Your approach to 3-4% income with 3% withdrawal and 15 year plus horizon?

[Danmar]

It all depends on what you need to support the lifestyle that you want in retirement.
.

Or sometimes the other way around, ie what kind of a retirement can I have given the assets/pension I have?

 

[hesperus]

Note, this OP has many millions of dollars and is coming to an Internet forum blindly for the MOST BASIC advice, eliciting a wide range of responses from many perspectives.

It does surprise me a bit to see posts like this, that is, HNW individuals coming to a forum first for basic investment advice, or at least in what appears to be a first foray into understanding what their wealth can offer them as far as investments. Even though I came into a similarly sized windfall a few years ago (minus the pension), some of my first conversations were with a couple of professionals that gave me the basics of what was now in front of me. I'm not talking about investment advisors who see $$ when I walked in the door, but just a good accountant or fee only CFP who can explain the basics of asset management in person. It was a small price to pay for getting individualized advice, tailored to one's personal situation. Maybe I'm assuming too much about the OP, but I couldn't see coming to an internet forum first for advice on investing millions of dollars. Timemoveson point about the spectrum of responses (and attitudes toward HNW) to a post like this is valid, and to be expected.

 

[MichaelB]

My guess is individuals with very high incomes are heavily focused on their jobs, and while they have the capacity to learn how to invest, they haven't done so yet because of the job focus. They come here asking for help, just like most of us did at one time.

That's why percentages usually work better here than absolute dollars.

I agree with this.

 

[Danmar]

It does surprise me a bit to see posts like this, that is, HNW individuals coming to a forum first for basic investment advice, or at least in what appears to be a first foray into understanding what their wealth can offer them as far as investments. Even though I came into a similarly sized windfall a few years ago (minus the pension), some of my first conversations were with a couple of professionals that gave me the basics of what was now in front of me. I'm not talking about investment advisors who see $$ when I walked in the door, but just a good accountant or CFP who can explain the basics of asset management in person. Maybe I'm an outlier, but I couldn't see coming to an internet forum first for basic advice on investing millions of dollars. Timemoveson point about the spectrum of responses (and attitudes toward HNW) for a post like this is valid.

Agree, it is a little surprising. But many people, myself included, like to DIY. I participate in several forums like this one and have learned quite a lot. This despite the fact I am qualified to begin with (CPA, MBA, CFA).

Any advice that comes my way from these forums is taken with a truck load of salt. it was particularly surprising that the OP had so little basic understanding of how a SWR works, but I was in a similar position when I first started posting here.

So, either you welcome financial diversity or you find comfort in a common denominator.

 

[Danmar]

My guess is individuals with very high incomes are heavily focused on their jobs, and while they have the capacity to learn how to invest, they haven't done so yet because of the job focus. They come here asking for help, just like most of us did at one time.
.

Absolutely, I certainly wasn't focused on anything other than my job until quite close to retirement. I too was of the mistaken assumption that you could take the 4% SWR plus any div yield. This forum helped me quite a bit despite what I thought I already knew.

 

[GrayHare]

Looking for ideas on what approaches some of the folks on this board would use with this scenario.

Historically, a healthy dose of utility stocks / index fund, plus another of municipal bonds, will generate income for you. Another chunk in non-dividend payers like BRKB will provide growth at a lower-tax rate for your withdrawals of principal.

 

[nun]

Historically, a healthy dose of utility stocks / index fund, plus another of municipal bonds, will generate income for you. Another chunk in non-dividend payers like BRKB will provide growth at a lower-tax rate for your withdrawals of principal.

Something practical at last. I think tax planning should is even more important for HNW individuals than it is for most retirees. I'm lucky that my tax planning is basically limited to keeping my income small enough to qualify for Medicaid for the next few years. The OP has lots more to consider. A municipal bond ladder would be good for income, but how much should go there, what equities are appropriate? Would a some rental property be a good thing to as the deductions and depreciation would offer some tax savings.

 

[Animorph]

OK, coming late to this thread, I saw that the OP's question was already amply answered, so thought that some diversion would be safe.

But just look at his post again.



It was not clear whether he intends to draw the 3-4% dividend, plus the 3% principal, or just the dividend. Then, does he like to have growth on top of that 6-7% WR? Earlier posters raised this question, which was not answered.

Because the above requires extraordinary investment performance, it brought about the possibility of cutting expenses to match realistic expectations. If someone knows how to deliver the above performance, i.e. growing a portfolio despite a 6-7% WR, the entire forum will be all ears.

I agree, that is what struck me about the OP. And no expense data. I figured someone would jump on that and we'd get some clarification. Still waiting. Not enough info for a reasonable answer.

 

[Danmar]

Something practical at last. I think tax planning should is even more important for HNW individuals than it is for most retirees. I'm lucky that my tax planning is basically limited to keeping my income small enough to qualify for Medicaid for the next few years. The OP has lots more to consider. A municipal bond ladder would be good for income, but how much should go there, what equities are appropriate? Would a some rental property be a good thing to as the deductions and depreciation would offer some tax savings.

While I hesitate to give advice here because I am not very familiar with US tax,etc. how about this.
1) Take the PV of your pension into account as a Fixed Income proxy. This will allow for a fairly high allocation to equities.
2) for the equity component I would recommend well established div payers that should generate a yield of 3-4%. Telco's, consumer disc, utilities, pipes, financials. Reinvest any income you don't want to spend or increase your spend to match the divs. If the market does well after a couple of years consider selling a few percent of you principal if you wish. If you don't feel comfortable picking individual stock get a broad market ETF(I would rec div ETF) wouldn't let the tax tail wag the dog.

 

[53anddone]

Just out of curiosity, what type of job had a $127k pension after (25?) years of service plus the ability to sock away $6.5mil?

That is one of the higher pensions I have seen on here.

I am sorry I have not been on the board in a week (trying to exit my job). Trying to sift through all the great responses.

I have 4 sources of pension. Normal company retirement plan, SS, a foreign pension from working 5 years in Europe, and most importantly a SERP plan which contributes the most of the 4.

 

[53anddone]

Thanks to everyone who posted here and thanks for the private messages I got as well. There is some great advice here, much of it confirming what I myself have figured out but the great thing about the forum of course is to hear alternative approaches or thoughts from people who are a bit further down the tracks and living in a situation that I hope to approach soon.

I fully realize that I am a HNW individual and my next egg will be far greater than 95% of retirees. Very thankful.

To the questions about how I got to where I am I have been lucky to work for a great, privately held, mid cap size company for more than 25 years. I have been management for more than 15 of those years and the past 5 years on the executive team. In the past few years we have been owned by a PE firm and have performed well. As most of you know, when you work for PE, you can make a lot of money if you deliver results. Now we are selling the company once again and I have the opportunity to cash out at 53. I am being pressured of course to "sign on for the next round" because we have a great team and I am "only 53", but to the point of "how much is enough"? My answer is 5 - 7M is enough. The rest of the team will do just fine without me.

Once I get through the next few months and can move on, I will be spending much more time here and doing the things I have not done enough of like spending time with my family. We have lived below our means during all of my career and that's not really going to change. My wife is still driving our 10 year old Minivan and I expect it will still be in the driveway even after the cash out. My ride is not much better which is a constant source of ribbing at the office. We are debt free except for a modest mortgage on our primary residence.

So yes, I feel we have won the game so to speak and really appreciate the help getting to the next phase of things.

Will be going back underground for a few days - have to work a few more 12 hour days. Thanks Again Folks.

 

[timemoveson]

Congratulations on your path to get here and the results you've achieved.

You are in better shape than 99.5% of retirees I suspect, and you've earned the right to do whatever you want of course. So, go do whatever you want!

 

[nun]

Thanks to everyone who posted here and thanks for the private messages I got as well. There is some great advice here, much of it confirming what I myself have figured out but the great thing about the forum of course is to hear alternative approaches or thoughts from people who are a bit further down the tracks and living in a situation that I hope to approach soon.

I fully realize that I am a HNW individual and my next egg will be far greater than 95% of retirees. Very thankful.

