By What Age Do You Hope to be 100% Out of the Stock Market?

[scfr]

I'm not talking about "casino money." I understand that some people enjoy stock-picking as a hobby, and may want to keep that up for the rest of their lives.

What I'm talking about is the money that you will use to fund your Golden Years. If everything goes according to your personal plan, do you plan at some point to be 100% out of the stock market ... in other words, at a point where you think you can live comfortably off of your lower-risk investments (such as Treasuries) and cash savings? If so, at what age do you hope to be 100% out of the stock market?

For me, I think it's around age 65. Going through a market "correction" like the one we are experiencing now is one thing when you are 20 or 30 or 40 and have time on your side ... But it must be so harrowing for the folks who are in their 70's or 80's or 90's, who are still invested heavily in the stock market, and who are watching their nest eggs crack. I feel for them, and I hope I never have to stand in their shoes.

[jIM_Ohio]

Never 100% out, there is a chance I might always be 100% in.

Dividends would be 100% in (meaning if I could live off dividends alone, any reason to NOT be 100% in?).

[maat55]

Never 100% out, there is a chance I might always be 100% in.

Dividends would be 100% in (meaning if I could live off dividends alone, any reason to NOT be 100% in?).

I too hope to keep 100% in.

[scfr]

jIM - I'm not sure if you're saying you WANT to be 100% in, or if you feel you may have to be. But if you're saying you WANT to be, then this question applies to you and maat55 as well: Why? For example, if you were 65 years old today and had a $4mill net worth excluding your home, would you really WANT to be 100% in stocks? Wouldn't you be content to live comfortably off of passive income from Treasuries, munis, interest, etc. rather than having the fruits of your life's work subject to the whims of Wall Street?


As for why I hope to be 100% out someday, I would like the peace of mind that would come from knowing I could live comfortably regardless of what happens to the Dow or the S&P500 or the Nasdaq or whatever other stock market index is around then.

[jIM_Ohio]

scfr-

If you go 100% bonds at age 65 and lived to 100, those 35 years could see the 160k you had at age 65 reduced to 40k at age 100 based on inflation.

If I had 100% equities at age 65 and same $4 M, the dividends would be 160k (4% yield) and I would have the same purchasing power 35 years later (as the $4M increased, the payout would increase).

Even if the $4M corrected to $3 M, the payout per share is still the same as it was the year before, so I did not lose anything except a value which could be recovered on paper.

example
100,000 shares of xyz paying $1.60 per share valued at $40/share
1.6/40=4% yield; 1.6*100,000 shares is $160k.

That $1.60 generally does not decrease if company is stable (companies like GE and PG have not decreased their dividend for last 100+ quarters- over 25 years)

If the stock decreases to $30/share, the $1.60 is still there and I still own 100,000 shares.

If the stock increases to $44/share (10% gain), it's probable the company will also raise it's dividend 10% ($.16) . That will not happen every year, but remember that a $.04 dividend increase (penny per quarter) is really a 25% increase in payout (.04/1.6), so a $.04 dividend increase every 3-5 years is more than good enough (meaning 25% return spread over 3-5 years works).

I would always have some cash (12 months? 24 months?) in munis and cash when I retire anyway.

The primary issue is having enough diversity so if a company like Citi or General Motors has to cut it's dividend, the increases in other locations of portfolio cancel this out. Then liquidate the GM or Citi position and find another payout which makes sense.

If I liquidate a 10,000 share position valued at $40 which paid me a $1.60 dividend, that can be the same thing as 5,000 shares of a different stock valued at $80 paying a $3.20 dividend. I don't need the same stock price or same dividend, just need to replace the payout of the stock which was sold.

Most research I have done on this suggest holding about 8 positions, maybe 12, then add in an REIT or two or three, and a bond fund or two to get anywhere from a 3% payout to 6% payout (yield). The higher yields usually come from REITs, but I have been told they do not get the 5%/15% dividend tax treatment.

PG is usually one of the dividend payers, GE is most of the time too. Companies like Coke, Microsoft, Pfizer, Phillip Morris are also popular. But most of it is timing- meaning many of the people I spoke to on this bought these 10-20-30-40 years ago and are reapping the rewards of reinvesting their own dividends, so even if payout (yield) is only 3.5% on their shares, their payout is 100X what the person invested initially (meaning they might have invested $10,000 and the position is paying them out $10,000 now on a value of $350k. Stock splits help. Spinoffs help (when ATT split up, that gave some people 3-4 stocks to further diversify).

Add to this that right now this strategy has better tax treatment than anything except a Roth IRA, and a person doing this right now will be paying 5% taxes on the $160k income (assuming no other taxable income past 15% bracket cap).

[MonkeyMama]

I would classify myself as pretty conservative, but it is not part of my retirement strategy to be 0% in the stock market. Certainly not 100% either. Probably somewhere in the middle.

One thing I am concerned about is longevity (My great-grandmother was a centenarian, which was rather rare in her time, and a lot of her children are today in their 90s never having had any health problems, so it looks like it runs in the family somewhat. I think for this reason I consider the realness of this possibility more than most folks my age).

Anyway, since I don't necessarily want to work until I am 80, I think any retirement strategy I will consider will be long and rely somewhat on equities. I would not feel comfortable retiring in my 60s with 100% cash, unless I was REALLY RICH! But I am going to leave some in equities in case I live very long. If not, my kids luck out I guess.

