Should I stay or move?

[Spudd]

In Firecalc, did you put in your disability pension amount as well? It will always fail for sure if you're trying to use $240k to provide a $30k annual income without any supplemental sources of income.

[pb4uski]

As the beneficiary of the trust, you should at least be able to get an understanding of how the trust's assets are invested and perhaps even make suggestions to the trustee as to what you would like to see them invested in (considering the terms of the trust). One thing to understand is the <1%/yr because they are invested in low yielding assets or because of high fees or a combination of both?

I wonder if the terms of the trust would allow the trust to purchase a SPIA for your benefit. If that is possible then based on current SPIA rates that would provide a tad over $1,000/month income (fixed, not COLAed).

Is the 5% limitation based on the initial trust balance or the trust balance at the end of the previous year?

If you can't influence the trust to improve the performance or the fees are excessive then perhaps your best strategy is to take maximum distributions from the trust and invest any excess of distributions over what you need to live on in your Vanguard accounts. That would also improve your situation.

Are your disability income benefits COLAed? If so, have you set them up as COLAed in Firecalc?

Another thought is that if no changes can be made to the trust then that is the functional equivalent of a bond portfolio (albeit a low yielding one) and your $240k of Vanguard investments could be 100% equities so combined you are at an equivalent of 50/50 AA. Or alternatively, if you can influence how the trust assets are invested then go as aggressive as possible in the trust (given the trust provisions) of the limit is 5% of the balance and invest your personal funds more conservatively.

Once you get the investment side sorted out then you can use the investigate tab to see what you can spend annually and still have a decent success rate.... I suspect it will be around $2,000/month or perhaps a bit more so you'll need to take a hard look at reducing expenses.

However to help provide more clarity, what is your monthly DI benefit and is it COLAed? Will it change once you reach SS retirement age or is your DI benefit more than your retirement benefit based on your work record?

[Bamaman]

Jqrz: In your initial posting, we've had to read between the lines. You're obviously living in the north to have snow, property taxes and carrying costs of the condo are very high, the community is not top notch and you have health issues.

Top notch healthcare is available all over the U.S. for most normal ailments. Will your health hold steady in the future given proper healthcare? Do you have any personal or family ties to any specific place that you'd like to live?

I moved to Northwest Alabama for the Tennessee River, the incredible low cost of living, housing, etc. And because my wife is disabled, we don't even have property taxes. Our society is also relatively stable and safe. There are also many places throughout the south that are comparable--high quality places to live on a budget. Many of these are the major university towns with great culture and lifestyle.

[FreeBear]

Quote:

Originally Posted by jqrz The trust is hardly earning anything, and the investment firm said 5% is the only allowable w/d per year. Since inception, it's earned <1%/yr. I wish I could just transfer the Trust assets to Vgd but for some reason due to it being a trust, w/d is limited to 5% annually, due to the special stipulations of the trust. Anyway, I am probably shelling out at least 2%/yr in expenses even if the fund ever does well. Here is the updated budget: $1,565.00 (total monthly income (disability + investments---assuming a very conservative return of 2% after inflation in this crazy market) v. $2,460.00 (total monthly expenses) ---- = - $895.00 (total monthly shortfall Because of my investments being tied up in the Trust that is earning virtually zero, my total investable assets (which are all in VGD), are only $241885.00.

Hi jqrz,

Thanks for the updated numbers. This makes more sense and more obvious why you are concerned about running out of $$

The bottom line: I agree with the other response for drawing down the trust as quickly as allowed. Firecalc suggests that you can use the dividends and cap gains from your Vanguard investments to make up any shortfall. Furthermore, you are likely to have more than enough to survive on just your disability and Vanguard investments even when your trust runs out.

The basic plan:

Years 1 to 20: expenses funded by disability, plus 5% of trust annually, and about 1.5% of Vanguard (dividends/cap gains) annually.

Years 21 to 40+: expenses funded by disability, and balance from Vanguard dividends, cap gains and possibly principle (depending on market).

Overall, I believe you stand an excellent chance of making it 40+ years in more or less your current situation/lifestyle, if desired. Of course, reducing expenses helps add even further margin of safety, again only if desired. Firecal gives 99% chance of success over 40 yrs if you are willing to completely spend down your trust. Realistically, though, I'd call it 90% plus since we haven't factored in margin for condo special assessments, extra health costs, and "unknown unknowns". Still I'd consider this an excellent start.

The details (if so inclined):

Given:

Expenses: $2460 monthly or $29,520 annually

Income (disability + 2% of Vanguard): $1565 monthly or $18,780 annually

Savings:
Trust + Vanguard: $480,000
Vanguard (assume market growth): $241,855

Therefore, we calculate:
Trust (assume 0% growth): $238,115
Trust, 5% annually: $11,906
Vanguard, 2% annual: $4,838

Therefore, the trust will last about 20 years at 5% annual draw, assuming 0% annual growth.

