Retirement Income?

[Art]

Originally Posted by brewer12345

Yes, the index portfolio can lose for a while, but a diversified portfolio of several low correlation asset classes would mitigate any declines, and one only needs income from year to year, not the whole amount.* Go play wth Fiirecalc and you can see what I am talking about.

Oh, and commissions are not per se bad, they are just another expense that must be recovered from the investor's pockets.* In contrast, one can set up a very low cost index portfolio with virtually no up-front cost.

I don't need to play with Firecalc to know that an investor can lose big, and for a long time, with an index fund portfolio- even one that has low correlated asset classes.

And commissions on a SPIA DON'T need to be recovered from the investor's pockets since the guaranteed amount the owner gets is NET of commissions. You're confusing the agent's commission with the fees you charged your clients, which DID have to be recovered from your client's pockets.

[brewer12345]

Originally Posted by Art

I don't need to play with Firecalc to know that an investor can lose big, and for a long time, with an index fund portfolio- even one that has low correlated asset classes.

And commissions on a SPIA DON'T need to be recovered from the investor's pockets since the guaranteed amount the owner gets is NET of commissions. You're confusing the agent's commission with the fees you charged your clients, which DID have to be recovered from your client's pockets.

So does that scare tactic work well with most of our clients? Doesn't do much for me.

Actually, commissions on SPIAs do get recovered from the customer. You think insurance companies pay commissions because they like agents? Nope, they pay commissions to effectively borrow money for less than they believe they can get by investing the borrowed funds. That's how they make money and stay in business. If the commission ultimately does not come out of the insurer's hide, it has to come out of the customer's hide. I don't think the tooth fairy gets involved in the insurance business.

You clearly have no idea who I am. Unlike some who post here, I am not in the business of charging fees to advise individual clients and never have. Do yourself a favor and don't make too many assumptions about people you don't really now.

[Art]

Originally Posted by brewer12345

You clearly have no idea who I am.* Unlike some who post here, I am not in the business of charging fees to advise individual clients and never have.*

You have been called an investment advisor on several threads (a description you never corrected), which I assumed meant that you were a licensed professional. My apologies if you are an unlicensed, non-regulated amateur. And no, I have no idea who you are. Nor do I care.

[brewer12345]

Art, despite appearances, I really am not interested in pointless sparring. If you really think that a SPIA plus I-bonds solves the problem, they show us. A speadsheet will do more to convince me than any argument we could ever have.

Out of curiosity, are you an agent? I tend to view the sales pitch with suspicion, but often agents do provide a much-needed service: advice. I just wish more of it were objective and higher quality.

[Brat]

Art, brewer12345 is a seasoned financial analyst for an investment fund.* He knows the business.* *It isn't necessary that contributors agree and we give ourselves permission to test each others recommendations.

[Art]

Originally Posted by brewer12345

Art, despite appearances, I really am not interested in pointless sparring.* If you really think that a SPIA plus I-bonds solves the problem, they show us.* A speadsheet will do more to convince me than any argument we could ever have.

Out of curiosity, are you an agent?*/quote]

Yes, I am an agent, as I've freely disclosed before... no, I don't have time to do spreadsheets for you, nor do I think a spreadsheet is necessary in this case, but if you want one, contact Dick Purcell at planscan.net , ask him to do it on Portfolio Pathfinder (or buy it and run it yourself), and he'll show you the mother of all asset allocation tools illustrating the concept, based on the posters stated needs and known income from Social Security. You will be free to change the default inflation assumption and other assumptions as you see fit.

I've given the Life Only and Life with Installment Refund numbers from Integrity Life above- they are guaranteed today for a 65 yr. old Arizona resident NET commissions, NET state premium taxes, and the exclusion ratios are also given. These numbers will undoubtedly change somewhat by the time the poster reaches age 65 in a couple of years, but they demonstrate the idea.

And Brewer, I'm not trying to convince you of anything. I replied to Modhatter with information that I think should be considered by him carefully before he jumps into the stock market for the first time at age 63, with a handicapped son he must SAFELY provide for. I believe it is solid advice, you disagree, that's fine with me.

[Art]

Originally Posted by Brat

Art, brewer12345 is a seasoned financial analyst for an investment fund.* He knows the business.* *It isn't necessary that contributors agree and we give ourselves permission to test each others recommendations.

I agree with you, brat. And I didn't call HIM a "conman", just to refresh your memory.

[brewer12345]

Ohhhh-kaayyy, so you choose not to put up hard numbers when asked. *Gotcha. *I can see exactly how much weight to give the scare tactics, retreat from quantitative examination, and the blanket recommendations of a "tool" I'd have to cough up $700 to use. *Great.

I hate to tell you this, but this stuff isn't that hard or mystifying. *All insurance products can basically be decomposed into discounted cash flows, especially any kind of fixed annuity. *Hiding behind a sales pitch doesn't make it any more special.

