[USER]

Glide path out question….
I want to retire at 60, 8.5 more years. (Earlier if the money allows)
I want $100k/yr

My only fixed income at that time will be $28k/yr in widow SS benefits (I’ve met with the SS office and gotten a matrix prediction so this is a fairly reliable number)

I have a pension that I can opt for the cash ballance or an annuity.

If I opt for the annuity, (which doesnt make math sense but does give me peace of mind that I have guaranteed income and can take some preasure off my portfolio), it is an additional $19/k year (but no COLA).

Combined with my widow benefits, it gives me $47k/yr.

Using Franks risk parity portfolio at a 5% withdrawl rate:
I’d need a $1,060,000 portfolio to support that extra $53k/yr.
I have that now. I’ve won.

If I opt for the lump sum from my pension, which the math says is the better option, (cas value prediction to be $230k) I’d need to have $1.4M invested to throw off $72k/yr. so I still have some savings to do.

The actual question(s):
I am 100% equities. Since I am so close to “winning” should I go ahead and start building my risk parity portfolio with my contributions?

I plan to do this inside my 403b.

I have access to a no-fee brokerage link account through my 403b which is held by Fidelity so I should be able to build the portfolio with that brokerage link account.

Yes? (I havent done a deep dive into it yet)
Or
Do I wait until my 100% equities are at that $1.4M?

Next question:
I’ve seen retirees say to have 5 years cash on hand. I have 1 year in a HYSA.

I currently have have 5% of my paychecks go to my brokerage account and I usually invest it. My brokerage account is 25% of my net-worth so I probably dont need to keep investing there??

Should I stop investing that money and instead let the deposits go to a money market fund to start building up cash reserves for retirement?

Or is there somewhere else retirees are keeping the 5 years cash?

[Rick]

Great post. Informative. Thoughtful. Context without a lot of fluff.

A bit off your question set but please add tax planning to your list of things to consider and then plan.

In two ways
With what looks like a $100k per year spending target this will put you into a lot of tax red zones.

Not that high of a tax but more tax can be avoided so should be avoided. Know your cap gains and qualified dividend 0% tax end amount.

Know your Roth conversion plan, all years but also potential extra in a big down market year.

Cap gains harvesting but usually they take a backseat to Roth conversions if both could be done in a year.

And second one plays into the first. Consider asset location. REITs and bond interest is great for those tax deferred accounts since neither are tax rate friendly.

Consider turning off dividend reinvestment in brokerage accounts, using the dividends in your spending, as the extra cost basis to track is a pain over time.

Things like that.

Good luck to you on your fi journey.

[Frank]

As William Bernstein says, “when you have won the game, you can stop playing”. So yes, it’s a good time to start de-risking your portfolio, at least with the portion you need for retirement.

You have a lot of flexibility as to how to do that given your time frame.

You don’t need five years of cash if you have a well-diversified portfolio, especially in your case where so much of your expenses are covered by pensions.. In fact, more than 10% in cash in a portfolio tends to detract from its long-term performance and safe withdrawal rate.

While excessive cash allocations are very popular these days, it is usually an indication that

(1) the holder otherwise has a bad portfolio for spending in retirement with too many equities; and/or

(2) the holder is over-saved, plans to die at highest net worth and is hoarding cash on a personal preference basis; and/or

(3) the holder has a lazy financial advisor who is more interested in psychobabble-tactics about buckets, ladders, flowerpots, pie cakes and other kitchen and gardening implements, and marketing that kind of “system”, rather than just allocating assets in the simplest and best way possible without resorting to useless window dressings and funny labels for cash.

So, I would not do that. Also, cash is the LAST thing you build up before pulling the plug, so build out the other allocations first.

[Ron]

Five years cash will slow your progression to meeting your FI number and will require a higher FI number if you plan to maintain that cash while in retirement.

Yes, start to build your retirement portfolio over a number of years starting before retirement.

[Kevin]

I’d definitely consider the annuity. Consider it as part of your bond portfolio.

[Author]

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