1-Million Dollar Question [Investing during retirement, leave to heirs]

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aramv
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1-Million Dollar Question [Investing during retirement, leave to heirs]

Post by aramv »

[Post updated, see below. --admin LadyGeek]

Hello,

I'm new to the investing game and I'm an big fan of bogleheads.org

I'm going to give as much information as possible, but also cut a long story very short. :D

My father will be given his pension when he turns 70 in a couple of years. He will be receiving over 1.2 million dollars.

He does NOT need it as he is getting income from varies sources (401k, Veteran's , SS, etc)

He wants to give it to us, 4 children (ages 43/38/32/30), when he passes away, but in the mean time invest it. He wants my help as I am the most responsible of us all.

- I suggested that he move the funds to Vanguard, leave the account under his name, and maybe do a 60/40 or 50/50 split.

- While my father is alive, share and split the dividends, after taxes, by 4 to give to all siblings (Quarterly and Monthly)

- When my father passes, the capital funds will be divided to each sibling.

I appreciate any and all suggestions. Do you think this is a good strategy? :?
NiceUnparticularMan
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Re: 1-Million Dollar Question

Post by NiceUnparticularMan »

I'm confused--I thought he wanted to just invest and not distribute while he was alive. So why not re-invest the dividends? Keep in mind the inheritance rules regarding a stepped-up basis.

If the children do want a distribution now, I would want to know for what purpose, and then design a plan around that, not just use whatever happens to be generated in dividends. And I would watch gift tax issues and such.
Last edited by NiceUnparticularMan on Fri Apr 14, 2017 12:10 pm, edited 1 time in total.
Grt2bOutdoors
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Re: 1-Million Dollar Question

Post by Grt2bOutdoors »

aramv wrote:Hello,

I'm new to the investing game and I'm an big fan of bogleheads.org

I'm going to give as much information as possible, but also cut a long story very short. :D

My father will be given his pension when he turns 70 in a couple of years. He will be receiving over 1.2 million dollars.
Are the monies held in a qualified account? That is a pension plan, IRA, 401, 403b?
He does NOT need it as he is getting income from varies sources (401k, Veteran's , SS, etc)

He wants to give it to us, 4 children (ages 43/38/32/30), when he passes away, but in the mean time invest it. He wants my help as I am the most responsible of us all.
Eh - he has to perform a direct rollover from the pension plan to Vanguard. Call Vanguard for the forms.
- I suggested that he move the funds to Vanguard, leave the account under his name, and maybe do a 60/40 or 50/50 split.
Yes, the account should be titled in his name, name the four children as beneficiary of the account, when the time comes the four beneficiaries should then have the monies moved into a beneficiary IRA so they can "stretch" out the distributions over their lifetime.
- While my father is alive, share and split the dividends, after taxes, by 4 to give to all siblings (Quarterly and Monthly)
If it's truly a pension plan, even if it is rolled over your father will be required to take Required Minimum Distributions on a annual basis beginning at age 70.5, this will be taxable in the year received by him.
- When my father passes, the capital funds will be divided to each sibling.
Do not distribute it, rather rollover the ownership interests into a beneficiary IRA, then receive distributions from said account over your lifetime, if you take a lumpsum distribution, it will be fully taxable on your income tax return in year received. I don't recommend you do that, you could see almost 50% of capital evaporate in form of taxes.
I appreciate any and all suggestions. Do you think this is a good strategy? :?
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
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aramv
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Re: 1-Million Dollar Question

Post by aramv »

Thank you Grt2bOutdoors,
Grt2bOutdoors wrote:
aramv wrote:Hello,

I'm new to the investing game and I'm an big fan of bogleheads.org

I'm going to give as much information as possible, but also cut a long story very short. :D

My father will be given his pension when he turns 70 in a couple of years. He will be receiving over 1.2 million dollars.
Are the monies held in a qualified account? That is a pension plan, IRA, 401, 403b?Thank you Grt2bOutdoors,I'm not sure, he just send pension plan, for sure not a 401k
He does NOT need it as he is getting income from varies sources (401k, Veteran's , SS, etc)

He wants to give it to us, 4 children (ages 43/38/32/30), when he passes away, but in the mean time invest it. He wants my help as I am the most responsible of us all.
Eh - he has to perform a direct rollover from the pension plan to Vanguard. Call Vanguard for the forms.
- I suggested that he move the funds to Vanguard, leave the account under his name, and maybe do a 60/40 or 50/50 split.
Yes, the account should be titled in his name, name the four children as beneficiary of the account, when the time comes the four beneficiaries should then have the monies moved into a beneficiary IRA so they can "stretch" out the distributions over their lifetime.
- While my father is alive, share and split the dividends, after taxes, by 4 to give to all siblings (Quarterly and Monthly)
If it's truly a pension plan, even if it is rolled over your father will be required to take Required Minimum Distributions on a annual basis beginning at age 70.5, this will be taxable in the year received by him.
Yes, I believe he said he was giving options and went with the Lump Sum. Would all siblings be able to get monthly or quarterly dividends through being a IRA beneficiary? In other words, will all siblings be able to withdraw dividends at anytime? without penalty?

- When my father passes, the capital funds will be divided to each sibling.
Do not distribute it, rather rollover the ownership interests into a beneficiary IRA, then receive distributions from said account over your lifetime, if you take a lumpsum distribution, it will be fully taxable on your income tax return in year received. I don't recommend you do that, you could see almost 50% of capital evaporate in form of taxes.
I appreciate any and all suggestions. Do you think this is a good strategy? :?
Grt2bOutdoors
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Re: 1-Million Dollar Question

Post by Grt2bOutdoors »

aramv wrote:Thank you Grt2bOutdoors,
Grt2bOutdoors wrote:
aramv wrote:Hello,

I'm new to the investing game and I'm an big fan of bogleheads.org

I'm going to give as much information as possible, but also cut a long story very short. :D

My father will be given his pension when he turns 70 in a couple of years. He will be receiving over 1.2 million dollars.
Are the monies held in a qualified account? That is a pension plan, IRA, 401, 403b?Thank you Grt2bOutdoors,I'm not sure, he just send pension plan, for sure not a 401k
He does NOT need it as he is getting income from varies sources (401k, Veteran's , SS, etc)

He wants to give it to us, 4 children (ages 43/38/32/30), when he passes away, but in the mean time invest it. He wants my help as I am the most responsible of us all.
Eh - he has to perform a direct rollover from the pension plan to Vanguard. Call Vanguard for the forms.
- I suggested that he move the funds to Vanguard, leave the account under his name, and maybe do a 60/40 or 50/50 split.
Yes, the account should be titled in his name, name the four children as beneficiary of the account, when the time comes the four beneficiaries should then have the monies moved into a beneficiary IRA so they can "stretch" out the distributions over their lifetime.
- While my father is alive, share and split the dividends, after taxes, by 4 to give to all siblings (Quarterly and Monthly)
If it's truly a pension plan, even if it is rolled over your father will be required to take Required Minimum Distributions on a annual basis beginning at age 70.5, this will be taxable in the year received by him.
Yes, I believe he said he was giving options and went with the Lump Sum. Would all siblings be able to get monthly or quarterly dividends through being a IRA beneficiary? In other words, will all siblings be able to withdraw dividends at anytime? without penalty?

- When my father passes, the capital funds will be divided to each sibling.
Do not distribute it, rather rollover the ownership interests into a beneficiary IRA, then receive distributions from said account over your lifetime, if you take a lumpsum distribution, it will be fully taxable on your income tax return in year received. I don't recommend you do that, you could see almost 50% of capital evaporate in form of taxes.
I appreciate any and all suggestions. Do you think this is a good strategy? :?
The lump sum should be made payable to Vanguard Fiduciary Trust Company F/B/O Aramv Father Direct Rollover IRA. If your father takes a check payable in his name only, it will be 100% taxable in the year he cashed it, don't do it, because he will pay the highest taxes all at once. No, beneficiaries can only gain access to the account principal and any interest/dividends when they become the owners upon father being deceased. Your father controls the account, not you or your siblings and you can not be given control either. He owns it. Instead, your father will need to begin taking RMD's in his name, then he must issue you four a separate check out of his account. He has to do it, Vanguard will not send you or your sibling's any money since you are not the living owner of the account. There is no other way to do it.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
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aramv
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Re: 1-Million Dollar Question

Post by aramv »

Grt2bOutdoors wrote:
aramv wrote:Thank you Grt2bOutdoors,
Grt2bOutdoors wrote:
aramv wrote:Hello,

