Announcement

Collapse
No announcement yet.

100% equity in retirement

Collapse
X
 
  • Filter
  • Time
  • Show
Clear All
new posts

  • 100% equity in retirement

    At a recent medical meeting, a speaker (retired MD) discussed his retirement plan.  He retired in 2007 with 100% in equities, saw a 42% decrease in his investments during the recession, but lived below his means, used a 4% withdrawal rate and now has more money than he started with at the time of retirement.  His sequence of returns risk was horrible retiring right before the 2008-2009 bust, but he didn't sell and now has weathered the storm.

    Holding 100% equities in retirement seems risky, but he mitigates that risk by keeping 2 yrs of expenses in a money market account.  So if the market drops, he can weather the storm until things start to get better.

    Any advocates or opponents of using 100% equities with a side fund for surviving market downturns in retirement?

     

  • #2



    Holding 100% equities in retirement seems risky, but he mitigates that risk by keeping 2 yrs of expenses in a money market account.
    Click to expand...


    In that case, he does not hold 100% in equities.

    I am glad that it worked out for him, but past performance blah-blah-blah... Had he retired in late 1999, his experience would have been different, and he might have had to cut living expenses, go back to work, or dip into his stock portfolio.

    Comment


    • #3
      Too risky for me!  I am 65% in equities and sometimes I think this too much at almost 60

      Comment


      • #4




        At a recent medical meeting, a speaker (retired MD) discussed his retirement plan.  He retired in 2007 with 100% in equities, saw a 42% decrease in his investments during the recession, but lived below his means, used a 4% withdrawal rate and now has more money than he started with at the time of retirement.  His sequence of returns risk was horrible retiring right before the 2008-2009 bust, but he didn’t sell and now has weathered the storm.

        Holding 100% equities in retirement seems risky, but he mitigates that risk by keeping 2 yrs of expenses in a money market account.  So if the market drops, he can weather the storm until things start to get better.

        Any advocates or opponents of using 100% equities with a side fund for surviving market downturns in retirement?

         
        Click to expand...


        Especially if those are equities which reliably pay high dividends, with a high enough principal and low enough expenses, you could try the living-off-dividends strategy.  That's still probably more risk than I'd like.  And ditto the comment of it not *truly* being 100% equity since there are 2 years' worth in a MMA, but that's still prob >90%.

        I will probably not be as bond-y as the rest of 'em, but seeing as it'll probably be at least 20 years or so before it's relevant for me (and I might have military pension to boot), I will probably hold more equities than the "average."  Now, I have no idea what things will look like then.  Maybe I'll be like that nut who keeps posting embedded videos and hold all "pet rocks" by then.

        Comment


        • #5
          I have a lot of risk in my life, both physical and financial. The difference in the risk between a 60/40 portfolio and a 90/10 portfolio pales in comparison to most of them.

          When evaluating risk, consider both the likelihood and the consequences of a bad outcome. If the consequences are no big deal, and you can handle the risk emotionally, might as well be aggressive. That's how I look at my 529s. The consequences of a shortfall are relatively trivial to me. Right now I save more every month than any of my kids has in their 529.

          On the other hand, if you're 70 and barely have enough to make it to 90 and that using a 5% withdrawal rate...well, the consequences of risk showing up are much more significant.

          I think it probably isn't wise to look at an asset allocation in isolation and say "that's risky" without knowing anything else about the person.
          Helping those who wear the white coat get a fair shake on Wall Street since 2011

          Comment


          • #6
            I think thats a fine plan but everything thats been said here is absolutely true. He's neither 100% equities and what really matters is how many times spending he has in there.

            Comment


            • #7
              If you spend $100K/year but have an 8-figure portfolio, then you might choose an equity-heavy asset allocation to leave a legacy.

              If you spend $100K/year on a $2.5M portfolio that is 100% equities, then you may end up elderly and destitute--but why? Because you hoped for greater wealth? If so, you weren't ready to retire.
              Erstwhile Dance Theatre of Dayton performer cum bellhop. Carried (many) bags for a lovely and gracious 59 yo Cyd Charisse. (RIP) Hosted epic company parties after Friday night rehearsals.

