50 and 2.5 million

[hadavi]

Question: If at 50 years old, one decides to retire and wants to live off interest and dividend income....what etf's and other strategies would you recommend?

I was thinking an SPIA for about 700k to give about 2.5k/month in income and live off the interest and dividends of mostly muni bonds and dividend stocks individually or by buying etf's like vym etc...

The idea is to preserve the capital as much as possible.

[LOL!]

I would recommend using a total return strategy and not worry about "preserve the capital". Here's something to read about this to try to convince you: https://institutional.vanguard.com/i...P_TotalRet.pdf

The ETFs you would use are VTI, VEU, VBR, VSS, and add in bond funds.

[brewer12345]

Uh, so you want to preserve capital by handing over almost a third of it to an insurer? Am I the only one perplexed by this notion?

[LOL!]

Did you check the timing and amount of the SPIA with Otar's work?

[brewer12345]

Seriously, hadavi, a diversified portfolio could pretty easily be set up to throw off 3% or so in interest and dividends. On 2.5MM, that would give you about 75k annually and you would essentially never be touching prncipal if that is your idea of a good time. How much do you need to live on?

I would have to suggest that at 50 you are probably too young for a SPIA to make sense.

[hadavi]

That is why I am asking you all what is recommended...if I knew exactly how I should approach income streaming, then I wouldn't be looking for input.

Thanks to everyone that has ideas!

[Bestwifeever]

From your earlier posts it looks like you have some money in Vanguard funds already. If you call Vanguard, someone there will be happy to talk to you about where to put your money to create an income stream.

You could also call other places--Fidelty, Schwab, T. Rowe Price--but since you noted you already have some $$ with Vanguard, you could start there.

[brewer12345]

Quote:

Originally Posted by hadavi That is why I am asking you all what is recommended...if I knew exactly how I should approach income streaming, then I wouldn't be looking for input. Thanks to everyone that has ideas!

Again, how much income do you need to live on? That determines a lot of what you might choose to do with your portfolio.

[megacorp-firee]

Quote:

Originally Posted by brewer12345 Again, how much income do you need to live on? That determines a lot of what you might choose to do with your portfolio.

What Brewer said. Also, what is your risk tolerance? DW and I thought we had it figured out until this last ... uh correction. It turns out her risk tolerance is a whole lot lower than she thought when we were in a better position. It took about 4 or 5 months to get her calmed down and she still steams a bit when she discusses our situation.
The moral to this story is, you need to
a) figure out how much you need to be 'happy'
b) you need to figure out how you would feel if the market dived and took 40% of your portfolio with it.
If you would gnash your teeth if that happened, then you need to be closer to Guvmnt bonds then corporate equities.
There is no right or wrong generic answer. This is a VERY personal issue that only you can decide upon.
c) when you know a and b, then you figure out IF you can satisfy both a and b with current 'investment' vehicles.
If the answer is yes, press the button and enjoy FIRE
If the answer is no, then work and save a bit longer so that you can satisfy a and b

Best of luck

[hadavi]

Well, right now we get by with 5500/month in expenses. This is living in our current home that is paid off and is worth about 600k. We plan on moving to a home in LV that is also paid off and is much smaller so we figure our expenses should be lower, but we are planning on the same 5500/month expenses to enjoy ourselves a little bit more.

We have a very low tolerance to risk and are currently at the following:

Taxable accounts 880k
NQ Var. Annuities 645k
Tax Def. IRA's 680k

Add the sale of the house if we retire and move to Vegas and that is roughly 2.5M.

Our asset allocation is about 60%fixed and 40%stocks (etf's, mutual funds).

One big problem that I struggle with is early on, we put a bunch of money away in Var. Annuities (trusting our advisor's opinion at the time)
so I am trying to figure out how best to get to 59 1/2 by using taxable monies first.

That is why I initially thought of converting a Var. Annuity to a SPIA early on, so we could take advantage of that money earlier than 59 1/2 years old.

So my goal is to spend the dividends and interest from the taxable accounts year after year and tapping into the principal as necessary until I reach 59 1/2.

But my major question is: How should I allocate my taxable money to use it up first? I know alot of people say to place this money in equities. But given that fact that willl need to access this money first when I retire, how to I balance that with risk tolerance early on?

I was thinking about placing 3 years worth of money into a fixed income account like CD's etc. Then place the next three years into TIPS or other intermediate type investments. Then the rest into equities with high yields so I can tap that dividend quarterly if I need it and still ride the share prices during good stock market years and slowly move the money into intermediate accounts and to CD's as necessary.


Hopefully this information is more specific....please post your opinions.

Thanks in advance.

[Meadbh]

Two years ago I too was 50 and had $2.5 million. Today I'm 52 and have approximately $2.3 million. I was down to ~$2 million at the nadir. How would you handle a 20% drop in NW if retired? How about a 40% drop?

My calculations suggest that I could (as Brewer says) take $75K per annum within my SWR. I think $700K is way more than I would be willing to hand over to an insurance company for $2.5K a month ($30K per annum). I've read Otar and Milevsky and I see their point about annuities. However, I think you are too young to commit to a SPIA. Remember, you can't get that money back! A SPIA insures against longevity risk but not inflation risk, and it's an insufficient reward for permanent loss of a significant chunk of capital that could be making you money.

