Why should I not stay with 100% stocks?

[Larry Ragman]

just value your pension as part of your bond allocation- if its enough to cover that percent, then the rest should be all equities or target date funds with a later date (so more equities in their allocation).

This is a valid way to think about the pension-bond allocation balance, but just to provide another perspective I do it differently. Specifically, I plan to income. Let’s say I want $150K a year in retirement and I have a $50K pension. I would discount the pension and do all my planning to manage risk and achieve $100K difference for income. So, if I say 60-40 I mean on the AA of the portfolio I plan to use to hit that $100k. Maybe this is unnecessary binning. I dunno. Just seems easier.

[Tinroofsundae]

Excellent discussion. Thanks for all your insights! This forum is an awesome resource!

[uksho]

just value your pension as part of your bond allocation- if its enough to cover that percent, then the rest should be all equities or target date funds with a later date (so more equities in their allocation).

Thanks, I hope I can last till 60-62 and pension should be enough to cover my expenses in retirement .

[billy]

Thanks , I am aware of that. My question should have been: should I get out of target and get more into index funds , if I have pension?

just value your pension as part of your bond allocation- if its enough to cover that percent, then the rest should be all equities or target date funds with a later date (so more equities in their allocation).

[Tangler]

Also younger forum members, some who never invested in a real/prolonged bear, have ability to tolerate more risk bc longer horizon, etc etc

Yes if you are young you are the bond fund.

Your human capital is robust and you provide a “bond-like” constant stream of new cash.

You are more able/willing to work extra calls and you have years of full time work in front of you.

You can DCA or value average new $ into stocks and don’t have enough invested to have fear.

Time = your most powerful weapon.

[uksho]

Target date funds start converting increasing amounts of stocks into bonds and other fixed income instruments as the target date approaches. You thing you are 100% into stocks but they change it for you as the date approaches.

Thanks , I am aware of that. My question should have been: should I get out of target and get more into index funds , if I have pension?

[Hatton]

For a high net worth individual, having SPIA is something like having a financial advisor with a 6 % AUM. You are basically handing the money over to them and they are investing it and taking their cut and giving you a fixed sum each month. With Roth Conversions, cash and SS why should we not do the same, invest it ourselves and keep that money that we are handing over an insurance company.

I can see the value of annuity for someone who has not earned well and who has just saved barely enough for retirement. But for someone with $5M+ net worth, there is no way that they do not enough money to spend each year till they die, should they retire after age 55. In 99% of the cases, you will barely spend enough to overcome the compounding of the invested money that you will end up with even greater net worth when you die than when you retired.

That will happen to all the supersavers on this board.

SPIA instead of bonds is one way to look at this. This concept works best for those not trying to leave a large estate for heirs.

[Tangler]

full disclosure i'm 95% stocks.

i am not an expert on this but i think we talk about the SORR way too much. seems to me like planning for basically a black swan event.

esp for those who are retiring early you would not just need to get hit w/ SORR you would also need to be unable to keep working a bit for a few years while the market recovered or unwilling/unable to cut your lifestyle a bit.

Plan A (99% probability): you are heavy stocks, retire when you want, and shave a few strokes off your golf game
Plan B (1% probability): right as you retire the market has some terrible years so you either
a) scale it back
b) work part time a few more years
c) work full time a few more years

nothing there is a catastrophe, and i'm also not sure that 20% bonds would guarantee that most of us would be comfortable hanging up the white coat if we had another 2008 style crash.

Very good post and very good points. I agree but also think that at some point you have “enough “ and can “afford “ to keep a little extra in cash to ensure success.

I do agree, flexibility is key to success. what you say makes sense.

Also, there is the reality that if you have a net worth of 6-10 M and spend about 2-3% of that a year then any strategy will probably work.

If you have 8 M, holding 200-300k in cash/sort term bonds might allow you to do whatever you want without feeling like you are risking SORR issues,

100% stocks might require returning to work, or decrease spending. You have to be ok with that.

Flexibility comes in many flavors.

[Max Power]

...I have always been 100% stocks, recently moving to index funds...

Index funds and other ETFs are stocks... they just have a fee. It makes no difference if one guy is entirely VTI fund and anther has 20% each in GOOG, AAPL, MSFT, WMT, and TCEHY. Both investors are considered all-in or 100% stocks/equity.

...I agree 100% equities (stock/ETF mix is up to you) unless you have completely and unquestionably won the game... some portion annuity or bonds can become logical at that point where you are simply looking to maintain. Or you could stay all stocks even then. Stocks go up faster than anything else in any long-ish timespan, and that is usually the play for the majority or entirety of your portfolio (unless bond interest ever recovers again).

[Shant]

I was surprised how low it was for myself after reading WCI's and POF's posts about it. Especially since only the gain is taxable not the original acquisition cost.

[Random1]

I actually have not done the math, I usually let my accountant do it. I just assumed that making my taxable income go from $650 to $750,000 with a $100,000 capital gain, I would pay an additional 37,000 plus the Obamacare surcharge on capital gains.

[Shant]

Have you done the actual math on it? If your investment doubled from $100k to $200k and you're earning $200k a year you can cash out that $200k of long term capital gains investment for $18. 8k in federal taxes and net $181,200 to spend. Not spending that $181k because you don't want to spend that $18k on taxes seems a little self-defeating to me.

[Panscan]

why do you feel uncomfortable selling stocks ?

For me it is not a comfort level , it is more a tax issue. A significant portion of my portfolio is appreciated but not realized capital gains. I am already in a high tax bracket so selling is mental misery handing money over to the government at an in opportune time.

But if you have large capital gains by definition your stuff did well. It’s a good problem to have. Would you rather them not have appreciated ? It’s like you knew the game you were playing and now you won, but you don’t want to reap rewards?

[artemis]

That makes sense. Out of curiosity then, how much of your net worth do you plan to put into a SPIA? If you don’t care that much about your estate, it seems like the easy, safe thing to do is dump almost all of it in there (the one issue is that most SPIA’s do not adjust for inflation).

I haven't decided yet. I had originally planned to roll a frozen pension fund worth about $300k into a SPIA when I retired, but my hospital has chosen to close the plan instead of just keeping it frozen in limbo, so I have to do something with the money next year, which makes it far too early to buy a SPIA with it. So I've decided to roll that into my 403b instead. I have one of those evil whole life insurance plans with Northwestern Mutual that I am planning to do a 1035 exchange on eventually, but right off the top of my head I don't know that plan's current cash value.

I'll probably wait until I am around 70 and see how much my accounts have grown by that point, and annuitize maybe a quarter to a third of the total net worth. That plus SS ought to give a reasonable floor for everyday expenses, with the rest of my net worth available for fun things, unanticipated large purchases, an inflation hedge, and (knock on wood) something left for charity when I die.

[Lithium]

But it's a financial disaster to your heirs, NOT to you! I think that distinction matters. If you feel you owe your heirs the maximum possible amount of money, a SPIA won't work for you. But if you feel it's your money to spend as you like, that changes the equation. As a single person with no kids who plans to leave 100% of my estate to charity, I don't worry much about how much will be left when I pass away. Doesn't matter if I die with $10 million in the bank or $1 in the bank, so long as I had enough money to keep me going during my life.

That makes sense. Out of curiosity then, how much of your net worth do you plan to put into a SPIA? If you don’t care that much about your estate, it seems like the easy, safe thing to do is dump almost all of it in there (the one issue is that most SPIA’s do not adjust for inflation).