Author Topic: Account Allocation?  (Read 1506 times)

hadabeardonce

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Account Allocation?
« on: February 11, 2020, 06:06:38 PM »
How were your financial accounts set up prior to retiring early?

x years of expenses in Checking/Savings/Money Market
x years of expenses in Stocks
x years of expenses in Bonds

How did you factor in other present or future income? Pension, Social Security, Rental Income, etc.?

Anyone consult with a CFP? I'm curious what they recommended. It seems like many are hesitant to give a green light to early retirement.

RWTL

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Re: Account Allocation?
« Reply #1 on: February 11, 2020, 07:01:15 PM »
I'm not planning on a specific number of years in each account, but am shooting for a 60% equity / 40 % bond right now based on this article:

https://earlyretirementnow.com/2017/09/20/the-ultimate-guide-to-safe-withdrawal-rates-part-20-more-thoughts-on-equity-glidepaths/

Some people are comfortable with 100% equities right up to retirement.  I'm hedging my bet around a market downturn.  Everyone has to choose their own allocation.  ERN in the article above puts some historical math around the thought.

bacchi

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Re: Account Allocation?
« Reply #2 on: February 11, 2020, 07:51:05 PM »
5% cash, used first
15% bonds
85% stocks

I've since hedged 2021 and 2022 expenses with a roll-your-own annuity.

I'm following McClung's withdrawal strategy. Except for the hedges.

Lucky13

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Re: Account Allocation?
« Reply #3 on: February 11, 2020, 09:26:46 PM »
This was a question recently in the 2020 FIRE Cohort thread, and the answers clustered around 60/40 and 50/50 asset allocation between stocks/bonds, with a few 90/10 as well.  So at least 50% stocks and at least 10% bonds seemed to be the consensus but this is a highly debated topic.

Much Fishing to Do

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Re: Account Allocation?
« Reply #4 on: February 12, 2020, 08:33:45 AM »
I'm 80% equities/10% bonds/10% cash.  My plan is to spend down the cash whenever the investments are more than 20% below their peak and build it back whenever they return to the peak, but otherwise stay balanced to approx that allocation thru retirement.  I don't factor in rental income as its not real dependable and not a lot.  I don't factor in SS (which I can start collecting in 14 years) but do admit it makes me more comfortable with not trying to get my SWR below 4% that I otherwise might.

Hunny156

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Re: Account Allocation?
« Reply #5 on: February 12, 2020, 10:27:48 AM »
I have rental income that I expect to cover anywhere between 50-75% of my RE spending, but I'm currently setting up a Money market cash buffer of 2-3 years of expenses, and leaving everything else in equities. 

I'm also in OMY syndrome; hubby is scheduled to RE in about a year, and I'll stay put for another year (or two), depending on how comfortable I feel.  We could both RE right now and be totally fine, but I'm the one who worries the most about the planning, so I'd rather have too much than not enough, and my new side project is trying to find a better option for the healthcare piece.  I also actually enjoy where I work, so its not an issue for me to continue at it a bit longer. 

Of course, once hubby RE's, I may feel differently, but I feel confident that my stretch goals/safety net will be fully actualized by the time hubby RE's, so hopefully it can help me feel more empowered to cut the work cord, maybe about a year after he does.

hadabeardonce

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Re: Account Allocation?
« Reply #6 on: February 12, 2020, 10:34:16 AM »
I'm not planning on a specific number of years in each account, but am shooting for a 60% equity / 40 % bond right now based on this article:

https://earlyretirementnow.com/2017/09/20/the-ultimate-guide-to-safe-withdrawal-rates-part-20-more-thoughts-on-equity-glidepaths/

Some people are comfortable with 100% equities right up to retirement.  I'm hedging my bet around a market downturn.  Everyone has to choose their own allocation.  ERN in the article above puts some historical math around the thought.
That's a cool link - lots to absorb. Even though my question is more about a draw down strategy or spending plan, I'll look at that article for more about investment asset allocation.


Used a 1.5M example for the amounts:
I'm 80% equities/10% bonds/10% cash.  My plan is to spend down the cash whenever the investments are more than 20% below their peak and build it back whenever they return to the peak, but otherwise stay balanced to approx that allocation thru retirement.  I don't factor in rental income as its not real dependable and not a lot.  I don't factor in SS (which I can start collecting in 14 years) but do admit it makes me more comfortable with not trying to get my SWR below 4% that I otherwise might.

