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Old 01-05-2011, 07:44 PM   #21
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Hello ARB57 - I would also think of annuitizing some of my savings, especially when the CDs expire.
ARB, before you head down this road, you need to do a lot of homework. This insurance product could work great for you or it could be something you really regret buying. Most annuities are a lot like the lyrics in the song Hotel California, "You can check out any time you want, but you can never leave."
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Old 01-05-2011, 07:52 PM   #22
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Darn! I have been waiting patiently for this...

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Old 01-05-2011, 09:19 PM   #23
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ARB, before you head down this road, you need to do a lot of homework. This insurance product could work great for you or it could be something you really regret buying. Most annuities are a lot like the lyrics in the song Hotel California, "You can check out any time you want, but you can never leave."
I am very wary of annuities. I can't really explain it but I am. Every time I hear a presentation I feel like there are a lot of "gotcha's". One is the $12K commission the broker got for selling a $100K annuity to my SO (against my advice). There's a lot of motivation to sell annuities.

I used to be in the biz - selling financial planning, mutual funds, etc. for a couple of years (commission sales was just NOT for me). It was so long ago that I've forgotten most of what I knew then. But I have heard at least one annuity presentation lately (thanks to SO's interest...).

If it smells bad, it probably is. Just my two cents on annuities. I like control of my money.

I wish I could find a nice high-yielding product with no risk whatsoever to recommend!
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Old 01-05-2011, 09:53 PM   #24
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Well if you were me, you'd probably be at an 80/20 allocation at your age.

If I try to put myself into your shoes, where I intellectually realize that I need to be more aggressive in my asset allocation to meet my needs, I think I would do it gradually and see how it felt for a while before tweaking it further.

In other words, if I were currently at a 0% equity allocation and Firecalc runs suggested that 40% was something more what I needed, I wouldn't go there right away. I might shift to 10% or 20% equities for a while and confirm that I was OK with that before shifting further.

The reason I say this is that many folks shift their allocations too aggressively and then, when things get volatile, shift their allocations conservatively again rather rapidly. This is a pretty good way to lose money.

I like Vanguard, so what you might do is look at some of their moderate risk funds (balanced funds, target retirement funds, etc.) and pick one of them.

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Old 01-05-2011, 10:17 PM   #25
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I'm gonna come at this at a totally different angle, if you don't mind.

IF IT WERE ME, here is what my thought process would be:

It's much easier to control income and expenses than it is to control investing results. For income, I would be looking for some sort of PT w*rk, but that would be after trying to get my expenses down. After you run the numbers through FIRECALC, see how much you have to spend (with a near 100% "safe" withdrawal rate) and then adjust your spending accordingly. It may not be all that much fun, but it can be very effective. You may not be able to control your health care expenses much, but there are many, many ways to cut expenses.

Are you willing to move (maybe even to another state) to avoid going back to w*rk?

Are you willing to move to a smaller place?

Could you cut back on (just a for instance) cable TV?

I could go on, but the point is, if someone put a gun to your head and said, you must cut your expenses - or else - I'll bet you could do it. It wouldn't be fun, but you could find ways and I'll bet they would occur to you in rapid-fire succession given the "or else" situation. Well, your "or else" here, fortunately, is not a gun to the head, but whether you have to go to w*rk! I consider that a much better "threat" to have pointed at your head.

At some point, you need to decided what you want. Do you want to be retired or do you want to spend more money. Many here have decided that they want to be retired and they will make the sacrifices (such as lower spending) to make it work. Honestly, I don't consider your proposed level of spending "outrageous". It's just that FIRECALC will tell you it's not a very safe level of withdrawal. You need to either become comfortable with more equities or find a way to limit your withdrawals.

None of this is "advice" on my part. I went through this decision making process myself and came out on the side of retiring (and no PT w*rk) but limiting my withdrawal to significantly less than 4%. The downside is that I can't spend as much as I might like. Only you can decided what works for you. Fortunately, we have some good estimating tools at our disposal to play "what if" games. Play the games for a while and then see what YOU are comfortable with - that would be my "advice" at this point.

