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Question On Retiring & Living Off Investments
Old 12-18-2008, 06:14 PM   #1
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Question On Retiring & Living Off Investments

Hi, if and when I ever get to retirement, my queston is how does one actually live off his investments? Let's say a person has $1 million in stocks and bonds (mutual funds). How do you arrange to receive a regular flow of money to live on? Given bonds provide income in the form of interest, does it make sense to retire mostly on bonds? Thanks for your insights.
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Old 12-18-2008, 06:38 PM   #2
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well, first you have to reduce your portfolio by any 30-40% sudden hit it might take. then here's what you do with what's left...

following are links (in no particular order) to web sites (various - reference only - i've no affiliation with any nor do i speak to their accuracy) & forum discussions relating to distributions:

AAII - American Association of Individual Investors

An alternative to: Psst...Wellesley

Breathing down our neck

DCA withdrawals

http://spwfe.fpanet.org:10005/public...al%20Rates.pdf

http://spwfe.fpanet.org:10005/public...20Profiles.pdf

FundAdvice.com - Retirement: When your portfolio starts paying you

Good Book For Planning Retirement Acct Distributions?

Harvesting Withdrawals in Retirement

How much cash to keep??

http://www.analyzenow.com/Articles/I...tAvg1-1-01.pdf

http://www.bwtpcpa.com/MRWA/newslett...Apr%202007.pdf

http://www.tiaa-crefinstitute.org/re...s/tr100106.pdf

Opinions on the New Income Replacement Funds

Raymond J. Lucia Companies, Inc. - Buckets of Money Planner

Reverse Dollar Cost Averaging

sensible withdrawals

SWR Methodology

The Retire Early study on safe withdrawal rates - Millenniam Edition.

The Retirement Calculator from Hell, Part III

TIAA-CREF Institute | Tax-Efficient Sequencing of Accounts

Wealth Manager

Where do I take teh 4% withdraw from?

Balanced/Target Funds

Explain the 4% withdrawal rate

How to withdraw

Income Harvesting Strategy paper (accounts or buckets?)

Portfolio Management Topics for Retirees

The mechanics or retirement income

What's Wrong with Living Off Capital Gains?

When in dist. mode- reinvest div & int & sell shares or take div & int in cash?

Your advice on a withdrawal strategy

there, you see, as easy as pi.
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Old 12-18-2008, 06:43 PM   #3
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This was one of my first questions to the board. Since then we've rolled our retirement investments over to Vanguard in a handful of funds. We will be having money transferred from Vanguard to our bank.

Here is a book one of the regulars here recommended:
Amazon.com: IRAs, 401(k)s & Other Retirement Plans: Taking Your Money Out: Twila Slesnick, John C. Suttle, Amy Delpo: Books

Here is some useful information from another regular:
Quote:
Pond, Quinn, Lucia are a few popular authors. Head to the book store and browse around. Investing and retirement planning are not the same thing bookstore-wise so you may want to look at both.

Determine your personal asset allocation (stocks v bonds v cash; and within stocks just a few more slices). Then you can set it up making sure that after-tax dollars stay in stocks for the most part (or low-yielding cash funds). Bonds (and esp inflation bonds) stay in tax-deferred accounts.

Stay aware that there is a tax consequence upon withdrawal of your deferred money. So if you need $4k a month to meet expenses, you can reach that by withdrawing $4k of after-tax holdings, but you need to withdraw $5k in tax deferred withdrawals (if you are in a 20% hypothetical tax bracket) to allow for the tax.

For a couple of approaches, read Armstrong or consider Lucia's "Buckets of Money" book.
Good luck!
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Old 12-18-2008, 07:10 PM   #4
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Quote:
Originally Posted by lazygood4nothinbum View Post
well, first you have to reduce your portfolio by any 30-40% sudden hit it might take. then here's what you do with what's left...

following are links (in no particular order) to web sites (various - reference only - i've no affiliation with any nor do i speak to their accuracy) & forum discussions relating to distributions:

AAII - American Association of Individual Investors

An alternative to: Psst...Wellesley

Breathing down our neck

DCA withdrawals

http://spwfe.fpanet.org:10005/public...al%20Rates.pdf

http://spwfe.fpanet.org:10005/public...20Profiles.pdf

FundAdvice.com - Retirement: When your portfolio starts paying you

Good Book For Planning Retirement Acct Distributions?

