Multi million dollar inheritance where do i start

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magellan
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Post by magellan »

rrosenkoetter wrote:States guarantee annuities up to a certain limit, so the trick to buy multiple annuities from different insurance companies, with each being under the state limit.
States don't guarantee anything. The guaranty programs are run by states but the guarantee is provided by the annuity industry in the form of a promise to self-insure for failures.

Bill Bernstein recently commented that state guaranty programs would be little more than a speed bump in the event of a systematic collapse like what happened in 2008. Congressional testimony at the time indicated that if AIG hadn't been bailed out, most state guaranty programs would have been at risk of collapse.

Jim
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HomerJ
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Post by HomerJ »

dr_g wrote:Fixed Indexed annuities with income riders are my choice to beat SPIAs.
That just sounds like yet another annuity product that will steal your money...

Yep, just googled it, and the first thing I see is

Fixed index annuities are a unique investment vehicle that let you participate in the stock market with zero potential risk.

Heh, zero "potential" risk. That's pure awesome.

This is just my uninformed gut reaction, but anytime the annuity community comes up with yet another new product, it's likely to be complicated, non-transparent, and more favorable to the insurance company rather than the investor.

Now, I'll admit I could be wrong... but do your homework...
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HomerJ
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Post by HomerJ »

magellan wrote:
rrosenkoetter wrote:States guarantee annuities up to a certain limit, so the trick to buy multiple annuities from different insurance companies, with each being under the state limit.
States don't guarantee anything. The guaranty programs are run by states but the guarantee is provided by the annuity industry in the form of a promise to self-insure for failures.

Bill Bernstein recently commented that state guaranty programs would be little more than a speed bump in the event of a systematic collapse like what happened in 2008. Congressional testimony at the time indicated that if AIG hadn't been bailed out, most state guaranty programs would have been at risk of collapse.

Jim
Thanks for the correction... guess nothing is really guarenteed.
Chuck
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Post by Chuck »

rrosenkoetter wrote:SPIAs pay a lot more than 2%...
I assume we're talking exclusive of return of capital.
Chuck
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Post by Chuck »

(dupe)
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HomerJ
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Post by HomerJ »

rcole33856 wrote:I give them 1mill and they give me 60k thats not a bad return.
Yes, but those are the kind of numbers you see when buying an annuity at 65... Because they expect half the people to be dead at 80, and only a few to make it to 100...

Normally you have to withdraw conservatively because you don't know if you're going to make it to 80 or 100... They can pay a bit more because with a million people, they know pretty well how many will die at 69 (big profits for them), how many will die at 80 (decent profits), and how many will make it to 100 (losses for them - but small number)

At 45, it will probably be a lower percetange payout though... You aren't likely to die in the next 15-20 years...

So it may not be a good option in your case.
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HomerJ
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Post by HomerJ »

Chuck wrote:
rrosenkoetter wrote:SPIAs pay a lot more than 2%...
I assume we're talking exclusive of return of capital.
Well, with SPIA, your capital is gone... You don't ever get it back... So all I care about what they are paying me each month... I don't care at all about what they are making on my money.

That's the whole point...
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kcyahoo
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Post by kcyahoo »

bdpb wrote:5% may be ok with one assumption, that is, you lower expenses as you
get older. Spending 750k per year in your 40s, 50s and 60s may be ok
if you expect to spend only 300k in your 70s and 80s. If one had to
live on 60k per year then it's very possible they would need that same
amount over their remaining lifetime and couldn't lower expenses late
in life. At 750k per year, I would expect you could lower this number
significantly as you age.
I lean towards the 5% advice. I budget 5 - 6.5% a year and have for the last 11 years. You have plenty of flexibility to lower this in the future if needed. As one example, I always budget $15,000 a year for travel but can easily drop that to $10,000 if needed (i.e. lower returns or need extra for another budget item).
Retired @ 57, now 75 | was 50/45/5, then 42/54/04, now 35/60/5 | KC
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rcole33856
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Post by rcole33856 »

kcyahoo wrote:
bdpb wrote:5% may be ok with one assumption, that is, you lower expenses as you
get older. Spending 750k per year in your 40s, 50s and 60s may be ok
if you expect to spend only 300k in your 70s and 80s. If one had to
live on 60k per year then it's very possible they would need that same
amount over their remaining lifetime and couldn't lower expenses late
in life. At 750k per year, I would expect you could lower this number
significantly as you age.
I lean towards the 5% advice. I budget 5 - 6.5% a year and have for the last 11 years. You have plenty of flexibility to lower this in the future if needed. As one example, I always budget $15,000 a year for travel but can easily drop that to $10,000 if needed (i.e. lower returns or need extra for another budget item).
Glad to hear that but im retiring 12 yrs younger than you and im concerned about making it last but yes I am flexible about reducing it if I need to. Is your portfolio having significant erosion with this withdrawl percentage.
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kenyan
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Post by kenyan »

