Strategy for a (substantially) higher withdrawal

[John Galt]

Re: Strategy for a (substantially) higher withdraw

Inflation doesn't scare me much either. I am loaded
with real estate, and have plenty of room to cut back,
even ay my much downsized lifestyle. Thus, although
my investment cash stream is pretty well fixed,
I feel like I have wiggle room if inflation goes nuts.

John Galt

 

[cute fuzzy bunny]

Re: Strategy for a (substantially) higher withdraw

But the interest payments are based upon the inflation adjusted principal. In other words, I get 3.875% of a bigger pot if inflation heats up - without selling.

Ok, the dog isnt allowed to use the computer anymore.

One question on this...dont you have to pay taxes on the inflation adjustment in each year it occurs, but you dont get to take that money until the bond matures, yes? Is that subject to both state and federal tax?

 

[Jarhead*]

Re: Strategy for a (substantially) higher withdraw

John Galt wrote:
"inflation doesn't scare me much either, I am loaded with real estate".

If we in my lifetime ever have a 60s and 70s type inflation again it won't scare me either. I will be loaded on Jim Beam, and then later on with wine that you have to chew

 

[wabmester]

Re: Strategy for a (substantially) higher withdraw

One question on this...dont you have to pay taxes on the inflation adjustment in each year it occurs, but you dont get to take that money until the bond matures, yes?  Is that subject to both state and federal tax?

That's more than one question

Yes, you're taxed on the inflation adjustment each year, but as we all know, we ER folk are somewhat tax-advantaged.

You get to cash out the inflation adjustment at maturity or when you sell. However, some funds (like VIPSX) distribute this to you (annually?).

All treasuries, including TIPS, are exempt from state tax. Since IRA distributions are treated as income for tax purposes, an unexpected side-effect is that it may be more tax efficient to hold TIPS in your taxable account if you live in a high-tax state.

 

[Bob_Smith]

Re: Strategy for a (substantially) higher withdraw

One question on this...dont you have to pay taxes on the inflation adjustment in each year it occurs, but you dont get to take that money until the bond matures, yes?  Is that subject to both state and federal tax?

TH, yes on the first question. I have my TIPS in IRAs for that reason. TIPS are the same as other treasuries regarding Federal/State taxes - Federal only.

 

[cute fuzzy bunny]

Re: Strategy for a (substantially) higher withdraw

That's more than one question

Now you know why I was so successful at marketing...

 

[mccl]

Re: Strategy for a (substantially) higher withdraw

TH

Since much of what I buy (food and monthly utilities) arent greatly affected by run of the mill inflation, and I'm not likely to pay much if anything in taxes for the next 3-5 years, like I said, inflation doesnt scare me much.

TH, can you elaborate on food and utilities not being greatly affected by run of the mill inflation? I was under the impression (perhaps wrong) that food and utility costs are expected to rise faster than run of the mill inflation (especially since some utilities are energy related - such as natural gas and electricity.) Or were you referring to other types of utilities like water and sewer, phone bill, trash pickup, etc.

If I am wrong about this I would be pleased because food and utilities are also a significant part of my monthly expenses.

 

[cute fuzzy bunny]

Re: Strategy for a (substantially) higher withdraw

Well beefs gone up, but I dont eat it. Milks gone up a little, but I dont drink much.

Mostly what I eat are grains from the bulk section of my local cheapo cash only market, fruits and vegetables. I honestly havent seen much of a price change in those, aside from ordinary seasonal adjustments, in at least 5 years. I'm still paying the same price for crab and fish as I was almost 10 years ago.

Probably because I live smack in the middle of one of the worlds largest growing areas, and close to where a lot of native fish and shellfish come from. In fact if you're eating a peach, a plum, a tomato, a prune, an almond or a walnut anywhere in north america, chances are I drove by the tree it came off of this week.

No packing, shipping, gasoline, etc. costs helps I guess.

My electricity has gone up a little, but I've found ways to use less. My water bill in the area I live in now is half what it was 10 years ago, and I'm on a septic tank so no sewer charges. I work constantly on whatever new deals I can get on internet and cable/satellite tv.

 

[Cut-Throat]

Re: Strategy for a (substantially) higher withdraw

TH,

Got any good receipes using the grains you are buying

 

[cute fuzzy bunny]

Re: Strategy for a (substantially) higher withdraw

Yes I do, in fact. Of course some of the 'grains' i'm buying are pastas, rice, whole wheat berries, etc.

I make up some tasty dishes, and the raw materials cost me about a buck a pound on average...

 

[JWR1945]

Re: Strategy for a (substantially) higher withdraw

*****

My question is--What statistically based conclusions re HanjJoy's idea can be drawn from looking at earnings yield? Is it reasonable to conclude from looking at earnings yield for stocks meeting the characteristics listed by HankJoy to up one's SWR for a stock investment significantly above the SWR that applies for investing in a broad stock index? Or are there not enough companies around meeting HankJoy's requirements to be able to form any useful conclusions about whether assigning a higher SWR to this sort of stock investment is at all reasonable?

I recommend that you read Mikey's post on page 2 of this thread very carefully. (In fact, it is a good idea to read everything on this thread several times, with great care.)

Mikey started out by describing the S&P500 index.

