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We’re probably financially independent (FI). Based on multiple retirement calculators and hours upon hours of studying the issue, I’m confident, if my wife and I were to quit making money today, our nest egg, along with Social Security, would provide us a comfortable living for the remainder of our lives. The only reason I’m still working is because my wife has the desire to travel more frequently and spoil our grandchildren in various ways. I’m not certain we could safely generate the kind of income that would allow enough travel and spoiling to suit her. Working another year or two would help secure the kind of lifestyle that would keep her happy.
So we are on the verge of having “won the game” and now I spend a lot of time thinking about “de-risking” my 90% stock 10% cash portfolio as we prepare for the decumulation phase of life. But I have a different problem than most investors. I was born with a temperament for stock market risk. It doesn’t bother me in the least. In fact, having my money out of the stock market makes me lose sleep. A couple times in my life I have attempted to add bonds to my portfolio to adhere to conventional wisdom, only to quickly move back into stocks. The 10% I’m holding in cash right now are proceeds from the recent downsizing of our home. There are many days I am tempted to move this into the market.
Are there others out there like me? What are your thoughts about my aversion to stock market de-risking? Is the mantra to “stop playing once you’ve won the game” critical to retirement success or just an ultra-conservative move for those who are risk averse?
Hi Matt,
I burned out / retired early in 2015 figuring that we had about enough assets based on the 4% rule with 95% in stocks (index mutual funds/EFTs), 5% in cash and no mortgage or debt. Dividends provide about 2% of our income annually and even with some stock sales our portfolio has doubled, though who knows if it will do as well in the next 10 years. We have spent the past 2+ years traveling in Europe and have not regretted the 2015 decision at all. Go for it while you still are young enough to take full advantage of your mental and physical health.
Thanks for the encouragement, Alistair.
Matt, If you are working now to travel and spoil grandchildren – two good objectives by the way, does your FI allow continuation of both after you fully retire?
That’s the plan. I don’t want to retire voluntarily until I’m confident we can maintain the life we want throughout retirement.
Matt…
You didn’t mention your age, and my first comment is age related. I retired in January of this year, from a job I loved, but with relatively newer management whose sole focus was on DEI, racism, and misandry. I had originally planned to retire in 2020, when I turned 70, but we all remember COVID. Why retire, when the government had shut our country down, and traveling was such a pain in the as_.
The one and only reason I wish I had retired in 2020 is because it would have given us more time to travel, at a finger age. That is something you might want to consider, depending on your health and vitality, now vs. later.
Since I had technically, “won the game,” when I decided to retire, I gave 6 months notice, so a replacement could be found, vetted and hired (I was an academic.)
My (our) portfolio had been 80/20 Stocks and Bonds until mid-2023. At that time, I purchased a series of Income Annuities to replace 100% of my bond holdings and then some, and left 100% of my invested dollars with Vanguard, in VTI and VXUS. (90/10)
Our Social Security and two of the annuities are currently providing us with a low 6 figure income, and only the social security dollars are taxable, as the annuities were purchased with Roth Dollars.
As you can see, based on my owning annuities, I do not share your aggressiveness in retirement, as I did in my preretirement days. Today, since I know my income is all guaranteed dollars, and the fact that I have 2 income annuities growing internally by 8.25% annually, to offset any sequence of returns risk, I feel quite comfortable with 100% of my invested dollars being in equities. Since we have no debts, no mortgage, and 2.5 years of retirement expenses in cash, in addition to our equities, which we are not drawing down, life on earth is good!
We also have no grandchildren, regrettably, so that was not a consideration.
Like you, up until I decided I was no longer willing to work for an institution that no longer represented my values, I saw no real reason to retire. I earned a good income, had 8 weeks PTO annually, great health benefits, and I loved my students and my job.
If you feel like working a few more years and spending money on your grandkids and travel… Just Do It!
Matt, I notice you use “I” and “my” exclusively when talking about your portfolio, but it’s not just yours. It’s also your wife’s, isn’t it? Does she have the same high-risk proclivities? Is she unconcerned about having a 90/10 retirement portfolio?
If not, one idea might be to turn over management of half the portfolio to her. You can continue to exercise your all-in inclinations, and she can invest in a lower-risk way if she prefers.
Good point, Mike. It is “our” money and I discuss things like this with her frequently, but she would have no interest in splitting our money and managing it separately.
My dad said, “It’s a smart man that knows his limitations.” Mine is that when I retired at 56 having sold my family’s company when I was 54, I lost all interest in dealing with money. I decided to hire my wife’s friend’s son who worked for the best-known money manager in our town to handle all my money. I told him I would not interfere and just take care of us.
I worried about outliving our money for about 20 years. I reached a point where that is no longer possible. My plan to leave money to my heirs was to buy life insurance so I would never have to choose between them and ourselves.