From total income stated above and 2% income from Vanguard, we estimate your disability income at $1,162 monthly or $13,942 yearly.

Plan for years 1 to 20:
$13,942 disability + $11,906 trust + $3,672 Vanguard dividends = $29,520 expenses

Plan for yrs 21 to 40+: $13,942 disability + $15,578 Vanguard dividends/cap gain and principle as needed = $29,520 expenses

Notes:
- Under this plan we assume the trust is completely consumed in 20 yrs.

- Firecalc gives 99% survival of Vanguard investents for 40 total years, with a shortfall of only about $15,000 in the worst case historic scenario (probably if you had retired in 1966). The good news is that the average ending value is $883,177, when you only start with $241,855! I used all default settings, except for 3% inflation instead of the default CPI, based on your own Firecalc run. Note that the 40 yrs success improves to 100% if you use the default CPI inflation adjustment. Expenses are input as $3672 yearly, then increasing by $11,906 (off chart spending, tab 2 in Fircalc) to give a total of $15,578 starting year 21.

- Inflation assumptions. We assume your disability is COLA'd (inflation adjusted). Is it?? The Vanguard numbers are COLA'd in the Firecalc run, of course. As for the trust, it may be hard to entirely judge performance based on 2015. For example, my VGD total bond index fund yielded only about 2% in 2015, similar to the dividend + cap gains on the S&P 500 index fund. In your trust, however, a 2% gain is probably completely taken by the advisor's 2% fee, leaving you with zero gain, actually a loss after inflation! Hopefully, even this dog will do better on decent market years, at least keeping up with inflation if the good years make up for the bad and mediocre ones.

Feel free to PM if you want the spreadsheet calcs and/or firecalc output or anything else.

FB

[swagjb82]

Freebear you are assuming the trust keeps up with inflation and not 0%. Otherwise it will not last 20 years. That is probably unrealistic as things stand.

Echoing what someone else mentioned above - The OP needs to understand more what assets the trust is invested in and if there is any scope to change them. It may be a case that it is invested in some default safe option and could be changed. If not then the vanguard account may be aggressive if the trust is in safe assets.

I think though the OP also needs to focus on getting those expenses down somehow

[pb4uski]

If the constraint is that the trust can only distribute 5% of the prior year's balance (rather than 5% of the trust's beginning balance) I think the risk of ruin is dependent on the long-term return of the Vanguard money. However, the analysis below suggests that with a 7% return from the Vanguard money that you would be ok (assuming that the DI income is COLAed).

IMO it would not be imprudent to be 100% equities with the Vanguard money given that your DI income and trust benefit covers a large percentage of your needs initially so there is not high sequence of returns risk since the withdrawals in the first 5 years are relatively modest. Below assumes trust earns 1% and 3% inflation.

