Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Income Stream, or Income Lump
Old 07-03-2006, 07:21 AM   #1
Dryer sheet aficionado
 
Join Date: Feb 2005
Posts: 29
Income Stream, or Income Lump

Any ideas on how to create a $60,000/yr income stream or annual lump of income (pre-tax) from a $1.5mm total portfolio?

Background:
No kids, no need to leave an estate, plan on living to 95, very steady expenses of $46K over the last 10 years, but will go up a bit as we trade work expenses for more travel.

We will start in 5 years when we retire (my age 50 and wife 55), and assume our present $1.1mm portfolio has grown to $1.5mm by then. Not planning on any inheritances, but may get small windfalls here and there nonetheless.

We were thinking laddered CDs, laddered bonds, or just take the $60K from the best performing areas of our well-diversified portfolio each year (i.e., draw down the principle from the high flyers).

Looking at the entire portfolio, 75% is qualified (mostly in 403b and rollover IRA, some in Roths, $30K pension (i.e., present total worth of pension)), and 25% is non-qualified (joint mutual fund accounts, MM, savings, checking). Will plan on leaving the 403b at the University after her retirement so we can take that out without penalty at age 55 or later (402f rule). So there will be some tax noodling to do to make the best maneuvers.

Also, we will be taking SS at 62, and assume we will receive 70% of the amount they are saying we will get (so assume we will actually receive $18,000/yr total pretax). And we will still also take out the $60K from our own portfolio.

We've been told that taking dividends/interest from laddered bonds and CDs won't keep up with inflation very well, and it may be wiser to just take the principal direct from our stash.

Hope some of you have been through this tye of siphering before and can share your thoughts.

Thanks.
cfcf
__________________

__________________
cfcf is offline   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!

Re: Income Stream, or Income Lump
Old 07-03-2006, 08:11 AM   #2
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jul 2003
Location: Kansas City
Posts: 7,408
Re: Income Stream, or Income Lump

Hmmm

I play games with ORP calculator to see their withdraw sequences tax wise - changing end balance and portfolio returns.

Here - non cola pension, early SS, 75% trad IRA, 7% Roth.

I do a lump sum in Jan out of IRA, swag estimated taxes via Turbo Tax - have the money in VG Prime MM and transfer to checking to as needed. One years worth plus I have a second year as reserve - Short Term Bond Index.

About as many variations on the theme as posters to this forum.

Put me down as a 'lumper'.

heh heh heh - also play different scenarios with Firecalc - mainly with portfolio size - pay off the mortgage, sell my timberland in ten years - that sort of stuff.
__________________

__________________
unclemick is offline   Reply With Quote
Re: Income Stream, or Income Lump
Old 07-03-2006, 08:26 AM   #3
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jun 2005
Posts: 8,616
Re: Income Stream, or Income Lump

Aren't you just asking about a withdrawal strategy of your assets?* Much has been written and discussed on the subject.* Here is one such recent article on the subject:
http://www.fpanet.org/journal/articl...p0406-art6.cfm
__________________
LOL! is offline   Reply With Quote
Re: Income Stream, or Income Lump
Old 07-03-2006, 08:34 AM   #4
Moderator Emeritus
Rich_by_the_Bay's Avatar
 
Join Date: Feb 2006
Location: San Francisco
Posts: 8,827
Re: Income Stream, or Income Lump

Quote:
Originally Posted by cfcf
Any ideas on how to create a $60,000/yr income stream or annual lump of income (pre-tax) from a $1.5mm total portfolio?
Any desire to adjust for inflation? At 3-3.5%, it'll cut your purchasing power in half in about 20 yrs.

Assuming so, I think your needs are pretty standard: invest in a well diversified portfolio as discussed in many threads here; withdraw at about 4% a year or a little higher (adjusted annually for inflation), - barring catastrophe that should last forever. FIRECALC will help sort this out.

If you have a strong need for volatility buffering, a plan like Lucia's "Buckets of Money" may be appealing.
__________________
Rich
San Francisco Area
ESR'd March 2010. FIRE'd January 2011.

As if you didn't know..If the above message contains medical content, it's NOT intended as advice, and may not be accurate, applicable or sufficient. Don't rely on it for any purpose. Consult your own doctor for all medical advice.
Rich_by_the_Bay is offline   Reply With Quote
Re: Income Stream, or Income Lump
Old 07-03-2006, 10:30 AM   #5
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: 16,457
Re: Income Stream, or Income Lump

Quote:
Originally Posted by cfcf
..or just take the $60K from the best performing areas of our well-diversified portfolio each year (i.e., draw down the principle from the high flyers).
That's a good way to do it. Don't worry about "income producing" assets. Focus instead on total return and draw down from the high flyers.

A few folks keep a few years of cash available for living expenses, just so that near term market events/volatility aren't so scary. But you have to replenish these from somewhere - i.e. the "high flyers" in the portfolio. So it is basically the same withdrawal strategy - just with an extra buffer up front.

Audrey
__________________
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
Re: Income Stream, or Income Lump
Old 07-03-2006, 11:06 AM   #6
Moderator Emeritus
Nords's Avatar
 
Join Date: Dec 2002
Location: Oahu
Posts: 26,616
Re: Income Stream, or Income Lump

Quote:
Originally Posted by cfcf
We were thinking laddered CDs, laddered bonds, or just take the $60K from the best performing areas of our well-diversified portfolio each year (i.e., draw down the principle from the high flyers).
Yup. After every year that the market was up, we start the following year with two years' expenses in cash. The cash comes from selling whatever's departed the most from its asset allocation (rebalancing). If the market's down then we hang on for another year to wait for the recovery. Some advisors (Frank Armstrong) recommend 5-7 years' expenses in cash, but that pushes your cash allocation to 20-28%.

We keep one year's cash in a money market and the second years' cash in five-year CDs.

If we got into a third year (or worse) then we'd start selling the best-performing (least-losing?) investments, perhaps balanced by tax-loss harvesting to stay close to our desired asset allocation.
__________________
*
*

The book written on E-R.org, "The Military Guide to Financial Independence and Retirement", on sale now! For more info see "About Me" in my profile.
I don't spend much time here anymore, so please send me a PM. Thanks.
Nords is offline   Reply With Quote
Re: Income Stream, or Income Lump
Old 07-03-2006, 01:37 PM   #7
Dryer sheet aficionado
 
Join Date: Feb 2005
Posts: 29
Re: Income Stream, or Income Lump

Great to hear the responses on how to do this. I definitely like the apparent simplicity of "lumping" it once a year or so.

Yes, inflation should be factored into our 60K lump, but am hoping the extra SS payout at 62 will provide a nice cushion even if we stick with 60K payout from out own stash. Some of these numbers we'll just need to adjust as we get into this FIRE thing for real.

I'll also read the FP article to see what they suggest.

Thanks for the comments!
cfcf
__________________

__________________
cfcf 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
At what age will you take Social Security? retire@40 FIRE and Money 39 10-05-2006 01:58 PM
What type of income fund modhatter FIRE and Money 5 08-31-2006 03:34 AM
What is taxable income? mickeyd Other topics 21 01-29-2005 04:02 PM
FIREcalc, multiple income streams, & "residuals Cb FIRE and Money 1 09-20-2004 05:26 PM
Multiple Streams of Income hocus Young Dreamers 30 06-08-2004 09:23 PM

 

 
All times are GMT -6. The time now is 02:11 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.