Floundering seniors must preserve capital - maximize income

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Silas Marner
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Floundering seniors must preserve capital - maximize income

Post by Silas Marner » Wed Mar 13, 2013 11:54 pm

Emergency funds: Already retain more than six months of expenses (liquid)
Debt: Completely debt free
Tax Filing Status: Married Filing Jointly (we’re also incorporated)
Tax Rate: Believe it’s 15% but generally end up paying 10% or so Federal - No State tax
State of Residence: Washington State
Ages: He is 64 (retired), She is 56 (practicing professional)
Desired Asset allocation: 70% fixed income / 30% market exposure?
Desired International allocation: Not sure?
Net Worth: 1.2 - 1.5 million (contingent upon home value and return of capital on one current housing project investment)

% ASSESTS EXP RATIO
.20% Joint GLW > Corning, Inc. (Stock)
.20% Joint GLD > SPDR Gold Trust (ETF) 0.40
.39% Joint VIG > Vanguard Dividend Appreciation (ETF) 0.13
.49% Joint XLK > SPDR Technology Sector (ETF) 0.18
.31% Joint XLP > SPDR Consumer Staples (ETF) 0.18
1.94% Joint Brokerage Cash Account
20.74% Her X-Bank 11 Months @ 1.3932% No Penalty Certificate of Deposit
20.74% His X-Bank 11 Months @ 1.3932% No Penalty Certificate of Deposit
14.46% Joint X-Bank Five Year Certificate of Deposit 3.1976%
.67% Joint Credit Union Corporate Checking Account
.27% Joint Credit Union Personal Checking Account
15.36% Joint Credit Union Savings Account
.03% Joint Foreign Bank Checking Account
.33% Joint Foreign Bank Savings Account
10.84% Her IRA "For The Benefit Of" Her (bank managed inheritance)
5.98% Her IRA (VFINX) Vanguard 500 Index Mutual Fund 0.17
1.10% Her Thrift Savings Plan (8-A Federal Retirement)
1.34% His IRA (VFIIX) Vanguard GNMA Fund 0.21
4.41% His IRA (VWEAX) Vanguard High Yield Corporate Fund 0.23

Question: Knowing enough to know that I don’t anything, do any strategies exist for a little guy to maximize income while guardedly preserving capital in a financial environment that certainly seems rigged in favor of the influential elite at the expense of the Lilliputians? Thanks for any help you can offer, Silas

DaveS
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Re: Floundering seniors must preserve capital - maximize inc

Post by DaveS » Thu Mar 14, 2013 3:22 am

I get the impression that for me to give you a specific plan that you would actually follow would require something about as long as a book. Instead go to the library and check out one of the following. Bernstein, The Investors Manifesto, or The Four Pillars of investing. Or Swedroe, What Wall Street Does Not Want You to Know, or The Only Guide To Investing You Will Ever Need. All have lengthy explanations on how to set up a portfolio suitable for the common man. If you must buy the book all are still in print. Dave

The Wizard
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Re: Floundering seniors must preserve capital - maximize inc

Post by The Wizard » Thu Mar 14, 2013 4:05 am

Net worth isn't the relevant issue, investment assets are the issue.
And we need to look at your income stream in retirement, vs your expenses.
To maximize income, you should be looking at annuities, an SPIA unless you have better options.
But I don't think I'd annuitize more than perhaps 3/4 of my financial assets, probably less...
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HardKnocker
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Re: Floundering seniors must preserve capital - maximize inc

Post by HardKnocker » Thu Mar 14, 2013 6:26 am

Right now it's pretty hard, if not impossible to derive significant income from very safe investments.
“Gold gets dug out of the ground, then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility.”--Warren Buffett

Silas Marner
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Re: Floundering seniors must preserve capital - maximize inc

Post by Silas Marner » Sat Mar 16, 2013 2:17 pm

Thanks to Dave S., The Wizard and HardKnocker for your replies. I was afraid I’d get a reply like yours HardKnocker. I was just hoping my feeble mind might be missing something. As much as I dreaded reading your words though, you did help to verify and lend some confidence to my growing assessment capabilities. I’m curious just what caused Dave S. to draw his impression, but I’m grateful for his suggested readings. I thank The Wizard as well for taking the time to help me hone my communication skills.

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HardKnocker
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Re: Floundering seniors must preserve capital - maximize inc

Post by HardKnocker » Sat Mar 16, 2013 2:54 pm

Just because you cannot get high returns from "safe" investments does not mean you put your money in risky investments.

Right now income investors are between a rock and a hard place.
“Gold gets dug out of the ground, then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility.”--Warren Buffett

ResNullius
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Re: Floundering seniors must preserve capital - maximize inc

Post by ResNullius » Sat Mar 16, 2013 4:03 pm

I don't think annuities would be a good investment at your relatively young age. On the other hand, you have a huge portfion of you investments tied up in extremely low yielding stuff, too much stuff if you ask me. I would start from scratch. How much do you need over and above SS and pensions? What asset allocation will allow you to sleep at night? Will a reasonable withdrawal from this asset allocation satisfy your needs over and above SS and pensions? Really, you should read one of the suggested books, because there's no free lunch when it comes to income in retirement. Good luck.

