selling home--want more income

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Topic Author
blueheaven
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Joined: Tue May 22, 2012 8:11 pm

selling home--want more income

Post by blueheaven »

I am retired, 65, single
Have stable income (pensions, social security)
Take monthly draw from investments (mostly Vanguard (50 stocks, 40 bonds, 10 short)
Have emergency fund
Have no debt
25% income tax rate, no state income tax

Am finally selling my house and plan to rent
Will probably have $ 200,000 + to do something with and would like to get ideas

Am looking at Managed Pay Out Distribution because I like the draw. Is this crazy?
scone
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Re: selling home--want more income

Post by scone »

It's not crazy, but if this money is going to be taxable, you might think about the implications of that. There's a wiki entry on taxable investing here, and there are quite a few options to consider. For example, the first thing that popped into my head was municipal bonds, but that's just one possibility. Another issue is the impact of increased income on your Social Security-- I'd run the numbers IIWY. Good luck.
Last edited by scone on Wed Oct 23, 2013 10:02 am, edited 1 time in total.
"My bond allocation is the amount of money that I cannot afford to lose." -- Taylor Larimore
jwa
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Re: selling home--want more income

Post by jwa »

Well I'm not a pro and others will speak more ably to you than me. First off I assume you know the payout funds are all being merged into one fund which will pay out 4% a year. There is a heavy equity weighting that you should consider for your age (I'm only a year behind you). Based upon recent studies by Dr Pfau stable income sources like ss & pensions might make one more comfortable with a heavier equity weighting and come out ahead but that has to be your decision to think out. I'll allow you to go to his blog on your own in case you haven't seen his research.

This brings me to my final point. If you have not read the thread started a couple years ago by Mr. Taylor Larimore on the 3 fund portfolio, you should avail yourself to it. The reason I bring this up is if one follows the three fund portfolio the expense ratio will be lower. While there has been much discussion here about safe withdrawal rates I am personally comfortable with a 4% withdrawal rate. If this 4% is all the payout fund will now offer, I can do that myself from the three fund portfolio that has a lower expense ratio, thus, saving myself some money. I don't need Vanguard to send me 4% a year at a higher expense ratio when I can simply do it myself.
Valuethinker
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Re: selling home--want more income

Post by Valuethinker »

blueheaven wrote:I am retired, 65, single
Have stable income (pensions, social security)
Take monthly draw from investments (mostly Vanguard (50 stocks, 40 bonds, 10 short)
Have emergency fund
Have no debt
25% income tax rate, no state income tax

Am finally selling my house and plan to rent
Will probably have $ 200,000 + to do something with and would like to get ideas

Am looking at Managed Pay Out Distribution because I like the draw. Is this crazy?
Your best alternative would be a SPIA annuity. There is good stuff on the wiki here.

Say you put $100k towards that, would give you something over $5k pa in income. There are various instant quote websites. I think Vanguard has one?

You could invest the rest in ST to IT bonds, and then consider buying another annuity at age 70 say.

Don't forget at least 50% survivor benefit if you are married (especially if you are male and married, given the difference in expected lifespans).
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BL
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Re: selling home--want more income

Post by BL »

I like a version of the 3-fund portfolio: Total stocks with fixed in some combination of: munis, CDs or other FDIC insured, I-Bonds, or a laddered immediate annuity (some now, some later).
Topic Author
blueheaven
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Joined: Tue May 22, 2012 8:11 pm

Re: selling home--want more income

Post by blueheaven »

Thank you. Lots of good advice.

I just noticed that the managed pay out distribution fund had closed and did not know that the funds were merging. I am already doing my own version of the 4% draw. Am also looking at upping it to 5% for the active years. Think I read something about this on the Boglehead site.
Topic Author
blueheaven
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Re: selling home--want more income

Post by blueheaven »

Am also going to look at annuities and have been checking out the Vanguard offerings Hate the up front fees but like the lifetime income.
Quickfoot
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Re: selling home--want more income

Post by Quickfoot »

immediateannuities reports the SPIA rate for a single life 65 year old male is currently 7.10% with no guaranteed payment term (if you die the money is gone) and 6.82% for 10 years of guaranteed payments (they pay for at least 10 years, the money would go to your heirs if you died less than 10 years into the spia).