              Comment


              • #8




                At a recent medical meeting, a speaker (retired MD) discussed his retirement plan.  He retired in 2007 with 100% in equities, saw a 42% decrease in his investments during the recession, but lived below his means, used a 4% withdrawal rate and now has more money than he started with at the time of retirement.  His sequence of returns risk was horrible retiring right before the 2008-2009 bust, but he didn’t sell and now has weathered the storm.

                Holding 100% equities in retirement seems risky, but he mitigates that risk by keeping 2 yrs of expenses in a money market account.  So if the market drops, he can weather the storm until things start to get better.

                Any advocates or opponents of using 100% equities with a side fund for surviving market downturns in retirement?
                Click to expand...


                Yes, this is exactly what we do and advocate. Not individual stocks, mind you, but a well-diversified portfolio of equity mutual funds/ETFs. It sounds as if your speaker was following a financial plan and/or working with a financial planner who follows Nick Murray. How it works is as follows:

                • Only that which you will not need for at least 5 years is invested.

                • That which you will need within the next 5 years is kept liquid or in bonds/CDs timed to mature at date of need.

                • Your 5 year needs in retirement include:

                  • your planned distributions from investments within the next 5 years (living expenses and/or RMDs)

                  • amounts needed to meet short-term goals above and beyond normal living expenses ($20k dream trip, $100k to grandhild's 529, for example), and

                  • 2 years of living expenses in cash defined as the amount you will need (in event of a bear market) beyond other income you are receiving (SS, pension, etc.). So, for example, if your SS is $5k/mo + pension $3k/mo and your living expenses are $10k/mo, you would set aside $24k. This prevents you from having to liquidate at the bottom of the market.




                Using this method (always combined with a plan) allows you to reap optimum returns from your investments at a time when you are most vulnerable and need to realize growth: when you are on a fixed income.

                And, yes, this is a 100% equity portfolio, unless you consider your emergency funds and savings to be investments.
                Our passion is protecting clients and others from predatory advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

                Comment


                • #9




                  I think thats a fine plan but everything thats been said here is absolutely true. He’s neither 100% equities and what really matters is how many times spending he has in there.
                  Click to expand...


                  right. If you hold 50x expenses it really doesn't matter what your investments are in: 100% bonds, 100% equities, somewhere in between, you'll most likely be fine.

                  Comment


                  • #10
                    To jfoxcpacfp,

                    CM pointed this out in several posts.  In the event of market correction and decreased ROI in equities,  2 years of living expenses may not be enough to weather bear market.

                    https://www.researchaffiliates.com/en_us/asset-allocation.html

                    Or like CM, do you encourage foreign equities at this time?

                    Comment


                    • #11




                      To jfoxcpacfp,

                      CM pointed this out in several posts.  In the event of market correction and decreased ROI in equities,  2 years of living expenses may not be enough to weather bear market.

                      https://www.researchaffiliates.com/en_us/asset-allocation.html

                      Or like CM, do you encourage foreign equities at this time?
                      Click to expand...


                      How long would it last to be a real problem though? You'd still have had 2 years of not touching the principal, reinvesting dividends, etc...and of course deflation in such a scenario would greatly increase your purchasing power. Also usually in that case people tighten their spending and learn they dont need to spend as much. Even in a long drought, not touching those 2 years would make for a significant tailwind later even if you started in on it.

                      The problem with all the super bear type theses is that they always call for total destruction of the market and capitalism. That is just highly highly unlikely, a regular boring old recession is the most likely scenario, no matter how disaster imprinted we are.

                      Comment


                      • #12




                        To jfoxcpacfp,

                        CM pointed this out in several posts.  In the event of market correction and decreased ROI in equities,  2 years of living expenses may not be enough to weather bear market.

                        https://www.researchaffiliates.com/en_us/asset-allocation.html

                        Or like CM, do you encourage foreign equities at this time?
                        Click to expand...


                        A properly diversified equity portfolio already has an allocation to foreign equities.

