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Newbie here... cash hoarder, forced retirement on the horizon
Old 06-05-2016, 04:29 PM   #1
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Newbie here... cash hoarder, forced retirement on the horizon

Hi all,

My wife and I are 50.
Income: 280K - but our jobs will be off-shored within 1-5 years
Cash: $1M
401k: $1.7M
Pension: none
Retiree Medical: none
No Debt
House $400K, no mortgage
Spending range in retirement: $80K to $120K
Kids: 3 grown

If I am using the various retirement planners correctly, we need to earn 3-4% and we'll be ok if we stop work in the next few years.
Does that sound right?
I'm not looking to get super rich. I am looking for the absolutely safest way to get 3-4%

I'm terrified of putting a large chunk of my wealth into stocks.
I've tried some mutual funds and never did well.

Is there a very safe way to earn 3-4%?
Should I get an advisor?

BR,
Mike
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Old 06-05-2016, 04:38 PM   #2
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Welcome to the forum!

There is no absolutely safe way to earn 3-4% (that anyone knows of). That said, you should be okay with a WD rate of 3 to 3.5%, that grosses you $94,500/year at 3.5%

That said, here are some questions you will want to have solid answers to: Some Important Questions to Answer Before Asking - Can I Retire?

You will want to closely track expenses while still working so you have a good grip on "needs" vs. "wants" and what the difference is to you.
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Old 06-05-2016, 05:05 PM   #3
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Originally Posted by deskpilot View Post
....Is there a very safe way to earn 3-4%?
Should I get an advisor? ....
You definitely should not get an advisor... they will likely suck 1% or more from you each year.

It depends on what you mean by "very safe". The other thing that you need to consider is inflation. You could consider the Vanguard Target Retirement Income Fund or the Vanguard Wellesley Income Fund... both are very conservative.

Quote:
The Target Retirement Income Fund is designed for investors already in retirement. The fund seeks to provide current income and some capital appreciation by investing in five Vanguard index funds. The fund holds approximately 30% of assets in equities and 70% in bonds. This is also the allocation that all Target Retirement Funds are expected to assume within seven years after their designated retirement dates. Investors in this fund should be willing to accept modest movement in share price and be able to tolerate the market risk that comes from the volatility of the stock and bond markets.
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Old 06-05-2016, 05:06 PM   #4
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My recommendation would be to try living within your retirement budget (or less) while you are still working, and save every additional penny in the meantime. That will give you a good idea about your spending estimate in retirement.

The second thing I'll say, and that others will probably say also, is no to a financial advisor. If you really want one, you should do some studying regarding what they do and what you can expect. By the time you've learned enough to choose a decent advisor you'll have also learned enough to realize you don't need anyone draining away your money. You'll be able to manage your investments yourself if you choose.

Also, read about asset allocation and investing. If you "never did well" with mutual funds, you probably were chasing returns or investing in a narrow portion of the market. Or you just had bad luck with timing. But the only way to get the returns you want over the long run is to have a portion of your assets in equities, and the easiest way to do that is with a broad market index, basically owning the whole market. That portion can be larger or smaller based on your comfort level, but it needs to be there or you will lose in the long run. And as the market so far has gone up over the long run, you'll "win" over time, even if there are bumps in the road.

Speaking of the long run, 1-5 years gives you a lot of time to do some reading and getting educated regarding your investments and retirement. I don't have the titles at my fingertips, but either others will give you some ideas for reading, or I'll look them up and post them later. Don't panic, your finances are in pretty good shape, to the extent that a lower paying or even part time job would mitigate any budget overruns. Take your time, learn a little, decide what to do, and enjoy your life in the meantime.
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Old 06-05-2016, 05:08 PM   #5
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No debt, no mortgage, grown kids...do you really need $10k a month?
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Old 06-05-2016, 05:10 PM   #6
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Hi deskpilot, welcome aboard. Two additional questions:

- You say no pension. Will you receive a Social Security benefit?

- Do your estimated yearly expenses include healthcare costs and taxes?
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Old 06-05-2016, 05:10 PM   #7
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Quote:
Originally Posted by deskpilot View Post
I'm terrified of putting a large chunk of my wealth into stocks.
I've tried some mutual funds and never did well.
Investing isn't "trying some mutual funds", it is selecting a reasonable asset allocation, buying low cost funds (think index) and sustaining your investment commitment for the long term. Long term equals ten years or more.

