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mickeymag
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| counting a pension or soc sec as bond allocation |
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I'm trying to learn how to balance my own portfolio and along the way I've heard the advice to have a 60/40 stock/bond distribution, but then I heard I should count pension and social security as part of the bond percentage. Now I'm trying to figure out how to implement this advice; that is, how do I translate a future pension (I am about 10 years from retiring) into my current portfolio mix.
Here's the way I came up with but it would call for dramatic changes to my portfolio.
Suppose I have 60K in stocks now and 40K in bonds, but the withdrawal value of my current pension is 100K. Does that mean I should think of myself as having 140K in bonds and start buying stocks to balance the portfolio? Meanwhile, this doesn't even take into consideration my wife's future social security, which I heard should also be counted toward bond holdings, but how?
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Mon Nov 12, 2012 1:30 am |
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oldguy
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quote:
but then I heard I should count pension and social security as part of the bond percentage.
First you get your Tax Advice from the Thurs nite friend. And now you "heard" that you should count your annuitized pensions into your wealth allocation? lol
There is a fairly new book, The Investment Answer by Goldie & Murray. It is only 55 pages, a couple hours to read, available in Public Libraries. I think you would find it enlightening 
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Mon Nov 12, 2012 2:49 am |
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mickeymag
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Ha, ha, touché. I know, I know, it’s risky to pin our retirement dreams on hearsay, but it’s okay because I’m running it all past you guys on this Internet discussion forum;-)
But seriously, while the correct-as-it-turned-out tax advice did come from my drinking buddy, the pension-as-bond allocation came from Jonathan Pond’s You Can Do It. (Listening to the book during my commute; hence the “heard” mentality.)
Meanwhile, shortly before posting my question last night, I was reading around elsewhere in this forum and came across a posting recommending the Goldie & Murray book, which led me to the NYT's article and from there to my library’s catalogue and my copy is on its way.
So I’m looking forward to reading the G&M book soon, but in the meantime I wonder if anyone has ever heard of counting a pension as a bond allocation and what the implications of that might be on portfolio that is already 60/40 stock/bond without consideration of the pension. I guess I’m wondering if I’m too light on stock, and if I’m understanding Pond correctly, I am.
(And if you have heard of this, how does one calculate the value of a pension in a portfolio?)
Point well taken about avoiding sudden shifts, Coaster. I’m not really planning a major shift so much as a redirection of biweekly deferments, so I should have plenty of time to rethink the strategy change.
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Mon Nov 12, 2012 12:39 pm |
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oldguy
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quote:
Suppose I have 60K in stocks now and 40K in bonds, but the withdrawal value of my current pension is 100K. Does that mean I should think of myself as having 140K in bonds and start buying stocks to balance the portfolio? Meanwhile, this doesn't even take into consideration my wife's future social security,
The SS pension is a life annuity, as such you cannot allocate it, you can only use it as cash flow. But the $100k pension annuity has a withdrawal value - can you cash-out that $100k and allocate that into stocks if you desire? If so, that is allocatable wealth.
And conversely, you can use your $60/$40k funds and buy a life annuity with it - and that removes it from your allocatable funds. Ie, you can control how much of your wealth that you want locked into annuites and how much you want in stoks/bonds/cash.
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Mon Nov 12, 2012 4:13 pm |
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mickeymag
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Thanks for all the excellent answers. My copy of the library book arrived today and I'll be hitting the couch soon to dig in, but your input has been very helpful. Sounds like there might be some rationale for running slightly more aggressive, but mostly stick close to the 60/40--well, that's my take away;-) Thanks again.
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Mon Nov 12, 2012 11:48 pm |
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