5% withdrawal rate definitely seems high; many experts will recommend 4% as a starting point for someone retiring at a normal age (60s). Again, that's just a starting point, but there should be some rationale for withdrawing more than that amount when you're starting a much younger age. As others have pointed out, though, there's certainly nothing wrong with the strategy of splurging more now and then reining in your spending later as long as you are able to (from both a liability and psychological standpoint). Withdrawal rates that vary with market performance are also a good idea.
The Wizard
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Post by The Wizard »

I'm not sure "withdrawal rate" makes a lot of sense to talk about in this situation.
First of all, the bulk of this $$$ will be in after-tax investments so some of the usual strategizing is not applicable.
And the comparison of average monthly expenses to the steady cash flow from a 3% SWR is also a bit silly when dealing with a LARGE portfolio.
I'd expect there would be some large (well thought out!) lump sum withdrawals to fund meaningful lifestyle choices.
So I'm not sure what sort of algorithm one should use to supervise this situation...
dr_g
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Post by dr_g »

Don't confuse RETURN (2-5% per my post) with PAYOUT (can be as high as 15% if you're old!)
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kcyahoo
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Post by kcyahoo »

The Wizard wrote:I'm not sure "withdrawal rate" makes a lot of sense to talk about in this situation.
First of all, the bulk of this $$$ will be in after-tax investments so some of the usual strategizing is not applicable.
And the comparison of average monthly expenses to the steady cash flow from a 3% SWR is also a bit silly when dealing with a LARGE portfolio.
I'd expect there would be some large (well thought out!) lump sum withdrawals to fund meaningful lifestyle choices.
So I'm not sure what sort of algorithm one should use to supervise this situation...
I agree with this point. It says, in part, what I was trying to say.

Regarding your question rcole33856, my portfolio has fluctuated. The market downturn from 2000 - 2003 for instance. Fortunately at the time I was living on my three year taxable reserves (stable value, Money Market, Short-Term Bonds) during this period. I also continued to rebalance from bonds to stocks and came out of 2003 smelling like a rose (lucky for me). In 2008 (all IRA portfolio) I survived on my MM and short-term bond reserves, and continued to rebalance. My net worth today is more than the day I retired. One would say I have been lucky, in part yes. But staying with my plan, having a flexible budget, having appropriate cash reserves, and rebalancing helped a lot.
Retired @ 57, now 75 | was 50/45/5, then 42/54/04, now 35/60/5 | KC
dognose
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Post by dognose »

You're getting a lot of great advice here. Frankly, given the amount of money you're talking about, you're into the realm of the true top-end wealth managers like Bessemer Trust. It might be interesting to ask Bessemer to come up with a proposed plan for you, as well as advisors like Harold Evensky and perhaps Vanguard Asset Management (which deals routinely with families with very large estates). While they're coming up with plans for you to compare, you should spend your time reading anything by William Bernstein, Rick Ferri, etc. You also could read "Unveiling the Retirement Myth," by Jim Otar, for a really good quantitative analysis on what percentage of your wealth you can spend each year to last for many decades in retirement. The Otar book is long and reasonably complex in places, but it's well worth the read (and the chapter summaries are excellent). I would also hire the best CPA and estate lawyer I could find and have them independently review any proposed financial plans. Then take some time to think it all through, and go with the plan that lets you sleep best at night.
jmbkb4
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Post by jmbkb4 »

rcole33856 wrote:We also dont have children so any left over is just going to charity. I dont need to leave millions to anyone.
have fun!!!
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rcole33856
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Post by rcole33856 »

dognose wrote:You're getting a lot of great advice here. Frankly, given the amount of money you're talking about, you're into the realm of the true top-end wealth managers like Bessemer Trust. It might be interesting to ask Bessemer to come up with a proposed plan for you, as well as advisors like Harold Evensky and perhaps Vanguard Asset Management (which deals routinely with families with very large estates). While they're coming up with plans for you to compare, you should spend your time reading anything by William Bernstein, Rick Ferri, etc. You also could read "Unveiling the Retirement Myth," by Jim Otar, for a really good quantitative analysis on what percentage of your wealth you can spend each year to last for many decades in retirement. The Otar book is long and reasonably complex in places, but it's well worth the read (and the chapter summaries are excellent). I would also hire the best CPA and estate lawyer I could find and have them independently review any proposed financial plans. Then take some time to think it all through, and go with the plan that lets you sleep best at night.
Vey Nice advice just need to get the right team in place
chaz
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Post by chaz »