Harvesting Withdrawals in Retirement

How much cash to keep??

http://www.analyzenow.com/Articles/I...tAvg1-1-01.pdf

http://www.bwtpcpa.com/MRWA/newslett...Apr%202007.pdf

http://www.tiaa-crefinstitute.org/re...s/tr100106.pdf

Opinions on the New Income Replacement Funds

Raymond J. Lucia Companies, Inc. - Buckets of Money Planner

Reverse Dollar Cost Averaging

sensible withdrawals

SWR Methodology

The Retire Early study on safe withdrawal rates - Millenniam Edition.

The Retirement Calculator from Hell, Part III

TIAA-CREF Institute | Tax-Efficient Sequencing of Accounts

Wealth Manager

Where do I take teh 4% withdraw from?

Balanced/Target Funds

Explain the 4% withdrawal rate

How to withdraw

Income Harvesting Strategy paper (accounts or buckets?)

Portfolio Management Topics for Retirees

The mechanics or retirement income

What's Wrong with Living Off Capital Gains?

When in dist. mode- reinvest div & int & sell shares or take div & int in cash?

Your advice on a withdrawal strategy

there, you see, as easy as pi.
That's all ya got? lol. Thanks. I'll need another lifetime just to figure it all out.
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Old 12-18-2008, 07:22 PM   #5
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I'll say it for ya unclemick....Pssst Wellesley.


A single fund like Wellesley, Vanguard Target Retirement Income fund or Managed Payout funds can provide a steady stream of income with a single investment.
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Old 12-18-2008, 07:52 PM   #6
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Hogwash. What you really want to do is have it all omnverted to silver certificates, bury them in a coffee can in the backyard, and dig up only what you need each month. Safe as houses, as the British say.
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Old 12-18-2008, 07:52 PM   #7
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There are many distribution strategies. Some like "buckets", some like a "total return" approach, some like "dividends", some use an hybrid of those, etc... They all have their pros and cons, and you will have to choose which method makes more sense to you. You can search the board and find threads relating to each one of those methods.

I personally would favor the dividend approach (sometimes referred as the "Norwegian widow" around these parts) but since I am not retired yet, I am taking advantage of this down market event to study how dividends will behave throughout this crisis. So far, based on the few Q4 dividends I have already received, it seems like dividend volatility is, as an aggregate, far milder than market volatility which would make them suitable as a relatively stable source of income in both good and bad times.
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Old 12-18-2008, 07:59 PM   #8
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In simple terms.

Each year rebalance and keep a minimum of years worth of money in short term CD's or MM. Annually, quarterly, or monthly the custodian (Vanguard, Fidelity, Schwab) can send a check to you or a direct deposit to your bank. You get to make the choices on amount and method.

What you want to avoid is being forced to sell in a down market just so you can get your allowance. Also, if it is an early retirement and you plan on living for another 30+ years a total bond allocation might leave you short.

Read and ask more as needed and good luck!
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Old 12-18-2008, 08:06 PM   #9
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(snip)I personally would favor the dividend approach (sometimes referred as the "Norwegian widow" around these parts) but since I am not retired yet, I am taking advantage of this down market event to study how dividends will behave throughout this crisis. So far, based on the few Q4 dividends I have already received, it seems like dividend volatility is, as an aggregate, far milder than market volatility which would make them suitable as a relatively stable source of income in both good and bad times.
Is there an explanation somewhere of the phrase "Norwegian widow"? I think I tried to find it in the FAQ the first time I saw the expression but never really understood what it refers to. Nothing on wikipedia either.
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Old 12-18-2008, 08:10 PM   #10
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Is there an explanation somewhere of the phrase "Norwegian widow"? I think I tried to find it in the FAQ the first time I saw the expression but never really understood what it refers to. Nothing on wikipedia either.

Easy:

An elderly Norwegian couple were having trouble making ends meet, so they decided she should become a streetwalker. At the end of a long day, she comes home and shows her husband her earnings: $100.25. He asks, "who gave you the quarter?" She replied, "everyone."

