Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Old 11-02-2015, 05:20 PM   #41
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
NW-Bound's Avatar
 
Join Date: Jul 2008
Posts: 19,401
I missed the fact that the pension is non-COLAed. Else, with 1% WR they can do whatever with their stash (except for handing it over to an Oppenheimer advisor as described in a concurrent thread where a $186K account got shrunken down to $20K in 3-1/2 years). If the pension were COLA'ed, they can just go 100% index stock which is paying 2% dividend. And with bonds, even if they lose a bitty bit with inflation, they would still be OK.

With a non-COLA'ed pension, there is now some inflation risk. I would suggest they make some FIRECalc runs to see for themselves.
__________________

__________________
"Old age is the most unexpected of all things that can happen to a man" -- Leon Trotsky
NW-Bound 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!

Old 11-02-2015, 05:21 PM   #42
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Mulligan's Avatar
 
Join Date: May 2009
Posts: 7,376
Quote:
Originally Posted by statsman View Post
I am starting to gather that. I am willing to accept volatility if the necessary withdrawals don't touch principal, at least until the RMDs started to kick in. But that appears to be income focused rather than total return, and most see that as additional weakness in a portfolio.


More stock than I was imagining for the taxable, but again, it's the volatility issue for us. But 2.66% yield on the total taxable would be a WR of 1.25%, enough with some room to spare.


Mine is in a tIRA. My wife's is in a 401(k) as she is still working, but she doesn't have any stable value funds.

Very good thoughtful guidance provided by many here. But keep in mind its all theoretical as anything can happen. It is easy to say, "I can handle X amount in stocks" until the first big correction occurs. Until then you really don't know. I am only saying this because your posts have been very consistently cautious and you presently don't have any money in stocks. As Danmar said you have enough money to do what you want.
Heck Vanguard today has 2.85% 10 year brokerage CDs offered that kick out interest every 6 months. There is no loss of principal with that option. This is not a recommendation just presenting a different side. All of our posts are influenced by the manner in which we invest. I doubt any here are telling you 50/50 ratios while secretly having their entire stash in a passbook savings account.
My posts are a reflection of myself too. I was a very cautious and smaller investor. That last swoon in August really pi$$ed me off. Now the amount I have in common stocks is also small compared to what I the majority of my money is in so a total stock wipeout would not have encroached on my lifestyle one bit. But still I didn't like it and I am selling the rest after January when I have room in my AGI to do it without losing a tax credit.
You have the luxury of setting up what you want in a manner that will not cause you stress. Make sure you know what that amount truly is, and not just what you would ideally think it should be.
Ok, ok! I confess... I have drank a bit of the "why fight a battle when you already have won the war" koolaide.


Sent from my iPad using Tapatalk
__________________

__________________
Mulligan is online now   Reply With Quote
Old 11-02-2015, 05:23 PM   #43
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
NW-Bound's Avatar
 
Join Date: Jul 2008
Posts: 19,401
Quote:
Originally Posted by Mulligan View Post
Ok, ok! I confess... I have drank a bit of the "why fight a battle when you already have won the war" koolaide.
As for me, even if I have won the war (and I have not), I would still want to go on to become the Emperor of the World.
__________________
"Old age is the most unexpected of all things that can happen to a man" -- Leon Trotsky
NW-Bound is offline   Reply With Quote
Old 11-02-2015, 05:28 PM   #44
Thinks s/he gets paid by the post
nun's Avatar
 
Join Date: Feb 2006
Posts: 4,835
Quote:
Originally Posted by NW-Bound View Post
I missed the fact that the pension is non-COLAed. Else, with 1% WR they can do whatever with their stash (except for handing it over to an Oppenheimer advisor as described in a concurrent thread where a $186K account got shrunken down to $20K in 3-1/2 years). If the pension were COLA'ed, they can just go 100% index stock which is paying 2% dividend. And with bonds, even if they lose a bitty bit with inflation, they would still be OK.