	Trust				Cash flow					Vanguard account
	5% withdr'l	Growth	Balance		Expenses	DI Income	Trust	Gap		Withdr'ls	Return	Balance
0		1.0%	238,115		3.0%	3.0%					7.0%	240,000
1	(11,906)	2,262	228,471		29,520	13,942	11,906	3,672		(3,672)	16,543	252,871
2	(11,424)	2,170	219,218		30,406	14,360	11,424	4,622		(4,622)	17,377	265,626
3	(10,961)	2,083	210,340		31,318	14,791	10,961	5,566		(5,566)	18,204	278,265
4	(10,517)	1,998	201,821		32,257	15,235	10,517	6,506		(6,506)	19,023	290,782
5	(10,091)	1,917	193,647		33,225	15,692	10,091	7,442		(7,442)	19,834	303,174
6	(9,682)	1,840	185,805		34,222	16,163	9,682	8,377		(8,377)	20,636	315,433
7	(9,290)	1,765	178,280		35,248	16,647	9,290	9,311		(9,311)	21,429	327,551
8	(8,914)	1,694	171,059		36,306	17,147	8,914	10,245		(10,245)	22,211	339,517
9	(8,553)	1,625	164,131		37,395	17,661	8,553	11,181		(11,181)	22,984	351,320
10	(8,207)	1,559	157,484		38,517	18,191	8,207	12,119		(12,119)	23,744	362,945
11	(7,874)	1,496	151,106		39,672	18,737	7,874	13,061		(13,061)	24,492	374,376
12	(7,555)	1,436	144,986		40,863	19,299	7,555	14,008		(14,008)	25,226	385,593
13	(7,249)	1,377	139,114		42,088	19,878	7,249	14,961		(14,961)	25,944	396,576
14	(6,956)	1,322	133,480		43,351	20,474	6,956	15,921		(15,921)	26,646	407,301
15	(6,674)	1,268	128,074		44,652	21,089	6,674	16,889		(16,889)	27,329	417,741
16	(6,404)	1,217	122,887		45,991	21,721	6,404	17,866		(17,866)	27,991	427,865
17	(6,144)	1,167	117,910		47,371	22,373	6,144	18,854		(18,854)	28,631	437,642
18	(5,896)	1,120	113,135		48,792	23,044	5,896	19,853		(19,853)	29,245	447,035
19	(5,657)	1,075	108,553		50,256	23,735	5,657	20,864		(20,864)	29,832	456,003
20	(5,428)	1,031	104,156		51,763	24,447	5,428	21,888		(21,888)	30,388	464,503
21	(5,208)	989	99,938		53,316	25,181	5,208	22,928		(22,928)	30,910	472,486
22	(4,997)	949	95,891		54,916	25,936	4,997	23,983		(23,983)	31,395	479,898
23	(4,795)	911	92,007		56,563	26,714	4,795	25,055		(25,055)	31,839	486,682
24	(4,600)	874	88,281		58,260	27,516	4,600	26,144		(26,144)	32,238	492,776
25	(4,414)	839	84,705		60,008	28,341	4,414	27,253		(27,253)	32,587	498,110
26	(4,235)	805	81,275		61,808	29,191	4,235	28,382		(28,382)	32,881	502,609
27	(4,064)	772	77,983		63,663	30,067	4,064	29,532		(29,532)	33,115	506,193
28	(3,899)	741	74,825		65,572	30,969	3,899	30,704		(30,704)	33,284	508,773
29	(3,741)	711	71,794		67,540	31,898	3,741	31,900		(31,900)	33,381	510,254
30	(3,590)	682	68,887		69,566	32,855	3,590	33,121		(33,121)	33,399	510,533
31	(3,444)	654	66,097		71,653	33,841	3,444	34,368		(34,368)	33,332	509,497
32	(3,305)	628	63,420		73,802	34,856	3,305	35,641		(35,641)	33,170	507,025
33	(3,171)	602	60,851		76,016	35,902	3,171	36,944		(36,944)	32,906	502,987
34	(3,043)	578	58,387		78,297	36,979	3,043	38,276		(38,276)	32,530	497,241
35	(2,919)	555	56,022		80,646	38,088	2,919	39,638		(39,638)	32,032	489,635
36	(2,801)	532	53,753		83,065	39,231	2,801	41,033		(41,033)	31,402	480,004
37	(2,688)	511	51,576		85,557	40,408	2,688	42,462		(42,462)	30,628	468,171
38	(2,579)	490	49,488		88,124	41,620	2,579	43,925		(43,925)	29,697	453,943
39	(2,474)	470	47,483		90,768	42,869	2,474	45,425		(45,425)	28,596	437,114
40	(2,374)	451	45,560		93,491	44,155	2,374	46,962		(46,962)	27,311	417,463

[jqrz]

Wow, thanks everyone! Having it all in a visual and graphic way really helps to visualize it all in the long-term. The disability is COLAed. It is currently $1155/mo. It will also stay the same once I reach retirement age.

Looking at the trust in more detail, it's actually invested in a mixture of bonds and equities. Estimating about a 2.5% overall fee as best as could tell based on the confusing prospectus and mounds of paperwork.

I tried to dig further as to the 5% rule and can reasonably ascertain that every year, I have access to the greater of $5000 per year or 5% of fair mkt value of the trust/yr. If this is the case, I could take $5000 out even if the trust has dwindled to $10,000 but that doesn't make sense either. (Googled "5 by 5" and "Crummey powers", some sort of obscure rule in trusts, and investopedia had the easiest to digest explanation but even then, unsure if this applies to my Trust.)

The Porfolio section of FIRECalc is confusing - the Total Market and Mixed Portfolio sections seem to choose a very specific array of investment types. For example, I have too many types of investments to fit into the choices available in Mixed Portfolio and Total Market, which leaves only Random Performance. I just match the numbers in the prospectus with the choices there, e.g. "portfolio return" and how much it has peaked or dipped since inception. Is this the right way to go about FIRECalc?

I really appreciate the time everyone has taken crunching the numbers so far, it gives me a much better idea of the horizon! Thanks again.

[pb4uski]

I happened save the model from before and updated it for the slight difference in DI benefits, increase in trust return and change in what can be taken out of the trust (the greater of 5% or $5,000). I also reduced the Vanguard return to see how low it could be and still not break. I think you'll be fine. IMO your situation is difficult to put into Firecalc but Firecal is most useful for assessing sequence of returns risk and your sequence of returns risk is low because early year withdrawals are low.

Needless to say, YMMV.

