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Market Timing or milestone Driven Adjustment of Asset Allocation

Home Retirement Accounts Market Timing or milestone Driven Adjustment of Asset Allocation

  • Avatar Larry Ragman
    Participant
    Status: Other Professional
    Posts: 639
    Joined: 08/30/2018

    Lordosis’ current thread on market timing was interesting to me, but perhaps for a different reason than those who joined the debate. Generally speaking I took the conversation to be between different philosophies about the accumulation phase. As it happened, I was looking hard at the market for two reasons. First, while my plans aren’t firm, I am likely now inside a window to retire in three years at 62. Second, when I do retire I have two different 457 accounts that have forced payouts.

    The question on my mind was if I should convert some or all of the 457s out of the vanguard Target Retirement 2025 fund, which is where all my retirement money is in all my various retirement accounts, to Total Bond Market? I know some disagree, but I consider the 457s to have a timing risk because they must be liquidated on a schedule, so they have no time to recover from an unfortunately timed bear market. Anyway, I think of this as a milestone driven change to my asset allocation, but I can’t deny that it was on my mind since the market is starting to show some tracks.

    Anyone out there that has worked through this transition to retirement with a different view on changing asset allocation based on asset location? (By the way, I plan to leave all the Roth and 403b monies in the 2025 fund.)

    #237844 Reply
    Avatar Tim
    Participant
    Status: Accountant
    Posts: 3381
    Joined: 09/18/2018
    Anyone out there that has worked through this transition to retirement with a different view on changing asset allocation based on asset location?

    Click to expand…

    The location of the investment is not an issue, the AA is your concern for all of your funds. You have a 60/40 allocation in VTTVX regardless for where you hold the funds. No reason to move this piece to all bonds. The time of moving the dollars should not impact where you keep the funds in your chosen allocation.

    You simply have a tax issue with the required distributions and the loss of income coming down the road with retirement. Those are the two issues and reason for the “anxiety”. Your total AA needs to deal with that, going all to bonds is probably not the best option. If 60/40 suits you now, it will probably suit you at 65-70.

    Congratulations Dr. Ragman! My spouse retired last week. Not quite as investment savvy as you, but the same emotional feelings, “What now?” Everyone has a jolt of “flight to safety”. I think you will figure it out on your own without much input.

    #237852 Reply
    Avatar Larry Ragman
    Participant
    Status: Other Professional
    Posts: 639
    Joined: 08/30/2018

    Thanks Tim. You definitely provide a cogent counterpoint, but the way I see the overall AA is that it is oriented towards the long term. The problem with the 457s is that they must be liquidated. When I do so I plan to make them the basis of my spending over the next several years as a bridge to SS. So I don’t think of this as shifting VTTVX from one location to another. This will be a cash out of that portion of the assets.

    #237859 Reply
    Avatar Tim
    Participant
    Status: Accountant
    Posts: 3381
    Joined: 09/18/2018
    When I do so I plan to make them the basis of my spending over the next several years as a bridge to SS.

    Click to expand…

    If that is you plan, so be it. I am not an expert but:

    When retired, it sounds like you are going more conservative. Consider what your final retirement EF needs are. Your other retirement funds will kick in at some point. Whether in bonds or high yields savings, of course you can handle that. Without knowing the amounts (not a request for that), you want a low risk EF even when social security kicks in. For the life of me, I am planning on leaving SS sit until the 70 yr mile stone. Bridge or not, I keep a portion of cash stockpiled for market fluctuations like you are proposing. Some use a bond ladder and some use high yield savings.

    Personally I have used one year’s needs held in cash equivalents. Some use two or three. Personal choice but it’s basically and EFund.re

    I prefer to take the 8% SS increase rather than 2% on the cash EFund and the rest invested to capture the SS increase. My backup plan is two fold in the event of a recession (as opposed to a market drop):

    1) Use the bonds and let the AA shift to equity heavy. 40% in bonds SHOULD be sufficient to liquidate.

    2) Sell the house and tighten up the burn rate (yes, that means cut my cash needs as drastically as needed).

    That’s my two, if worse comes to worse I have two kids that are free to tell me “adios mi papi”! I sure hope it doesn’t come to that, they would lose out on my intent to be self sufficient and be really pissed off. Real retirement means the end of paychecks.

    Question for you, should Dad pop for an expensive vacation with everything invested in house and the market? Gonna do it in September, I certainly hope they appreciate it.