rcole33856, don't call Madoff for advice.
Chaz | | “Money is better than poverty, if only for financial reasons." Woody Allen | | http://www.bogleheads.org/wiki/index.php/Main_Page
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HomerJ
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Post by HomerJ »

rcole33856 wrote:
dognose wrote:You're getting a lot of great advice here. Frankly, given the amount of money you're talking about, you're into the realm of the true top-end wealth managers like Bessemer Trust. It might be interesting to ask Bessemer to come up with a proposed plan for you, as well as advisors like Harold Evensky and perhaps Vanguard Asset Management (which deals routinely with families with very large estates). While they're coming up with plans for you to compare, you should spend your time reading anything by William Bernstein, Rick Ferri, etc. You also could read "Unveiling the Retirement Myth," by Jim Otar, for a really good quantitative analysis on what percentage of your wealth you can spend each year to last for many decades in retirement. The Otar book is long and reasonably complex in places, but it's well worth the read (and the chapter summaries are excellent). I would also hire the best CPA and estate lawyer I could find and have them independently review any proposed financial plans. Then take some time to think it all through, and go with the plan that lets you sleep best at night.
Vey Nice advice just need to get the right team in place
Be very careful not to get sold...

Learn as much as you can here or in the books on the wiki before you go shopping for "expert help"... There's a LOT of people who will claim to be "experts", but only a small percentage really will be...

If anyone guarentees they will beat the market, run away.
Charlotte
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Post by Charlotte »

Given all the problems in the world, this one sure looks like a FUN one to have.

But regardless of amounts, keep in mind the speed limit on most rural roads in Montana, which are posted as "reasonable and prudent". Specifically, Montana Code Annotated (MCA) Section 61-8-303 reads "A person . . . shall drive the vehicle . . . at a rate of speed no greater than is reasonable and proper under the conditions existing at the point of operation . . . so as not to unduly or unreasonably endanger the life, limb, property, or other rights of a person entitled to the use of the street or highway."

I believe that a similar credo applies to wealth. Regardless of the amounts of money, may you be reasonable and prudent.

And your coming to this forum and asking questions, reading, learning, and soaking in the advice is a wisely prudent approach.

Best wishes.
- Charlotte
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novastepp
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Post by novastepp »

My post doesn't have to do with your withdraw rate.

You may want to consider the manner in which you plan to save. Look into an avenue that allows you to preserve your capital. You don't need to take risks.

Also, I'm not sure if it was mentioned, but look into waysto guarantee your money. I know banks will not secure those large amounts. But again, preserving all of your investments should be your priority. You would then be able to calculate almost exactly what you can afford to withdraw.

Good luck.
verygoodthings
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Post by verygoodthings »

A little bit of good advice, and a lot of horrible advice in this thread.


Since you are obviously not very smart, and could never figure out what is good and what is bad, you may as well discount most everything.


Find someone smarter than you (should be easy...) to manage your money. You can't handle any of this.


The common argument against hiring extremely capable fiduciary asset managers is that an AUM fee (of lets say 40 basis points on a folio of your size) cuts into returns over the long haul. Having the good advice will save your butt big time, judging by how you think you have things figured out (your wording with the 5% withdrawal and such). Your attitude that you don't want to leave 10M behind is RIDICULOUS for starters. That is to say that you would be disappointed if your portfolio ONLY fell 40% over your lifetime! You do not expect to at LEAST preserve the NOMINAL dollar value in front of you now?
verygoodthings
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Post by verygoodthings »

I'm sorry to everyone in this thread who feel I came out too harshly, but I think the entirety of what I posted just needed to be said.

