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Feeling burned out
Old 05-10-2008, 11:36 PM   #1
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Feeling burned out

Hi,

47-year old male, single, looking at how green the grass seems on the other side of the fence.

In the tech industry, have vested stock options which are worth about $2.5-2.7 million net, pre-tax.

401k is about $255k, have about $350k cash and various equities, mostly in mutual funds, worth about $110k in taxable accounts, another $25-30k in IRAs.

Only debt is $185k mortgage. Home is worth over $700k according to Zillow.

Very risk-averse and current markets make me leery about putting money in. About a month ago, it was noted that the S&P had been flat for 10 years.

Had a free consultation with Smith Barney guys, who ran a Monte Carlo simulation. They proposed privately managed accounts, costing 1% management fees, with 30% bonds and rest equities.

Not convinced of their forecasts or whether they're worth 1%.

I know it's ultimately a bad deal but looked at income annuities through Vanguard, which for my age return about 6.5-6.9 cents on the dollar, of which about 40% is excludable from taxes (i.e., withdraw from principal). So the return they're giving you is about 3% of withdraw of principal and 3.5-3.9% return.

Only reason to consider it is peace of mind. Idea of going for higher returns in equities and fixed-income, after the dot-com bust and the current market is unappealing.

Main concerns are higher inflation and uncertainty about health care costs, as well as leery view of markets.

Standard of living is very middle-class. Only extravagance is travel. The budget I came up with is about $50-55k a year, which would include $6k for health insurance premiums (just rough guess), all taxes and insurance, maybe about $10-12k of discretionary spending.

So this budget seems very reachable, just by putting a bunch of money from my stock options proceeds into the annuity. Would not touch equity in the house, 401k or my current equities investments. Would still have about $500k of my stock options proceeds as well.

I would expect that most people here would say I'm aiming too low with this "safe" strategy.
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Old 05-11-2008, 08:07 AM   #2
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Not convinced of their forecasts or whether they're worth 1%.
They aren't. You are perfectly capable of managing your own investments.

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Originally Posted by explanade View Post
I know it's ultimately a bad deal but looked at income annuities through Vanguard...
Annuities are a potential minefield. Make sure you thoroughly understand how they work, and what your risks are as an investor, before staking your financial future on them.

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I would expect that most people here would say I'm aiming too low with this "safe" strategy.
Not at all. For many people, 'risk' only relates to volatility because equities are 'guaranteed' to appreciate over the long term. This ignores the fact that there were long periods during the 20th century when this didn't happen, and the 21st century may be an entirely different ball of wax altogether.

I am willing to accept lower rates of return (after taxes and inflation) in exchange for reduced volatility and risk to principal. My portfolio is largely unaffected by boom and bust periods - it just builds slowly and steadily. I am also willing to accept a lower standard of living (if that equates to the amount of income and the need to spend it, which is debatable) using this strategy. Peace of mind is worth a lot to me. I feel sorry for folks who assume 10% after-tax after-inflation rates of return on their portfolios, invest accordingly, live extravagant lives of excess consumption, and then watch it all fall apart.

From one techie to another - good luck!
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Old 05-11-2008, 08:29 AM   #3
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I know it's ultimately a bad deal but looked at income annuities through Vanguard, which for my age return about 6.5-6.9 cents on the dollar, of which about 40% is excludable from taxes (i.e., withdraw from principal). So the return they're giving you is about 3% of withdraw of principal and 3.5-3.9% return.

Only reason to consider it is peace of mind. Idea of going for higher returns in equities and fixed-income, after the dot-com bust and the current market is unappealing.
This is the only way I'd consider annuities FPA Journal - Modern Portfolio Decumulation: A New Strategy for Managing Retirement Income. Why lock in now and assume all that 'company risk?' It's not probable the insurer will go belly up while you're retired, but what will you do if it does happen? Using the strategy above if markets perform even near average or better you're money ahead without buying an annuity. If markets don't perform, you've dramatically shortened the time you're exposed to risk of your annuity/insurer failing. FWIW...

