Senior Years?

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woodedareas
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Joined: Mon Aug 20, 2012 6:55 pm

Senior Years?

Post by woodedareas » Sun Feb 24, 2013 8:46 am

I am 73 and my wife is 66, and we have been doing well by purchasing corporate bonds, CD's and a limited equity portfolio, mostly in IRA's. About everything has been called and we are sitting on 50% cash. I continue to work so I have an income and we receive social security, and compulsory withdrawal from the IRA's. In this respect I do not need to take any risk and can sit in cash. It may sound rather morbid but the longer we live without drawing on our IRA and personal funds the less we will need given our reduced life expectancy. The only financial advisor that I use has suggested that given our situation we should continue holding cash with the hope that interest rates may rise over the next 2 years and given the proviso that I can continue to work.My AA is 70 bonds/ 30. In previous years this scenario made sense for us as we were younger the economy was supposedly better. Now we can not sustain any loss as we do not have the time to recoup. The total amount of money that we have in all liquid accounts is sufficient to sustain us with a return of 4 to 5%.I realize these returns are not available without risk. Does anyone have any suggestions for reaching for this return or shall I continue on with practically no return on our cash, and the hope that interest rates may slowly rise during the time I am still working? Many seniors are using their principle and it may run out, this is a national problem for older folks who used to rely on reasonable interest rates.I am fortunate that I can still work but other are not as fortunate. The Boglehead forum has been very helpful but many of the theories for investment are not applicable to older persons that require a reasonable return without great risk. Currently many folks are forced into taking risk as they have no alternative. Wish I could run the Federal Reserve.

Call_Me_Op
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Re: Senior Years?

Post by Call_Me_Op » Sun Feb 24, 2013 8:52 am

I like the "total return approach." I believe that trying to live off of dividends doesn't make much sense - for a number of reasons - and today it is impossible except for the very wealthy. If you were to stop working today, what percentage of your portfolio would you need to withdraw each year for living expenses?
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein

YDNAL
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Re: Senior Years?

Post by YDNAL » Sun Feb 24, 2013 9:06 am

woodedareas wrote:I am 73 and my wife is 66, we have been doing well by purchasing corporate bonds, CD's and a limited equity portfolio, mostly in IRA's. About everything has been called and we are sitting on 50% cash..... Now we can not sustain any loss as we do not have the time to recoup. The total amount of money that we have in all liquid accounts is sufficient to sustain us with a return of 4 to 5%.
Woodedareas, why are you departmentalizing your savings into "liquid accounts" and others? Stocks and Bonds are liquid - for the most part.
woodedareas wrote:I continue to work so I have an income and we receive social security, and compulsory withdrawal from the IRA's. In this respect I do not need to take any risk and can sit in cash.
I have a couple of questions since you:
1. Have "compulstory withdrawal from the IRA." Is that used for living expenses?
2. Hold a job (age 73). Is this indicative of insufficient savings or indicative of ___?
Landy | Be yourself, everyone else is already taken -- Oscar Wilde

livesoft
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Re: Senior Years?

Post by livesoft » Sun Feb 24, 2013 9:07 am

Single Premium Immediate Annuity or SPIA
would seem absolutely ideal for your situation.
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JW-Retired
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Re: Senior Years?

Post by JW-Retired » Sun Feb 24, 2013 9:21 am

As livesoft says, a SPIA seems ideal for you. Try the estimator at http://www.brkdirect.com/spia/EZQUOTE.ASP
My quick check for your ages said for $100k you could buy a joint and survivor life payment of $5400/year.

Shop around, you might be able to find better.
JW
Retired at Last

john94549
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Joined: Tue Jul 26, 2011 8:50 pm

Re: Senior Years?

Post by john94549 » Sun Feb 24, 2013 9:44 am

Tough to find any fixed-income, FDIC- or NCUA-insured CDs these days over 2%. And as I explained to my wife, be careful for what you wish. Higher rates on CDs (as in, dramatically higher) might come only with higher inflation. About the best thing to do with CDs is ladder (five-year ladder of five-year CDs or a PenFed three-year ladder). Keeping cash in a money-market fund waiting for rates to go up is not a hot idea.

I would agree with looking into a SPIA if you need a 4 - 5% "return". You might be able to generate something close to that on the SPIA, although with survivor benefits and a younger wife, you'll have to shop around. Maybe think about plunking half of the fixed-income in a SPIA, which would leave you roughly a third in CDs/bonds, a third for the annuity purchase, and (roughly) a third in equities, assuming some growth in equities over time.

trudy
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Re: Senior Years?

Post by trudy » Sun Feb 24, 2013 9:55 am

I'm a bit confused, because at one point you say you don't need to take any risk but at another point you say you need 4-5% return, which would involve risk.

I am also retired. I am more conservative than most people. Due to my age, I found myself unemployable despite being highly educated and having lots of experience.

I was fine with long term CDs until the cursed Fed decided their Wall Street pals needed cash from feeding off savers.

I still have about 90% in long term CDs. Originally I was laddering, but I realized a few years ago that with the interest rates at that time, I was better off getting long term CD interest rates even though I occasionally had to pay an early withdrawal penalty. By the way, one of my credit unions does not charge that penalty if you are taking a required mandatory IRA distribution from a CD. You can also leave the remainder in the CD with no change in interest rate. I don't know if this is standard policy with other credit unions or not.

I have the other 10% in Vanguard Wellesley. I would be unhappy to lose that, which is always a possibility, but I wouldn't wind up living in a cardboard box.

YDNAL
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Re: Senior Years?

Post by YDNAL » Sun Feb 24, 2013 10:07 am

trudy wrote:I'm a bit confused, because at one point you say you don't need to take any risk but at another point you say you need 4-5% return, which would involve risk.
Glad someone else found inconsistencies to raise flags/questions before jumping into other more specific matters and suggestions.
:beer
Landy | Be yourself, everyone else is already taken -- Oscar Wilde

john94549
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Re: Senior Years?

Post by john94549 » Sun Feb 24, 2013 10:09 am

Further to Trudy's comment (thanks for reminding me!), partial withdrawals on IRA CDs without early withdrawal penalties for folks of RMD age are available at many banks and credit unions. If your wife has IRA funds (being over 59 1/2), she could get the same benefit at PenFed, even though not of RMD age. Point being, you might want to look at the PenFed 1.85% 3-yr IRA CD as a stand-alone product (and forget the ladder).

Check here if you want to shop around for the best current CD rates: http://www.depositaccounts.com. Click on the "blog" tab at the top, then scroll down for the best weekly deals.

woodedareas
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Joined: Mon Aug 20, 2012 6:55 pm

Re: Senior Years?

Post by woodedareas » Sun Feb 24, 2013 10:27 pm

My comment about not having to take any risk at this time is that I own a company and I can work as long as my mind works. In this respect I can live very comfortably with my income from employment. I do not need to use any savings or IRA's. Although I would like to grow my savings I have no need to take any risk and I can basically allow my cash to sit dormant and await a time when better investment opportunities become available.When I cease to work I will begin to use my savings and IRA's but that could be 5 years from now. Hope that clarifies my comments. It is my opinion and only my opinion that the market both on the bond side and the equity side are in for a very tough time. The Federal government can not continue to purchase 75% of our debt for any extended period of time. This artificial support by the Fed has pushed the average investor into a high risk position, especially if they need interest to live on.Simply said I do not need to invest at this time, that is different from not wanting to invest in fixed income securities with reasonable returns. My comment on 4 to 5% returns is illustrative of the return I would like to receive following my retirement. This position is far different from timing the market, but rather my personal assessment that the both sides of the market are headed for a severe downside.In this respect I will stay on the side line for several years while I work, and if I am incorrect the most I will have lost is some nominal income from very risky investments. If I am correct I will have plenty of cash to invest at a more opportune time. I have run a small business for over 40 years and have weathered many storms, and what I have learned from my experience is rather simple and that is to take an extremely conservative position. For seniors it is now necessary to develop a risk assessment before following conventional investment advice.

Mitchell777
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Re: Senior Years?

Post by Mitchell777 » Mon Feb 25, 2013 7:59 am

If you need returns of 4% to 5% once you stop working, and you are risk averse, it may be difficult to get that. On the other hand if you really do work 5 more years, you may not need a return quite that high. Then there is your business. If this is a business you could sell for 7 figures, that may be all the cushion you need. Best of luck. I enjoyed reading your thoughts. You have a sound way of looking at things

woodedareas
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Joined: Mon Aug 20, 2012 6:55 pm

Re: Senior Years?