I know why you rubbed me the wrong way: think of the last poster who insisted that all fixed income was the only way to go. ****** *

[Art]

Originally Posted by brewer12345

I hate to tell you this, but this stuff isn't that hard or mystifying.

You're right, Brewer, it's not. Except for you. It's really pretty simple. This poster doesn't NEED to take market risk. Read his post again, and the SPIA numbers, and you may be able to figure this out yet. Without a spreadsheet. Nice chatting with you.

[brewer12345]

Likewise. Don't let the door hit you on the...

BTW, "In God We Trust, All Others Show Data".

[nfs]

Originally Posted by Art

This poster doesn't NEED to take market risk. Read his post again

How about this part of his post?

my objective is to preserve and hopefully grow my current assets in order to leave what I have for him.

Why did you ignore that?

In any case, this catfight is beside the point.

The original poster wants a $4100/month income from $1.4MM in assets. I question the $4100, because you don't need to gross $5700/month to net $4000/month in a low tax state like Arizona, especially if part of the income is SS - partially tax exempt - and/or dividends and capital gains - max rate 15% federal.

I will also underline, per the original post, that having sold his/her current house for $500k and a rental property for another $500k, still has a rental property in Arizona that throws off $800 per month.

I see $1.4MM in liquid assets after the sales. I see SS of $1600/month, rental income of $800/month, and a need to generate about another $2500/month max from a $1.4MM investment portfolio. This is a ~2% SWR.

It's a no-brainer, alright. Modhatter should plunk the money into a good balanced fund or roll his/her own and forget about it. No reasonable portfolio will fail with a 2% SWR.

I do think a no-lapse life Universal Life insurance policy for your son (NO cash value- just guaranteed death benefit forever) will secure his future and take pressure off you

This comment baffles me. Are you recommending that the original poster or the son be the life insured? What good would either do?

[Art]

nfs, your position makes sense if we EXCLUDE the possibility that the market is highly overvalued and may suffer a major, long-lasting correction. Given the fact that he wants to provide lifetime security for his handicapped son, I am not comfortable with excluding this possibility of a serious, long-lasting bear market. I am personally very bearish now, and this is how I feel about THIS case.

You are free to rule this possibility out, so is he.

If he wants maximum guarantees, the SPIA is an option he should consider.

If he buys a SPIA to cover his income needs for life, he will have more than enough each month to re-invest in index funds or I-Bonds or anything else, to help deal with inflation.

The no-lapse UL (on HIS life) would more than replace the money invested in the SPIA to provide guaranteed cash for his son. It's very simple. It works. It's not for everyone. He may or may not like it. He may want to use a combination of a SPIA WITH a portfolio of index funds, as SPIAs have been shown in several academic studies to increase the probability of portfolio survivability, as I said earlier. He may want to exclusively go with a port of index funds, or the coffeehouse portfolio.

My only problem is when people act as though there is NO CHANCE of a major, long-term correction. If he had no dependents, I would be much less cautious. The facts remain: none of us know the future, and he does not NEED to take on market risk if he doesn't want to.

[BristolBane]

I don't think a stock index fund is the right place for a 63 year old who is a self described stock novice, fears loss and places capital preservation above all. Sounds like fixed income land to me.

[haha]

Originally I read the OP's post, and didn't go further into the thread. I felt that his situation was specific and with hard constraints; so I didn't have any ideas that I felt would be worth much.

But after going through the thread, I have a general comment to make about the board. I know I can't evaluate Art's suggestions, without putting a lot of time into it that is probably not justified by my own situation. There is a whole knowledge base that I would have to master before my ideas would be worth anything. But I do know that he is an expert, he is not spamming, and most importantly, his ideas are not mere clones of most of the regular posters here.

Brewer has said that he is a credit analyst. Good credentials for many purposes to be sure, but maybe not reason enough to try to squelch someone with a different idea in the area of personal finance.

I mean is there anybody left around here who doesn't "know" that Wellesley is wonderful, that it is hard to lose permanent capital in index funds, and that Vanguard sits at the right hand of God the Father?

I think we should treat ideas given in good faith with more respect.

I am not an idiot, and I am not sure that the final word about financial success has been given by Bogle and Bernstein. Berstein after all is only a doctor who felt that writing about money might be more fun than trying to care for dying people. Bogle is a businessman who somehow managed to capture the moral high ground in the minds of a certain type of customer. Does this make either of them infallible?

In some past threads, Art lost control. IMO, in this thread he did not, in spite of being called names. (Indirectly to be sure.)

Information theory says that information content is related to novelty. If we want information, let's not chase away novelty.

Ha

[nfs]

Originally Posted by Art

nfs, your position makes sense if we EXCLUDE the possibility that the market is highly overvalued and may suffer a major, long-lasting correction.