And I'd never pay 1% management fees ongoing. You can get within 1% of the "pros" on average (average is all you can target as you can't pick the pros that will outperform long term) without too much work on your part.
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Old 05-11-2008, 11:06 AM   #4
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Welcome explanade,

It looks like you're in a pretty good position. I'm also (somewhat) risk averse like yourself, and given the potential for a democrat-led tax increase next year, I'd highly lean towards cashing in all of your options (I wasn't sure if you were still debating doing this, or if it was already a given).

I'd tend to agree with Midpack on annuities at this stage in the game:

1) Immediate annuities are (for the most part) impacted by interest rates. Given the current low rates, I'd strongly advise against locking in right now, since you should (in theory) be able to get better payouts if/when rates rise.

2) You said that the 'income' portion of the annuity is just about 3.5-3.9% return. While this century may be abysmal compared to the previous, I hope I'd be able to get at least 3.5% returns on my own in various investment markets.

3) Dividend Closed-End Funds: there are a number of closed-end funds which focus on dividend paying stocks (some financials and REITS, but also many other industries), and several are yielding 3.0%-4.0%. While there are obviously no guarantees that the stocks these funds hold will go up, I'd feel better spreading some money across several CEFs that hold such equities versus locking in the same yield for life with an annuity that is paid by a single company.

However, I also favor diversity - so I'd agree that putting a part of your portfolio in such an annuity could be a smart move. One question - was this a flat annuity, or is there some COLA increase built-in?

Just a few other random thoughts/observations;

--Callable CDs: You can buy new CDs at Vanguard's bond desk for no commission, and they occasionally have decent callable CDs. Recent offerings include 6.0% 20-year callable CDs, or 15-year 5.8% callable CDs. I'd feel better putting my money in that as opposed to an annuity with a 3.5% yield for the time being. They only have certain allotments available (they show how much $ is left in the offering), so if you do check, make sure you look early in the morning (like 8:00am-10:00am Eastern), because they can disappear relatively fast. They also can appear at any day during the week, so if you don't see anything you like on Monday, don't assume that something won't appear on Tuesday-Friday.

Sure, the downside is that the callable CDs can be called away after 6-12-24 months, but not always (I purchased several 6.0% callable CDs from different banks over 2 years ago for my grandmother that haven't been called). It just depends on the bank and what kind of access to capital they have. (as a side note, you CAN get more than 100k of FDIC coverage, if your account is titled as a revocable trust account: the FDIC gives 100k of coverage PER PERSON for your trust beneficiaries even though you're still alive - so even though you're single, someone with your NW should have a revocable trust, which would give you more FDIC insurance coverage from each bank if you wanted to buy some CDs).

--Health Insurance: no need to guess on that-get your own instant, no PIA sales person will call you hassle-free health insurance quote on-line at a site like Health Insurance, Medical Insurance, Individual Health Insurance Quotes or (my insurance provider) Health Insurance Plans from Assurant Health Just one caveat: some of the websites don't work with Firefox, and require Internet Explorer (an issue for me, but not for many people that use IE). That way, you can find out exactly what insurance might cost (based on CURRENT prices) for you when you're 47, 55, and 60. Another caveat: health insurance is completely state-driven. If you're thinking of ever moving, make sure you get a quote based on your age/state on when/where you're thinking of moving, because health insurance costs can literally be 3x as much in one state over another (if you're healthy, since some states require insurance companies to lump everyone into one flat rate, regardless of health. It's a good deal if you have health problems, but a bad deal if you're pretty healthy)

Also-one final note is that the websites typically ask you 3 or 4 questions (smoker, cancer in past 5 years), so obviously they'll quote you the best rate based on those limited questions...if you accept a quote, their underwriting research analysis might dig up something in your medical past that could increase your premium somewhat.

--On the 1% fee: pretty much everyone in this forum will agree that if you have the wherewithal to actually find this site, and you have the intelligence of simple math and budgeting and some sense of investment returns and a very rudimentary understanding of investments (which would automatically make you more qualified than over 60% of investment charlatans thieves "advisers" out there) then there's no way you need to pay 1% of assets every year for something you can do yourself.
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Old 05-11-2008, 01:42 PM   #5
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Thanks all for the replies so far.

