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I handle the money in our family. My wife has a small IRA that along with her SS will provide her pocket spending money in retirement in about 5 years. It's current value is about 68 grand and I am considering purchasing an immediate annuity at that time that will make her monthly check larger.
Currently this money is about 62% stock ETFs and 38% bonds. The breakout (I rounded the figures):
Stocks
VG Total Stock Market Index VTI: 38%
VG Small Cap Value Index VBR: 8%
VG Emerging Markets Index VWO: 4%
VG All World IndexVEU: 10%
Fidelity utility index FUTY: 2%
Bonds
PIMCO PONAX: 23%
VG Corporate Index VCIT: 15%
So here's the question. If we need to access this money to buy the annuity 62% in stocks is way too high. I hate trying to time the market but it seems we need to dial back and look at preservation. I don't want cash, that's too conservative, and I'm not sure I can ladder CDs in a Schwab IRA account. So more into the bond funds?
i would count the annuity as a proxy for some of the bond/cash money as it is replacing it for the initial income .
if i was to buy an annuity it would come out of the bond/cash allocation . so yeah in appearance your stock allocation went up but in effect it really hasn't . the same thing happens in any bucket approach . cash and bonds get spent down and until you refill the equity allocation gets higher and higher.
immediate annuities and equities are an alternative to bonds and equities . kitces did a whole study on whether retirees need bonds .
This is all the money she has for income other than SS. So I want max out that monthly check and an annuity appears to be able to do that. Even if we don't go the annuity route and she does a 4% WD a big drop in the stock market will kill her.
With this timeline what do you think regarding a stock/bond % mix?
why are you splitting this in to his and hers . i could never imagine doing that with my wife .
this is a 2nd marriage for both of us so we each brought something to the party . but all the assets are one when it comes to investing and retirement money .
they are all invested in the same things and are really just one big comprehensive portfolio that make up the 2 models we use .
we have no such thing as "her portion " is not income generating enough . at one time i held the equity funds in my retirement account and she held the bond portion and cash portion in her taxable account but it was till one big portfolio that follows our strategy .
today when we redid things with the new models it is pretty well mixed .
i can't say what your mix should be but 5 years out we were reduced down from 100% equities to 60/40 or so .
by the time i retired we went in at 40% equities until our first up cycle then we went 50/50 .
today we are overall at 43%-45% equities but remember our model can grow on the down cycle just as much as the up cycle too so it is not just equities that runs with the ball .
there are some rare days all segments move up or down and they can move as much as 100% equities . luckily those days are very rare where something is not going down while other parts go up .
Last edited by mathjak107; 08-10-2018 at 07:12 AM..
why are you splitting this in to his and hers . i could never imagine doing that with my wife .
this is a 2nd marriage for both of us so we each brought something to the party . but all the assets are one when it comes to investing and retirement money .
they are all invested in the same things and are really just one big comprehensive portfolio that make up the 2 models we use .
we have no such thing as "her portion " is not income generating enough . at one time i held the equity funds in my retirement account and she held the bond portion and cash portion in her taxable account but it was till one big portfolio that follows our strategy .
today when we redid things with the new models it is pretty well mixed .
i can't say what your mix should be but 5 years out we were reduced down from 100% equities to 60/40 or so .
by the time i retired we went in at 40% equities until our first up cycle then we went 50/50 .
today we are overall at 43%-45% equities but remember our model can grow on the down cycle just as much as the up cycle too so it is not just equities that runs with the ball .
there are some rare days all segments move up or down and they can move as much as 100% equities . luckily those days are very rare where something is not going down while other parts go up .
We've always had separate spending money, it was her idea. That way there's no arguing about me buying golf clubs or she purchasing new shoes as we are using our own money. I know it's unusual but it's been working for 35 years and will continue to work.
So with that I want to make sure this money is somewhat protected without being too conservative.
our problem is my wife and i are in to the same things , well except for her shoe's and gym clothes thing .
we have no adult supervision and because we are both in to photography we have no limits on spending and in fact end up buying two of everything .
it is not like a normal husband and wife thing where if you wanted to buy a 3k lens she would beat you with it . my wife is okay , but let me see if i want one too .
i work one day a week and that funds my drumming obsession .
this is why while we don't have a budget we do set spending goal posts to try to stay within . but that is our spending portion.
the investing is all one comprehensive portfolio with both of us owning what we need to own to make up the models .
I know you said you can't tell me what % to do but given our situation and timelines, and given the stock market long bull, do you think it would be wise to change it to say 55% equity 45% bond fund? Like you I lean towards a managed bond fund, especially in this climate.
with the odds of the down turn part of the cycle increasing each year we dodge the bullet i would not exceed 50% but that is me .
the time to make changes is when we are up , not wait until things are lower and closer and decide . don't forget if you hit an extended downturn ,even a modest one early on before your first up cycle in retirement , you can damage the entire retirement .
i no longer hold any managed bond funds . i only hold very volatile long term treasury bonds in the bond portion . they only have one job and that is fly fighter cover for the portfolio .
like today stocks are down .73% at the moment and TLT IS UP .60 . gold is up .37% . the portfolio is actually up right now .
remember , retirement is all about sequences of gains and losses and losing years , vs what returns are .
the last 17 years , 2000 to 2017 saw 30/70 beat 60/40 and 100% equities while spending down 4% inflation adjusted .
so more equities in retirement can produce better or worse results depending on the sequences . .
Last edited by mathjak107; 08-10-2018 at 08:48 AM..
Look at your bond funds. Are they making or losing money. With interest rates going up they could be losing money, I would consider selling now or when they start to lose money.
Use a stop loss order and place sells for the stock. For example market is 100. You could say if market goes to 95 sell. You can also make the order a % which is probably better for you. Say a 5% drop and you sell. Be sure to study recent price movements in making up your mind. You can also place an order to sell when say the stock gets to 110.
As the stocks go up you can up your prices a little and have some protection when the market dips. Very important, if you say to sell if a 5% drop your sale could be at a 10% or 20% drop if everyone is selling so their is some risk.
I would call Schwab and discuss the various types of market orders after your read the explanations on their site.
You can buy CD's in the retirement account. Very easy. They can be sold at any time at market value.
Your decision is to provide stability for her spending money. I understand and nothing wrong with the decision.
I think the payout on the annuity will increase as interest rates increase so you might want to do a monthly check on the payouts before you buy.
Remember inflation. Look at costs of items she buys 20 or 30 years ago.
This is all the money she has for income other than SS. So I want max out that monthly check and an annuity appears to be able to do that. Even if we don't go the annuity route and she does a 4% WD a big drop in the stock market will kill her.
With this timeline what do you think regarding a stock/bond % mix?
You've been reading the discussions here for some time, yes? 60/40 portfolio in retirement is pretty reasonable, and a 4% draw on that is very typical. If this is "pocket money" then presumably there's some amount of leeway in the spending amount? That would add even more security to the equation, if she could cut back even just a little bit when stocks are down.
In the end, of course, both of you have to make a decision you're comfortable with.
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