I'm new to the investing game and I'm an big fan of bogleheads.org

I'm going to give as much information as possible, but also cut a long story very short. :D

My father will be given his pension when he turns 70 in a couple of years. He will be receiving over 1.2 million dollars.
Are the monies held in a qualified account? That is a pension plan, IRA, 401, 403b?Thank you Grt2bOutdoors,I'm not sure, he just send pension plan, for sure not a 401k
He does NOT need it as he is getting income from varies sources (401k, Veteran's , SS, etc)

He wants to give it to us, 4 children (ages 43/38/32/30), when he passes away, but in the mean time invest it. He wants my help as I am the most responsible of us all.
Eh - he has to perform a direct rollover from the pension plan to Vanguard. Call Vanguard for the forms.
- I suggested that he move the funds to Vanguard, leave the account under his name, and maybe do a 60/40 or 50/50 split.
Yes, the account should be titled in his name, name the four children as beneficiary of the account, when the time comes the four beneficiaries should then have the monies moved into a beneficiary IRA so they can "stretch" out the distributions over their lifetime.
- While my father is alive, share and split the dividends, after taxes, by 4 to give to all siblings (Quarterly and Monthly)
If it's truly a pension plan, even if it is rolled over your father will be required to take Required Minimum Distributions on a annual basis beginning at age 70.5, this will be taxable in the year received by him.
Yes, I believe he said he was giving options and went with the Lump Sum. Would all siblings be able to get monthly or quarterly dividends through being a IRA beneficiary? In other words, will all siblings be able to withdraw dividends at anytime? without penalty?

- When my father passes, the capital funds will be divided to each sibling.
Do not distribute it, rather rollover the ownership interests into a beneficiary IRA, then receive distributions from said account over your lifetime, if you take a lumpsum distribution, it will be fully taxable on your income tax return in year received. I don't recommend you do that, you could see almost 50% of capital evaporate in form of taxes.
I appreciate any and all suggestions. Do you think this is a good strategy? :?
The lump sum should be made payable to Vanguard Fiduciary Trust Company F/B/O Aramv Father Direct Rollover IRA. If your father takes a check payable in his name only, it will be 100% taxable in the year he cashed it, don't do it, because he will pay the highest taxes all at once. No, beneficiaries can only gain access to the account principal and any interest/dividends when they become the owners upon father being deceased. Your father controls the account, not you or your siblings and you can not be given control either. He owns it. Instead, your father will need to begin taking RMD's in his name, then he must issue you four a separate check out of his account. He has to do it, Vanguard will not send you or your sibling's any money since you are not the living owner of the account. There is no other way to do it.
Thank you, this is very helpful!
MarvinK
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Re: 1-Million Dollar Question

Post by MarvinK »

Advice is to review this plan with his CPA or an estate planning attorney who understands taxation.
Review the maximum gift amount each year (without taxation), it's $14,000 per individual for 2017.
You don't want to make a mistake in this year with moving this account.
Once it is set up, hopefully it will be on auto-pilot for many years until life changes.
Grt2bOutdoors
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Re: 1-Million Dollar Question

Post by Grt2bOutdoors »

MarvinK wrote:Advice is to review this plan with his CPA or an estate planning attorney who understands taxation.
Review the maximum gift amount each year (without taxation), it's $14,000 per individual for 2017.
You don't want to make a mistake in this year with moving this account.
Once it is set up, hopefully it will be on auto-pilot for many years until life changes.
Not quite, if the OP's father is married, then technically both father and mother can gift each child $28,000 per year with zero tax implications. There is no tax implication in making a direct rollover of a qualified plan to the OP's father's own account held at Vanguard, Fidelity, etc. The OP is free to consult with a CPA.

https://www.forbes.com/sites/ashleaebel ... e509ba3b70
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
MarvinK
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Re: 1-Million Dollar Question

Post by MarvinK »

I wrote "review" and "per individual" for that reason. The mother also as an individual.
There is not enough information to know if both parents would qualify or desire to gift up to that amount.
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Re: 1-Million Dollar Question

Post by dwickenh »

