Challenge: How would you invest $1 mil cash in 2022 to retire today at age 50?

D

dolaimo

Confused about dryer sheets
Joined
Jul 12, 2022
Messages
2
Although there are a lot of information and support out there for saving for Fire, or withdrawal when you already have a portfolio in place, I am at a loss as to how to design an After-Fire portfolio from scratch in the investment environment of 2022.

How would you allocate $1 million cash (all after tax, assume no other income) to generate $40k a year (assume 0% tax) with 99% success rate that the portfolio will last for 50 years, and with a legacy pot of $100,000 or less (in other words, no need to leave any inheritance, but just so there is some peace of mind the money pot can't be too close to $0 near death)? Assuming that you don't want to spend more than a few hours a month managing your investment and want to sleep very well at night?

Also, any books or resources or respectable blogs/podcasts/thinkers/after-FIRE people who share the nitty-gritty of their After Fire financial investment management strategies will be highly appreciated.
 
Last edited:
Way to many variables. Basically, you need 40K a year to live on. Plan on using up principle. Assume you are eligible for SS? But when. Health insurance? Prior to Medicare. Where do you plan on living.

IMHO, to many details left out....:facepalm:
 
Thanks for the link. I'm not so much looking to calculate a withdrawal rate, but portfolio design (what exact assets to invest in, such as real ETFs, bonds, funds etc). Either examples of real portfolios of people After Fire, or how you would invest if you have $1 mil to invest from scratch today for $40k of retirement income for 50 years of time horizon with close to 0% fail rate and near $0 principle in the end, and easy/simple to manage (like 3-5 assets, quarterly rebalancing, a few hours a month of involvement). For example, Kristy Shen at Millennial Revolution shares their very simple 4 or 5 broad fund portfolio that they set up several years ago and shares how she withdraws 3-4% (I forgot how much exactly) each year since then. But in 2022 broad market funds like Vanguard Total markets only yields about 2%, it seems, and so that won't work? Or am I not understanding something?

I realize there are many additional parameters possible, and also perhaps in today's environment 4% is not possible with a simple portfolio? If that's the case, what would you invest in instead? It's not a simple question, I realize. I would like to learn a bit about how you would go about doing this. Or even better, what exact investments you will put the money in and at what %. Feel free to set additional parameters given your personal preferences or change the given parameters if those don't make sense to you or impossible to achieve in 2022. Or if this is not a question that can be answered easily, do you have suggestions for books or people that I can turn to to get ideas about what actual assets might make up such a portfolio (not in theory but in reality)? Thank you!
 
Last edited:
Hmmm - 1993 aged 50. Roughly 60/40. Circa 2006 gave up manual rebalancing went to full auto - Target Retirement, At age 79 now 30/70.

Heh heh heh - Would I do it again today ?? Probably BUT male hormones says also some mad money stocks and watch football in season. :LOL: :LOL: :facepalm:
 
dolaimo said:
Thanks for the link. I'm not so much looking to calculate a withdrawal rate, but portfolio design (what exact assets to invest in, such as real ETFs, bonds, etc).
Click to expand...
[...]
dolaimo said:
Or if you have suggestions of books or people to look into to learn from. Thank you!
Click to expand...

About 15-20 years ago, I needed to learn about the topics you are interested in. I jumped into the problem feet first, by ordering half a dozen of the books on this list that looked most interesting/helpful to me:

https://www.bogleheads.org/readbooks.htm

Then I read all six of them carefully, taking notes, and read them all again.

Really, that's all you have to do. A portfolio in retirement is generally quite similar to one before retirement, only less risky (many of these books address portfolio design, risk tolerance, and so on). After getting a good idea of what I wanted to do, I invested through www.vanguard.com because it seemed like a good way for a "do-it-yourself" investor like me to invest. Up to you, but anyway that's what I did.

In general I'd say the Bogleheads forum could be extremely helpful for you.
 
dolaimo said:
... $1 million cash if you are retiring now at age 50 to achieve a withdrawal rate of 4% minimum with 99% chance the portfolio will last for at least 50 years, and with a legacy pot of $100,000 or less ... don't want to spend more than an hour a month managing your investment and want to sleep very well at night? ...
Click to expand...
Are you in one of those states where Mary Jane is legal? This is a pipe dream. Start with the fact that the future is unknown and almost certainly not Gaussian, so there is no possibility of probabilistic predictions.
 
I don't know if you could sleep well at night with this portfolio but I would put 90% of it in VTI or equivalent (total stock market index fund) and keep the other 10% in cash. The cash is to live on in a down market so you don't have to sell equities at a loss.
 
Answer depends on how much you already have invested beyond this $1M In cash.

Let's say you have $3M invested in a 50/50 stock/bond allocation.
Then I would put that extra $1M completely into stock index funds!
 
dolaimo said:
how you would invest if you have $1 mil to invest from scratch today for $40k of retirement income for 50 years of time horizon with close to 0% fail rate and near $0 principle in the end, and easy/simple to manage
Click to expand...
Assuming no other significant income sources coming in the future, with the parameters you have set out, I'm not sure that's "reasonably" possible. Just look what has happen to most investments this past year... Not to mention what inflation has done to everyone's bankroll. Not sure this year will be any better.
 
Last edited:
dolaimo said:
Although there are a lot of information and support out there for saving for Fire, or withdrawal when you already have a portfolio in place, I am at a loss as to how to design an After-Fire portfolio from scratch in the investment environment of 2022.

