Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Old 02-08-2015, 01:26 PM   #21
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
audreyh1's Avatar
 
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 16,469
Quote:
Originally Posted by bad_LNIP View Post
- SPIAs but again given the current interest rates, the payouts are so low they do not seem to make sense
- rental properties is an option though I'd prefer a more passive way to generate income
- that leaves dividends from stocks and bonds as the primary option right now

I'd suggest a hedged portfolio of closed end funds. Should be able to generate 7-9% annualized distributions. No way I would do real estate.
This is something only appropriate for a fairly experienced investor, IMO. Closed end funds (CEFs) can be frighteningly volatile.
__________________

__________________
Well, I thought I was retired. But it seems that now I'm working as a travel agent instead!
audreyh1 is online now   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 02-08-2015, 01:44 PM   #22
Recycles dryer sheets
 
Join Date: Jan 2013
Posts: 69
Quote:
Originally Posted by audreyh1 View Post
This is something only appropriate for a fairly experienced investor, IMO. Closed end funds (CEFs) can be frighteningly volatile.
+1 IMO the post audreyh1 is responding to is an excellent illustration of how not having a "total returns" approach can lead you astray.

Choosing riskier (or less understood) instruments just in order to get your returns labelled "distributions" so you can feel comfortable spending them is counterproductive, again IMO.

If you're willing to get an SPIA, you're willing to spend down principal. What's the difference between doing so in the form of the SPIA and doing so in a DIY way from your portfolio? (And btw, even with a "total returns" approach your conservative spending should keep your withdrawals small enough that the nominal value of your portfolio will be increasing, so you won't have to contend with the psychological impact of a shrinking balance)
__________________

__________________
ulrichw is offline   Reply With Quote
Old 02-08-2015, 01:54 PM   #23
Thinks s/he gets paid by the post
 
Join Date: Oct 2006
Posts: 3,820
Quote:
Originally Posted by carioca View Post
Thanks everyone for all the replies.

I guess my main concern is more a psychological one, ie. how to deal with a situation where I'd be using money while no longer earning a paycheck.
I can talk about this.

Most people here look at your $2.35 million portfolio, and your $60k target, and do the math: 60,000 / 2,350,000 = 2.6%. They see that number and think "no problem".

But, if your tax preferred funds are invested like your taxable, you are unlikely to generate inflation + 2.6%. This means the real purchasing power of your assets will shrink for the first 14 years of retirement.

For me, that's a bigger psychological problem than the lack of a regular paycheck. I'm not just spending investment gains, I'm spending the principal that I spent all those years accumulating.

I was in that position when I retired, and I just had to get over it. One thing that helped me was a spreadsheet with 40 rows that showed I'd still have "enough" left when I died, even if I spent "a lot" in the first decade.

Once I believed that I could spend my target amount each year, even if I invaded principal, it became easier to just make the withdrawals. Those withdrawals are lumpy, because real expenses are lumpy. But if my year-end summary says I'm still on track, the psychology is okay.
__________________
Independent is offline   Reply With Quote
Old 02-08-2015, 02:03 PM   #24
Thinks s/he gets paid by the post
 
Join Date: Mar 2011
Posts: 3,702
Quote:
Originally Posted by Independent View Post

But, if your tax preferred funds are invested like your taxable, you are unlikely to generate inflation + 2.6%.
Can you expand on this statement? I'm not sure I see why they'd be different.
__________________
Living well is the best revenge!
Retired @ 52 in 2005
marko is online now   Reply With Quote
Old 02-08-2015, 02:43 PM   #25
Thinks s/he gets paid by the post
 
Join Date: Feb 2007
Posts: 1,905
I understand the psychological draw of "getting a regular paycheck" as I largely fall into that camp. Although I intellectually understand that the total return approach will result in larger income and probably a larger estate over a long retirement, it still felt uncomfortable to draw down principal.

What I ended up doing was to largely tilt my taxable account to value funds (both index and actively managed) and to take SS early at age 62. I find that with a portfolio and expenses roughly in a similar ballpark to the OP's enough income is generated from dividends and cap gains + early SS to tide one over nicely until RMDs start.

