How can I get a regular 3% monthly check from Nest Egg?

[RunningBum]

Doesn't Vanguard have a Managed Payout Fund? Not sure if that meets the needs. The OP or someone else can read up on that and figure it out. I don't need structured deposits and don't mind doing the math to do things differently.

 

[medved]

I am in a small minority on this Board because I use a financial advisor. Although I am not yet retired, the FA says a fair number of his clients are folks who were DIY until they approached retirement and then signed up because they (1) did not want to spend any of their valuable retirement time thinking about investments and withdrawal strategies, comparing fund performance, ensuring tax efficiency, tracking their expenses, running projections, evaluating annuities, etc. -- they prefer to spend that time with their grandchildren or in the Caribbean, etc., and (2) wanted to avoid costly mistakes. So one option -- and I realize I am swimming upstream on this -- is to find a very capable financial advisor, negotiate a fee structure that you think is fair, and just tell him or her what you want and let the advisor do all the work while you spend your time doing things you enjoy. Will this cost you some money? Sure. But making mistakes might cost you more. And anyway, you probably won't die broke.

 

[Cheesehead]

OP here:
I am now comparing the Vanguard 2015 Target Retirement fund to Vanguard Wellesley and the arranging a .25% monthly check.

 

[pb4uski]

If it is in a tax-deferred account either, or Wellington, would be good choices. Or you could use your desired combination of Total Stock, Total International Stock, Total Bond, Total International Bond and a Short-Term fund and rebalance occasionally (which is all the target retirement funds are).

If you have both taxable and tax-deferred accounts and care about tax efficiency then it gets a bit more complicated. If you value simplicity over tax efficiency then you can just buy the balanced fund in both accounts.

 

[Cheesehead]

Yes Medved, your FA is correct, investing does feel very different now that I need to withdraw. Seems much more complex. However, I'd rather not pay 1-1.5%, plus as in mentioned in preceding posts, there's hidden fees within the managed funds they put you in.

I am intrigued by the Vanguard 2015 Target Retirement fund but it seems it's "just" index funds, which I usually preferred, but I believe they don't re-balance the AA regularly. I will research that.

And you're right, once I retire I don't want to worry about the nest egg, just draw 3% off it. All my funds are tax deferred.

 

[Corporateburnout]

I am intrigued by the Vanguard 2015 Target Retirement fund but it seems it's "just" index funds, which I usually preferred, but I believe they don't re-balance the AA regularly. I will research that.

All target retirement funds adjust their AA to reduce their exposure to stocks and become increasingly conservative. The FIDO 2015 fund will end with an asset allocation of around 30% stocks and 70% bonds/fixed income between the years of 2025-2034.

 

[medved]

Yes Medved, your FA is correct, investing does feel very different now that I need to withdraw. Seems much more complex. However, I'd rather not pay 1-1.5%, plus as in mentioned in preceding posts, there's hidden fees within the managed funds they put you in.

I am intrigued by the Vanguard 2015 Target Retirement fund but it seems it's "just" index funds, which I usually preferred, but I believe they don't re-balance the AA regularly. I will research that.

And you're right, once I retire I don't want to worry about the nest egg, just draw 3% off it. All my funds are tax deferred.

Depending on your asset level, you could probably negotiate a fee that is lower than 1% to 1.5%, or at least at the lowest end of that range. (I pay less than that). And a FA who is putting you in high-cost managed funds without a compelling reason for doing so is not doing his job. Even so, a financial advisor is never going to be the "lowest cost" option. But if you get someone good, and who you trust, it could help you avoid mistakes that might cost more than the FA's fee, and it could potentially reduce your worry level and free up your time to do other things. (On the other hand, most of my friends do their investing DIY and seem perfectly happy with that decision, so there's no single "right answer.")

 

[lem1955]

Vanguard Target Retirement Income VTINX, The Target Retirement Income Fund is designed for investors already in retirement. The fund seeks to provide current income and some capital appreciation by investing in five Vanguard index funds. The fund holds approximately 30% of assets in equities and 70% in bonds. This is also the allocation that all Target Retirement Funds are expected to assume within seven years after their designated retirement dates. Investors in this fund should be willing to accept modest movement in share price and be able to tolerate the market risk that comes from the volatility of the stock and bond markets. Expense ratio .14%

 

[LOL!]

... folks who were DIY until they approached retirement and then signed up because they…. and (2) wanted to avoid costly mistakes.

For many people, avoiding a financial advisor is the same as avoiding a costly mistake.

 

[NYEXPAT]

Hello All,



However…in June of 2017 both of us will be 59.5 years old (I'm 63) and we want to start withdrawing 3% monthly from the nest egg, which is mainly at Fidelity. My eyes glaze over at doing this because we are scattered over many accounts: 401K, IRAs, 403Bs, etc. and I don’t understand the tax implications nor am I smart enough to learn.



Thanks

OP, I hope you were given great advice. I am a little embarrassed to ask this question, as I seem to be the only one here who does not know this, but here goes: I am 63 also and would like to use your plan to go back to 59.5 in 7 months. Also, my Wife is 35 and would like to be 21 again if at all possible.

 

[travelover]

...........(1) did not want to spend any of their valuable retirement time thinking about investments and withdrawal strategies, comparing fund performance, ensuring tax efficiency, tracking their expenses, running projections, evaluating annuities, etc. -- they prefer to spend that time with their grandchildren or in the Caribbean, etc.,..........