Yeah I understand many of the arguments against annuities, especially at my age. I know for instance that if I were 65, I'd get 7.5-8% payments.

Vanguard says the insurers on their annuities are AIG and John Hancock, both rated A+ (although AIG just reported a huge loss). Comforting to know that some of these insurance companies survived the Depression.

But I've seen suggestions to ladder annuities and possibly get it from more than one insurer. These days, maybe all insurance companies are embroiled in the CDO/SIV/MBS mess, like AIG was apparently.

I wasn't sure how the "payments" were calculated. Maybe the return portion is tied to something like the 30-year Treasury? If I delay payment by 6-12 months, the payments are higher by a couple of thousand, per $100k. Also the Vanguard quote page tells you to call them if for instance you wanted to know the payments on say a $1 million annuity. Maybe they give you a better rate or something.

My assumption about the return is that they're calling 40-43% of the payment "excludable" from income tax, so I guess that means that portion represents withdraw from principal, so the remaining would be your return.

Yes I looked at payments without COLA or any kind of adjustments, guaranteed payment periods or with cancellation options. Adding these options reduced your initial payments considerably.

On callable CDs, I just heard about those. Schwab was apparently offering a 20-year 6% one. On their web site, they said something about how if you get a bunch of CDs from several different institutions offering callable CDs in their "marketplace" you'd get FDIC coverage for each one.

Do you have to hire a lawyer to set up revocable trusts? So the idea is to use a revocable trust for each 100k deposited into each CD? But the revocable trusts have to name beneficiaries?

I will look at your insurance links. I'd only looked briefly at esurance.com.

On the 1%, yes I'm aware of studies showing that few mutual funds outperform indexes, even before those fees are calculated. The only part of the Smith Barney pitch that made sense to me was that in privately managed accounts, there would be no capital gains and dividend distributions, which I would think could add up (although if you wanted income, I guess you'd be selling shares periodically). Especially if you invest in something like VWENX, which requires a minimum $100k investment or invest in a Dimensional Fund, which requires going through an advisor, which typically also require a $100k minimum.

The other part is, advisor would presumably provide investment management, not just the initial plan. That is the main thing which would appeal to me, that someone would be on top of the markets, suggest when to rebalance/reallocate, etc.

That's also partly why I like the general idea of annuities, although again, I know it's probably way too early to be annuitizing the capital.
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Old 05-11-2008, 04:05 PM   #6
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The only part of the Smith Barney pitch that made sense to me was that in privately managed accounts, there would be no capital gains and dividend distributions, which I would think could add up (although if you wanted income, I guess you'd be selling shares periodically).

The other part is, advisor would presumably provide investment management, not just the initial plan. That is the main thing which would appeal to me, that someone would be on top of the markets, suggest when to rebalance/reallocate, etc.

"In the tech industry, have vested stock options which are worth about $2.5-2.7 million net, pre-tax."
A lot of people do it, but I can't imagine paying someone $25-27,000 a year (for years) to choose investments and rebalance - you can easily learn to do this very effectively yourself. Read The Four Pillars of Investing or a similar book, will cost you about $30.00 (or nothing at the library).

And again with annuities, what is the advantage to locking in now vs waiting in your mind?
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Old 05-11-2008, 04:21 PM   #7
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The pros of using an advisor, as I see it, would be:

1) Access to certain investments, e.g. Dimensional Funds only work through advisors and privately-managed accounts, which claim tax advantages over mutual funds.

2) Benefit of research, which isn't always available to the individual investor in a distilled form. Presumably, advisors and others who manage investments would have access to research from the banks/brokerages with which they're associated, or research sold to advisors and investment professionals.

3) Investments and markets monitored by professionals whose job would be to do so full-time, who might be more attuned to inflection points in the markets.

Cons:

1) Costs.
2) Possible vested interest in pushing certain vehicles over others.


Pros for annuities for my situation:

1) "Guaranteed" income for life, predictable, "safe."
2) Clarifies retirement planning, especially if I want to retire right away (hence the "burned out" thread title).

