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Old 09-05-2019, 05:08 AM   #21
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The $900k in my IRA and $900k that I have as what I call "liquid" (stocks and savings). I would like to keep my original amount and be able to collect dividends as well as sell some appreciation each year (if necessary). I am really just trying to at a minimum draw $70k per year with what I currently have ($1.8M). It is IRA and liquid so that may create some challenges. Let me know if that doesnt make sense.
So you want to preserve the $1.8 million for the remainder of your life, and live on whatever it throws off? I suppose it's possible, but it seems unlikely particularly given your young age.

If you were willing to spend down whatever portion of our principal was needed, you'd be more likely to succeed.

Remember that the "4% rule" assumes the willingness to spend the principal and is more applicable for a shorter retirement duration. Perhaps that's part of the confusion.

You could model this using a tool like Fire-calc or c-Fire-sim. You would likely see many iterations where at least partial depletion of the principal is required.
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Old 09-05-2019, 05:15 AM   #22
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For an early retiree in 40s, your SWR should be lot smaller than 4%. I plan to use 3% when I ER at 50 and I still worry it is too high.

There is no other way to ER at your age with your restrictions than to reduce the spending for life. I would rather keep working (from your favorite country like you mentioned) and let the nest egg grow for 5 year or so and then reassess using expenses and assets at that time. And PLEASE don't make rash investment decisions to increase cashflow or return because there is no free lunch.

PS: If you NEVER want to touch inflation-adjusted principal (or what I call perpetual retirement for generations) then your SWR needs to be less than 2.71%.
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Old 09-05-2019, 05:21 AM   #23
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PS: If you NEVER want to touch inflation-adjusted principal (or what I call perpetual retirement for generations) then your SWR needs to be less than 2.71%.
Interesting! I've never heard that 2.71% figure before.

Do you have a source for that? Or can you show the assumptions and the math behind it?

Thanks!
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Old 09-05-2019, 05:38 AM   #24
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Interesting! I've never heard that 2.71% figure before.

Do you have a source for that? Or can you show the assumptions and the math behind it?

Thanks!
I think I derived the number from the following article and the associated google spreadsheet. The low SWR number had something to do with high PE ratio of today. I forgot the details but the number stuck in my head.

https://earlyretirementnow.com/2016/...tal-depletion/
https://earlyretirementnow.com/2017/...art-7-toolbox/
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Old 09-05-2019, 05:45 AM   #25
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I think I derived the number from the following article and the associated google spreadsheet. The low SWR number had something to do with high PE ratio of today. I forgot the details but the number stuck in my head.

https://earlyretirementnow.com/2016/...tal-depletion/
https://earlyretirementnow.com/2017/...art-7-toolbox/
Okay. I didn't see 2.71% in that article and I'm always skeptical if a hard, precise number claims to rely on a "high PE ratio". I'll have to dig in deeper when I have the chance.

Thanks.
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Old 09-05-2019, 06:13 AM   #26
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Okay. I didn't see 2.71% in that article and I'm always skeptical if a hard, precise number claims to rely on a "high PE ratio". I'll have to dig in deeper when I have the chance.

Thanks.
I dug deeper and I realized that the SWR I quoted was derived from the SWR Toolbox spreadsheet: 60/40 stock/bond, 720 month retirement and 100% final value target few years ago. The 2.71% was in the table "SWRs to target different Failure Rates" for the cell J18 (CAPE>30 and 0% failure rate). The SWR number in J18 cell (as of today) has gone up to 3.11% with the same assumptions. The assumptions DO change the SWR but only slightly and all the results hover around 3% for 100% success rate.
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Old 09-05-2019, 06:16 AM   #27
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scrabbler1,

Why did you go for FHIFX rather than SPY or VYM ? Not judging, just interested in your reasoning? Were you aiming for a higher return? If so, arent stocks typically higher?

Part of my problem is bonds (bond funds?) are supposed to return a set amount but even they can go down. So i am having difficulties rationalizing the bond purchase piece as a safe harbor. I want to hear the reasoning in case i am missing something.
I have been a Fido client since 1990 (I began with a bond fund) and Fido has a large selection so I began there. My goal was to generate a reasonably steady, monthly "paycheck" to replace my biweekly salary to cover my bills. I did some careful research on FHIFX and was satisfied at its composition and rate of return. From my long experience with bond funds, I felt this was the way to go.

Bond funds can rise and fall in value. However, because I plan to never sell any of its shares (and haven't done so in the last 11 years), it is instead the monthly dividends per share I am most concerned about. That DPS has fallen gradually over the years, but I have bought more shares to compensate, often through rebalancing with my existing stock fund (whose value has grown). The stock fund, which acts as a partial inflation guard, spins off some quarterly dividends which I use to supplement the bond fund's monthly income. Any excess dividends go back into the main bond fund.
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Old 09-05-2019, 06:18 AM   #28
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I dug deeper and I realized that the SWR I quoted was derived from the SWR Toolbox spreadsheet: 60/40 stock/bond, 720 month retirement and 100% final value target few years ago. The 2.71% was in the table "SWRs to target different Failure Rates" for the cell J18 (CAPE>30 and 0% failure rate). The SWR number in J18 cell (as of today) has gone up to 3.11% with the same assumptions. The assumptions DO change the SWR but only slightly and all the results hover around 3% for 100% success rate.
So in just a few years, the SWR for a 60-year retirement has gone from 2.71% to 3.11%?

That makes me even more skeptical. I'll have to dig in more.

