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Re: Stocks in Retirement: why bother ?
Old 02-25-2005, 01:13 PM   #21
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Re: Stocks in Retirement: why bother ?

Eagle -
Here is your prediction: the stock market will go up over time
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Re: Stocks in Retirement: why bother ?
Old 02-25-2005, 01:43 PM   #22
 
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Re: Stocks in Retirement: why bother ?

Quote:

Last I looked, which was probably in December 2004, my portfolio had a 7.something% IRR per Quicken, and I'm mostly S&P500, with a smattering of my employer's stock which has underperformed the S&P over that time period and out of which I have been diversifying. *So I'd bet that the S&P's rate of return for 5 years ending 12/31/04 is actually positive 7.something%.

malakito
The last few years of so, I have been suspecting of Quikens figures in this area. I know that there are bugs in their tax planner.

But I have gone further with their rate of return calculators. I have pulled a single security within one account and have gotten different answers depending on how I chose to report it. By Security or By account.
I don't trust their numbers any more.

And it looks like you have even a bigger discrepancey. I know that the S&P 500 has not yielded 7 plus percent over the last 5 years!
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Re: Stocks in Retirement: why bother ?
Old 02-25-2005, 05:32 PM   #23
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Re: Stocks in Retirement: why bother ?

I have some Oracle and Comcast that I want to get out of in order to purchase dividend paying stocks. Does anyone have any recommendations for me to research?
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Re: Stocks in Retirement: why bother ?
Old 02-25-2005, 05:57 PM   #24
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Re: Stocks in Retirement: why bother ?

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I have some Oracle and Comcast that I want to get out of in order to purchase dividend paying stocks. Does anyone have any recommendations for me to research?
You could do worse than starting with the holdings of DVY.

Values that are currently in my portfolio and pay decent dividends are AF (more than doubled their div in the past 5 years and steady as a rock) and STON (more speculative, but cheap).
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Re: Stocks in Retirement: why bother ?
Old 02-26-2005, 05:33 AM   #25
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Re: Stocks in Retirement: why bother ?

I general, if your non-stock portfolio is large enough to provide the necesary withdrawals for the rest of your life, why bother with taking on more risks?

For example, if you have a $5M portfolio with only T-bills or short-term treasury (say 4% yield) and a withdrawl of $100,000 + 3% inflation per year, it will take 72 years before you run out of money.

However, for smaller portfolios:
$3M = 37 years
$2M = 24 years
$1M = 10 years

The bottomline depends on the size of your portfolio and the amount of withdrawals.

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Re: Stocks in Retirement: why bother ?
Old 02-26-2005, 07:47 AM   #26
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Re: Stocks in Retirement: why bother ?

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I general, if your non-stock portfolio is large enough to provide the necesary withdrawals for the rest of your life, why bother with taking on more risks?

For example, if you have a $5M portfolio with only T-bills or short-term treasury (say 4% yield) and a withdrawl of $100,000 + 3% inflation per year, it will take 72 years before you run out of money.
Definitely true but the "problem" is that most people who have a $5M portfolio are not going to be happy taking just $100K per year. *Now they may not be taking a full 4% (or more with good year/bad year adjustments) but they will likely want more than 2%. *I know a few people in that zone (they won the Silicon Valley stock option lottery) and they are withdrawing a higher rate than the 2% required by the T-Bill approach.

Also, if you're able and willing to take such a "conservative" approach I'm not sure that it is the most "conservative". *You are taking on risks that could be diversified away. *Perhaps a mostly T-Bill portfolio but a smattering of other assets too just in case (continued devaluation of the US dollar, rampant inflation, etc.).
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Re: Stocks in Retirement: why bother ?
Old 02-26-2005, 12:45 PM   #27
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Re: Stocks in Retirement: why bother ?

Quote:

The last few years of so, I have been suspecting of Quikens figures in this area. I know that there are bugs in their tax planner.

But I have gone further with their rate of return calculators. I have pulled a single security within one account and have gotten different answers depending on how I chose to report it. By Security or By account.
I don't trust their numbers any more.

And it looks like you have even a bigger discrepancey. I know that the S&P 500 has not yielded 7 plus percent over the last 5 years!
Quicken provides great opportunity for error propogation, as I experienced when it downloaded incorrect information from ameritrade and passed it on to turbotax.

According to Lipper, as of 12/31/04 the S&P 500 has a 10.8% one year return, a -2.30% 5 year return, and a 12.07% 10 year return.

