Quantum Sufficit
Recycles dryer sheets
- Joined
- Jan 24, 2011
- Messages
- 128
Hello all,
It has been many months since I posted here. I am closing in on FIRE --15 OR SO months- Nov/dec 2015)
I think one's approach to retirement planning (like Wade Pfau recently said) has almost exclusively to do with luck. What befalls your retirement If you end up with the sequence of returns turning against you like a 1966 scenario in the market and it takes 18 years for the market to get back to even . See the graph below demonstrating the large secular bears. Or as another example, maybe Japan style deflation with the Nikkei still nowhere near its peak. It seems everyone fears a rise in rates. What will happens if we enter a secular bear market lasting 289 months (24 years!!!)? Of course we could also be on the cusp of a secular bull, who really knows? I am not going to leave my retirement to chance. I would appreciate a critique of the approach. I am aware of Firecalc but I decided, why use random monte carlo style numbers when I can use my own honest to God numbers??
Annual starting expenses in retirement : 3500 per month
House: Paid for (ADDITIONAL INFLATION OFFSET AS 600K VALUE for which a reverse mortgage would be available, no heirs)
Portfolio: 2.4 M, 100% invested in Vanguard Long term Corporate bond fund
Share Count: 226493 paying a dividend of 0.0404 averaged over last 12 months (this exercise assumes a stable dividend as above).
226,493 x 0.0404 = $9150 in dividends per month
Florida 0% state tax, mainly 15%( about $13470) fed allowing for standard deduction on wife and I
Leaves me with about 8000 per month after taxes. To this sum I have the option in SOME months of living quite well given my expenses or folding about 4500/month back into the portfolio for an inflation offset. That 3500 of expenses monthly includes a 250/month house maintenance (brand new house) and 500/month unexpected fund.
I will also have 3000 per month in PART TIME INCOME and 1000/month stipend for health insurance additionally. However, my retirement, while the numbers would be slimmer would still work without this income, just not as much inflation bump. I did not include the social security projection of about 1500 per month at age 62 plus 1000 per month reverse mortgage at 62 but those are waiting in the wings if I need them. My wife will also have Social security (spousal).
THEREFORE: Potentially 90k can return to the portfolio if I decide just to stick to my budget annually. 90,000 divided by 10.60 current share price x.0404 = 1st year income raise of $4100.00 (about a 10% annual inflation bump, somewhat less if I spend another 3k per month).
Tell me, why do I need the stock market in MY PARTICULAR SCENARIO? I would hard pressed to think of a LIKELY scenario where the fed allows a 10% annual inflation Rate. Also, this is a pure income "spend the dividends only" strategy. I really do not care about the share price, just share count. Each of those shares is a little cog in my income gear. If rates go up (and who said they will--->Japan comes to mind); principle will be "lost" but at least I will spend income generated. This is what is so attractive about this strategy--> None of it depends upon capital appreciation. As John Bogle said-the enemy of a good plan is the dream of the perfect plan.
Is Anyone else on the forum living off the income of bonds exclusively??
It has been many months since I posted here. I am closing in on FIRE --15 OR SO months- Nov/dec 2015)
I think one's approach to retirement planning (like Wade Pfau recently said) has almost exclusively to do with luck. What befalls your retirement If you end up with the sequence of returns turning against you like a 1966 scenario in the market and it takes 18 years for the market to get back to even . See the graph below demonstrating the large secular bears. Or as another example, maybe Japan style deflation with the Nikkei still nowhere near its peak. It seems everyone fears a rise in rates. What will happens if we enter a secular bear market lasting 289 months (24 years!!!)? Of course we could also be on the cusp of a secular bull, who really knows? I am not going to leave my retirement to chance. I would appreciate a critique of the approach. I am aware of Firecalc but I decided, why use random monte carlo style numbers when I can use my own honest to God numbers??
Annual starting expenses in retirement : 3500 per month
House: Paid for (ADDITIONAL INFLATION OFFSET AS 600K VALUE for which a reverse mortgage would be available, no heirs)
Portfolio: 2.4 M, 100% invested in Vanguard Long term Corporate bond fund
Share Count: 226493 paying a dividend of 0.0404 averaged over last 12 months (this exercise assumes a stable dividend as above).
226,493 x 0.0404 = $9150 in dividends per month
Florida 0% state tax, mainly 15%( about $13470) fed allowing for standard deduction on wife and I
Leaves me with about 8000 per month after taxes. To this sum I have the option in SOME months of living quite well given my expenses or folding about 4500/month back into the portfolio for an inflation offset. That 3500 of expenses monthly includes a 250/month house maintenance (brand new house) and 500/month unexpected fund.
I will also have 3000 per month in PART TIME INCOME and 1000/month stipend for health insurance additionally. However, my retirement, while the numbers would be slimmer would still work without this income, just not as much inflation bump. I did not include the social security projection of about 1500 per month at age 62 plus 1000 per month reverse mortgage at 62 but those are waiting in the wings if I need them. My wife will also have Social security (spousal).
THEREFORE: Potentially 90k can return to the portfolio if I decide just to stick to my budget annually. 90,000 divided by 10.60 current share price x.0404 = 1st year income raise of $4100.00 (about a 10% annual inflation bump, somewhat less if I spend another 3k per month).
Tell me, why do I need the stock market in MY PARTICULAR SCENARIO? I would hard pressed to think of a LIKELY scenario where the fed allows a 10% annual inflation Rate. Also, this is a pure income "spend the dividends only" strategy. I really do not care about the share price, just share count. Each of those shares is a little cog in my income gear. If rates go up (and who said they will--->Japan comes to mind); principle will be "lost" but at least I will spend income generated. This is what is so attractive about this strategy--> None of it depends upon capital appreciation. As John Bogle said-the enemy of a good plan is the dream of the perfect plan.
Is Anyone else on the forum living off the income of bonds exclusively??
Last edited: