58 years old and laid off seeking advices

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Topic Author
Besty2017
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Joined: Sat Jun 24, 2017 6:58 pm

58 years old and laid off seeking advices

Post by Besty2017 »

I got laid-off recently and am seeking advices. I was told to receive a severance pay with 26-week base pay rate and accrued vacation value after working for 20+ years in the company.

I am 58 years old and DW is 53. I am mentally tired of my ex-position and not allowed to talk about the situation as part of the deal to get the severance pay. DW has difficulty to find work for a few years. We do not have any pension. Son 1, 18, is going to in-state University with tuition and board covered by 529 and scholarships for all 4 years. Son 2, 15, is a high schooler with in-state tuition cost covered by 529 for all 4 years as well.

Joint Taxable account:
BA Boeing $70K
BRKB Berkshire Hathaway B $61K
GE $65K
IVV iShare S&P 500 $55K
JNJ Johnson & Johnson $88K
PG Procter & Gamble $99K
VFIAX 500 index $61K
VTI total market $175K
Some small stocks $13K
Money market $800K

DW - Rollover IRA
VGSLX REIT $10K
VTMGX Developed Markets $10K
VEA Developed FTSE $12K
VDE Energy $8K
VWO Emerging $16K
VO Mid-cap $43K
VB Small-cap $54K
VTI total market $76K
Money Market $300K

DW – Roth IRA
VFIAX 500 $17K
VTIAX total international $26K
Money Market $28K

DW – after tax Trad IRA
VBIAX balanced $10K
Money Market $56K

DH – Roth IRA
AMAT $3K
KO $32K
Money Market $43K

DH – IRA
BAC Bank of America $24K
BX Blackstone $24K
INTC intel $37K
IVV $223K
JPM $30K
QQQ $7K
TGT $11K
FSIVX Fidelity international $41K
Money Market $26K

DH – 401k
US stock fund $283K
US bond fund $30K
Stable value fund $147K

About $1680K stock
About $1420K money market
Bond fund 30K

I know that I need to simplify them. I will work on tax-efficient accounts and rollover 401k. More than 60% value of those stocks in taxable account is long term capital gain - please advice how to minimize capital gain tax.
Last edited by Besty2017 on Sun Jun 25, 2017 12:20 pm, edited 1 time in total.
Dottie57
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Re: 58 years old and laid off seeking advices

Post by Dottie57 »

Besty2017 wrote:I got laid-off recently and am seeking advices. I was told to receive a severance pay with 26-week base pay rate and accrued vacation value after working for 20+ years in the company.

I am 58 years old and DW is 53. I am mentally tired of my ex-position and not allowed to talk about the situation as part of the deal to get the severance pay. DW has difficult to find work for a few years. We do not have any pension. Son 1, 18, is going to in-state University with tuition and board covered by 529 and scholarships for all 4 years. Son 2, 15, is a high schooler with in-state tuition cost covered by 529 for all 4 years as well.

Joint Taxable account:
BA Boeing $70K
BRKB Berkshire Hathaway B $61K
GE $65K
IVV iShare S&P 500 $55K
JNJ Johnson & Johnson $88K
PG Procter & Gamble $99K
VFIAX 500 index $61K
VTI total market $175K
Some small stocks $13K
Money market $800K

DW - Rollover IRA
VGSLX REIT $10K
VTMGX Developed Markets $10K
VEA Developed FTSE $12K
VDE Energy $8K
VWO Emerging $16K
VO Mid-cap $43K
VB Small-cap $54K
VTI total market $76K
Money Market $300K

DW – Roth IRA
VFIAX 500 $17K
VTIAX total international $26K
Money Market $28K

DW – after tax Trad IRA
VBIAX balanced $10K
Money Market $56K

DH – Roth IRA
AMAT $3K
KO $32K
Money Market $43K

DH – IRA
BAC Bank of America $24K
BX Blackstone $24K
INTC intel $37K
IVV $223K
JPM $30K
QQQ $7K
TGT $11K
FSIVX Fidelity international $41K
Money Market $26K

DH – 401k
US stock fund $283K
US bond fund $30K
Stable value fund $147K

About $1680K stock
About $1420K money market
Bond fund 30K

I know that I need to simplify them. I will work on tax-efficient accounts and rollover 401k. More than 60% value of those stocks in taxable account is long term capital gain - please advice how to minimize capital gain tax.

