asset allocation given military pension

[gap55u]

I have about 15 years to expected retirement. I’m interested in thoughts on asset allocation. Generally I have a target 2035 style split , though in a more complicated portfolio than just 3-4 funds.

I have a ~$24k/yr indexed to inflation military/va pension. Tricare too. Based on this, needed portfolio size in retirement certainly goes down.

What I’m wondering is - should my asset allocation change based on this? I know this long bull market will correct at some point.  It seems that now is possibly a bad time to revise my bond allocation lower. But the pension means I could underweight bonds... thoughts appreciated.

[ENT Doc]

I think you could make adjustments to underweight bonds if you haven't already done so. The amount depends on your natural risk tolerance and spending habits/retirement needs. What are those?

[cgossage]

I wouldn’t look at a pension as shifting your asset allocation in and of itself. Depending on your risk tolerance, you could go more agressive with the rest of your portfolio because you could potentially tolerate more risk with the pension cushion. You could also go less agressive, because you don’t have to hit as high of a target number to retire comfortably. It really depends on your individual situation.

[bean1970]

Is that 24k after tax? That’s my only comment that the pension “isn’t much” after taxes depending where you sit financially. We sit at 35% effective tax rate (will be lower now in 2018) but taxes chip away quickly. Hard to know what it will be like in 15 years....but just a thought on leaning maybe more aggressive so you aren’t short.

[Hank]

You currently are receiving $2000 per month in military retirement and/or VA compensation?  If so, that's comparable to a position in short term treasury bonds or the TSP's G fund.  If this is VA compensation, then it's tax free, which is better still.

If chained CPI becomes a thing for this compensation, then you might apply a discount of as much as 30%.  Nevertheless, this is a position in just about as low of risk of bonds as one might purchase anywhere.  I'd value that stream of income as a perpetual bond.  Multiply the annual income by 25 and treat it as a real (not nominal) income and you'd have a pretty good view of where your overall asset allocation stands.

[DMFA]

Since that's a fixed income, I'd slant slightly away from fixed-income securities. $24,000 a year is somewhat akin to having $1,000,000 in bonds paying 2.4% a year. (obvious limitations to the comparison apply, illiquidity, etc)

A situation like this is why a target retirement income makes more sense than a target retirement amount saved.

[gap55u]

Thanks for the comments. It's about 1/3 tax-free, which is nice.  As I review, I have more bonds than I should, so I'll adjust accordingly.