I'm hoping some others here also cringe when they here about an inheritance of this size being handled in such a way. This is several lifetimes worth of good fortune being treated like a winning lottery ticket. I know OP has mentioned charity and such, but truth be told, people like this consume things on themselves ("I need 850k a year to live on..."). He has plans to "leave whats left over", and we all know where that leads. The world is designed for people like this to lose it all.
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goodenyou
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Post by goodenyou »

Get out of the "med profession" ASAP. You are a sitting duck, and the med-mal vultures will be licking their chops. Most importantly, stay healthy and enjoy your money. Getting sick/disabled is a horrible irony to success. You better have a passion or a hobby. Life is dull without one. Take it from another person in the "med field" who is looking for an exit (soon).
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goodenyou
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Post by goodenyou »

GRT2BOUTDOORS wrote:
rcole33856 wrote:
GRT2BOUTDOORS wrote:
rcole33856 wrote:
stan1 wrote:I'd say establish a 3% base, then take out 1-2% more if the market is doing well for nice to haves like house remodeling.

If the market is down 10+% in a year, don't take out the additional 1-2% and defer getting the new Ferrari for a year.

Can't say for sure, but after a few years of traveling the world in luxury (which I definitely would do in your situation) I might be happy spending a few years at home living in a beach cottage or mountain cabin where costs would be lower.

Enjoy while you are young and able. No point reaching your 80s with a ton of cash and wishing you had chartered that jet to fly you to Paris for your wife's 60th birthday (or having her remind you that you didn't do it!)

Don't skimp on health insurance. Its peace of mind even if you could self insure.
I agree with this. Im sure my expenses will go down as I get older except healthcare. I currently earn $400k+ per year and so I know how easy you can spend the money. I dont want to spend extravgantly only keep my current lifestyle with maybe a little bump. The real estate is not rental it is just there and completely paid off but the maintenance, condo fees, HOA fees And property taxes seem to be a hassle when I probably wont use them that much and I have no desire to rent them out.
Yes, but do you make 400K net or gross? If gross then you are really coming home with 250-275K assuming max out of retirement options and 33%+ AMT la-la land and quite possibly high state taxes.
That is gross income last year I only paid about 7% to federal taxes and I live in Texas which has no state taxes.
How do you only pay 7% in Federal income tax with gross income of 400K+? Is it a business with high overhead or reinvestment of equity - therefore no real realized income? I think I may need a new tax accountant......hmmmm



.....and don't go to jail. That would suck too!
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rcole33856
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Post by rcole33856 »

verygoodthings wrote:I'm sorry to everyone in this thread who feel I came out too harshly, but I think the entirety of what I posted just needed to be said.

I'm hoping some others here also cringe when they here about an inheritance of this size being handled in such a way. This is several lifetimes worth of good fortune being treated like a winning lottery ticket. I know OP has mentioned charity and such, but truth be told, people like this consume things on themselves ("I need 850k a year to live on..."). He has plans to "leave whats left over", and we all know where that leads. The world is designed for people like this to lose it all.
Everyone is entitled to their opinion, even you sir. Thank you all for your input it gave me several things to think about and I feel with time and more reading I will be just fine.
expat
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Post by expat »

A 5 percent withdrawal rate of 15 million is $750,000 per year. Do you really need or want to spend that much?
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rcole33856
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Post by rcole33856 »

expat wrote:A 5 percent withdrawal rate of 15 million is $750,000 per year. Do you really need or want to spend that much?
Why is there a problem with that?
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Post by expat »

rcole33856 wrote:
expat wrote:A 5 percent withdrawal rate of 15 million is $750,000 per year. Do you really need or want to spend that much?
Why is there a problem with that?
Only if you want the money to last.
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rcole33856
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Post by rcole33856 »

Yes I plan on it to last
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rcole33856
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Post by rcole33856 »

Even if I put the money under my mattress and take out 500k per year it will last 30 years. So yes i believe I can get another ten years if need be with prudent investments.
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Munir
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Post by Munir »

rcole33856 wrote:
expat wrote:A 5 percent withdrawal rate of 15 million is $750,000 per year. Do you really need or want to spend that much?
Why is there a problem with that?
Remeber OP lives in Texas :D .

Seriously, don't rush into anything, and hire the best money manager/advisor you can find who deals with assets of the numbers you mention. Gain knowledge from this forum and read some of the recommended publications so that you can challenge or ask intelligent questions of whomever you hire.
Valuethinker
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Re: Multi million dollar inheritance where do i start

Post by Valuethinker »

rcole33856 wrote:I am recieving approximately 2 mill in realestate about 7 different properties from florida to hawaii all paid off. Also after taxes approximate 15mill in cash. I am 45 currently in med field making a good living but after this I think I want to retire and live off these investments. I believe in passive investing and I just want to preserve what I have nothing fancy. I would like to take about 5% in distributions each year and live off that. Yes I need a financial adviser, cpa ect but what would be the best way to tackle this and be able to have the money last 40 yrs or so. Thanks for everyones advice
- put most of it in *very safe* government securities and sit and wait

- talk to lots of people, read lots

Generally that kind of money comes out of investment in commercial RE (use funds, and don't use private LPs-- investors are often ripped off). About a 5% yield is possible.

