Retired recently and have a rolled over IRA, classic dilemma

[Bona Fide Retiree]

I've recently retired and just received "rollover money" into my traditional IRA from my 401k and from a lump sum pension. I now have the classic dilemma. It is a lot of money and is sitting in my Fidelity account as MM funds, earning nearly nothing. To me, the market seems like it should not be where it is. Like a correction is in order. This forces me into a textbook "market timing" issue. But I will leave that one for now and get to any even more touchy subject. I have agonized, read books, agonized, done spreadsheets, agonized and drank Don Julio. No clearcut style of investing has stood out in the trade matrix. There are tons of books touting index fund investing. In fact, maybe too many. And there are books touting dividend investing. Both intrigue me but I have not collected enough data on the dividend investing to have a good feel for it's efficacy regarding a steady retirement income. My main concern is how dividends and dividend stocks held up in the post 2007 downtrend. Anyone care to share some insights?

 

[LOL!]

Here you go: A chart of Bank of America had to use log scale:
Bank of America Corporation Com Stock Chart | BAC Interactive Chart - Yahoo! Finance

 

[Bona Fide Retiree]

Thanks and I know some dividend payers have suffered, but I also notice on one of the recent ER polls regarding dividends as a percent of 4% SWR, that some folks are doing quite will with dividends as an income stream. Was interested in gaining some insight into dividends vs taking cap gains as an income source.

 

[LOL!]

Here are two papers on the subject:
https://institutional.vanguard.com/iip/pdf/WP_TotalRet.pdf
and
Flaws in Vanguards Withdrawal Strategy

Note that a portfolio of bonds and stocks would have quite a bit of bond dividends, so you would not necessarily need to take cap gains.

 

[Bona Fide Retiree]

Ahhh, perfect, thanks. I have articles on the benefits and drawbacks of each approach but had not seen the comparisons. I retired rather quickly and with no intent to do so just 4 months ago, so I have loads of planning that I originally thought would be about 5-6 years from now. Thanks, I'll go away and read those. Happy Thanksgiving.

 

[chinaco]

IMO - The distribution phase is different than the accumulation phase... and therefore asset management issues are a little different.

Assuming you will need to spend the money during your retirement....

I would recommend that you read and study information that is focused on investment during distribution and techniques for producing income.

A couple of books:

• Ray Lucia has a book on his trademarked "buckets of money" approach.
• Paul Grangaard has a good book on the topic "The Grangaard Strategy: Invest Right During Retirement"
• Ed Slott has some good books on the use of Roth IRAs and taxes.

If you are a 4% er... then there are many whitepapers on that technique. The Financial Planning Journal has quite a few articles that describe that style.

Journal of Financial Planning

Bob's Financial Website has some interesting research on the topic.

Bob's Financial Website


There are a number of legitimate and effective ways to create income from your assets. Take a little time to figure things out before you make any drastic moves.

Once you understand the issues and which asset management and income management approaches best meets your needs and tolerance for risk... you should consider developing a financial plan for retirement. The general consensus is that one should not take much risk with money that you know you will need to spend in the next several years.

If you are uncertain about the market (and I can see why you might be)... one way to ease into the market (whatever the allocation or investments) is to just average the money back into the bonds and stocks over time.

 

[DblDoc]

I'd add this: Bogleheads' Guide to Retirement Planning - Bogleheads to chinaco's recommendations.

DD

 

[Bona Fide Retiree]

Thanks for the list of book and I will add those to my pile. I am reading Buckets right now, I have Grangaard and all of the Bogle and Bernstein books. I really like the Slott books, very good data in those. I originally almost just dumped everything in to form a simple low expense ration, index fund portfolio like this: 35% VTI, 25% VEU, 30 BND, 10% MM and just do a rebalance once per year. But, the threads on living solely off dividends peaked my interest, so I am holding off and reading some of the things mentions here.

 

[Bona Fide Retiree]

Hmmmmm, something is going wrong with my posts. I had the above post in 3 paragraphs and a list and it came up as one paragraph.

 

[REWahoo]

Click the edit button on your post and insert your spaces again. Probably just an errant electron having some fun with you...

 

[Bona Fide Retiree]

Click the edit button on your post and insert your spaces again. Probably just an errant electron having some fun with you...

Just tried that and no luck. And oddly, in the OP, it didn't put the quote marks properly.