Thanks for the insight!
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Old 09-05-2019, 06:42 AM   #29
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As a single guy myself, I'm still not sure how I'm going to spend $50K/yr that I'm planning for drawdown, as over half of that will be discretionary spending, and my discretionary spending is close to $1000/yr in recent years. It's hard to imagine that I'll really step it up 25X to 30X that amount, even with the extra free time. So, I suspect I won't actually spend that $50K/yr that I should be able to spend. I'm not that into traveling. Anyway, follow where the math leads you.
Wow! $1,000 a YEAR for discretionary? That includes all meals out, travel, gifts, donations, impulse spending on clothes, goods etc?

You must run a really tight ship
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Old 09-05-2019, 06:50 AM   #30
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I know a lot of folks are saying you can do this financially, but you are 20 years from your pension and 20 years +- from social security.... alot can change in those years.

It sounds like you have a nice option to work anywhere in the world remotely for 100K / yr in the meantime.

I would beef up my post tax savings as well as roth IRA / 401K in your situation, especially if you plan to use ACA insurance at some point. If you manage it carefully you might squeak by the subsidy limits on income. I think the key to managing ACA subsidies is having a variety of taxable / non taxable assets to draw upon to keep your MAGI under the limit.

Given you desire 100K in spending but say you can do 70K that makes your 70K not very flexible....you want to be really confident that you can always spend at least that.
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Old 09-05-2019, 12:15 PM   #31
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At 55, I have $1.8M of taxable assets that generate almost $70K annual income (stock dividends, mutual fund distributions, a little bank interest, and some interest deferral in US Savings Bonds). That seems like way more than enough for me. Most of the stock dividends are from conservative "dividend growth" stocks which is my inflation hedge.

You have the same nest egg, although part of it's locked up in the IRA. Anything taken out would be taxed as ordinary income. And you'd need to do 72(t) or Roth conversions (which you could withdraw penalty-free after 5 years). I view my IRA and Roth ($1.2M combined) are a safety net of sorts. I'll be doing Roth conversions but don't expect to touch it otherwise.

You could plan to drain the taxable accounts more so than I plan to (which is, not at all), but at 45 that seems risky. My two cents.
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Old 09-05-2019, 01:21 PM   #32
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I totally get your idea of wanting to live off the cash flow from your investments. That's our goal after my husband retires.

Here are some of our ETF investments:

IGLB, IHYV, USHY, FALN, SRLN, PFF, PSK, SPYD, FDVV, XSHD

Some of them yield more than your fund choices. The first 5 are bonds. The next 2 are preferred stocks. The last 3 are high yield stocks.

No way would I commit money to a sector stock fund yielding less than a general broad stock fund, if you're looking for cash flow.
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Old 09-05-2019, 01:29 PM   #33
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BTW, doing a bit of math here. Your $900K at 3.5% gets you $31,500. 4.5% gets you $40,500. 5.5% gets you $49,500. That's a general idea of the cash flow you might expect with the tickers I list above. It doesn't matter what you hear or read. What matters is how much YOU need to live the life you want.
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Old 09-05-2019, 01:46 PM   #34
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At 55, I have $1.8M of taxable assets that generate almost $70K annual income (stock dividends, mutual fund distributions, a little bank interest, and some interest deferral in US Savings Bonds).
Thats close to 4% average and higher than Vanguard's high dividend fund. Are you buying individual high dividend stocks like Verizon / ATT to get that?
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Old 09-05-2019, 02:27 PM   #35
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Thats close to 4% average and higher than Vanguard's high dividend fund. Are you buying individual high dividend stocks like Verizon / ATT to get that?

The taxable side is:
55% - dividend growth stocks, 3.5% overall yield. This is easier to do than you might think. I am very well diversified.
17% - company stock, 1.7% yield.
6% - preferred stocks, 5.9% overall yield.
17% - mutual funds, 2018 distributions were about 7% but they are unpredictable.
6% - cash, negligible income.

Overall yield: about 3.8%.

While I'm working, all dividends get invested in the dividend growth basket. With ER coming up soon, I'm also growing the cash bucket. In ER, that all will change. I plan to gradually sell off the company stock and the funds, using the proceeds for living expenses (I'll let my stock dividends keep reinvesting) and any surplus will get reinvested or will stay in the cash bucket.
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Old 09-05-2019, 06:32 PM   #36
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The taxable side is:
55% - dividend growth stocks, 3.5% overall yield. This is easier to do than you might think. I am very well diversified.
.... 17% - mutual funds, 2018 distributions were about 7% but they are unpredictable. ...
Care to share some tickers? I'm skeptical.
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Old 09-05-2019, 07:41 PM   #37
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Care to share some tickers? I'm skeptical.
I'd "guess" it's yield on cost?
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Old 09-05-2019, 08:13 PM   #38
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Most of my stocks can be found in the "U.S. Companies with 25 Straight Years Higher Dividends" list at: https://www.dripinvesting.org/tools/tools.asp
You'll see many well-known companies, and others that aren't so well known.

And no, it's not YOC. It's real current yield.
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Old 09-06-2019, 03:05 AM   #39
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Scrabbler

Any reason you didnt or dont choose FAGIX ? For those that are following any thoughts regarding this T-Rowe fund ? TRHYX (it happens to be an option in my current retirement account and am looking at it as an possible bond fund for myself).
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Old 09-06-2019, 06:06 AM   #40
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Scrabbler

Any reason you didnt or dont choose FAGIX ? For those that are following any thoughts regarding this T-Rowe fund ? TRHYX (it happens to be an option in my current retirement account and am looking at it as an possible bond fund for myself).
I was a little uncomfortable with the lower distribution of credit ratings on FAGIX's underlying bonds, compared to FHIFX, to put a lot of money into that fund.
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