	Trust				Cash flow					Vanguard account
	5% withdr'l	Growth	Balance		Expenses	DI Income	Trust	Gap		Withdr'ls	Return	Balance
0		2.5%	238,115		3.0%	3.0%					6.0%	240,000
1	(11,906)	5,655	231,864		29,520	13,860	11,906	3,754		(3,754)	14,175	250,420
2	(11,593)	5,507	225,778		30,406	14,276	11,593	4,537		(4,537)	14,753	260,637
3	(11,289)	5,362	219,851		31,318	14,704	11,289	5,325		(5,325)	15,319	270,631
4	(10,993)	5,221	214,080		32,257	15,145	10,993	6,120		(6,120)	15,871	280,382
5	(10,704)	5,084	208,461		33,225	15,600	10,704	6,921		(6,921)	16,408	289,868
6	(10,423)	4,951	202,989		34,222	16,068	10,423	7,731		(7,731)	16,928	299,065
7	(10,149)	4,821	197,660		35,248	16,550	10,149	8,549		(8,549)	17,431	307,947
8	(9,883)	4,694	192,472		36,306	17,046	9,883	9,377		(9,377)	17,914	316,484
9	(9,624)	4,571	187,419		37,395	17,557	9,624	10,214		(10,214)	18,376	324,646
10	(9,371)	4,451	182,499		38,517	18,084	9,371	11,062		(11,062)	18,815	332,400
11	(9,125)	4,334	177,709		39,672	18,627	9,125	11,921		(11,921)	19,229	339,708
12	(8,885)	4,221	173,044		40,863	19,185	8,885	12,792		(12,792)	19,615	346,531
13	(8,652)	4,110	168,502		42,088	19,761	8,652	13,675		(13,675)	19,971	352,827
14	(8,425)	4,002	164,078		43,351	20,354	8,425	14,572		(14,572)	20,295	358,550
15	(8,204)	3,897	159,771		44,652	20,964	8,204	15,483		(15,483)	20,584	363,651
16	(7,989)	3,795	155,577		45,991	21,593	7,989	16,409		(16,409)	20,834	368,076
17	(7,779)	3,695	151,493		47,371	22,241	7,779	17,351		(17,351)	21,044	371,769
18	(7,575)	3,598	147,517		48,792	22,908	7,575	18,309		(18,309)	21,208	374,668
19	(7,376)	3,504	143,644		50,256	23,596	7,376	19,284		(19,284)	21,323	376,706
20	(7,182)	3,412	139,874		51,763	24,304	7,182	20,278		(20,278)	21,386	377,814
21	(6,994)	3,322	136,202		53,316	25,033	6,994	21,290		(21,290)	21,391	377,916
22	(6,810)	3,235	132,627		54,916	25,784	6,810	22,322		(22,322)	21,336	376,929
23	(6,631)	3,150	129,145		56,563	26,557	6,631	23,375		(23,375)	21,213	374,768
24	(6,457)	3,067	125,755		58,260	27,354	6,457	24,449		(24,449)	21,019	371,338
25	(6,288)	2,987	122,454		60,008	28,175	6,288	25,546		(25,546)	20,748	366,539
26	(6,123)	2,908	119,240		61,808	29,020	6,123	26,666		(26,666)	20,392	360,266
27	(5,962)	2,832	116,110		63,663	29,890	5,962	27,810		(27,810)	19,947	352,403
28	(5,805)	2,758	113,062		65,572	30,787	5,805	28,980		(28,980)	19,405	342,829
29	(5,653)	2,685	110,094		67,540	31,711	5,653	30,176		(30,176)	18,759	331,412
30	(5,505)	2,615	107,204		69,566	32,662	5,505	31,399		(31,399)	18,001	318,013
31	(5,360)	2,546	104,390		71,653	33,642	5,360	32,651		(32,651)	17,122	302,484
32	(5,219)	2,479	101,650		73,802	34,651	5,219	33,932		(33,932)	16,113	284,666
33	(5,082)	2,414	98,981		76,016	35,691	5,082	35,243		(35,243)	14,965	264,388
34	(5,000)	2,350	96,331		78,297	36,761	5,000	36,536		(36,536)	13,671	241,523
35	(5,000)	2,283	93,614		80,646	37,864	5,000	37,782		(37,782)	12,225	215,966
36	(5,000)	2,215	90,829		83,065	39,000	5,000	39,065		(39,065)	10,614	187,515
37	(5,000)	2,146	87,975		85,557	40,170	5,000	40,387		(40,387)	8,828	155,956
38	(5,000)	2,074	85,050		88,124	41,375	5,000	41,749		(41,749)	6,852	121,060
39	(5,000)	2,001	82,051		90,768	42,616	5,000	43,151		(43,151)	4,675	82,583
40	(5,000)	1,926	78,977		93,491	43,895	5,000	44,596		(44,596)	2,279	40,267