Hi... age 40, $3M, should I retire?

[Kabekew]

I recently sold my business and currently have $2.95M in liquid assets after taxes. I'm still working for the company that acquired mine, at $180K a year, but the stress and BS have me coming home everyday saying I really don't need this, so why am I here? I have a non-compete but not under employment contract.

My questions:

-- The 3-5% rule-of-thumb withdrawal rate, does that assume all taxes will be paid out of that as well? So if I need $60,000 a year I would really need to consider $90K as the withdrawal amount?

-- Is there a conventional wisdom that says professionally managed "wealth" services like Fidelity's Portfolio Advisory Service are known rip-offs, or okay for new investors who probably couldn't do any better? They say they also provide maximum tax benefit so while returns may not be as good as putting it in indexed funds myself, the taxes may end up lower. Sales BS or is there something to it?

Thanks and hello everyone!

[REWahoo]

Kabe, welcome to the forum. My advice is to run, don't walk to the nearest exit and get on with your life.

Quote:

Originally Posted by Kabekew -- The 3-5% rule-of-thumb withdrawal rate, does that assume all taxes will be paid out of that as well? So if I need $60,000 a year I would really need to consider $90K as the withdrawal amount?

Yes, the "4% rule" refers to the initial amount withdrawn from your portfolio in year one, including taxes.

Quote:

Originally Posted by Kabekew -- Is there a conventional wisdom that says professionally managed "wealth" services like Fidelity's Portfolio Advisory Service are known rip-offs, or okay for new investors who probably couldn't do any better? They say they also provide maximum tax benefit so while returns may not be as good as putting it in indexed funds myself, the taxes may end up lower. Sales BS or is there something to it?

This forum is populated primarily with DIY investors so the most frequent response to your question is likely to be "Sales BS". However, I'd say the answer depends on how complex your tax issues are and how interested you are in managing your own financial affairs. Most of us have figured out managing our own money isn't rocket science and fees paid to advisors is an unnecessary expense.

Others will be along shortly to disagree.

[haha]

Quote:

Hi... age 40, $3M, should I retire?

Heck no, send half of it to me. Further instructions will follow.

Ha

[Rambler]

If you can live on $90-110 or so pre-tax, you can do it. At that level, you can almost be tax free, if your AA is right, and with maybe 40% or so in tax-free long munis. My situation is very close to yours as a target (3.2m x 3.4%swr, with a 55/40/5 AA, the 40 being in long munis, now yielding around 6% if you can stomach A or AA ratings, and the 55 being in dividend paying equities). Total cash throw-off is targeted at 3.4%, and looking for 7-7.5% total returns. For me, since we pay a religious tithe of 10%, there is no tax on this cash throw-off due to personal exemptions, and being able to deduct the tithe as a charitable contribution, and of course the tax-free-ness of the munis. The 5% is cash, bare bones expenses worth for 3+ years, or emergencies.

Others may have issues with this type of AA and tax strategy, and I don't mind hearing them. Its just what looks like it will work best for us. BTW, we have about 2years until punch-out. May be a little later depending on how long the down economy lasts. Was originally targeting this coming June but do not want to retire into a declining market, prefer one on the upswing.

For you, I think you could do it now if you wanted, but if you can stomach the stress for another 6-18 months give or take, that would probably be a good option, just to see where the market takes you and your funds. I do quite a bit of career counseling and advice, as well as statements in the press, and my advice of late to anyone who will listen is that if you have a job right now, don't quit...wait and see. You have to be able to stomach the stress though, or become like a duck (when water hits their back it does not faze them).

Good luck!

R

[Rambler]

Forgot to add, with the strategy I outlined, you probably won't every have to touch the principal, except for the occassional update to AA.

R

[Grep]

"Should" you retire? That's a personal choice. "Can" you retire? It looks like you can as long as your needs are not extravagant.

Please be careful about the higher end of the "3-5% rule" that you quote. The general consensus is that 4% can easily be survivable for 30 years. Pushing it to 5% gets much more iffy. But you are only 40. At this age, with easily 50 years ahead of you, something more like 3% would be a safer bet, and some would say less than that, even.

As REWahoo says, that 4% (or, better yet, 3%) includes taxes.

Finally, the "pros" will take an excessive cut for their services. Read a few books and do it yourself. It's not that hard. Here's how easy it can be:

* Put say 7 years expenses in a CD ladder and keep the ladder topped off.
* Put the rest in Vanguard's Wellesley (an income-oriented fund) or one of their Target Retirement accounts that suits your preferred stock percentage ("100-age in stocks" - 60% in your case - is a good rule of thumb).

I'm not saying this is optimal, but it's a good start.

Best of luck!

[jchere]

Kakbew: I played at the stock market for20-30 years using a broker, and I got broker. Before I retired 12 years ago I decided my $500k IRA wasn't going to be enough at age 62. I got a lot more serious about the mkt and spent a lot more time learning. During that time I discovered a very useful tool. It is called Vector Vest. I have found it saves me a great amount of time getting info as well as their excelent advice. They will give you software and books and a 5 week trial for $10. The best part for me was they don't bug you to buy more if you don't want to continue.
I use it and cleared 11% last year. I am sure if I worked harder I could have done better.
I believe true inflation, with the govt printing funny money as fast as they can, is about 10-15% and will get worse. You need to add this into the useful value of your available cash. I live aboard and cruise in the summer, I need some way to make money while I am at the dock or cruising. This is the best I can up with.
Good luck.
Note: I have NO finantial interest in V.V.

