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Robert Brokamp CFP's informative article on Market Pass, How and When to Reduce Risk as Retirement Nears, makes for good reading with several useful suggestions on how to go about the task. For those in the small minority who still are covered by a defined benefit pension plan, inasmuch as the promised benefits are funded by holdings which are to some extent invested in fixed income ( although equity investing by pensions has become more prevalent with the drop in interest rates for bonds ), it can be a useful perspective to include the defined benefit pension benefit with its bond exposure in one's considerations, as one determines one's own personal allocations in approaching retirement or being in retirement years.
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Sounds interesting, link?
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Doubt it unless it's a link to Market Pass, a MF Premium Service for $1400/year.

But you may know that ;-)
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The phrase "reduce risk" relating to retirement has an inherent danger lots of people ignore or don't grasp. A better thought, in my view, is to swap or change risk.

Generally the reduce risk proponents are saying reduce equities and get bonds. Many people today are retiring with 30 plus years of retirement ahead. Even moderate inflation -- the kind the Fed wants of say 2% to 3% will be significant over long time frames. 30 years at 2.5% will raise the price of hamburger from $4.69 a pound to $9.84 - and similarly for most other stuff.

Unless a person has some combination of more money than they will spend or a short life expectancy, a significant portion of one's portfolio needs to be in equities. Personally we use the S&P500 - other folks have other choices.
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"Generally the reduce risk proponents are saying reduce equities and get bonds. Many people today are retiring with 30 plus years of retirement ahead. Even moderate inflation -- the kind the Fed wants of say 2% to 3% will be significant over long time frames. 30 years at 2.5% will raise the price of hamburger from $4.69 a pound to $9.84 - and similarly for most other stuff."

I think that is why Michael Kitces offers the idea of reverting back to a 'rising equity glide path' as you age during retirement.

His idea is that you move toward more bonds and fewer equities in the last few years leading up to retirement and during early retirement to protect yourself from 'sequence risk' i.e., a large crash early in retirement.

But as you age and your time horizon begins to shrink again, and you can phase back into a higher equity allocation for better long term returns.

We have had this conversation hundreds of times, but it is on topic:

https://www.kitces.com/blog/managing-portfolio-size-effect-w...
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The phrase "reduce risk" relating to retirement has an inherent danger lots of people ignore or don't grasp. A better thought, in my view, is to swap or change risk.

Generally the reduce risk proponents are saying reduce equities and get bonds. Many people today are retiring with 30 plus years of retirement ahead.



Certainly, over-allocating to bonds could be a mistake. But, the way volatility works for you when accumulating money, it works against you when you're living off your portfolio. So it makes sense to have some volatility mitigation during the drawdown phase, and a bond allocation is one of the ways to do that.

I'm not saying that your post is recommending 100% equities, but for some people following this thread, they might not understand the benefit of reduced volatility even if it comes at the price of lower (average) return.
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30 years at 2.5% will raise the price of hamburger from $4.69 a pound to $9.84 - and similarly for most other stuff.

So I have to look at the $1 menu that we've had for the last tens years and realize that it will go up to $2.

Pete
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So it makes sense to have some volatility mitigation during the drawdown phase, and a bond allocation is one of the ways to do that.

Bonds are not as "less volatile" as one thinks. Plus, you have the 30-40 year bond bull market from the high inflation of the 80s which skews the numbers. Back in '08/'09 crash, all assets (stocks/bonds/commodities) had a correlation of near 1 and EVERYTHING went down.

Here is a good paper about getting S&P returns but 1/2 the volatility with a mix of 5 ETFs. I used this for several years until I changed my retirement philosophy towards living off stock dividends as well as rental property income. My returns during that time were what the article advertised.

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=962461

JLC
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Exactly. Bonds aren't "safer". They can (and do) get hammered. And, as you say, in 2008/9 everything dropped. Yet bonds continue to have the undeserved reputation of being "safe".
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JLC writes,

Bonds are not as "less volatile" as one thinks. Plus, you have the 30-40 year bond bull market from the high inflation of the 80s which skews the numbers. Back in '08/'09 crash, all assets (stocks/bonds/commodities) had a correlation of near 1 and EVERYTHING went down.

</snip>


It depends on the maturity (i.e., duration) of the bond. I hold my "5 year's worth of living expenses" in a short-term corporate bond fund with a 2-3 year duration. That's not going to move much with a rise in interest rates. A bond with a 20 year duration would get hammered.

Fidelity has a short explanation on "duration".
https://www.fidelity.com/learning-center/investment-products...

intercst
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Exactly. Bonds aren't "safer". They can (and do) get hammered. And, as you say, in 2008/9 everything dropped. Yet bonds continue to have the undeserved reputation of being "safe".



My "safe" investment is a mutual fund. American Funds' Income Fund of America, which holds a mixture of bonds and dividend paying stocks. Yes, I am lazy and don't/can't spend the time necessary to follow all the stocks and bonds there are. This fund has a staff of people who spend their working days (and nights) figuring out the "best" mix to insure a steady income stream. Even gets a bit of growth. I sometimes roll my RMD into this fund - use it as a "bank".

And before you jump on me for paying a mutual fund fee, it's ¼% a year. Still 'way better than a "consultant" or "manager" or whatever. And I have enough of American Funds that I am long since not paying a commission for new purchases.
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“ Back in '08/'09 crash, all assets (stocks/bonds/commodities) had a correlation of near 1 and EVERYTHING went down.”

SPY drawdown was 48%.
BND drawdown was 4%.

That’s the value of bonds.
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