So if you bought 1/1/99 and held until 12/31/04, you're still under water. If you bought 1/1/94 and held until 12/31/04, you're a happy camper.
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Re: Stocks in Retirement: why bother ?
Old 02-26-2005, 01:28 PM   #28
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Re: Stocks in Retirement: why bother ?

Me again.

I am at home now and figured out why my performance numbers are all wrong.

I lost my hard drive in the fall of 2001 and when I reentered my Quicken data (I didn't have a backup then; I do now) I didn't want to go back and enter 10 years worth of history of my IRA's, so I just made a dummy entry of X share with a cost basis of a penny a share. That way it'd obviously be wrong so I would know not to depend on it.

That tends to affect my performance numbers ;-).

malakito.
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Re: Stocks in Retirement: why bother ?
Old 02-26-2005, 05:50 PM   #29
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Re: Stocks in Retirement: why bother ?

What would be the reason to look at dividend yield on a stock? Since it changes with the price of the stock, I don't see the point of knowing what it is at a given point in time. Am I missing something?

Thankyou for your suggestions, Brewer12345. I am reading up on them. I'm also interested in a few mentioned by Stein & Demuth in their new book. Does anyone have experience with UMH or KIM?
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Re: Stocks in Retirement: why bother ?
Old 02-26-2005, 06:29 PM   #30
 
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Re: Stocks in Retirement: why bother ?

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What would be the reason to look at dividend yield on a stock? Since it changes with the price of the stock, I don't see the point of knowing what it is at a given point in time. Am I missing something?

Thankyou for your suggestions, Brewer12345. I am reading up on them. I'm also interested in a few mentioned by Stein & Demuth in their new book. Does anyone have experience with UMH or KIM?
Dividends don't change with the price of the stock. They are usually set annually on a per share basis. Therefore if the dividend is paying 10 cents a share and the stock price falls, the dividend remains the same 10 cents per share. The percentage yield of the dividend will rise as the share price falls.
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Re: Stocks in Retirement: why bother ?
Old 02-27-2005, 07:02 AM   #31
 
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Re: Stocks in Retirement: why bother ?

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What would be the reason to look at dividend yield on a stock? Since it changes with the price of the stock, I don't see the point of knowing what it is at a given point in time. Am I missing something?
Dividend yield is a factor if you want to own the position for income. It is related to the company's cash flow and what the company intended for that cash (ie. increasing dividend distribution is one of the ways). Distribution can be announced monthly, quarterly, yearly or on special occasions. The percentage yield would change as the price changes but the amount that you get per share will not; so unless you reinvested the proceeds, your income is based on the company's announcement not the per share price of the stock.
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Re: Stocks in Retirement: why bother ?
Old 03-13-2005, 06:56 AM   #32
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Re: Stocks in Retirement: why bother ?

Part 1
Here is a great way to make stocks a safe way to go for part of your portolio. Use stocks in place of the fixed investments that I use for my remaing assets. :

Let me tell you all what I did with my portfolio to generate retirement income.

I had a portfolio of approx $1.2 Million of non IRA money and $240,000 of IRA Money when I retired at the age of 60 in May of 2004. I have no pension and will start Social Security at age 62. I am currently single. I have 2 working children. My home is paid off.

My objectives are to travel and enjoy the remainder of my life for as long as possible. I am not concerned about leaving an estate to my children. I planned for that several years ago.

Here is what I did:

When I was 47 I created a trust for the benefit of my 2 children. In this trust I purchased a joint life insurance policy that would pay $1,000,000 upon the death of my wife & I. My wife passed away so this amount will be paid at my death. The smartest thing I did here was pay a premium amount that would pay this policy off in 13 years. I made my final payment and I never have to make another one. My children will receive $1,000,000 when I die. To pay the premium on the policy that the trust purchased we made gifts to the trust each year that equaled the amount of the premium. Since this is in a trust this $1,000,000 is not subject to estate taxes.

What will my children inherit in a worst case? $1,000,000 plus the value of my home when I die. Currently my home is valued at about $600,000.

So when I made the statement that "I am not concerned about leaving an estate to my children". You see why I think $1.6 Million minimum is plenty. My portfolio is for me alone. If any part of my portfolio remains after I live the remainder of my life to its fullest then my children will get some more. I expect to live into my 90's God willing! I also expect to enjoy myself. To protect my home, I purchased longterm care insurance with a strong home care benefit. If I need care I would prefer having the care at home instead of going into a nursing home. Yea, this isn't cheap, but at least with this I can control my situation.

The most important thing, as I see it, is to make sure that I do not outlive my assets or ability to generate income.

