Portfolio Asset Allocation

[MichaelC374013]

Hi-

I decided to self-direct our retirement portfolio and would like a second opinion on my AA. I had my head buried in the sand until recently when I decided to take a proactive approach to our retirement portfolio, now that we are 5 yrs from retirement.

1. 57 yo, plan to retire in 5 years
2. Set my target allocation to 70/30. Staying somewhat aggressive b/c anticipate having enough in savings for first 2 years of retirement.
3. Using 3-fund strategy 1) US Stocks 2) Int'l Stock 3)Bond
4. AA: 1) 56% 2) 14% 3) 40%
5. Entire portfolio approach: 3 different accounts, 1)my work 2) spouse work 3) Individual Roths. Instead of treating each account as a stand-alone, taking holistic view for 3 accts as 1 portfolio.

This is our current portfolio, would appreciate any feedback/critique:

[Tonster521]

@MichaelC374013,Your Asset Allocation is an important factor in planning retirement income. However, before anyone should comment on whether a 70% equity/30% income approach will be the solution for you and your spouse's needs, additional information is needed. First, do you and/or spouse participate in a defined benefit (monthly pension) plan? If so, are you and/or spouse vested? If vested, have you and/or spouse obtained an estimate of the monthly benefit that has accrued? Will both be eligible for SS Benefits in 5 years (age 62)? If you and spouse do not participate in a defined benefit plan, will your defined contribution plans (403 B and 401 K ) be your source of income (monthly, quarterly, semi annual, or annual distributions)? If so, have you developed an estimate of the income you need? Will you be increasing that amount from year to year by a percentage for inflation (i.e., 2.5%, 3.0%, etc.)? If your defined contribution plans will be used for income, you may need to adjust your asset allocation so your portfolio(s) will produce more income rather than capital gains which you cannot depend on. Capital gains are great when they are there, but when not there, you may need to sell some of your assets to obtain the income you need. You current equity allocation is focused on growth which has performed outstanding over the last 5 years. The S&P 500 has just about doubled since June 2020. Nobody knows if that will continue going forward. Keeping an allocation in the S&P 500 (aka the market) will outperform 80 to 85% of investment managers at almost no cost. Based on the info you have provided, I believe you are savvy and understand equity will provide the greater return over the long run (at least 5 to 10 years). However, if you are depending on your portfolios to generate income, you will need to evaluate your tolerance for risk. If more average in risk tolerance, you will need to reduce your equity exposure to maybe 60% or even 50%. On the other hand, if you and your spouse do not need much income from your defined contribution portfolios and are OK with about 1 to 2% yield, you may consider increasing your equity exposure to maybe 75% or even 80%. This is the best general info I can provide which is useful for you as well as other readers. Be careful with all the advisors trying to gain you as a client. Many charge 1% or more of assets and do not outperform the S&P 500 over the long run. They may have a good year or two which earn them bragging rights, but most of the time their performance is less than the S&P 500. Hope this helps.

[MichaelC374013]

Hey-

I'm glad I posted...We do have a number in mind when it comes to monthly income. I have a pension,wife does not. Both eligible at 62 for SS Benefits. Was planning to wait to take SS at 67 but now considering taking it at 62. If we both take it at 62 + my pension, that is almost the monthly income we anticipate, which means we would have to draw very little from our pre-tax retirement accts. Since there's no legacy/survivorship for SS, now thinking we should  take SS early so retirement accts are left for the kids...Is that a reasonable mindset?

Will reduce equity/income ratio as we age but since not anticipating needing retirement funds right away, staying somewhat aggressive for now.

Agree with advisors fees->the reason I'm self-directing my portfolio!

Thanks again. Appreciate you taking the time to reply.

[Tonster521]

 @MichaelC374013, Yes it is reasonable to grow your retirement assets for your heirs. FYI, the SSA advises that staring SS Benefits early, at Normal Retirement Age (aka Full retirement Age) or age 67, or delayed are actuarial equivalents based on average life expectancy and an discount rate of approximately 3%. I believe the SSA uses age 84 as the average life expectancy. Keep in mind that average age is gender neutral. In reality, females tend to live a few years more and males a few years less on average. Take a look at the SS Actuarial Life Table on the SSA website. Remember, we do not live actuarial lives. However, the table provides mathematical stats that may help you with future projections. If you are comfortable at 70/30, keep that allocation. However, if both you and your spouse are planning to work at least 5 more years and your jobs are not targeted for elimination, you can increase your equity allocation to 75% or even 80% since you have done a great job of covering your retirement income needs. Good Luck.

[papawofboo]

I just got to ask, why are you asking people about your future finical plans that you don't know? Is there not a bank where you live? If you turn on your tv for any length of time you will most likely see an investment firm advertise. Those people make mega bucks to be right about stuff like that. 

I know, none of my business but just wondering????????

[MichaelC374013]

Oops. this was not the type of forum I thought it was. Please disregard.