Let me pay you a similar compliment. Your position makes sense if we EXCLUDE consideration of the original poster's objective "to preserve and hopefully grow my current assets". Your solution cannot accomplish that.

Up to now modhatter hasn't chimed back in, so we don't know the relative importance to him/her of the statements s/he made. I will grant that my solution can possibly fail some of the conditions. Be so kind as to admit that your solution will definitely fail some of the conditions.

Given the fact that he wants to provide lifetime security for his handicapped son, I am not comfortable with excluding this possibility of a serious, long-lasting bear market.

It could happen. I admit it. But modhatter wants something like a 2% SWR. There is no historical period in the US in which a 4% SWR caused a portfolio to fail. At 2%, no reasonable portfolio will fail anything short of catastrophe. If you would like to make a case that the next ten years will be worse than the Great Depression, go ahead. I've read all the doom and gloom books for the last 20 years and none of them came true. Maybe you finally have the timing right.

I am personally very bearish now, and this is how I feel about THIS case.

I do not believe that someone should make serious financial decisions based on how another person feels.

If he wants maximum guarantees, the SPIA is an option he should consider.

He can consider it. While he's at it, he should also consider that he is handing over about 1/3 of his loot to cover overhead and commissions. Perhaps nothing is more important to him than to have his loved ones taken care of forever, in which case he should be happy to pay one dollar out of every three for that guarantee.

He may want to use a combination of a SPIA WITH a portfolio of index funds, as SPIAs have been shown in several academic studies to increase the probability of portfolio survivability, as I said earlier.

He may. He should read those studies. They're worthwhile. He should note that most suggest waiting until long after age 63 to buy annuities.

My only problem is when people act as though there is NO CHANCE of a major, long-term correction. If he had no dependents, I would be much less cautious. The facts remain: none of us know the future, and he does not NEED to take on market risk if he doesn't want to.

You're right there. He doesn't need to take market risk. One of the possibilities he suggested himself was just to plunk the whole wad into 5% CDs and be done with it. That raises his tax bill over what I suggested and it probably means a drawdown out of inflation-adjusted capital that starts at around 1% per year. In that case, the portfolio would last about 50 years, which probably covers his son's life. No market risk, no filling the insurance company's pocket. It's a possibility.

<Bristol Bane>: I don't think a stock index fund is the right place for a 63 year old who is a self described stock novice, fears loss and places capital preservation above all. Sounds like fixed income land to me.

What if inflation takes off and fixed income gets creamed?

<HaHa>: But I do know that [Art] is an expert, he is not spamming, and most importantly, his ideas are not mere clones of most of the regular posters here. ... Information theory says that information content is related to novelty. If we want information, let's not chase away novelty.

Good advice. It is not, however, good advice to allow novelty's benefits to be touted without novelty's costs being explained.

There is nothing wrong with insurance or annuities per se. If you are scared witless about a risk, it is to your benefit that some kind soul will take the risk off your hands. In many cases, it makes sense. There may be no other way of covering off a risk. If you have no assets other than your ability to work and you have dependents, then you bloody well should be insured. But when you have serious money - the original poster does - and negligible risk that it can all be spent, then handing over 1/3 of your fortune to insurance agents and companies in order to lay off a tiny bit of risk seems incredibly dumb to me. That's just my opinion, mind you.

I don't know whether Art's an expert or not. He's a pretty good salesman. A salesman's primary objective is to get you to focus on the benefits of his product, not the cost. An annuity has benefits and Art has mentioned them all. Repeatedly. I challenge him to defend the cost side of the same ledger. Unless modhatter is incredibly risk averse, I suspect the cost of about 400 grand will outweigh the benefits Art has mentioned.

[laurence]

Originally Posted by HaHa

I mean is there anybody left around here who doesn't "know" that Wellesley is wonderful, that it is hard to lose permanent capital in index funds, and that Vanguard sits at the right hand of God the Father?

RTFLMAO! It is kind of a religion here, eh?

Originally Posted by HaHa

Information theory says that information content is related to novelty. If we want information, let's not chase away novelty.

Ha

I agree, but at the same time I hope we don't have to tear down and rehash every tenent of our "faith" either. I would love to see a clear, concise table listing the expenses and returns of highly graded annuities. A one page prospectus tells me 90% of what I need to know about a mutual fund, I would think something similar couild exist for an annuity. Honestly, I'm open to purchasing an annuity when I'm much older, as I believe my wife and my daughter will outlive me, and DW is totally uninterested in managing a portfolio. Then again, I may just buy coupon bonds, build a ladder in my twilight years...

[REWahoo]

Originally Posted by HaHa

I mean is there anybody left around here who doesn't "know" that Wellesley is wonderful, that it is hard to lose permanent capital in index funds, and that Vanguard sits at the right hand of God the Father?

Ha ol' buddy, don't be sacrilegious. Just drink the Kool-Aid and say "Amen".

REW