For example, out of 1,750,000 in taxable lets say 250,000 is left in cash as a "comfort buffer" of the remaining $1.5 m, 50% is invested in Vanguard High Yield Dividend Index fund - 3% dividend = $22,500 a year. The other 50% into Wellington and or Wellesley which has a dividend of about 2% and averages about the same in Cap Gains distributed each year but call it an average 4% = $30,000 this would be a total of $52.5 per year as "paycheck" distributions. The balance for the 7 years from age 55 to early SS at 62 could come from a slow draw of the cash buffer or actually most of the shortage would be covered if the cash buffer is invested in 5 year CD's.

This is only one example of many possible ones. The total return adherents would point out that this does not maximize the portfolio potential and they be right. Also, this approach does not protect against a myriad of potential gotcha's i.e limited international exposure, no exposure to small cap stocks, potential asteroid strikes, etc etc.
__________________
ejman is online now   Reply With Quote
Old 02-08-2015, 02:55 PM   #26
Thinks s/he gets paid by the post
 
Join Date: Oct 2006
Posts: 3,820
Quote:
Originally Posted by marko View Post
Can you expand on this statement? I'm not sure I see why they'd be different.
Do you mean "I'm not sure why the Asset Allocation in the 401k/IRA would be different from the AA in the brokerage accounts"?

Maybe something involving funds available in the 401k, some notions of tax efficiency, or just history and inertia?

Mostly, I didn't want to presume things that the poster already knows.
__________________
Independent is offline   Reply With Quote
Old 02-08-2015, 03:02 PM   #27
Thinks s/he gets paid by the post
 
Join Date: Mar 2011
Posts: 3,702
Quote:
Originally Posted by Independent View Post
Do you mean "I'm not sure why the Asset Allocation in the 401k/IRA would be different from the AA in the brokerage accounts"?

Maybe something involving funds available in the 401k, some notions of tax efficiency, or just history and inertia?

Mostly, I didn't want to presume things that the poster already knows.
Oh...from this question, I think you meant that the AA is/should be different in an IRA.

I was wondering if you meant that due to the tax free nature more risk could be assigned?
__________________
Living well is the best revenge!
Retired @ 52 in 2005
marko is online now   Reply With Quote
Old 02-08-2015, 03:07 PM   #28
Recycles dryer sheets
 
Join Date: Nov 2013
Posts: 103
I don't know what cefs you have in mind but mine are pretty boring. I guess the hedged portfolio concept just flew over everyone's head...

Sent from my XT1049 using Early Retirement Forum mobile app
__________________
bad_LNIP is offline   Reply With Quote
Old 02-08-2015, 03:58 PM   #29
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
clifp's Avatar
 
Join Date: Oct 2006
Posts: 7,450
It sounds like this is more of psychological issue than a financial issue.
I will say it was a real issue for me, since the 4% SWR for 30 year, wasn't particularly reassuring to a 40 year old retiree like myself back in 2000. Even though I had a bit more money and very similar spending to yourself.

It took me a few years of flailing during the bear market of 2000-2002 before I finally hit upon dividend and interest income as the paycheck replacement for me.

There are ongoing debates on the forum on the wisdom of dividend vs total return. I am of the opinion that it generate similar returns, with less volatility. Other believe in the efficient market hypothesis and I think I am kidding myself. But one thing dividend/income investing absolutely does better is act as a paycheck replacement.

I have a mix of individual stocks (not really recommended), bonds and ETFs typically about 40 in all. I have a spreadsheet with either their currently quarterly dividend/interest payment in the case of individual stocks/ bonds or last 12 months distribution in the case of ETF/funds. The total income the portfolio generate acts as floor for my target spending for the year. I know I can't run out of money if spend that amount.

I update the spreadsheet several times a year, with 40 ETFs/stocks/MLPs, most of whom raise dividends annually and some more often, I am always getting a raise. While individual raises are small typically $50-$100/year cumulatively they added up to several thousands a year. In fact they are even better than a raises you get while working cause you don't have to sit through the performance evaluations to get them.