Of course, your taxable accounts are the only ones you will pay capital gains on. IRA and 401k do not have capital gains.

Try to match losses with gains when selling is my only suggestion.

Are y ou seeking new employment, retiring, need to change asset allocation?

Looks like you have over $3m . What are your expenses? You certainly shouldn't go hungry.
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nedsaid
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Re: 58 years old and laid off seeking advices

Post by nedsaid »

I feel for you, it is tough getting laid off. Unfortunately, when you get into your fifties, you are a target for lay-offs. This is why I strongly recommend having one year's worth of living expenses in an emergency account by the time you are 50. Fortunately, you have over $3 million and you should be able to just hang 'em up for good. You are in a very good situation. Count your blessings

You are also fortunate to be getting good severance and if you want, you could look for work and collect unemployment. Perhaps temporary and contract work might be available for you. But it sounds like you were experiencing some job and career burnout and this might actually wind up being a good thing.

If you want to sell the stocks in your taxable account, remember you can net out your losses against your gains. You could also stretch out stock sales over several years and thus avoid paying capital gains tax all at once. Since the 401k, IRA, and ROTH IRA accounts are tax sheltered, you can move things around without regard to tax. The only tax on monies within a 401k or a Traditional IRA is when you take withdrawals which are taxed as ordinary income. Perhaps an hour or two with a good tax person or a Certified Public Accountant could be a big help to you.

Do you own a home? My guess is that you do and that adds to your net worth. Do you have any debt?

My guess is that you could withdraw 4% from your investments a year to live on and that would enable you to take out $128,000 a year, which for now could come out of your taxable accounts.

It is hard to give more detailed advice as we don't know your living expenses, don't know if you are carrying any debt, and if you and spouse want to continue working. We do know that you have over $3 million in assets and that should be enough for you to retire permanently.
A fool and his money are good for business.
Topic Author
Besty2017
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Re: 58 years old and laid off seeking advices

Post by Besty2017 »

Thanks for feedback. We have no debt. The market price of our house is about 250K. Our average expense per year was about 65K. We do not have any taxable stock loss to offset any capital gain and have enough MM to live for a few years. We are not sure when to sell any stock in our taxable account to carry out a desired asset allocation.
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Re: 58 years old and laid off seeking advices

Post by pkcrafter »

Besty, it looks like you are in good shape to retire now if you wanted to. You might think about tightening up the portfolio a bit to make it more efficient and easier to manage. Will each of you receive social security?

Here's a link to the Wiki's information on tax-loss harvesting.

https://www.bogleheads.org/wiki/Tax_loss_harvesting


Paul
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nedsaid
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Re: 58 years old and laid off seeking advices

Post by nedsaid »

Besty2017 wrote:Thanks for feedback. We have no debt. The market price of our house is about 250K. Our average expense per year was about 65K. We do not have any taxable stock loss to offset any capital gain and have enough MM to live for a few years. We are not sure when to sell any stock in our taxable account to carry out a desired asset allocation.
Well, if your living expenses are $65,000 a year, that implies a withdrawal rate from your investments of about 2%. So pretty much you have won the game. My best guess is that a 50% stock/50% bonds and cash portfolio would be good for you. You could even go 40% stock/60% bonds and cash in retirement for an asset allocation if you are more conservative.

In your taxable account, I would keep maybe five years worth of living expenses in the money market or a short term bond fund account. This would be about $350,000. This would allow you to ride out most bear markets. I would then invest the remaining monies in your money market into a good intermediate term and investment grade bond fund. Vanguard Total Bond Market Index would fit the bill very well. By having so much money in money market funds, you are foregoing a lot of interest. You will likely be in the 15% tax bracket in retirement. Over time, I would sell the individual stocks in your taxable account and buy the Vanguard Total US Stock Market Index and the Vanguard Total International Stock Index. When you are in the 15% bracket, your capital gains tax rate is zero. So you need to do some careful tax planning. You could do this over 3-5 years.

