The 90/10 Request: Capacity vs. Willingness in a Two-Spouse Household
David (58) and Priya (56) hold $2.4 million: $1.5 million in a joint taxable account, $750,000 in David's 401(k), and $150,000 in Roth IRAs. David earns $310,000; Priya stopped working last year. They plan to retire at 62 and 60, when David's pension begins at $48,000 a year with no cost-of-living adjustment. They want $110,000 a year of gross spending, indexed to inflation. In three years their daughter begins a four-year program with $140,000 of costs not covered by her 529 plan. They also carry a $180,000 variable-rate HELOC. David wants a 90/10 portfolio; Priya says she will not sleep if equities exceed 40 percent. In 2008 they sold everything near the bottom and stayed in cash for two years.
1. Is the 90/10 allocation David wants defensible? Quantify what the plan actually requires, then state the allocation you would recommend and defend it.
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Step 1 - What return does the plan actually require?
- Spending need: $110,000 gross. Pension covers $48,000. Portfolio must supply $62,000.
- Initial withdrawal rate: $62,000 ÷ $2,400,000 = 2.6%.
- Add ~0.75% for advisory and fund costs and the requirement is roughly a 3% real return over a multi-decade horizon.
A 2.6% initial withdrawal rate is well below the range a balanced portfolio has historically sustained. The math does not require a 90/10 portfolio; it requires a portfolio they will still own in a bear market.
Step 2 - Separate ability from willingness.
- Ability to take risk is high: low withdrawal rate, a pension, Social Security later, substantial home equity.
- Willingness is low and is evidenced by behavior: capitulating near the bottom and sitting in cash for two years. That is the single most expensive thing this household has ever done.
- Near-term liquidity calls further reduce the equity horizon: $140,000 of college in three years and a floating-rate HELOC.
Where ability and willingness conflict, the binding constraint is willingness in practice, not on paper. A 90/10 allocation that is abandoned at the bottom produces a worse outcome than a 60/40 they hold.
Step 3 - Frame the risk in dollars, not percentages.
After earmarking the college funds, roughly $2.26 million remains. At 90/10, equities ≈ $2.03 million; a 45% drawdown is about −$915,000, or roughly 15 years of the $62,000 withdrawal. At 60/40, equities ≈ $1.36 million and the same drawdown is about −$610,000.
Recommendation: 60/40 at retirement, gliding to 50/50 by the mid-70s, with a written rule that the target will not be changed during a drawdown. Address the HELOC separately - paying it off from taxable assets is a guaranteed return at the floating rate and removes the cash-flow drag.
2. Priya's concern is clearly the binding one, but she also says 'I'll sign whatever David wants.' How do you handle the college liability, the emergency reserve, and the rebalancing guardrails in the IPS?
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Earmark the near-term liabilities first.
- $140,000 of college costs with a three-year horizon is a liability, not a portfolio asset. Place it in a 1–3 year Treasury or CD ladder (inside the 529 where possible, taxable otherwise). Do not hold it in equities regardless of what the 529's age-based track suggests - the enrollment date is fixed and the money cannot be re-earned.
- Keep a 6-month expense reserve of roughly $40,000–$55,000 in T-bills or a money market fund in the taxable account.
- Measure the equity percentage only against the remaining retirement pool. Otherwise the couple will believe they hold 60% equities while actually carrying a much higher effective risk on the money that matters.
Rebalancing guardrails.
- Use a 5-percentage-point absolute band (or 20% relative), reviewed quarterly, plus a check whenever a contribution, pension payment, or RMD hits the account. Rebalance with cash flows first to avoid realizing gains.
- Write a drawdown protocol into the IPS: no change to the target allocation following a decline, with a mandatory 30-day cooling-off and a joint sign-off from both spouses before any change is made. This is the behavioral circuit breaker that the 2008 experience says they need.
- Force a dollars-based read-back at the signing meeting: 'A 2008-style market takes this portfolio from $2.26 million to roughly $1.65 million. What do you do?' Get the answer on the record.
On Priya's signature. An IPS signed by a spouse who does not understand it is not informed consent, and it is the first document plaintiff's counsel requests. Meet with each spouse separately to complete a risk questionnaire, then hold a joint meeting, and record her stated view and the resolution rule. Never let one spouse narrate the other's tolerance, and document the private conversation in the file.