So congrats on reaching retirement. You have assets that may last long enough that you probably won’t be forced into an undesirable job for cash flow.
So now that you are retired, how are you going to allocate those assets between tax deferred and taxable accounts? How are you going to diversify the investments within those accounts? I am considering the following method of deciding how to allocate my non real estate resources.
I know my incomes and expenses this year, and have approximated how they may change over the next few years. Together they define an income shortfall that will need to be withdrawn from the stock/bond/cash portfolio each year.
For the taxable accounts, the process I am considering is to keep an amount equal to the next ‘four’ years of shortfall relatively safe- in a CD ladder, short term US government bond funds, and even cash. The remainder will be placed entirely in stock index funds. (There is a separate thread as to how to distribute stock funds among 2,3, 4, 5, or more index funds- an issue ignored here.) All ‘shortfalls’ will be taken from the safe investments in these taxable accounts.
Similarly, tax deferred accounts will have ‘four’ years of required minimum distributions (yes, I’m old enough that I must take distributions,) invested in ‘safe’ bond funds with the remainder also placed in stock funds. The safe bond fund value will be the source of the distributions.
Once every ‘average’ year, the safe shortfall is replenished by converting the more volatile stock funds into the depleted, safer, venues. If we find ourselves in the middle of a recession, the shortfall does not get replenished until the recovery has restored the stock fund values. This is typically less than ‘four’ years. The cash flow will not require selling off stock funds at recession prices. (The estimated ‘four’ year duration for a recession is fairly conservative, and is also an issue for another thread.)
Some professional advice I have received is to keep a percentage equal to your age safely invested in bonds, the rest in stock. A 70 year old like myself would accordingly keep 30% in stock and 70% in bonds. The withdrawal could be done from whichever asset needs to be reduced over the year to achieve the desired stock/bond ratio.
Another investment house advises keeping the stock/bond ratio at 50/50. The asset class that performed best during the previous year would be reduced to again achieve the 50/50 ratio.
These seem so arbitrary. Rather than concerning about a fixed ratio, have near term disbursements placed to in ‘safe’ assets and the rest allowed to grow/fall with the stock market. Thanks for any critique to the method. And my apologies if this is in another thread. A link to it would be appreciated too.
Thanks!