We took one big trip a year for about 20 years. We have reached the point when we are no longer traveling overseas. We are beginning to spend less. Our stock holdings are down to about 40% of the portfolio as we have less time to recover from downturns.
Could I have made more, had better cars, a bigger house, and more stuff? Yes, but our health and quality of life were far more important.
When I was working, my attitude about money was that I could always earn more. I could be in retirement for more years than I worked. That takes a lot of cash and living below our means. So, we stayed in our house and kept cars twice as long. We were into experiences, not things.
When I was in business, I managed risk every minute of every day. I wanted to retire from that, too. I wanted zero stress in retirement. I got close.
To me, having money in the stock market is not “investing”. It is simply legalized gambling. Investing is when I invest in new companies that use my money to grow. My accountant cried every time I found a new company to invest in. He wants me to stop because, at my age, I am running out of time to see returns if there are any.
Everything in moderation worked for us. We are now happily coasting to the end.
Know thyself.
Kudos Richard!
I don’t agree with everything you wrote but that was extremely well done.
Matt, your thoughts on OMY would seem to be one of the key questions you’ve got to answer. I’m assuming you and your wife are enjoying very healthy yearly earnings. Is the net amount from OMY of those earnings really a deal breaker and if so, why? Does your asset cake need another layer of frosting or is it good enough?
I hope you’d consider sharing your decisions in a future post and what you learned. Best wishes to you.
Actually, I started this thread to discuss our asset allocation as we approach retirement, not the date we retire, but it kind of got sidetracked.
Waiting a little longer to retire has less to do with the additional money we will save, and more to do with delaying withdrawals. We’ll be fine if we never save another cent, but we’re not ready to start spending it down at ages 55 and 50.
Happy to share how it goes. Thanks, G W.
Some observations and a few questions.
Your concern seems to be your ability to live off your assets for what could be a 40-45 year retirement given your age and current lifestyle. So, it sounds like you want to wait a 1 or 2 years not so much for your assets to accrue, but to shorten your retirement timeframe and reduce that risk.
You said you are comfortable with stock market risk.
To me those two statements are in tension, as your largest risk is sequence of return risk which is directly related to stock market volatility.
So some questions:
If your portfolio value dropped 10,20,30% and took anywhere from 5-10 years to recover, would you still be able to stop working now or 1-2 years?
You said you are comfortable with stock market risk. Is it that short term volatility and market corrections don’t affect you emotionally as it does most, or that you understand that long term (20-30 years) stocks are the least risky of stocks/bonds/cash and your financial plans are long term? Does your current income from employment impact that. That is if you didn’t have a source of employment or personal business income – would stock market volatility concern you more?
Hi Adam. If the stock market dropped significantly early in retirement, we would have to tighten our belts and reduce our spending to a level that would not allow much discretionary spending, which is our main reason for working longer.
Market volatility would probably concern me most in the first five years of retirement. This is why I like Jonathan’s idea of keeping five years of cash on hand with the remainder in stocks.
I too had a high risk tolerance throughout my working life, trying to keep >80% of savings invested in stocks, even as I approached retirement. But now, a year into retirement, I am finding that my risk factor has changed. Even with a 3-5 year cushion, I feel less inclined to risk my hard earned savings. Perhaps I will reexamine my IPS and lower it a bit (75:25) so I can sleep better at night.
100% of those who chose when to retire, chose to wait OMY from a point in time.
Were they all wrong to do that?
Not 100%. Some people are able to identify their retirement milestone years in the future, and when that comes, they execute.
A good example is someone who is in a job with a defined benefit pension for which they qualify for on a date certain. That person might decide say five years earlier that on that date (X) they’re going to retire, and they do.
You could argue they could have stopped working a year earlier, and technically they could, but not with benefits, thus leaving much more on the table than just OMY of salary and no portfolio withdrawal.
For such a person to leave their job even a day before date X would be very unusual, and ill-advised from a financial perspective, absent some major extenuating circumstance.
What about staying longer? The calculus changes, and is much less impactful. Their decision, to each their own for whatever reason.
I sailed past my chosen retirement date with barely a thought of tossing out the anchor. At 68 I still enjoy working and I love making money, and business just keeps getting better and better. No reason in the world to stop.
My original aspiration was 2 years ago which I probably could have done ( and in hinsight yes markets did ample). But given post Covid supply chains and inflation I thought it wouldn’t do any harm to build buffer and see how things panned out. I still haven’t pulled the trigger and now the reason might be being possibly on the brink of a major bear market thus early SOR risk. There is always a reason to be fearful. Better possibly to flip that around Ian Dury style.
But if I am to believe in SWR theory and my cash buffer then it shouldn’t really matter.
Matt, it was part of my plan. For me, I planned to retire “during the year that I turned 65”,to qualify for Medicare. I let my employer know about 1 year before I actually retired and it helped them hire a replacement which I helped train. I think This is different than working OMY to pay for travel and helping grandkids.