Quote:
Is there a very safe way to earn 3-4%?
Should I get an advisor?
No to the first question, maybe on the second. You need to either educate yourself on how to invest or educate yourself on how to select a good advisor. Since learning to invest is no more difficult that figuring out how to find a decent advisor - and far less expensive over the long haul - I recommend going that route.
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Old 06-05-2016, 06:52 PM   #8
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Hi deskpilot, welcome aboard. Two additional questions:

- You say no pension. Will you receive a Social Security benefit?

- Do your estimated yearly expenses include healthcare costs and taxes?
hi MichaelB - I am also Michael B.

My wife and I will get an estimated 30K each at 67.

I've estimated 1000/mo healthcare until 65. I did not include income tax for now. Until I start withdrawing from my 401K, I'm not sure if I'll earn enough to owe income tax. I'll be drawing on after-tax money. Also, if I'm only reporting income on my after tax investments, I guess I'll have a low enough income for obamacare subsidies. I really haven't looked deeply into that.
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Old 06-05-2016, 07:06 PM   #9
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No debt, no mortgage, grown kids...do you really need $10k a month?
If nothing unexpected comes up, I can live off 80K/yr, probably a lot less.
Actually, I'd be fine with 10K/yr, a cabin in the woods and a few nails in the wall to hang my clothes.

The 10K/mo figure is more inline with the lifestyle that my wife wants - world travel, expensive hobbies. There's also unexpected major medical problems (wife had some of those recently). I also have 1 child that just lost their job and is coming back home next month. These things happen.
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Old 06-05-2016, 07:11 PM   #10
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Originally Posted by deskpilot View Post
hi MichaelB - I am also Michael B.

My wife and I will get an estimated 30K each at 67.

I've estimated 1000/mo healthcare until 65. I did not include income tax for now. Until I start withdrawing from my 401K, I'm not sure if I'll earn enough to owe income tax. I'll be drawing on after-tax money. Also, if I'm only reporting income on my after tax investments, I guess I'll have a low enough income for obamacare subsidies. I really haven't looked deeply into that.
There are games you can play that will minimize your taxes while keeping your income steady. For example, you can withdraw just enough from your pre tax accounts to keep from paying any taxes (matching the exemptions plus standard deduction amount), which will allow you to keep more money in your after tax account while not paying anything on the 401k money. At least until SS starts. There's just so much fun to be had once you learn a little about managing your finances.
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Old 06-05-2016, 07:14 PM   #11
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So here's the deal. Check your expenses very carefully. If you can get by until close to Medicare age 65 on that million dollars in cash, your health care expenses under ACA will be almost zero. You'll probably even qualify for Medicare if you live in the right state.

When you pull money from the 401 that counts as income for ACA purposes and means you will pay more for insurance. So you have a real incentive to pare down your budget. Believe me, if you pay rack rate for insurance because of your higher income, 12K won't even be in the ballpark, it's much too low.

Start to study up on these things now,I'm assuming the million in cash is after tax money...don't worry about a financial planner for now.The cash you are holding actually put you in a good position for heavily subsidized health insurance and low co-pays. Be sure you understand how this works before you do anything.
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Old 06-05-2016, 08:31 PM   #12
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Welcome. You're only 50 so some kind of economic activity to earn money seems very doable if your numbers don't let you sleep at night.

Many of us here got wealthy doing-it-ourselves with mutual funds, so it's not a matter of investment vehicle. It's a matter of asset allocation according to your own risk tolerance and then keeping expenses low, eg Vanguard funds. There is no guarantee of 3-4% but there's also no need to gamble toward a mythical 15% annual return or something if inflation stays so low. Someone above mentioned two excellent funds that have served conservative investors well. Pick one and done. Have Vanguard send you regular checks. Or you can pay a (probably broke) advisor a quarter of your needed 3-4% to tell you that you need their expertise and to make things complicated rather than buying one simple balanced mutual fund and leaving it alone. If we've done this, you can learn it too!
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Old 06-05-2016, 08:43 PM   #13
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No debt, no mortgage, grown kids...do you really need $10k a month?
It sounds so simple, in the abstract, but we each have different lifestyles we are accustomed to. I used to judge people that led expensive lifestyles and slowly, over the years, we slipped into it. So the thought of only $10k a month scares me. What's enough is all about one's expected lifestyle in retirement.
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Old 06-06-2016, 06:53 AM   #14
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Hello Michael B, how did you achieve these large savings amounts without investing in something?