How would you allocate $1 million cash (all after tax, assume no other income) to generate $40k a year (assume 0% tax) with 99% success rate that the portfolio will last for 50 years, and with a legacy pot of $100,000 or less (in other words, no need to leave any inheritance, but just so there is some peace of mind the money pot can't be too close to $0 near death)? Assuming that you don't want to spend more than a few hours a month managing your investment and want to sleep very well at night?

Also, any books or resources or respectable blogs/podcasts/thinkers/after-FIRE people who share the nitty-gritty of their After Fire financial investment management strategies will be highly appreciated.
Click to expand...

I think one important missing thing is whether the $40k a year is nominal or real.

Assuming that the $40k is nominal, then it is a fairly easy. The interest rate needed to provide $40,000 annually from $1,000,000 for 50 years is 3.15%... IOW, if you invested $1,000,000 in an interest bearing instrument that yielded 3.15% and withdrew $40,000 annually, after the 50th withdrawal the account balance would be zero. You could create a UST ladder that would yield 3.15%, but to my knowledge the longest UST is only 30 years and you are looking for 50 years of cash flow.

Alternatively, if you invested in a 30 year UST ladder that yielded 3.62% and withdrew $40,000 annually for the first 30 years you would have a terminal value at the end of 30 years of $800,000 (sufficient to fund $40,000 a year for years 31-50).

If interest rates increase another 50-75 bps then it could probably be done, but the cash flows would not be inflation adjusted... but that is the question that you asked.... warts and all.

If you want the $40,000 annual withdrawls to increase with inflation then there is no guaranteed answer and it is a silly question.
 
For our purposes, failure means the portfolio was depleted before the end of the 50 years. FIRECalc found that 20 cycles failed, for a success rate of 80.4%. It would go up some when you get S.S. at 62-70. That is with a 75/25 portfolio.
 
100% equities AA has the best chance for a 40-50 year time horizon (as long as you can ride the major swings of the stock market without pulling out).
 
dolaimo said:
Although there are a lot of information and support out there for saving for Fire, or withdrawal when you already have a portfolio in place, I am at a loss as to how to design an After-Fire portfolio from scratch in the investment environment of 2022.

How would you allocate $1 million cash (all after tax, assume no other income) to generate $40k a year (assume 0% tax) with 99% success rate that the portfolio will last for 50 years, and with a legacy pot of $100,000 or less (in other words, no need to leave any inheritance, but just so there is some peace of mind the money pot can't be too close to $0 near death)? Assuming that you don't want to spend more than a few hours a month managing your investment and want to sleep very well at night?

Also, any books or resources or respectable blogs/podcasts/thinkers/after-FIRE people who share the nitty-gritty of their After Fire financial investment management strategies will be highly appreciated.
Click to expand...
I wouldn’t try to generate cash or dividends. I would simply invest according to my planned retirement asset allocation, and withdraw $40K per year, rebalancing back to the AA after withdrawal. You can take from whichever assets get you closest to your desired AA.
 
aaronc879 said:
I don't know if you could sleep well at night with this portfolio but I would put 90% of it in VTI or equivalent (total stock market index fund) and keep the other 10% in cash. The cash is to live on in a down market so you don't have to sell equities at a loss.
Click to expand...

This is my suggestion also. VTI and a bucket of cash for 2 years of living expenses.

This is the whole economy pretty much so if this portfolio doesn't work we are all screwed.

As long as the markets are bailed out by the taxpayers again and again in the future you are good to go.
 
dolaimo said:
Although there are a lot of information and support out there for saving for Fire, or withdrawal when you already have a portfolio in place, I am at a loss as to how to design an After-Fire portfolio from scratch in the investment environment of 2022.

How would you allocate $1 million cash (all after tax, assume no other income) to generate $40k a year (assume 0% tax) with 99% success rate that the portfolio will last for 50 years, and with a legacy pot of $100,000 or less (in other words, no need to leave any inheritance, but just so there is some peace of mind the money pot can't be too close to $0 near death)? Assuming that you don't want to spend more than a few hours a month managing your investment and want to sleep very well at night?

Also, any books or resources or respectable blogs/podcasts/thinkers/after-FIRE people who share the nitty-gritty of their After Fire financial investment management strategies will be highly appreciated.
Click to expand...

Save another ~$115k on top of that $1 million & use the 'cash bucket' strategy here for a 50-year drawdown:

https://earlyretirementnow.com/2018...hdrawal-rates-part-25-more-flexibility-myths/
 
Depends on one's age and situation, for us we would purchase 5 $200k fixed income vehicles that pay 5% or better, defer returns till taken, and allow 5 - 10% withdrawals per year. As it represents only a portion of our nest egg.
 
You must log in or register to reply here.

Similar threads

Y
How to decide if you can live off investments or need to draw them down
2 3 4
Replies
93
Views
8K
pb4uski
pb4uski
T
Rethinking my asset allocation.
2 3
Replies
69
Views
9K
DrRoy
DrRoy
L
61 y/o in Atlanta, mostly retired
2
Replies
43
Views
2K
pacergal
P
T
Retired 10 years today!
Replies
18
Views
1K
Koolau
Koolau
R
Seeking Advice - for retiring at 52.5
2
Replies
44
Views
5K
LateToFIRE
L

Latest posts

Back
Top Bottom