Post by woodedareas » Mon Feb 25, 2013 8:13 am

Mitchell777. You are correct about selling the business. Yes I have been approached several times to sell the business and I seriously considered it. I turned it down as I really enjoy my profession and if I retired from it I would basically sleep in a chair all day. I was quite ill about 10 years ago and forced to recuperate for several weeks.Although the illness didn't kill me the solitude and lack of activity was very unpleasant. Yes the sale of the business is an option but for now I plan to continue at a slower pace and hope my employees can carry on without me as I would prefer they take over rather than an unknown entity. Along a similar vein, I have always admired my dogs as they live in the moment and do not have to plan ahead. Maybe there is something I can learn from them.
Thanks for your kind comment.

livesoft
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Re: Senior Years?

Post by livesoft » Mon Feb 25, 2013 8:16 am

So it appears that you will not take risk now nor in the future. So once again, my advice is still:

Single Premium Immediate Annuity or SPIA
would seem absolutely ideal for your situation.

It won't matter if you buy it now or in the future. I will say this, suppose you become incapacitated, say a stroke that does not kill you, but you become a vegetable. How will that affect the price of your company? Will your spouse be able to carry on financially?
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Levett
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Re: Senior Years?

Post by Levett » Mon Feb 25, 2013 8:22 am

Woodedareas,

Speaking as one senior to another (although I am retired), the following comment you made has always been the case:

"For seniors it is now necessary to develop a risk assessment before following conventional investment advice."

Conventional investment advice, by definition, is conventional. On the other hand, we are all individuals--with individual needs, desires, goals, aspirations.

We, as individuals, are the greatest risk we need to assess.

Lev

woodedareas
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Joined: Mon Aug 20, 2012 6:55 pm

Re: Senior Years?

Post by woodedareas » Mon Feb 25, 2013 8:41 am

Lev
I agree. You nailed it.
woodedareas

john94549
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Re: Senior Years?

Post by john94549 » Mon Feb 25, 2013 8:54 am

woodedareas wrote: Yes I have been approached several times to sell the business and I seriously considered it. I turned it down as I really enjoy my profession and if I retired from it I would basically sleep in a chair all day. I was quite ill about 10 years ago and forced to recuperate for several weeks.Although the illness didn't kill me the solitude and lack of activity was very unpleasant.
This is important. Some folks aren't so much interested in how they "can" retire as why they "shouldn't". By setting a very high bar (a 4 -5% return with little to no risk), OP may have assumed folks would say "can't be done, keep working".

So I'll say it like this. It "could" be done (retirement), with the various strategies outlined in this thread. OP "could" get that "return" (or very close to it), and "could" probably generate even more for his nest-egg by selling, but just doesn't want to.

FWIW, I am retired. My wife is not. We are both 65. She loves her work. I did not. She constantly grouses "I can't afford to retire". I reply "of course you can." She counters "but what would I do all day?". I reply "that's a different issue."

YDNAL
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Re: Senior Years?

Post by YDNAL » Mon Feb 25, 2013 10:42 am

woodedareas wrote:I am 73 and my wife is 66, and we have been doing well by purchasing corporate bonds, CD's and a limited equity portfolio, mostly in IRA's. About everything has been called and we are sitting on 50% cash.
woodedareas wrote:My comment about not having to take any risk at this time is that I own a company and I can work as long as my mind works. In this respect I can live very comfortably with my income from employment. I do not need to use any savings or IRA's. Although I would like to grow my savings I have no need to take any risk and I can basically allow my cash to sit dormant and await a time when better investment opportunities become available.
woodedareas wrote:Yes I have been approached several times to sell the business and I seriously considered it. I turned it down as I really enjoy my profession and if I retired from it I would basically sleep in a chair all day. I was quite ill about 10 years ago and forced to recuperate for several weeks. Although the illness didn't kill me the solitude and lack of activity was very unpleasant.
It appears to me (above), woodedareas, the crux is psychological issues (not financial). You start your original post discussing 50% held in Cash that then takes a backseat to the overall discussion. Thus, it also appears to be a venting exercise (frustration?), making it difficult to provide input, and I quote below the last 2 sentences in your original post supporting what I just said.
woodedareas wrote:Currently many folks are forced into taking risk as they have no alternative. Wish I could run the Federal Reserve.
I will add further to my response, despite the reasonable side of my brain telling me to stay away. :?
  • Having been "quite ill and forced to recuperate for several weeks" typically makes people want to enjoy the rest of their lives to the best of their physical (and financial) ability, and for as long as feasible.
  • Working until they take you out of your business in a stretcher is not something that "I" would personally consider enjoyable - and perhaps neither does your 66yo wife.
Good luck!
Landy | Be yourself, everyone else is already taken -- Oscar Wilde

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