Grt2bOutdoors wrote:
MarvinK wrote:Advice is to review this plan with his CPA or an estate planning attorney who understands taxation.
Review the maximum gift amount each year (without taxation), it's $14,000 per individual for 2017.
You don't want to make a mistake in this year with moving this account.
Once it is set up, hopefully it will be on auto-pilot for many years until life changes.
Not quite, if the OP's father is married, then technically both father and mother can gift each child $28,000 per year with zero tax implications. There is no tax implication in making a direct rollover of a qualified plan to the OP's father's own account held at Vanguard, Fidelity, etc. The OP is free to consult with a CPA.

https://www.forbes.com/sites/ashleaebel ... e509ba3b70
My understanding is that amounts over 14,000 per individual per year has to be reported on the giver's tax return to apply to the lifetime maximum. The tax is not determined until death and the death tax exemption applies to the total amount of reported gifts and remaining funds.

I am not an expert, just my understanding of the tax law.

Dan
The market is the most efficient mechanism anywhere in the world for transferring wealth from impatient people to patient people.” | — Warren Buffett
Gill
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Re: 1-Million Dollar Question

Post by Gill »

dwickenh wrote:
Grt2bOutdoors wrote:
MarvinK wrote:Advice is to review this plan with his CPA or an estate planning attorney who understands taxation.
Review the maximum gift amount each year (without taxation), it's $14,000 per individual for 2017.
You don't want to make a mistake in this year with moving this account.
Once it is set up, hopefully it will be on auto-pilot for many years until life changes.
Not quite, if the OP's father is married, then technically both father and mother can gift each child $28,000 per year with zero tax implications. There is no tax implication in making a direct rollover of a qualified plan to the OP's father's own account held at Vanguard, Fidelity, etc. The OP is free to consult with a CPA.

https://www.forbes.com/sites/ashleaebel ... e509ba3b70
My understanding is that amounts over 14,000 per individual per year has to be reported on the giver's tax return to apply to the lifetime maximum. The tax is not determined until death and the death tax exemption applies to the total amount of reported gifts and remaining funds.

I am not an expert, just my understanding of the tax law.

Dan
Basically, yes, although if the lifetime exemption is exceeded a gift tax is due during the donor's lifetime.
Gill
Cost basis is redundant. One has a basis in an investment | One advises and gives advice | One should follow the principle of investing one's principal
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dwickenh
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Re: 1-Million Dollar Question

Post by dwickenh »

Gill wrote:
dwickenh wrote:
Grt2bOutdoors wrote:
MarvinK wrote:Advice is to review this plan with his CPA or an estate planning attorney who understands taxation.
Review the maximum gift amount each year (without taxation), it's $14,000 per individual for 2017.
You don't want to make a mistake in this year with moving this account.
Once it is set up, hopefully it will be on auto-pilot for many years until life changes.
Not quite, if the OP's father is married, then technically both father and mother can gift each child $28,000 per year with zero tax implications. There is no tax implication in making a direct rollover of a qualified plan to the OP's father's own account held at Vanguard, Fidelity, etc. The OP is free to consult with a CPA.

https://www.forbes.com/sites/ashleaebel ... e509ba3b70
My understanding is that amounts over 14,000 per individual per year has to be reported on the giver's tax return to apply to the lifetime maximum. The tax is not determined until death and the death tax exemption applies to the total amount of reported gifts and remaining funds.

I am not an expert, just my understanding of the tax law.

Dan
Basically, yes, although if the lifetime exemption is exceeded a gift tax is due during the donor's lifetime.
Gill
Thanks for the confirmation Gill.

Best to you,

Dan
The market is the most efficient mechanism anywhere in the world for transferring wealth from impatient people to patient people.” | — Warren Buffett
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aramv
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The GOALS are... [Investing during retirement, leave to heirs]

Post by aramv »

[Thread merged into here, see below. --admin LadyGeek]

Hey Guys!

I'm still pretty new to the investing game and I'm an big fan of bogleheads.org

I'm going to give as much information as possible, but also cut a long story very short. :D

My father will be given his pension when he turns 70 1/2 in 2021. He will be receiving over 1.2 million dollars from his pension.

He does NOT need it as he is getting income from varies sources (Veteran's, SS and 401k)

He wants to give it to us, 4 children (ages 43/39/32/30), when he passes away, but in the mean time invest it.

The GOALS are...
- Moving the funds to Vanguard to a Traditional IRA and invest in the funds below.

