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Would you do this?
Old 01-06-2016, 07:48 AM   #1
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Would you do this?

62 Year Old, 2M in IRAs, 250K in AT assets.

Living expenses work out that after our SS income, 66K draw/year will fill the bill.

Vanguard's Long Term Bond Fund is yielding 4.04%...

1.6M in that would deliver the 66K draw...

Thinking along the lines of "once you win the game quit playing", how would you feel about putting the 1.6M in the long term bond fund, and investing the rest in some total stock fund.

What risk am I missing here? I am assuming that I'd put the 1.6 M bond fund in the IRA portion.
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Old 01-06-2016, 07:55 AM   #2
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Do you remember inflation of the 70s and 80s?

Make sure you are protected against it. If you were 82, I would say OK.
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Old 01-06-2016, 08:27 AM   #3
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+1 It would seem to me that a 20/80 AA would have some significant inflation risk.

Also, using the LT bond fund would have significant interest rate risk - duration is 15 so if interest rates increase 200 bps then your $1.6 million would decline to $1.1 million but would still provide your $66k of income but the decline in value might rattle you.

Psst..... Wellesley.
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Old 01-06-2016, 08:36 AM   #4
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Originally Posted by HadEnuff View Post

What risk am I missing here?
I see two risks: longevity risk and inflation risk.

I'd put some of that bond fund money in Wellesley or Wellington. History has shown the 30 year survival rate of AA's with less than 35% equities drops off significantly.
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Old 01-06-2016, 08:46 AM   #5
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+1 It would seem to me that a 20/80 AA would have some significant inflation risk.

Also, using the LT bond fund would have significant interest rate risk - duration is 15 so if interest rates increase 200 bps then your $1.6 million would decline to $1.1 million but would still provide your $66k of income but the decline in value might rattle you.

Psst..... Wellesley.
I believe it would rattle me significantly. Just stepping into retirement now. I have been self-employed my entire life, and managed my company's pension investments (which were predominantly mine and DW's). Ever since reading 4 Pillars in the early 2000s, I followed one of his portfolio models: with half of the bond portion in Vanguard's Short Term, and the other half in Medium Term. I have felt that the long term interest rate risk was uncomfortable for me.
Now as I make the transition into R, I still feel that way. I agree with what you and Senator have posted...

I had always figured I'd maintain the portfolio approach, but maybe go from 40-60 bond:stock to 50:50...or even 60:40,,,the retirement calculators don't seem to care much within those parameters.

Do you like Wellsely or Wellington better than fiddling around with rebalancing a "lazy" portfolio of 6 or 7 holdings?
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Old 01-06-2016, 08:47 AM   #6
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Wahoo, your reply came while I was typing mine. Thanks for your input. see previous post.

I appreciate the insight.
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Old 01-06-2016, 08:55 AM   #7
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Do you like Wellsely or Wellington better than fiddling around with rebalancing a "lazy" portfolio of 6 or 7 holdings?
In my case, definitely.

I went to a Wellesley/Wellington mix shortly after retiring 10 years ago and rolling my 401(k) to a Vanguard IRA. No fiddling required, and I doubt I could have done as well on my own.
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Old 01-06-2016, 09:06 AM   #8
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In my case, definitely.

I went to a Wellesley/Wellington mix shortly after retiring and rolling my 401(k) to a Vanguard IRA 10 years ago. No fiddling required, and I doubt I could have done as well on my own.
As I understand it, Wellesley is around 65-35 bond: stock, and Wellington is approximately the mirror image.

So what do you do? Just keep a balance of those two, and let the fund do the rebalancing within themselves?
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Old 01-06-2016, 09:12 AM   #9
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As I understand it, Wellesley is around 65-35 bond: stock, and Wellington is approximately the mirror image.

So what do you do? Just keep a balance of those two, and let the fund do the rebalancing within themselves?
Yes, exactly.
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Old 01-06-2016, 09:15 AM   #10
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If I had to pick an active fund to invest in I would probably choose Wellington. With that said, if you'd prefer a more passive fund (and if it was me, I would, too), have you considered the Vanguard Balanced Index Fund? VBINX

Compare their performance over 5, 10, or 20 years

Though come to think about it...I am not sure it will give you yield that you are looking for.
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Old 01-06-2016, 09:37 AM   #11
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....Do you like Wellsely or Wellington better than fiddling around with rebalancing a "lazy" portfolio of 6 or 7 holdings?
In your case, since almost 90% of your money is in tax deferred, yes.