Cons:

1) Annuitizing much earlier than most retirees, meaning locked into lower payments for life.
2) Payments may be locked for 30-40 years, meaning vulnerable to inflation, especially price shocks for energy, food, health care.
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Old 05-11-2008, 04:40 PM   #8
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You left out a couple of other pros for using an advisor:

4) Someone to hold your hand when the market heads south.

5) Someone other than yourself to blame when your investments don't work out the way you'd hoped. (Hint: see 73ss454's potato pancake post - http://www.early-retirement.org/foru...tml#post655551)

6) Someone to fire when #5 occurs.
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Old 05-11-2008, 05:12 PM   #9
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Hi,

47-year old male, single, looking at how green the grass seems on the other side of the fence.

In the tech industry, have vested stock options which are worth about $2.5-2.7 million net, pre-tax.

401k is about $255k, have about $350k cash and various equities, mostly in mutual funds, worth about $110k in taxable accounts, another $25-30k in IRAs.

Only debt is $185k mortgage. Home is worth over $700k according to Zillow.

Very risk-averse and current markets make me leery about putting money in. About a month ago, it was noted that the S&P had been flat for 10 years.

Had a free consultation with Smith Barney guys, who ran a Monte Carlo simulation. They proposed privately managed accounts, costing 1% management fees, with 30% bonds and rest equities.

Not convinced of their forecasts or whether they're worth 1%.

I know it's ultimately a bad deal but looked at income annuities through Vanguard, which for my age return about 6.5-6.9 cents on the dollar, of which about 40% is excludable from taxes (i.e., withdraw from principal). So the return they're giving you is about 3% of withdraw of principal and 3.5-3.9% return.

Only reason to consider it is peace of mind. Idea of going for higher returns in equities and fixed-income, after the dot-com bust and the current market is unappealing.

Main concerns are higher inflation and uncertainty about health care costs, as well as leery view of markets.

Standard of living is very middle-class. Only extravagance is travel. The budget I came up with is about $50-55k a year, which would include $6k for health insurance premiums (just rough guess), all taxes and insurance, maybe about $10-12k of discretionary spending.

So this budget seems very reachable, just by putting a bunch of money from my stock options proceeds into the annuity. Would not touch equity in the house, 401k or my current equities investments. Would still have about $500k of my stock options proceeds as well.

I would expect that most people here would say I'm aiming too low with this "safe" strategy.
if it was me, i would diversify some / all of your stock options
ASAP.. before i did anything else. even if you just dump them into
cd's temporarily.
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Old 05-11-2008, 06:05 PM   #10
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You say you are risk averse, but you hold the vast majority of your assets in a single stock tied to your employer. That is very high risk. No matter the annuity choice (I suggest inappropriate at this age) or advisor (seems a shame to pay so much you should be able to handle yourself) you probably ought to diversify out of that single huge position as soon as possible. Exercise and sell and buy indexes or money markets or something, until you decide what you want to do.
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Old 05-11-2008, 07:18 PM   #11
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Yes, I know about the Enron scenario, all those people who had Enron stock in their 401ks.

That is certainly the first action which needs to be taken and I'm obviously planning to do it soon or else I wouldn't be thinking of these options.
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Old 05-11-2008, 09:22 PM   #12
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Yeah I understand many of the arguments against annuities, especially at my age. I know for instance that if I were 65, I'd get 7.5-8% payments.
Earlier, you mentioned that inflation is one of your key concerns - realize that even if you get an annuity that covers your 'fixed' expenses, it would only do so for 10-20 years...after that, inflation would erode your annuity value to meeting just 50%-75% of your "fixed" expenses (without any play money!)

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Also the Vanguard quote page tells you to call them if for instance you wanted to know the payments on say a $1 million annuity. Maybe they give you a better rate or something.
Yes, there are economies of scale with annuities (you get a slightly better 'yield' the more you invest), but it's a tradeoff with putting all of your annuity eggs in one basket. The marginal increased income with just one insurer - IMO - isn't worth the risk of everything riding on just one horse.


