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Old 05-19-2015, 02:09 PM   #1
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Hello, Retired w/working spouse. Have slightly considerable savings / retirement we don't touch (unseen situations ??). We had a talk a cpl days ago and just can not stomach the markets any longer. We feel our nest egg should be sufficient to take us through retirement (health care). Actually when/if we start receiving SS will be like a raise above our current income. We both are thinking a CD type investment will let us quit fretting over our savings decisions. Currently brokered CD 10yr are @ 3.05% and would allow some inflation protection. W/SS, we look very, very good unless something really bad should happen. Without SS, we would be living how we are currently which is comfortable. With the current markets, would it be best to wait a bit to see if interest rates ever rise? Would the rise be so slow it wouldn't make much of a difference anyway? Any other suggestions appreciated. IF, there were a BIG correction, we may be brave enough to put in around 10% possibly.
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Old 05-19-2015, 02:27 PM   #2
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Ever heard of Single-Premium Immediate Annuity (SPIA) with a joint life and/or joint & survivor option? Do you want to leave any money to heirs or not?

The SPIA would take away most all worries.
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Old 05-19-2015, 02:30 PM   #3
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I don't see interest rates rising much if any over the next cpl years...Just my opinion ofcourse.
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Old 05-19-2015, 02:42 PM   #4
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you could clip (bond) coupons
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Old 05-19-2015, 02:43 PM   #5
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Put at least part of it in TIPS?
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Old 05-19-2015, 02:56 PM   #6
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Ever heard of Single-Premium Immediate Annuity (SPIA) with a joint life and/or joint & survivor option? Do you want to leave any money to heirs or not?

The SPIA would take away most all worries.
LOL is right on. To take it a little further, figure your essential income needed to live off and compare that to your SS payment. Buy a SPIA to make up the difference. Then take the balance of your savings and invest it conservatively. If the stock portion goes down you won't worry as much knowing you will still have enough to live off of. The other up side is that over time the remaining portfolio should grow which will help you with future inflation.
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Old 05-19-2015, 03:04 PM   #7
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Brokered CD are safe, but if you want to break one early (sell on market), could be a large loss, vs direct CD with known early withdrawal rate.

A lot can happen in a few years. I would not go with a brokered cd in this case. Just my opinion.

5 yr direct cd's are paying 2.25 apy typical early penalty of 6 mo interest.

Roughly same as inflation, if you take the CPI as being realistic to your life situation. As with everything in life , "Plus Tax"
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Old 05-19-2015, 03:08 PM   #8
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I'm afraid I don't have any financial advice for you but that's OK, as others here have plenty of informed comments to make. I just wanted to say that I love the contradiction inherent in the phrase "slightly considerable".

Are you British, by any chance?
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Old 05-19-2015, 03:20 PM   #9
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You might like something like Wellesley. Gives you income and sleep and you do not have to mess around with CD's, Annuities, etc. (they do it for you).
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Old 05-19-2015, 03:24 PM   #10
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You might like something like Wellesley. Gives you income and sleep and you do not have to mess around with CD's, Annuities, etc. (they do it for you).
Or Wellington just because it holds less long term treasury bonds....but you can't go wrong with either, look at their track record. (I know, doesn't mean it will still preform like it has but in Wellington's case, going back until 1929 gives me some comfort )
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Old 05-19-2015, 03:25 PM   #11
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My understanding of CDs are this. They usually are a bit slower to react to interest rates than the market is. Unless the banks are in a loaning boom and want more money. Any increase of rates by the government will be on the short end of course. And that may or may not have any increase in longer term CD rates. The above blathering is meant to get to your point about waiting a bit longer for CD rates to improve. If a bit means a few months I would not be optimistic in any appreciable increase. But it appears you have "won the game" and have enough so you have the advantage to wait as long as you are comfortable waiting. That is a nice spot to be in.


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Old 05-19-2015, 03:33 PM   #12
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It is important to have some cache available but too much would make it difficult for me to sleep at night because "safety" in cash is a mirage.

So far best advice I see is buying Wellesley or Wellington. If you need lot of income consider PFF, MO or BTI.
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Old 05-19-2015, 03:35 PM   #13
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Originally Posted by Slave View Post
Hello, Retired w/working spouse. Have slightly considerable savings / retirement we don't touch (unseen situations ??). We had a talk a cpl days ago and just can not stomach the markets any longer. We feel our nest egg should be sufficient to take us through retirement (health care). Actually when/if we start receiving SS will be like a raise above our current income. We both are thinking a CD type investment will let us quit fretting over our savings decisions. Currently brokered CD 10yr are @ 3.05% and would allow some inflation protection. W/SS, we look very, very good unless something really bad should happen. Without SS, we would be living how we are currently which is comfortable. With the current markets, would it be best to wait a bit to see if interest rates ever rise? Would the rise be so slow it wouldn't make much of a difference anyway? Any other suggestions appreciated. IF, there were a BIG correction, we may be brave enough to put in around 10% possibly.