Except for 2009 my income has always increased. In fact if you look at the S&P dividend distribution for the last 100 years there have been only 9 years where they have decreased by more than small (~1%) amount the last one being in 2009. I also allow myself to dip into the principal by a small amount 1% in some years like 2009,and recently to do home remodeling. A 1% reduction in principal also makes it hard to run out of money.

Two other advantages of this approach. First, is your find yourself not stressing over the market fluctuation,since you are really concerned about the income these assets produced, and not what the manic-depressive Mr. Market seems to think this assets are worth this millisecond.

Second, you will find yourself a lot less likely to have a large cash position. Even with 2.3 million assets and modest goal of $60,000 in income. You will find it difficult to generate $60,000 in income when you have $700,000 sitting around in cash earning virtually nothing.
Now whether you stick the 700K in Total stock market (VTI) generating $12,600 worth of income a year (but with higher growth potential) in Vanguard Total Bond Market (BND) generating $17,200, or Vanguard Wellseley making $22,400 is up to your risk tolerance. But in the long run, I am pretty sure you'll be better off having your money work hard for you rather trying to outsmart the Wall St types and guess when the Fed will raise interest rates, or the market will correct.
__________________
clifp is offline   Reply With Quote
Old 02-08-2015, 04:32 PM   #30
Recycles dryer sheets
 
Join Date: Nov 2013
Posts: 103
But one thing dividend/income investing absolutely does better is act as a paycheck replacement.

This

The total income the portfolio generate acts as floor for my target spending for the year. I know I can't run out of money if spend that amount.


This


Two other advantages of this approach. First, is your find yourself not stressing over the market fluctuation,since you are really concerned about the income these assets produced, and not what the manic-depressive Mr. Market seems to think this assets are worth this millisecond.

La verdad
__________________
bad_LNIP is offline   Reply With Quote
Old 02-08-2015, 07:41 PM   #31
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
haha's Avatar
 
Join Date: Apr 2003
Location: Hooverville
Posts: 22,384
Quote:
Originally Posted by bad_LNIP View Post
I don't know what cefs you have in mind but mine are pretty boring. I guess the hedged portfolio concept just flew over everyone's head...

Sent from my XT1049 using Early Retirement Forum mobile app
Well perhaps you should explain it. Hedging can mean almost anything, what does it mean to you in the context that you presented it, CEFs?

Ha
__________________
"As a general rule, the more dangerous or inappropriate a conversation, the more interesting it is."-Scott Adams
haha is offline   Reply With Quote
Old 02-08-2015, 08:04 PM   #32
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Vermont & Sarasota, FL
Posts: 16,424
WADR, you may be over-thinking this and fretting too much. $60k/$2.35m is only a 2.6% withdrawal rate which is very conservative so you should have no need to worry about running out of money. In bad years you might spend some principal but that is ok because there will be years where returns will exceed withdrawals and those will make up for the bad years.

Or another way, if you put aside $900k of your $2.35m and invest it so it earns just the inflation rate (0% real return) that will provide for your $60k a year living expenses for ages 55-70. From 70 on you only need $25k/year after SS and the remaining $1.45m would last you 58 years, until you are 128 years old if that stash earns only a 0% real return. You have plenty.

Since you seem quite hesitant, I think your best bet might be to put your taxable into Wellesley (VWIAX, 2.39% yield as of 2/6/2015, 7.35% 10 year return as of 1/31/2015) or something like that, set up your periodic "paycheck" as an automatic withdrawal and go enjoy your retirement.

Many of us had our retirement savings on a set it and forget it mode (other than occasional rebalancing) and a similar approach can be used in the withdrawal phase.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.
pb4uski is offline   Reply With Quote
Old 02-09-2015, 07:38 PM   #33
Thinks s/he gets paid by the post
 
Join Date: Oct 2006
Posts: 3,820
Quote:
Originally Posted by marko View Post
Oh...from this question, I think you meant that the AA is/should be different in an IRA.

I was wondering if you meant that due to the tax free nature more risk could be assigned?
I don't know about different risks.

