Could use some advice

[AZSunset]

I was hoping that someone out there might be able to give me some advice. Recently, I had to retire due to a health issue. This was unexpected. I truly enjoyed by job and I had every intention of working an additional six years until my FRA of 66. Currently, I am drawing a monthly income from my group disability policy that I participated in when I was working. The plan pays me 60% of my annual salary. I also have an attorney who is working on obtaining Social Security Disability benefits for me. He feels, based on my age, health and contributions to Social Security over the past 45+ years that I stand a more than 50/50 chance of being granted benefits.
I am focusing on the time between now and when I turn 66 yrs. To get me through until then I don't want to have to depend on my disability income from my insurance company nor on the "possibility" of being granted disability benefits from Social Security. Disability insurance companies are known for their capricious ways of denying benefits. I've heard some real horror stories of folks on disability who were cut off by their insurance company without warning or reason. Social Security is truly maxed out. If the money continues great - if not, I want to be prepared for the worst.
I "currently" have almost enough money in three bond funds; PONDX, SPHIX and THOPX to get me through the next four years. All seem to be solid funds and have a duration of just a little over three years. In addition to the bond funds, I will need to draw an additional $48K from my money market. Obviously, if my disability income continues for the next several years my need for funds will be reduced by almost 50%.
This is my question, since I have the money I need "now" should I go ahead and liquidate the three bond funds? I've never gone to money in the past - but, we all know where bond funds are headed in the foreseeable future. Or, should I take my chances and see what happens?
What I haven't mentioned is that after I turn 66 and my "retirement" income (Social Security, annuities, pensions, etc,) begins, there should be enough in the remainder of our other mutual funds (index and managed) to get us through our retirement hopefully without any hiccups.
I'm really open to some advice.

 

[Ready]

Sorry to hear you are going through this. I hope you are doing OK with your health issues.

To answer your question, if I needed to have money available to me within the next three years, and I had all of it in bond funds, I would liquidate either all of it, or at least 75% of it, immediately. It is highly unlikely that you will see significant returns from bonds in the next few years, and more likely you will see a decrease in NAV. The upside doesn't justify the downside risk if you need the money in the short term. Park you funds in an Ally 5 year CD, knowing that if you need the money sooner it's only a 60 day interest penalty.

One thing to keep in mind with CDs though is that you should not put all of the money into one CD because if you do need to liquidate early you must liquidate all of it. So if you have $250K, buy 5 $50K CDs individually so the most you have to liquidate at one time is $50K.

Good luck with it. I hope it all works out with the disability compensation.

 

[REWahoo]

What Ready said.

 

[Buckeye]

I actually read the disability policy (which was with a major provider) offered by one of my employers and it really opened my eyes. I came to the conclusion the policy was really only good for about two years and then they quit paying because the assumption is that you are on SSDI or you could do "something" even if it wasn't your old job.

Get a copy of your policy and read it cover to cover and see what you think when you are done. May not be a bad idea for the attorney to give you is opinion on your specific policy.

 

[LOL!]

I don't think it makes sense to just sell the bond fund shares going forward and spend the money. If you do that, won't you actually be increasing the risk level of your portfolio because your equity shares will become a larger and larger fraction of what you have?

Think about this: With your plan in 3 years you won't have those bond funds and in 4 years, you won't have that cash. Is that really what you want?

Instead, I would say come up with an asset allocation for your overall portfolio, say 40% bonds, 10% cash, and 50% equities and just withdraw to keep it at that asset allocation. If equities go up (like this year), you will withdraw equities. If equities go down, you will use the bonds to buy equities in a rebalancing move and spend some, too.

There are also ways to structure withdrawals in order minimize income taxes, but that may not be an issue for you. Also, you may wish to consider Roth conversions if your taxes are zero or at least very small.

In other words, you seem to have the typical "How do I withdraw from my portfolio problem?" that we all have.

 

[Larro Darro]

Many do take advantage of the system. But not everyone gets SSDI that should, though. My BIL had a heredity disease that made walking difficult, then later impossible. He was a book keeper, and after training his replacement, he was fired. It took almost three years for the SSDI to be approved. He got back pay, but after living off credit cards for three years, he never caught back up. When he died three years ago, he was still paying off the debt he had run up while waiting.

 

[padlin00]

Agree with LOL, stick with your chosen AA.

 

[Katsmeow]

I think it is a little more complex than staying with the asset allocation. This is analogous situation where a larger amount of money is needed in a relatively short term and if it wasn't available when needed it would have a very negative effect. Imagine someone selling a house who wasn't going to buy a new house for a year. Very few people would say to invest the house proceeds according to normal asset allocation.

The point is that if you know you will be taking out more money in the short term than would be called for by your normal withdrawal rate, money that you can't easily cut back on, should you put it somewhere with less risk of volatility? For the long term, I would say no since you do rely on your AA. But, for the shorter term it is not that clear.

