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Comment by unlinked_dll | Hacker News Reader

Meanwhile people about to retire are watching their retirement funds evaporate.

Isn’t it suggested to wean off equities as one nears retirement age? Isn’t it done automatically by pension funds? I’m from India where the government owned retirement fund (EPF) is only now testing equity waters and the recent fund (NPS) isn’t big enough to cause damage so I’m not aware of how this works.

I've heard the following advice: Hold a % of bonds equal to the % of life you've lived and a % of stocks equal to the % of life you have left.

Ex. If you're 40 and think you'll live to 100, try to hold 40% bonds and 60% stocks.

An even simpler and mostly equivalent formulation is the "your age in bonds" rule of thumb.

The version I’ve heard is “equity share of your investments == life expectancy - current age”

Yes, but pretty much all asset classes are getting hammered except gold.

They might be, but hopefully they realized that you need to change your composition as you get closer to retirement.

Exactly, your strategy evolves as you age. But allocation, investment schedule and amount shouldn't change over a short time period or in light of any external factors.

External factors can impact expected lifespan, expected retirement date, amount available to invest, and long-term structural factors impacting allocation.

Those things shouldn't change in response to short-term market fluctuations, but not all external events are limited to short-term market fluctuations.

I'd really hope that people about to retire don't have a significant amount of their investments in equities...

It is common to maintain a significant amount in equities well into retirement. Due to low interest rates, it sometimes is the only valid strategy.

The key is to maintain a mix that allows for short to medium term fluctuations in the market (and economy) like this.

EDIT: I highly recommend the book "A Random Walk Down Wall Street" for more details on asset allocation strategies at various ages.

> It is common to maintain a significant amount in equities well into retirement. Due to low interest rates, it sometimes is the only valid strategy.

Why are stocks a valid strategy (where there's possibility of easily losing 20-30%), while losing a few percent due to inflation in something like a savings account isn't?

retirements these days can last 20+ years (65 => 85 or earlier if wealthy). Federal Reserve mandate means your money loses significant value every year if stuck in a savings account. i am not aware of savings accounts paying 3%+, even bonds don't return that YoY. yes you may "avoid" losing 20-30% in one year, but those tend to come back quickly; with risk averse investments you're just stemming losses, not breaking even.

also see cFIREsim for an idea of the math: you're basically guaranteed to run out of money if you try to park in safe havens and you end up living a fair bit after you retire.

I wouldn't say that sticking with savings accounts is an invalid strategy. If you have enough money, many strategies are viable.

If you are struggling to stay within a "safe" withdrawal rate of 2-3%, you may find that equities are your only chance of getting the returns that you need.

You should start moving from stocks to bonds about 10 years before you retire just because of things like this.

Most people close to retiring should have already been slowly moving their investments into lower risk forms of investments before now, anyway.

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