Although I am not sure if you call a woman a widow after she murders her husband.
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Old 12-18-2008, 08:15 PM   #11
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You don't have to convert your portfolio gains into income in order to withdraw funds. You can sell shares as needed. Since capital gains are usually taxed less than interest and dividends, this can be more tax efficient. I'm generally 100% equities. My dividends don't come close to meeting expenses. I pretty much sell as needed, though I'm working through a large cash stake just now, saved up for the downturn.
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Old 12-18-2008, 08:17 PM   #12
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You don't have to convert your portfolio gains into income in order to withdraw funds. You can sell shares as needed. Since capital gains are usually taxed less than interest and dividends, this can be more tax efficient. I'm generally 100% equities. My dividends don't come close to meeting expenses. I pretty much sell as needed, though I'm working through a large cash stake just now, saved up for the downturn.
That works very well as long as you foresee the downturns. I wold find it very nerve-wracking.

Ha
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Old 12-18-2008, 08:25 PM   #13
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Originally Posted by Marcretire View Post
Hi, if and when I ever get to retirement, my queston is how does one actually live off his investments? Let's say a person has $1 million in stocks and bonds (mutual funds). How do you arrange to receive a regular flow of money to live on? Given bonds provide income in the form of interest, does it make sense to retire mostly on bonds? Thanks for your insights.
You might try to educate yourself about TIPS, treasury inflation protected securities. TO me these seem to have many advantages for investors trying to live off their portfolios. Be careful to discount any advice you receive here by the economic situation of the one giving the advice. Someone whose basic needs are covered by a government pension is in a very different situation from someone who must live off a moderate sized portfolio.

Another thing I would suggest is to poke around this board for any and all threads dealing with the market meltdown over the past few months. We were not all totally calm when the bombs were falling. If they start falling again, those emotions may return.

Ha
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Old 12-18-2008, 08:31 PM   #14
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That works very well as long as you foresee the downturns. I wold find it very nerve-wracking.
Absolutely. Predicting downturns is something few have done accurately, especially over the long term.

I sleep much better with a few years living expenses in a combination of cash and dividends. That allows me the flexibility to choose when I sell equities to replenish my cash. Guess it could be described as a modified bucket strategy.
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Old 12-18-2008, 08:32 PM   #15
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Absolutely. Predicting downturns is something few have done accurately, especially over the long term.

I sleep much better with a few years living expenses in a combination of cash and dividends. That allows me the flexibility to choose when I sell equities to replenish my cash. Guess it could be described as a modified bucket strategy.
Oh yeah, don't forget the SS checks.
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Old 12-18-2008, 08:33 PM   #16
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That's all ya got? lol. Thanks. I'll need another lifetime just to figure it all out.
and you thought retirement wouldn't be work.
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Old 12-18-2008, 08:34 PM   #17
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Oh yeah, don't forget the SS checks.
When I see one I'll be sure to let you know. Envious, are we..?
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Old 12-18-2008, 08:53 PM   #18
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Easy:

An elderly Norwegian couple were having trouble making ends meet, so they decided she should become a streetwalker. At the end of a long day, she comes home and shows her husband her earnings: $100.25. He asks, "who gave you the quarter?" She replied, "everyone."

Although I am not sure if you call a woman a widow after she murders her husband.
? ? ? ? ? :confused: :confused: :confused: :confused: :confused: :confused: ? ? ? ? ?
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Old 12-18-2008, 08:56 PM   #19
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? ? ? ? ? :confused: :confused: :confused: :confused: :confused: :confused: ? ? ? ? ?
You asked for "an explanation" rather than "the explanation." Be careful what you ask for, you may get it...
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Old 12-18-2008, 09:38 PM   #20
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Is there an explanation somewhere of the phrase "Norwegian widow"? I think I tried to find it in the FAQ the first time I saw the expression but never really understood what it refers to. Nothing on wikipedia either.
First time I heard of the "norwegian widow" was from Unclemick. Don't know if he made her up or got it from another source. My understanding (Unclemick will correct me if I'm wrong) is that the Norwegian widow is a romanticized personalization of the good ol' days dividend investor. Market's up, market's down, no matter, you buy and hold dividend-paying investments and the dividend check arrives in your mailbox like clockwork. You live off the dividends and leave the working capital untouched. Off course nowadays the Norwegian widow might be invested in Wellesley and her dividends might be electronically rolled into her money market fund. She doesn't have to wait by the mailbox anymore when it's -30F outside.
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