Member, Class of 2018

[1-31-18]

So I've been lurking here for a while, absorbing wisdom, occasionally wondering "Why didn't I think of that?" Then I remember that, regardless of the context, "we" always know more than "I" do.

I've worked hard for 35 years, not counting 21 years of education, uninterrupted by anything longer than two one-week vacations a year (and an occasional honeymoon, ha!). I could have retired 10 years ago at age 50 but for two divorces that together cost about $5 million, not counting 29 years of support for those two women while married to me.

Because of hard work and despite my divorces, my hard-working, age-appropriate third wife and I have:

$7 million-plus in financial assets, all of it earned, mostly cash that will be DCA'd into public common equity, preferred stock, a CD ladder; this will probably grow to $7.5 million in present value by retirement date, but could shrink due to a stock market correction;

No pensions but the family maximum of SS benefits in due course;

A condo worth about $600K, fully paid;

Group health care, which I will need for 5 years, DW for 7; and

More "stuff" than I ever wanted or even imagined possible, currently held in 3 storage facilities in 2 states at a cost of about $5K a year. I am keen to get rid of it all, and that is Job #1 upon my retirement (except that I can't drink the wine in storage fast enough). Plainly these goods (excluding wine and art) are liabilities, not assets.

Can we retire? I figure: Yes, we can, because the condo costs less than $30K a year to maintain (including taxes), we are down to one car, we need no goods and indeed will be better off with much less, our favorite recreations are free or nearly free, our parents are dead (we are orphans), and the only "children" in our lives are now in their 30s and are conventionally successful. It is inconceivable to me that we could not get by on $200K a year, even in the big city where we live. But we are frugal and modest and could easily move to a small town to save money if we came to feel financial pressure.

How would you allocate the $7 million-plus in financial assets to generate the optimal return? I'm tempted to put up to $5 million in preferred, high-yield debt and high-dividend stocks -- that should generate $200K right there -- and the remainder in growth stocks.

My thought about SS is to use the benefits to pay for uninsured health care (beyond Medicare) in old age.

We have charitable legacies in prospect but would be willing to forego those and spend it all if need be.

We want to spend virtually the entire first year of retirement on road trips in the NE, SE, Great Lakes Region and West of the US. Year two would be slow travel throughout Europe, mostly. Airbnb and the like would suit us just fine.

Any thoughts about this?

[exnavynuke]

For your first question-
In your situation I'd probably just invest in a 3-fund portfolio with around a 60% equity stake, 20% bond stake, with about 15-20% of the equity state in international investments. That would (historically) let you pull about 4% from the portfolio, generating close to $300k/year (then take taxes out from there).

Regarding travel, I'm pretty sure there are some time restrictions that would prevent you from staying in the EU for a full year, but others who are more knowledgeable on that subject will chime in I'm sure. The travel sub-forum is a great place to get feedback/suggestions/etc on travel plans from what I've seen.

Note: you didn't mention what your expenses/spending currently is. Spending is the main factor in determining if you have enough for ER. If you're spending $100k/year now you should have no problem retiring. If you're spending $400k/year now then you might find it more difficult.

[1-31-18]

Quote:

Originally Posted by exnavynuke For your first question- In your situation I'd probably just invest in a 3-fund portfolio with around a 60% equity stake, 20% bond stake, with about 15-20% of the equity state in international investments. That would (historically) let you pull about 4% from the portfolio, generating close to $300k/year (then take taxes out from there). Regarding travel, I'm pretty sure there are some time restrictions that would prevent you from staying in the EU for a full year, but others who are more knowledgeable on that subject will chime in I'm sure. The travel sub-forum is a great place to get feedback/suggestions/etc on travel plans from what I've seen. Note: you didn't mention what your expenses/spending currently is. Spending is the main factor in determining if you have enough for ER. If you're spending $100k/year now you should have no problem retiring. If you're spending $400k/year now then you might find it more difficult.

Thank you, exnavynuke!

I've run Firecalc in the past, and am familiar with the WR chatter and some of the academic writing on it, and am concerned that the next 40 years might be a lot worse than the last 80. Hence my bias toward preferred returns over common equity. And we are at the end of a 35-year bull market for bonds, I think, so long-duration bond investments don't appeal to me. I'm wondering, though, if I have 60 percent in equity and 20 in bonds per your suggestion, where is the other 20 -- in cash?

In my haste I forgot to mention, or rather denied, that I have a pension. I will have one if I retire quickly enough. For reasons too hard to explain the pension won't last long in size and is probably better described as an unintended early-out payment stream. We could live on it alone for a year and it will then recede, but it should provide travel money, maybe more, for the rest of our lives.

