What's your end game portfolio?

[frugalnacho]

I'm still in the accumulation phase, and I haven't given much serious thought to end game portfolio other than I need to shift it more towards bonds.  But that's years away so I have plenty of time to rebalance as I approach my retirement.  My dad is turning 62 this year though, and his portfolio seems a bit out of whack to me, but I realized i'm not sure exactly how he should have his balanced.

[HeadedWest2029]

I think the Vanguard target date funds are a good starting point to determine asset allocation.  Look at the fund with the target date that matches your expected retirement date and see how they break down asset allocation within that fund.  However for a longer retirement you may have to make some tweaks towards more equities or factor in a lower rate of return if you bump up bonds.

[Guesl982374]

1) Rentals which would get us betwee 50-120% of our income needs.
2) Low cost index funds in tax-deferred vehicles.
3) Low cost index funds in after tax accounts.

[Dances With Fire]

60/40 +/- Stocks/ Bonds.

Some suggest a 50/50 portfolio or even 40/60...

How much "risk" does he need (or want) to take???

[frugalnacho]

I don't know how much risk he wants or needs.  I don't think he has thought it through.  He has about $150k saved up total, most of it concentrated in his employer.  So he has not even close to 25X his annual expenses, so preserving what he does have is important.  He can't afford to lose much in a crash at age 62.  He also can't afford to not be in the market as it marches upward.  He will be eligible for ss starting this year, but even that will not lower his expenses enough to allow his portfolio to support him. 

I think he needs to continue working and saving, and delay his ss for several years to qualify for a much higher pay out.  Hopefully his future portfolio and his future ss income can cover his future (hopefully reduced) spending.

[Retire-Canada]

I'm still in the accumulation phase, and I haven't given much serious thought to end game portfolio other than I need to shift it more towards bonds.  But that's years away so I have plenty of time to rebalance as I approach my retirement.  My dad is turning 62 this year though, and his portfolio seems a bit out of whack to me, but I realized i'm not sure exactly how he should have his balanced.

After FIRE I'm thinking:

- 80% stocks
- 16% bonds
- 4% cash/money market

Stocks are for continued strong growth.

Bonds give me some funds I can buy more stocks with when the market is low and to live off of after I use up my cash.

Cash provides 1yr of living expenses which can easily be stretched to 2 or 3 yrs with some part-time work.

A line of credit will supplement my cash reserves.

FIRE still leaves me with a 50yr+ investment window for which stocks are the best option.

-- Vik

[Retire-Canada]

I don't know how much risk he wants or needs.  I don't think he has thought it through.  He has about $150k saved up total, most of it concentrated in his employer.  So he has not even close to 25X his annual expenses, so preserving what he does have is important.  He can't afford to lose much in a crash at age 62.  He also can't afford to not be in the market as it marches upward.  He will be eligible for ss starting this year, but even that will not lower his expenses enough to allow his portfolio to support him. 

I think he needs to continue working and saving, and delay his ss for several years to qualify for a much higher pay out.  Hopefully his future portfolio and his future ss income can cover his future (hopefully reduced) spending.

If he doesn't have enough money yet and can still work I'd say he can't afford not to be in stocks. It will give him the best possible growth. As long as he can work even part-time he can let his investments grow/recover from a correction while his SS benefits grow.

When he is a few years out from wanting to not work at all he can start moving his allocations towards less growth and more safety, but really he only needs say 5yrs of living expenses including SS to ride out a 2008 level event.

It's true that a correction at the wrong time might force him to work a bit longer than desired, but given his age and investment value he's going to face some sort of compromise no matter what he does.

-- Vik

[frugalnacho]

I don't know how much risk he wants or needs.  I don't think he has thought it through.  He has about $150k saved up total, most of it concentrated in his employer.  So he has not even close to 25X his annual expenses, so preserving what he does have is important.  He can't afford to lose much in a crash at age 62.  He also can't afford to not be in the market as it marches upward.  He will be eligible for ss starting this year, but even that will not lower his expenses enough to allow his portfolio to support him. 

I think he needs to continue working and saving, and delay his ss for several years to qualify for a much higher pay out.  Hopefully his future portfolio and his future ss income can cover his future (hopefully reduced) spending.

If he doesn't have enough money yet and can still work I'd say he can't afford not to be in stocks. It will give him the best possible growth. As long as he can work even part-time he can let his investments grow/recover from a correction while his SS benefits grow.

When he is a few years out from wanting to not work at all he can start moving his allocations towards less growth and more safety, but really he only needs say 5yrs of living expenses including SS to ride out a 2008 level event.

It's true that a correction at the wrong time might force him to work a bit longer than desired, but given his age and investment value he's going to face some sort of compromise no matter what he does.

-- Vik

He is 62 this year though.  I know stocks give the best long term returns, but he will for sure be tapping into this money in the next 5 years.  Ideally he could continue working and waiting until age 72 to start drawing on it, but I don't know if he can handle that physically.  He might be forced into retirement in the next few years just because he won't physically be able to perform his job, or pass the medical requirements to keep his job.

[Retire-Canada]

Sure so he needs some money in 5yrs, but he also will have a 30yr+ investment horizon if he lives to a reasonable age say 82.

The ideal thing to do is leave as much as possible in stocks for the long term for growth and have a few years in other non-stock investments he can cash in to live off of.

When stocks are high refill the living expenses investments and when stocks are low spend the living expenses investments until stocks recover.

