$50k/yr for 15 years on $1M

[RetireAge50]

Since this the early retirement forum this question is about the 15 early years before pensions and SS kick in but could also apply to any immediate 15 year period.

What asset allocation would you suggest for money to be spent over a 15 year period? In my situation pensions and social security will cover most of our needs and wants after age 65.

Currently have about a million available which I would like to generate about $50,000 a year over the next 15 years and then use any remainder for extra money after age 65.

I have available a good stable value fund in my 401k so any cash money will go there. I'm starting to think I should have at least 10% in cash. Here is one option:
10% Cash
40% Wellington
10% Bonds
40% Stock Index Funds

Trying to find a good balance between conservative while still getting some growth. Will adjust income downward based on portfolio balance to mitigate any sequence of return risk. What is your opinion or suggestion? Ignore tax implications for now.

 

[Sojourner]

Assuming the $1MM you currently have can be moved into new funds without generating huge capital gains taxes (which I would try to avoid), then I'd say go with something pretty simple like 50% Wellesley and 50% Wellington. This will give you roughly a 50/50 allocation between stocks and bonds, which is definitely on the conservative side of the spectrum. I wouldn't keep 10% in cash, probably more like 2 or 3%.

 

[Totoro]

$1.000k / 15 years = $67k

So if you want as good as 100% certainty, you just need to combat inflation.

So why not look into TIPS as an potential part of the portfolio? You'd have to buy with a somewhat longer maturity (20 years). And not sure you can sell them before maturity?

 

[RE2Boys]

I have available a good stable value fund in my 401k so any cash money will go there. I'm starting to think I should have at least 10% in cash. Here is one option:
10% Cash
40% Wellington
10% Bonds
40% Stock Index Funds

Trying to find a good balance between conservative while still getting some growth. Will adjust income downward based on portfolio balance to mitigate any sequence of return risk. What is your opinion or suggestion? Ignore tax implications for now.

Your suggested option works out to be 66/24/10 allocation.

 

[CaliKid]

why not some rental real estate? You could pretty easily generate $50k a year with that.

 

[RetireAge50]

To be clear I lean toward NOT being conservative but am making some adjustments since the money is needed soon. I still want to lean toward growth as that is what got me here but I know I need to dial it back a bit.

 

[medved]

I really do not like bonds that much especially with artificially low rates right now.

What makes you think bond yields are "artificially" low right now? I agree rates are low -- at least for sovereign and corporate issuers with high credit ratings -- but I am not sure there's anything "artificial" about it.

 

[COcheesehead]

A 50/40/10 with the 10 being alternative investments, yields about a 7% return over the long haul. The 50% should be 35% US, 15% International. The 40% should be 5% emerging market bonds, the balance US with cash at about 1.5%. The 10% should be a combination of real estate, REITs, gold and energy.

 

[dvalley]

why not some rental real estate? You could pretty easily generate $50k a year with that.

How do you do that? you mean buy $1M worth of realestate to generate $50k per year? If so I think a 70/30 portfolio should be able to get you 4-5% per year on avg.

 

[RetireAge50]

What makes you think bond yields are "artificially" low right now? I agree rates are low -- at least for sovereign and corporate issuers with high credit ratings -- but I am not sure there's anything "artificial" about it.

I guess I meant not entirely derived by the market but instead set by the government. But forget about that for now, we will just go with low rates. I do not want to lend someone my money at such low rates. I would rather borrow at these rates and invest in real estate or other long-term investments.

 

[YVRRocketSurgery]

My two cents would be:
Keeping 3-5 years of some form of cash ($150k-$250) [What's a GIC equivalent in the States? A T-Bill?]
And the rest some 75/25 mix of US Index ETF and Bond Fund or just a balanced fund.

Every year replenish the 1 year of cash spent from the investments and re-balance the investments.

Just depends on how conservative you want to be.

 

[CaliKid]

How do you do that? you mean buy $1M worth of realestate to generate $50k per year? If so I think a 70/30 portfolio should be able to get you 4-5% per year on avg.

For diversification sake I would probably spend half. You can be pretty conservative. For example buy two A neighborhood single family homes in a place like Las Vegas. A $250k house there will rent for about $1,500 a month and, in my experience, rent very quickly (like a day or two). Property manager charges 8% let's say. Checks arrive. Yes, you should hold some money back for repairs/vacancies/etc... but factoring in likely long term appreciation I would think 5% would be easy to achieve... plus one tax deductible trip to Vegas (or wherever you buy) each year!

 

[dvalley]

Thanks - so $1500 x 12 = $18k x 2 houses = $36k - 10% = $32k per year so that should work- assuming one can find a house in Vegas for $250k that will generate $1500 per month.

 

[Markola]

Why not just buy Vanguard Target Retirement Income Fund? Hugely diverse, conservative, self-balancing, low fees. Can't go wrong with that one.

 

[MBAustin]

I keep our extra "cash" (beyond what is in bank checking and savings) in Vanguard Limited Term Tax Exempt (VMLTX/VMLUX Admiral). I get the interest deposited into our savings account each month. Its share price is quite stable and the interest rate is decent (plus the interest is not taxable). Just a thought.

 

[dvalley]

MBAustin, is the yield (1.56%) considered what an APY is for a CD? Meaning if I deposit 50k I get 1.56% APY? I'm sure the yield fluctuates based on how the stocks the index tracks are doing.