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Opinion on yearly stipend?
Old 08-29-2011, 08:47 PM   #1
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Opinion on yearly stipend?

We're planning to ret. next yr. I will be 62 and DW is 60.
We manage our own finances. We have liquid asset about 4.5Mil, but
it's so diversified. The follow up is a nightmare. We intend to live on 85K/year, plus SS.

For the first yr, we think of just placing 85K in a checking account, and draw about 7K/month to start the ball rolling. I have about 1Mil in retirement fund. Should I tap this first or, just get from the cash and bonds? stocks?

I figure to simply move things easy and figure out how to apportion and adjust my assets.
Thanks for comments.
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Old 08-29-2011, 08:57 PM   #2
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Since this is the rest of your life that you are writing about, it seems like you might want to investigate this a little more fully. I suggest a few books including Otar's "Unveiling the Retirement Myth". Also check out the calculator at Optimal Retirement Calculator and Retirement Decision Support System which may be helpful in deciding how to minimize your taxes by withdrawing in a certain sequence.

However it pretty much doesn't matter what you do if you are happy to pay taxes and only need $85K a year from such a large portfolio.

Also check out Bogleheads Investing Advice and Info for lots more info on all this.
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Old 08-29-2011, 09:04 PM   #3
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You should be fine. Most retirement calculators assume you take yearly expenses from your portfolio at the start of each year, so that's a standard approach. Just starting out, and given the current impending debt doom, you might want to start with more than a year in cash. Then spend it down without touching the rest of the portfolio. A little more safety at the start of retirement at the cost of lost equity returns for a few years, which might be negative for a couple of years.

Generally you want to tap taxable accounts first, then IRA/401k, then Roth IRA. However, if you find yourself with an unusually small tax liability (no income and low capital gains), consider converting some IRA to a Roth IRA if possible, or even taking IRA withdrawal to fill up the lower tax backet and filling the rest of your needs from taxable accounts.

Generally you want to decide what your stocks/bonds/cash portfolio allocation will be and then just sell whatever you have too much of at the begining of the year. However you should also have a plan for withdrawing only from cash/bonds during bad markets and then refilling them during good markets. Lots of opinions on how to balance your allocations, so you should pick up a few different ideas here.
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Old 08-29-2011, 10:11 PM   #4
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Without more info it's hard to say what to do. For example, the OP probably never needs to sell anything except possibly for tax-loss harvesting and rebalancing. They could redirect all distributions to a money market or cash sweep account and spend from that account. Since bond funds pay monthly dividends, stock funds about twice a year, and stocks about 4 times a year, they can look now to see what income is being generated by their current holdings and when. With the big distributions in late December, I don't see a need to do much of anything except perhaps simplify the portfolio which was hinted to be a nightmare for some reason.
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Old 08-30-2011, 06:58 AM   #5
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Starting off by putting 85K into the checking account is fine. This gives you time a whole year to decide how you want to manage your finances. Some here keep more than that in cash or cash-like accounts. Here are a few threads on this you might find useful
How much of a cash cushion?
LBYM, Budgets, ER, etc
How do you calculate cash reserves?
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Old 08-30-2011, 07:08 AM   #6
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If you are not willing to self educate and create a plan... consider hiring a financial adviser (i.e., fee based).

Some of the tax issues can be tricky. Again self educate or higher an expert.
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Old 08-30-2011, 10:59 AM   #7
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I'm not sure if I've got the facts right. I think I'm seeing $1.0 million in tax deferred retirement accounts, $4.5 million in taxable accounts (does "liquid" mean money market??), and an annual income goal of $85k.

My first thought is any couple who saved that much money isn't going to make so many mistakes that they can't get their $85k for the rest of their lives. Congrats!

If it were me, I'd spend the taxable first and let the tax-deferred grow inside its shelter.
The only catch would be if the $4.5 million is throwing off so little taxable income that I'm temporarily in a low tax bracket (unlikely but possible). In that case, I'd look for ways to fill up that bracket now. I understand Roth conversions on the tax-deferred stuff, but there are probably lots of ideas in the taxable as well.

Certainly, there's nothing wrong with moving $85k into the checking account now and giving yourself a year to think about other options.
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Old 08-30-2011, 11:48 AM   #8
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With that much money and such a low withdrawal rate, you're going to have a lot left at the end. Might want to look into estate planning while you're at it. Things you do today can ensure the money goes to who you want when you pass, instead of the government.
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Old 08-30-2011, 11:50 AM   #9
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Quote:
Originally Posted by Birchwood View Post
We're planning to ret. next yr. I will be 62 and DW is 60.
We manage our own finances. We have liquid asset about 4.5Mil, but
it's so diversified. The follow up is a nightmare. We intend to live on 85K/year, plus SS.

For the first yr, we think of just placing 85K in a checking account, and draw about 7K/month to start the ball rolling. I have about 1Mil in retirement fund. Should I tap this first or, just get from the cash and bonds? stocks?
You are asking about the sustainability of a withdrawal rate of less than 2% of liquid assets ($84K out of a $4.5M portfolio of liquid assets). Seems very secure to me, at least in the absence of something so cataclysmic that the survivability of the portfolio would be a relatively minor concern.
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Thanks to all of you.
Old 08-30-2011, 05:31 PM   #10
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Thanks to all of you.

YOU all made my day!
We are going to do what most said. We will first move about 170K to a
assessible account to take care of two years worth of living expenses.
I plan to go to the "GYM" in the morning as my office(exersize), and devote the afternoon learning and keeping tab of our assets.
85K is our minimum yearly plan, but I guess we'll have to add more the next few years due to travel expenses. We plan to do a lot of travel.
The reason for a relatively low stipend is the fact, that our house is fully paid, and our 3 vehicles are also paid for. We're frugal. We focus on doing things not buying. Who knows, now that you guys tell me I have enough,
suddenly that new V8 Mustang GT looks alluring??
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Old 08-30-2011, 09:27 PM   #11
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Sounds like a good plan. I keep about 120k in a checking & money market account and CD's at a different bank from my household checking. I have a monthly deposit from my investments into my household checking.

It is good to have that 12-18 months of cash available.
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