About travel in Europe, I have read here about the Schengen rules and clearly need to study those before I plan details of slow travel through Europe. My recollection is that they limit stays in particular countries, but not the EU as a whole. Maybe I'm wrong about that -- will need to find out.

Regarding spending, I and we have been LBYM people all our lives. We currently spend more than the early-stage retirement budget we have in mind, but it's easy to see where the pro forma adjustments will be made Simply "living" in my line of work is pretty expensive. But maybe a third of what we spend is not necessary or even desirable in retirement. It's really just non-deductible business expense. Although a one-year dry run would be ideal, it's not possible to do that in my line of work. Besides, "running a test" is not reason enough for OMY IMHO. As a Plan B, we can sell the big city and buy small city or small town life.

Again I appreciate your insights.

[exnavynuke]

I mistyped, I meant to say 40% bonds, not 20%. Not sure how I managed to screw that up like that lol.

[ivinsfan]

Quote:

Originally Posted by 1-31-18 Thank you, exnavynuke! I've run Firecalc in the past, and am familiar with the WR chatter and some of the academic writing on it, and am concerned that the next 40 years might be a lot worse than the last 80. Hence my bias toward preferred returns over common equity. And we are at the end of a 35-year bull market for bonds, I think, so long-duration bond investments don't appeal to me. I'm wondering, though, if I have 60 percent in equity and 20 in bonds per your suggestion, where is the other 20 -- in cash? In my haste I forgot to mention, or rather denied, that I have a pension. I will have one if I retire quickly enough. For reasons too hard to explain the pension won't last long in size and is probably better described as an unintended early-out payment stream. We could live on it alone for a year and it will then recede, but it should provide travel money, maybe more, for the rest of our lives. About travel in Europe, I have read here about the Schengen rules and clearly need to study those before I plan details of slow travel through Europe. My recollection is that they limit stays in particular countries, but not the EU as a whole. Maybe I'm wrong about that -- will need to find out. Regarding spending, I and we have been LBYM people all our lives. We currently spend more than the early-stage retirement budget we have in mind, but it's easy to see where the pro forma adjustments will be made Simply "living" in my line of work is pretty expensive. But maybe a third of what we spend is not necessary or even desirable in retirement. It's really just non-deductible business expense. Although a one-year dry run would be ideal, it's not possible to do that in my line of work. Besides, "running a test" is not reason enough for OMY IMHO. As a Plan B, we can sell the big city and buy small city or small town life. Again I appreciate your insights.

Are you being honest with yourself here, anyone who spends 5K a year to store piles of stuff they didn't need or want can't really be LBYM in the true sense of the word. Yes, you haven't overspent your income, but assuming it will be "easy" to make adjustments might be a little bit of wishful thinking. Have you tried small city or small town life?

[2017ish]

I agree with exnavynuke: assuming 200K spending and a 7mill pile, you are only looking at a 2.8% withdrawal rate. Depending upon how much of that is in tax deferred accounts, you may or may not owe much in taxes; either way, you are drawing conservatively.

Given that ratio, you've pretty much won the game, so why go further out on the risk limb than a broad index portfolio? The investment group of "preferred, high-yield debt and high-dividend stocks" includes two pretty volatile ingredients (I have limited knowledge of preferreds....) There is a strong argument that you should go with a 40/60 or 30/70 portfolio given the expected withdrawal rate.

If that targeted spending amount is reasonable, congratulations!

[1-31-18]

Quote:

Originally Posted by ivinsfan Are you being honest with yourself here, anyone who spends 5K a year to store piles of stuff they didn't need or want can't really be LBYM in the true sense of the word. Yes, you haven't overspent your income, but assuming it will be "easy" to make adjustments might be a little bit of wishful thinking. Have you tried small city or small town life?

Here's some more color: The storage covers (1) house contents meant to furnish a second home, until a divorce destroyed that plan; (2) 1,000 bottles of fine wine previously stored in a bigger house; and (3) heirloom furniture obtained by my then-fiancée upon unexpected deaths of close relatives.

It is true that if I had time to pare this down, I would, which is why I said it is Job #1 upon retirement. One of the great advantages of retirement is having the time to make economical choices for which time is lacking while w*rking. This is especially poignant for people in service industries and professions who might typically w*rk 60-80 hours a week. We simply don't have time enough to clip coupons, shop aggressively for bargains, etc.

Example: We will sell one of our two cars next month because we don't need it. A retired person, or other person with time on his hands, would go to several dealers, maybe advertise on Craigslist, etc., to find the best price. We will instead go to one dealer and make a deal in 15 minutes. Why? because we have only about three hours to give to this task. Some might say we are not LBOM. I say we are emphatically LBOM because most people in our position own several cars, and maybe a boat, and their cars are not aging Detroit products (like ours are): They are late-model BMWs and Teslas.