-- Vik

[dude]

60/40 stocks/bonds until I die.  Some would say that with pension + Social Security, I could be more aggressive (i.e., treat those as the fixed income side of my portfolio), but I see no reason to be.  In all likelihood, I'll have more money than I'll ever need anyway.  Plus, the Trinity Study and others used a 60/40 mix to validate the 4% SWR.

Edited to add:  Forgot about the cash! So actually, I guess it will be more like 60/33/7, with the 7% being cash or equivalent.  But for the invested money, 60/40.

[KBecks2]

Is your Dad asking you for financial advice?  Many parents have a hard time taking suggestions from their kids.

What are his expenses like?  Can he live off of Social Security? 

[DrSweden]

Well it is a hard question to answer. I will hopefully never have to use my stash since I like to work and having a high paying job I can work 50% and cover my and my wife's expenses. I am currently maxing out my 401K (Swedish version) + will have maximum pension from the state. I also save in low costs index funds. IF i would have to rely on my stash I would put as much money in dividends stocks to have dividends to cover our expenses each year and have the rest in index funds.

When I retire (or semiretire) I want a paid of house that is easy to maintain. Good access to public transportation and nice nature and sea close by.

[frugalnacho]

Is your Dad asking you for financial advice?  Many parents have a hard time taking suggestions from their kids.

What are his expenses like?  Can he live off of Social Security?

No he is not, but I am forcing my way into their finances because I don't think he can handle them on his own.  I bought my own house and moved out about 6 years ago, and decided to have a financial talk with my parents to see where they stood once I found out they were having trouble keeping up with small house payments.  They had no 401k, no ira, and owed about 70k on a house that was worth maybe 40k (and has since been foreclosed on).   They also had cc debt, as well as student loan debt from my sister.  We all had a mini freak out with my mom breaking down and crying (in response to what I thought were very straight forward and reasonable questions such as: You guys are close to retirement age, yet have no house, no 401k, no other savings, and tons of debt.  WTF are you thinking? How do you expect to retire? What is your long term game plan?!).

Since then I have gotten them to pay off and eliminate all cc debt.  Then cut up their cc because they can't be trusted.  They had a few lapses, but i'm pretty sure my constant harping has gotten through and they don't even have any cc.   My dad also started contributing to his retirement, but largely left me out of the loop.  I think he feels embarrassed that he didn't start saving early, and also that he still has no clue about saving or investing.  He has what he has now because I urged him to start contributing and building it, and the asset allocation didn't matter.  The most important thing was to just do something.

So he contributes 9% to his 401k, and 10% to his ESPP.  Current values for 401k is $77k, and his ESPP is about $65k.   His 401k contribution is split 34/33/33 into a 2020 target retirement fund, a small cap index fund, and stock in the company he works for.  He also claims to have a couple IRAs started with tax refunds, but i've yet to see the accounts so i'm not sure what's in them, but I don't think it's much.  But of what I am aware of he has about $142k saved up, but about $93k is in the company he works for!

My plan is to make him sell 100% of his company stock (but continue maxing out the plan at 10% because he is getting a fantastic deal on the stocks - just doesn't make sense to hold them long term) and fully fund his and my mom's IRA for 2015, and also use that money to supplement his normal day to day spending while upping his 401k contribution.  I also think he needs to change his 401k allocation away from investing in his employer.

No he won't be able to live off of ss.  He is going to have to pay rent forever.

[Greystache]

Vanguard Wellington fund.

[Chuck]

Are bonds really necessary? Is 100% equity exposure really an undue risk? FireCalc doesn't make it seem like it...

[sleepyguy]

Our basic "rule-of-thumb" currently is 1/2 our age in bonds to remove a bit of risk.  We're both 36 currently so 18%-20% in bonds is where we are hovering.  We'll slowly trickle to a 1:1 ratio of age:bonds% as we get closer to our FIRE number.  Although I don't think we would ever get it to over 50% bonds.

Also in Ontario/Canada once we reach 67 combined we get as a couple on avg about $25k/yr through OAS/CPP/GIS

[arebelspy]

I haven't given much serious thought to end game portfolio other than I need to shift it more towards bonds.

This may give you some second thoughts on that (or at least on how much to have):
http://www.gocurrycracker.com/path-100-equities/

:)

[frugalnacho]

I haven't given much serious thought to end game portfolio other than I need to shift it more towards bonds.

This may give you some second thoughts on that (or at least on how much to have):
http://www.gocurrycracker.com/path-100-equities/

:)

I'm very risk tolerant and am 100% stocks now, but I always thought I would go slightly more towards bonds by FIRE.  Like 80/20, but like I said, i've never given it serious thought.  I figured I can read a lot of investment books/blogs/forums before I need to make a decision. 

My dad's situation is a bit different though, and i'm still unsure exactly what to do.  He doesn't have the luxury of an enormous portfolio like gocurrycracker.  If the market drops by 50% he will have to eat a significant portion of his decimated portfolio just to eat. 

[ChaseJuggler]

I haven't given much serious thought to end game portfolio other than I need to shift it more towards bonds.

This may give you some second thoughts on that (or at least on how much to have):
http://www.gocurrycracker.com/path-100-equities/

:)

Interesting article!!

[scottish]

I'm planning on a 10 year bond ladder to tide us over any slumps in the stock market and the rest in something more growth oriented, i.e. equities.   

If inflation ramps up, the equities will derisk that.  If the stock market collapses for a while we can live on the maturing bonds.