I have a six-figure pension – do I still need to hold bonds in my retirement portfolio?

For those fortunate enough to have a six-figure pension to fund their retirement, it seems like there’s little need to maintain a traditional portfolio of stocks and bonds. Indeed, massive pensions seem to be a distant relic of the past, but for this Reddit user, they’ve managed to earn a pension that pays a whopping $175,000 annually. Undoubtedly, that’s more than enough to retire without the need for dividends and coupons generated by a more traditional 60/40 or 40/60 portfolio.

And while the Reddit user didn’t tell us a whole lot about their lifestyle, a $175,000 per-year income stream is more than enough to meet the retirement needs of most. Unless the Reddit user is a big spender with a lavish lifestyle and a taste for the finer things in life (exotic cars, fine wines, non-stop first-class airfare, and only the most luxurious of hotels), the individual’s nest egg could be placed in savings. But just because one can take the risk-free option doesn’t mean one should.

Of course, this all depends on the individual’s risk tolerance in this Trump tariff-fuelled bear market environment. In any case, too much cash parked in savings could act as a sitting duck to rising inflation. Indeed, if inflation is poised to come roaring back with a vengeance due to tariffs, it’s probably a good idea to diversify one’s nest egg across asset classes rather than staying in cash and cash equivalents while cutting the pension checks that come in monthly. In any case, the Reddit user should seek guidance from a retirement-planning pro to ensure their cash reserves don’t take as large a hit from the heavy hands of inflation.

Having an investment plan still makes sense!

Sure, keeping it simple with cash and the pension is good enough to get the job done. But with extra capital on the sidelines, I find it makes less sense to hoard ample sums of cash, especially with the stock market in a bit of a rut. As many financial gurus, like Grant Cardone and others, will tell you, “cash isn’t king.” Rather, it’s “cash flow” that takes the crown.

Of course, it’s always a good idea to have more than enough cash to cover emergency expenses. But beyond that, buying assets with a focus on capital preservation, diversification, and income generation just makes sense.

Indeed, a six-figure pension can be leaned on heavily through retirement. But what’s better than a fat pension? A pension supplemented with a nest egg that’s also capable of generating extra cash. Additionally, given the size of the nest egg, the retiree may face great difficulty in spending it down in any given year, especially as they move past their “go-go” retirement years. Investing the difference rather than letting the cash pile up seems most prudent.

Giving up on bonds may not be the best move.

With various bond funds and ETFs faltering in recent years, the asset class doesn’t seem as safe as it used to be. For instance, the Vanguard Total Bond Market Index Fund (NASDAQ:BND) is still down close to 19% from its peak in mid-2020. And with a 3.65% yield, you’re not getting a whole lot of income to deal with the choppy fluctuations amid the Trump turbulence.

In any case, I’d not be against diversifying into bonds with a portion (an advisor can help you find the right allocation) of your portfolio. Sure, a fat pension is great, but that doesn’t mean one should give up on bonds. They’re still an asset class that can help retirees fare better over the long haul. For added volatility protection, Treasury Inflation Protected Securities (TIPS) are a flavor of government bonds that may be worth consideration. Despite the volatility they’ll introduce to a cash-heavy portfolio, they can really help keep retirees above water when the tides of inflation rise again.

In short, one doesn’t really need the coupons from bonds if a pension is fat enough. But regardless, it’s still a good idea to own some bonds, as they can help one achieve a steady mix of lower-risk returns. And that’s great to have, regardless of how large one’s pension is!

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