Your advice please: 50 years old, $1.9M, travel

[Earl E Retyre]

Thanks so much, simple girl. I just took a quick look at that site and it looks good. Even if we could housesit only 3 months out of the year then this would save me about $10k per year off my original plan. And, my wife and I love pets - so, it could be fun as well.

 

[GoodSense]

I second the housesitter websites. Also, for apartments, check Craigslist. Many large international cities have listings for short-term apartment rentals, including many furnished. It's by no means complete but is worth a look.

 

[clifp]

Back in 1999, when I retired at an even younger age I had very similar plan.

I figured with $2 million in Muni bonds I could get 5%+ for variety of munis between 5 and 30 years. They were all AA+ and insured. That would give more than $100K tax free. I could easily live on this. I'd still have an IRA invested in mostly stocks to protect me from inflation. I would then travel slowly around the world staying a few months at various places. I somewhat regret not doing the travel part, I end up staying in Hawaii (there are worse places....)

I absolutely do not regret not putting all my money in Munis, eventhough on paper Munis outperformed stocks over the decade. Despite their safe reputation Muni are actually fairly scary investment vehicles in many ways. Here is what I learned about Muni.

1. Even for multimillionaire retirees taxes just aren't that big of deal. There are plenty of ways to minimize taxes as retiree, index funds, dividends, MLPs etc. Once you drop out of the high tax brackets and move out of high income tax state, the benefits of munis drop significantly.
2. Muni bonds get called constantly. This is different than T-bonds, CD and even many corporate bonds. At one point I had 500K in Muni bonds today it is less than 100K. Some of this is because some matured, some I sold, but the majority is because the bonds were called. I did a search of all Schwab Muni bonds with yield of 4.8% or better, almost all of them were continuously callable. When the bonds is called it almost certain that you will have to replace it with a lower yield and/or longer maturity bond.
3. Inflation is big risk factor for all bonds especially long term ones.
4. The combination of 2 and 3 mean that Munis have little upside potential and lots of downside risk. If interest remain flat or go down your income will suffer as bonds are called, if interest rates go up the value of your bond will drop and your income will remain flat in an inflationary period.
5. Bond insurance is worthless. In the fall of 2008, everyone figured out that the major muni bond insurance companies were in no financial shape to actually pay claim in the event of a major city defaulting (much less a state like California). Consequently the value of insured bonds fell just as rapidly as uninsured bonds. Personally, I am psychological ok with watch stock prices go and up and down rapidly. However, muni bonds are suppose to be safe so when they dropped almost as much as stock in 2008 that was a very scary thing for me.
6. While historically muni bonds have been safe, the future looks different. Almost all state are in a suffer financial crisis due to the recession. I the near future they will face another crisis due to underfunding their generous pensions. I noticed that vast majority of Muni bonds with a yield over 4% are from cities in California. While I think it is unlikely that any President would let the state go under, I suspect that unless the CA government and people get their act together a number of municipalities will default. Even if I am wrong, I'd hate to bet my retirement on a bunch of California politician staying out of fiscal trouble for the next 30 years....

I am not saying that muni bonds are a bad investment. I think they are a great investment for somebody who is still working and in high tax bracket. But they aren't something a retiree can plunk all of his money into and enjoy a carefree life on the road.

 

[Moemg]

Welcome ,
I like your idea about travelling the world but I would stay longer than a month to really get the feel of an area .

 

[kevink]

Good thread. I suggest not only reading Billy and Akaisha's web site but also buying their e-book and studying it carefully. Also check out the invaluable book "The Practical Nomad" by Edward Hasbrouck.

We ER'D with less than half of your assets and have suffered in the market despite a very conservative, diversified allocation a la Bob Clyatt's RIP portfolio (and come to think of it, the investing section of his book, "Work Less, Live More" would be of great help to you). If you are looking for a truly defensive portfolio I would recommend checking out the work of Harry Browne and his Permanent Portfolio. There is a gigantic and very informative thread about it over on Bogleheads, and you can get the short version at this excellent web site run by one of its most articulate proponents:

About the Blog | Crawling Road

At the very least, read Browne's "16 Investing Pointers" on that site and you'll realize why having all your eggs in the muni bond basket is not a way to sleep well at night long term.