- While my father is alive, any dividends produced along with the RMD (Required Minimum Distribution) from Traditional IRA will be divided between all siblings (Quarterly)

- When my father passes, the capital funds will be divided to each sibling.

My dad is healthy and planning on living forever lol, however, my dilemma is I want these funds to produce income without losing too much capital if his unfortunate death happens sooner rather than later.

These are some of the funds I'm interested in. Which funds would you include from these and how would you allocate?

Vanguard Dividend Appreciation (VDADX)
Vangaurd Equity-Income Fund (VEIRX)
Vanguard GNMA Fund (VFIIX)
Vanguard High-Yield Corporate Fund (VWEAX)
Vanguard Intermediate-Term Bond Index Fund (VBILX)
Vanguard Wellington Fund (VWENX)
PowerShares S&P 500 High Dividend Low Volatility Portfolio (SPHD)
Vanguard High Dividend Yield Index Fund (VHDYX)
Vanguard International High Dividend Yield Index Fund (VIHAX)
Vanguard Emerging Markets Government Bond (VGAVX)
Vanguard REIT Index Fund Admiral Shares (VGSLX)
Vanguard Utilities Index Fund (VUIAX)
Vanguard Inflation-Protection Securities (VAIPX)

I appreciate any and all suggestions.
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Re: The GOALS are...

Post by David Jay »

aramv wrote:I want these funds to produce income...
Why?
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius
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Re: The GOALS are...

Post by Grt2bOutdoors »

No! Your father wants a total return portfolio and growth of capital. Using a three fund portfolio of Total Stock, Total International and Total Bond or Lifestrategy Moderate Growth would work or Lifestrategy Growth would work. Your father should name all four as beneficiaries - at death, the IRA should be retitled into 4 seperate IRAs with each child being named as having received IRA from father's account with date of death on it. Each year you will receive a taxable RMD based on your life expectancy.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
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Re: The GOALS are...

Post by aramv »

Grt2bOutdoors wrote:No! Your father wants a total return portfolio and growth of capital. Using a three fund portfolio of Total Stock, Total International and Total Bond or Lifestrategy Moderate Growth would work or Lifestrategy Growth would work. Your father should name all four as beneficiaries - at death, the IRA should be retitled into 4 seperate IRAs with each child being named as having received IRA from father's account with date of death on it. Each year you will receive a taxable RMD based on your life expectancy.
Thank yoyu
Would this strategy give income of 4% + in dividends to cover the RMD (which my dad will give to his 4 kids)
Last edited by aramv on Wed Aug 09, 2017 7:20 pm, edited 1 time in total.
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Re: The GOALS are...

Post by aramv »

David Jay wrote:
aramv wrote:I want these funds to produce income...
Why?
It would help his kids, if the income of the portfolio would be given to us without tapping into the capital . So I'd like to build a portfolio that can exceed the RMD
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Re: The GOALS are...

Post by Avo »

aramv wrote:Would this strategy give income of 4% + in dividends to cover the RMD (which my dad will give to his 4 kids)
Probably not.

But most here think that it is a mistake to try to earn enough in dividends to cover RMDs, rather than be willing to have a higher-growth portfolio in which capital gains may also be used.

Here is Vanguard's solution, the Target Retirement Income Fund:
https://personal.vanguard.com/us/funds/ ... undId=0308

Another possibility is Wellesley Income; actively managed, but low expense, and with a long track record:
https://personal.vanguard.com/us/funds/ ... IntExt=INT

And here is an old thread on dividend vs total return investing:
viewtopic.php?t=166971
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Re: The GOALS are...

Post by Grt2bOutdoors »

aramv wrote:
Grt2bOutdoors wrote:No! Your father wants a total return portfolio and growth of capital. Using a three fund portfolio of Total Stock, Total International and Total Bond or Lifestrategy Moderate Growth would work or Lifestrategy Growth would work. Your father should name all four as beneficiaries - at death, the IRA should be retitled into 4 seperate IRAs with each child being named as having received IRA from father's account with date of death on it. Each year you will receive a taxable RMD based on your life expectancy.
Thank yoyu
Would this strategy give income of 4% + in dividends to cover the RMD (which my dad will give to his 4 kids)
Not likely in short run, but in long run if markets return on average normal returns you could theoretically grow capital over time. Don't go chasing bond funds thinking you can withdraw distributions and retain capital, bond prices are inversely related to interest rates and rates can and do fluctuate on daily basis. Even the Wellington or Wellesley funds experience fluctuations in NAV. The key is to focus on portfolio surviving over long haul. Don't reach for yield nor take too little or too much risk.
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Re: The GOALS are...

