Retired and where to invest?

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Retired and where to invest?

Post by minne55402 » Fri May 03, 2013 1:08 pm

I was just refered over to this forum and wanted to ask you all a few questions.

My husband and I retired last year. We're both 67.

Right now, we are living off social security and about a $1000/month of income from a part time job.

Our house is paid for and our expenses are the basic necessities of life. We do have about $25k in the bank for emergencies.

We have an 800k portfolio that is 70% stocks, 5% bonds and 25% cash from my former 401k, mostly because I'm unsure where to put the cash.

I'd like to get the cash invested, but I think the bond and stock markets may be a bit high at this point.

I'd like something "safer", but I know that comes differing risks also.

My son said we can invest in things like utilities (XLU) and other dividend payers (DVY, SDIV) and push nearly a 4% yield, but he did say nothing is guaranteed. We used to have an advisor but he retired and wasn't much of a help the last 15 years anyway. We've been approached by a planner who wants to charge 2% a year. That seems like a lot. Besides, all the funds we already own we've never really sold. Just invested and rebalanced by putting more or less contributions to even it out.

If we can just live off dividends that'd be great as we'd like to leave money to the grandkids, but we're not eating soup out of a can to do so. :mrgreen:

I'm fairly veresed on the market, just I'm at a bit of a loss at this point on what to do.

Feel free to be specific! :happy

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Peter Foley
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Re: Retired and where to invest?

Post by Peter Foley » Fri May 03, 2013 7:39 pm

A little more information would be helpful. How much do you need to withdraw from your retirement savings to meet your monthly expenses? Is all of your savings in deferred accounts (401k) or is at least some of it in a Roth or a taxable account. This makes a difference which respect to where to invest for the best combination of return and tax efficiency.

Regardless of your answers, you have a quite agressive asset allocation for your age. Most advisors would not recomend more than a 50% equity allocation and some would advise only 40% or less based on the "age in bonds" rule of thumb.

With an advisor costing 2%, that would entirely wipe out any bond returns in our current interest rate environment. There is no need to hire an advisor to tell you to put your money in total bond market, or intermediate or short term treasuries, or TIPs. Do you have a good bond option in your 401k?
Is there a stable value option in your 401k that pays perhaps 3% - that would be a viable alternative.

Lastly, welcome neighbor. I'm only a couple zip codes way. There is a fairly active Bogleheads group in the Twin Cities and their quarterly meeting is tomorrow in Oakdale.
You are welcome to bring your questions to the meeting and get input from a number of intelligent, unbiased investors. If you can't make it tomorrow, we meet quarterly.

Here is the meeting blurb:

assuming the snow melts enough to travel on the roads and get us out of our igloos... we'll meet!

Hello, MN Bogleheads!

The "Main" MN Bogleheads group is meeting on Saturday, May 4, from 12:00-2:00, at the Oakdale Library. directions: Oakdale Branch Library, 1010 Heron Avenue North, Oakdale, MN 55128

NOTE: this starts at noon, not our usual 10:00!

See the attached agenda.

Future mtg schedule: 1st Saturday every 3 months:

Please RSVP so we can plan in advance for how best to set up chairs in the library room, etc.

We hope you can make it!
MN BH ST (MN Boglehead Steering Team)

Minnesota Bogleheads
Visit us at

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Re: Retired and where to invest?

Post by minne55402 » Fri May 03, 2013 8:04 pm

Thanks for the reply! I can't make it tomorrow. I wish I knew about the forum earlier!

Roughly the breakdown is as follows:
30% joint accounts
15% Roths
55% IRA's My 401k money is in this mixed. I retired and had to take my money out, so I need to figure out where to put it.

I did meet with an advisor today. He has these annuities that are a guaranteed 6% return. My son told me there's no way and it must be a return of principal. They are variable annuities, so if they were really guaranteed, wouldn't they be fixed?

Is there a good recommendation for a company to buy individual bonds from? To me this would make sense because if I'd hold my bonds to maturity, I'd get my principal back.

I'm realizing I'm a little more green at this than I thought. :?

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Re: Retired and where to invest?

Post by Calm Man » Fri May 03, 2013 8:20 pm

I'd listen to your son although I don't like individual stocks if your choice is between your son and somebody charging 2% a year or selling variable annuities to you. You are ripe for the picking so be careful.

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Re: Retired and where to invest?

Post by Swampy » Fri May 03, 2013 8:21 pm

Right now, we are living off social security and about a $1000/month of income from a part time job.

Our house is paid for and our expenses are the basic necessities of life. We do have about $25k in the bank for emergencies.

We have an 800k portfolio that is 70% stocks, 5% bonds and 25% cash from my former 401k, mostly because I'm unsure where to put the cash.

Personally, I think a 70% equity position is way too much risk at age 67. How comfortable would you be seeing your equity stake drop by half in the next crash? Putting it another way, how would you feel if your nest egg dropped $280K?

I'm 33% stock, 40% bond and 27% cash - I'm a decade younger than you and don't have social security coming in.
You could easily structure your investments to produce $2000 a month ($24000 a year) to replace the part time job and increase your quality of life as well as discretionary spending. It would represent a 3% withdrawal rate on the 800K.

You could easily continue such a withdrawal schedule for decades, well past your centenary birthday and still leave your family a pile of cash. Stay away from annuities, insurance companies make a tremendous profit on these.
PS Stay away from any planner that wants more than 0.5%. 1% is bad, 2% is outrageous.

A lot of 'financial planners and advisors' are simply crooks and charlatans who want to help themselves to a piece of your pie. I can categorically say that from my dealings with them over the last 30 years.
If you fail to plan, you plan to fail. | Failure is not an option. | If I have seen further, it is because I was carried on the shoulders of giants.