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Do you have to hire a lawyer to set up revocable trusts? So the idea is to use a revocable trust for each 100k deposited into each CD? But the revocable trusts have to name beneficiaries?
There have been several earlier posts that might have more info...but, basically, you should be able to find a lawyer to set one up (along with durable power of attorney, durable healthcare power of attorney, and a will) for about $1,000-$2,000. You'll find more that charge more, but they aren't really worth it, since there isn't anything different between the $2,000 and the $10,000.

You can even do it yourself from some websites (Nolo: Law Books, Legal Forms and Legal Software is a reputable one) and software packages. It's pretty simple: basically, a revocable living trust is simply a document that spells out three things:

1) Different assets your trust may own
2) Who the trustees are (you should always be the primary trustee, since you'll be making the day-to-day decisions, as well as the backup primary/secondary/tertiary trustees when you die or are unable to manage your affairs), and what transactions the trustee can do
3) Who/what organizations get the moolah when you pass on.

The only people that need to see it when you're alive are yourself, and any financial institution that you have an account with which you want to place under the authority of the RLT. You don't need to file any copies with any federal/state/local governments or anything like that - just get the RLT notarized when it's official, keep several copies, and tell your backup trustee(s) where to find a copy (if you don't want to give them a copy ahead of time). If you already have an existing bank/brokerage account, you need a special form to retitle it into a RLT. If you open up a new account, you will probably need a special form and/or additional forms to open one up for a RLT. It's not a big deal - just an extra piece of paper or two to fill out.

But, the account must be titled in the name of the RLT for it to officially be part of the trust and get the >$100k FDIC insurance coverage.

One thing to check on: If you list a charity as a beneficiary, I don't know if they qualify for additional FDIC insurance coverage, or if the beneficiary has to be an individual.

The same with the Durable Power/Healthcare Power of attorneys - no filing done when it's created (although some people might want to give a copy of the healthcare POA to their primary physician).

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On the 1%, yes I'm aware of studies showing that few mutual funds outperform indexes, even before those fees are calculated. The only part of the Smith Barney pitch that made sense to me was that in privately managed accounts, there would be no capital gains and dividend distributions, which I would think could add up (although if you wanted income, I guess you'd be selling shares periodically). Especially if you invest in something like VWENX, which requires a minimum $100k investment or invest in a Dimensional Fund, which requires going through an advisor, which typically also require a $100k minimum.
Well, if that privately managed account adviser is so smart, surely they would have to sell the stocks/bonds/whatever at some point - correct? (presumably they'd know when the market is overvalued and when it's undervalued...and when it's time to bail on a stock, and when it's time to buy a new stock. Otherwise, if they never buy or sell - how are they different from a simple index fund!?!?) There isn't some special tax code legislation which allows an investment company to defer gains until some arbitrary date in the future.

Especially true with the dividends! If the privately managed account buys stocks that pay out dividends, they HAVE to distribute that to you, and you HAVE to pay taxes on it...unless they purchase mutual funds that have such high expense ratios that they eat up all of the dividends which might be paid by the stocks they own! If the adviser said that the PMA doesn't distribute dividends, you need to ask him how they get around the IRS tax code which requires them to do so.


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The other part is, advisor would presumably provide investment management, not just the initial plan. That is the main thing which would appeal to me, that someone would be on top of the markets, suggest when to rebalance/reallocate, etc.
I don't recall the thread, but someone posted a statistic (yes, I know - you can manipulate a study/statistic to show anything) that 'active financial advisers' actually had clients that earned LESS from their mutual funds compared to clients that would have simply bought and held.

Also, ask yourself this - would you blindly follow this investment adviser's advice on when to buy/sell/reallocate? (you can also get this on the ER forum for free - one of the benefits of membership ). Also, isn't the privately managed account supposed to be 'invisible' to you? The reason the manager is running the PMA is because they know so much, and you know nothing - so why should the PMA need to hold your hand? Don't you just send them the money and forget about it, until they send you the checks? One other thing - if they supposedly don't somehow make you pay taxes on dividends/capital gains, then where is the cash flow coming from? They were going to give you distributions from this PMA, weren't they? Or were you going to live on some other source of income while this PMA is growing?

