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Old 06-11-2017, 09:51 AM   #21
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There are 4 types Of investment:
CDs which return a % period
Bonds which return a market rate, higher if interest rates go down
Dividend-paying stocks which give you a return plus protection against inflation
Non- dividend payers which pure capital returns.

And the choice of mix depends on your objectives. I have left out annuities which offer longevity risk to the first category because that is a separate issue.

Because we have been in a low inflation period, it is tougher to decide.

We have chosen the third category because I want to leave a legacy but you don't. So you would probably be better off with an annuity.
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Old 06-11-2017, 09:56 AM   #22
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kcowan, I actually have all 4 of your types of investments and you are so right about the low inflation period making it a harder decision.
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Old 06-11-2017, 10:21 AM   #23
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We have very closely laddered CDs all at 3% + a smidgen. Trouble is they come due in 2019. They generate more than enough for us to live well on.
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Old 06-11-2017, 10:25 AM   #24
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We have very closely laddered CDs all at 3% + a smidgen. Trouble is they come due in 2019. They generate more than enough for us to live well on.
And if inflation takes a jump you could put some in funds, bonds and keep some cd's. Do you agree?
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Old 06-11-2017, 10:40 AM   #25
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For example if you need $1M to fund your retirement and you find yourself with $4M, you could probably seriously consider 'quitting investing.'
Perversely, some family members in this enviable position used this as the reason to INCREASE risk, with disastrous results. Had they been successful, they would have become fabulously wealthy, but instead they went back to work. Just being wealthy enough to FIRE wasn't enough.
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Old 06-11-2017, 10:42 AM   #26
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But good luck determining
- you've won, or
- what future inflation, cash returns and personal spending will be.

"Now as we keep our watch and wait the final day,
count no man happy till he dies, free of pain at last."

-- Sophocles - Oedipus Rex
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Old 06-11-2017, 10:43 AM   #27
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Perversely, some family members in this enviable position used this as the reason to INCREASE risk, with disastrous results. Had they been successful, they would have become fabulously wealthy, but instead they went back to work. Just being wealthy enough to FIRE wasn't enough.
So, I can live on SS, annuities and interest, do I need funds? The fund money could be put in more of what I own.
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Old 06-11-2017, 10:53 AM   #28
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So, I can live on SS, annuities and interest, do I need funds? The fund money could be put in more of what I own.
As long as you have an adequate $ excess/cushion for higher than expected inflation, lower than expected returns, greater longevity than planned, higher than expected personal expenses, annuity institution solvency, geopolitical catastrophes, etc. over the next 30 years - I gather you're in your mid 60's or younger from your OP.

Most/many/some of us would sleep better in all cash/pensions IF we had way more $ than SWR assuming an equity:bond:cash AA - but it's very expensive, more than double the $ or half the personal spending.
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Old 06-11-2017, 10:58 AM   #29
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I would hedge my bet a little just in case I'm wrong. So have some money in the market. But I now people who only invested in CDs and they came out more than ok. But the key thing is they managed to keep the same spending pattern with a paid off house.
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Old 06-11-2017, 10:59 AM   #30
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Re-reading the OP I wonder if the question is about the "hassle" of managing investments and trying to avoid that. Because who wants hassle in their lives when they're retired?

For me, I see just as much hassle in a CD+annuity approach as a stocks+bonds approach. I do the latter, and the time required to manage my investments is certainly less than an hour a month:

1. In theory I might have to reallocate if the market went crazy one way or the other, which would be a few clicks online with Vanguard. I've been retired for about 18 months and haven't had to do this yet. I can see my AA in Quicken or Excel in less than 5 minutes.
2. I do a Roth conversion once in the fall, which takes a few clicks online with Vanguard. Total time less than 5 minutes.
3. I do a partial recharacterization in the spring, which requires printing, filling out a form, and mailing it to Vanguard. Total time 30 minutes.
4. Occasionally I will need to refill savings from investments. I haven't had to do this yet, and when I do it will be maybe once or twice per year and will take 5 minutes each time.
5. I watch my checking account balance and move money to/from savings as needed. Less than 5 minutes once a week.

With CD's+annuity, I'd probably have to do something similar to 4 and 5. For me personally I'd probably spend some time managing the CD's - rolling them elsewhere for better interest, deciding whether to break one early or not, calculating the size of a CD ladder to make sure the rungs were the right size, trying to estimate my personal inflation rate and any potential lumpy/extra expenses, etc.