I would diversify as much as you can. Global small cap, commercial RE, TIPS, global inflation linked bonds, etc. etc.

Do read William Bernstein on people who broke to High Net Worths. There are a lot of vultures out there.

You are very unlikely to need things like Hedge Funds, Private Equity or private real estate LPs.

Read the Michael Lewis article (it's still online somewhere) in Portfolio magazine about the DFA Adviser who serves Hollywood. It's very eye opening. You might want to meet that guy and discuss your needs.

That's the sort of financial adviser you might want to have.

Larry Swedroe who posts here would be another.

Get out of your profession but I would get involved with a charity or driving purpose in your life. Otherwise you could old really quick-- the idle rich are none too happy in my experience.
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rcole33856
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Re: Multi million dollar inheritance where do i start

Post by rcole33856 »

Valuethinker wrote:
rcole33856 wrote:I am recieving approximately 2 mill in realestate about 7 different properties from florida to hawaii all paid off. Also after taxes approximate 15mill in cash. I am 45 currently in med field making a good living but after this I think I want to retire and live off these investments. I believe in passive investing and I just want to preserve what I have nothing fancy. I would like to take about 5% in distributions each year and live off that. Yes I need a financial adviser, cpa ect but what would be the best way to tackle this and be able to have the money last 40 yrs or so. Thanks for everyones advice
- put most of it in *very safe* government securities and sit and wait

- talk to lots of people, read lots

Generally that kind of money comes out of investment in commercial RE (use funds, and don't use private LPs-- investors are often ripped off). About a 5% yield is possible.

I would diversify as much as you can. Global small cap, commercial RE, TIPS, global inflation linked bonds, etc. etc.

Do read William Bernstein on people who broke to High Net Worths. There are a lot of vultures out there.

You are very unlikely to need things like Hedge Funds, Private Equity or private real estate LPs.

Read the Michael Lewis article (it's still online somewhere) in Portfolio magazine about the DFA Adviser who serves Hollywood. It's very eye opening. You might want to meet that guy and discuss your needs.

That's the sort of financial adviser you might want to have.

Larry Swedroe who posts here would be another.

Get out of your profession but I would get involved with a charity or driving purpose in your life. Otherwise you could old really quick-- the idle rich are none too happy in my experience.
Is it the article about Blaine Lourd of Lourd capital management?
wellmoneyed
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Re: Multi million dollar inheritance where do i start

Post by wellmoneyed »

Valuethinker wrote: You are very unlikely to need things like Hedge Funds, Private Equity or private real estate LPs.

Read the Michael Lewis article (it's still online somewhere) in Portfolio magazine about the DFA Adviser who serves Hollywood. It's very eye opening. You might want to meet that guy and discuss your needs.
I will admit that occasionally I think, "I have all this money, shouldn't I have a wealth manager?" Surely, if I put my money in supper exclusive firm X they will make more money for me. The argument (in my head) is very seductive.

I appreciate articles like these. Thank you.

LINK:

http://www.portfolio.com/executives/fea ... ndex8.html
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renditt
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Re: Multi million dollar inheritance where do i start

Post by renditt »

rcole33856 wrote:I am recieving approximately 2 mill in realestate about 7 different properties from florida to hawaii all paid off. Also after taxes approximate 15mill in cash. I am 45 currently in med field making a good living but after this I think I want to retire and live off these investments. I believe in passive investing and I just want to preserve what I have nothing fancy. I would like to take about 5% in distributions each year and live off that. Yes I need a financial adviser, cpa ect but what would be the best way to tackle this and be able to have the money last 40 yrs or so. Thanks for everyones advice
First of all, gratulations, that's a great situation to be in.

As others pointed out, I don't think you need any fancy investments (i.e., private equity, hedge funds etc). I would probably just split 50:50 between bonds and equity, bonds split between treasuries and muni bond funds and tips. Equities split evenly between US and International.

I would think carefully how you can diversify across different economies and currencies and how this could be done in a tax efficient way. Easy to do with stocks, harder to do with bonds (or at least I don't know how you could invest in a tax efficient way in let's say EU zone bonds).

Currencies is another area: Given that you will do extensive travel or may even buy a house abroad (you will have to spend 800k somehow :wink: ), I would think about how to best get exposure to other currencies. Again, with stocks you already do that indirectly, but you may want to get direct exposures to foreign currencies as well.

