Asset Allocation of retirees and near retirees of forum readers.

[White.Beard.Doc]

How do you folks plan to raise the cash for your bucket 3-5 years out from retirement? What I did was to stop most dividend reinvestment and finally decided to take a capital gains hit by selling off some highly appreciated American Funds. Another American Fund I am gradually selling at 100k/year until social security at 70. That is my current plan subject to tinkering of course.

Yours sounds like a good plan.

I struggle with the concept of decumulation, so we have created enough real estate derived passive income to allow us to leave the stocks/bonds/cash alone. And eventually SS at age 70 will be additional backup of a supplemental 6-figure income. We have already upped the charitable giving, and as we get older and the next generation gets more fully settled in their independent success and prudent financial management, we will need to start gifting the max each year. The estate attorney advised that we already should have been doing that for a while, but we want to maintain fair treatment among all of the kids, and our youngest will likely need 1 to 2 more years to arrive at a level of independence and financial discipline that we find acceptable. Helping the kids fully grow up and maintaining fairness among sibs is far more important to us than saving on estate taxes.

[VagabondMD]

How would you guys approach having that home equity in retirement? If appreciation in my area is even 1/3 of what it has been in the past, I will be sitting on about 6 million in home equity around retirement time. If we decide to move somewhere inexpensive then obviously we can cash out, but even if we stay in the home until death my thought is that it can be a buffer against sequence of return risk and allow for a more aggressive asset allocation. We could easily live for several years on a cash-out refinance, HELOC, or reverse mortgage if there is a recession early in retirement.

I have rarely, almost never, seen professional or affluent people downsize the cost of housing at retirement. I have more often seen the cost (and even size) of housing upsized - more expensive condo or smaller home, addition to existing home, moving to larger home, or adding a second home. Certainly, where you are in CA, that is possible, but people in a 3000 sq foot home in San Diego do not often move to a 1500 sq foot home in rural Wisconsin in retirement unless there is a compelling family reason or significant financial duress.

[childay]

This. HELOC will be the ultimate SORR buffer. Our house per zillow is 3.5M and that's going to be the backup bucket to access after cash funds for SORR. Folk have cautioned that companies have in the past closed HELOC (during the 2007 housing crisis). I would say that with high 80-100% equity - the chances of bank doing that you would be low --- you can double down on that with HELOC where you bank and have that pile of cash and laddered CDs and everything else -- that's why we use BOA +ML with our HELOC

What was your experience with BOA HELOC application and such? Apparently free for ME with enough taxable. Rates may be not the best? But not really planning to use it except in emergency.

Good thread.

[White.Beard.Doc]

An ounce of caution is wise with respect to a HELOC as a backup plan.

In the last financial meltdown of 2008, the banks cancelled access to funds for most HELOCs. We were able to keep ours after receiving the cancellation notification from the bank, but we essentially had to requalify with much stricter underwriting. If we were retired without significant W2 income, it is likely access to the HELOC would have been cancelled.

[StarTrekDoc]

An ounce of caution is wise with respect to a HELOC as a backup plan.

In the last financial meltdown of 2008, the banks cancelled access to funds for most HELOCs. We were able to keep ours after receiving the cancellation notification from the bank, but we essentially had to requalify with much stricter underwriting. If we were retired without significant W2 income, it is likely access to the HELOC would have been cancelled.

True - that's why we keep our HELOC where we keep our money -- they will think twice canceling a rarely used, high equity HELOC on secured debt when there's also several hundred thousand that we can transfer away to Chase and Fidelity down the street. They didn't touch our 250k HELOC at the last downturn either. even though equity only at 50% at that time on that house.

@VagaboundMD - yep 'downsizing' in size perhaps, but usually means a move closer to the beach -- in our case, we moved to LARGER house last year with 1st floor master and gen suite for in-laws and upstairs for adult son and maybe even return of adult daughter when she inevitably wants to return to SD and needs housing.

edit: just got supplemental taxes on the new house -- yearly : 30k --- far cry from our 4.5k just 8 years ago!
edit 2: 'downsizing' -- there are people who retire from CA to LasVegas and Arizona - but still maintain smaller homes in CA

[StateOfMyHead]

I have rarely, almost never, seen professional or affluent people downsize the cost of housing at retirement. I have more often seen the cost (and even size) of housing upsized - more expensive condo or smaller home, addition to existing home, moving to larger home, or adding a second home. Certainly, where you are in CA, that is possible, but people in a 3000 sq foot home in San Diego do not often move to a 1500 sq foot home in rural Wisconsin in retirement unless there is a compelling family reason or significant financial duress.

This is a recent realization for me. I suppose a lack of insight supported the flawed thinking that we would move to a cheaper, smaller place upon retirement. Unfortunately although not over the top I have inflated my idea of comfort and in conjunction with increased housing prices there really is no chance of saving any money on housing in retirement.

[Tangler]

An ounce of caution is wise with respect to a HELOC as a backup plan.

In the last financial meltdown of 2008, the banks cancelled access to funds for most HELOCs. We were able to keep ours after receiving the cancellation notification from the bank, but we essentially had to requalify with much stricter underwriting. If we were retired without significant W2 income, it is likely access to the HELOC would have been cancelled.

This!

This is the kind of stuff that makes me distrust banks and debt.

Debt = risk.

When you depend on a heloc rather than cash as an EF or if there is a market drop you have a 3rd party controlling your destiny.

You have more moving parts in your machine. Those parts can break / fail.

A pile of cash in a savings account is pretty dang hard to mess with.