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Peter Foley
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Re: Retired and where to invest?

Post by Peter Foley » Fri May 03, 2013 11:13 pm

Annuities are often recommended by advisors because they are very good . . . FOR ADVISORS. They are big commission sales products that are paid for by the people who buy them. This is especially true of variable annuities. I met once with an investment advisor at Wells Fargo regarding an account my mother had. He recommended a variable annuity without any knowledge of her other investments or income needs. He was looking out for himself, not for his client. Be very wary.
Single premium immediate annuties are sometimes a good investment. They are usually recommended for people who are on the edge when it comes to cash flow in retirement. That is not your case, but it is an option you could consider for a small part of your portfolio. When using this approach it is recommended that one purchase multiple annuities a few years apart to help to offset the affects of inflation. Buying one right now is really buying one at a low point in terms of the interest they might pay. If you want to go this route I would hold off for at least a couple years and see if interest rate rise.

In your case I would recommend a very simple approach: 40% to 50% in equities and 50% to 60% in non equities.
Non equities should go in your IRA because they pay interest and you want interest income in your deferred account so that it is not taxed immediately - thus lowering the return. A mix of Vanguard Total Bond Fund or Intermediate Treasuries and TIPs is a good conservative approach.
Hold your equity positions in your taxable accounts and Roth. (You pay the lower capital gains rates when selling stocks in taxable.) An often recommended approach is to have a mix of Total Stock Market (US stocks) and Total International. Vanguard has low cost options, as do Fidelity and Schwab. A possible result for a 50/50 portfolio might be:
IRA 25% Total Bond Fund and 25% TIPs (Use Intermediate Treasury instread of Total Bond if you want to be more conservative) and 5% Total Stock market
Roth 15% Total Stock Market
Joint Account 15% Total Stock Market, 10% Total International, and 5% cash (I think keeping 2-5 years of cash on hand in taxable is prudent so that you are not forced to sell in a down market.)

I honestly don't know much about buying individual bonds in today's market. I only own bond funds. ( I had individual municipal bonds many, many years ago when they were paying 6% to 8%. I bought a few corporate bonds for my mother 10 or more years ago through Schwab. ) I would seek better up to date advice with a specific post to this board asking about bonds.

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Re: Retired and where to invest?

Post by 2comma » Fri May 03, 2013 11:58 pm

Please don't consider the 2% advisor or variable annuities - you will be dealing with salesmen - I hope you get what that means. Your stock/bond ratio is way too high in stocks - you don't need to take that much risk at your age with the assets you have. Instead of trying to live off of interest only you should consider using a total portfolio approach, see from Vanguard for a good discussion of why.
Your friend that directed you here is a very good friend!
If I am stupid I will pay.

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Peter Foley
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Re: Retired and where to invest?

Post by Peter Foley » Sat May 04, 2013 9:42 am

In your original post your mentioned you were concerned about investing in bonds in the current environment. Admittedly, I am too. I led a discussion group regarding fixed income and bonds funds and, in preparation, found the following data somewhat comforting. Note, of course, that past performance is no guarrantee of future performance:
Source: U.S. Department of Labor and Barclays Vanguard Total Bond Index

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Re: Retired and where to invest?

Post by nedsaid » Sat May 04, 2013 10:09 am

Wow. Everything paid for, $800K portfolio, and $25K emergency fund. Take a minute and congratulate yourself. You have done okay. Many people would love to be in your shoes.

Two percent a year for a financial advisor is way too much. Your investment returns might only be 4-5% in the future and you can't afford to give half of that away.

The largest Mutual Fund Companies offer advice for their shareholders. The big three no-load fund companies Vanguard, Fidelity, and T Rowe Price offer this. In many cases it is free. Or you could pay a fee only advisor for some advice.

Don't feel bad about not knowing what to do. A lot of us are in the same boat as you are. I am 53 years old and have about 2/3 in stocks and 1/3 in bonds and cash. My goal was to have a portfolio of 60% stocks and 40% bonds, but I have not rebalanced. Why? I have the same concerns as you do about high bond prices and low interest rates.

At age 67, 70 percent in stocks is probably too high. You should have something more like a 60% stocks/40% bonds, a 50/50, or even a 40/60 portfolio at your age. It is easier said than done, as I am adverse to buying bonds at high prices. It really is the investing equivalent of eating your spinach. You may not have the taste for spinach but you eat it because it is good for you. You buy bonds to provide steady income and to take some volatility out of your portfolio.

What I have done is a broadly diversified portfolio. I am mostly in mutual funds, index funds, and ETF's but I do own some individual stocks that pay dividends. My dividend income from the stocks has increased over the years. There is no perfect answer. My portfolio has a lot of pieces in it and is probably too much for most people to try to implement.

You could get all the diversification you need from a few funds. Pretty much you want a US Total Market Index, a Total International Index (which includes Emerging Markets), and a Total US Bond Market Index (or a good Intermediate Term Bond Fund). This should cover your bases. You could branch out from there if you would like.

I don't have all the answers either. What I can do is stimulate your thinking.
A fool and his money are good for business.

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Re: Retired and where to invest?

Post by minskbelarus47 » Sat May 04, 2013 10:18 am

The responses in this post are just great and insightful. It has answered many of MY questions as to what to do as I near retirement.

Had my wife read the posts. Said..what are we waiting for...

I think this should be a mandatory read for all visitors to the forum.



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Re: Retired and where to invest?

Post by BL » Sat May 04, 2013 5:43 pm

I bought the books: Bogleheads' Guide to Investing and also Bogleheads' Guide to Retirement Planning (You could get from library or just click on Amazon link here). In fact I am looking at them right now! They are very reasonable and well worth the price. Also the Wiki here, and also the various topics are well worth studying.

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