Koogie,
Koogie wrote: ↑18 Jan 2018 18:09
always_learning wrote: ↑18 Jan 2018 13:44
With the safety of a defined-benefit pension plan, I have an all-equity asset allocation of....
I've often heard people with DB pensions say that*
That they treat them as the equivalent of FI and therefore put all their savings 100% into equities.
I suppose it can be an indication of how much you trust your pension and it's administration/backstop ? Obviously, less of a stretch with publicly
funded pensions. But for others, is this perhaps to trusting of an approach ? The pension itself is invested in equities.. what about it suffering a prolonged downturn at the same time as your own equities ? What if the pension becomes underfunded or other nefarious goings on happen ?
(see: Nortel / Sears. etc..)
A friend is in the Ontario public service and this is his approach. I've nodded along with his rationale before but occasionally wondered if it is really as rock solid an approach as he supposes.
*not meant to pick on you in particular or to bash public DB pensions. Well, not today anyway...
You're raising an interesting point.
I have a defined benefit employer pension plan.
I don't treat it as equivalent to bonds. Its annual report says that the plan is invested into some bonds but more of other things such as stocks, real estate, private investments, commodities, and alternative investments (whatever such things can be). I see no reason to consider as bonds a pension plan which
has no flexibility to modulate withdrawals with market returns, fully exposing it to sequence of returns risk. Actually, the adverse risk exposure can be amplified by those quitting their job choosing to move their money elsewhere (like a LIRA) more frequently when market returns are low (e.g. when the solvency ratio is lower).
In my personal planning, I consider future income promises (like OAS, CPP, and employer pension) separately from my portfolio. The way I currently deal with embedded the risk of my employer pension plan is to discount its promised pension by the
insolvency ratio ( = 100% - solvency ratio ) of the pension plan in addition to the projected cost of its missing inflation indexing (see:
Any way to "translate" a fixed pension/annuity to an inflation adjusted one? - Bogleheads.org).
Variable Percentage Withdrawal (finiki.org/wiki/VPW) | One-Fund Portfolio (VBAL in all accounts)