$1M in 401k, Need to Withdraw $70k per year for 10 yrs., Can I still have $1M in principle after 10 yrs.?

[Badger]

No. However there are some high yielding dividend stocks out there like Altria Group (MO) that just increased their dividend ($4.08 per share annually) and is considered a Dividend King (has increased their dividend for the last 50+ years). You might not get much stock appreciation, but the dividend seems to be steady. Although this year, the stock price has increased over 34% this year so far.

Could that be an option?

I don't know if this applies but I have some MCI that historically delivers dividends at 7+% and presently is at about 8.3%. I bought some about 15 years ago for around $15/share and now it is around $18+ so it doesn't fluctuate much. The dividends have been nice but then I'm not one of the knowledgeable folk here . YMMV

 

[pb4uski]

Thanks for the feedback. I will do some research on high quality preferred stocks and respond back to this thread on some possible choices.

Below is a screenshot from Schwab of preferreds that are rated investment grade and are yielding more than 6.5%. You need to do your own due diligence. Be cautious about buying any callable at over the call price plus one dividend because if it gets called you could suffer a loss... but many are trading at less than call so there is no call risk. One that I crossed out will soon be delisted so will be hard to trade. Your broker can do a screen and advise you. You can probably also buy some with lower yields and still have a weighted average yield of ~7%. I have ~50 with purchase yields ranging from 5-10% and a weighted average purchase yield of 6.9%.

 

[G-Man]

Below is a screenshot from Schwab of preferreds that are rated investment grade and are yielding more than 6.5%. You need to do your own due diligence. Be cautious about buying any callable at over the call price plus one dividend because if it gets called you could suffer a loss... but many are trading at less than call so there is no call risk. One that I crossed out will soon be delisted so will be hard to trade. Your broker can do a screen and advise you. You can probably also buy some with lower yields and still have a weighted average yield of ~7%. I have ~50 with purchase yields ranging from 5-10% and a weighted average purchase yield of 6.9%.

View attachment 52283

Thanks for the information as always. Just need to educate myself more about the ins and outs of preferred stocks especially call price, how dividends are paid, how they are called, yield, etc. I will do some google search to learn more.

 

[Cassius King]

Am I missing something, but the OP said a tax deferred account so wouldn't the needed withdrawals of 70k also incur tax/withdrawal penalty?

 

[Alex The Great]

Preferred stock ETF, along with dividend ETF and S&P500 index ETF would be a safer bet. Also it might be useful to add some corporate bond ETF for a balance.

 

[RetiredHappy]

Am I missing something, but the OP said a tax deferred account so wouldn't the needed withdrawals of 70k also incur tax/withdrawal penalty?

No penalty since the withdrawal starts at age 60. Taxes, of course.

 

[RunningBum]

If interest rates stay high, you can probably do it but that $70K/yr will buy less and less as the 10 years passes because inflation almost certainly will also be high. If inflation is lower, interest rates probably won't be high enough to generate $70K/yr and keep $1M in principal.

Is the question whether you can pull out $70K+inflation per year for 10 years and keep $1M at the end of that time? It's certainly possible but will require taking a risk that might leave you with much less than $1M. Or do you really just need a fixed $70K/yr for 10 years?

 

[G-Man]

No penalty since the withdrawal starts at age 60. Taxes, of course.

Also, for a 401k, you can leverage the Rule of 55 if you are under the age of 59 1/2.

 

[G-Man]

Preferred stock ETF, along with dividend ETF and S&P500 index ETF would be a safer bet. Also it might be useful to add some corporate bond ETF for a balance.

Any specific cusips/symbols? How would you divide the $1M between the funds?

 

[G-Man]

If interest rates stay high, you can probably do it but that $70K/yr will buy less and less as the 10 years passes because inflation almost certainly will also be high. If inflation is lower, interest rates probably won't be high enough to generate $70K/yr and keep $1M in principal.

Is the question whether you can pull out $70K+inflation per year for 10 years and keep $1M at the end of that time? It's certainly possible but will require taking a risk that might leave you with much less than $1M. Or do you really just need a fixed $70K/yr for 10 years?

Fixed $70k/yr for 10 years and keep $1M at the end of that time.

 

[Alex The Great]

Any specific cusips/symbols? How would you divide the $1M between the funds?

I do have VRP, SCHD, FXAIX for equities and SPHY for bond. But there might be other choices. The allocation I have is ~50% stock, 20% bond and 30% cash (CDs, treasuries, etc.). But it is a matter of personal risk tolerance.

 

[OldShooter]

$1M buying power in 10 years, 3% inflation: $749K.
4% -- $660K
5% -- $600K

So, as a practical matter you are unlikely to be where you want to be in real terms, even if one of the ideas here works for $1M nominal results.

Re a dividend strategy IMO it would be crazy to bet on just a few stocks. Dividends are set at the whim of management and the board and can change at any time.* To diversify, you'll see recommendations of a 60-100 stock portfolio. That's a big job to select and manage.

* For example https://www.streetinsider.com/dividend_history.php?sort=ex_dividend_date&q=ge

 

[Koolau]

View attachment 52280

Yeah, that's kinda how I remember those days. Of course, most of us would have cut back on our spending instead of letting the balance get so low but YMMV.

 

[G-Man]

Thanks for all the feedback so far.

