[Wants current income and to leave an estate]

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills.
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PBB
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[Wants current income and to leave an estate]

Post by PBB »

Hey All,

How would you square this circle? I have two competing goals. I want to put my wealth in a living trust and leave it to my beneficiaries and their progeny. That's simple enough. Passive index funds seem to be the best choice. The fly in the ointment is the second goal. I need current income for retirement. I will need that for at least forty years. I am fifty-one years old, unattached, with no dependents or adult children. I have a bunch of cash in my checking account (>$10,000,000.00) and another one million in Vanguard funds (500 Index, STAR, Wellington, Wellesley). I have an allocation of 70% stocks and 30% bonds. That's good for my first goal . The cash will be invested to give me current income. I have no pension, IRA, 401(k) or any other source of income. I have only cash in checking and the Vanguard funds.

So, how to square the circle? I want current income, but also I want to leave the principle to beneficiaries. My lifestyle is simple and not expensive. I do want to travel though. What say you all?

Thanks.

PB
The Wizard
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Re: Squaring the Circle

Post by The Wizard »

:dollar It all depends on how MUCH current income you need or want.
Can you survive on $100k per year?
If so, you should be fine. You won't run out of money.

I would worry much less about your heirs. Does it really matter whether they get $5M vs $9M??
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LadyGeek
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Re: Squaring the Circle

Post by LadyGeek »

This thread is now in the Personal Finance (Not Investing) forum (retirement planning).
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richard
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Re: Squaring the Circle

Post by richard »

You have essentially contradictory goals. Investing may be thought of as a trade-off between current spending and, through your portfolio, future spending. More of one usually means less of the other.

In order to increase both you'd need to take more risk, but more risk means the distinct possibility that returns and portfolio size will decrease.

I don't understand how $10 million in checking and $1 million in Vanguard funds is an allocation of 70% stocks, 30% bonds. Is 70/30 your plan for investing the amounts you currently have?

What's your withdrawal rate - how much are you spending each year?
nordlead
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Re: Squaring the Circle

Post by nordlead »

I don't really see the problem.

Just invest all $11m (instead of sticking 91% of it in a checking account) in a 50/50 (or 60/40, or 40/60, whatever you want) equity/bond portfolio, live off of less than 4% per year (so less than $440k).

You say you have a simple lifestyle. If that is really true, then you probably live on $100k or less. You can easily earn more than 1% if it is actually invested instead of sitting in cash. Since you have a 40 year timeframe, even long market declines shouldn't matter if you are living on 1%.

Even $200k or $300k should still net a growth in funds over 40 years. You also have to factor in that you'll have SS later in life which will decrease the portfolio expenses.
tibbitts
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Re: Squaring the Circle

Post by tibbitts »

PBB wrote:Hey All,

How would you square this circle? I have two competing goals. I want to put my wealth in a living trust and leave it to my beneficiaries and their progeny. That's simple enough. Passive index funds seem to be the best choice. The fly in the ointment is the second goal. I need current income for retirement. I will need that for at least forty years. I am fifty-one years old, unattached, with no dependents or adult children. I have a bunch of cash in my checking account (>$10,000,000.00) and another one million in Vanguard funds (500 Index, STAR, Wellington, Wellesley). I have an allocation of 70% stocks and 30% bonds. That's good for my first goal . The cash will be invested to give me current income. I have no pension, IRA, 401(k) or any other source of income. I have only cash in checking and the Vanguard funds.

So, how to square the circle? I want current income, but also I want to leave the principle to beneficiaries. My lifestyle is simple and not expensive. I do want to travel though. What say you all?

Thanks.

PB
You have no idea whether you'll need anything for "at least forty years." You might not make it another day - especially if all those beneficiaries find out about the $11M that's just waiting for them to claim it.

Meanwhile, it's crazy to have $10M in one checking account. What kind of insurance do you have on that account? I'm thinking not FDIC.

You don't really have a "problem" by any standards most people (even here) can relate to. You need to accept that the more you spend and the less your money earns before you pass, the less those beneficiaries will have. It's a pretty simple relationship. Accept it and move on.
Topic Author
PBB
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Re: [Wants current income and to leave an estate]

Post by PBB »

Thanks everyone. That answered my questions to date. I need to find out how much I am willing to live on annual and hope that it's less that 4% of principle. I will also invest the money in more stocks than bonds to satisfy the first criteria and keep the rest for current income. I think it's time to talk to a fee-based CFP. I have one near me. She works for Merrill Lynch.

Anyway, thanks again. Question answered.

Best regards,
PB
The Wizard
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Re: [Wants current income and to leave an estate]

Post by The Wizard »

Careful with Merrill Lynch, but good luck with the whole thing...
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Grt2bOutdoors
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Re: [Wants current income and to leave an estate]

Post by Grt2bOutdoors »

PBB wrote:Thanks everyone. That answered my questions to date. I need to find out how much I am willing to live on annual and hope that it's less that 4% of principle. I will also invest the money in more stocks than bonds to satisfy the first criteria and keep the rest for current income. I think it's time to talk to a fee-based CFP. I have one near me. She works for Merrill Lynch.

Anyway, thanks again. Question answered.

Best regards,
PB
If the ML person says you can take out more than 4% in today's low yield environment and still leave todays principal intact for your heirs. Get her license number and report her to the SEC, then RUN!!!!! If the ML person says she can offer you a service that costs more than 25bps - RUN! You hear that great big sucking sound? that is the noise your money will make when it moves from your checking account into that big complex marketing machine called Merrill Lynch. Read the book, Where are the Customer's Yachts? if you want to be enlightened.
Let us know if you move it there, I will then buy some BofA so I can profit from it. :P
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
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Steelersfan
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Re: [Wants current income and to leave an estate]

Post by Steelersfan »

"Fee-based CFP" and "Merrill Lynch" together would raise a red flag so high for me I might not be able to see it any more.

Be very cautious.
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