What I would do is to buy a term annuity to insure against early retirement risk so that I would not have to touch my portfolio for a few years. Maybe I would put $200K into a five year annuity. Later on, maybe when you are 75, buy the SPIA and set yourself on automatic for at least part of your income. Because you will actuarially have a shorter time to live, it will be more cost effective. And it will eat up less of your estate (if you care about that).

Just my $0.02.

[brewer12345]

hadavi, I think your plan on the taxable accounts is a good one. I would also suggest that you look the annuities over very closely if you have not already. Depending on the terms of your contracts, it is possible that you might come out ahead by exchanging the ones you already have for a very low fee replacement at Fidelity, TIAA-CREF, etc.

As far as asset allocation, start by figuring out what the total should be given your risk tolerance and return requirements. You appear to need a withdrawal that amounts to something less than 3% of the 2.5MM port, so you do not have to reach for risk to make your return hurdle. If a 60 fixed, 40 equity fits with your risk tolerance, so be it. I would suggest that you consider adding 5 to 10% commodity eposure as an inflation hedge and perhaps look into low volatility alternatives like MERFX for additional diversification. I would also suggest that some of both the equities and the fixed income be foreign.

Once you have an overall target allocation, set up your taxable account as needed (6 years or so living expenses with CDs, TIPS, etc. sounds prudent) and then use the rest ofyour portfolio to make sure you hit your allocation targets. So the short and medium term stuff in the taxable account should count as part of your total target bond allocation and your other accounts should have a slightly heavier equity allocation to balance it out.

[outofratrace]

Someone correct me if I'm wrong because I'm not a expert on annuities but here are my issues with them.

In my state (Varies) the state only guarantees 100k of the annuity. So if I had a 700k annuity and the insurer went under I am out of luck on 600k. Too much risk for me.

Annuities give up all control of your money to someone else. Need to leave money to someone or need it for something else you are out of luck unless you pay extra premiums.

Annuities violate one of my rules of never giving up control of my money

[hadavi]

If I were to do a term annuity at 50 years old with money that I moved from a Variable Annuity, wouldn't I have to pay a penalty for doing so? I thought I could only do a SPIA with equal and periodic payments under IRS 72 (t)??

[brewer12345]

Quote:

Originally Posted by hadavi If I were to do a term annuity at 50 years old with money that I moved from a Variable Annuity, wouldn't I have to pay a penalty for doing so? I thought I could only do a SPIA with equal and periodic payments under IRS 72 (t)??

Dunno, but your tax advisor could comment, no doubt.

A really easy way to play the game could be to swap your VA for a fixed annuity that has a guaranteed rate for 5 to 10 years and use this as part of your FI allocation (be very picky about the insurer you buy from).

And FWIW, if I were in your shoes, I would be really tempted to set up a ladder of FI instruments in your taxable account that would get you all the way to 59.5. The rest of the assets could be structured to meet your overall asset allocation and you could enter FIRE knowing that you have every year's expenses covered until you could tap the tax deferred assets.

[easysurfer]

Quote:

Originally Posted by hadavi If I were to do a term annuity at 50 years old with money that I moved from a Variable Annuity, wouldn't I have to pay a penalty for doing so? I thought I could only do a SPIA with equal and periodic payments under IRS 72 (t)??

Maybe this will help explain the question you had.

Early Withdrawal (Pre 59-½) Penalty Tax Exceptions and Annuities

[Dennis]

Well, I was in a similar situation at age 55 when I retired and about 1 yr before, I only had played with MF's and didn't take the time going deeper into using them.
1. I set up a List of Questions and Different Conservative Portfolio's I like
2. Started going and Seeing Investment Firms to get their Input , Idea's and Opinions
3. Being 55, but using being 65 for my Bonds % and even more ( 70%) and the Firms that Hit on that approach got more of my Interest and time to use them..
4. I gave the best one of the bunch 25% of my $ and I handled the rest..Just following their Lead and a few tweaks now and then on my own..
5. a 3% WDR would provide me with the $ I needed " Forever".. and I didn't even need that much over the next 30 yrs FP's I went thru..
6. Ave about 7% apy from them and 8.3% apy on my own $ has exceeded my expectations.
7. Not to mention having some gambling $ set aside to try my luck with has done pretty well, with their other Depts they have for that purpose..along with what I pick up along the way on my own..

Sure, Lost about -24% last yr with the gambling $, but was over 300% ahead of the game before then and the Core $ lost about -6% , but was almost Double before that happene and paid the Bills along the way..

and after you go see a couple of the first few firms, you get alittle wiser and what to look for when you go see the others.. Go see at least 6 firms..

and Vanguard has a course on What to Look for In using an Investment Firm to get you started..

OH BTW? Hint..Using just a simple port of VWELX, VWINX, A Global and EMD Bond Fund can get the job done pretty well too.
Sorry, Annuities aren't in my Portfolio yet..Don't they will be either..If we rode out 08' pretty well , I don't see much reason why too..

[hadavi]

Yeah...I have already made appointments with different firms to see what approaches are out there and which ones fit our situation the best.

[brewer12345]

Quote:

Originally Posted by hadavi Yeah...I have already made appointments with different firms to see what approaches are out there and which ones fit our situation the best.

Up to you, but this stuff simply isn't that complicated. I would suggest you stick with a fee-only planner. Anyone who charges a % of assets fee and has discretionary powers over your money is someone to run away from.

[hadavi]

I am going to do the free annual plan with Vanguard and find a at least one CFP that is fee based.