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Re: Floundering seniors must preserve capital - maximize inc

Post by YDNAL » Sat Mar 16, 2013 4:11 pm

Silas Marner wrote:Ages: He is 64 (retired), She is 56 (practicing professional)
Desired Asset allocation: 70% fixed income / 30% market exposure?
Desired International allocation: Not sure?
Net Worth: 1.2 - 1.5 million (contingent upon home value and return of capital on one current housing project investment)

Question: Knowing enough to know that I don’t anything, do any strategies exist for a little guy to maximize income while guardedly preserving capital in a financial environment that certainly seems rigged in favor of the influential elite at the expense of the Lilliputians? Thanks for any help you can offer, Silas
Silas,

Net Worth is important only to the extent that an Asset like "home value" is made liquid and used to generate return - but that means a sale and implies paying rent - likely increasing expenses and increasing need for return. The "housing project investment" is different and may actually be turned liquid to invest with other investable Assets.

To "maximize income while guardedly preserving capital" implies having the cake and eating it also. Today's safer Assets are not going to do this for you. Lastly, you don't mention if you consume from your savings, perhaps since your wife remains in practice ["practicing professional"]. IF you are, what % are you consuming?
Landy | Be yourself, everyone else is already taken -- Oscar Wilde

letsgobobby
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Re: Floundering seniors must preserve capital - maximize inc

Post by letsgobobby » Sat Mar 16, 2013 4:27 pm

From another washingtonian, welcome!

In order to help, can you please tell us:

1. What are your annual income needs; and
2. What your approximate gross wage income is now; and
3. How much capital gains your taxable investments have?

Also as others have asked, what is the total of your liquid, investable assets?

john94549
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Re: Floundering seniors must preserve capital - maximize inc

Post by john94549 » Sat Mar 16, 2013 6:51 pm

Seems OP is too conservative. FWIW, with a 50-something earning wife, the AA should focus on her age. She'll work longer (obviously) and probably live longer. 30% equities/70% fixed-income, I assume most would agree, would be inappropriately conservative for her alone. Accordingly, it is also too conservative for them both.

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Re: Floundering seniors must preserve capital - maximize inc

Post by pkcrafter » Sat Mar 16, 2013 8:39 pm

Welcome Silas,

There is too much stuff here, so let's try to first organize it. As others have mentioned, we need to know your expenses and proposed withdrawal percentage from accounts when you start.

Silas Marner wrote:Emergency funds: Already retain more than six months of expenses (liquid)
Debt: Completely debt free
Tax Filing Status: Married Filing Jointly (we’re also incorporated)<--how is this accomplished?
Tax Rate: Believe it’s 15% but generally end up paying 10% or so Federal - No State tax
State of Residence: Washington State
Ages: He is 64 (retired), She is 56 (practicing professional)
Desired Asset allocation: 70% fixed income / 30% market exposure?<--Might be OK, but depends on withdrawal rate.
Desired International allocation: Not sure?<--normal recommendation is from 20-40% of equity.
Net Worth: 1.2 - 1.5 million (contingent upon home value and return of capital on one current housing project investment)<--what is the housing project?

% ASSESTS EXP RATIO

Taxable
Cash
1.94% Joint Brokerage Cash Account
20.74% Her X-Bank 11 Months @ 1.3932% No Penalty Certificate of Deposit
20.74% His X-Bank 11 Months @ 1.3932% No Penalty Certificate of Deposit
14.46% Joint X-Bank Five Year Certificate of Deposit 3.1976%
.67% Joint Credit Union Corporate Checking Account
.27% Joint Credit Union Personal Checking Account
15.36% Joint Credit Union Savings Account
.03% Joint Foreign Bank Checking Account
.33% Joint Foreign Bank Savings Account
74.5%

Taxable stock funds/GLD
.20% Joint GLW > Corning, Inc. (Stock)
.20% Joint GLD > SPDR Gold Trust (ETF) 0.40
.39% Joint VIG > Vanguard Dividend Appreciation (ETF) 0.13
.49% Joint XLK > SPDR Technology Sector (ETF) 0.18
.31% Joint XLP > SPDR Consumer Staples (ETF) 0.18
1.59%

Tax Deferred
1.10% Her Thrift Savings Plan (8-A Federal Retirement)<--?
10.84% Her IRA "For The Benefit Of" Her (bank managed inheritance)<--?
5.98% Her IRA (VFINX) Vanguard 500 Index Mutual Fund 0.17
17.92

1.34% His IRA (VFIIX) Vanguard GNMA Fund 0.21
4.41% His IRA (VWEAX) Vanguard High Yield Corporate Fund 0.23
7.75

This is close with a few missing bits, but it looks like you are closer to 20/80. You can make this portfolio much more efficient, and we can work on that when you provide a little more info.


Question: Knowing enough to know that I don’t anything, do any strategies exist for a little guy to maximize income while guardedly preserving capital in a financial environment that certainly seems rigged in favor of the influential elite at the expense of the Lilliputians?

Not if you index. You will get the average of what they get.
Thanks for any help you can offer, Silas
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.