I am actually facing a similar quandary but for different reasons. Over the next 2 1/2 years due to children in college and the fact that I am not yet collecting SS, we will have unusually high expenses. The funds to pay that have been held in our normal asset allocation. I expect we will actually end up 2 1/2 years from now with a smaller portfolio than we have now. That is fine and I'm not worried about relatively small market declines (say, 10%). However, given the large withdrawals we will be taking during this period, a large market decline could be problematical (it wouldn't be in the long term but we might have to take large enough withdrawals that we couldn't recover).

On the other hand, I'm not that crazy about having money in cash.

We have ended up putting about 2/3 of the money we will need to withdraw over the next 2 1/2 years in a combination of money market (about 1/3 of it) and a short-term bond fund. We currently are still maintaining our asset allocation - 55/45. As we withdraw from the money market and short term bond fund we may get a little out of balance and we will probably rebalance at that time (I usually rebalance when we get 5% out of whack either way).

 

[MBAustin]

I would go with what Ready said, and would ladder the maturities of the CDs. When they mature, you can either use the money for spending or, if not needed, either rollover into a new CD or invest into whatever your AA suggests is appropriate.

If you do this, essentially, the CDs become part of your "bond" allocation for the next several years. If you still want to rebalance, you can do that gradually as other opportunities come up.

Also, if you aren't already doing this, it would be a good time to start taking dividends and capital gains from any of your non-tax-advantaged funds in cash rather than reinvesting them. In our case, this throws off enough cash to fund 20-30% of our expenses (we are not drawing from our IRAs yet although DH is old enough to do so).

Hope that your health situation allows you to enjoy the retirement you have earned!

 

[AllDone]

Applying for SSDI

I'm normally a lurker, but I've learned a lot of good stuff here over the years and this is one area where I've actually had some experience. I'm a retired primary care physician and in my experience people get approved for SSDI faster when they don't use attorneys. There is a particular large SSDI firm that stretches cases out for a loooong time. It can be hard to get SSDI for vague causes (back pain without obvious pathology, fibromyalgia, etc.), but I've seen the process take 6-12 weeks for easily verified problems; Parkinson's, post-polio syndrome, heart failure, etc. if you've been seeing a physician repeatedly for a given disabling problem, it might make sense to apply directly. Your own doctors don't make the determination, they will just provide records (they have up to 30 days to provide records which can be one of the hang ups, I'm sorry to say, especially for long standing problems).

 

[Lsbcal]

...(snip)...
This is my question, since I have the money I need "now" should I go ahead and liquidate the three bond funds? I've never gone to money in the past - but, we all know where bond funds are headed in the foreseeable future. Or, should I take my chances and see what happens?
...

I'm only qualified to give my opinion on the above (red) statement. If we knew the future in bonds we would know exactly what to do. Isn't the bond market already priced for the perceived future? This is not just a quibble, my bond position is set up for what might happen over a period of years.

So if I were you, I'd develop my short, intermediate, and long term plans first. Then set the investment policy. If one's life picture has changed dramatically, then reducing risk might well be the best policy. Better to do risk reduction ahead of some market turn that might cause a person to panic and make bad choices. Tough choices we all have to make, balancing greed and fear.

 

[PawPrint53]

If you've been seeing a physician repeatedly for a given disabling problem, it might make sense to apply directly. Your own doctors don't make the determination, they will just provide records (they have up to 30 days to provide records which can be one of the hang ups, I'm sorry to say, especially for long standing problems).

As someone who had to access social security disability, I agree with this, especially given your age. I documented every way the disability affected my life, my family wrote statements, my doctors (who encouraged me to apply) provided records, and my coworkers wrote statements. I brought all the information into the SS office and had a face-to-face interview. Then I was assigned a doctor. Living with a disability and having to apply for disability payments is bad enough--don't let an attorney take a good chunk of your money, too.

 

[Brett_Cameron]

I'm normally a lurker, but I've learned a lot of good stuff here over the years and this is one area where I've actually had some experience. I'm a retired primary care physician and in my experience people get approved for SSDI faster when they don't use attorneys. There is a particular large SSDI firm that stretches cases out for a loooong time. It can be hard to get SSDI for vague causes (back pain without obvious pathology, fibromyalgia, etc.), but I've seen the process take 6-12 weeks for easily verified problems; Parkinson's, post-polio syndrome, heart failure, etc. if you've been seeing a physician repeatedly for a given disabling problem, it might make sense to apply directly. Your own doctors don't make the determination, they will just provide records (they have up to 30 days to provide records which can be one of the hang ups, I'm sorry to say, especially for long standing problems).

This matches DW's situation for regular SS Disability not SSDI. She applied on line. 3 months later she was approved. Never had to meet with anyone, just several phone conversations. I had to be interviewed as well by telephone.