounts. 35X total target.
The bigger concern I have is building enough taxable assets to use in taxable accounts for 10 years, before 59.5. Say 10X for arguments sake in taxable, of which 2 or 3X is in CA bonds or FI.
Assuming my above target in taxable, I think I’d adjust the retirement account bonds appropriately to land at an overall 70/30 AA.
I get there are other ways to shuffle the money in ER, but above is what I really want to target to keep things simple and easy. Wonder if others have a similar kind of plan…
The bigger concern I have is building enough taxable assets to use in taxable accounts for 10 years, before 59.5. Say 10X for arguments sake in taxable, of which 2 or 3X is in CA bonds or FI.
Assuming my above target in taxable, I think I’d adjust the retirement account bonds appropriately to land at an overall 70/30 AA.
I get there are other ways to shuffle the money in ER, but above is what I really want to target to keep things simple and easy. Wonder if others have a similar kind of plan…
“At some point you are trading time you will never get back for money you will never spend.“ |
“How do you want to spend the best remaining year of your life?“
Re: Questions for Retirees - How many years in fixed income?
Twenty.
Time is what we want most, but what we use worst. William Penn
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Re: Questions for Retirees - How many years in fixed income?
Re: Questions for Retirees - How many years in fixed income?
You might want to rephrase by leaving out TIPS and just asking about bonds, since my guess is that only a tiny fraction of Bogleheads hold any TIPS at all (a tiny fraction more might hold a TIPS fund, but still not that many.)Always passive wrote: ↑Sun Dec 05, 2021 1:24 am I have a TIPS bonds ladder through 2031 that is being depleted as I use the money to live from. The rest in equities. My plan has been to add TIPS bonds to the back end at the expense of equities to always have X years in safe investments to fund the retirement.
Question: how many years in TIPS bonds would you feel comfortable (what is you "X" number)?
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Re: Questions for Retirees - How many years in fixed income?
I have not retired yet but always plan as if I am going to do it tomorrow.Always passive wrote: ↑Sun Dec 05, 2021 1:24 am I have a TIPS bonds ladder through 2031 that is being depleted as I use the money to live from. The rest in equities. My plan has been to add TIPS bonds to the back end at the expense of equities to always have X years in safe investments to fund the retirement.
Question: how many years in TIPS bonds would you feel comfortable (what is you "X" number)?
I plan to keep one year of expenses in cash rest would be in a one fund 60/40 auto-balanced.
36% (IRA) - Individual LT Corporate Bonds , 33%(taxable) - schy, 33%(taxable) - SCHD Dividend Growth
Re: Questions for Retirees - How many years in fixed income?
Depends on total assets and comfort level. We focus on retirement income and total assets within a selected stock/bond allocation rather than fixed income per se.
Tim
Tim
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Re: Questions for Retirees - How many years in fixed income?
To answer your question succinctly: Age H 71 - W 71
Years Living Expenses : FMMarket 3 yrs
STTrsry And 7 yrs
10 yrs total - we sleep great
AA 65/35
Years Living Expenses : FMMarket 3 yrs
STTrsry And 7 yrs
10 yrs total - we sleep great
AA 65/35
Re: Questions for Retirees - How many years in fixed income?
Curious; why do you hate it?carminered2019 wrote: ↑Sun Dec 05, 2021 7:48 pm age 52, 2nd year in retirement. I keep 20x in FI but hating it and might dump 10x back in equities.
Re: Questions for Retirees - How many years in fixed income?
H 62 (Retired) W 56 (Still working)Always passive wrote: ↑Sun Dec 05, 2021 1:24 am I have a TIPS bonds ladder through 2031 that is being depleted as I use the money to live from. The rest in equities. My plan has been to add TIPS bonds to the back end at the expense of equities to always have X years in safe investments to fund the retirement.
Question: how many years in TIPS bonds would you feel comfortable (what is you "X" number)?
No TIPS. 21 years in FI, which includes 2 years in cash. 55/45 AA. Home paid for.
Re: Questions for Retirees - How many years in fixed income?
I have been tinkering recently with the idea of years of safety as well. We have a large discretionary budget which amounts to about 65% of our expenses. About 15% of that budget are items we would prefer to never give up. Which leaves us with 50% that we spend on toys, travel, shows, gifts/charity, going out to dinners, etc. During bad times we can easily cut that in half and still live a very comfortable life. That leaves us with 75% and I believe if we have 75% of our expenses for 10 years in a safe asset class (bonds/cash/cd) I think we can weather just about any storm that will come our way. The rest goes to equities to allow additional growth (if it happens.)
Example with fake but simple math:
$100k expenses per year with a $2.5 million portfolio (25x)
25% we can easily give up leaving $75k expenses per year during hard times or poor sequence of returns
10 years of that is $750k.
With this strategy using a base 4% withdrawal strategy and cutting back to 3% if needed should survive all of the historical past including a future that is worse than the past has ever given us. This leaves $1.75 million in equities. If equities provide historical average returns over the decades, they should continue to increase and therefor our AA will slowly increase to a higher equity percentage which we would use for increased discretionary spending and gifting.
Again, this strategy has survived the historical past and should survive if the future is a bit worse than the past. This will not survive governmental collapse. But we have some gold/silver to get us out of the country if needed, plenty of ammunition to defend ourselves, skills that a post apocalyptic world will need, and a group of like minded individuals that would band together for perseverance. This will probably never happen, but if it did, we are lucky enough to be prepared.
Example with fake but simple math:
$100k expenses per year with a $2.5 million portfolio (25x)
25% we can easily give up leaving $75k expenses per year during hard times or poor sequence of returns
10 years of that is $750k.
With this strategy using a base 4% withdrawal strategy and cutting back to 3% if needed should survive all of the historical past including a future that is worse than the past has ever given us. This leaves $1.75 million in equities. If equities provide historical average returns over the decades, they should continue to increase and therefor our AA will slowly increase to a higher equity percentage which we would use for increased discretionary spending and gifting.
Again, this strategy has survived the historical past and should survive if the future is a bit worse than the past. This will not survive governmental collapse. But we have some gold/silver to get us out of the country if needed, plenty of ammunition to defend ourselves, skills that a post apocalyptic world will need, and a group of like minded individuals that would band together for perseverance. This will probably never happen, but if it did, we are lucky enough to be prepared.
A time to EVALUATE your jitters: |
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Re: Questions for Retirees - How many years in fixed income?
coming from 100% equities for over 25 years it's little difficult to have money sitting in bonds doing nothing but I did not know what to expect in my first two years in retirement.carminered2019 wrote: ↑Sun Dec 05, 2021 7:48 pm age 52, 2nd year in retirement. I keep 20x in FI but hating it and might dump 10x back in equities.
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Re: Questions for Retirees - How many years in fixed income?
53, not yet retired - I have 18 years in FI (cash, nominal bonds, I Bonds, and home equity that will be converted to FI before retiring). If I don't include the home equity, then 12 years.
We cannot direct the winds but we can adjust our sails • It's later than you think • Ack! Thbbft!