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Old 11-21-2013, 10:25 PM   #41
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Originally Posted by Animorph View Post
The highest success rate is actually your lowest risk approach, so as has been said already, think of retirement risk, not portfolio ups and downs.
Portfolio risk is a matter of individual comfort level. The Dow went down 54% in the great recession. Some people are okay with that. Others are not.

Personally, with a $2.1M portfolio with Social Security and a paid for house, I would call that already having won the game and not risk a 54% loss or greater with a large equity position.

I would say to think of ups and downs, and how much income do you really need to live on to be happy and live relatively worry free?

As Bill Bernstein put it, "When you've won the game, why keep playing it? How risky stocks are to a given investor depends upon which part of the life cycle he or she is in. For a younger investor, stocks aren't as risky as they seem. For the middle-aged, they're pretty risky. And for a retired person, they can be nuclear-level toxic....Interest rates usually more than keep up with inflation. It's true that real yields right now are historically low, but as a student of financial history I have to believe that's not going to last forever. "

http://money.cnn.com/2012/09/04/reti...akes.moneymag/

Bill Bernstein kind of started channeling Zvi Bodie after the last meltdown.
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Old 11-21-2013, 10:25 PM   #42
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....I think I need to find some posts on what taxes I will likely pay in retirement.

Deb
Think if it this way. Let's say you retire with $1,600k in taxable accounts and $400k in 401k Your target AA is 30% stocks and 70% fixed income and you invest tax efficiently so your 401k is all fixed income and your taxable accounts have $600k of equities and $1,000k of fixed income. Your SS is down the road a few years.

Also, let's say your investments generate 3% dividends and 3% interest - so you'll have $60k of income - $18k of dividends and $30k of interest in your taxable account and $12k of interest in your 401k.

Your spend of $70k but your income on your tax return is only $48k. If you are MFJ, have standard deduction then your tax is only ~$1k a roughly 2% average tax rate and a marginal tax rate of 15%.

Part of the reason for the low tax rate is that the $18k in dividends is not taxed. If your portfolio is 50/50 rather than 30/70 your tax would be zero.

See https://turbotax.intuit.com/tax-tool...ors/taxcaster/
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Old 11-22-2013, 02:51 AM   #43
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Originally Posted by daylatedollarshort View Post
Portfolio risk is a matter of individual comfort level. The Dow went down 54% in the great recession. Some people are okay with that. Others are not.

Personally, with a $2.1M portfolio with Social Security and a paid for house, I would call that already having won the game and not risk a 54% loss or greater with a large equity position.

I would say to think of ups and downs, and how much income do you really need to live on to be happy and live relatively worry free?
The Dow going down 54% and having a 54% loss are two very different things. The only people who would have a 54% loss from that would be those foolish enough to sell at the bottom. I doubt that many here would advocate that. If you don't sell at the bottom and simply buy and hold (rebalancing as called for) then someone whose equities went down 54% would not have ever actually realized any loss whatsoever. That it, it isn't a loss until you sell....

I'm also not sure I find it helpful to talk about how much income some "needs" to live on. Retirement is not solely about need, but also about what you want. In her case, she wants to net $72k a year and what someone thinks she might "need" is beside the point.

Of course, I do agree that if, for example, she felt that she would be happy on living on $40k with a $2.1 million portfolio then needing to do much to protect against inflation is unnecessary so long as you don't care about preserving the value of your estate.
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Old 11-22-2013, 10:49 AM   #44
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The Dow going down 54% and having a 54% loss are two very different things. The only people who would have a 54% loss from that would be those foolish enough to sell at the bottom. I doubt that many here would advocate that. If you don't sell at the bottom and simply buy and hold (rebalancing as called for) then someone whose equities went down 54% would not have ever actually realized any loss whatsoever. That it, it isn't a loss until you sell....

I'm also not sure I find it helpful to talk about how much income some "needs" to live on. Retirement is not solely about need, but also about what you want. In her case, she wants to net $72k a year and what someone thinks she might "need" is beside the point.

Of course, I do agree that if, for example, she felt that she would be happy on living on $40k with a $2.1 million portfolio then needing to do much to protect against inflation is unnecessary so long as you don't care about preserving the value of your estate.
The OP says she wants to downsize, live more simply and will have a paid for house. She is selling her business so that isn't likely to be a reversible decision if she finds she need more money in retirement.