I see a lot of posts here about withdrawal calculations. I don't agree with any of it. Because any calculation you do, you always at some point run out of money. When your asset runs out, you no longer can receive income. Remember, I expect to live into my 90's. I can not trust any of these withdrawal models. They can NOT guarantee that I will receive the income that I want for the remainder of my life.

I purchased an immediate annuity with all of my IRA money. The $240,000 pays me a monthly payment of $1,475.42 or $17,705.04 per year for as long a I live.

With $649,287.49 on my non IRA money I purchased an immediate annuity that pays me a monthly payment of $4,000.00 or $48,000 per year for as long as I live.

Is this a good investment? I say YES! These assets are to pay me the most monthly guaranteed cash flow possible. Remember I said cash flow. Cash Flow is what you feel or can hold in your hand if you choose (what I receive every month. NOT that fictional rate of return that everyone talks about. One point in time its there and the next its gone along with some of your initial investment). These assets are for my benefit only not for my children. My children are already taken care of to my satisfaction.

So I invested $889,287.49 into immediate annuities that pays me $5,475.42 per month or $65,705.04 per year for as long as I live guaranteed. What is the cash flow rate that I receive? 7.3885% This is in a world where a 10 US Treasury Bond pays 4.53% and a 30 Year pays 4.81%. See part 2
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Re: Stocks in Retirement: why bother ?
Old 03-13-2005, 06:56 AM   #33
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Re: Stocks in Retirement: why bother ?

Part 2 :
If I say this another way, I would have to buy a US Treasury Bond that pays 7.3885% in interest each and every month for entire life to match this cash flow. Well we all know that this is impossible.

Another advantage to me. Of the $5,475.42 per month of $65,705.04 per year, only $3,329.42 per month or $38,873.04 per year is considered taxable income. $2,146.00 per month or $26,832.00 per year is Tax Free (Considered a Tax Free return of initial investment).

All of my IRA money received each year taxable. Only 44.1% of the other payment is taxable income. So if you did this all with non-IRA money more of the payments would be tax free.

You say, these payments are fixed, what about inflation? Well, I will get an increase in monthly payments when my social security begins at age 62. This I think will start out in the $1,200 per month area. This portion will increase each year.

Part 2 to the inflation answer is the balance of my portfolio is to be invested and grow with some certainty so that when I feel the pinch of purchasing power loss, I can take some of that money and purchase a new immediate annuity that equals an increase in the monthly payments that I need.

What if I need ready cash? I set up a money market account with $75,000 in cash. I deposit money that I do not spend each month from the $5,475.42 per month I receive. I can not see any situation where I would need anywhere near that amount of money.

What did I invest my reaming portfolio of $475,000 in? All but $75,000 in Deferred Fixed Annuities.

I put $150,000 in a fixed annuity with a 10 year interest rate guarantee of 5.15%.

I put $100,000 in a fixed annuity with a 6 year interest rate guarantee of 4.20%

I put $150,000 in an equity index annuity. This is more long term 10 to 15 years. This gives an opportunity to earn higher interest rates than regular fixed annuities without risking your initial investment amount plus interest earned. This is NOT a variable annuity, I think variable annuities are expensive with the fees. Variable annuities are like a mutual funds, your initial investment can lose value. They have some guarantees against loss, but I just don't like them.

With these 3 annuities I am very well protected against inflation.

What am I doing with the last $75,000? This is my play money. I do some swing trading. Buy 3 or 4 stocks and hold them for 3 weeks to 6 months. If I am good at it, this $75,000 will grow nicely over time and will also provide additional inflation protection. If I suck at this, I will lose the $75,000 and I will never do this again. To this point, my $75,000 has grown to about $125,000. Can I be successful over several years? I don't yet know the answer to that. That is why I call this play money!

Who advised me on how to do this? I actually found this professional on the internet through www.jdsfinancialsolutions.com . This website has a great deal of information on it. He does business nationwide. We did everything over the phone, through emails and through the mail. We worked very well together, I gave him all the information he needed to thoroughly understand my needs and he gave me all the time I needed to understand what he was proposing that I do. He gave me all the time I needed to make a decision with no pressure at all. He gave me a plan that actually works, is flexible and guarantees that I will not outlive my income & assets. Not some hypothetical withdrawal calculation that if you take out beyond the time you expect to live runs out of assets and thus income. Not some hypothetical withdrawal calculation with a hypothetical rate of return that has a possibility to be less than zero! You should talk to people who started using these withdrawal calculations in the years 1997,1998, 1999 & 2000. They are very sorry that they did this. I bet they run out of money 10 to 15 years sooner than they expected when they started them. I wonder if then even know!