There's some thought that you keep stocks in your taxable account to take advantage of the favorable cap gains tax treatment, while keeping bonds in the tax sheltered because interest is ordinary income.

I really wasn't going there with the comment.
__________________
Independent is offline   Reply With Quote
Old 02-09-2015, 07:42 PM   #34
Thinks s/he gets paid by the post
 
Join Date: Oct 2006
Posts: 3,820
Quote:
Originally Posted by clifp View Post
In fact they are even better than a raises you get while working cause you don't have to sit through the performance evaluations to get them.
+1
__________________
Independent is offline   Reply With Quote
Old 02-10-2015, 04:16 AM   #35
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jul 2005
Posts: 5,412
allocations and income streams are of particular interest to me and one i spent alot of time thinking about .

the one area few give thought to if married is there is a very big difference generally between how men arrive at their income stream and how most women want to especially as a single woman or widow.

it is something i call the wife factor!

structuring for income is not only going to be a personal thing unique to you but the amount of descretionary spending in your budget is a big factor as well as who are you investing for.

pulling a little draw and aiming to leave heirs a pile of money is different than investing more for yourself and a life time of income .


the less descretionary spending you have the less you should be in equities. with little area to cut spending from in downturns if need be , you can do more harm than good. if everything is a need and not a want. if you have mostley needs and very little wants in the budget i suggest avoiding the volatility and risk of equity investing if that is ones case..

you can't pay 1/2 the rent if markets fall 40% and stay down for years.

ironically it is those who need the boost the most who should do it the least in my opinion.

the more descretionary spending in the budget the more aggressive someone can be and that goes for men too.

i would never give you personal advice but i can tell you how i intend to eventually structure with the premise my wife will outlive me.

80% of married men die married while 80% of married women die alone.

that is a huge planning factor.

while i am happy doing my own investing for all our income my wife would not be.

so with her in mind the plan is to eventually lock in all our basic spending into an spia , single premium annuity and ladder them so she gets a pay check each month and cannot

out live the income stream , a big relief for her . the spia has no extra fees ,commissions or expenses other than the stated draw rate. it is like buying a cd and annuity salesmen rarely sell them . generally you have to request the product as it is something salesmen are not interested in selling, not enough of your money goes to them..

you can check out the products at immeadiateannuity.com.

that may take 25% of assets in our case..

the rest stays invested in our income and capital preservation model portfolio which runs about 37-40% equity at the moment but i will increase that to 50/50 through retirement .

that portfolio comes from a newsletter i have been following for more than 25 years. each week fidelity insight which is the newsletter sends an e-mail as to any fund swaps to nudge the portfolio better towards the big picture.

they have a few different model portfolios to choose from.

i used to use the growth model but today have about 75% in the income and preservation model and 25% in the the growth and income model. each model holds 5 or 6 different funds, all fidelity though.

eventually it will all be just the income and preservation model for simplicity with perhaps an index fund added to beef up equites by 2% a year through my retirement making the model even more inflation proof while shielding us early on from any devastating losses.


30 seconds of reading a week and nothing else for her to worry about knowing or doing except swap a fund per instructions every so often.. .

that portfolio is used for her wants , heirs and inflation adjusting.

it is called THE LMP METHOD, LIABILITY MATCHING PORTFOLIO and is something bill bernstein recommends.


most men fail to realize while they are these experienced aggressive investors most women are not nor have an interest in it.

i married a widow who was left in that situation by her first husband.

she trusted the broker at the bank and he lost 1/2 her savings in tech and dot com funds.


as if we didn't know it ,women are different creatures than men. they think different ,have different needs ,wants and requirements.

any good financial planner will tell you:

men are more interested in growing wealth , they care about allocations ,investments , getting the biggest bang for the buck ( no pun intended),beating indexes , etc .

women clients are different as far as what brought them to that planners office and it is nothing like the mans reason. a mans reason is usually facts and figures , a womens reason is she has a story to tell. ( don't they always? ha ha ha


women have very different concerns and it is usually centered around the fact they have visions of being alone eventually and being the proverbial bag lady under the bridge after they out lived their money.

women want security , I know that because when I approach women in clubs they usually call out security ,security, ha ha ha

women live longer than men , a big point when planning but more important while 80% of all men die married ,80% of all women die alone.

