Income Planning Services

[Traveler]

I have many of my investments with Fidelity and have been pretty happy with the company. I recently filled out its comprehensive retirement income planning booklet where I projected all expenses (and then some) for my retirement which will begin at age 49 next spring.

Based on the value of my current investments, and then taking into account my projected expenses, inflation, one-time expenditures (such as a new car paid for in cash every ten years), and a few "extras", the Fidelity rep said I'd have no problem surviving well in the non-working world for the next forty years. This based on a withdrawal rate of from 1.9% to 4.5% per annum. It is also recommended that I take a more conservative approach in my portfolio and weigh it heavily in bonds (recommendation: 20% domestic equities, 50% bonds, 30% cash/short term).

My question: has anyone else used this service through Fidelity and what did you think? Just looking for feedback if you've used this ("free") service.

Trav,

Most folks here do their own financial planning, including me, may not find many here using that service.

BTW - What real rate of return (above inflation) was the planner projecting for you?

[Peter]

Quote:

This based on a withdrawal rate of from 1.9% to 4.5% per annum.

Traveler, I've also been quite satisfied with Fidelity, atlhough their charges are a bit higher than the equivalent Vanguard funds.

The quoted withdrawal rate range is quite large. Was the planner suggesting variable withdrawals based on some formula? If so, I'd be interested to hear what they were recommending.

Peter

[Roger_R]

I am probably less experienced than others here, but would at least add that if you are projecting a withdrawal rate of 1.9%, you could probably pick up TIPS for the next ten years or so and end up with a better return and still have your original investment preserved and adjusted for inflation. With the new 20 year TIPS you could probably do better and no equity risk.

[intercst]

Quote:

I am probably less experienced than others here, but would at least add that if you are projecting a withdrawal rate of 1.9%, you could probably pick up TIPS for the next ten years or so and end up with a better return and still have your original investment preserved and adjusted for inflation. *With the new 20 year TIPS you could probably do better and no equity risk.

What if your living expenses increase more than the rate of inflation?

I've been retired for ten years and my health insurance premiums have more than tripled while the CPI has only increased by 25%.

intercst

[db]

Quote:

\It is also recommended that I take a more conservative approach in my portfolio and weigh it heavily in bonds (recommendation: 20% domestic equities, 50% bonds, 30% cash/short term).

Doesn't that allocation seem a bit too conservative for a portfolio designed to survive 40 years of inflation? Even if you followed the 100 or 110 minus your age advice, that would put you 50% to 60% in equities. I prefer putting 10 to 15 years of future draw in fixed income securities, leaving the remainder in equities.

db

[db]

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I prefer putting 10 to 15 years of future draw in fixed income securities, leaving the remainder in equities.

To determine future draw, I subtract any other future souce of income (i.e. social security, pension, etc.) from my income requirement. The difference is the amount I would need to draw.

I prefer to keep 10 - 15 years of draw in fixed income securities, but 7 - 10 may be sufficient to ensure that you are unlikely to need to sell equities during a bear market.

db

[Pennhaven]

Quote:

Doesn't that allocation seem a bit too conservative for a portfolio designed to survive 40 years of inflation?

A bit? In my opinion it is extremely conservative for someone only 49 years old. I am a Fidelity customer too, but I have found that their advisers are programmed to err on the conservative side. Of course the advice is supposed to take into account the client's individual risk tolerance. Still it seems that Fidelity does not ever want to be accused of encouraging a client to take on too much risk. The problem is that this approach really limits upside opportunity as well as inflaction protection.

Fidelity's own guru extraordinaire Peter Lynch once wrote an article expounding a philosophy that a long term investor should be 100% in equities, as bonds were clearly a inferior in the long term. My own philosphy is a variation on this based on a column by Jonathan Clements in the Wall Street Journal about ten years ago. The strategy in this article is to be predominately invested in equities but have a cushion of bonds/cash that can be drawn down for retirement income during downturns in the equity market.

I am 52 and have only about 13% in cash and fixed income investments. This amounts about 5 years of draw down at my current rate (more years if times get bad and I cut discretionary spending). I plan to increment the fixed income portfolio target by about 2% pts per year. ie., I will be 70 before 50% of my portfolio is in fixed income and only 50% in equities.

[mickeyd]

A 20/50/30 investment mix may work for an investor in his 80's but not for someone below age 50. Way too conservative, but if it helps you sleep at night...

A 60/40 mix seems more appropriate but would not argue too much with at least a 50/50 mix.

[cute fuzzy bunny]

A lot of guru's (and crackpots) are predicting lower stock returns. Some are saying bond returns will make a comeback vs stocks. Many note the weak dividends stocks are paying.

I have to admit having looked with interest (cough) at some of the intermediate and long term california muni funds paying 4% and up tax free, the higher credit quality high yield bond funds paying 7% and up, and so forth.

I wont touch any of them until we're over 2% interest rates, and preferably 2.5. But they're going to get very appealing to me right about then.

I dont think he mentioned the size of his portfolio. If he's got 2-3M this might be a perfect allocation, and a 1.9-4% withdrawal sustainable and pretty comfortable.