Ignoramous says hello

[laurencegoldman]

Hi y'all,

I'm a 69 yr old retiree who's been living on a 700K active adviser portfolio since 2003. I've just had a rude awakening. The portfolio decreased to 580K since 10/2014. I fired the adviser, and , in spite of survival fear, I've been doing a crash course in DYI investing.

I'm planning the following:

1. Purchase an immediate annuity for 268K, paying $1600/month for life. My expenses budget to $1400/month baseline. I'll have 600/month Social Security on top.

2. With the remaining 300K:
a. Purchase a lazy portfolio and apply up to 5% variable withdrawl rate of ACCOUNT BALANCE as needed.

OR b. Purchase a 20-30 stock Dividend Aristocrat Portfolio and supplement from dividends, re-invest extra.

I'd love to hear your feedback. I've been reading "Seeking Alpha" and have been toying with doing b. above with 200k, and trying to squeeze some high yield out of 100K

What do you think? Thanks in advance,

Laurence

 

[MBAustin]

Welcome, Laurence! If you have decided to go DIY on your investing, I wouldn't call you an ignoramous at all.

I'm having a little trouble with your numbers - if your portfolio is now $580K, how are you going to purchase the annuity for $680K and have $300K left over to invest?

I would tend to agree that an annuity for part of your portfolio makes sense, particularly with your low SS income. I'll leave further comments to some of the more investment savvy folks here.

 

[Senator]

Keep in mind, that many annuities have high commissions. They also are not necessarily indexed for inflation.

 

[laurencegoldman]

Sorry 268K for annuity

 

[marko]

Sorry 268K for annuity

Welcome and good luck! But remember number accuracy is one of the key items to DIY investing Just kidding

Lots of good folks here to help you out.

 

[samclem]

Laurence,
Welcome to the board. Some thoughts:
-- The annuity: I appreciate your reasons for making this choice--you need a reliable stream of money to meet your basic requirements. You probably also know that this is a terrible time to be buying an annuity (from an historical perspective) due to the present (artificially-low) interest rate environment. The fixed annuity payments will lose value every year to inflation, eventually it (together with SS) may not be enough to meet your spending needs.
I would:
-- At least get a price for an inflation-indexed annuity. They are expensive, but maybe you'll find the peace of mind to be worth the cost. You could go with a smaller monthly payout--if your baseline expenses are >really< $1400/mo, if your expenses are likely to go up about the same as inflation, and if you'll have $600 in SS (which is already indexed for inflation), then you might only need $800/mo from the annuity (indexed to inflation) to make ends meet--forever.
-- Do a lot of comparison shopping before investing in any annuity--costs matter, and they can vary considerably.
-- Consider buying an annuity ladder over the next 5 years or so, rather than plunging in all at once. If you want to spend $268K total, buy one for $54K now (which will pay you about $320/mo), put the rest of your annuity money in a CD or other safe spot, and then do the same thing for the next 4 years. You can go with different insurers to spread out the (very small) risk of a default/failure to pay. Most importantly, if interest rates go up you'll get more each month for every dollar invested. You'll be a year older each time, which means a higher monthly payout for a given amount paid in. Finally, if you get bad health news or other circumstances occur in the next 5 years that reduce the attractiveness of an annuity, you won't have invested everything in it. So, there's considerable upside and not much downside to spreading this out.

- About the other investments: I prefer your first option with some type of low-cost lazy portfolio, taking a % of year-end assets (if I were your age, I'd probably take 5% or more per year--the RMD table used by the IRS isn't a bad guide). Total return investing makes a lot of sense. You'll probably get more money each year and you'll avoid the risk that comes with investing in a small number of individual stocks (and 20-30 is "small").

Sorry about your experience with your FA and his/her active investing. Never go back and look at what you paid in fees and extra costs, you'll get sick.

 

[NanoSour]

Welcome Laurence. At your age, I would focus on keeping things as simple as possible. You might want to consider dumping the 700K into a Life Strategy Fund at Vanguard with a monthly automatic transfer of $1400 to your checking account. With your $600 SS check, this should give you plenty of headroom for unexpected expenses that pop up from time to time.

