What to invest in on retirement?

@UncleFrank, how would the basic Risk Parity asset allocation be adjusted to account for U.S. military retirees with inflation-fighting pensions, VA disability compensation, and (eventually) Social Security?

The military pension and the VA disability compensation both receive the same Cost Of Living Adjustment as the Social Security COLA algorithm.

I can appreciate the potential of adding bonds & gold to an asset allocation, but in my 23 years of retirement my pension and my VA disability compensation have already risen over 77%... and three of those years were zero COLA.

Congratulations on your Army retirement! 20 years is a hell of an accomplishment (I retired in 2021). A couple bits of advice:

• Be patient with your VA Claims process. It can take 6-12 months to process.
• Consider Skillbridge programs and internships to build skills and networks outside during this stressful transition. These helped switch from a medical MOS to IT after active duty.
• I agree with most others that our pension and VA disability give us permission to have a much more aggressive asset allocation than most. I intend to only have enough in cash and bonds to weather Sequence of Returns Risks and pre-pay short/intermediate term expenses (1-5 years).

I also came to suggest the Risk Parity Radio (RPR) podcast. It is an excellent educational resource and is hosted by this group's Frank Vasquez. The focus of the podcast is how to construct a portfolio to maximize safe withdrawal rate (SWR) during retirement when you're living off of your savings.

There are different kinds of bonds and they serve different purposes. Short-term bonds can provide laddered income while long-term bonds reduce the volatility of your overall portfolio because they tend to move in the opposite direction as equities. Whether you need bonds and which kinds is going to depend on your specific situation. The RPR podcast will teach you how to think about that.

I also suggest moving your savings out of banks and CDs and into money market funds (MMF) and treasuries, both of which you can buy at your brokerage firm. Here's a good walkthrough of why you would want to do that.

thefinancebuff.com

You don't have to make a decision right away on your asset allocation. Wait 2 or 3 months to see what your real cash flow needs are and gather more information on where you will be longer term.

In the interim, I would recommend having more cash than "normal" as you navigate this time of transition. My goal would be to have a rough idea of my financial picture on Jan 1, 2026 and make decisions then.

You do not need bonds. I repeat, you do not need bonds in your portfolio. The point of bonds is two-fold: dampen the volatility, and (maybe) provide an income stream. However, you already have a pension (maybe 2, depending on your VA rating).

So, the first thing you need to realize is that you already hold the equivalent of bonds. Suppose for a moment that you are an E-7 retiring with 20 years of service. That would put your Army pension at around $3000/month (let's ignore the possibility of a VA pension for now). That is guaranteed income. The required bond portfolio to deliver that amount of monthly income would in the range of $750k-$1M (depending on the various assumptions that you make regarding yields, interest rates, etc). Suppose that instead you are an O-5 with 20 years (so about $5500/month pension) plus another $1000/month from the VA, for a total of $6500/month. The bond portfolio needed to deliver that amount of monthly income would be $1.5-2M. So, if you wanted to hold something like a typical 60/40 stock/bond portfolio, the stock portion of your portfolio would already have to be in the range of $1.25-3M.

So, unless you have already amassed a very substantial stock portfolio, it doesn't make sense to think about bonds. You would be sacrificing returns with a likely far too conservative asset allocation. I recommend that you find a bond calculator online and play around with the monthly income, yield, and interest rate assumptions to get a better idea of the real numbers for your particular situation.

Congratulations and thank you for your service.

A little different take. When does the pension kick in? Do you have enough saved to fully retire, or do you plan to continue working for some time?

A pension and similarly, social security, should be figured as a deduction in your future expenses. Meaning if you plan to spend $80k / year but will get $40k / year pension, then you only need enough saved to cover the other $40k/year (or $1M following 4% rule, which you can get up to 5% easily with risk parity portfolio).

If you're more than 5 years away from full on retirement, no reason to not be in VTSAX, 100%. And no matter, what please get out of the target date funds).

If within 5 years, then look into risk parity radio podcast and risk parity portfolios. It's not bonds you want to be in, but intermediate / long term treasury bonds and other non-correlated assets like gold. This portfolio is also good for any funds you may need in the next 5 years such as house down payment.

Congratulations on your retirement, @mmp2927! Give yourself a victory lap… maybe two laps.

Your question has two different perspectives: math&logic versus the emotions of behavioral financial psychology. Both are valid reasons for making your choices, but if you can’t sleep comfortably at night with your decisions then the math & logic don’t matter.

Your pension and your (probable) VA disability compensation resemble bond-like income from TIPS or I bonds. (In 2-3 decades you’re going to get even more bond-like income from Social Security.) It’s an imperfect analogy (bonds will mature and I bonds have purchase limits) but it’s good enough for an asset-allocation discussion. All three of your income streams are fighting inflation with a Cost Of Living Adjustment based on the Consumer Price Index.

Because you have so much bond-like income, you could put your retirement accounts and your brokerage accounts in 100% equities. You could keep just enough cash on hand to pay your monthly bills, and if you have a lumpy expense then you could cash in a few equity shares from the appropriate account.

When you reach the tripwire of the 4% Safe Withdrawal Rate (assets of 25x net annual expenses) then it’s remotely possible (and very unlikely) to be susceptible to Sequence Of Returns Risk for about the first decade of FI. It’s practically zero chance with military pensions & VA disability compensation, but nobody likes to cash in shares of equity funds during a bear market (let alone a recession). If this might concern you then you could keep two years’ expenses in cash for the first decade of FI, but it’s more for sleeping comfortably at night than for any financial necessity.

If you think that you're likely to buy a home in the next year or two then you could start saving a down payment in a high-yield savings account. You're eligible for a VA loan (and you will probably be able to waive the funding fee) so you don't need much of a down payment. However it's much better to travel for a year or two, find an area you could live in, and then spend another year or two renting in the area while you do a deep dive on local home sales.

Here’s more details in a post with a bunch of links to the research:

militaryfinancialindependence.com