I will actually answer the questions you posed... which so far I do not see one... useful advice, but not answers.... and as always this is just my opinion...

Your first question has a false part to it... interest rates WILL rise.... the question is when... some people have been waiting years now.... it is up to you to weigh current interest on long CDs vs lower rates on shorter periods where you have an opportunity to invest at higher rates sooner if they go up enough...

The rise will probably be slow... but when you talk 10 years then that goes out the door... it will matter if rates go up 3 to 5% in the next 5 years... it is not a stretch to think rates could be 3% higher in 5 years...

I would suggest some allocation of stock no matter what... 10% seems low, maybe 20%.... you could have any dividends and cap gain distributions moved to your cash account and draw less on your CDs....
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Old 05-19-2015, 04:42 PM   #14
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Slave has mentioned some big key buzz words.... Mattress, cant stomach markets (while near all-time highs), fretting, we look very, very good financially, BIG correction may get you back in at 10%.
The fellow posters advise is all very sound and good. But it means nothing if you are the type that doesn't want to see visible loss of principle, and do not want to lose physical control of your money through an insurance annuity.
You have apparently made a successful journey to retirement following your own path. Maybe the best thing is to continue on it. You can always ladder your CDs with 1,3,5,7, and 10 year CDs and shove 10% back in the mattress for that BIG correction that may/may not occur. And be honest here Slave, you wont do it then either because of fear it may go down further still.
My best friends father is a relatively well off retired farmer with everything paid off. He just complains about the rates and continues to roll the CDs over. The thought of him squeezing an extra percent out with an online account is never going to happen either. He will be more than fine until the day he dies even if rates go negative. As recently as late last summer 10 CDs were in 3.4% range so some movement could go in your favor. Good luck!


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Old 05-19-2015, 05:33 PM   #15
Confused about dryer sheets
 
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Thank you for the replies. Currently we are comfortable with proven yrs of actual monetary need and are having a hard time chancing that. Inflation effects on your $ keeps nagging at us. We do have heirs. Fair chance that we will be able to live off interest. Not a big deal but would feel good to leave them something. As hard as it was, can't see it getting any easier for the next generation. I will check into this Wellesley/Wellington as I'm unfamiliar with it. Customer reviews weren't great for online cd's. Another bad on the brokered is that there is no compounding interest. I'm lost with these market highs but the feds not having confidence enough to raise the rates sure makes one apprehensive. I still have much to learn.


What is PFF, MO or BTI? I also have to read more on TIPS.
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Old 05-19-2015, 05:43 PM   #16
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What is PFF, MO or BTI? I also have to read more on TIPS.
PFF preferred stock index fund paying 6% dividend and other two are 2 biggest Tobacco Companies (Philip Morris and British American Tobacco) paying around 5% dividend.

I think Wellington is safer bet more diversified but provides smaller yield.

I generally like Tobacco stocks for their very reliable yield which grows at 8% a year. Just as I like boring KO ( CocaCola) for very same reason. I don't expect PM, BTI or KO to not be around in 50 years. They are safer then cash in the mattress.

Basically I tried to list some "safe" bets that generate lot of qualified (low taxed) income since you are entering retirement and income is good to have at this point in life.
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Old 05-19-2015, 06:03 PM   #17
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I personally own a bunch of preferred stock ( mostly utility preferred, not the bank ones that are the majority of PFF), but you really have to understand what you are buying. Overgeneralized they are no maturity "bonds". So this means you have to ask yourself are you comfortable earning 6% while the stock value of principle drops 20-25% if yields go up? This could happen to PFF or individual preferreds. These are not hold to maturity and get my money back things as they are still stocks and have no maturities.
Concerning the brokered CDs and lack of compounding...the interest is deposited into your cash account instead of rolling over back into the CD. If you were planning on "living off the interest" the fact it doesn't compound is immaterial.


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Old 05-19-2015, 06:08 PM   #18
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I personally own a bunch of preferred stock ( mostly utility preferred, not the bank ones that are the majority of PFF), but you really have to understand what you are buying. Overgeneralized they are no maturity "bonds". So this means you have to ask yourself are you comfortable earning 6% while the stock value of principle drops 20-25% if yields go up? This could happen to PFF or individual preferreds. These are not hold to maturity and get my money back things as they are still stocks and have no maturities.
Concerning the brokered CDs and lack of compounding...the interest is deposited into your cash account instead of rolling over back into the CD. If you were planning on "living off the interest" the fact it doesn't compound is immaterial.


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Yes they are subject to risk of rising rates. In such environment they will be punished just like Bonds.

But 6% qualified dividend yield is not too shabby in current environment.
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Old 05-19-2015, 06:18 PM   #19
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I believe PFF is 66.6% qualified preferred dividends.
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Old 05-19-2015, 06:21 PM   #20
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or you could just get real bonds w/ coupons
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