[maat55]

I want to try to earn 7 to 10%. Bonds mixed with balanced should be safe enough. I will not have 4 mil at retirement, I have to get what I can as safely as I can. I'm willing to take on some risk.

[Scanner]

40% at the lowest. . .perhaps 100% equities (never 100% stocks). . .entertaining the idea. Of course, if we were all 100% 1 month ago, we would/could have seen as much as 60% of the portfolio evaporated.

Other equities, like real estate or commodities could mediate that.

[Broken Arrow]

The stock market contains all kinds of stocks, and even after retirement, I can see how certain ones can fit a conservative risk tolerance.

As Jim has pointed out, we also want to make sure our money can out-pace inflation.

It doesn't have to be individual stocks either. Quality mutual funds should do the trick.

[LivingAlmostLarge]

Never. Likely I'll be invested forever as well to some extent.

[scfr]

those 35 years could see the 160k you had at age 65 reduced to 40k at age 100 based on inflation.

.

Ah ... but if you only spent 40k the first year (and who couldn't live very contentedly on 40K in today's dollars if you had a paid-for house, even with increased medical costs?), the remaining income would go to increasing the nest egg, causing future year's earnings also to increase.

As far as the preferential tax treatment for dividend income, I figured someone would bring that up. But there will be changes to the tax code (there always are), and I'd be surprised if that stays in effect. Since I'm talking about a date 20 years or so in the future, I won't try to guess what the tax laws will be then.

I'm a bit surprised that I'm the only person who would like to some day have enough saved that I can live comfortably with zero invested in the stock market.

The idea I'm currently kicking around is to start gradually reducing my stock holdings (in the form of mutual funds) over a period of about 10 years, until I'm at zero by the age 65, and was curious to see if others had similar thoughts.

I know that the "Money magazine type conventional wisdom" says that everyone should be in stocks ... But I like to question CW based on what I observe. For me, the idea of being able to somedday remove the volatility of the stock market from my financial equation is just too appealing.

2 things have gotten me thinking about this question:

- As we have seen, right now some older folks are panicking and pulling all of their money out of the stock market in one fell swoop. It seems like a very reckless, fear-based, and perhaps irrational move. For those of us who do not have the stomach to stay invested in stocks until the day we die (and I will admit I am one of them), wouldn't it be better to have a pre-determined plan to start gradually pulling out of stocks over a number of years, based on our age? That way, we could remove emotion (both panic and euphoria) from the equation.

- Thinking back on my late grandparents' lives, both sets lived very comfortable (not lavish, but secure) lives until the day they died. The secret to their success was living below their means and a life-long habit of saving...it certainly wasn't stellar returns on risky investments. On my mother's side, they did own stocks but were completely out of the stock market by around their mid-70's or 10-plus years before they died. On my father's side, they never once had a penny in stocks or stock mutual funds. They didn't have a pension either. They had a bit of land that they sold in their 60's, and they had their savings. Combined with Social Security, that got them through, and my grandmother lived until her late-90's. Both sets of grandparents were even able to leave a small inheritance to their children, and it wasn't the stock market that enabled them to do that.

[MonkeyMama]

I think for me, I honestly don't think it will be realistic for me to live off of cash when I retire. So I haven't thought about it much.

I don't entirely disagree with your theories/plans. BUT I don't think it is something I am going to consider until I am well into retirement. Since I am only 30, it seems like a pretty unrealistic goal at this point (even moreso, just too many unknown variables to even begin to plan). My goal would be have enough cash to retire on and some money in stocks just in case. Kind of more my thinking. I'd consider my stocks more a hedge than anything (inflation? Unexpected costs?). I just do not like all my eggs in one basket. I see more risk being in all cash, personally.

My experience is different than yours. I have poor relatives who were on very shaky ground in retirement (Cash only) and my wealthier relatives were/will always be in stocks. I think that also largely drives my thinking.

[poundwise]

Probably whatever age I am when I die.

[disneysteve]

who couldn't live very contentedly on 40K in today's dollars if you had a paid-for house, even with increased medical costs?

I'd probably have to sell my house to live on 40K. Our property taxes alone are 7K, so we'd really only have 33K to live on. Insurance and utilities would take another 4K or so. That leaves 29K. Throw in some money for maintenance and repairs and we'd find ourselves living on a little over 2K/month. I'm sure we could do it, but would we be doing so "contentedly"? Probably not. And that assumes the 40K is all tax-free.

[zetta]

Personally I plan to always have some growth mutual funds, but for argument's sake I'll say age 90. Historically you're ok to be in stock mutual funds if you have a 10 year horizon before you need the money.

I think it would be foolish to be 0% stocks at age 65. Odds are you will live to at least 75, and many people (especially women) will live to 85, 95, or beyond. That's potentially 20 or 30 years of inflation eating at your buying power. Even the "100 minus your age" rule would say to be 35% stocks at that age.

Although I haven't studied withdrawal strategies, I'm guessing that when I get within 5 years of retirement, I'll make sure I have about 5-10 years worth of expenses in bonds, 1 year in cash, and leave the rest in stocks. Each year I'll move a year's worth of money over to bonds, and ladder the bonds to give me cash each year.

If all goes well, I will have several million saved and will be able to afford taking some risk. If I had barely enough to retire on, I might consider keeping 15 years expenses in bonds, and the rest in a balanced fund.