Best of luck. One thing for certain: You have a "problem" that many would envy. I hope you can step back and look at it that way from time to time. I know it doesn't change your situation but I'm guessing you will be even more thankful that you have as many choices as you have.

Oh, and don't forget, YMMV.
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Old 01-05-2011, 11:09 PM   #26
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...(snip)... That's going to mean some equity exposure (probably Vanguard Index funds.) I see interest rates rising down the line...but not anytime soon.
...
You've forgotten that rates have been rising. See this chart of the 5yr Treasury:





Nobody can tell us whether they are going up or coming down in the future. But we all have opinions and that's what makes the market.
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Old 01-06-2011, 10:49 PM   #27
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Once you reach 62, your social security benefits becomes a possibility -- I'm assuming that'll bring in an extra 20K to 35K per year (before tax while you are not at full retirement age). So your 66K requirement before retirement becomes more like 31K to 36K per year requirement (roughly), or 2.3-2.7% withdrawl per year. With your $1,360,000 total, it should be enough to invest in 2-3% intermediate/long term general obligation municipal bond (for your taxable money) and 3-5% corporate bonds (for your IRA's). Taking unnecessary risks means reducing your financial security that you already have. I think you need to be patting yourself on the back, buy what you are convinced are safe enough bond securities, and then kick back and relax.

Using FireCalc, and setting your "Years" to 40 (since you're 55, and 95 is possible), a 4% withdrawl would result in "86% success" or 14% chance of running out of money early. 3.5% withdrawl still gets you 3% chance of failure. Can you imagine 3 out of 100 people like you running out of money? 3% withdrawl gets you "100% success" so I would keep that in mind.

Now, what I would do with that money: If I were in your place, I would not blindly put money in 'balanced funds' that random index fund managers run. There's no assurance that equities will outperform bonds. (in fact, I am expecting the overall stock market to be volatile and relatively flat compared with the last twenty years).

I selectively choose what I judge (via stock screening -> financial statements -> annual reports) to be good companies, and invest in them whenever I find a "low risk high return" opportunity. It's pretty rare, but maybe twice or three times a year, I feel confident enough to put in a big chunk of my money. And those beef up my returns. I believe Warren Buffett in his private partnership days was doing the same thing, probably with similar success (although I only have a three year track record).

But then, my opinion is that you don't need to take the additional risk, nor should you. The only thing you want to watch out for is if inflation gets out of control. If you want to hedge against that, you can consider commodities like agricultural goods (oil and gold tend to be too speculative).
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Old 01-08-2011, 04:28 AM   #28
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Hello Thinker25

Why would you be "very wary" of annuities ? Like many on this website I am very conservative about my finances and for some reason not too concerned about annuities, especially when it is possible to ladder them.

I just found this thread :

Bogleheads :: View topic - What percentage of your assets to annuitize?

I did not know annuities are insured up to $300,000 in most states...


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I am very wary of annuities.
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Old 01-08-2011, 07:52 AM   #29
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Hello Thinker25

Why would you be "very wary" of annuities ? Like many on this website I am very conservative about my finances and for some reason not too concerned about annuities, especially when it is possible to ladder them.

I just found this thread :

Bogleheads :: View topic - What percentage of your assets to annuitize?

I did not know annuities are insured up to $300,000 in most states...
I think it is not completely clear that this is true.

State Guarantee Funds

I would need some help in interpreting the labels on this chart.

Ha
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Old 01-08-2011, 11:31 AM   #30
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Arb, I would keep the 401k's. They are safe from lawsuits since Erisa law protects them. IRA's are less safe from lawsuits.
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Old 01-08-2011, 11:35 AM   #31
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The world's smallest pension (about $160 a month...began receiving payments a few months ago.)
Second smallest. My mom gets a pension from K-Mart for $103 a month...

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Arb, I would keep the 401k's. They are safe from lawsuits since Erisa law protects them. IRA's are less safe from lawsuits.
Depends on the state, but mostly true. Here in Texas (as well as Florida and Oklahoma among perhaps others), IRAs are generally judgment-proof as well, as are homesteaded personal residences and insurance contracts.
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Old 01-08-2011, 12:04 PM   #32
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Hello Thinker25

Why would you be "very wary" of annuities ? Like many on this website I am very conservative about my finances and for some reason not too concerned about annuities, especially when it is possible to ladder them.