I think if I were in your shoes, I would structure my portfolio in a way that I could live off dividends and interest after tax (should be no problem with 20m) and have the principal grow.
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kcyahoo
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Post by kcyahoo »

rcole33856 wrote:Even if I put the money under my mattress and take out 500k per year it will last 30 years. So yes i believe I can get another ten years if need be with prudent investments.
Exactly.
Retired @ 57, now 75 | was 50/45/5, then 42/54/04, now 35/60/5 | KC
jazzysguy
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Post by jazzysguy »

To the OP:

First....COngratulations on your windfall! It's a fun "problem" to have deciding what to do with a total of $17M in inherited assets!

I sincerely hope that if these assets came from a parent (s), that the lifetime gift tax exclusion was used which would have shaved $2 million off the total and reduced estate taxes due. Also I assume that FEderal Estate taxes have already been paid unless the individual(s) from whom these assets came from died last year in which case you really hit the jackpot since in 2010 the estate tax exclusion was unlimited!

Anyway looking at your post we know this about you and your spouse;

Age; mid 40's

State of residence; Texas ( No state income taxes)

Assets from inheritance ( $2 M real estate + $15 M cash)

No children

DEsires : Income stream of approx. 5% or $750,000/yr.

For the real estate , you should receive a step up in cost basis so there will probably be little or no gain. From what you have said, it seems you want to just sell the properties ASAP since they are not currently rented out. If this is the case , they are nothing but a drain on your finances ( taxes, insurance, maintenance, etc.).

As for the remaining $15 million, you have already reached critical mass.
You do not need to grow your assets as much as preserve what you now have. But in order to maintain an income stream of 5%, I feel some risk (equities) may be in order. Here is what I would do:

$ 2 million: 3 Month T bills

$ 4 Million: Nuveen Texas Muni bond fund : Y- 5.7%

$ 1 Million: Vanguard Inter. Tax exempt: Y-3.2%

$ 5 Million Vanguard Hi Yield TAx exempt: Y- 4.5%

$ 1 million Vanguard Limited Term TAx exempt: Y-1.4%

$ 500K - Vanguard Sm Cap index

$500K - Vanguard Mid Cap Growth Index

$500K - Vanguard Total World Stock Index

$500K - Vanguard LArge Cap Index

$2 M : CAsh (includes sale of properties)

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The T bills will let you sleep at night. If for some reason, there was a "problem" with Vanguard or the markets totally collapsed, the T - bills are still considered very safe (disregarding the recent news about the US defaulting on its debt and the like).

The tax exempt funds allow you to accumulate monthly tax free dividend income across a myriad of tax exempt funds with different maturities. Yes, it IS heavily weighted toward longer maturity bonds . Don't be concerned with a rise in interest rates hurting returns since you plan to hold these funds for many years. ( If rate rise, new issues in the longer maturity funds will have an increased yield).

The four index funds allow you exposure to equities across both size (capital) and countries and allows for some growth to help supplement the income from the bond funds to allow you to reach the goal of income of $750,000/ year. For example, If the bond funds return income of $500,000/year; you could tax harvest and sell what you need to reach the $750k mark from the equity funds. You could do this on a semi annual basis always trying to make sure any small gains are Long TErm to minimize tax consequences. The tax managed funds are not appropriate for this strategy since there is a fee charged if sold within 5 years of purchase.

The $2 million in cash will get you started on your adventures ( travel , etc.). Spend this down first allowing the equity funds to (hopefully) grow and the income from the bond funds to accumulate.

One thing you definitely need: A very good umbrella insurance policy of at least $10 million. Most homeowners and auto policies top out at about $300,000 in coverage. If you are ever sued you need to protect your assets. You may have to purchase coverage from multiple companies to reach the $10 million mark but again....you will sleep better at night.

Oh and one more thing .....HAVE FUN!!!!!!!!!!
Oneanddone
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Post by Oneanddone »

rcole33856 wrote:Even if I put the money under my mattress and take out 500k per year it will last 30 years. So yes i believe I can get another ten years if need be with prudent investments.
1) You just lowered your withdrawal rate to 3.33% from 5%.
2) You are ignoring inflation. In 30 years, you will need $1.6 million to have the same purchasing power with 4% inflation. In 20 years, you will need $1.1 million

What you need isn't just prudent investments. You also need some luck and/or the willingness to take out less money.

The problem with SWR scenarios is that they simply don't mirror how people handle money in the real world.

