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Author: telegraph Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75781  
Subject: Re: Pension Termination Date: 2/1/2004 4:45 PM
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I am not a fan of annuities -- as far as I can tell the the only people who come out ahead with them are the people collecting sales commissions.



Many many pension plans essentially buy an annuity on the day you retire. You accumulate pension benefits, and the dollar amount of benefits is translated to an annuity. That gets the future responsibility of the corporation off the hook.

If you expect to work for 10 to 15 years, I would suggest you have signficant, if not major, exposure to stocks. You may want to look at mutual funds that are classed as "balanced" or "growth and income" which will be somewhat lower risk then pure stock funds.


There are many many considerations of "Modern Portfolio Theory" and none of them advocate 'all stock' (equity) portfolios for someone in theeir 50s, planning on working another 13 years, hopefully. And that 13 years, the way things have been going,might be cut back, or you might get offered a 'buyout package' but not equivalent to working to 65, in terms of totally dollars earned.

I strongly recommend WIlliam Bernstein's The Four Pillars of Investing as a sound guide to portfolio allocation.

There are many folks over the past 130 years of market history who were happy they had a fair percentage of bonds in their portfolios (or CDs or equiv). Take for example folks retiring in 1927, who two years later saw their stocks decline by 90%. Bonds didn't drop a dime.

The actualy worse case for 'safe rate withdrawal' was in about 1966, where the stock market did terrible for the next 20 years.

For someone who 'might' retire at any time, voluntarily or involuntary, being totally at the mercy of the market is near suicide.

THe idea of modern portfolio theory is to minimize RISK. As lots of folks found out who planned to retire in 2002, and were 'making all sorts of money in the stock market in 1999', they sure wish they had bonds in their portfolio. Over the 2000-2003, bonds went up 35%.

You may want to look at mutual funds that are classed as "balanced" or "growth and income" which will be somewhat lower risk then pure stock funds.

A 'balanced fund' is usually one that owns both stocks and bonds - maybe in 50/50 proportion. It is not a 'stock'.

Growth and income funds may consist of both stocks and bonds, or just dividend paying, fairly slow growth (not aggressive growth) stocks. You need to figure that out.

By your recommendation of these, you are basically saying own bonds!

Over the past 130 years, for a 30 year withdrawal period from your portolio, the optimum ratio is between 50% and 70% stocks (when you retire) for a 99% probabiility of your money outliving you. The other money is in bonds/CDs or equivalents. That survived ANY 30 year period. For all stock, the 'worst case' was 2.3% withdrawal rate.

Remember, stocks go up 2 out of 3 years. That means they go down, on average, once every 3 years. Bonds help reduce the volatility (swings) in your portfolio.

t.






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