If you expect to live a significant time and you are looking to increase income and already have an invested portfolio buying a SPIA with 50% to 75% of the proceeds and investing the remaining 25% could make sense. You can not safely match a 7% payout, even 6.82% is very good. If you invested 75% of the 200K at 7% you'd get $10,500 per year for the rest of your life and you need only live 14.28 years to recover your principal. If you do a 15 year guaranteed payout rider then you are guaranteed to have at least your principal paid out to either you or your heirs.
Topic Author
blueheaven
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Joined: Tue May 22, 2012 8:11 pm

Re: selling home--want more income

Post by blueheaven »

Looks like I forgot to say "female". So the annuity amounts would be smaller, I assume. I like the idea of using about half of the money to purchase an annuity. Would be more apt to do that than throwing the whole thing in. I like the life option with a guaranteed term. My mom and dad lived into their 80's.

Also, no kids, so am not planning to provide for heirs but do not want to run out.
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BL
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Re: selling home--want more income

Post by BL »

Why the guaranteed term if no heirs?
Quickfoot
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Re: selling home--want more income

Post by Quickfoot »

Take a look at immediateannuities.com, a 65 year old female investing 100K would get approximately 6.74% with no guaranteed term and 6.40% with a 15 year guaranteed term. You could name a charity, family member or friend as a beneficiary as well but if you didn't want to do that then there's no reason to go with the guaranteed term. A SPIA (even without a guaranteed term) promises payments for as long as you live, almost every state guarantees principal to a certain amount (most states do at least 100K, Idaho does 300K) so if your SPIA exceeds the state guarantee amount or you want to minimize risk buy 2 SPIAs.

Depending on the balance of your other investment accounts you may want to lean closer to the 75% in the SPIA since you are concerned about running out of money. If you invested the remaining 25% in a 40/60 or 60/40 asset allocation you would still have some growth and liquidity and would maximize your monthly income via the SPIA.
minskbelarus47
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Re: selling home--want more income

Post by minskbelarus47 »

I would ask also, do you have long term care insurance. Do you have additional funds set aside for the final years. Read an article that says in your final years (5) you will spend between 177K and 200K on end of life expenses. Do you have a set aside to cover that?

If you live in a low cost area and just you and wife, you might want to start looking at CCRC's. Friends have told me the best time to go in is when you are healthy and active, since you will then have that circle of friends around you for a few years that when one of you pre-deceases the other, they close that gap in the loss.

Just my view and don't know if this is proper for this thread.
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Taylor Larimore
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The Three Fund Portfolio

Post by Taylor Larimore »

Jwa wrote:
If you have not read the thread started a couple years ago by Mr. Taylor Larimore on the 3 fund portfolio, you should avail yourself to it.
BL wrote:
I like a version of the 3-fund portfolio:
blueheaven:

This is a link to The Three Fund Portfolio and its advantages:

http://www.bogleheads.org/forum/viewtop ... 10&t=88005

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle
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Watty
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Re: selling home--want more income

Post by Watty »

I don't know what all the rules are on suspending social security but suspending it to restart it later for a larger amount could be an option.

http://www.ssa.gov/retire2/suspend.htm

If you started your social security less than a year ago you may be able to stop it and pay it back to eventually get a larger social security check.
Topic Author
blueheaven
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Joined: Tue May 22, 2012 8:11 pm

Re: selling home--want more income

Post by blueheaven »

Started taking social security at 62 so it is too late to stop and restart. Probably not the smartest thing I have ever done but it's done.