For instance, ignoring inflation for ease, I have $1,000,000 and I'm 70 and 10 years later, I have $2,000,000, there is no reason for me to hold my withdrawals to my initial $40,000.

Also, it is just natural to have some years with big expenses and some with smaller expenses. The year in which you take the entire family on a safari and have 3 kids in college and buy a new car is much different than the following year when there is 1 kid in college, no safari and no new car.
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market timer
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Post by market timer »

What kind of lifestyle can someone afford with $850K expenses? I'm really curious.
wellmoneyed
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Post by wellmoneyed »

market timer wrote:What kind of lifestyle can someone afford with $850K expenses? I'm really curious.
Not as much as you think. If you don't travel much you can charter private (Gulf Stream) (100K for a week in Hawaii from the mainland), otherwise your still flying first class. You can afford a couple million dollar home. Can't really get a yacht or private jet, because you can't afford the annual upkeep. The upside is you live the life of "normal rich" carefree :D

You can afford to skii in top in resorts in the top locations for several weeks at a time, but it adds up (5K/night * 30 = $150).

You can afford to hang out with the jet set crowd. This can get you into trouble financially.

You can afford to start collecting art, wine, other high end collectibles.

You can afford to drive a Ferrari, but not 10.

In what ever area you decide to spend more than a person making more than $250K (random number) You can go bankrupt quickly. Art, planes, real estate, boats, travel, cars these things all have costs that go to the ceiling and on to the sky. Very slippery slope...IMHO.
Chuck
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Post by Chuck »

I think I would chose to live at the top of the "middle class rich" lifestyle.

A Corvette, a second home in Florida (which would be my primary residence for tax purposes), and yes, definitely first class tickets every time. I guess I'm not that creative.
Oneanddone
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Post by Oneanddone »

If I inherited $15 million and wanted to live a more expensive lifestyle...

Being in the business has allowed me to gain lots of experience simply observing others. One of the more important things is that everything is relative.

If someone has a $50,000 life style and then starts to make more money and they start living a $75,000 lifestyle, they will feel rich. If they have a $125,000 lifestyle and have to take a paycut and have a $75,000 lifestyle, they will feel poor.

If someone starts living a $750,000 lifestyle because of their inheritance, they will feel rich for awhile, but then it will become their norm and they won't continue to feel that way. In fact, if they have to cut down to "only" $500,000, it may be somewhat of a struggle.

For that reason, even though I could afford to do so with the inheritance, I would take a much slower approach.

1)Year 1: I'd use none of the money. Just I knowing I have it will give a great feeling without having to access it. It is also just plain smart to wait a year before making changes.

2) Year 2: I'd increase my lifestyle by $2,000 a month. Just think about it. Unless you are already pretty wealthy, getting to spend an extra $2,000/month without having extra expenses is pretty huge.
3) Year 3 and beyond: Each year, I would simply keep giving myself a raise.

To me, this is almost the same as when I take my little ones to a baseball game. We sit in the cheap seats. I almost don't want them to go with their grandfather because he refuses to to sit in the cheapies and all of a sudden, the cheapseats aren't as good as they used to be.
wellmoneyed
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Post by wellmoneyed »

Oneanddone wrote:If I inherited $15 million and wanted to live a more expensive lifestyle...

Being in the business has allowed me to gain lots of experience simply observing others. One of the more important things is that everything is relative.

If someone has a $50,000 life style and then starts to make more money and they start living a $75,000 lifestyle, they will feel rich. If they have a $125,000 lifestyle and have to take a paycut and have a $75,000 lifestyle, they will feel poor.

If someone starts living a $750,000 lifestyle because of their inheritance, they will feel rich for awhile, but then it will become their norm and they won't continue to feel that way. In fact, if they have to cut down to "only" $500,000, it may be somewhat of a struggle.

For that reason, even though I could afford to do so with the inheritance, I would take a much slower approach.

1)Year 1: I'd use none of the money. Just I knowing I have it will give a great feeling without having to access it. It is also just plain smart to wait a year before making changes.

2) Year 2: I'd increase my lifestyle by $2,000 a month. Just think about it. Unless you are already pretty wealthy, getting to spend an extra $2,000/month without having extra expenses is pretty huge.
3) Year 3 and beyond: Each year, I would simply keep giving myself a raise.