Check out VSCGX - Lifestategy Conservative Growth (you'll need a little growth for future inflation). This is essentially what I've done since I retired 2.5 years ago. My 750K 3-fund lazy portfolio (VTSAX, VTIAX, VBTLX) has returned an average of just over $3600/month in that time. I transfer $3300/month for my living expenses so the portfolio has grown some in the past 2.5 years.

Finally, I'm sorry for your experience and loss working with a financial advisor, but I think you caught it in time before you were past the point of recovery. Good luck to you.

 

[Ready]

Hi Laurence, welcome to the forum. You say your portfolio was worth $700K in 2003 and dropped to $580K in 2014 but how much did you withdraw from the portfolio for living expenses over those years?

 

[pb4uski]

....What do you think? ....

I'm not a big fan of fixed annuities given they do not provide inflation protection and COLAed annuities are expensive.

Your "gap" is only $800/month ($1,400 expenses less $600 SS) so with $580k to invest your withdrawal rate would only be 1.6% ($9,600/year in withdrawals compared to $580k portfolio). In my view, with such a low withdrawal rate you do not need to buy an immediate annuity.

What I would do is put the $580k in Vanguard Wellesley Income fund and set up an automatic $1,600 monthly transfer from Wellesley to the bank account you pay your bills out of and go enjoy your retirement. While there are no guarantees, based on its track record, Wellesley should not only provide you with the $1,600/month that you want but it should grow as well since it has returned 3-8% a year in recent years and you would only be drawing about 3.3%. Also, unlike a fixed annuity, you might be able to increase your withdrawals for inflation.

Also, if you have not already started SS, live off your nestegg and wait until you are 70 as it is the cheapest COLAed annuity available.

 

[wyecrabber1]

Hi Laurence:

If your interested in sharing, I'd like to know more details of your fiscal history. Did you retire in 2003 and what was your withdraw rate since then. How was your $700K mixed between stocks, bonds and cash?

I'm constantly amazed at the insight and talent of the members who post to this board. I have learned a great deal from reading posts similar to yours. I'm OMY to being retired, this board has played a large part in gaining the confidence to fire my FA.

 

[friar1610]

Hello and welcome.

A couple of previous posters have wisely recommended Vanguard funds.

You also mentioned that you are trying to educate yourself on DIY investing. If you haven't already discovered bogleheads.org I recommend that you check it out. It is a Vanguard-centric web site with a lot of great information in its wiki on DIY investing. You will find good info there on annuities as well as on low-cost mutual fund investing.

Good luck!

 

[walkinwood]

Keep some money aside in cash for emergencies. Say 1 to 2 times your max out of pocket for health expenses + enough for a used car... you get the drift.

 

[Sasset]

I agree with having some cash on hand. Maybe you do and just didn't show that in your number? .

 

[petershk]

First of all welcome. And also grats on being honest and making a tough decision. That's the hardest step IMO.

I'm pretty new to the boards here.

You'll get lots of great advice and most of it is actionable although people have their differences.

My suggestion is to first commit to doing nothing drastic for a month or two.

Dumping the high fee active advisor was likely a very smart decision. why pay someone else to lose your money when you can do it yourself .

I would "pay yourself" for the next couple of months for the job of "figuring out how to be the CEO/CEO of MyFamily Inc" even if your family is only one person .

When I started thinking of myself as the family CFO it changed my mentality a bit.

During that time read these forums, bogleheads, investigate risk and return history, impact of fees, life expectancy, etc.

I also think it's important to get a lot of insight on how you currently spend, how you want to in the future, what you want to leave behind (if anything) and so on.

From what I've learned from investing the key decisions are
1) asset allocation
2) fees
3) taxes
A 60/40 stock/bond portfolio vs a 80/20 is a more meaningful choice than dividend etf vs total market etf.

Similarly an advisor taking 1.5% every year vs a 0.15% fee has a huge impact compared with two similar index funds.

You get the idea .

Take a bit of time before making any major decisions as you have now gone from giving your money to someone to giving it to yourself

Sent from my HTC One_M8 using Early Retirement Forum mobile app

 

[X501]

reading

Others have recommended the reading list in Early Retirement FAQs of the portal to get up to speed in investments, I have found the majority of the recommendations to be quite helpful