[Grep]

Oh, my goodness! For the sake of your wealth and sanity, please don't day trade. Own entire markets according to your ability, need and willingness to take risk, rebalance on occasion (like once a year), and relax.

(And you might want to have a healthy scepticism of a poster whose very first post is touting a day trading "screening" program.)

[donheff]

Quote:

Originally Posted by Kabekew I recently sold my business and currently have $2.95M in liquid assets after taxes. I'm still working for the company that acquired mine, at $180K a year, but the stress and BS have me coming home everyday saying I really don't need this, so why am I here?

You are financially independent so you should pull the plug on the stressful BS. As to whether you should retire from paid employment or find another job you can figure that out at your leisure. By making this a sabbatical of sorts you can figure out what you really want to do with the rest of your life

[kcowan]

How many hours do you put in for your $180k? Could you cut down to $90k and spend the extra time learning and practicing DIY investing? After that, practice leisure activities.

I am a big believer in evolution when making major life changes.

[FUEGO]

Could you cut the income to 90k, take a demotion, and live happier? A la Bill Gates taking the role of Chief Software Architect at Microsoft instead of CEO?

Seems like you have a sufficient portfolio to fund a sizable withdrawal. 3% of 3 million is 90,000. But if you are paying 1% in average fund expense ratios and 1% to Fidelity for wealth management, you are looking at taking closer to 1%. 1% of 3 million won't get you very far, my friend. Consider managing your own money and you could probably cut your investment fees down considerably. Maybe pay for some professional advice from a fee only planner with investment and tax experience. Help you get a simple portfolio set up, and teach you the basics of tax efficient investing as it pertains to your situation. I don't think the 42 funds in your $800,000 account at fidelity is what you should have.

[jIMOh]

$2.95M -
how much risk are you willing to take with the money? If you are conservative (as in only want to use CDs and similar cash based investments), then it might not be enough. If you are willing to accept market risks and other risks, you can probably retire now.

Some of us here follow the buckets approach. If you need 60k per year starting now, you have plenty and the buckets approach might work well.

Put 9 years expenses ($540,000) in cash. CDs, TIPs or money markets. For example 60k in your money market for spending in 2009, 60k in a 1 year CD, 60k in a 2 year CD and 60k in a 3 year CD. The 60k in TIPs maturing in 5 years, then buy another 60k in TIPs one year later and 60k one year later and 60k one year later and 60k one year later. Meaning you have a 3 year CD ladder followed by a 5 year TIP ladder. Regardless of the market, you will have 9 years expenses out of the market.

Then set up a second bucket to generate 60k in income each year. Probably from dividends and interest.
A fund like wellesly probably can yield you 4%
muni bonds like others have mentioned can probably yield you 2.5%
Dividend stocks can probably yield you another 3%.
$750k in wellesley gets you 30k
$500k in muni bonds gets you 12.5k
$250k in dividend paying stocks gets you 7.5k
the total income is 50k- plus the dividend paying stocks and wellesley have the opportunity to appreciate. $1.5M sending out 60k in income is the 4% withdraw rate. Tweak the numbers if the 3X-2X-1X in wellesley-munis-dividend payers is not in line with your own risk tolerance or if you want to add REITs (higher yield) for example.

You still have about 800k left to invest. This is bucket 3. Invest this in a diversified portfolio of cash and equities. If bucket 2 ever falls below $1.5 M, move money from bucket 3 to bucket 2. When bucket 3 increases in value, sell some of the gains. When bucket 3 loses value, wait for gains to replenish bucket 2.

Each bucket is essentially taking on another layer of risk.
Bucket 1 is the money you need this decade
Bucket 2 primarily generates income, but should increase slightly in value over time
Bucket 3 is to make sure you always have enough money.

[Sam]

Quote:

Originally Posted by haha Heck no, send half of it to me. Further instructions will follow. Ha

Sounds almost right. Send me the other half and keep working ;-)

[CuppaJoe]

Quote:

Originally Posted by Sam Sounds almost right. Send me the other half and keep working ;-)

and you and Ha send me the yield on both halves.

[Rustic23]

Must be in a high income tax state. That is a 33% tax rate on $90,000. I'd move to Fl, or Tx. Of course if you pick TX. you have the scorpion and fire ant tax. Might stick with FL.

[ChrisC]

Quote:

Originally Posted by haha Heck no, send half of it to me. Further instructions will follow. Ha

Now, send the other half to me, per Ha's instructions.

Seriously, do you have children or others who are counting on your assets or income for enjoyment such that the $2.9 million in liquid assets and $180K in yearly income aren't such big numbers after all? I mean if you have kids and you're currently sending them to Sidwell Friends or St. Stephen's & St. Agnes, in the DC area, that's a sizeable chunk of money going out the door for a long time! And that's just elementary and secondary school education.

[samclem]

Quote:

Originally Posted by Sam Sounds almost right. Send me the other half and keep working ;-)

Sam, welcome back. We'd been wondering about where you'd gone.

[Sam]

Thanks, samclem. I'm still around, just didn't have anything "interesting" to say. How are you guys doing?

Quote:

Originally Posted by samclem Sam, welcome back. We'd been wondering about where you'd gone.

[Kabekew]

ChrisC, no I don't have kids and am single.

Thanks for the suggestions everyone! I'll look into that bucket approach.

[Bestwifeever]

Quote:

Originally Posted by Kabekew ChrisC, no I don't have kids and am single.

Would you like to sign up for our top-of-the-line matchmaking service, in that case?