Returning to storage: Most people in my position simply buy a second home in which to store all their stuff. You may laugh, but it's true. I have many partners with second and third homes and they can't imagine how to downsize. I could easily afford to buy a second home (again ... I had one once ... ex-wife #2 owns and occupies it now), or a bigger one. Instead we choose to live in one luxurious 2,500-square-foot condo in the value-oriented part of the posh section of our big city. Quite possibly we have higher income and net worth than anyone else in the building. My partners ask why we live there instead of in the most exclusive neighborhood in the city -- but we are frugal and don't care what they think.

And, yes, temporarily we are storing a lot, pending imminent retirements. $5K in storage for a couple years is a lot less than $1 million in acquisition cost and lifetime maintenance for a second residence in which to store stuff.

Fundamentally, again, downsizing requires both commitment (which I have) and time (which I lack).

LBYM does not mean "be cheap." It means "spend less than you earn." I've been spending less than 25% of what I earn for at least 20 years. Had I not been divorced twice, I would have retired a rich man at age 50, and I began life in poverty. Looks like I will still retire to a pretty good situation, unless I'm missing something big here.

Bottom line -- Storage is the one problem I have that I perceive, which is why I mentioned it. It's Job #1 in retirement. That doesn't imply "OMY while you prune storage." OMY would cost me $300K in pension benefits. And yes, I do know small city and small town life. I have lived in 12 states and 15 metro areas so far, from the largest in the US (three different residencies there) to one in which I lived as a teen-ager (with a winter population of less than 3,000).

Thank you for challenging me to explain this situation better.

[ivinsfan]

You are a great example of someone who is "all in" on their careers, sometimes at the expense of their personal life and managing to squeeze the value out of their hard earned money. There just aren't enough hours in day sometimes.

I agree with your definition of LBYM and just wondered what your thoughts on the matter were. If you have a partner willing to cooperate and a real desire to make things work. You are 99.9% there, Good Luck.

[2017ish]

Quote:

Originally Posted by 1-31-18 Here's some more color: The storage covers ...(2) 1,000 bottles of fine wine previously stored in a bigger house; ....

Gulp--proper storage facility, I hope!

Luckily, even a built-in cellar for that many bottles doesn't take much space. (And after retirement, you'd have time to build it yourself; that and the theater were the last two projects that I did before finishing my Stay-at-Home dad years....)

[1-31-18]

Quote:

Originally Posted by 2017ish Gulp--proper storage facility, I hope! Luckily, even a built-in cellar for that many bottles doesn't take much space. (And after retirement, you'd have time to build it yourself; that and the theater were the last two projects that I did before finishing my Stay-at-Home dad years....)

Yes, the wine was stored in a controlled cellar in the weekend house that ex-wife #2 acquired via divorce. She graciously continued to store it there for about three years, "only" charging me the summer cooling bills for that part of the house. Since I was drinking the stash hardly at all, finally this past fall I shipped it as close to my city apartment as I could find a wine storage facility. As you appreciate, these are not the same as "other" storage facilities. The rent is about $2K a year. Yes, that's a lot of money, but the wine is worth maybe $50K. I can cut the rent in half by hiring someone to unpack everything and stack the wine neatly, tossing out all shipping crates, packing paper and stuff. Or I can do that myself if I can retire soon enough. I look forward intently to getting the cost down AND consuming the wine with my new wife and friends over perhaps the first ten years of retirement.

[1-31-18]

Quote:

Originally Posted by ivinsfan You are a great example of someone who is "all in" on their careers, sometimes at the expense of their personal life and managing to squeeze the value out of their hard earned money. There just aren't enough hours in day sometimes. I agree with your definition of LBYM and just wondered what your thoughts on the matter were. If you have a partner willing to cooperate and a real desire to make things work. You are 99.9% there, Good Luck.

There is no doubt that I have paid, and paid again, and yet again, and maybe more, for being "all in." It is hard to do anything but that and then succeed in my chosen profession, or perhaps I mean this slice of my chosen profession. I am looking forward to a relaxing retirement.

My "Best and Final Wife" (as she calls herself) has been similarly driven. Started to provide details here, but they are irrelevant. What matters is that we are in close alignment on all major topics, including personal finances. She prefers a nutritious bowl of soup at home over an expense account restaurant. The car we are selling (because one is enough) was given to her ten years ago, used, by a relative, not purchased by her. She shops for clothes, when she shops at all (basically, she doesn't), at TJ Maxx. All of this from a woman whose pay puts her in the 1%. We agree that we lack nothing material in our lives. She is a great mate for me.

