There article sort of alluded to this but the idea here isn't necessarily about needing the money, the article said that, but it's more about how people want their life to evolve into whatever they consider older years. Of course there will be people, a lot of people if average/median retirement balance reports are correct, for whom there is a financial need.
If you're engaged enough with markets and investing that you're reading this blog, odds are good you'll have optionality, maybe no financial need but there are plenty of other reasons to do something that has challenges, requires problem solving and interacting with people as well as providing some sort of purpose. Having some sort of regular structure is beneficial too. What I describe may be something that pays an income or maybe it doesn't. The optionality comes in from being able to choose a "job" that doesn't have an income.
At the fire department we have several volunteers in their 70's and 80's filling very important roles. One is a board member who also handles facilities (repairs and the like) at the station house, I mentioned our station boss a couple of weeks ago in another post and another board member who until this past spring had been the board president and now VP who handles several different aspects of running the business of the fire department including the various insurances we have to carry.
The financial part of retirement planning could be thought of as building income streams. Social Security is one, some sort of investment portfolio is hopefully another, do you need others beyond those two? If not and you want to do more than sit around all day watching TV, what are you going to do? There are endless volunteer opportunities that will allow you to put in whatever amount of time suits your needs. If you have structure in your life from that sort of activity along with enjoyment and a sense of purpose, does it matter whether or not it pays anything? How different would it be from a part time job? Don't think in linear terms of working or not working, think about what you need financially and emotionally and then proceed accordingly.
The other article looked at how to protect a "retirement portfolio" against inflation. I put that in quotes because inflation needs to be a consideration for any sort of investment account. As the article says, equities have a strong track record for protecting against inflation, annualizing out at a rate quite a bit higher than price inflation. Over short period of course, anything can happen.
They talked about bonds. If you read this site regularly, you know where I stand on bonds with duration. They spelled out a version of going heavy into a TIPS ladder using actual TIPS securities not TIPS funds but I would reiterate the point. If you want to employ a TIPS strategy for keeping ahead of price inflation for expected expenses, use individual TIPS not the funds. If you simply want a differentiated income market exposure, which is a different thing, then the funds are fine, maybe not optimal but fine.
Ten years is a pretty good sample size. STPZ required patience toward the left of the chart but started to do better as price inflation started to perk up. It was less volatile than AGG and IEI the whole ten years. I threw SHRIX in there because I think there are other income market exposures that might be better than TIPS for solving this problem. SHRIX' trajectory changed for the better as interest rates started moving up.
The article talks about alternatives but not in the context we do. REITs are certainly a valid exposure in a diversified portfolio but the track record for functioning as a diversifier when you'd most want it to is pretty lousy. Commodities do function as differentiated return streams as the article says but the article doesn't go deeper than that. The conversation here has been better for learning about different types of alts than this article.
Unless you're way ahead of the game, I would suggest some sort of normal allocation to equities (vague on purpose), some amount of cash for sequence of return risk (I think two years of expected expenses is good), a little bit in a first responder alternative (for me and client portfolios that is BTAL), a little bit more in a second responder alternative like managed futures and finally, some in horizontal line alternatives that tilt upwards in the manner of how people think bonds behave. I think that's a pretty simple recipe but I don't think of this as set and forget. This mix would have cash for expenses, holdings with very low volatility as potential cash sources if needed and if the market puked down, the first responder would probably go up a lot and could be sold for even more cash if needed. The need for a first responder would be much less after a big puke down in the market.
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