No. of Recommendations: 4
Uncle Fingers tells you how much you need to take with the RMD (depending on where your investments are).

I consider taxable IRA withdraws a tax issue, not an investment issue. I manage the finances for two households. The people in both households are retired, neither needs IRA money to live off of.

One's RMD is a transfer from an IRA account to a non-IRA account with a charge for taxes. Doesn't impact her asset allocation or financial plan.

The second household isn't subject to RMDs. Due to the Trump tax changes they're in a significantly lower bracket than expected. IRA withdrawals are being made to maximize the current income tax bracket. The withdrawals aren't spent, but transferred to a taxable account. No changing asset allocation or financial planning.

So, IMHO, RMSs don't significantly change financial planning or asset allocation. It's the need for cash which drives change.
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No. of Recommendations: 1
I have figured out the cost of an annuity as a placeholder to use in allocation decisions. For example our social security works out to 563000 dollars on the fixed income side. I use a 65/25/10 allocation independent of social security.stocks/reits and preferred/cash.

Jk
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No. of Recommendations: 12
I am curious how people adjust asset allocation when considering pension and social security income.

As for me, not at all.

The problem is, as was said on another thread, " all kinds of extraneous stuff like how much you're getting in SS, pension, etc."

Pension and SS are income streams, not investment-type assets. If your job pays you $50,000 a year, would you say that this makes your net worth to be $2,369,668? (That's 50k divided by the 2.11% yield of TLT)
Nobody says that, and nobody thinks that way.


On one extreme I could say these incomes are unrelated to a 60/40 allocation.

That's not an extreme. That's just a statement of fact.

A 60/40 asset allocation is just that---how your investment money is allocated. The allocation and the withdrawal rate just determines how long the portfolio will survive.

However much of your income comes from things like pension and SS it simply reduces how much you need to withdraw from your investments to provide your total income requirements.
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No. of Recommendations: 4
A 60/40 asset allocation is just that---how your investment money is allocated. The allocation and the withdrawal rate just determines how long the portfolio will survive.

However much of your income comes from things like pension and SS it simply reduces how much you need to withdraw from your investments to provide your total income requirements.


If you reduce your need to withdraw from your investments - let's say from 4% to 1% as in intercst's case, then couldn't your asset allocation change from your current 60/40 ratio? You seem to say your 60/40 asset allocation is fixed no matter what your withdrawal rate is.

PSU
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No. of Recommendations: 3
If you reduce your need to withdraw from your investments - let's say from 4% to 1% as in intercst's case, then couldn't your asset allocation change from your current 60/40 ratio?

Sure it could. You pick your asset allocation based on how much risk & volatility you are willing to tolerate.

If you have a 0% withdrawal rate, you could be 100% stocks. But most people are not willing to go that high, most people stick to somewhere around 60/40 or 80/20.

What I am really saying is that 1% would *allow* you to have a higher AA ratio that 4% without having a higher portfolio risk. But it does not *require* you to have a different AA ratio.

People pick their AA more-or-less independently of their withdrawal needs. Because the AA ratio is mostly a "sleep well at night" matter.
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If you reduce your need to withdraw from your investments - let's say from 4% to 1% as in intercst's case, then couldn't your asset allocation change from your current 60/40 ratio? You seem to say your 60/40 asset allocation is fixed no matter what your withdrawal rate is.>/i>

First off if my withdraw rate was 1%, I would convert the portfolio to gold and know that at age 79, I will never run of of money. == trivial, but I could not resist.

Second - I am asking simply because I am thinking I should change the 60/40 ratio. In my view there are two reasons for fixed income investments. One is to provide some stability and the other is to reduce the likelihood of having to sell equities at a low price. (Some consider selling one class or another to rebalance a portfolio. So far I have not done that -- rather I make withdraws from my portfolio by selling from the side that is above my goal.)
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PSU asks,


If you reduce your need to withdraw from your investments - let's say from 4% to 1% as in intercst's case, then couldn't your asset allocation change from your current 60/40 ratio? You seem to say your 60/40 asset allocation is fixed no matter what your withdrawal rate is.

</snip>


Your asset allocation affects the SWR. Somewhere between 60/40 to 75/25 gives you the highest withdrawal rate based on historical studies.

As my portfolio balance has increased over the past 25+ years (and withdrawal rate decreased as a "% of assets"), I decided I could handle the risk of a higher stock allocation. I wouldn't maintain my current 95/05 ratio if I was withdrawing anywhere near 4%.

intercst
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No. of Recommendations: 17
Just one person's real life example...