Yes it is a "cash drag". No you cannot depend on it for growth. But YES it can save your rump from SORR.

The borrower is slave to the lender.

Banks and bankers: Those turds have really nice buildings, in expensive parts of town, made of marble and they are never open.

Banks, they win.

[abds]

Star Trek Doc points out that in a VHCOLA the primary home is part of your AA. 70/25/4/1. equity/bonds/cash/ home

If your home costs $300k, at 1% of your allocation your net worth is $30M? In a VHCOLA so your home is probably worth much more than that… so you’re just an under the radar WBD, Hatton?

[TheTodd]

This is a recent realization for me. I suppose a lack of insight supported the flawed thinking that we would move to a cheaper, smaller place upon retirement. Unfortunately although not over the top I have inflated my idea of comfort and in conjunction with increased housing prices there really is no chance of saving any money on housing in retirement.

For me it’s too far to know if/when I’d want to move. My kids are still home and who knows where they will settle. If I stay in Silicon Valley I’ll probably stay where I’m at. The point is though if we ever more elsewhere (even San Diego or Hawaii) we can upsize while still downsizing in cost.

It is a good point however that based on the last crisis the time you need the home equity may be the hardest time to access it. I think it is unlikely to be as big an issue next time around, as that crisis centered around housing and banks being insolvent, rather then your typical bear market, but who knows what will come next.

[StarTrekDoc]

So if you're a bank manager you'd close my HELOC line in a penny pinching moment when rest of world undergoing SORR:

1. House is free and clear at 100% equity
2. Banking with 300K cash/CD equivalents
3. Attached Brokerage with 600k

AND even if you do decide to close HELOC, you wouldn't reverse decision with a commitment to transfer in $1M more assets into brokerage?

That's the scenario many in this forum would be in with a 1-5 year cash cache and retirement funds available.

If the markets are crashing and a long term customer says in saying I'll remain a loyal customer with funds AND ability to commit more assets in exchange for a HELOC remaining open? The manager saying 'no' to that shouldn't be employed by close of business.

[Hatton]

If your home costs $300k, at 1% of your allocation your net worth is $30M? In a VHCOLA so your home is probably worth much more than that… so you’re just an under the radar WBD, Hatton?

Sorry I calculated that wrong it should be 7.

[bovie]

So if you're a bank manager you'd close my HELOC line in a penny pinching moment when rest of world undergoing SORR:

1. House is free and clear at 100% equity
2. Banking with 300K cash/CD equivalents
3. Attached Brokerage with 600k

AND even if you do decide to close HELOC, you wouldn't reverse decision with a commitment to transfer in $1M more assets into brokerage?

That's the scenario many in this forum would be in with a 1-5 year cash cache and retirement funds available.

If the markets are crashing and a long term customer says in saying I'll remain a loyal customer with funds AND ability to commit more assets in exchange for a HELOC remaining open? The manager saying 'no' to that shouldn't be employed by close of business.

Sure sounds like a lot of hassle--not to mention relying on someone other than yourself--for an "ultimate SORR buffer."

Perhaps that title still belongs to cash.

[StarTrekDoc]

If you're really relying on self- perhaps burying gold in the backyard is the best solution then -- or modern day bitcoin.

I find it unusual that people would leave one's primary secured asset - their home - to be an unutilized tool as the ultimate emergency buffer to weather a financial storm like SORR. Cash is king - it also doesn't age well; especially this year of inflation and coming years of such.

[bovie]

If you're really relying on self- perhaps burying gold in the backyard is the best solution then -- or modern day bitcoin.

I find it unusual that people would leave one's primary secured asset - their home - to be an unutilized tool as the ultimate emergency buffer to weather a financial storm like SORR. Cash is king - it also doesn't age well; especially this year of inflation and coming years of such.

It is utilized. You live in it.

Who would you rather rely on? Yourself, or that bank manager (who may or may not get fired)?

The goal isn't to age well--though I'm not sure gold does that either, if we're being honest. The goal is to simply be around when you need it. Cash does that, plain and simple. But especially simple.

Though I'd be fine with short-term bonds (funds) in that role as well, if you must.

With either of those properly defending against SORR, the rest of your portfolio is now available for allocation to growth assets--which more than makes up for any minor drag.

Market up --> live on equity gains, maintain cash.

Market down --> live on cash (or cash from selling bonds), maintain equities.

Easy.

[OldSoul]

I thought it would be interesting if those who are in retirement or close to it would post their asset allocations in a dedicated thread. Also folks could post their planned asset allocation for retirement and how they plan to get to it.
My allocation is 70% equity/ 26% bonds/4% cash/short-term. No crypto or investment real estate. Some would say too aggressive at 64. No debt of any kind.

My spouse and I are 59 and 57, respectively. She works 0.6 FTE and I will cut back to 0.6 FTE in 3 years (with no call either, yay!). Three kids out of the house. Plan to work part-time at least until 65yo, since I still enjoy operating. I will have a decent pension of ~100k/yr + COLA, starting at 65yo. That pension and SS for the both of us will be enough for the majority of our retirement spending, and that has influenced my decision to keep the asset allocation the same through retirement (eerily similar to Hatton's AA): 55% domestic stock/ 15% foreign stock/ 27% bonds/ 3% cash.
1. I'll likely inherit a rental home in SoCal. Not sure what to do with it.
2. Will use some retirement savings for kid weddings, helping on kid house downpayments, and extravagant vacations with the family.
3. If I start getting into crypto, y'all will know it's time to get out of crypto.