Author Topic: ***Asset Allocation in Retirement***  (Read 985 times)

detroital

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***Asset Allocation in Retirement***
« on: May 31, 2018, 08:42:02 PM »
I just pushed the button for retirement beginning the first of next year.  I know it depends on many factors, but how would you allocate your next eggs?  If'm thinking I'll get more conservative.  I can't bear the thought of possibly losing a significant amount due to the market going down.
« Last Edit: June 01, 2018, 04:28:03 AM by detroital »

Monkey Uncle

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Re: ***Asset Allocation in Retirement***
« Reply #1 on: June 01, 2018, 05:02:27 AM »
One factor to consider is how long you expect your retirement to be.  The longer that time period, the higher your allocation to stocks should be.  For a standard 30 year retirement, cFiresim suggests you should have at least 70% in stocks and 30% in bonds.  There isn't much difference in the SWR throughout the 70/30 to 100/0 range.  If you're looking at a 50 year retirement, according to cFiresim you should be at least 80/20.

There is also the camp that favors a "rising equity glidepath," wherein you reduce the equity portion of your allocation during the decade or so leading up to retirement and the decade or so following retirement, then begin to ratchet it back up to provide more growth once you're past the danger zone for sequence of return risk.  My recollection from reading those studies (it's been a while) is that the benefit is marginal at best.

The other factor to consider, which you've already identified, is your personal risk tolerance.  If you just can't bear the thought of seeing your nest egg decline by 30% or more, you may want to back off your allocation to stocks, even though history suggests such a change in your asset allocation would be sub-optimal over the long run.

h82goslw

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Re: ***Asset Allocation in Retirement***
« Reply #2 on: June 01, 2018, 05:04:42 AM »
Go to bogleheads.org and search bond tents

rab-bit

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Re: ***Asset Allocation in Retirement***
« Reply #3 on: June 01, 2018, 06:13:36 AM »
I think it really depends on your personal situation. Will you have a pension at some point? What percentage of your expenses will social security cover? Are your savings 25x expenses? 30x?

My suggestion is to use firecalc or cfiresim to provide some guidance. You may find that you would have a perfectly acceptable success rate (however you want to define that) with a 50/50 stock/bond allocation and if that helps you sleep better, then great. If you find that you need an 80/20 allocation to hit your acceptable success rate and that makes you uncomfortable, then you should possibly rethink whether you are really ready to pull the trigger.

terran

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Re: ***Asset Allocation in Retirement***
« Reply #4 on: June 01, 2018, 06:18:04 AM »
Go to bogleheads.org and search bond tents

On a similar note, I found https://earlyretirementnow.com/2017/09/13/the-ultimate-guide-to-safe-withdrawal-rates-part-19-equity-glidepaths/ compelling. The cliff notes version is that the highest SWR results from starting retirement and 60% stocks / 40% bonds and slowly shifting to 100% stocks over a 10 year or so timeline. The idea is that this helps during the "dangerous" early years (AKA sequence of return risk) when a market downturn can really hurt you and maximizes return once you're past the danger zone.

Definitely read the whole post (and the followup https://earlyretirementnow.com/2017/09/20/the-ultimate-guide-to-safe-withdrawal-rates-part-20-more-thoughts-on-equity-glidepaths/) though.
« Last Edit: June 01, 2018, 06:21:05 AM by terran »