You may be OK. But it is risky. At the same time, 70% S&P 500 allocation is not only risky, it is like laying 3:5 at the track on a horse with a limp.

I think that he is right.

Mikey went on to address the specific investment classes and their potential hazards.

HankJoy has mentioned that there is a lot of work to do before buying. There is discipline as well. You have to wait for an attractive price.

Earnings yield is part of a good screening process. Just remember that it is only a part. For example, with a royalty trust, the big issue is when it will be depleted. Mikey seems to know a lot about those that he mentioned, but I don't know what he had to do to find his information.

It seems clear to me that HankJoy's approach is attractive enough to retirees so as to attract Wall Street. They could easily charge 2% of the initial purchase price (annually) and still provide a retiree with a 6% income stream or even more. There are too many Baby Boomers getting close to retirement for reliable income streams of 8% to 12% of their initial purchase prices to escape unnoticed forever. They look like good infomercial material as well.

I think that HankJoy has hit upon something worth looking into. He has been up front about the need for careful investigation and due diligence. I think that there are things that retirees can do to improve their safe withdrawal rates as compared to owning the S&P500 index.

I have mentioned this thread at the NoFeeBoards site. In my post, I wrote:

One thing that I will probably do (to quote unclemick) is "invest 45 bucks or so in Mergents Handbook of Dividend Achievers." I am also interested in finding out about Hankjoy's favorite book, "The Single Best Investment" by Lowell Miller.

I ordered my books yesterday.

Quoting Mikey once again:

As a very general rule, it is hard to get safe long-term high yielding investments during a period of historic low interest rates. Maybe not impossible, but it tends to be fishing in fished out water.

If you are only looking for 6% as opposed to 8% to 12%, there might be something out there already. It is probably worth waiting for your own price even if it takes a couple of years.

Have fun.

John R.

 

[hocus]

Re: Strategy for a (substantially) higher withdraw

They look like good infomercial material as well.

Sign me up!

(I'm joshing here, of course.)

I recommend that you read Mikey's post on page 2 of this thread very carefully.  (In fact, it is a good idea to read everything on this thread several times, with great care.)

This sounds like good advice to me.

I ordered my books yesterday.

I'm going to see if I can find out more about the Lowell Miller book at Amazon.com. I already have a good number of books on my "Wish List" there, but it may be that I need to make room for one more.

Thanks for your response, JWR1945.

 

[hankjoy]

Re: Strategy for a (substantially) higher withdraw

JWR1945 and *****:
Mikey "started out by describing the S&P500 index.
I think that he is right."

I agree, the S&P500 is too volatile for someone in retirement unless you could live on only the 1.6% yield, you would have depleted your portfolio if you retired in "73, '87' or 2000 and were taking out any reasonable amount to live on.

Mikey went on to address the specific investment classes and their potential hazards.

HankJoy "has mentioned that there is a lot of work to do before buying. There is discipline as well. You have to wait for an attractive price."

Most of the time my limit price hits within a few days to a few weeks, but I sometimes miss owning a growing high yielder by only a few pennies.

"Earnings yield is part of a good screening process. Just remember that it is only a part."

The problem with using earnings yield to do a study to find a safe withdrawal rate is some with very good and consistantly high earnings yielders pay little or no dividends so they would be poor candidates for a retiree needing current income. youe would have to sell shares in a down market to maintain withdrawals and could deplete your portfolio just like the SP500. While sustained high dividend yields come from long term earning yields less than half of high earnings yielders pay out growing, sustained high dividend yields.

"For example, with a royalty trust, the big issue is when it will be depleted. Mikey seems to know a lot about those that he mentioned, but I don't know what he had to do to find his information."

U.S. royalty trusts are not allowed to reinvest earnings or borrow to add to depleting assets but Canadian ones (canroys) can and most do, so they can continue on indefinitly!

"It seems clear to me that HankJoy's approach is attractive enough to retirees so as to attract Wall Street. They could easily charge 2% of the initial purchase price (annually) and still provide a retiree with a 6% income stream or even more. There are too many Baby Boomers getting close to retirement for reliable income streams of 8% to 12% of their initial purchase prices to escape unnoticed forever."

There are some smaller firms offering such growing high yield accounts for their customers but they are not well known or publicized. For example Lowell Miller offers such a service and you can read about it at his website. But steady dividend payouts are not as sexy as fast money from buying a stock and flipping for 30% in a month so even brokers who know about it won't want to offer it to clients when high commissions and fees can be made in rapid buying and selling.

"I think that HankJoy has hit upon something worth looking into. He has been up front about the need for careful investigation and due diligence. I think that there are things that retirees can do to improve their safe withdrawal rates as compared to owning the  S&P500 index."

Yes, because you will rarely sell an SBI stock the due diligence on the buy side to get in is much more important, but after purchase there is substantially less time needed.

"If you are only looking for 6% as opposed to 8% to 12%, there might be something out there already."

There are sustained, reliable, 8-11% yield investments that are growing the dividend regularly in today's market (I bought some this week) Whey would you settle for 6% when 10% is right there waiting to be bought, that makes no sense?


" It is probably worth waiting for your own price even if it takes a couple of years."

Yes it would be worth it but I only having to wait days, weeks or a few months usually for my limit orders to hit.
an interesting site to look at is the dividenddiscountmodel.com,
I really appreciate your thought provoking questions, HankJoy