Asset Transition Nearing FI (jumping off the moving train)

I think making the shift while the market is close to all time highs make sense. You want to shift the tax deferred and tax free accounts first. I'm also looking at quitting work in January and achieving FI. I think at least a couple years of cash for living will help you during down years and allow you to invest more aggressively for growth. I'm also in my early 40s and I have worked in Investment industry for nearly 20 years.

Simple option- switch all/ most of your future retirement investments for the next 5 years to fixed income- bonds, CD, MYGA etc. or if you have a 401K / IRA you could switch some of those funds too income. Congrats to him

The most difficult strategic decision will be with your taxable account. Depending on your current asset location the taxable account will likely fund your bridge years. I'm in a very similar situation and I'm doing a few things with my taxable account to adjust my asset allocation there with the aim to generate a cash and fixed income bucket. How you adjust your risk profile doesn't matter here; I chose fixed income to sleep well at night. But the things I'm doing apply to you as well as you can redirect into different assets. First turn dividend reinvestment off so that you can methodically choose your investments. Second, you can stop automatically investing new income into equities. Third thing you can do is start to "dollar cost average" in the reverse order in selling your equities; The reason for this is to avoid a huge capital gains hit all at once and not try to time the market. Good luck on the rest of your journey!

Shifting the portfolio in the 5 years preceding retirement balances between growth and protection. If you don't do that and the market plummets 3 years before retirement or at retirement, would you just work longer?

Congrats! I was in your place two years ago and made the transition (to a modified golden ratio due to 401k limitations) and now after leaving corporate am full GR. The transition to risk parity helped me sleep well during the tariff and Iran war drops. And even though straight equities have since outperformed, I have less ulcers which I’ll take.

Check out this article from risk parity chronicles (and suggest checking out a few of his recent ones on variable allocations) in which he does a comparison of Big Ern proposed 75/25 vs a risk parity approach. I myself am at 52 equities using strips and gold/mf for alt. And plan to increase equities over time but reduce sequence of returns risk at the start.

A Risk Parity Kerfuffle

A critique of Risk Parity, a defense of testing ideas, and a reminder that investing doesn’t have to get personal.

open.substack.com

Great question. I recommend taking a step back (I do not mean delay very long though as you are correct that this is the time to transition your portfolio allocation) and making sure you've locked in your target retirement financial plan from a couple perspectives.

• First, figure out your preferred retirement income sourcing preference:

Retirement income sourcing preferences / biases

I mention this, because often "total returns" is assumed by most advisors and most investors, but it is not the best match for most retirees - only about ⅓ actually have a preference for total returns.

• Second, determine both your at retirement (lower risk) and likely long term target allocation (higher expected return) - though you could change your mind about this later, since your initial transition is only to the lower end of the rising equity glidepath.

If you want an intuitive sense of how sequence of returns risk changes over time around retirement - see the whitepaper linked at:

Wade Pfau Explores New Solution for Sequence-of-Return Risk

The "fragile decade" is a volatile part of a retiree's life. A new tool might be able to help.

Simplicity OID

• especially this graph:

At this point you would be ready to execute the transition you are asking about.

Following this as well. We are in your same position and we've done some adjusting to our largest account already, 403b, and wondering if we should adjust our Roths and Brokerage too. Especially with the current high.

In tax-deferred and tax-sheltered accounts where rebalancing comes with no tax consequences, you should rebalance all at once since you're very close to your finish line and the market is near all-time highs. Maybe that by itself gets you to the overall asset allocation you're aiming for and there will be no need to rebalance in taxable accounts. If changes in taxable accounts are needed, do keep in mind the tax consequences of selling.

8% bonds (short, intermediate, long?) and 2% cash isn't going to provide much ballast if your 90% equities experience a severe drawdown so you may want to move into your target retirement portfolio sooner rather than later.

I personally use a 2 bucket strategy (bucket 1 is cash, bonds, CDs, HYSA and bucket 2 is equities). Bucket 1 has 10 years of fixed costs after reducing by guaranteed income. We started building up bucket 1 (to transition it from being emergency fund) around 2 years before retirement.

There is also the risk parity path, I don’t do it but it is becoming very popular.

Both options reduce sequence of returns risks and manage inevitable volatility. I think the Bucket strategy may not be as optimized as risk parity portfolios, but the bucket strategy works best for our particular retirement goals and portfolio.

This is me in a few years so very interested to follow this thread and hear the feedback!