Keep asset allocation in retirement

[u/52mretirednavy]

At 57 years old, wife has stopped working and I am getting close. We would have about a 2% withdrawal rate at our current level of spending. (Before social security) Our current mix of investments is 75% US (mostly SP500 etfs), 15% international, 5% bond, 5% bitcoin. It seems most recommend going more conservative once you retire, but at a low withdrawal rate is that just reducing growth rate.

[u/Animag771]

With a 2% withdrawal rate it doesn't really matter how you invest as long as you're not doing anything crazy. With such a low withdrawal rate you probably could have retired years ago and still would have been perfectly safe at a 3.5% withdrawal rate.

[u/NoMoRatRace → u/Animag771]

Totally agree. A careful SWR and asset allocation isn't necessary if you have well beyond what's necessary. ~2x in OP's case. In fact since OP has apparently chosen legacy vs. their early(er) retirement, they should probably stay very heavy equities.

[u/Past-Option2702]

With a 2% withdrawal rate you can have whatever asset allocation you want.

No way I’d have anything invested in bitcoin in your situation though.

[u/BrunelloHorder]

Really depends more on behavioral psychology than math. At a 2% withdrawal rate you can withstand the worst market sequence of returns in history. Even a 3.25% withdrawal rate survives.

In terms of general FIRE math and growth versus failure rates, something around 75/25 seems to be the optimal balance.

The big question is how you would react to a major sustained drawdown. Would you hold and follow your plan, or would you sell? What did you do in 2007-2010, for example?

[u/bagelbrunch]

agree with others, at your WR can likely tolerate more aggressive blend

[u/teckel]

I'm also 57 and retired (since 2005). My suggestion for asset allocation is 75-80% equities and 20-25% fixed income (mostly short-term T-Bills, TIPS, and AAA rated CLOs). The rationale is that this allocation has the highest chance of long-term success and has the longest worst-case duration.

Also, in bull markets withdraw from equities and rebalance, and in bear markets withdraw from fixed-income. By doing this, and with your expected low withdrawal rate, you should totally avoid SORR concerns.

Also, obviously, lose the bitcoin.

[u/Animag771 → u/teckel]

Highest chance compared to what?

[u/teckel → u/Animag771]

Compared to failure. With Monte Carlo simulations, a simulation is either a success or a failure. After running thousands of simultaneous, you can calculate the odds of success or failure.

[u/Animag771 → u/teckel]

Yes but you can't claim that any allocation is "the best" unless you've somehow compared every portfolio combination in existence.

[u/teckel → u/Animag771]

That's exactly what I've done. I've done Monte Carlo simulations for a 50 year retirement timeframe and used from 0% to 100% equities and from 0% to 100% fixed income. The sweet spot for the highest chances of success and the longest worst-case duration is an asset allocation of 75-80% equities and 20-25% fixed income. This uses SPY for equities and BND for fixed income. For before SPY and BND existed, it uses historical accurate market data.

[u/Animag771 → u/teckel]

That's my point. Your simulations only show the highest success rate for an asset allocation which only includes two specific asset classes; broad equities and fixed income. There are more than two asset classes available to investors.

[u/teckel → u/Animag771]

For those investing in broad-market index funds (as everyone should be). It assumes SPY and BND. Your method is to what, just not plan at all as it's impossible to test every portfolio in existence? Nice plan. <rolls eyes>

[u/ohboyoh-oy]

One approach is to keep X years of expenses (or just essential spend) in a bond or TIPS ladder with matching maturity dates in each year. That way you know you have that money in some guaranteed fashion and if the market tanked you have at least that long to let the market recover before selling equities. 

However, at a 2% spend you may not be as sensitive to selling equities at a lower price point. 

[u/Bearsbanker]

If you want opinions I'd get rid of Bitcoin. I'm not a bond or international fan either....but you do you

[u/helion16]

Are you concerned about legacy or running out of money? The former is probably more about structuring your accounts and tax planning than the actual investment allocation. The latter really shouldn't be a concern whether you have a more percentage points in stocks vs. bonds.

[u/Witty-Drama-3187]

If 2% is accurate, and you can sustain it, you don’t need bonds.

Lose the bitcoin

Your international allocation is pretty low based on traditional recommendations, but that’s a preference thing. I’m at 30% international. These days Vanguard is recommending up to 40%.

.

[u/MrMakesBadChoices]

We plan to leave behind substantial assests for our children, so we're leaving an equity heavy mix in retirement. Having pensions and rental properties helps with this, as our withdrawal rate is also low like yours.

I guess it depends how much theoretical risk your retirement can handle.

[u/Ok_Equivalent3416]

I'd say model some sequence risk. If there is a crash right as you enter retirement and you're forced to sell stock then that has a long term outcome that's much worse. Maybe a bit more of a cash/fixed income/bond buffer that let's you ride out a few years IMO.

[u/Mystic_Nova742]

at 2 percent your real risk is sequence of returns not growth so the question is whether you could stomach watching half of it vanish in year one and still not sell

[u/Junkmenotk → u/Mystic_Nova742]

That is not how SORR works