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Old 04-10-2016, 02:46 PM   #41
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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.
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Old 04-11-2016, 08:15 AM   #42
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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?
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Old 04-11-2016, 09:03 AM   #43
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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.
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Old 04-11-2016, 01:20 PM   #44
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Quote:
Originally Posted by jqrz View Post

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
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Old 04-11-2016, 03:42 PM   #45
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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
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Old 04-11-2016, 04:04 PM   #46
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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
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Old 04-13-2016, 04:02 PM   #47
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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.
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Old 04-15-2016, 06:57 AM   #48
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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
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