I just found this thread :

Bogleheads :: View topic - What percentage of your assets to annuitize?

I did not know annuities are insured up to $300,000 in most states...
I'd need to research, sorry. You'll have to read up on them and be careful. I know I saw flaws in the logic on the presentation I saw recently but it was a couple of months ago and I can't quote it any more. There are huge commissions that you don't see, so how are they making enough money - in this market - to pay out a huge % return?

If the broker in my example makes $12K on $100K annuity - 12% - how does the company earn enough on what's left to pay out a large return on $100K? It creeps me out to think of how that would be - and I can't see how it would be through safe, conservative underlying investments which is what you are comfortable with.

My stock broker feels strongly about not selling annuities. He's independent (and ethical - it can happen) and he could sell them but hasn't found one that he's comfortable with. When my SO bought the one I referenced above, my stockbroker said things like "he's so conservative in his investing, and he puts 100K into THIS?"

Investing is tricky; investing conservatively requires much more money than less conservatively. I am not risk-averse and I know that - but my investments are doing extremely well. I've spent a lot of time figuring out what works for me. You have to figure out what works for you. I'm am not implying that the conservative investors here are wrong - they are doing what works for them. But it's not for me.
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Old 01-09-2011, 09:50 AM   #33
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ARB52...I am also 55 and also have a fair amount in CD's and MM...currently probably 70%. I cashed out of the stock market before the meltdown to the 6500 mark moving everything around to make certain I was FDIC covered. A comfortable place to be for about 1 year or so. Knowing this would not cut it over the next 30 years or so..I started dipping my toe(money) back into the stock market. Total liquid net worth is around the 1.2M mark.

Currently have 38% with a broker investing in the stock/bond market. This is mostly my IRA and deferred taxation accounts. Although 25% of this is also taxable account as CD rates are too low right now.
Have 7% or so in a Scottrade account. Here I can control the investments easier...cashing in and out of stocks.
Have roughly 55% in CDS's. As they come due will make the decision of where to put the money.
Technically only about 20% to 25% of my liquid assets are in tax deferred status...which means roughly 80% is already net tax....which means I can pull it out without having to pay tax on it. As I told a broker one time....my 1 million net tax is like someone elses 1.3m to 1.4m deferred money. Or at least in my mind it is.
But back to your question.
I decided...I needed to break my money into buckets...for the different retirement stages. The money in the market is there for long term growth...which I may or may not ever touch. So 20% to 30% for long term growth.
I calculated an amount I would need to live comfortably for 10 years. This money is not going into the market. At least not right now..but that is subject to change ..depending. Currently this is in CD's and MM's. Also currently I could live for 20 years with what is in the CD's....so as they come due....I will probably route some of it back into the market.
Regarding annuities..specifically immediate income annuities (forget variables), I have considered it at age 59 which is when I will technically retire. However I keep asking myself this one question...."Why can't I annuitize myself". I can pay myself a check out of my own money ....just as the annuity company is going to do. So why give it to them...as I then loose control over the money?" Once given to the annuity company it is gone...and is really only a data field on a report subject to their terms and conditions. Because I have yet to find an answer to that question...both from myself and the annuity company...I have not pulled the trigger on any annuity.
So...to answer your question...only you can decide what is best for you. My liquid net worth grew 14% this year. I could not have achieved this had I been all in fixed income. Good luck to you.
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Old 01-09-2011, 03:59 PM   #34
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I am turning 55 in a few months and share some of your concerns. Since you evidently have been very conservative up to this point I believe it would be difficult to change dramatically now. If you don't have estate considerations or other family issues it is clear that a reasonable income stream would be your objective. What I would do really isn't relevant. You need to find your way with an appropriate plan for you. Maybe a little young for annuities -I don't know. Explore various options - interest and dividend, total return etc. Only you can determine the best route.
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Old 01-09-2011, 08:24 PM   #35
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I played with your numbers in Firecalc and with 35 years and withdrawing $60k a year with 25% equities it comes out pretty good --- if you get $21k a year SS. Of course I don't know what you get so that could cause a lot of variability.
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