Author Topic: Asset allocation when planning to retire early  (Read 1613 times)

Shade00

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Asset allocation when planning to retire early
« on: January 26, 2017, 11:14:38 AM »
Just thinking about my asset allocation. I'm 34, relatively high earner (combined household income of $200k, moderate CoL, income will hopefully continue  to rise) and sitting on a 90/10 stock/bond allocation. Hypothetically, if I want to shift gears and leave my high paying career in 7 years, and I have 100k at 90/10 asset allocation right now, and I plan to invest approximately another $100k per year for the next 7 years - should I be considering a more conservative allocation to even out the ride? Or stick with a higher allocation of equities and hope for the most gains?

I do plan to work in some capacity (I.e. Public service or government) where the pay will be low but I will get other benefits, but I want the option to do nothing.

RichMoose

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Re: Asset allocation when planning to retire early
« Reply #1 on: January 26, 2017, 12:59:32 PM »
Just thinking about my asset allocation. I'm 34, relatively high earner (combined household income of $200k, moderate CoL, income will hopefully continue  to rise) and sitting on a 90/10 stock/bond allocation. Hypothetically, if I want to shift gears and leave my high paying career in 7 years, and I have 100k at 90/10 asset allocation right now, and I plan to invest approximately another $100k per year for the next 7 years - should I be considering a more conservative allocation to even out the ride? Or stick with a higher allocation of equities and hope for the most gains?

I do plan to work in some capacity (I.e. Public service or government) where the pay will be low but I will get other benefits, but I want the option to do nothing.

I don't think your scenario is one any person on this forum can provide a good answer to. On the one hand you're saying you probably won't withdraw money from your portfolio, on the other hand you say you might. Two very different circumstances.

If you plan on taking withdrawals from your money in 7 years a 90/10 strategy is pretty aggressive. If not, 90/10 is a great long-term growth strategy.

Tyler

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Re: Asset allocation when planning to retire early
« Reply #2 on: January 26, 2017, 01:34:52 PM »
Hi Shade00.  Good question.

Practically speaking, you've already figured out that the biggest part of the equation is the savings rate.  Saving over $100k a year is going to dwarf any investment returns over the next seven years even in the most optimistic scenarios.  So you're already doing a great job of setting yourself up for success!

When I was also in a similar situation, I chose to go with a more conservative asset allocation the same as I planned to use in retirement.  That not only helped me better plan my retirement date, but also made the transition all the more easy with no need to take a tax hit to modify my portfolio.  I just turned off the income tap and went on with life.

Here are a few resources that might be helpful:

https://portfoliocharts.com/2015/10/19/your-ideal-route-to-financial-independence-may-be-off-the-beaten-path/

https://portfoliocharts.com/portfolio/retirement-income/

SeattleCPA

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Re: Asset allocation when planning to retire early
« Reply #3 on: January 26, 2017, 01:47:42 PM »
A 90%/10% allocation is pretty aggressive.

You need to have the stomach to go through a bad bear market with that percentage allocated to stocks.

Most people clearly don't, as was recently discussed to death in another thread.

BTW, I do personally have the stomach to go through a bad bear market... and my traditional assets asset allocation is 70%/%30...

But I think that'd maybe be too high if I wasn't all done saving, if I didn't want to continue to work, and if I wasn't able to use a variable withdrawal rate easily in retirement.