I don't usually use Firecalc, so perhaps I am not doing it right, but I put in $70K a year total spending with her SS numbers and portfolio number, 20 percent large stocks and 80 percent long commercial bonds. There is no TIPS option in Firecalc so that would have to be calculated with a spreadsheet.

The results I saw were 100% success rate, lowest balance $1.1M and highest $7.8M, avg of $2.6M.

If you want to take more risk with your portfolio for higher returns, so be it. That is certainly your choice. But large equity positions are not a sleep well at night option for everyone, as Bill Bernstein found out with his clients. The OP is retiring now due to stress. She has said she is risk averse.

Bernstein is the one who called stocks in retirement nuclear-level toxic, not me.

Also, the OPs risk averse retirement income with a very conservative portfolio is around the amount where current happiness research says spending more won't make her any happier -

"But no matter how much more than $75,000 people make, they don't report any greater degree of happiness."

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Old 11-22-2013, 03:33 PM   #45
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The OP says she wants to downsize, live more simply and will have a paid for house. She is selling her business so that isn't likely to be a reversible decision if she finds she need more money in retirement.

I don't usually use Firecalc, so perhaps I am not doing it right, but I put in $70K a year total spending with her SS numbers and portfolio number, 20 percent large stocks and 80 percent long commercial bonds. There is no TIPS option in Firecalc so that would have to be calculated with a spreadsheet.

The results I saw were 100% success rate, lowest balance $1.1M and highest $7.8M, avg of $2.6M.

If you want to take more risk with your portfolio for higher returns, so be it. That is certainly your choice. But large equity positions are not a sleep well at night option for everyone, as Bill Bernstein found out with his clients. The OP is retiring now due to stress. She has said she is risk averse.
One of the things that is important to note is that portfolio which is heavily fixed income is very sensitive to life expectancy. The joint life expectancy for a 57 year old couple is 34 year. I thought the OP wanted 90k in order to spend 75K after taxes. (That seems right to be me since there is no 0% tax rate on interest income unlike cap gains or dividends.)

Running Firecalc with a 34 years and 20% portfolio there is 92% success rate and there is 50% chance that one of them will live beyond 91.
Using a more conservative 40 year life expectancy the success rate drops to 75%. Moving the portfolio up to 50/50 increases the success rate to 99%.

Finally, I just got to comment that altough Debinnov considers herself risk adverse. Anybody that runs a small business isn't all that risk adverse, something like 95% of all small business fail in the first 5 years.
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Old 11-22-2013, 05:57 PM   #46
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Each person will have to decide for himself when or if they have already "won the game" and the level of risk they are comfortable with. I think I have "won the game" but still keep a lot in equities. I could spend less but would rather spend more, although current levels are fine also. With SWR around 3.6% , representing only divs, I think my risk of running out of money virtually zero. Agree that inflation is a bigger risk than equity losses over a long retirement.
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Old 11-22-2013, 07:04 PM   #47
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Debinov a - One other source of data for you to consider in your portfolio allocation is info from IRS estate data from the Thomas Stanley blog: What are the top ten assets owned by millionaires with gross estates of $2M or more -

The Top Ten Assets Owned by Millionaires

And for spending comparisons the Consumer Expenditure Survey is also interesting -

http://www.bls.gov/cex/2011/Standard/age.pdf

How much you need to spend in retirement to be happy vs how much risk you are willing to take on in your portfolio and how big an allocation to put toward equities vs other asset classes has to fit in with your own comfort level.
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Old 11-24-2013, 06:03 AM   #48
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I can't add or improve much to all the good advice that you've already gotten from the board. I will tell you that I'm in a similar situation. I'm 54 with just under 2MM in assets and a retirement target of 2014. Normally I'd be approximately 50/40/10 (equity/bond/MM), but I dropped the equities to 30% when all the govt shutdown started a few weeks ago. Nice gains this year and I wanted to lock some in.
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Old 11-25-2013, 12:24 AM   #49
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Thanks everyone... alot of good advice. I think my taxes will be much lower than I thought, between taxable accts, no state tax in Florida, standard deduction, etc. Im so used to paying much higher taxes, I didnt realize earning under the 73k threshold (more like only $50k taxed before deduction) would keep my taxes so much lower. I will probably put 30 percent in stock index funds, ? Percent in bond funds and keep the balance in cd ladder or similar. Again thanks!
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