Post by aramv »

Grt2bOutdoors wrote:
aramv wrote:
Grt2bOutdoors wrote:No! Your father wants a total return portfolio and growth of capital. Using a three fund portfolio of Total Stock, Total International and Total Bond or Lifestrategy Moderate Growth would work or Lifestrategy Growth would work. Your father should name all four as beneficiaries - at death, the IRA should be retitled into 4 seperate IRAs with each child being named as having received IRA from father's account with date of death on it. Each year you will receive a taxable RMD based on your life expectancy.
Thank yoyu
Would this strategy give income of 4% + in dividends to cover the RMD (which my dad will give to his 4 kids)
Not likely in short run, but in long run if markets return on average normal returns you could theoretically grow capital over time. Don't go chasing bond funds thinking you can withdraw distributions and retain capital, bond prices are inversely related to interest rates and rates can and do fluctuate on daily basis. Even the Wellington or Wellesley funds experience fluctuations in NAV. The key is to focus on portfolio surviving over long haul. Don't reach for yield nor take too little or too much risk.
THANKS! so you would do LifeStrategy funds? maybe Growth in my situation? and just take some of the RMD from the capital if need be?
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Re: The GOALS are...

Post by David Jay »

aramv wrote:
David Jay wrote:
aramv wrote:I want these funds to produce income...
Why?
It would help his kids, if the income of the portfolio would be given to us without tapping into the capital . So I'd like to build a portfolio that can exceed the RMD
This is your root error.

First, If the portfolio (inside an IRA, so there are no tax implications) grows because of dividends or because of capital appreciation, what is the difference? Either way you will withdraw exactly the same number of dollars from the IRA each year to fulfill the RMD.

Second, the initial RMD rate starts at 3.6% but the percentage increases each year in inverse proportion to remaining life expectancy. In just a few years your desired 4% won't meet the RMD.

Third, dividends are more expensive than capital growth, so if you structure your portfolio to pay dividends you will have fewer dollars in the portfolio after a decade or two. Do you want your brothers and yourself to inherit a smaller portfolio?
Last edited by David Jay on Wed Aug 09, 2017 8:19 pm, edited 3 times in total.
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Re: 1-Million Dollar Question [Investing during retirement, leave to heirs]

Post by LadyGeek »

aramv - In order to give appropriate advice, it's best to keep all the information in one spot. I merged your update back into the original thread and retitled the thread for clarity. If you want to change the thread title further, just edit the Subject: line in Post #1. This isn't a big deal, don't worry about it.
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Re: 1-Million Dollar Question [Investing during retirement, leave to heirs]

Post by aramv »

LadyGeek wrote:aramv - In order to give appropriate advice, it's best to keep all the information in one spot. I merged your update back into the original thread and retitled the thread for clarity. If you want to change the thread title further, just edit the Subject: line in Post #1. This isn't a big deal, don't worry about it.
Thanks! :D
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Re: The GOALS are...

Post by aramv »

David Jay wrote:
aramv wrote:
David Jay wrote:
aramv wrote:I want these funds to produce income...
Why?
It would help his kids, if the income of the portfolio would be given to us without tapping into the capital . So I'd like to build a portfolio that can exceed the RMD
This is your root error.

First, If the portfolio (inside an IRA, so there are no tax implications) grows because of dividends or because of capital appreciation, what is the difference? Either way you will withdraw exactly the same number of dollars from the IRA each year to fulfill the RMD.

Second, the initial RMD rate is 5.3% so your desired 4% won't meet the RMD. The percentage increases each year in an inverse proportion to remaining life expectancy.

Third, dividends are more expensive than capital growth, so if you structure your portfolio to pay dividends you will have fewer dollars in the portfolio after a decade or two. Do you want your brothers and yourself to inherit a smaller portfolio?

Thank you for this info. So I should be tilting more towards capital and not dividends. What portfolio do you recommdned ?
Gill
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Re: The GOALS are...

Post by Gill »

David Jay wrote:
aramv wrote:
David Jay wrote:
aramv wrote:I want these funds to produce income...
Why?
It would help his kids, if the income of the portfolio would be given to us without tapping into the capital . So I'd like to build a portfolio that can exceed the RMD
This is your root error.