Why didn’t you plan to retire at 64 and retain health insurance through COBRA?
I wasn’t ready to and it wasn’t part of our plan that we had made 3 years earlier. Retiring as “early” as possible want my priority.
And neither is it mine.
I think like you I was strictly a stock guy for many decades. We hit our we won stop playing moment in our sixties. My wife has a more conservative take on investing and since she will likely outlive me, we slowly adjusted the mixture of bonds and stocks. Also came the deep realization of money just being a tool for us to use. We are blessed to have more than enough so being totally in stocks makes no sense for us.
That very well may happen to me, HS. I hope I reach a point where it doesn’t really matter what my asset allocation is.
For me the important thing is to differentiate between short term volatility and risk. With respect to asset allocation your risks are determined by your goals and timeframes. If your 10% cash position and SS benefits can cover expenses for 10 years, that 90% stock allocation isn’t all that risky.
I have 10-15% cash, 10% bonds and the rest in equity. If push came to shove I could live well on SS and a couple small pensions without the equities, so I tend not to worry about it, although I do try to keep a balance between equities and take some profit at a certain point.
I certainly don’t know what’s best for you so please don’t take this as advice. Speaking for myself, my wife and I were married later in life so we both came into the relationship with our personal funds that we manage independently. For our joint money, even though I’m the one most involved in managing our joint funds, I include my wife in all the big decisions and the investment mix reflects her comfort level as well. So my personal funds (like you) are aggressively invested, while our joint funds (in deference to my wife) are much more conservatively invested. My goal is that when (not if) the market drops (like in 2022) we both need to be able to sleep at night.
As always just a personal take, not advice etc but it sounds like you are doing contradictory things.
Succumbing to One More Year thinking for for unquantifiable as yet unspecified needs or wants.
Yet reckoning that at 55 you’ve got a long time still left hopefully and being prepared to let equities carry on growth to let you fund it ( while accepting the ups and downs along the way).
In your circumstances given your wife is younger I’d be inclined to let her continue working to fund some of the “luxuries” she’ll want in retirement while I cut down to part time schedule to develop other interests etc.
Maybe one lens is to ask yourselves how would you feel if either of you got a terminal diagnosis at 60, 65, 70, 75. Would that in hindsight change your plan?
Maybe things like spoiling grandkids just aren’t as important as simply being around to see them grow up and participate in their lives.
Thanks for your feedback, bbbobbins. I don’t see working a little longer to accumulate more assets (and not spend down current assets) and having a high equity allocation as being contradictory. It could even be seen as complimentary, depending on your point of view.
Anyway, my work does not prevent me from spending time with grandkids (they’re all close) or taking trips (plenty of PTO).
My wife likely will continue to work part-time even after I’m retired because she has a small business that generates good income for the amount of effort and she likes how it keeps her active. That is even more justification for the high equity allocation, I suppose.
That’s fine. I’ve been wrestling with the OMY issue myself but I’m beginning to understand there will always be a reason to overegg it and ultimately the people I care about value me for me, not what money I have to lavish on them
Matt, one of my early bosses was a believer in investing aggressively from the get-go (early 1980s). He maxed out his 401(k) every year and put just about everything in stock growth funds. Additionally, he kept the traditional pension when our company moved to a cash balance scheme. He was a very hard worker, but often seemed like he wasn’t enjoying his job. Happy ending: he retired at age 57 several years ago and has been thoroughly enjoying his work-free life. I’m sure his 401(k) balance is much higher than my (retrospectively) too-conservatively invested account. The phrase “dance with the one who brung you” comes to mind…aggressive investing worked out well for him over several decades, so why change? Disclaimer: I have no idea whether he dialed down his investment risk in retirement.
Of course I’m sure you know much that much of the reason that “aggressive investing worked out well for him over several decades” is what decades they happened to be. No telling how it would work over the coming decades.
Not an argument against holding lots of stocks, but a caution against assuming what happened for one person under some conditions will happen for another under different conditions.
Thanks for the comments, Nuke Ken. At first, I thought you were going to give an anecdote of someone losing their fortune and becoming disabled, so they had to live under a bridge and eat cat food because they invested 100% in stocks, lol. Those are the scare stories more prevalent in these types of threads on other forums it seems.
Do you think you will feel the same way after you retire and actually need the money for life and there is no turning back?
Travel and grandchildren can be expensive.
That’s the phase we are in now. Retired a year ago and traveling more and helping our kids out with our grandchildren I.e. summer camp. Yes additional income does/ would help but being well invested will do the same thing. I agree with the comments to the OP…OMY thinking is not good. Have a plan and execute it.
I assume I will always be comfortable with market risk, especially if I have a few years of cash on hand.
