Asset allocation before/during Retirement

[ToushiTime]

Hi,
I am wondering about retirement which is still someway off but I like to have broad plans way in advance

A common option just before and during retirement seems to be laddering individual short term bonds in your own currency to avoid currency risk and because they are less price sensitive to interest rate increases.
That's fine for people living in the US and Europe, but we don't have that option because JGB rates are so low and the massive debt/economic outlook is an issue too, as you know.

My current plan for retirement (not now) is to use a combination of
Yen in fixed-term deposits (abysmal interest rates might improve slightly by the time I retire)
Get a 3-7 year US treasury ETF (hedged) (average bond duration 4 yrs) (TSE ticker: 2856)
Hold on to some of my eMaxis SLIM Bonds (unhedged, average bond duration 7 years)
Consider Japanese MMFs if the rates are any better by then.
I will scale down the weighting for equities of course.

Any other/better ideas?

[captainspoke]

Other (not necessarily better): Stay in equities, but with a largish cash position for bucket 1 and some of bucket 2.

The bucket strategy: Bucket 3 is long term, over ten years, anything in that remains in equities. Bucket 2 is intermediate, less than ten down to four years (give or take), and I think it's usually bonds, or a high proportion. Bucket 1 is the immediate 3-4 (or 5) years, so very short term bonds, or cash.

Instead of that, think of two buckets. #1 might be up to 5-8yrs, cash. #2 is then long term (=equities). I've heard of this called a "barbell"--two different lumps/sections (cash, equities), rather than a gradient from one to the other.

A shorter term for bucket 1 (less cash, more equities) means more risk. Less risk if that term is lengthened.

[ToushiTime]

Thanks

By bonds, do you mean you would buy JGBs instead of getting a forex-hedged Treasury ETF?

JGBs would definitely be cheaper, but I don't know how sustainable Japan's 260% debt-to-GDP ratio is, even though foreigners only own 15% of the debt. Of course, a lot could change over the next couple of decades, so who knows?

I'm loathe to leave a lot of money in cash in a Japanese bank account, but the fixed-term rates might be less depressing by the time I retire.

[captainspoke]

Well, I've read about the 'bucket system' on US media (and I'm US and investing there rather a brokerage in japan). So the broadest representatives of the total bond market might be AGG or BND. Vanguard and others also have short, intermediate, and long term bond funds (in corporate and govt flavors).

I'm not sure how an investor here, using some kind of JGB (which I don't know much about), would recreate the same scenario/scheme. And of course various advisors and institutions have variations on the bucket system, like that one proposing a 4th bucket (not needed here, IMO), or me, above, suggesting a two bucket approach might work. Good luck!

(edit: I'm not a fan of bonds--my opinion--and I'm trying to keep from injecting that point of view into this. Another recent thread here is discussing the eMaxis slim developed country bond fund, if you want to browse that.)

[Wales4rugbyWC23]

Annuities for anybody?

There was a time in the UK when you had to invest your pension pot into an annuity once you retired. These laws have been reformed; the rock-bottom interest rates post-Lehman crash made them a very unappealing retirement option. However, the annuity rates you can get with now are ticking up a bit and make them a bit more of an appealing option for financial security in retirement. I do remember one veteran RJ forum poster who was using Japanese annuities to finance his retirement. Ben said he would investigate about what might be on offer in Japan in relation to annuities.

[RetireJapan]

Ben said he would investigate about what might be on offer in Japan in relation to annuities.

Yes, I am overdue on this one!

[ToushiTime]

Annuities for anybody?

There was a time in the UK when you had to invest your pension pot into an annuity once you retired. These laws have been reformed; the rock-bottom interest rates post-Lehman crash made them a very unappealing retirement option. However, the annuity rates you can get with now are ticking up a bit and make them a bit more of an appealing option for financial security in retirement. I do remember one veteran RJ forum poster who was using Japanese annuities to finance his retirement. Ben said he would investigate about what might be on offer in Japan in relation to annuities.

Wow, Japanese annuities? I know people overseas who are considering them, but in Japan? What are the rates?

[Wales4rugbyWC23]

Ben said he would investigate about what might be on offer in Japan in relation to annuities.

Yes, I am overdue on this one!

Just a quick Google and went with Legal & General calculator not bad annuity rates. (Biggest provider of annuities in the UK) I would take at a guess that you could get better annuity rates than in Japan. One thing I would like to know is can non-resident Brits apply for these. Already non-residents are not permitted to access high interest savings accounts- Although I am sure there is a way....

[ToushiTime]

Well, I've read about the 'bucket system' on US media (and I'm US and investing there rather a brokerage in japan). So the broadest representatives of the total bond market might be AGG or BND. Vanguard and others also have short, intermediate, and long term bond funds (in corporate and govt flavors).

I'm not sure how an investor here, using some kind of JGB (which I don't know much about), would recreate the same scenario/scheme. And of course various advisors and institutions have variations on the bucket system, like that one proposing a 4th bucket (not needed here, IMO), or me, above, suggesting a two bucket approach might work. Good luck!

(edit: I'm not a fan of bonds--my opinion--and I'm trying to keep from injecting that point of view into this. Another recent thread here is discussing the eMaxis slim developed country bond fund, if you want to browse that.)

You don't mention currency hedging, so I guess you can live with the risk of the yen strengthening during your retirement?
I'm not worried in my accumulation phase now, and macroeconomics suggests the long-term direction of the yen will be downward, but I might pay for a hedge when I eventually retire and sacrifice returns for protection from a strong yen.
ChapInTokyo has retired and seems keen to hedge.

[ToushiTime]

Ben said he would investigate about what might be on offer in Japan in relation to annuities.

Yes, I am overdue on this one!

Just a quick Google and went with Legal & General calculator not bad annuity rates. (Biggest provider of annuities in the UK) I would take at a guess that you could get better annuity rates than in Japan. One thing I would like to know is can non-resident Brits apply for these. Already non-residents are not permitted to access high interest savings accounts- Although I am sure there is a way....

Even if the rates are good, if it is a annuity involving a huge initial investment to receive fixed payments + fixed interest for the rest of your life, you are screwed if there is high inflation.
I would hesitate to throw all my life savings into one of these things and leave them at the mercy of inflation. Maybe get an inflation-linked version but that would cost more.