First, If the portfolio (inside an IRA, so there are no tax implications) grows because of dividends or because of capital appreciation, what is the difference? Either way you will withdraw exactly the same number of dollars from the IRA each year to fulfill the RMD.

Second, the initial RMD rate is 5.3% so your desired 4% won't meet the RMD. The percentage increases each year in an inverse proportion to remaining life expectancy.

Third, dividends are more expensive than capital growth, so if you structure your portfolio to pay dividends you will have fewer dollars in the portfolio after a decade or two. Do you want your brothers and yourself to inherit a smaller portfolio?
It is not 5.3% in the first year, it's 3.6%. Also, what do you mean by dividends being more expensive than capital growth in an IRA?
Gill
Cost basis is redundant. One has a basis in an investment | One advises and gives advice | One should follow the principle of investing one's principal
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Re: The GOALS are...

Post by David Jay »

Gill wrote:It is not 5.3% in the first year.
Corrected above
Also, what do you mean by dividends being more expensive than capital growth in an IRA?
For a given return, over the long term one will need a larger portfolio for a high-dividend-yield strategy.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius
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David Jay
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Re: The GOALS are...

Post by David Jay »

aramv wrote:
David Jay wrote:
aramv wrote:
David Jay wrote:
aramv wrote:I want these funds to produce income...
Why?
It would help his kids, if the income of the portfolio would be given to us without tapping into the capital . So I'd like to build a portfolio that can exceed the RMD
This is your root error.

First, If the portfolio (inside an IRA, so there are no tax implications) grows because of dividends or because of capital appreciation, what is the difference? Either way you will withdraw exactly the same number of dollars from the IRA each year to fulfill the RMD.

Second, the initial RMD rate is 5.3% 3.6% so your desired 4% won't meet the RMD after a few years. The percentage increases each year in an inverse proportion to remaining life expectancy.

Third, dividends are more expensive than capital growth, so if you structure your portfolio to pay dividends you will have fewer dollars in the portfolio after a decade or two. Do you want your brothers and yourself to inherit a smaller portfolio?

Thank you for this info. So I should be tilting more towards capital and not dividends. What portfolio do you recommdned ?
I like the recommendation for Lifestrategy Growth above.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius
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aramv
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Re: The GOALS are...

Post by aramv »

David Jay wrote:
aramv wrote:
David Jay wrote:
aramv wrote:
David Jay wrote: Why?
It would help his kids, if the income of the portfolio would be given to us without tapping into the capital . So I'd like to build a portfolio that can exceed the RMD
This is your root error.

First, If the portfolio (inside an IRA, so there are no tax implications) grows because of dividends or because of capital appreciation, what is the difference? Either way you will withdraw exactly the same number of dollars from the IRA each year to fulfill the RMD.

Second, the initial RMD rate is 5.3% 3.6% so your desired 4% won't meet the RMD after a few years. The percentage increases each year in an inverse proportion to remaining life expectancy.

Third, dividends are more expensive than capital growth, so if you structure your portfolio to pay dividends you will have fewer dollars in the portfolio after a decade or two. Do you want your brothers and yourself to inherit a smaller portfolio?

Thank you for this info. So I should be tilting more towards capital and not dividends. What portfolio do you recommdned ?
I like the recommendation for Lifestrategy Growth above.

Ok, all 1.2 million in Lifestrategy? no Wellington or vwinx?
Gill
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Re: The GOALS are...

Post by Gill »

David Jay wrote:
Gill wrote:It is not 5.3% in the first year.
Corrected above
Also, what do you mean by dividends being more expensive than capital growth in an IRA?
For a given return, over the long term one will need a larger portfolio for a high-dividend-yield strategy.
Not necessarily going to be the case in the future.
Gill
Cost basis is redundant. One has a basis in an investment | One advises and gives advice | One should follow the principle of investing one's principal
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David Jay
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Re: The GOALS are...

Post by David Jay »

Gill wrote:
David Jay wrote:
Gill wrote:Also, what do you mean by dividends being more expensive than capital growth in an IRA?
For a given return, over the long term one will need a larger portfolio for a high-dividend-yield strategy.
Not necessarily going to be the case in the future.
Gill
Tomorrow is not guaranteed, the Sun may go Supernova overnight.