To me, this is almost the same as when I take my little ones to a baseball game. We sit in the cheap seats. I almost don't want them to go with their grandfather because he refuses to to sit in the cheapies and all of a sudden, the cheapseats aren't as good as they used to be.
This is one of the reasons I am thinking about a 1-2% withdrawal rate not adjusted for inflation. I feel like this will give me a built in long term lifestyle raise, and also keep me on my toes realizing that in down years there maybe less.
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rcole33856
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Post by rcole33856 »

Oneanddone wrote:
rcole33856 wrote:Even if I put the money under my mattress and take out 500k per year it will last 30 years. So yes i believe I can get another ten years if need be with prudent investments.
1) You just lowered your withdrawal rate to 3.33% from 5%.
2) You are ignoring inflation. In 30 years, you will need $1.6 million to have the same purchasing power with 4% inflation. In 20 years, you will need $1.1 million

What you need isn't just prudent investments. You also need some luck and/or the willingness to take out less money.

The problem with SWR scenarios is that they simply don't mirror how people handle money in the real world.

For instance, ignoring inflation for ease, I have $1,000,000 and I'm 70 and 10 years later, I have $2,000,000, there is no reason for me to hold my withdrawals to my initial $40,000.

Also, it is just natural to have some years with big expenses and some with smaller expenses. The year in which you take the entire family on a safari and have 3 kids in college and buy a new car is much different than the following year when there is 1 kid in college, no safari and no new car.
Im leaning more to the fixed percentage of 5% of my total portfolio per year regardless of inflation. Yes I am aware there could be large fluctuations from year to year but I have alot of wiggle room. I also did not say I was going to spend every dime each year but yes I could accumulate fine art or extra homes over the lifetime.
Last edited by rcole33856 on Fri Apr 22, 2011 12:19 pm, edited 1 time in total.
Chuck
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Post by Chuck »

rcole33856 wrote:Im leaning more to the fixed percentage of 5% of my total portfolio per year regardless of inflation. Yes I am aware there could be large fluctuations from year to year but I have alot of wiggle room
If you already decided what to do, and won't listen to anyone's ideas or suggestions, are you just here to brag?
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rcole33856
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Post by rcole33856 »

Chuck wrote:
rcole33856 wrote:Im leaning more to the fixed percentage of 5% of my total portfolio per year regardless of inflation. Yes I am aware there could be large fluctuations from year to year but I have alot of wiggle room
If you already decided what to do, and won't listen to anyone's ideas or suggestions, are you just here to brag?
I am far from decided I have been thinking of scenarios for 6 months. I read the Micheal Lewis article and from my current experience with investing. I kinda felt most of the brokers and managers were bogus thus I gravitated to the boglehead way of investing. For the most part I am conservative and just dont wanna make any glaring mistakes with this windfall. My lifestyle will only change in that I am not spending 70-80 hrs a week earning money where now I can pursue hobbies, travel and help other people including my direct family specifically my wifes side of family.
Chuck
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Post by Chuck »

Okay, but you've gotten the answer a dozen times. A 5% withdrawal rate will not last 40 years unless you get a consistent return of 4% over the entire period. That might work, and it might not. Also, your idea of ignoring inflation is a bad one.

That said, doing it for 10-20 years and then reevaluating would be harmless. You could do whatever you want. I would plan for 2% real return and my SWR would be 3.66% adjusted for inflation.
verygoodthings
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Post by verygoodthings »

I think everyone on here is ignoring several good options. Hedge funds actually are a decent diversification play here, domestic commodity producers (with tax incentives), perhaps private equity. Those items become of value when you can take a substantial amount of money (let's say 500k), and allocate towards it, without accounting for more than 5-10% of your portfolio. Why do you think huge endowment funds have about an average allocation of 15% to these alternatives? It is because they are smarter than the average person here on Bogleheads (Oh my?!).

What I really dislike in threads like this (I have 20M to invest, where should I put it?!) is that people respond "Take 3M and put it in this vanguard ticker, hold 2 million in cash, take 6 million and put it in this bond fund".... Large amounts like this aren't handled on a napkin. Did you put together that breakdown honestly expecting this guy to just made 17M in fund orders tomorrow?

Not many people here talking about DFA, but its a no brainer in my mind, for some funds. I could see about 60-100% of this money (equity portion) being in DFA. And you have the value added benefit of needing a manager anyway.
verygoodthings
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Post by verygoodthings »

I also wanted to second the opinion that OP is primarily here to brag. He isn't here to get smarter.
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fundtalker123
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Post by fundtalker123 »

expat wrote:A 5 percent withdrawal rate of 15 million is $750,000 per year. Do you really need or want to spend that much?
The guy said he has a wife . . .
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