Yes, a FA can give you 'advice' on when to rebalance/buy/sell - but they aren't perfect, and won't be correct all the time...so why would you listen to Joe Blow (who charges you $10,000/yr) versus CuteFuzzyBunny or Nords or Brewer or anyone else on this forum for free?

As far as DFA goes, there are actually some sources for DFA funds that have lower minimums and/or expenses:

AssetBuilder Inc. - Registered Investment Advisor
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Old 05-11-2008, 10:06 PM   #13
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(as a side note, you CAN get more than 100k of FDIC coverage, if your account is titled as a revocable trust account: the FDIC gives 100k of coverage PER PERSON for your trust beneficiaries even though you're still alive - so even though you're single, someone with your NW should have a revocable trust, which would give you more FDIC insurance coverage from each bank if you wanted to buy some CDs).
Quote:
But, the account must be titled in the name of the RLT for it to officially be part of the trust and get the >$100k FDIC insurance coverage.

One thing to check on: If you list a charity as a beneficiary, I don't know if they qualify for additional FDIC insurance coverage, or if the beneficiary has to be an individual.
OK so if I understand you correctly, in order to say get FDIC coverage for $500k, I would need to set up a revocable living trust (RLT) and then if I have 5 beneficiaries listed in that one trust, I'd get $500k FDIC coverage?

Or would I need 5 different CDs with each account titled with 5 different RLT names in order to get $500k coverage?

Also, if the bank failed, would I as trustee be able to recover the $500k or would each beneficiary get $100k each?

Like I said, it seemed Schwab is saying that if you get CDs from 5 different institutions, you'd get up to that $500k coverage.

Maybe another consideration is that if you're with a huge bank, the federal govt. won't allow it to fail (in the case of Bear Stearns). If there are a lot of depositors at a major institution with over $100k in deposits, maybe they won't even put the FDIC to the test.

I understand the BOE will be bailing out several banks in the UK and they will conceal which institutions were in trouble, to prevent panic.
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Old 05-11-2008, 11:06 PM   #14
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FDIC: Your Insured Deposits

Ok, so I got ahead of myself a bit...as the above link states, the >$100k coverage only applies to qualified beneficiaries (basically, immediate family members). Parents and Siblings DO qualify...however, nieces/nephews do NOT qualify, nor do charities or institutions.

If the bank were to fail, you would get all of the insured money back - not the beneficiaries.

If you have a regular (non-Revocable Living Trust) account, you would have to get CDs from 5 different banks ($100k or less per CD) to get that coverage. However, with a RLT account, if your RLT has 5 beneficiaries (whom qualify under the FDIC rules), then one CD from one bank held in the RLT account would be insured for $500k.

As the FDIC link shows, you can actually creatively title more than one RLT to give you even more FDIC insurance coverage, depending on how many beneficiaries you have that qualify.

The problem is that not all institutions are involved in long-term callable CDs, and not all of them offer the same rates. For instance, over the past month, I've mostly seen Countrywide Bank and Bank Hapoalim as the main banks offering 20 year callables @ 6%. If you wanted to get $500k from 5 banks, you won't currently find 5 banks from Vanguard to get them - just 2 (obviously, this can change....but the long-term callable CD market isn't as popular or has as many players as the 1-5 year CD market).

There have been some banks that have failed where the depositors don't get back everything over and above the $100k insurance (it may not happen often, but it's one of those things that could). Granted, you are correct that if a cataclysmic event were to happen to bring down a 'major' bank, there might be some assistance....however, in today's market, you won't find much difference in CD offerings between at least 2-3 banks, so why take the risk of putting it all at just one bank when you can relatively easily (at no/low additional cost) completely diversify away the risk with 2-3 banks?
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Old 05-12-2008, 04:24 AM   #15
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You will likely pay nearly 40% in taxes if your options are non-qualified. That leaves you with a net worth including home equity of approx $2.8M total net worth. You could get into muni bonds depending on the state you are in and get a pretty consistent 4% to 4.5% tax free (federal and state exempt return) return.

Options: figure $1.7M after taxes, will toss off $75K/year in after-tax money. Well above your needed $55K/year living expenses.