“Travel and grandchildren can be expensive.” Wouldn’t this be an argument for a higher equity allocation?
My view is seeking more stability, but you are right as far as growth in value goes, just too risky for me.
Matt, thanks for the honesty and vulnerability. I think I am a lot like you. My wife and I have very little in bonds. Well north of 90% stocks. We do like to keep a good amount of cash too.
Of course, we’re in our mid 40s right now, but I’m not sure how much I’m going to be incorporating bonds into my portfolio in my 50s, 60s and beyond. I don’t know your age, but we plan to retire in our mid-50s and to travel A LOT! We don’t, however, plan to work past retirement. I think if our travel costs get out of hand we’ll just have to cut back.
To some extent when you’ve won the game the argument for keeping a lot in bonds and the counter-argument for being heavy in stocks is the SAME. That is, if you’re not worried about running out of money, why not just be safe and keep a lot in bonds? But at the same time, if you’re not worried about running out of money, why not just put most of it in stocks and let it accumulate for your heirs? I think you and I tend to favor the latter approach.
Also, bonds are risky. See, 2022. Further, with the coming fiscal/debt crisis coming to the US (and the developed world at large), do you really feel comfortable loaning money to these governments? I don’t. I want my money back and ideally not diluted by inflation.
Hi Ben. FYI, I’m 55 and my wife is 50. You’ve articulated one the biggest conundrums of investing, in my opinion; does having an adequate amount of assets/resources increase or decrease the ability to assume market risk? Both positions seem correct, but logically, only one can be correct I think. ????
Similar interests here, grandchildren and travel. We are 80:20 and very comfortable with that. We each have pensions with COLA’s, and minimal part-time work which more than covers our expenses. So, our asset allocation fits our financial position nicely.
Hi Dave. I agree, your ability to take risk is increased by your pensions. We don’t have any pensions. For us, it’s SS and our savings, which would suggest a lower ability to assume risk, hence some of my equivocating. Have fun with the grandkids and safe travels!
I’ve always had a high percentage of my portfolio in stocks, currently more than 90%. I think a lot of folks focus on adhering to standard portfolio mixes, such as 60% stocks-40% bonds. By contrast, I’m solely focused on how much cash I’ll need from my portfolio over the next five years, and then keeping the rest in stocks. Now, as regular readers will know, I’m not going to be around in five years, so I’m effectively investing for my heirs. But even before my terminal cancer diagnosis, I was at more than 90% stocks, because I figured I wouldn’t need more than a minimal amount of cash from my portfolio over the next five years.
Jonathan,
Even though you have a high tolerance for risk and have won the game, I believe you had planned on purchasing an annuity at some point. I’m wondering if you think it makes sense for someone like Matt to stay at 90% in retirement or if you would recommend that he consider purchasing an annuity to guard against the possibility of a black swan event.
An advantage an annuity for someone like Matt is that he wouldn’t have the option of moving the money he spent purchasing it back to equities.
Many folks avoid annuitizing and delaying Social Security because they believe it will mean less wealth for their heirs. I’d argue that just the opposite can be true. While annuitizing would not have worked out for me, because I won’t live long enough to reap the benefit, I believe it can ultimately result in more wealth for many retirees. The reason: They’re able to keep a higher percentage of their portfolio in stocks.
In figuring out how much money not to have in stocks, I’d focus on where the money will come from to cover the next five years of living expenses. That money might come from liquidating cash investments, but it could also come from part-time work, Social Security, annuity income and pension income.
Good to get some confirmation I’m not crazy, Jonathan. I think I will be most comfortable in retirement with what you are doing, keeping a certain number of years of expenses in cash, the remainder in stocks. It lends itself to keeping things simple, as well, which is something I value.
And you can think of it as “being 100% in stocks” (after locking in your win)
Just a question: How did you handle the 2008-2009 downturn with regard to your investment allocation to equities? Did you retain or reduce during this time?
I was 100% equity and invested every additional cent I could come up with in stocks. The losses didn’t bother me. I saw it as a great opportunity. Of course, I didn’t have near as much to lose back then.
Additional comments…2008-09 was probably one of the best things that ever happened to me financially. Out of pure serendipity, I changed jobs in late 2007 and was able to convert all of my pre-tax (401k) money to post-tax (Roth) at lower values. The job change also came with a big pay raise and I was able to put more in the market in 2008 than ever before.
I agree with you Matt. I only regret I had enough money back then to invest in Berkshire Hathaway A stock. However my parents died during that period and left the majority of their stocks which were invested in AT&T–my dad’s employer stock. I couldn’t stomach having so much invested in one stock so I had to sell at a loss. But I was able to write that loss of for many years.
Since I will have a defined benefit contribution retirement, I keep almost all my investments in stocks. Like Jonathan says, having a decent pension along with Social Security is like having enough bonds.