But this has a strong academic support and many decades of history.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius
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Re: 1-Million Dollar Question [Investing during retirement, leave to heirs]

Post by Vanguard Fan 1367 »

I am having an interesting experience with a RMD. I inherited an IRA and am under 70.5 but have to take out RMD's on this IRA. It is invested in the old standby Vanguard S & P 500 index fund Admiral Shares. So every year the RMD comes out and since 2011 when I inherited it it has gone up in value even after the RMD is taken out.

My point is that the posters who suggest that you may not want to focus on dividends are correct. The focus on total return would be a better focus.

Bogleheads seem to like the 500 fund or the Total Market Fund for the Stock portion of the Asset Allocation.
Upton Sinclair: "It is difficult to get a man to understand something when his salary depends on his not understanding it."
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Re: 1-Million Dollar Question [Investing during retirement, leave to heirs]

Post by PhysicsTeacher »

How greatly does your father's income without his pension exceed his expenses? Is he definitely set for life, or is it possible that he may need to tap some portion of funds in the rollover IRA for care later? Nursing homes and memory care facilities can be very expensive if needed. The answer to this question is important for determining how much volatility is appropriate for his portfolio.

I'll second the reccomendation for Lifestrategy Moderate Growth. It's 60% stocks and 40% bonds and is rebalanced automatically. I think it strikes a nice balance between potential for long term growth and keeping volatility to a psychologically acceptable level. It may or may not turn out to be the optimal solution, but it is certainly a reasonable one and one that will be easy to manage and explain to your siblings. I would hate to deal with the tensions at Thanksgiving if I had suggested a portfolio overweighting, say, REITs or emerging markets and that sector tanked. :? A three fund portfolio or use of Vanguard's Personal Advisor Service are also good options.
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Re: 1-Million Dollar Question [Investing during retirement, leave to heirs]

Post by aramv »

PhysicsTeacher wrote:How greatly does your father's income without his pension exceed his expenses? Is he definitely set for life, or is it possible that he may need to tap some portion of funds in the rollover IRA for care later? Nursing homes and memory care facilities can be very expensive if needed. The answer to this question is important for determining how much volatility is appropriate for his portfolio.

I'll second the reccomendation for Lifestrategy Moderate Growth. It's 60% stocks and 40% bonds and is rebalanced automatically. I think it strikes a nice balance between potential for long term growth and keeping volatility to a psychologically acceptable level. It may or may not turn out to be the optimal solution, but it is certainly a reasonable one and one that will be easy to manage and explain to your siblings. I would hate to deal with the tensions at Thanksgiving if I had suggested a portfolio overweighting, say, REITs or emerging markets and that sector tanked. :? A three fund portfolio or use of Vanguard's Personal Advisor Service are also good options.
Hi PhysicsTeacher,

Thank you for your response. Yes, father is set. He is a Vietnam Veteran, so he gets $3000/month and ALL medical covered for life, he has his Social Security and over 500k in his 401K. He is sitting pretty. lol

I'd like to be more hands off the more I understand about this RMD legal stuff. lol

What do you think of Schwarb Intelligent Portfolio, its a bit pricer than Betterment, but i like that the RMD can be automatically deducted and put into a separate brokerage account that can be linked to 4 bank accounts and distribute the RMD to my siblings bank accounts directly.

I'm leaning towards an allocation of 60/40 balance since the goals of this portfolio are gray.

yes, that Thanksgiving would be awkward lol
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aramv
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Re: 1-Million Dollar Question [Investing during retirement, leave to heirs]

Post by aramv »

Vanguard Fan 1367 wrote:I am having an interesting experience with a RMD. I inherited an IRA and am under 70.5 but have to take out RMD's on this IRA. It is invested in the old standby Vanguard S & P 500 index fund Admiral Shares. So every year the RMD comes out and since 2011 when I inherited it it has gone up in value even after the RMD is taken out.

My point is that the posters who suggest that you may not want to focus on dividends are correct. The focus on total return would be a better focus.

Bogleheads seem to like the 500 fund or the Total Market Fund for the Stock portion of the Asset Allocation.
Vanguard Fan,
I guess I will be dealing with this when my dad passes. But its good to know that you're portfolio has been showing growth. I think I'll be doing the same.
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