Thanks again for your comments and your obvious good will.

[1-31-18]

Quote:

Originally Posted by 2017ish Given that ratio, you've pretty much won the game, so why go further out on the risk limb than a broad index portfolio? The investment group of "preferred, high-yield debt and high-dividend stocks" includes two pretty volatile ingredients (I have limited knowledge of preferreds....) There is a strong argument that you should go with a 40/60 or 30/70 portfolio given the expected withdrawal rate.

Seeking to clarify your meaning: By 40/60, do you mean 40 equity / 60 fixed, or 40 fixed / 60 equity? Asked because I'm trying to figure out how aggressive to be.

Also, for me the hardest investment question is what to do for the so-called fixed in one piece. It's a hard question because there is every reason to believe that total returns from bonds will be bad into the future as the 35-year bull market has ended. Do you (or does anyone else) have any reasoned recommendations for what to buy in lieu of bonds while preserving some measure of stability and counterbalance for equity? I'm sitting on a lot of cash I need to deploy before I retire.

[nativenewenglander]

Quote:

Originally Posted by 1-31-18 Seeking to clarify your meaning: By 40/60, do you mean 40 equity / 60 fixed, or 40 fixed / 60 equity? Asked because I'm trying to figure out how aggressive to be. Also, for me the hardest investment question is what to do for the so-called fixed in one piece. It's a hard question because there is every reason to believe that total returns from bonds will be bad into the future as the 35-year bull market has ended. Do you (or does anyone else) have any reasoned recommendations for what to buy in lieu of bonds while preserving some measure of stability and counterbalance for equity? I'm sitting on a lot of cash I need to deploy before I retire.

One of my favorite financial people is Cullen Roche, he explains bonds better than most, especially me. I agree with others that you are taking unnecessary risk with your money. Mine is in 40% stocks and 60% all actively managed, by Vanguard/Wellington. Here's the link for Cullen and his explanation of bonds. What is the Worst Case Scenario for Bonds? | Pragmatic Capitalism

[1-31-18]

Quote:

Originally Posted by nativenewenglander One of my favorite financial people is Cullen Roche, he explains bonds better than most, especially me. I agree with others that you are taking unnecessary risk with your money. Mine is in 40% stocks and 60% all actively managed, by Vanguard/Wellington. Here's the link for Cullen and his explanation of bonds. What is the Worst Case Scenario for Bonds? | Pragmatic Capitalism

Thank you, kind sir. It is useful to read a Plain English explanation of bond yields, prices and interest rates.

As for your portfolio: Is Wellington your bond proxy? Sounds like it is. (Maybe I should go that way. Could set it and forget it.)

[nativenewenglander]

Quote:

Originally Posted by 1-31-18 Thank you, kind sir. It is useful to read a Plain English explanation of bond yields, prices and interest rates. As for your portfolio: Is Wellington your bond proxy? Sounds like it is. (Maybe I should go that way. Could set it and forget it.)

I have Wellesley Income. It lets me sleep at night no matter what the markets do.

[2017ish]

Quote:

Originally Posted by 1-31-18 Seeking to clarify your meaning: By 40/60, do you mean 40 equity / 60 fixed, or 40 fixed / 60 equity? Asked because I'm trying to figure out how aggressive to be. Also, for me the hardest investment question is what to do for the so-called fixed in one piece. It's a hard question because there is every reason to believe that total returns from bonds will be bad into the future as the 35-year bull market has ended. Do you (or does anyone else) have any reasoned recommendations for what to buy in lieu of bonds while preserving some measure of stability and counterbalance for equity? I'm sitting on a lot of cash I need to deploy before I retire.

40 equity/60 fixed. (In your case, at least.)

As for fixed, if you are concerned about quick run up in rates, look at short term bond funds. For example, Vanguard's short term investment grade (VFSUX), or the like from Schwab/fido or whomever. Currently yielding 2.11. Or go with a CD ladder. I've got intermediate term funds with durations of 5-7 years as well, but there is more interest rate risk there than what you seem comfortable with.

40/60 would also seem to fit well with the Wellington and Wellesley funds mentioned above--although I know nothing about them other than what has been said by others on this forum.

[1-31-18]

Quote:

Originally Posted by nativenewenglander I have Wellesley Income. It lets me sleep at night no matter what the markets do.

Thanks again. I see that many contributors to E-R.org like Wellesley (especially the Admiral class for lower fees) and also Wellington (for greater equity exposure). Two questions: Do you also own Wellington, or do you have other equity exposure? Also, are you OK with this in what will likely be a rate-increasing environment? Your thoughts on these topics are most welcome.