With a non-COLA'ed pension, there is now some inflation risk. I would suggest they make some FIRECalc runs to see for themselves.
What about the spouse taking SS at 64 instead of delaying to age 70? If the OP has enough to only require a 1% return to cover expenses it sounds like can withdraw more and delay SS....
__________________
“So we beat on, boats against the current, borne back ceaselessly into the past.”

Current AA: 65% Equity Funds / 20% Bonds / 7% Stable Value /3% Cash / 5% TIAA Traditional
Retired Mar 2014 at age 52, target WR: 0.0%,
Income from pension and rent
nun is offline   Reply With Quote
Invest for total return or for income?
Old 11-02-2015, 05:48 PM   #45
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Mulligan's Avatar
 
Join Date: May 2009
Posts: 7,376
Invest for total return or for income?

Quote:
Originally Posted by NW-Bound View Post
As for me, even if I have won the war (and I have not), I would still want to go on to become the Emperor of the World.

But, but....you are a Warrior! Some of us are sheep... Seriously though you know NW, you have been in the trenches for years and know your risk tolerance and can/will accept it.
I just get nervous for someone when they have been out of market for 8 years minimum and express reluctance for risk.


Sent from my iPad using Tapatalk
__________________
Mulligan is online now   Reply With Quote
Old 11-02-2015, 05:54 PM   #46
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
NW-Bound's Avatar
 
Join Date: Jul 2008
Posts: 19,401
True. From March 2000 to Oct 2002, I was down to 55c on the dollar. And I got it all back, then some.

Yes, I am a warrior and have plenty of scars to prove it. Have not lost any eye, ear, or limb, and trying hard to stay that way.

PS. A favorite book on investment of mine: The battle for investment survival (1955) by Gerald M. Loeb.
__________________
"Old age is the most unexpected of all things that can happen to a man" -- Leon Trotsky
NW-Bound is offline   Reply With Quote
Old 11-02-2015, 06:33 PM   #47
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: 16,410
Quote:
Originally Posted by statsman View Post
....More stock than I was imagining for the taxable, but again, it's the volatility issue for us. But 2.66% yield on the total taxable would be a WR of 1.25%, enough with some room to spare...
It doesn't matter where the stock is located in terms of volatility. It should be in taxable for tax efficiency purposes (qualified dividends and LTCGs are tax preferenced).

If stocks go up 20% or down 20% the total impact before taxes is the same whether stocks are in taxable or tax-deferred. However, in taxable the tax impact is 15% and if in tax-deferred it is 25% (or more).
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.
pb4uski is online now   Reply With Quote
Old 11-02-2015, 07:37 PM   #48
Administrator
W2R's Avatar
 
Join Date: Jan 2007
Location: New Orleans
Posts: 38,846
Quote:
Originally Posted by statsman View Post
I like this portfolio. Is the combination of Wellesley along with separate stock and bond funds something that was planned or something that was evolved to? Maybe bonds on the tax deferred accounts and the stocks in the taxable accounts? What about Wellesley as far as asset placement?
This combination of Wellesley along with index funds was my original planned post-retirement asset allocation, and something that I have not changed since I got everything in place in preparation for retirement. As I believe "nun" may have said in his post above, it is preferable to put bond funds in tax deferred for tax reasons. Wellesley is a balanced fund so it too would be better in tax deferred if you have room for it there.
__________________
Already we are boldly launched upon the deep; but soon we shall be lost in its unshored, harbourless immensities.