 

[surprising]

Check out Contrarian Outlook. Their portfolio is currently paying ~$7K this month on dividends alone with a hypothetical $1M in assets. Their strategy is to provide safe retirement income through dividends while maintaining (or improving) original asset value. I have about $400K with some of their picks, yielding about 10% on cost. Current value is ~480K. This is what I'm drawing from for next 9 years (plus rental income) before I have access to 401k.

 

[G-Man]

Check out Contrarian Outlook. Their portfolio is currently paying ~$7K this month on dividends alone with a hypothetical $1M in assets. Their strategy is to provide safe retirement income through dividends while maintaining (or improving) original asset value. I have about $400K with some of their picks, yielding about 10% on cost. Current value is ~480K. This is what I'm drawing from for next 9 years (plus rental income) before I have access to 401k.

Looks like their is a subscription fee for the service

 

[Sunset]

That $70K will have the purchase power of ~$53K in 10 years.
To be able to buy the same stuff every year, the question really should be withdrawal of $53K per year adjusted for inflation.

 

[G-Man]

That $70K will have the purchase power of ~$53K in 10 years.
To be able to buy the same stuff every year, the question really should be withdrawal of $53K per year adjusted for inflation.

That’s fine. Tell me more about your recommendation

 

[G-Man]

Check out Contrarian Outlook. Their portfolio is currently paying ~$7K this month on dividends alone with a hypothetical $1M in assets. Their strategy is to provide safe retirement income through dividends while maintaining (or improving) original asset value. I have about $400K with some of their picks, yielding about 10% on cost. Current value is ~480K. This is what I'm drawing from for next 9 years (plus rental income) before I have access to 401k.

Tell me more about your recommendation

 

[SecondCor521]

The goal for the scenario is to draw down on the retirement portfolio for 10 yrs. to bridge the gap until delayed SS kicks in at age 70 and still have a $1M left. At age 70, there is no need to draw down on the retirement portfolio anymore because 4 guaranteed income sources are more than enough to pay for the expenses.

If there is no need to draw down on the retirement portfolio any more, then why do you need to have $1M left?

If the original question is because this is the plan you are trying to execute, I think a better plan would be to find a way to increase income or decrease expenses rather than rely on a 7% portfolio return for that 10 year period.

 

[Exchme]

I put this in FireCalc with a 50/50 stock/bond portfolio, used 2.5% inflation to keep the real value of the withdrawals constant for the 10 year period. If OP wanted the principal to retain its value as well, that would have succeeded in 12 of the 144 cycles. If losing to inflation is OK, then 18 of 144 cycles would have succeeded.

So this is an unrealistic expectation and playing with preferred stocks or other tricks does not make it likely to succeed.

 

[RetiredHappy]

I put this in FireCalc with a 50/50 stock/bond portfolio, used 2.5% inflation to keep the real value of the withdrawals constant for the 10 year period. If OP wanted the principal to retain its value as well, that would have succeeded in 12 of the 144 cycles. If losing to inflation is OK, then 18 of 144 cycles would have succeeded.

So this is an unrealistic expectation and playing with preferred stocks or other tricks does not make it likely to succeed.

I think if you go 100% equities and pick the right 10 years period, it can be done. But stars don't always line up, as depicted in OP's chart.

 

[Sunset]

That $70K will have the purchase power of ~$53K in 10 years.
To be able to buy the same stuff every year, the question really should be withdrawal of $53K per year adjusted for inflation.

That’s fine. Tell me more about your recommendation

I recommend you invest in a broad mix of ETF's and TIPs and even some preferred stocks and plan on taking out $53K per year increasing for inflation.

I put this in FireCalc with a 50/50 stock/bond portfolio, used 2.5% inflation to keep the real value of the withdrawals constant for the 10 year period. If OP wanted the principal to retain its value as well, that would have succeeded in 12 of the 144 cycles. If losing to inflation is OK, then 18 of 144 cycles would have succeeded.

So this is an unrealistic expectation and playing with preferred stocks or other tricks does not make it likely to succeed.

Agreed, it's unrealistic to say $70K per year and be left with $1MM after 10 years.

The numbers simply don't work.
If one doesn't care what is left after 10 years, then no issue take out $70K per year for 10 years and live with whatever is left over.

 

[Sunset]

I think if you go 100% equities and pick the right 10 years period, it can be done. But stars don't always line up, as depicted in OP's chart.

Or just plan on winning the lottery and all problems are solved

 

[Texas Proud]

I put this in FireCalc with a 50/50 stock/bond portfolio, used 2.5% inflation to keep the real value of the withdrawals constant for the 10 year period. If OP wanted the principal to retain its value as well, that would have succeeded in 12 of the 144 cycles. If losing to inflation is OK, then 18 of 144 cycles would have succeeded.

So this is an unrealistic expectation and playing with preferred stocks or other tricks does not make it likely to succeed.

The question was could he have $1 mill after 10 years and your post says 'yes'... again, not likely but possible...

And a 'trick' of preferred is not really a trick... if you could buy a CD that paid 7% annually for 10 years you would have success... so instead of a CD, buy some preferred that can pay 7% annually for 10 or more years and you have success..

I agree that it is more likely that a 50./50 portfolio will do better over a 20 or more year period but the question was 10 years..