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Hexdump
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Re: Floundering seniors must preserve capital - maximize inc

Post by Hexdump » Sun Mar 17, 2013 8:25 am

Hi.

We are in somewhat the same boat, though your paid off house is better.
We too have about 1.25m in assets with about 1.1m of that investable.
What we are going to do is settle on one fund whose track record is attractive. IE, didn't lose too much value during the recessions.
So far we have boiled it down to one of these:

VWIAX Wellesley
VSCGX Life Strategy Conserv. Growth
VASIX Life Style Income
VTINX Target Retirement Income

I am still working on a spreadsheet that trys to show how they would do with distributions reinvested and withdrawing about $4,000 per month for expenses.
At least according to my Kludgie spreadsheet, they will all do it. Now it's a matter of how comfortable we are with their AAs.
I am not too keen on a large international percentage.

Good luck

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ruralavalon
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Re: Floundering seniors must preserve capital - maximize inc

Post by ruralavalon » Sun Mar 17, 2013 9:06 am

Welcome to the forum :) .

It looks to me like you are probably in decent shape, not floundering at all. You seem to have accumulated assets nicely, but just need a little input on where to go from here.

1. What debt do you have (amounts, interest rates)? EDIT: OOPS, I missed that they are "Completely debt free".
2. What is the approximate size of your investment accounts, CDs, IRAs, etc. total?
3. What do you currently spend per month or per year?
4. Amount of expected total (for both of you) SS benefits + any pensions at her hoped-for retirement age?

You can add this and any other necessary data to your original post using the "edit" button; it helps a lot to have all of your information in one place.
Silas Marner wrote:Ages: He is 64 (retired), She is 56 (practicing professional)
Desired Asset allocation: 70% fixed income / 30% market exposure?
Desired International allocation: Not sure?
In my opinion something like 60/40 stocks/bonds would be more usual, with say 20% of stocks in international. Use just a few broadly diversified low cost index funds, including stock funds. The small investor can do just fine using plain vanilla index funds. I don't think you its probable that you can get enough return relying so heavily on CDs, bonds, and the like.

Take a look at one or two of the books on these reading lists : http://www.bogleheads.org/readbooks.htm ; and
Wiki article link: Books: Recommendations and Reviews . THe Bernstein books and the Swedroe book that Dave S. already suggested are very good.

The Bogleheads' Guide to Retirement Planning is probaly a good place to start; or look here -- Wiki article link: Bogleheads® retirement planning start-up kit .
Last edited by ruralavalon on Sun Mar 17, 2013 2:08 pm, edited 2 times in total.
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edge
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Re: Floundering seniors must preserve capital - maximize inc

Post by edge » Sun Mar 17, 2013 10:53 am

Impossible to help you based on current information. The house equity is not worth talking about unless you are considering downsizing.

Really what matters is your liquid portfolio size and your income needs. If you have a 1 million dollar portfolio and require 100k/yr income - you are in trouble.

YDNAL
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Re: Floundering seniors must preserve capital - maximize inc

Post by YDNAL » Sun Mar 17, 2013 11:20 am

edge wrote:If you have a 1 million dollar portfolio and require 100k/yr income - you are in trouble.
Why all the drama when OP's wife is 56yo and currently practing in her field?
Silas Marner wrote:Emergency funds: Already retain more than six months of expenses (liquid)
Debt: Completely debt free <-- they have no debt, ruralavalon (poster).
Ages: He is 64 (retired), She is 56 (practicing professional)
Desired Asset allocation: 70% fixed income / 30% market exposure?
Desired International allocation: Not sure?
Net Worth: 1.2 - 1.5 million (contingent upon home value and return of capital on one current housing project investment)
Silas (OP) is concerned with "preservation of capital and maximizing income" [thread subject] while *I* believe other quite important issues include (1) to develop a plan that considers if 30/70 Stock/Bond allocation provides what they need today/tomorrow when she stops practicing and they are both in full retirement, (2) consider alternatives for "housing project investment," and (3) decision regarding personal residence. Besides this, as of this moment, we don't know projected income streams (pensions, SS, etc.), we don't know expenses, we do not DW's retirement plans, etc. etc.
Landy | Be yourself, everyone else is already taken -- Oscar Wilde

ourbrooks
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Re: Floundering seniors must preserve capital - maximize inc

Post by ourbrooks » Sun Mar 17, 2013 3:16 pm

Why do you want to "preserve capital?" The main reason I can think off is because you want to leave a bequest that is all of your current capital.

Are you more concerned with preserving capital or not running out of income before you die?

If what you're really concerned about is not running out of income, you can actually buy an insurance policy against running out of income. For a fixed sum of money, an insurance company will guarentee a fixed payment for the rest of your lives. For more money, you can buy a policy in which you are guarenteed that the payment will never run out AND that the payment will keep up with inflation. Another name for this kind of policy is a Single Premium Immediate Annuity or SPIA.

There's an another thread going about an article by Wade Pfau. In the article, he argues that, with interest rates as low as they are and as low as they're likely to be for the next decade, your best bet for not running out of money is a combination of stocks and SPIAs, no bonds or CDs at all.

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