10% (2.5 years) $150K
10% (2.5 years) $150K
80% (20 years) $1,200K

I made a few DIY tools to model some draw down scenarios, but I feel like the FIRE tipping point is where more mistakes can be made. Many blogs will approach the accumulation phase topics(frugality, saving and low cost investing) because I don't think you're going to have too many people save so much that they hurt themselves permanently.

5% cash, used first
15% bonds
85% stocks

I've since hedged 2021 and 2022 expenses with a roll-your-own annuity.

I'm following McClung's withdrawal strategy. Except for the hedges.
*squinting at 105% total* or do you not include your cash as a part of the 4% rule?

5% (1.3 years) $75k
14% (3.6 years) $214k
81% (20.2 years) $1,211K

I'll search for that McClung strategy.


The reason I asked is because I mentioned FIRE to a CFP and they recommended having 3 years worth of expenses in the bank/money market, which seems like a lot. I'll keep searching around using different terms, but I was curious how people had set up all of their accounts(including checking/savings) prior to early retirement. I see some bloggers talk about having an amount of money in a taxable account rather than tax advantaged or Roth IRAs(setting up a Roth conversion ladder), but then others say the 10% penalty on withdrawals from tax-advantaged retirement accounts isn't so bad.

bacchi

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Re: Account Allocation?
« Reply #7 on: February 12, 2020, 10:58:34 AM »

5% cash, used first
15% bonds
85% stocks

I've since hedged 2021 and 2022 expenses with a roll-your-own annuity.

I'm following McClung's withdrawal strategy. Except for the hedges.
*squinting at 105% total* or do you not include your cash as a part of the 4% rule?

5% (1.3 years) $75k
14% (3.6 years) $214k
81% (20.2 years) $1,211K

I'll search for that McClung strategy.


The reason I asked is because I mentioned FIRE to a CFP and they recommended having 3 years worth of expenses in the bank/money market, which seems like a lot. I'll keep searching around using different terms, but I was curious how people had set up all of their accounts(including checking/savings) prior to early retirement. I see some bloggers talk about having an amount of money in a taxable account rather than tax advantaged or Roth IRAs(setting up a Roth conversion ladder), but then others say the 10% penalty on withdrawals from tax-advantaged retirement accounts isn't so bad.

Ha. Yeah, it should be 5/15/80 but you're right -- the cash is/was not part of my 4% investments. To put it another way, the 95% remainder satisfied my expenses and the cash is really a psychological crutch. It means I worked a year too long.

McClung wrote "Living Off Your Money." Your library might have it.

The withdrawal strategy, though, is to always sell from bonds first unless you can't. When the market does well, at some predefined gain, sell equities and buy more bonds. This will make the bond allocation top heavy during long market booms.

McClung ran backtests and Monte Carlo tests on this strategy and it works better than other proposed strategies. The book is worth a read even if you don't like the proposed strategies.

BigMoneyJim

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Re: Account Allocation?
« Reply #8 on: February 12, 2020, 01:14:31 PM »
Prior to ER I mentally targeted 60/40 stock/bond mix but regularly let it ride up to 70/30. I had originally intended to maintain that strategy throughout retirement.

The months before and after ER day I'm targeting 75-80% stocks, 2 years cash or equivalent (MM, CDs), and the rest in bonds.

My original plans discounted a corporate pension and SS, but in the past year or two I've realized those two future incomes didn't go away and aren't likely to completely go away, and they're effectively lifetime annuities.

So with my increased confidence that pension and SS income are reliably in my future I've gone more aggressive with the AA.

I've also gone to two years' cash because I read the idea somewhere and loved it. I basically have two years from the start of a precipitous market crash or big bear to figure out how I'm going to deal with it.

But for most of my pre-ER time I had a max of $10k in cash and often much less. But I'm a single guy with in-demand skills and no debt besides the mortgage. If I had a family I'm not sure $10k would have been enough to make me feel safe.

ysette9

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Re: Account Allocation?
« Reply #9 on: February 12, 2020, 03:01:38 PM »
I actually recommend buying McClung’s book. I have mine all underlined and annotated in the margins. :)