- - H. Melville, 1851
W2R is offline   Reply With Quote
Old 11-02-2015, 07:50 PM   #49
Recycles dryer sheets
 
Join Date: Apr 2008
Posts: 191
Quote:
Originally Posted by W2R View Post
This combination of Wellesley along with index funds was my original planned post-retirement asset allocation, and something that I have not changed since I got everything in place in preparation for retirement. It is generally considered to be preferable to put bond funds in tax deferred for tax reasons. Wellesley is a balanced fund so it too would be better in tax deferred if you have room for it there.
Our problem (and it's a nice one to have) is we have almost as much cash (47% of NW*) as we do bond funds in tax deferred (53% of NW*). We either need to put some/all of the balanced funds in our taxable (going for something more stock heavy like Wellington), go with stock index funds in the taxable, or substitute some of the bond funds in the tax deferred with munis in the taxable. I think the latter is a better bet if you're still working and want to avoid adding more income to salary.

* - Net worth not including the equity in our house
__________________
statsman is offline   Reply With Quote
Old 11-02-2015, 07:59 PM   #50
Administrator
W2R's Avatar
 
Join Date: Jan 2007
Location: New Orleans
Posts: 38,846
Quote:
Originally Posted by statsman View Post
Our problem (and it's a nice one to have) is we have almost as much cash (47% of NW*) as we do bond funds in tax deferred (53% of NW*). We either need to put some/all of the balanced funds in our taxable (going for something more stock heavy like Wellington), go with stock index funds in the taxable, or substitute some of the bond funds in the tax deferred with munis in the taxable. I think the latter is a better bet if you're still working and want to avoid adding more income to salary.

* - Net worth not including the equity in our house
That does sound like a good idea in your case, to me, although I am no investment guru. It definitely merits some thought. You might also want to discuss your retirement AA with the folks over at the Bogleheads Forum, which is a bit more investment oriented than ours and has a considerable number of experts who might give you their thoughts on your portfolio.
__________________
Already we are boldly launched upon the deep; but soon we shall be lost in its unshored, harbourless immensities.

- - H. Melville, 1851
W2R is offline   Reply With Quote
Old 11-02-2015, 07:59 PM   #51
Thinks s/he gets paid by the post
nun's Avatar
 
Join Date: Feb 2006
Posts: 4,835
Quote:
Originally Posted by statsman View Post
Our problem (and it's a nice one to have) is we have almost as much cash (47% of NW*) as we do bond funds in tax deferred (53% of NW*). We either need to put some/all of the balanced funds in our taxable (going for something more stock heavy like Wellington), go with stock index funds in the taxable, or substitute some of the bond funds in the tax deferred with munis in the taxable. I think the latter is a better bet if you're still working and want to avoid adding more income to salary.

* - Net worth not including the equity in our house
What is your net worth and how large is your pension? What annual income do you need? Those numbers will help in deciding a sensible asset allocation. You should also seriously consider deferring SS until age 70.
__________________
“So we beat on, boats against the current, borne back ceaselessly into the past.”

Current AA: 65% Equity Funds / 20% Bonds / 7% Stable Value /3% Cash / 5% TIAA Traditional
Retired Mar 2014 at age 52, target WR: 0.0%,
Income from pension and rent
nun is offline   Reply With Quote
Old 11-02-2015, 08:37 PM   #52
Dryer sheet aficionado
 
Join Date: Nov 2015
Posts: 36
Statsman I understand your dilemma. It is well & good for other posters to make suggestions for your situation. You need to keep in mind some things. Ask yourself what is your comfort level with 80/20, 20/80 or 40/60 or 60/40 percentages of your portfolio. STOP the index fund vs. balance fund et.al. Your first decision point is your percentage of equity/fixed income. If you choose 20% equity or 80% you must first be confortable with it. I found out recently that a 50/50 or 60/40 was not for me now that I’m retired. I pulled back to a 40/60 level and sleep well at night.
The next issue is how involved do want to be with day to day operations. An income or total return portfolio with the amounts that you have implied will require some management on your part. Which implies some knowledge of the market as a whole. It will also require you to be hands off or a tinker. I would think that you would rather travel with the wife or play golf.
What I’m advocating is for you to stop and think about what you want, and what you do and do not want to do with your retirement before you concern yourself with what to invest.
__________________
Bflotomny is offline   Reply With Quote
Old 11-02-2015, 09:08 PM   #53
Recycles dryer sheets
 
