How Should Nonportfolio Assets Affect Your Asset Allocation?
They're part of your net worth, but they might not have a direct impact on your portfolio's stock/bond/cash mix.
How many legs does your retirement "stool" have? If you're lucky, you might have three--the traditional retirement-funding stool that consists of Social Security, a pension, and your retirement assets. But more and more workers will have just two legs to rely on for their in-retirement cash flows: Social Security and their personal portfolios.
Setting aside the issue of whether a retirement portfolio plan can stand on two legs (I think it can, with some planning), another key question is how those nonportfolio assets, such as Social Security, should affect how you position your portfolio. If a healthy amount of your in-retirement income needs are being met by nonportfolio assets, does that mean you can reasonably maintain a more aggressive asset allocation with your investment portfolio? How should nonportfolio "assets" like whole life insurance and real estate holdings affect asset allocation, if at all?
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