I do have heirs, though, so to the degree that I have "won the game" I consider myself to be playing the game on their behalf with whatever extra money I have above and beyond my needs.

TANSTAAFL may apply here.
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Old 06-11-2017, 11:00 AM   #31
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As long as you have an adequate $ excess/cushion for higher than expected inflation, lower than expected returns, greater longevity than planned, higher than expected personal expenses, annuity institution solvency, geopolitical catastrophes, etc. over the next 30 years - I gather you're in your mid 60's or younger from your OP.
Very good guess Midpack on my age!! 65. Over 5 years my expenses are flat. I always have money left over every year without withdrawing down. I could have 2.5 million in annuities and cd/s and have quite a bit more than I need and I am not taking SS yet.
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Old 06-11-2017, 11:01 AM   #32
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Retirement planning/investing/decumulation is a game you play once for a lifetime, probably not analogous to a sports team where winning is up for grabs annually. And losing at retirement can have more serious consequences to a retiree.

For example if you need $1M to fund your retirement and you find yourself with $4M, you could probably seriously consider 'quitting investing.' e.g. Many family and other endowments invest very conservatively because lasting indefinitely is a primary goal, above maximizing $.

Again, 'winning the game' is relative and incremental for most of us - we can take less risk, but not close to zero. Outright winners are probably few and far between.

We've done the exercise here a few times and historically it's taken about double the net worth to reach the same probability of success in all cash vs a 60:40 AA. If current cash rates of return persist, it'll take an even greater nest egg. And inflation will always be an unknown, among others...
Agree with just about everything you said, but still think there is no correct answer. Let's say you have a very generous pension that would put you in the top 1-2%f all earners. You can easily live on this pension for the rest of your life but wouldn't mind spending/gifting more than that. What would you do with your fairly large portfolio? Go very conservative, go fairly aggressive or somewhere in between.

This is my position and I have decided to effectively invest my portfolio for the next generation in a fairly aggressive AA. Spending divs in the meantime. Many approaches but I agree one shouldn't risk everything to increase their wealth a bit.
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Old 06-11-2017, 11:03 AM   #33
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Agree with just about everything you said, but still think there is no correct answer. Let's say you have a very generous pension that would put you in the top 1-2%f all earners. You can easily live on this pension for the rest of your life but wouldn't mind spending/gifting more than that. What would you do with your fairly large portfolio? Go very conservative, go fairly aggressive or somewhere in between.

This is my position and I have decided to effectively invest my portfolio for the next generation in a fairly aggressive AA. Spending divs in the meantime. Many approaches but I agree one shouldn't risk everything to increase their wealth a bit.
Where did I say there's a "correct answer?" Quite the opposite actually...
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Old 06-11-2017, 11:10 AM   #34
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And if inflation takes a jump you could put some in funds, bonds and keep some cd's. Do you agree?
Really depends on what financial climate is going to be like in 2019. I was luck to lock at 3% for a very long time, to I will cross that bridge when I get to it.
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Old 06-11-2017, 11:11 AM   #35
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I don't see any 3% CDs on bankrate even.
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Old 06-11-2017, 11:31 AM   #36
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I don't see any 3% CDs on bankrate even.
That is because it is not 3 - 5 years ago when I got mine.
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Old 06-11-2017, 12:12 PM   #37
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Kimo, I've always had this fantasy of enough cash that no investing would be needed. When the pockets are empty, just go to the closet filled with bushel baskets of folding green and stuff the pockets again. Even though I am quite conservative, I do still invest because of all the "what ifs?" I suppose the two biggest "what ifs?" are run-away inflation and long term care. YMMV
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Old 06-11-2017, 12:17 PM   #38
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Aloha Koolau, the answer for me (I think) after reading all of the posts and links is somewhere in the middle. Although I do like the closet idea!!!
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Old 06-11-2017, 12:19 PM   #39
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Old 06-11-2017, 12:31 PM   #40
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When you've "won the game" I think it makes sense to reduce risk by adjusting AA to include more cash. Many people keep a year or two's expenses in a cash bucket (a CD ladder, for example), but if you no longer need appreciation from equities you might increase that to 5 to 10 years of expenses, plus another 5 to 10 years worth in bonds.
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