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Investing after ER
Old 07-27-2015, 04:01 PM   #1
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Investing after ER

My husband and I have been talking about how to invest our money post retirement. He thinks it would be a good idea to put half of our money in some triple tax exempt muni bonds. We could collect the payment and just live off of those and never have to touch the principle. I told him I was going to ask you all "the experts" what you think of that? So fire away.....


Thanks!
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Old 07-27-2015, 04:19 PM   #2
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It depends on lots of factors, including but not limited to:

1-income tax bracket - do you need to do tax-exempt? Unless you are in a top bracket, tax exempt may not give you the best after tax return. As you may know the tax exempts have lower yields. There are calculators that will help you with this.

2-what are you doing with the other 1/2? cash, real estate, equities?

3-your time horizon. muni bonds have different durations. In this low rate environment this should be looked at closely. You should also consider the duration you want your money to last. Bonds typically have a lower overall return than equities.

4-do you follow the income approach to investing or the total return approach? clearly there can be and usually is much overlap.

If it is true that putting 1/2 your money into tax exempt muni bonds will cover 100% of your expenses while your equities are left untouched, I'd say you have a very safe plan. Surely FIRECalc will confirm this as well.

While I follow the total return approach, I would prefer never to have to sell any investment to cover my expenses. That would be as safe of a plan as one can have IMHO!
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Old 07-27-2015, 04:22 PM   #3
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Triple free implies all your muni funds put in a single state muni fund or individual bonds all from your state . That's not enough diversification IMO.
Don't let the tax tail wag the portfolio dog.
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Old 07-27-2015, 04:29 PM   #4
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Triple free implies all your muni funds put in a single state muni fund or individual bonds all from your state . That's not enough diversification IMO.
Don't let the tax tail wag the portfolio dog.
Excellent points.
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Old 07-27-2015, 04:55 PM   #5
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I would rather invest for total return with diversity for safety, which would include equities, bond funds, and other income producing investments. I don't mind touching the principle, because what I'm really doing is scraping off some of the gains and leaving a larger portfolio. A bad start would mean dipping into the original amount but as long as I stay the course it should grow back. Hearing talk about bloated state and muni pension funds and other problems make me nervous about being too heavy in tax exempt bonds in case they default.
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Old 07-27-2015, 07:33 PM   #6
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My husband and I have been talking about how to invest our money post retirement. He thinks it would be a good idea to put half of our money in some triple tax exempt muni bonds. We could collect the payment and just live off of those and never have to touch the principle. I told him I was going to ask you all "the experts" what you think of that? So fire away.....


Thanks!
The rates are so low right now you would be able to live off them? If the rates rise bonds can get killed if you need out early, be careful.

Why not touch the principal? Seems wasteful not to spend what was worked for.
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Old 07-27-2015, 07:54 PM   #7
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Inflation?

Have you hedged it with the rest of your portfolio?

(But, if 2.5% on half your portfolio covers your expenses, I suppose you can say there's no need to try to fine tune anything.)
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Old 07-27-2015, 10:08 PM   #8
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Originally Posted by Aquafit2 View Post
My husband and I have been talking about how to invest our money post retirement. He thinks it would be a good idea to put half of our money in some triple tax exempt muni bonds. We could collect the payment and just live off of those and never have to touch the principle. I told him I was going to ask you all "the experts" what you think of that? So fire away.....


Thanks!
Insufficient information, but probably not a great idea IMO. Agree with inadequate diversification. Also, most ER are in a lower tax bracket and don't need tax exempt once they stop working. What would your tax bracket be if your earnings went away?

Look at target date retirement funds consistent with your situation as a guid to a good asset allocation. Most will be 40-60% domestic and international equities and 60-40% fixed income.
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Old 07-27-2015, 10:11 PM   #9
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You need a LOT of money to live off muni bond income plus reinvest enough to keep up with inflation.
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Old 07-27-2015, 10:38 PM   #10
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What will you do if the municipality declares bankruptcy ?

Where is your money right now ? are you not in bonds already, what would you sell to buy these tax exempt things ?
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Old 07-28-2015, 03:36 AM   #11
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Originally Posted by Aquafit2 View Post
My husband and I have been talking about how to invest our money post retirement. He thinks it would be a good idea to put half of our money in some triple tax exempt muni bonds. We could collect the payment and just live off of those and never have to touch the principle. I told him I was going to ask you all "the experts" what you think of that? So fire away.....


Thanks!
what cost 5k 30 years ago now cost 15k and we had falling inflation too.

while at one time it was believed spending fell off as we aged so what we didn't buy or do paid for the increases in what we still did,.

but soaring healthcare costs have changed that pattern as healthcare increases eat up any savings by spending less.
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Old 07-28-2015, 06:40 AM   #12
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When I was still working (1990s and most of 2000s), I had a good sized amount in muni bond funds, mainly because I was in a higher tax bracket. It was the bond portion of my portfolio.


But after I ERed, I began reducing this part of my portfolio because my tax bracket dropped, opting for taxable bond funds instead. I use my remaining muni bond fund holdings (one is home-state, the other is a national fund) as second-tier emergency funds because at least they pay better than CDs and are tax-free (and they have checkwriting privileges). As a percentage of my total (including my IRA) portfolio, they represent about 6% of it all.
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Retired in late 2008 at age 45. Cashed in company stock, bought a lot of shares in a big bond fund and am living nicely off its dividends. IRA, SS, and a pension await me at age 60 and later. No kids, no debts.

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Old 07-28-2015, 07:09 PM   #13
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My advice is... Don't invest based on what you need. Live on what your investments return. Yield chasing is very dangerous because it can blind you to the risks. If something returns 7% or 10% "guaranteed" in this low interest rate environment it's either more risky (by risky I mean permanent loss of capital) or its hiding something.

Remember the rule that the market doesn't care how much you need from it

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Old 07-28-2015, 11:47 PM   #14
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Just as I suspected. You all have given me great arguments to give my husband. Hopefully he will see what you all are saying.

Thank you!
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Old 07-29-2015, 10:28 AM   #15
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Print out this page and let him read it and decide for himself.

Putting half your money in Munis is in the same league as putting half your money in APPL, i.e. not recommended!
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Old 07-29-2015, 12:01 PM   #16
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I retired unexpectedly early (at 61 instead of 65, because I got sick of the politics) so our portfolio was aggressive for the average retiree. I've decided I like it that way. (I say "I" because I manage the money, but DH is on board with it.) If your withdrawal rate is low enough (ours is typically 3% and I'm not collecting SS yet), you can withstand a drop in the market; you're not liquidating a big % of it at bargain-basement prices and the rest is left to recover. The good stuff will recover.


The other thing I've done since retirement is track our expenses carefully (there's another thread on this). It gives me comfort that our necessities (mortgage, property taxes, groceries, utilities, travel to see the grandchild, etc.) net of DH's SS and my small pension are a pretty low % of our assets so if we needed to scale back in a bad year for the market, there's plenty of wiggle room. And we'd still go see the grandchild!
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