For example, if you put the IRA into Wellesley and kept $50k in cash and put $200 in equities, your overall AA would be ~43% stock, 55% fixed income and 2% cash which to me is a very sensible early retirement portfolio. As you spend down your taxable your AA would transition to Wellesley's 38%/62% AA. You could increase the cash and reduce the equities some to fine tune it if you want.

If you do Roth conversions then just exchange Wellesley in your tax-deferred IRA for Wellesley in your Roth and your AA stays the same.

And best of all... its easy.

My taxable/tax-deferred/tax-free is more like 34%/52%/14% so I have more hoops to jump through in the interest of tax efficiency.
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Old 01-06-2016, 09:59 AM   #12
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In your case, since almost 90% of your money is in tax deferred, yes.

For example, if you put the IRA into Wellesley and kept $50k in cash and put $200 in equities, your overall AA would be ~43% stock, 55% fixed income and 2% cash which to me is a very sensible early retirement portfolio. As you spend down your taxable your AA would transition to Wellesley's 38%/62% AA. You could increase the cash and reduce the equities some to fine tune it if you want.

If you do Roth conversions then just exchange Wellesley in your tax-deferred IRA for Wellesley in your Roth and your AA stays the same.

And best of all... its easy.

My taxable/tax-deferred/tax-free is more like 34%/52%/14% so I have more hoops to jump through in the interest of tax efficiency.

That makes sense to me. If I recall correctly, you like VTSAX for a total stock index fund in AT account for tax efficiency?
What are your thoughts as far as spending down the AT account, vs the IRAs?
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Old 01-06-2016, 10:06 AM   #13
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I like long term bonds as well, but obviously not for all of my investments! Remember the key word is diversify. No more than a quarter of your investments in this one item.

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Old 01-06-2016, 10:12 AM   #14
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Quite frankly, the some of the calculations are just too esoteric for me. Selecting the right asset balance or this fund or that fund for a set-it-and-forget-it plan could become a never ending chore, or a mistake that you would soon regret. Keep an open mind to readjust as time moves forward. IMO, there is no one answer.


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Living expenses work out that after our SS income, 66K draw/year will fill the bill.
Have you looked at your expense and income with one of you gone? I find this to be possibly the biggest risk to consider. especially if one of you loose a large income source.
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Old 01-06-2016, 10:16 AM   #15
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I see two risks: longevity risk and inflation risk.

History has shown the 30 year survival rate of AA's with less than 35% equities drops off significantly.
Of course, that also depends on initial withdrawal rate. At 3.3% SWR (66K/2M), even 20/80 gives 100% success rate over a 30 year period. At 2.9% SWR (66K/2.25M), even 10/90 has 100% success rate over 30 years.

That said, it's a good idea to have at least 35% equities or follow a rising equity glidepath strategy to mitigate longevity and inflation risk in case retirement lasts longer than 30 years.
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Old 01-06-2016, 10:18 AM   #16
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I would only by a long-term bond fund if interest rates were 10% or so. Not now.

So, no I would not do what you are suggesting.

If you want to quit the game, then maybe you should consider buying a Single Premium Immediate Annuity?
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Old 01-06-2016, 10:46 AM   #17
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Today is another one of those days when BLV (long term bonds) is moving in the opposite direction of stocks.

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Old 01-06-2016, 11:03 AM   #18
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I am guessing Wellington would pay out 80k between dividends and capital gains. I like the Wellington because it throws off more than I need. But it will cause some taxes that is what I am finding out. Of course the number can swing but in my case it throws off twice what I need so that is not a big deal. Now how long the money will last doing that I don't know.
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Old 01-06-2016, 11:03 AM   #19
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That makes sense to me. If I recall correctly, you like VTSAX for a total stock index fund in AT account for tax efficiency?
What are your thoughts as far as spending down the AT account, vs the IRAs?
YMMV but the reason I am spending down our after-tax accounts is for tax reasons. Since I have not yet started my small pension or done any tax-deferred withdrawals I have a lot of headroom for Roth conversions to the top of the 15% tax bracket and pay about 8% vs 28% or more when I deferred that income and 25% or 15% later on once SS and pension start. If I wasn't facing much higher rates once SS and pension start then I would care lees what I am spending from.

I use Total Stock and Total International Stock in our taxable accounts. If I were doing it over again I might use their World Stock Index fund but the ER of 0.27% is a bit too high for my taste compared to 0.05% and 0.14% for Total Stock and Total International Stock.
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Old 01-06-2016, 11:06 AM   #20
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Today is another one of those days when BLV (long term bonds) is moving in the opposite direction of stocks.
BLV still has a ways to go to make up for the 4% drop it had in 2015. But maybe this is a time to Buy Low? Who knows?
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