How should Social Security, annuities, pensions and other forms of guaranteed income affect our asset allocation during retirement. Some argue that we should treat them like bonds. They offer near guaranteed, stable income, and therefore, they should constitute part of our bond allocation.
A better approach, in my opinion, is to simply reduce or annual income requirements be the amount of these guaranteed payments. Then base our asset allocation on any additional income we need to generate from our investments.
I walk through both approaches in this video.
Resources mentioned in video & some bonus resources
Annuity Calculator:
Personal Capital (Investment Tracking, retirement planning):
Kitces’ article:
Bengen article:
Kitces’ interview:
Forbes article on valuing social security:
Social Security Valuation Calculator:
Investing Tools & Resources
📚 My Book (Retire Before Mom and Dad):
📈 Personal Capital (Investment Tracking, retirement planning):
⛱ New Retirement:
📊 Stock Rover:
💰 M1 Finance $30 Bonus (IRA & Taxable Accounts):
📊 Morningstar (Fund Research):
💵 Tiller (Budgeting):
🏆 Best Investment Tracking Apps:
Popular Videos:
1️⃣ How to Create a 3-Fund Portfolio:
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ABOUT ME
While still working as a trial attorney in the securities field, I started writing about personal finance and investing In 2007. In 2013 I started the Doughroller Money Podcast, which has been downloaded millions of times. Today I’m the Deputy Editor of Forbes Advisor, managing a growing team of editors and writers that produce content to help readers make the most of their money.
I’m also the author of Retire Before Mom and Dad–The Simple Numbers Behind a Lifetime of Financial Freedom (
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DISCLAIMER: I am not a financial adviser. These videos are for educational purposes only. Investing of any kind involves risk. Your investment and other financial decisions are solely your responsibility. It is imperative that you conduct your own research and seek professional advice as necessary. I am merely sharing my opinions.
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Rob, thanks for a thorough job again. I actually use both methods, the asset Model for after tax Netwoth, and the income model for the allocation percentage. I also calculate the total allocation percent including the the PV of the annuity type assets. My process stems from prior to retirement, when I was trying to figure out the real value of my pension and SS with regard to my savings. The other thing I do is adjust all assets to an after tax value. This helps corrects the overstated values of the tax deferred accounts.
Great presentation Rob. I think the challenge with the asset model as you call it is that your social security is fixed income and non-tradeable: If I had the present value in bonds, I could sell those off to rebalance if the market is severely down – but with social security, I can`t easily do that. Market goes up, down or sideways, I always get the same money. That`s why I agree that the income model is the much more reliable way to think about it.
Great Presentation; this Video was recommended by Algorithm today;
I tried to use the Personal Capital Site – but it will Not Open like you Displayed in September;
It Required Sign-Up and Linking Accounts; I tried to do Manual Assets like your Sample Accounts, but I cannot get past its request to LINK Accounts before it will let me do the Tools: Retirement Planning; I do Not feel Comfortable to give User Name and Passwords to a Stranger Company in order to use ‘Free Tools’.
Any Advise ?
75% bonds sounds riskier than 75% stocks in today's world.
This video was extremely helpful and exactly what I was looking for. Thank you!
Another good video Rob thanks. The way I Calculated my net present value of my pension and Future Social Security, was to use an Immediateannuity calculator With an inflation rider. This is what the current marketplace is offering someone with a lump sum to convert to a monthly income stream.
How would all of these shake out considering our apparent new fiscal policies in the US govt? There's a concern for a slide toward totalitarianism and possibly communism. How might that influence our investing?
Hi Rob! enjoying your channel, sounds like we are both on the same road to retirement happiness. BUT There is one thing I cannot abide… Red Sox??? Seriously? Go Giants!!! LOL 😉
Completely off topic, but here goes. For my kids. Should I have them invest in Roth ira or in a college fund instead? I think there are impacts to financial aid if they have a Roth ira. Thoughts?
21:25 why not run both asset and income models and operate your portfolio as informed by the conclusions of both? (if wildly discrepant, reconcile using best judgment, and/or other data)
@Rob Berger the Early Retirement Now blog by BigERN (Karsten) has a whole “SWR series” that analyzes safe withdrawal rates from stock-bond portfolios
Pension income (including social security) has the same "purpose" as bonds: provide income during a stock bear market. No need to touch equites that are falling in value.
I suggest looking at other approaches to retirement income beyond a single portfolio allocation. Based on Wade Pfau's research, Rob's approach, and the 4% rule falls into the probalistic model. But more conservative retirees might want to look at a more safety-first approach.
The probability approach, based on Monte Carlo analysis, will give a good probability of success. But what happens if it doesn't, and you run out of money?
Neither approach is good for everyone. Find the right approach that let's you sleep at night.
Great info Rob. My parents are 5 years from retirement (hopefully) they are pretty far behind. But I've been trying to set them up so they can retire at 67… they'll have good income from Social Security because they earned well… but (since they just refied last year) they'll have 25 years of $1600 a month going to housing.. its going to be fun trying to help them build those sources of income..
Thank you…
I also love your videos and appreciate your explanations but I can't for the life of me understand the "interest' rate in the Annuity calculator. What specific 'interest' is that meant to reflect? And why does the value increase as the interest goes down? I think there might be an assumption that us dummies have a basic understanding of your presentation but this dummy can't quite get it. THANK YOU
Thanks Rob, I've been looking for this content for a while. Any chance of a video about worse case scenarios? Sure we could cut back and live off fixed income for a while/a couple of years, but how long could that slump go on for? For me, a couple of lean years followed by a bounce back good run would be fine but if I had to live lean for ten years I'd be miserable. What are realistic scenarios and models for the length of lean times please?
Good information! Thanks for sharing.
Thank you, Rob. Excellent presentation as usual. Insightful for the the retires with income from sources such as social security, rental income, annuities and pensions and affording the flexibility (conservative to aggressive) in asset allocation of the retirement accounts.
Well done Rob! Great information and presented in a very balanced way.
Good stuff – I always use a notional risk premium to everything I invest in – using your income example I would apply a .66 risk premium (i.e. I'd take a chunk more risk) to the existing portfolio(s), given a third of it is safe(ish) income.
Bob Brinker of Money Talk fame always recommended the income model, but never explained why as well as you did
New subscriber here. I’m 40 and just starting to buy stocks. Where should I start? I make 95k yearly. If that matters. Should I start with a mutual fund or another long term choice?
To me the main problem with the "social security = bond-like-asset" approach relates to spending strategy; with a traditional mixed equity/bond portfolio, you will be able to rather spend down your bonds when equity is down- and do so right from the start with ALL the bonds (if needed) that you have in your nestegg. With (any) deferred income, such anticipatory spending of safe assets will be impossible, and you will have to draw on equity, even in eg. a crash. That's why the approach "income-needs = total needs – social security" seems safer to me.
Regarding extremely conservative asset allocation: to me, an investor who does not need their nestegg for a living is not "investing for retirement". They are rather "investors who happen to be retired ;-)"
Pension?
Thank you Rob. My wife works for the US government so we will have the joy of her getting a pension when she turns 50 later this decade and I have been struggling with how to figure it into the plan. I have been waiting for you to drop this video as I have not found anything else that covers it. Keep up the good work
You’ve no idea how timely this video is. Thank you so much!