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

[TheWizard]

A ten year plan of this sort is a bit impractical because things change.

A better plan is to have more retirement income than you expect to need each year and then invest the excess into stock index funds. That's what I do...

 

[TheWizard]

And preferred stock ETF from iShares, PFF, underperforms s&p 500 VOO almost every year from a TR perspective.
So I'm not sure holding a lot of PFF is a good plan for 10+ years...

 

[pb4uski]

^^^ Wait. Nobody proposed buying PFF. See post#27 in this thread.

 

[TheWizard]

^^^ Wait. Nobody proposed buying PFF. See post#27 in this thread.

There were some comments about owning a preferred stock ETF and PFF is one of the largest ones, that's all...

 

[pb4uski]

Understood, but PFF wouldn't have enough yield to meet the OPs criteria.

 

[Texas Proud]

A ten year plan of this sort is a bit impractical because things change.

A better plan is to have more retirement income than you expect to need each year and then invest the excess into stock index funds. That's what I do...

I think we all agree... but that was not the question...

Sure, it is not a great question... but it was asked... you are proposing a longer term option... I am not.. I do not think it is smart to have an all preferred portfolio but if the 'test' is to go 10 years taking out $70K per year with NO increase due to inflation then it really is... the biggest downside is if one or more stop paying... but the question was can it be done... and it can..

 

[G-Man]

Thanks everyone for responding.

 

[dobig]

My brokerage is heavily tilted towards dividends but I can't play with the numbers to get 7% without too much risk. Most of my following listed below make up just 1 - 2% positions of my portfolio to supplement some of my larger holdings in dividend ETFs such as SCHD, VYM, VYMI, VIG, DGRO and FDVV. My combined dividend return is 4.42% but I should get yearly dividend growth. For example SCHD (3.40% dividend) had a dividend of around .90 cents 11 years ago. Today it's around $2.80.

Best I can do is:

Stock - Yield
WFCPRL - 5.99% (preferred)
BRCPRL - 5.77% (preferred)
SPHY - 7.74% (preferred etf)
CPRN - 10.12% (preferred)
UTF - 7.72% (cef)
UTG - 7.33% (cef)
GCOW - 5.92% (etf)
ALLPRB - 8.45% (preferred)
JEPI - 7.12% (etf)
USHY - 6.59% (preferred etf)
PFE - 5.74% (stock)
ET - 7.92% (stock)
IDV - 6.17% (etf)

 

[G-Man]

My brokerage is heavily tilted towards dividends but I can't play with the numbers to get 7% without too much risk. Most of my following listed below make up just 1 - 2% positions of my portfolio to supplement some of my larger holdings in dividend ETFs such as SCHD, VYM, VYMI, VIG, DGRO and FDVV. My combined dividend return is 4.42% but I should get yearly dividend growth. For example SCHD (3.40% dividend) had a dividend of around .90 cents 11 years ago. Today it's around $2.80.

Best I can do is:

Stock - Yield
WFCPRL - 5.99% (preferred)
BRCPRL - 5.77% (preferred)
SPHY - 7.74% (preferred etf)
CPRN - 10.12% (preferred)
UTF - 7.72% (cef)
UTG - 7.33% (cef)
GCOW - 5.92% (etf)
ALLPRB - 8.45% (preferred)
JEPI - 7.12% (etf)
USHY - 6.59% (preferred etf)
PFE - 5.74% (stock)
ET - 7.92% (stock)
IDV - 6.17% (etf)

What if you include MO and WBA? MO has gotten some share price appreciation lately whereas WBA is down a lot this year.

 

[njhowie]

What if you include MO and WBA? MO has gotten some share price appreciation lately whereas WBA is down a lot this year.

You indicate right up front you want low to moderate risk, and yet you keep coming back to individual stocks.

Where did WBA come from? I'm getting the feeling that you are simply chasing yield, and that is a losing approach. WBA should be your evidence. The only reason it shows a fat 11% dividend today is specifically because the shares have fallen so much - because the company is in trouble. That 11% dividend is likely to be cut by 75% or more. The company could file for bankruptcy protection today if it decided to.

You're playing a numbers game, and with the stock market you're going to lose by doing it. There is no guarantee here, and you are looking for one to meet your income needs. It is a bad approach.

 

[G-Man]

You indicate right up front you want low to moderate risk, and yet you keep coming back to individual stocks.

Where did WBA come from? I'm getting the feeling that you are simply chasing yield, and that is a losing approach. WBA should be your evidence. The only reason it shows a fat 11% dividend today is specifically because the shares have fallen so much - because the company is in trouble. That 11% dividend is likely to be cut by 75% or more. The company could file for bankruptcy protection today if it decided to.

You're playing a numbers game, and with the stock market you're going to lose by doing it. There is no guarantee here, and you are looking for one to meet your income needs. It is a bad approach.

Thanks for responding and bringing me back to reality.

 

[pb4uski]

My brokerage is heavily tilted towards dividends but I can't play with the numbers to get 7% without too much risk. Most of my following listed below make up just 1 - 2% positions of my portfolio to supplement some of my larger holdings in dividend ETFs such as SCHD, VYM, VYMI, VIG, DGRO and FDVV. My combined dividend return is 4.42% but I should get yearly dividend growth. For example SCHD (3.40% dividend) had a dividend of around .90 cents 11 years ago. Today it's around $2.80.

