Should you view your military pension or any other government guaranteed pension like Social Security like a large investment in bonds? The definitive answer is…it depends.
Some folks make the case that since your pension is guaranteed by the government, it is very similar to buying a number of Treasury Bills and that you can adjust your portfolio mix between stocks and bonds to account for this large cache of bonds.
Others like Ric Edelmen say that since you can’t buy or sell them it doesn’t count as part of your portfolio, you just subtract your pension from your desired annual income to figure out what you properly diversified portfolio amount should be to retire.
Nords takes the view that your pension can satisfy your bond requirement if you keep 2 years of expenses out of the stock market to account for volatility. Others say your time horizon should be much longer– say, 10 years to properly account for stock market volatility.
I think between the natural tendency to reduce spending when your investments are down which we discussed in this post and keeping a certain amount of money in cash to account for the variations in the market, a pensioner can take a more risky position with their investment portfolios than someone living solely off their retirement savings.
In my case, I hope to live off only my pension and any part time work I do for the first 10 or so years after retirement from the Navy. Consequently, I plan to keep my portfolio mix highly weighted towards equities with only small bond positions.This entry was posted in Retirement Stuff by Rich