I spend an hour a year adjusting my portfolio's allocation, though I did cheat and write a spread sheet to calculate the required adjustments faster. I try to do it while my grandson is sleeping so I don't miss too much quality time.

 

[RunningBum]

I spend an hour a year adjusting my portfolio's allocation, though I did cheat and write a spread sheet to calculate the required adjustments faster. I try to do it while my grandson is sleeping so I don't miss too much quality time.

Well, wake him up and take him to the Caribbean! That's gotta be worth 1% of your portfolio!

 

[medved]

I spend an hour a year adjusting my portfolio's allocation, though I did cheat and write a spread sheet to calculate the required adjustments faster. I try to do it while my grandson is sleeping so I don't miss too much quality time.

I suspect that, for many people with significant assets, the amount of time necessary to optimize their withdrawal strategy in retirement (including maximizing tax efficiency in withdrawals and re-allocations) would be much more than an hour a year. Indeed, I suspect many people with significant assets and both taxable and non taxable accounts would get it wrong even if they were willing to spend dozens of hours. And that is without things like weighing the benefits of annuities (and comparing them), making rational estate planning and gifting decisions, optimizing tax efficiency in charitable contributions, being thoughtful about the merits of various asset allocations, avoiding emotional investment decisions, etc. And to do all of this as we age and potentially have diminished cognition can be even tougher. If I thought that I could get all this right, and do it in an hour a year, then for sure there would be no reason to pay anyone.

 

[Free bird]

30 year bond yield is 3%

 

[travelover]

I suspect that, for many people with significant assets, the amount of time necessary to optimize their withdrawal strategy in retirement (including maximizing tax efficiency in withdrawals and re-allocations) would be much more than an hour a year. Indeed, I suspect many people with significant assets and both taxable and non taxable accounts would get it wrong even if they were willing to spend dozens of hours. And that is without things like weighing the benefits of annuities (and comparing them), making rational estate planning and gifting decisions, optimizing tax efficiency in charitable contributions, being thoughtful about the merits of various asset allocations, avoiding emotional investment decisions, etc. And to do all of this as we age and potentially have diminished cognition can be even tougher. If I thought that I could get all this right, and do it in an hour a year, then for sure there would be no reason to pay anyone.

If you really believe that, then pay away. If I get too dotty to run my spread sheet, I'll hire a Vanguard advisor for 0.3%. In the meantime, ka-ching!

 

[Cheesehead]

OP, I hope you were given great advice. I am a little embarrassed to ask this question, as I seem to be the only one here who does not know this, but here goes: I am 63 also and would like to use your plan to go back to 59.5 in 7 months. Also, my Wife is 35 and would like to be 21 again if at all possible.

Ha! I meant to say I am 63 and DW is 59 presently.

 

[Walt34]

Doesn't Vanguard have a Managed Payout Fund?

It's been a while since I read up on it but yes, or at least they did. IIRC they'd take a "snapshot" of the fund on Dec. 31 and pay 4% of that out in 12 installments over the next year.

That would make it about as brain-dead simple as it can get.

 

[rayvt]

Vanguard Target Retirement Income VTINX, The fund holds approximately 30% of assets in equities and 70% in bonds.

I suspect that people who think a large bond allocation is safe will be getting a huge surprise in the upcoming years.
Vanguard Total Bond Market Index Fund has duration of 5.8 yrs.

If interest rates go up 2%, those bonds will decline about 12%.

 

[Exit 2024]

Op, it was already mentioned above but I just want to bring it one more time - I think that is what you are ultimately looking for
https://investor.vanguard.com/mutual-funds/managed-payout/#/

 

[LOL!]

The Vanguard managed payout funds have had structural problems. Two of them got merged into the surviving fund.

I haven't seen anything written positively about this fund over at bogleheads.org, so if anyone is considering investing in this fund, they should ask for informed opinions over at that forum.

 

[LOL!]

If interest rates go up 2%, those bonds will decline about 12%.

This is simply not a true statement. For instance, did this fund decline by about 12% the last time interest rates went up 2%? Or how about: Did this fund decline by about 6% the last time interest rates went up 1%?

 

[rayvt]

"If interest rates go up 2%, those bonds will decline about 12%"
This is simply not a true statement. For instance, did this fund decline by about 12% the last time interest rates went up 2%? Or how about: Did this fund decline by about 6% the last time interest rates went up 1%?

For Vanguard Total Bond Market Index Fund Investor Shares (VBMFX), Vanguard says:
Average effective maturity 8.1 years
Average duration 5.8 years

And:
"The longer the average maturity, the more a fund's share price will move up or down in response to changes in interest rates."

and
"duration:
A measure of the sensitivity of bond—and bond mutual fund—prices to interest rate movements. For example, if a bond has a duration of two years, its price would fall about 2% when interest rates rose one percentage point."


According to this, if rates go up 2% the price will fall about 2 * 5.8% = 11.6%. Which is about 12%.

If you think this is wrong, take it up with them.

 

[LOL!]

If you think this is wrong, take it up with them.

I don't have to. You jumped to the conclusion that the relationship was strictly linear.

But about a year ago, the FOMC raised the Fed Fund Rate by 0.25%. Did the total bond market fund lose 0.25% x 5.8% = 1.45%. The historical record says, no it did not.