I’ve decided that I’m just 80/20 for life. I probably went 80/20 a little bit too young (30 y/o), but now I’m ~10 years from retirement, and it feels appropriately aggressive at this stage. It also feels a little aggressive to be 80/20 right at retirement, but I’ll still be pretty young and figure worst case I could work a little more. As I get deeper into retirement, then 80/20 becomes correct again.
If I got very old (like 85+) and had minimal expenses, I could see then gliding towards 100/0.
I don’t dispute the theoretical glide path stuff. I’m sure it’s good analysis. In my experience a lot of the “asset mix into retirement” analysis makes a lot of sense in models and tends to get broken up on the rocky shores of behavioral economics and human emotion in the real world. I don’t discourage people from doing the analysis and designing good retirement products but in the real world retirement planning tends to take on more of a personalization bent, rather than running models to optimize you really need to ask people what they want, get them to make (sometimes hard) choices about trade offs, and line up your advice to their wants/needs. You can get two people that look the same to a model and Household A says that their biggest goal in retirement is to finally travel the world and buy a boat and Household B says that their biggest goal in retirement is to hand over their assets to their kids in a tax efficient way. These are both perfectly reasonable choices on what to prioritize, and theoretical glide path models tend to just skip this whole step.
I’m just 100% equities for life. The swings don’t bother me so far.
For me, it gets kinda real if I’m set to retire and my $4mm portfolio draws down to $2mm vs. like $2.5mm which is sort of the observed worst case for 100/0 vs 80/20 since 1970 or so. I also suspect that right at retirement that 100/0 is simply over-aggro and objectively suboptimal with respect to Kelly Criterion.
I think there is an argument for doing some annuities. Yes, you need to carefully shop as the fees can really suck (and even the non-scam ones are EV-), but I think being in a situation where SS + your annuities at least allow you to survive will give you a level of comfort if the stock market gets rocky or having to worry about what happens if you live to 100. The expected return from a portion annuity + 100% equity with the rest might even be better than from 80/20 or whatever ratio you’d otherwise use.
stocks or bonds at 85 blows my mind, savings accounts are 4%+ and you aren’t living that much longer
I wouldn’t say that annuity fees are a big problem. At least in Canada, the market is pretty efficient and you can easily access brokers that can shop for the best rate. There isn’t a lot of embedded fees in basic, single premium life annuities. Usually the argument against annuities is more about a) if you die early in retirement you “lose all your money”, and b) annuities don’t leave anything for your estate which is a major, major objective many, many households. I think that point a) is kind of stupid, this comes from people thinking of annuties as an investment and not as an insurance policy. b) is more a matter or priorities and is really up to the individual.
I’m pretty sure that Canada has much better laws on the disclosure of fees, whereas in America it’s much easier for companies to include all sorts of hidden fees. (I agree with your other points).
not if you value your heirs’ inheritance at zero!
would you still feel that way if nearly all of a person’s expenses can be paid via guaranteed income streams?
This article is in reference to variable annuities where your payment grows with market returns and you pay extra for a guarantee that your payment won’t do down. These are the most expensive and most elaborate annuity products out there. The fees are much lower for a plain vanilla single premium life annuity that pays a fixed payment per month.
Annuities can leave stuff for your estate. If the annuity is more than you spend, you can start saving again.
That’s true but I wouldn’t recommend it. Traditional annuities aren’t really designed to provide investment gains or for estate planning. At their heart, they are insurance. The risk they insurance against is outliving your savings in retirement. I really wouldn’t try to use them for another purpose.
Good reporting on this.
I still can’t claim to understand wtf a “hot job market” is though. So the writer could have added one more “explain like I’m 5” paragraph.
“Hot job market” is subjective, but an unemployment rate of 3.6% is pretty darned low. That’s back to pre-COVID levels and the pre-COVD levels followed a decade of steady decline from an unemployment rate of about 10% after the global financial crisis.
https://www.bls.gov/charts/employment-situation/civilian-unemployment-rate.htm
That much I understand. But there’s an assumed perspective in there that I don’t follow. Is the hot job market good, and good for who? Does it mean growth and more jobs are available? More hiring? Is a “hot” job market generally more or less favorable to the average consumer/worker in terms of their ability to navigate basic life?
I think that you could ask 5 PhDs in economics to answer these questions and get 8 different answers. These things are complex.
In July 2023 I think some of the key trends are:
Ok, fine, I concede it would have been tough for the author to squeeze all that into 3 sentences.
Thanks for the response, basically “it’s unclear.” Which makes sense and also just reiterates why I keep loving this headline:
And it’s not like I’m an expert. I know some stuff because I have my own personal experiences and my job involves economics and markets. But there’s plenty I don’t know.
Even more perplexing is trying to understand if a “hot job market” is ‘good’ or ‘bad’.
For this I just look to the headlines:
“Dow soars on strong jobs reports, economic data”? Good!
“Stock sink on hot jobs report, Fed fears”? Bad!