    I still think you are going too conservative, recommend you come up with a 10 year transition plan and the EF needs in retirement. Each year replenish it as needed. Part of your rebalancing. Three to five years of expenses is an awful lot. One additional year of earnings covers SS early for a number of years. Adequate EF and a 60/40 balance seems to be your goal. Think hard about holding off on SS if you aren’t already.

    The intent is simply to let you chew on the alternatives. It comes down to how much is enough.

    Good luck.

     

     

    #237914 Reply
    Avatar Peds
    Moderator
    Status: Physician
    Posts: 4715
    Joined: 01/08/2016
    I think of this as a milestone driven change to my asset allocation,

    Click to expand…

    i think if you are planning to keep the same overall AA then sure, move FI into the 457.

    in the end, it is mental accounting since the overall value will drop, and any unspent allocations will be dumped right back into taxable.

    #237915 Reply
    Avatar Larry Ragman
    Participant
    Status: Other Professional
    Posts: 639
    Joined: 08/30/2018
    When I do so I plan to make them the basis of my spending over the next several years as a bridge to SS. 

    Click to expand…

    If that is you plan, so be it. I am not an expert but:

    When retired, it sounds like you are going more conservative. Consider what your final retirement EF needs are. Your other retirement funds will kick in at some point. Whether in bonds or high yields savings, of course you can handle that. Without knowing the amounts (not a request for that), you want a low risk EF even when social security kicks in. For the life of me, I am planning on leaving SS sit until the 70 yr mile stone. Bridge or not, I keep a portion of cash stockpiled for market fluctuations like you are proposing. Some use a bond ladder and some use high yield savings.

    Personally I have used one year’s needs held in cash equivalents. Some use two or three. Personal choice but it’s basically and EFund.re

    I prefer to take the 8% SS increase rather than 2% on the cash EFund and the rest invested to capture the SS increase. My backup plan is two fold in the event of a recession (as opposed to a market drop):

    1) Use the bonds and let the AA shift to equity heavy. 40% in bonds SHOULD be sufficient to liquidate.

    2) Sell the house and tighten up the burn rate (yes, that means cut my cash needs as drastically as needed).

    That’s my two, if worse comes to worse I have two kids that are free to tell me “adios mi papi”! I sure hope it doesn’t come to that, they would lose out on my intent to be self sufficient and be really pissed off. Real retirement means the end of paychecks.

    Question for you, should Dad pop for an expensive vacation with everything invested in house and the market? Gonna do it in September, I certainly hope they appreciate it.

    I still think you are going too conservative, recommend you come up with a 10 year transition plan and the EF needs in retirement. Each year replenish it as needed. Part of your rebalancing. Three to five years of expenses is an awful lot. One additional year of earnings covers SS early for a number of years. Adequate EF and a 60/40 balance seems to be your goal. Think hard about holding off on SS if you aren’t already.

    The intent is simply to let you chew on the alternatives. It comes down to how much is enough.

    Good luck.

     

     

    Click to expand…

    Good food for thought. I have many of the same plans. First, on your question, I think the memories from the family vacation will be worth it. My wife and I plan to do the same with the adult kids next year, but we are splurging for ourselves this year. (Of course, I’m still working so it is a bit easier to commit out of cash flow.) Second, I am definitely planning to hold off on SS until 70. I am fortunate to have a military pension that will provide a core of my spending in retirement until then, though my wife may take her SS earlier.

    As for my AA, I am not too concerned about going overly conservative. I mentioned earlier the bulk of the retirement accounts are 2025, but all the taxable is Total Stock Market, so that combined I’ll still be 60 stocks: 40 bonds overall. True, the mix will become more conservative as a build up my buffer (which I plan for two years as opposed to your one year of expenses), but after all the target retirement funds also transition over time and eventually get to 30:70 in the retirement income fund (in 2032 for me). Finally, I will have two paid off rental properties by then, which are nice to have but not without risk.

    #237947 Reply
    Avatar Larry Ragman
    Participant
    Status: Other Professional
    Posts: 639
    Joined: 08/30/2018
    I think of this as a milestone driven change to my asset allocation, 

    Click to expand…

    i think if you are planning to keep the same overall AA then sure, move FI into the 457.

    in the end, it is mental accounting since the overall value will drop, and any unspent allocations will be dumped right back into taxable.

    Click to expand…

    I understand the mental accounting element here, but that is only from one perspective. I’m also seeking to minimize my regrets by minimizing market risk in the accounts that I know I will have to cash out on a short term schedule. You are of course correct that I will likely reinvest some of those funds once they are liquidated from the 457 accounts.

    #237949 Reply

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