I am about one year into my retirement, traveling, having fun, spending about 75% of this $5,475.42 per month and I have no worries. This strategy works great for me. Live, Love & Enjoy Life! Tony
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Re: Stocks in Retirement: why bother ?
Old 03-13-2005, 09:23 AM   #34
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Re: Stocks in Retirement: why bother ?

Your plan is very interesting. It's good to see some different strategies. When you apply for annuities does the insurance or whatever company that issues your annuities ask that you have a health checkup and give a questionaire about weight, lifestyle, smoking, etc.. similar to a life insurance policy?
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Re: Stocks in Retirement: why bother ?
Old 03-13-2005, 10:05 AM   #35
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Re: Stocks in Retirement: why bother ?

And how many places are you going to post this neo advertising?

Please note the rule about commercial postings on the board...even when they're thinly disguised as advice.
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Re: Stocks in Retirement: why bother ?
Old 03-13-2005, 10:48 AM   #36
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Re: Stocks in Retirement: why bother ?

: Berkshire_Bull - I did not answer any health questions or do an exam on the immediate annuities.

When my wife and I set up the joint life insurance policy 14 years ago we did do an exam and answer questions then. They came to our house to do the exam so it was no big deal.

Tony
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Re: Stocks in Retirement: why bother ?
Old 03-13-2005, 03:46 PM   #37
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Re: Stocks in Retirement: why bother ?

This site claims that life insurance proceeds generally aren't taxable. I'm curious as to why you placed it in a trust.

http://www.irs.gov/faqs/faq4-9.html

I'm also curious as to why you bought an annuity in an IRA. Isn't that like buying a muni-bond in an IRA?

Finally, you wrote this:
"I put $100,000 in a fixed annuity with a 6 year interest rate guarantee of 4.20% ."

Why not buy a 10 year T-bill for 4.53% with no fees?
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Re: Stocks in Retirement: why bother ?
Old 03-13-2005, 04:46 PM   #38
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Re: Stocks in Retirement: why bother ?

:eridanus = Yes Life insurance is income tax free.

I bought it in a trust because I did not want the $1 Million value to pay estate taxes. Doing it the way I did avoids the estate tax.


I did not buy a variable annuity (you can make a case for what you said on this because of the fees). Muni Bonds pay a lower rate because they are tax free. I think that is why you would not put that in an IRA.

I bought an immediate annuity. Not true what you said on this type.

Remember I bought my deferred annuities in May 2004.

I got 5.15% Guaranteed for 10 years with no fees. 5.15% is better that 4.53% on that T-Bill don't you think?

I also got 4.20% for 6 years guaranteed with no fees. In May 2005 the 5 year T-Bill was under 3.75%. So I did very well with this also.

I wanted 2 different terms.
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Re: Stocks in Retirement: why bother ?
Old 03-13-2005, 05:31 PM   #39
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Re: Stocks in Retirement: why bother ?

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I bought an immediate annuity. Not true what you said on this type.
You put $240,000 + $650,000 into immediate annuities. This is over 60% of your portfolio that will get killed by inflation.

I realize you want "guaranteed" cash flow but I don't see how buying corporate bonds, which is essentially what you're doing, is going to preserve your lifestyle 25 years out. An inflation calculator will tell you that.
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am not tryiRe: Stocks in Retirement: why bother ?
Old 03-13-2005, 05:40 PM   #40
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am not tryiRe: Stocks in Retirement: why bother ?

It is my belief that assets placed in a trust is still subject to estate taxes in the amount above the lifetime exemption. This, as many know better than I, is currently 2.5 million/person and is scheduled to rise to 3.5 million/person then ultimatelu to expire back to zero after 2010 if congress doess not act.

As we know there is currently an "unlimited marital deduction" for all assets passing to a spouse.

Therefore one may loose one lifetime exemption if the trust is not set up properly. One such way is to design the trust that on the death of the first spouse the assets in the trust would first fund a Credit Shelter Trust(Bypass Trust) in the amount equal to the current lifetime exemption so the first's spouse to die does not loose this deduction. The remaining trust assets would fund a Qualified Terminal Interest Property Trust (QTIP)
Therefore upon the death of the surviving spouse, the remaining lifetime exemption is not lost.

Another alternative is more than one trust, one for each spouse and I am sure others know many other ways as such.

Many might say that their total assets are not equal to an amount to worry about but we do not know of the future and lifetime exemptions might total little as the government runs out of money.

Sailaway
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