I have long term insurance. Do not have a set aside for later years but expect to still have at least 200,000 or more left for the final years. I can't see me spending down past that level. Especially if I put part of the house money in an annuity to get more income. Thanks to investment lessons from my late husband and starting early I am good unless I do something really stupid.
Topic Author
blueheaven
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Joined: Tue May 22, 2012 8:11 pm

Re: selling home--want more income

Post by blueheaven »

Thanks for the ideas. I am going to look at the threads mentioned.
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BL
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Re: selling home--want more income

Post by BL »

Check on immediate annuities with Vanguard as well. I hear they are very informative without being a hard sell. Don't let anyone sell you any other type of annuity; they would make lots more money but not you. Also find out how much your state "guarantees" insurance contracts. I think with most it is a minimum of $100,000.
Topic Author
blueheaven
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Joined: Tue May 22, 2012 8:11 pm

Re: selling home--want more income

Post by blueheaven »

Hi, back again. House money is in the bank, 250,000. I talked to Vanguard about an annuity and they basically talked me out of it. They said it was not a good idea at this time. Very strange I thought. I signed up for a free financial plan and the conversation is scheduled for next week. The preliminary plan keeps what I have in place and distributes the money to Total Bond (75,000), Total International (50,000) and Total International Bond (125,000). The International Bond is new for me and would be 10% of the portfolio. Total International would become 15% of portfolio. This would bring the allocation to 50/50. I kept my 10% reserve out of the plan. I am not a knowledgeable investor, just gained some experience from watching the market over the years. Am not comfortable with International Bonds. I would like to get some comments on the above. Thanks.
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BL
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Re: selling home--want more income

Post by BL »

I think there is something wrong there, not sure what. I would skip the international bond, or have just a small %. Could they have meant inflation bonds (Tips)?

You can buy I-Bonds (treasurydirect.gov) 10,000/year that would give some inflation protection with no loss of principal.
This month PenFed has 3% 5-yr CDs.
Topic Author
blueheaven
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Joined: Tue May 22, 2012 8:11 pm

Re: selling home--want more income

Post by blueheaven »

I checked and it was definitely Total International Bond Index and not TIPS.
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BL
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Re: selling home--want more income

Post by BL »

Wow! I think Vanguard may be pushing these but haven't heard this promotion on Bogleheads. I don't mind seeing a bit in Target Retirement Income but personally won't be buying any extra. Hope some long-time Bogleheads can come up with a suggested portfolio or comment on this recommendation. Maybe your next week's discussion will have more to consider. There is no need to rush your decision.

I do think you may be a bit young yet for SPIAs and they are more expensive now, but you might want to consider them again in your 70's (if in good health) for longevity insurance.
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Taylor Larimore
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Re: selling home--want more income

Post by Taylor Larimore »

Bluehaven:

If I understand correctly, you are asking about what to do with $200,000 you received from the sale of your house. Without knowing what is in your existing portfolio, it is impossible to give you informed suggestions.

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle
Topic Author
blueheaven
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Joined: Tue May 22, 2012 8:11 pm

Re: selling home--want more income

Post by blueheaven »

Yes, I am trying to decide what to do with the, now, 250,000. I think I have enough assets to see me to the end so want to move to a more conservative allocation.

the following are all in vanguard except the reserve. Mostly suggested by a vanguard asset manager but I have moved things around a bit after I quit him.

Investment Account
Home sale proceeds parked in MM
3.4% Growth Index
13% Total Stock
8.5% Wellington (my long term choice)
1.3% Dividend Growth Index

Traditional IRA
10% Interm Term Invest Grade Bond Index
8.7% Short Term Invest Grade Bond Index
14.9% Total Bond
7.5% Total International Index
2.3% Wellington
1.2% Costco

403b
3% Dividend Growth Index

Roth
4.4% Extended Market Index
9.3% Total Stock

Income Reserves (2-3 yrs)
12.5% ING/IBONDS
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