We've traveled extensively in Asia and Europe and currently live full-time in Mexico. The first thing I would say is if you want to get to know a place as well as be able to get a handle on true costs of living you need to stay for six months in a given place. That allows you to rent by the month at local rates rather than pay through the nose for tourist housing, learn a bit about the culture, how to shop and so on. Places advertised on the internet are never representative of local housing costs but are severely skewed towards the high end. This is totally true in the developing world and largely true even in Europe.

You can always follow in Billy and Akaisha's footsteps and rent for 4-6 months and then use that rental as home base for exploratory trips to nearby countries. If you really do want to speed through the world, relatively speaking, with only a month in each place you'll do better by reading up all you can beforehand and still choosing your countries carefully. The Hasbrouck book will be worth its weight in gold in that regard.

I envy you your choices and commend you for your diligent saving, hard work and spirit of adventure!

 

[pixelville]

I am very happy to see Pixelville's reply since he is doing something similar to me and he is even younger. Good points you make. I am curious if your financial situation is similar to mine or better off.

Financial situation is not as good as yours but we are open to short-term consulting projects that can help get additional income occasionally, if needed.
As someone else suggested, I (she) too would recommend that you try 2-3 locations per year while you have your home base and your job (maybe take unpaid leave if possible) for a couple of years before taking the lifestyle plunge.
There are several relevant blogs (JetSetCitizen, nomad4ever, Nerdy Nomad and they link to other similar blogs) that you might find inspiring.

 

[walkinwood]

Welcome!

My advice is to read through the books mentioned so far. You need to internalize the logic behind their advice or you'll have a hard time sticking to it when times are bad.

Someone already mentioned Bob Clyatt's book. He proposes using 4% of your portfolio value each year. (Safe Withdrawal Rate). But, he assumes a portfolio that is 50% in equities via index funds.

Like a lot of people on this board, I think you should not count your home in your ER portfolio. Even if you don't own one, keep that money separate & safe - you'll need it at some point.

I ER'd in May '08, and went back to work last month. So, my suggestion is to do it while you're still young and healthy. If it doesn't work, you can always re-join the workforce.

 

[Earl E Retyre]

Unfortunately, I had to work all day. So, I am getting caught up on the responses now. Let me say, I never imagined all the great advice I would get from my one posting. Thanks to everyone.

Clifp, you make some great points. I think I am convinced not to do my original plan. But, now I really need to figure out what to do. I have lost literally hundreds of thousands in the stock market. Looks like I have lots of reading to do.

Reading responses from folks like KevinK who has done a similar plan with less and Pixelville as well is very encouraging to me. It tells me I probably have enough resources if I can figure out the best investment portfolio.

The advise to stay longer than 1 month is more than OK with me. I could see that being much more relaxing and less hectic.

Walkinwood, I like your suggestion as well.

Thanks all.

 

[clifp]

Clifp, you make some great points. I think I am convinced not to do my original plan. But, now I really need to figure out what to do. I have lost literally hundreds of thousands in the stock market. Looks like I have lots of reading to do.

As I said I almost exactly your assets and plan, and was buying lots of muni bonds before I found a predecessor to this board and learned differently.

Unfortunately there is no silver bullet investment that combines, decent income, inflation protection, low volatility, and hassle free investing.

One option for you assuming you don't want to actively manage your portfolio is the Vanguard Managed Payout funds. These provide a reasonably constant monthly payout, which they strive (but don't guarantee) to keep up with inflation. The funds launched at a horrible time late 2008 so their performance has been poor.

Roughly speaking $2 million will generate $100K a year in the moderate fund. Much of which should be taxed at the dividend long term capital gains rate. If you don't need that much income you gain elect to invest in a more conservative fund and have a better chance of having your income grow with inflation.

You can do a search for "Vanguard Managed" or start with this thread.

Oh and if you haven't figured out that psst Wellesly funds has many fans, and I think it is safe to say no enemies, you will find that out soon enough.

 

[Earl E Retyre]

Thanks, again Clifp. I really appreciate the advise. I will need to look into the Vanguard Payout funds and Wellesly. The good thing (sort of) is that I have enough long term losses to off set gains for several years. It is nice to hear you had almost the exact same plan as me and sounds like you have been successful.

 

[Westernskies]

Welcome, and I nominate you for the best new user name we've seen in a while!

Sounds like you are on track, tear off the rear-view mirror and don't look back!

Keep us posted.

 

[Earl E Retyre]

Thanks, Westernskies for the motivational support. I appreciate it.