I think that sentence requires reading a 2nd time as there is a huge difference in situation for a woman.

women usually don't like to take on much volatility,especially a widow who just lost a social security check or someone alone..

this is crucial stuff to think about when developing that income stream and dumping it on your spouse if you die..
__________________
mathjak107 is offline   Reply With Quote
Old 02-10-2015, 07:03 AM   #36
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
audreyh1's Avatar
 
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 16,469
That's a lot of effort to explain how women think and invest. From this board I know there are plenty of exceptions, including me.

I observe many folks on this board have spouses less interested, or less motivated, or more conservative about investing, and there are many reverse gender cases to what you have presented. So I don't think pigeon-holing investors by gender is particularly useful. Each of us know what type of investor we're married to and hopefully take that into account in designing our long-term plan.
__________________
Well, I thought I was retired. But it seems that now I'm working as a travel agent instead!
audreyh1 is online now   Reply With Quote
Old 02-10-2015, 07:09 AM   #37
Moderator
MichaelB's Avatar
 
Join Date: Jan 2008
Location: Rocky Inlets
Posts: 24,449
Quote:
Originally Posted by audreyh1 View Post
That's a lot of effort to explain how women think and invest. From this board I know there are plenty of exceptions, including me.
Agree, and my folks were the same. My father couldn't keep a quarter in his pocket if his life depended on it, and my mother's saving and investing has contributed greatly to her financial security today.
__________________
MichaelB is offline   Reply With Quote
Old 02-10-2015, 07:46 AM   #38
Moderator
rodi's Avatar
 
Join Date: Apr 2012
Location: San Diego
Posts: 8,809
Wow - stereotype much?

I'll match your broad stereotype with my personal household.
Given his druthers my husband would have 100% of our money invested in CDs earning squat.
I handle the money. Some of his IRAs are in CDs - but the vast majority of our stash are invested in the market because I don't have that mindset.
I'm a woman.

There are several male posters here who have exceptionally large cash positions. There are several female posters who've mentioned they were very aggressive in building their stash.
__________________
Retired June 2014. No longer an enginerd - now I'm just a nerd.
micro pensions 7%, rental income 18%
rodi is offline   Reply With Quote
Old 02-10-2015, 07:52 AM   #39
Moderator
MichaelB's Avatar
 
Join Date: Jan 2008
Location: Rocky Inlets
Posts: 24,449
Quote:
Originally Posted by rodi View Post

There are several male posters here who have exceptionally large cash positions. There are several female posters who've mentioned they were very aggressive in building their stash.
You know how it is, some guys are just obsessed with the size of their cash positions and how they compare with others.
__________________
MichaelB is offline   Reply With Quote
Old 02-10-2015, 08:08 AM   #40
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Vermont & Sarasota, FL
Posts: 16,424
While it may be a stereotype, it is also probably true more often than not ... the men are the ones who manage the investing and I think mathjak is wise to consider his wife's inclinations in his planning. I'm guessing that if one did a poll of forum members that a high percentage of married households would have the man managing the investing and the woman disinterested - of course there will be some exceptions... but I'm guessing 75/25 or more.

I have the same issue as mathjak in that I manage our investments and DW is quite disinterested but rather than SPIAs I had detailed instructions for DW and DS (a CPA) to follow once I'm gone that will effectively just continue what I am now doing, albeit a bit simpler.
__________________

__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.
pb4uski is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Living from Paycheck to Paycheck in America Wags Other topics 21 10-24-2007 05:13 PM
Can anyone realistically generate long-term alpha? Olav23 FIRE and Money 29 05-20-2007 10:02 AM
Just heard a statistic that 70% of America is living Paycheck to Paycheck.... Cut-Throat FIRE and Money 85 07-13-2006 09:38 PM

 

 
All times are GMT -6. The time now is 11:24 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.