Join Date: Apr 2008
Posts: 191
Quote:
Originally Posted by nun View Post
What is your net worth and how large is your pension? What annual income do you need? Those numbers will help in deciding a sensible asset allocation. You should also seriously consider deferring SS until age 70.
Tax deferred accounts: $1.25M
Taxable (cash): $1.1M
Pension (me): $2,450/mo (non-COLA)
Social Security (wife@64): $2,050/mo

Income needed: $6,000-6,250/mo (pre-tax) - probably more than is needed, but better to overestimate the budget a little bit
__________________
statsman is offline   Reply With Quote
Old 11-02-2015, 09:46 PM   #54
Thinks s/he gets paid by the post
 
Join Date: Jul 2005
Posts: 3,862
I think most of our advice applies fairly well to that income and asset base. For all we knew you were dealing with a $100 portfolio and $1/year withdrawals, though that did seem unlikely.
__________________
Animorph is offline   Reply With Quote
Old 11-02-2015, 10:22 PM   #55
Recycles dryer sheets
 
Join Date: Apr 2008
Posts: 191
Quote:
Originally Posted by Animorph View Post
I think most of our advice applies fairly well to that income and asset base.
That's good to know. I debated on whether to list rough estimates for our net worth. I wasn't sure whether it was that important. For some people, the amounts listed would not be near enough for them. For others, way more than enough. It's why I initially stated the situation as a % of assets needed for income, at least at the start of retirement.
__________________
statsman is offline   Reply With Quote
Old 11-02-2015, 10:34 PM   #56
Thinks s/he gets paid by the post
nun's Avatar
 
Join Date: Feb 2006
Posts: 4,835
Quote:
Originally Posted by statsman View Post
Tax deferred accounts: $1.25M
Taxable (cash): $1.1M
Pension (me): $2,450/mo (non-COLA)
Social Security (wife@64): $2,050/mo

Income needed: $6,000-6,250/mo (pre-tax) - probably more than is needed, but better to overestimate the budget a little bit
You have ample money to delay SS until age 70 so I'd do that. Will you also be getting SS?

Now you need to invest $2.35M to produce $45.6k a year so that's a 2% return. This can easily be done with a 100% equites portfolio, but you might struggle to get that return over the next 10 years with 100% bond index funds.
Given your nervousness about the stock market I imagine you won't want to go with a really high equity percentage, but you should have some, so why not do 50% index equity fund and put the rest into a CD ladder and a short term investment grade bond fund and some TIPS.
__________________
“So we beat on, boats against the current, borne back ceaselessly into the past.”

Current AA: 65% Equity Funds / 20% Bonds / 7% Stable Value /3% Cash / 5% TIAA Traditional
Retired Mar 2014 at age 52, target WR: 0.0%,
Income from pension and rent
nun is offline   Reply With Quote
Old 11-03-2015, 12:19 AM   #57
Recycles dryer sheets
 
Join Date: Apr 2008
Posts: 191
Quote:
Originally Posted by LOL! View Post
Total return. Definitely, total return. Read this:
https://personal.vanguard.com/pdf/s557.pdf
and this
https://personal.vanguard.com/pdf/s352.pdf
I've had a chance to read the documents. It's a lot to absorb all at once, but I did have a question about the spending down philosophy. Vanguard suggests spending down the taxable accounts first before touching the tax deferred accounts (excluding any RMDs).

Let's assume at the start of retirement the tax deferred accounts are entirely in bonds and the taxable accounts are entirely in stocks, and this allocation meets your desired AA.

It would seem like there is the potential for such a portfolio to veer away from the desired AA. I guess much depends on how well the assets are performing at the time of spending down the taxable accounts first. If there were some really down years in the stock market at the beginning of retirement, you could really have your AA altered.

