Everything Changed! Need Your Expertise.

[erkevin]

I could use a fresh set of eyes and different opinions on the rough outline of my plan: One year ago, I (57) had been retired for 4 years and my wife just retired (57). We both have pensions ($80k total per year, gross, non-COLA), no debt, and about $250k in cash and IRAs. We had no problems financially and were still putting substantial money away from our pension checks. We currently spend about $3000/month.
This year, due to family members passing away, we have come into a substantial amount of money/property. Somewhere in the neighborhood of 1.75 to 2 million dollars. We have an attorney handling all of the property issues, probate, so we are fine there. The question is, what do we do going forward? I have had a little time to plan and think about it and I would like some opinions: In the IRA and taxable accounts, build a portfolio of about $1 million (over the course of a couple of years). The basis of this portfolio will be large-cap value stocks (mostly Div Aristocrats). The qualified dividends should produce $35-$40k per year tax-free or at the cap gains rate of 15%. The principal will hopefully still match inflation, but these equities certainly aren’t growth stocks. This (pension and dividends) will provide a net monthly income of about $9000. Another $200k will go into a taxable account managed by a robo advisor. I don’t foresee any need for this money in my future so I would be comfortable with a moderate risk portfolio. We plan on moving, so $400,000 for a house. Another 100k or so for a vehicle and our son’s graduate school. Start a 529 account. Remainder would be cash in an emergency fund (200k or so). If this becomes too large, then increase the robo advisor portfolio.
We aren’t big spenders, so $9k a month would be difficult for us to spend. We both are eligible for social security. Health care is ACA with a pretty substantial stipend that is only going to last another year. Then about $1500 per month until 65. Your thoughts on the general investment plan? Thank you.

 

[RobbieB]

You can't contribute to IRA if no earned income, so after tax only.

 

[erkevin]

Sorry I wasn't specific about that. 80% of the divi portfolio will be in a taxable account.

 

[RobbieB]

If you're planning a move and house buy soon, stash a half mill in the checking account. I would put a couple hundred grand in the emergency fund and invest the rest. Just like you said. We must be on the same page -

Yeah, save half the cash for now and invest the rest.

 

[Bamaman]

You certainly are looking at enough assets to make it worthwhile to find a good fee based certified financial advisor to point you in the right direction.

 

[RetireeRobert]

OP---I think you have put some good thought into your upcoming needs, and plans for handling your nice windfall. I especially like your intent to put $1 million over course of a few years into mostly "Dividend Aristocrats". The principal of such a portfolio should be able to offset inflation. Plus, the principal being "Dividend Aristocrats" should also throw off a growing stream of dividend income--the income stream itself having some inflation offset of its own. Very nice thinking. You have your upcoming house purchase covered with the $400k fund, and you have an emergency fund of $200k. I think you have yourself nicely covered. Congratulations on your good planning and on your windfall.

 

[erkevin]

Another question: thoughts on needing long-term care insurance if you have a large nest-egg?

Edit: just did some digging through the forums. I think I have my answer.

 

[travelover]

You certainly are looking at enough assets to make it worthwhile to find a good fee based certified financial advisor to point you in the right direction.

I'd second this recommendation with an emphasis on fee based, not AUM compensation.

 

[Koolau]

I'd second this recommendation with an emphasis on fee based, not AUM compensation.

Yeah, if they sell something - run away. Pay ONLY by the hour.

 

[target2019]

Sorry I wasn't specific about that. 80% of the divi portfolio will be in a taxable account.

Shouldn't be too difficult. For the taxable account look for a broad dividend ETF (we use SCHD, SPYD) and a tax-free muni ETF.

For each goal you have, choose an asset allocation and go from there. Obviously you need ETF or fund that fits the account type.

I personally would get my tax CPA involved. I'd present hime with scenarios, and let him analyze and start discussion on the individual investments.

 

[RetireeRobert]

Shouldn't be too difficult. For the taxable account look for a broad dividend ETF (we use SCHD, SPYD) and a tax-free muni ETF.

For each goal you have, choose an asset allocation and go from there. Obviously you need ETF or fund that fits the account type.

I personally would get my tax CPA involved. I'd present hime with scenarios, and let him analyze and start discussion on the individual investments.

Good thoughts on ETF's. Not sure I would recommend a tax CPA for investment advice though. Only for tax implications of different investment vehicles.

 

[TheWizard]

$200k in an emergency fund when you're retired
You do realize that you are no longer at any risk of losing your job, right?

So put that $200k back into your regular investment portfolio...

 

[RetireeRobert]

$200k in an emergency fund when you're retired
You do realize that you are no longer at any risk of losing your job, right?

So put that $200k back into your regular investment portfolio...

So, people do "not" have major unexpected expenses even after they are retired? That might need an immediate cash stash to pay for? Maybe a kid's family needs sudden substantial help. Maybe the house burns down with both cars in it, and while the claims and aftermath are being deal with, need transportation and a place to live. Maybe a health problem requiring out-of-state specialist to do some surgery?

I would opine it is always good to have an emergency fund no matter whether one is retired or not.

 

[RobbieB]

I always like to have at least 100 grand in cash. Usually start the year with 200.

 

[RetireeRobert]

I always like to have at least 100 grand in cash. Usually start the year with 200.

Yes, cautious me also likes to have a readily available cash stash at hand. And I have been retired for 21 years. Sudden "needs" can rear their ugly heads, like me thinking I should downsize houses. And say I need $400,000 cash to be able to get an offer accepted for a smaller house, before I sell my bigger place I am living in now. A true emergency, no?

 

[RobbieB]

Yes, I agree. Anyone planning a RE buy-sell would be well advised to have a large stash of cash.

After the buy-sell you can then decide how much to have.

 

[target2019]

Shouldn't be too difficult. For the taxable account look for a broad dividend ETF (we use SCHD, SPYD) and a tax-free muni ETF.

For each goal you have, choose an asset allocation and go from there. Obviously you need ETF or fund that fits the account type.

I personally would get my tax CPA involved. I'd present hime with scenarios, and let him analyze and start discussion on the individual investments.

Good thoughts on ETF's. Not sure I would recommend a tax CPA for investment advice though. Only for tax implications of different investment vehicles.

I think I wrote that I would present the investing scenarios to tax CPA.

OP probably has a firm grasp on his plan and just needs to chew on some different outcomes.

Maybe I'm off-base.

 

[Dtail]

So, people do "not" have major unexpected expenses even after they are retired? That might need an immediate cash stash to pay for? Maybe a kid's family needs sudden substantial help. Maybe the house burns down with both cars in it, and while the claims and aftermath are being deal with, need transportation and a place to live. Maybe a health problem requiring out-of-state specialist to do some surgery?

I would opine it is always good to have an emergency fund no matter whether one is retired or not.

Agree, although we don't feel the need for 200k.

 

[erkevin]

I completely understand that a 200k emergency fund is not the conventional wisdom. It is partly because it helps me sleep at night and other factors; may assist with house downpayment for son, may want to purchase a vacation property down the road.

My plan is going to take several years to implement due to accounts in probate, land to dispose of, several years to access IRAs, time to develop portfolio. I am spending time every day, researching and learning. Very grateful that our current financial situation allows us to be patient, careful, and methodical.
I appreciate everyone's comments.

Oh, I am considering a substantial holding of SCHD