First, after I retired 13 years ago at 62, I soon found out that I did not need as much to live on as most opinions/examples led me to believe. So I began living on my pension and social security.

Then, my withdrawals were not based on any percentage, they were based on what type of vacations/trips I wanted to take. My investments were/are probably in the 60/40 stock to bond/cash range.

Then after you pass 70 1/2, you have a bit less control over the withdrawal percentage since Uncle Fingers tells you how much you need to take with the RMD (depending on where your investments are).

This scenario is based on not having any large debt; mortgage or otherwise.

Sometimes I think a lot of this is over-analyzed. I did go through a lot of this including how much insurance I needed, what kind of returns I needed, etc. I'm not sure how much of a difference it would have made if the numbers were altered slightly.

I've been blessed and had a good life. You can't predict illness, death, coronaviruses, etc.
Do what let's you sleep at night.
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Uncle Fingers tells you how much you need to take with the RMD (depending on where your investments are).

I consider taxable IRA withdraws a tax issue, not an investment issue. I manage the finances for two households. The people in both households are retired, neither needs IRA money to live off of.

One's RMD is a transfer from an IRA account to a non-IRA account with a charge for taxes. Doesn't impact her asset allocation or financial plan.

The second household isn't subject to RMDs. Due to the Trump tax changes they're in a significantly lower bracket than expected. IRA withdrawals are being made to maximize the current income tax bracket. The withdrawals aren't spent, but transferred to a taxable account. No changing asset allocation or financial planning.

So, IMHO, RMSs don't significantly change financial planning or asset allocation. It's the need for cash which drives change.
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One's RMD is a transfer from an IRA account to a non-IRA account with a charge for taxes. Doesn't impact her asset allocation or financial plan.

In your case, your example may be true.

As I mentioned, some things can be over analyzed.

The transfer may also be from a 401K to cash, etc. Seems to me that if one takes $25K out of a 401K that MAY impact the balance somewhat. It may also put you in a higher tax bracket. It may also cause a penalty to your medicare payments if it puts you over the next clip level (been there, done that).

My point is that all of your finances interact so trying to determine a 1% vs. 2% withdrawal or a 60/40 vs a 70/30 balance is nice and you can set goals, but life happens and you adjust.
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No. of Recommendations: 3
I am curious how people adjust asset allocation when considering pension and social security income.

Those are items that reduce the amount of money you need for your long term SWR.

What I'm doing (1st order estimate): Annual need = 100K
Pension (at retirement): $17K
Age 67 Social Security: $33K
Age 68 Social Security: $50K (add spousal SS)
So, my long term portfolio need is $33K annually, which I have in 80/20 stock (and stock-like) / bond (plus cash and bond-like) funds/ETFs. That also means that if I retire at age 61, I need to cover the social security, that I'm not taking that early, from my own portfolio, which I have in cash and stable funds (a "bond tent").

The second-order estimate is a more complicated spreadsheet that lets me plug in what the portfolio earns after inflation, various SS alternatives, adding an annuity*, etc. I'll also pay an estimated $11K per year less in taxes. It also includes expenses changing for me paying my own private medical insurance for 6 (?) years, then lower Medicare (although that's still more than I pay as an employee).
This, plus the first order, are my self-justification that I can retire at or before age 61. Since I plan to pull the trigger in three to 10 months, I really want to know that I'm not going to have to look for employment later...like after my skill set and network have become "rusty."

Having some of my long term needs in bonds, plus all of my next few years of (much higher) needs in bonds/cash means this recent 11% stock market drop doesn't upset my plans. In fact, I can imagine my company offering a sweeter-than-normal severance package for voluntarily leaving if they decide they need to "right size" again. And even if they don't, my numbers are healthy.

To answer my own "can I retire?" question, I've used all worst-case numbers...so I *should* hit age 70 and have too much money. But, my biggest worry has been running out of money, so working an extra year or two (at the end of a decent-paying career) has been worth it to have some extra robustness in my plan.

*Only one annuity actually helps, partly because of today's low rates. I have my "plan to" age as 95, my wife's as 97, and taking calculations further than four decades away makes the assumptions more important than the decisions. The QLAC ($130K), if purchased later at somewhat better deferred annuity rates, ends up helping if my whole portfolio earns an average of 2.5% over the next 35 years. If I earn 3% over inflation, it will turn out to have been "sub-optimal," but a QLAC is also a way to get something that's LTCI-ish without paying the outrageous Long Term Care Insurance rates I've been seeing.
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