Which takes priority: maintaining AA throughout retirement, or optimizing asset placement according to their tax structure? In the above situation, it would appear either the AA would have to change or some assets would need to be moved to less ideal assets from a tax standpoint (or both).

Sorry for going off tangent. But in thinking about changing our AA to move forward into retirement next year, it was something that I started pondering today.
__________________
statsman is offline   Reply With Quote
Old 11-03-2015, 12:42 AM   #58
Thinks s/he gets paid by the post
nun's Avatar
 
Join Date: Feb 2006
Posts: 4,835
Yes spending form taxable is usually done first. If your AA drifts away from your ideal many people would rebalance. So if you have equities in taxable and sell some of those for income you might then buy some more equites in the tax deferred accounts to get back to your AA. Personally I am going to let my equity percentage increase over time......this is a "reverse glide path" where the percentage of equites increases as you get older. You can do this when you have matched your liabilities with safe income sources.
__________________
“So we beat on, boats against the current, borne back ceaselessly into the past.”

Current AA: 65% Equity Funds / 20% Bonds / 7% Stable Value /3% Cash / 5% TIAA Traditional
Retired Mar 2014 at age 52, target WR: 0.0%,
Income from pension and rent
nun is offline   Reply With Quote
Old 11-03-2015, 12:44 AM   #59
Thinks s/he gets paid by the post
nun's Avatar
 
Join Date: Feb 2006
Posts: 4,835
Quote:
Originally Posted by statsman View Post

Sorry for going off tangent. But in thinking about changing our AA to move forward into retirement next year, it was something that I started pondering today.
Owning only bonds and cash in a low interest rate environment is very risky, IMHO, as I don't think you'll make 2% with that portfolio.
__________________
“So we beat on, boats against the current, borne back ceaselessly into the past.”

Current AA: 65% Equity Funds / 20% Bonds / 7% Stable Value /3% Cash / 5% TIAA Traditional
Retired Mar 2014 at age 52, target WR: 0.0%,
Income from pension and rent
nun is offline   Reply With Quote
Old 11-03-2015, 01:08 AM   #60
Recycles dryer sheets
 
Join Date: Apr 2008
Posts: 191
Quote:
Originally Posted by nun View Post
Owning only bonds and cash in a low interest rate environment is very risky, IMHO, as I don't think you'll make 2% with that portfolio.
Agreed, which is why I started this thread. We are not about to keep it at 0/100, but we won't go 100/0 even if there is the belief we have the assets to do it. Some of the cash will be slotted for stocks. How much in stocks remains to be seen.

Since we are not going to approach 50/50, we will need something other than stocks in our taxable account. That's where the tax inefficiencies can kick in. If we go with the suggestion to go all Wellington in the taxable account to get to 30/70 overall, we run into the problem I alluded to in my previous post. If the need arises to have sell in the taxable account (Wellington), a 30/70 AA starts to head towards 25/75.

Having 100% bonds in the tax deferred account, while great from a tax efficiency standpoint, makes keeping whatever AA we decide on more difficult. Odds are we probably would need separate stock and bond funds in the taxable rather than something like Wellington in order to maintain this type of conservative investing. Or maybe convert some bonds to stocks in the tax deferred accounts. Still better than 0/100, right?
__________________

__________________
statsman 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
Kitces: / Managing Sequence Of Return Risk With Bucket Strategies Vs A Total Return macav933 FIRE and Money 21 12-06-2014 10:38 AM
Total Return - Capital Appreciation & Dividend/Income Midpack FIRE and Money 32 08-28-2013 10:19 PM
Poll:Income/dividend vs total return portfolio bigla FIRE and Money 16 05-20-2012 10:04 AM
Income investing and total return investing. clifp FIRE and Money 18 09-03-2011 10:17 AM
Total Bond Mkt Index vs PIMCO Total Return Inst/Stable Value Dude FIRE and Money 7 04-03-2008 01:11 AM

 

 
All times are GMT -6. The time now is 09:59 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.