Best I can do is:

Stock - Yield
WFCPRL - 5.99% (preferred)
BRCPRL - 5.77% (preferred)
SPHY - 7.74% (preferred etf)
CPRN - 10.12% (preferred)
UTF - 7.72% (cef)
UTG - 7.33% (cef)
GCOW - 5.92% (etf)
ALLPRB - 8.45% (preferred)
JEPI - 7.12% (etf)
USHY - 6.59% (preferred etf)
PFE - 5.74% (stock)
ET - 7.92% (stock)
IDV - 6.17% (etf)

I hold most of the individual preferreds listed (WFC-L, C-N, ALL-B), but to be clear, SPHY and USHY are NOT preferred ETFs but are high-yield bond ETFs and high-yield bonds are a very different animal than IG preferred stocks from a credit quality perspective.

ETA: What is BRCPRL? I can't find that ticker on Schwab or quantumonline.

 

[dobig]

What if you include MO and WBA? MO has gotten some share price appreciation lately whereas WBA is down a lot this year.

Not sure I'd go that route.

I think you could grow into $70k a year in income from the right portfolio and still have $1 million after 10 years but you might need to temper some of your expectations for the first 2 - 3 years. I can play with my numbers to push my yield to low 5% yield and still feel pretty safe and feel relatively confident with my dividend growth that I would hit 7% yield within 2 - 3 years.

 

[dobig]

I hold most of the individual preferreds listed (WFC-L, C-N, ALL-B), but to be clear, SPHY and USHY are NOT preferred ETFs but are high-yield bond ETFs and high-yield bonds are a very different animal than IG preferred stocks from a credit quality perspective.

ETA: What is BRCPRL? I can't find that ticker on Schwab or quantumonline.

Thank you for the correction. Yes SPHY and USHY deal with lower quality but I feel even if we hit a rough patch I'll get paid but maybe take a little haircut. Still I wouldn't have either very heavily weighted in a portfolio.

BRCPRL should be BACPRL.

 

[pb4uski]

I don't own BACPRL but I do own BMLPRH also issued by BAC. BML is for preferreds outstanding at the time that BAC acquired Merrill Lynch.

FWIW, I think that high yield bonds are totally different animals from investment grade preferreds. As an example, BMLPRH is rated BBB-/Baa2 by S&P/Moody's and as a preferred issue would generally be two notches lower than senior debt so that would be BBB+/A3. OTOH, high yield debt by definition is below BBB- and most is BB.

 

[dobig]

I don't own BACPRL but I do own BMLPRH also issued by BAC. BML is for preferreds outstanding at the time that BAC acquired Merrill Lynch.

FWIW, I think that high yield bonds are totally different animals from investment grade preferreds. As an example, BMLPRH is rated BBB-/Baa2 by S&P/Moody's and as a preferred issue would generally be two notches lower than senior debt so that would be BBB+/A3. OTOH, high yield debt by definition is below BBB- and most is BB.

Thanks. Just added some BMLPH with some cash laying around in the brokerage account. I'd like to get my preferreds up to 15% (currently 9%) of my allocation which is way less than your strategy buy I'm just not comfortable enough yet with my knowledge of them. It's taken me 2 years to decipher half of what Mulligan is talking about so I figure I should tread lightly and buy small positions until I understand more.

 

[mh]

I caution you in following the REIT advice. The person who wrote the article lives in San Francisco. The real estate market in California appears different from most other states from what I’ve read. I believe the author has unretired a few years ago.

yeah he’s un retired - so that tells you something right there - i’ve been following that guy on and off over the years. In my opinion i don’t think he’s someone you want to take advice from

 

[G-Man]

yeah he’s un retired - so that tells you something right there - i’ve been following that guy on and off over the years. In my opinion i don’t think he’s someone you want to take advice from

Thanks for responding.

 

[kingle]

Trying to play out a scenario where someone has $1M in a tax-deferred account and they need to withdraw a fixed amount of $70k per year for 10 years and want to still have close to $1M after 10 years.

Is this possible? How could I achieve this with low to moderate risk? Should I just put the $1M in a S&P 500 fund and forgot about it? Should I put $500k in a S&P 500 fund and $500k in a fixed income fund?

Just curious how others would approach this scenario.

FYI. Here is how the scenario would play out if the $1M was invested in the S&P 500 for the last 10 years.

View attachment 52272

The Vanguard Wellington Fund (70/30 - 60/40) balanced fund has been around since 1929. I ran a series of 'safe' withdrawal scenarios starting in 1929. 30 year periods. The vexing - problematic periods were periods with sequential draw downs. Back to back market losses coupled with annual draws burned the portfolio down to a point where even a very good year could not win back the portfolio's prior losses. I found a 'safe' withdrawal rate to be 3 -3 1/2 % of the prior year balance. I find the retirement planning tools like Fidelity tend to agree with draws in this range. The good news over a long period of time the portfolio was not exhausted with these rates, and the annual draws increased over time. The 70k fixed amount seems high to me. Pay particular attention to market returns from 1966-1984. Also, I don't think the series and variability of returns since 1929 is adequately representative of what will happen in the future. Whatever the future brings, it will be different. It is true that there are more good years than bad years and the market in general tends to go up. And have faith, most bad years tend to be followed by corrections. But, there have been very challenging 5-10-15 year stretches where the investor has to be careful. If you burnout your portfolio your only hope will be lottery tickets. Be careful!

 

[JJpop]

Sure. $70k fixed per year is all I need from my portfolio during the 10 yr. time frame.

It is simple. Just find an investment 100 pct guaranteed to return 7 pct a year or a bit higher. You still have inflation on top of that and depending on how you withdraw funds you probably need a bit higher than 7 pct. Let us know if you find one.