                        According to my trusty bear market illustration, the longest bear market since the end of WWII has been just over 3 years. During that time, should we have a record bear market, most everyone naturally curtails spending. If necessary, some withdrawals from principal if needed over the last few months won't shock your portfolio as much as, say, a 40% allocation to bonds over a 30- to 40-year retirement of ever-inflating costs (except, as Zaphod pointed out, in a period of deflation) merely to prevent an uncontrollable emotional reaction in lieu of a properly executed plan.

                        I can't plan for my clients based upon what I fear or they fear might happen, even though it has never happened before but, instead, on the history we know.
                        Our passion is protecting clients and others from predatory advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

                        Comment


                        • #13


                          The problem with all the super bear type theses is that they always call for total destruction of the market and capitalism. That is just highly highly unlikely, a regular boring old recession is the most likely scenario, no matter how disaster imprinted we are.
                          Click to expand...


                          Should that happen, you'll be using bonds for toilet paper.
                          Our passion is protecting clients and others from predatory advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

                          Comment


                          • #14







                            To jfoxcpacfp,

                            CM pointed this out in several posts.  In the event of market correction and decreased ROI in equities,  2 years of living expenses may not be enough to weather bear market.

                            https://www.researchaffiliates.com/en_us/asset-allocation.html

                            Or like CM, do you encourage foreign equities at this time?
                            Click to expand…


                            A properly diversified equity portfolio already has an allocation to foreign equities.

                            According to my trusty bear market illustration, the longest bear market since the end of WWII has been just over 3 years. During that time, should we have a record bear market, most everyone naturally curtails spending. If necessary, some withdrawals from principal if needed over the last few months won’t shock your portfolio as much as, say, a 40% allocation to bonds over a 30- to 40-year retirement of ever-inflating costs (except, as Zaphod pointed out, in a period of deflation) merely to prevent an uncontrollable emotional reaction in lieu of a properly executed plan.

                            I can’t plan for my clients based upon what I fear or they fear might happen, even though it has never happened before but, instead, on the history we know.
                            Click to expand...


                            Bear markets last much longer than 3 years when measured in real terms (i.e., the measure that matters).

                            See: https://earlyretirementnow.com/2017/03/29/the-ultimate-guide-to-safe-withdrawal-rates-part-12-cash-cushion/. From Early Retirement Now (graphs at the link above):

                            "The bottom panel plots the real S&P500, with drawdowns of 36+ months shaded in red (nominal chart in the top panel for comparison). Since 1910, there were seven major drawdowns in the real S&P500 index. Some of them were back to back with a short reprieve in between, and each time it was too short to restock the cash cushion in preparation for the next bear market. So we might as well interpret them as one single event, which means that in the last 107 years there were four major drawdown events:

                            • 6/1911 – 8/1924: 13 years and 2 months comprised of two drawdowns with a short 13 months of reprieve in between.

                            • 8/1929 – 12/1950: 21 years and 4 months comprised of two drawdown periods with a short 13 months reprieve in between.

                            • 11/1968 – 1/1985: 16 years and 2 months comprised of two drawdown periods with a short 1-month reprieve in between.

                            • 8/2000 – 5/2013: 12 years and 9 months


                            In other words, over the last 107 years, we would have spent 60+ years in major, decade-long drawdown phases. Over the last 50 years, we would have spent almost 29 years in the red. So, pronounced drawdowns that require 10+ years of cash cushions are not the exception but the norm! Multiply the drawdown length above with our desired withdrawal rate (3.5%) and we get completely unrealistic, downright preposterous cash cushions of somewhere between 42% (12 years) to 73.5% (21 years). Ain’t gonna happen!"
                            Erstwhile Dance Theatre of Dayton performer cum bellhop. Carried (many) bags for a lovely and gracious 59 yo Cyd Charisse. (RIP) Hosted epic company parties after Friday night rehearsals.

                            Comment


                            • #15
                              I knew this would get interesting  ! I'll stick to my properly-diversified equity mutual fund portfolio and a financial plan. (Rebalanced annually, of course.)
                              Our passion is protecting clients and others from predatory advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

                              Comment

                              Working...
                              X