To the questions about how I got to where I am I have been lucky to work for a great, privately held, mid cap size company for more than 25 years. I have been management for more than 15 of those years and the past 5 years on the executive team. In the past few years we have been owned by a PE firm and have performed well. As most of you know, when you work for PE, you can make a lot of money if you deliver results. Now we are selling the company once again and I have the opportunity to cash out at 53. I am being pressured of course to "sign on for the next round" because we have a great team and I am "only 53", but to the point of "how much is enough"? My answer is 5 - 7M is enough. The rest of the team will do just fine without me.

Once I get through the next few months and can move on, I will be spending much more time here and doing the things I have not done enough of like spending time with my family. We have lived below our means during all of my career and that's not really going to change. My wife is still driving our 10 year old Minivan and I expect it will still be in the driveway even after the cash out. My ride is not much better which is a constant source of ribbing at the office. We are debt free except for a modest mortgage on our primary residence.

So yes, I feel we have won the game so to speak and really appreciate the help getting to the next phase of things.

Will be going back underground for a few days - have to work a few more 12 hour days. Thanks Again Folks.

Tax is a big factor in your planning. If you can tell us the income you need (or desire) then we can take a stab at how your assets might be used to generate it.

 

[53anddone]

Conservatively I am hoping to generate 220 - 240k after tax for the next 14 years until I am 67. I know I will need to take some withdrawals to do that and in my analysis it works out to almost 50:50 withdrawals to generated income on investments.

(Realistically I think we can live on more like 170, but want to be conservative for planning purposes.)

My spreadsheet shows around a 15% effective tax rate once I stop working.

 

[nun]

Conservatively I am hoping to generate 220 - 240k after tax for the next 14 years until I am 67. I know I will need to take some withdrawals to do that and in my analysis it works out to almost 50:50 withdrawals to generated income on investments. (Realistically I think we can live on more like 170, but want to be conservative for planning purposes.) My spreadsheet shows around a 15% effective tax rate once I stop working.

I'd definitely look at a ladder if tax free muni bonds. Those will net you 4% tax free. You probably don't want to put everything in munis so combine that with some dividend paying stocks and you should come close to your target after tax income. You'll want to run some different asset allocations and see the tax and income implications. You could also take say $1M and buy some rental property. Where I live that might get you four apartments that might give you a total of $80k in rent. There'd be expenses but you could depreciate the cost of the apartments and get a nice reduction in tax.

 

[kcowan]

When I started ER planning, I was comfortable with 7% SWR. Now I think 4% is aggressive!

 

[nun]

When I started ER planning, I was comfortable with 7% SWR. Now I think 4% is aggressive!

I don;t have a massive retirement nest egg, so I've arranged things so my withdrawal rate is 0% or less. he OP has substantial savings so they have ore freedom in their planning and spending.

 

[kcowan]

I don;t have a massive retirement nest egg, so I've arranged things so my withdrawal rate is 0% or less. he OP has substantial savings so they have ore freedom in their planning and spending.

A good friend just retired last December. He is using 6%. I said 4% is better for the next 30 years but 6% is ok while he is young and active. Plus I think he will discover his actual expenses are lower than he planned.

 

[RobLJ]

The thread here is interesting. I never thought 30 years ago that we would ever even make the top 10%, so the fact that we appear to be in that bracket--barring another '09 event--tends to seem unreal, a bit like Monopoly money.

I think the advice to consider munibonds, preferreds, and perhaps REIT/dividend funds makes sense. Even more is to hire a fee-based advisor with tax expertise, since the tax implications have to be more important than to most of us on the board.
I would think at 270k spending per year, given the pension base, the OP is safe with a series of different strategies, although he/she may want to leave a large legacy (hence the fee-based advisor).
I also plan to withdraw 4-6 percent until SS kicks in (and after DW retires), and 6% shortterm from my 403b while DW continues to work. That should be cut back to 3.5-4 after SS and after DW retires.

 

[intl]

Look into HYD. It's tax free (fed, some state) and it pulls in close to five.

 

[jim584672]

Buy some PFF @ 6%, 65% qualified divs. I'm holding some and need some new buyers to come in.