Still, it doesn't seem like quite enough to retire with at the age of 50 without a portion of it, at least, being invested. Inflation will erode the earning power of a pure cash portfolio. Thus, as withdrawals increase over the many years (hopefully) of retirement, the consumption of the nest egg will accelerate. Depletion is a risk.

I would echo the recommendation in one of the posts above to find a blend of at least 30% equities and 70% bonds for your investments. These would be best as low cost index funds diversified among their respective total markets.

In the long haul, the only way that a diversified investment plan won't serve you well is if we get into some sort of end of world scenario where the amount of food and ammo in our cupboards is the only thing that counts.


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Old 06-06-2016, 07:11 AM   #15
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It sounds as if the 1.7 million is in the market, the OP hasn't really elaborated.
I'm surprised everyone is telling him to get into the market with the million dollars.

What money will he use for his living expenses if he invests the million? And the way ACA is set up right now they could get almost free health care until 65. That alone between insurance costs and deductibles and co-pays, in the next 10 years will probably save him at least 15K a year.

If I was the OP I'd cut expenses, use the million and let the 1.7 sit until I went on Medicare.
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Old 06-09-2016, 11:24 PM   #16
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to me, muni bonds at least AA rated + insured is the best and safest way to protect your mone by generating 4% to 5% without federal tax and sometimes no state tax.
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Old 06-10-2016, 12:16 AM   #17
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Quote:
Originally Posted by deskpilot View Post
Hi all,

My wife and I are 50.
Income: 280K - but our jobs will be off-shored within 1-5 years
Cash: $1M
401k: $1.7M
Pension: none
Retiree Medical: none
No Debt
House $400K, no mortgage
Spending range in retirement: $80K to $120K
Kids: 3 grown

If I am using the various retirement planners correctly, we need to earn 3-4% and we'll be ok if we stop work in the next few years.
Does that sound right?
I'm not looking to get super rich. I am looking for the absolutely safest way to get 3-4%

I'm terrified of putting a large chunk of my wealth into stocks.
I've tried some mutual funds and never did well.

Is there a very safe way to earn 3-4%?
Should I get an advisor?

BR,
Mike
You have a good chunk of savings and if you can stay on the lower end of that spending range you should, in theory, be ok.

that said, you're two later statements scare me.

There is no safe way to earn 3-4% (inflation adjusted). Of course if inflation goes to 8% and interest rates are at 10%, then it's easy to earn 3-4%, but then, of course, you'll need 13-14%.

That's ok.. you can work around that.

When you pair it with this question:
should I get an advisor.

That's where I get scared.

If you use the first question "help. I need 3-4% risk free guaranteed" and you look for someone who says they can do that, odds are honest people will say no, you'll go to the next person... and a dishonest one will say yes and proceed to do all kinds of things that will be terrible for your financial future.

So I'd follow the advice that you NEED to educate yourself on how investing in various asset classes works, find an allocation that matches your disposition and then stick with it. It's POSSIBLE an advisor could help, but then you'll still need to make sure that the advisor is not making you feel safe while taking lots of risks. since they are usually paid by % of assets under management, you have to consider what their motivation is.

If you ask a barber if you need a haircut or a real estate agent if it's a good time to buy or sell a house, guess what the answer is?

NO ONE will care about your money more than you will.
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Old 06-10-2016, 12:31 AM   #18
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OP -
You need to read a bunch of books on investing. Then consider index etf or low cost Vanguard mutual funds.
Your cash had better be earning 1% minimum in a bank like Ally (and you could easily earn 2% with it in 5yr CD's.

Also go to https://www.bogleheads.org/forum/index.php
The are really geared towards safe investing of money, and can help you understand how to invest it.
You can tell them what you have and they can even recommend how to invest it.
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Old 06-10-2016, 06:21 AM   #19
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Originally Posted by CaliKid View Post
It sounds so simple, in the abstract, but we each have different lifestyles we are accustomed to. I used to judge people that led expensive lifestyles and slowly, over the years, we slipped into it. So the thought of only $10k a month scares me. What's enough is all about one's expected lifestyle in retirement.
Beat me to it. They need/what what they need/want, personal decision. I might also consider talking to a fee based FA for a one time appraisal (once you have educated yourself) just to validate your findings. I am always looking for differing opinions.
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Old 06-10-2016, 07:09 AM   #20
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Mike,
The safe withdrawal rate is 3 to 4 percent. Earning that much each year tax free is related in thought, but a different variable. Before hiring an advisor, you'll be in much better shape just by reading and discussing. Then if you decide to pay for advice, you'll know good advice when you hear it...
Good luck for the future.
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