Another $350K cash and $110K in equities will toss out an additional $18K/year after taxes..

Then, let the 401K grow for another 12 or 13 years til you are 59 1/2 yrs old. That $250K should grow to $700K by then.....

Home equity of $500K...keeps growing too....


I'd say you can do what you want.

1) you dont need no stinkin' financial advisor.... If you hire one, only hire one whose net worth is equal to...or more than...your own. You should see their faces when, after sharing my financial info with them I ask to see what they are worth. Amazing reponses...some quite funny...most rather pathetic.

2) stay clear of annuities. I think a bond fund gives you better liquidity, certainty, diversity, and safety. Insurance companies can fail.....
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Old 05-12-2008, 09:49 AM   #16
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Thanks for the explanation MooreBonds.

Papadad, I'm in CA and they are non-qualified options so the brokerage has a calculator showing 45% withholding because of high CA state income taxes.

What is odd is that when you actually place the order, it shows they're going to withhold less than the calculator indicated. So my guess is, I would have to pay taxes from some of the proceeds. Probably make estimated tax payments instead of at tax return filing time, because it appears the proceeds are about $200k higher than the net I figure to get after federal and state taxes.

I have a few thousand invested in OPCAX and VCAIX. In the year I've held them, I don't think OPCAX has made up for the 5% load. In fact OPCAX is down about 22% while VCAIX has a modest gain. I did DRIP with both so more shares but not that much more.

What would be CA Muni funds which return 4-4.5%? Or are you talking about investing directly in muni bonds?

The 110k in equities are all set up for DRIP, so I haven't figured out total dividends and they're not particularly dividend-heavy.

The 401k, I know I'd be giving up the potential appreciation by retiring early, as well as the tax advantages. Goal was to save excess returns but of course they won't have as much tax advantages, not to mention employer matching, if I were just saving/investing what I didn't spend in retirement.

Oh home equity, although my area hasn't been hit as much (although it was in the early '90s -- I bought my home for less than what the previous owner paid), if I retired, I'd look at moving to AZ or NV where not only are the real estate values better, there's lower sales, income and property taxes.

Or I could just stay put, before the traffic and growth finally get to me.
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Old 05-12-2008, 02:26 PM   #17
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The one advantage I can see of using an FA is that if they are good they can talk you out of emotional sells on declines, which seems to be the biggest way that individual investors lose money. They have the advantage that it's not their money so they don't have the emotional reactions that you would.

But paying 1-2% out of a 4% SWR seems to me too high a price for that benefit.
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Old 05-12-2008, 02:29 PM   #18
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On the 1%, yes I'm aware of studies showing that few mutual funds outperform indexes, even before those fees are calculated. The only part of the Smith Barney pitch that made sense to me was that in privately managed accounts, there would be no capital gains and dividend distributions, which I would think could add up (although if you wanted income, I guess you'd be selling shares periodically). Especially if you invest in something like VWENX, which requires a minimum $100k investment or invest in a Dimensional Fund, which requires going through an advisor, which typically also require a $100k minimum.
If Smith Barney told you there would be NO capital gains, they were probably not telling you the whole truth. You are hiring a money manager, and he/she/they CAN sell if they want to. What they will say is they will "try" to keep the portfolio tax-efficient.........

As far as NO dividend distributions, well, you STILL get taxed on reinvested dividends in a taxable account.....
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Old 05-12-2008, 02:30 PM   #19
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I think a bond fund gives you better liquidity, certainty, diversity, and safety. Insurance companies can fail.....
Bonds can fail too.......
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Old 05-12-2008, 10:31 PM   #20
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If Smith Barney told you there would be NO capital gains, they were probably not telling you the whole truth. You are hiring a money manager, and he/she/they CAN sell if they want to. What they will say is they will "try" to keep the portfolio tax-efficient.........

As far as NO dividend distributions, well, you STILL get taxed on reinvested dividends in a taxable account.....
Maybe I misunderstood then. Maybe they meant there wouldn't be cap gains and dividend distributions because other purchasers of mutual funds forced managers to buy more stock.

They claimed more efficiency but then again, they're charging 1% fees.
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