What I would do is consult the folks at Vanguard. They have a portfolio advisory service where they charge 0.30% a year to manage your money. Don't know how good their advisors are on tax issues or helping you with such things as retirement and estate planning. They primarily portfolio managers. There are a lot of decisions to be made when you retire and I think you need to seek big picture financial advice. One big decision is when to take Social Security, at age 62 or later? Health insurance is another big issue now that your employer won't be paying for it any more.

I would also check into fee only financial planners, they will charge from $150 to $400 an hour. I think some money spent to get certain questions answered would be well worth the expense. You don't want a commission sales financial advisor who will sell you expensive and inappropriate investments. The problem is finding a good financial planner. Jane Bryant Quinn has written good books on this and her books would be a good place to start educating yourself.

Are you planning to retire or to you want to keep working?
Last edited by nedsaid on Sat Jun 24, 2017 9:22 pm, edited 1 time in total.
A fool and his money are good for business.
jfave33
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Re: 58 years old and laid off seeking advices

Post by jfave33 »

You have $3m and have $65k in expenses. You definitely won the game.

I'd say count yourself lucky you were let go. Now you are free to enjoy yourself and do whatever you like. I'd say let your wife retire too and go do some nice things together. If you feel you must work you are free to pick whatever you want without worrying about how much you make. Part time full time whatever you want.

You don't really have to worry about gains. Chances are you will be in the 15% tax band or lower next year and any long term gains will be taxed at 0%.
WL2034
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Re: 58 years old and laid off seeking advices

Post by WL2034 »

Do you have health insurance through previous employer? If not, what are your plans?
WolfgangPauli
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Re: 58 years old and laid off seeking advices

Post by WolfgangPauli »

One interesting fact is if you are 55 or older when you are let go you can withdraw from the 401(k) penalty free. That is NOT TRUE of IRAs so my advice is do not roll over into an IRA. Keep in 401(k) in case you want to access it before 59.5.

I also agree you have "won the game" and use this as a time to just figure out what you want to do next. No need to work at all which is a very liberating feeling.

I am very interested in the health care question (I am 55 and have decided to leave work and just explore). I have of course Cobra for 18 months but thinking about what comes after that. Any thoughts?

Good luck and honestly, congratulations! You have planned well and who needs the rat race...
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badbreath
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Re: 58 years old and laid off seeking advices

Post by badbreath »

You're good to go, just pay attention to the taxes.
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FrugalInvestor
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Re: 58 years old and laid off seeking advices

Post by FrugalInvestor »

What's your situation with regard to health insurance? This can be a huge widcard with regard to living expenses with the ACA in turmoil.
Have a plan, stay the course and simplify. Then ignore the noise!
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Watty
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Re: 58 years old and laid off seeking advices

Post by Watty »

nedsaid wrote:Well, if your living expenses are $65,000 a year, that implies a withdrawal rate from your investments of about 2%. So pretty much you have won the game.
And you will eventually be getting Social Security.

There are a lot of details to figure out but things should be fine and you likely have 18 months of COBRA what will likely last until January of 2019 so you have plenty of time to let the health insurance situation shake out.
Last edited by Watty on Sat Jun 24, 2017 9:54 pm, edited 1 time in total.
Topic Author
Besty2017
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Re: 58 years old and laid off seeking advices

Post by Besty2017 »

We thought that we could wait as long as possible before taking Social Security assuming that our taxable account could support us for a few years. I have not yet organized myself enough about my job searching decision. As for health insurance, that is least familiar task for me. Thanks for pointing them out.
billfromct
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Re: 58 years old and laid off seeking advices

Post by billfromct »

The 15% Federal tax bracket for married filing jointly is applicable up to $75,900 of taxable income, after deductions.

So as others have said, if you are in the 15% Federal tax bracket, long term capital gains will be Federal tax free. Adding on your standard deduction, $12.7k plus 4 exemptions of $4k each ($16k), you could theoretically take $92.7k in long term capital gains, still be in the 15% Federal tax bracket & not pay any Federal long term capital gains tax, if you don't have any other income (severance, unemployment benefits, pay from a new job, etc.).

It sounds like you will not be able to do this in 2017, but it may work in 2018 if you are not working.

Try doing some tax simulations in Tax Caster or other tax service for 2018 to see if this would work out for you.

Don't forget about the American Opportunity Tax Credit for college tuition payment. You may not quality due to your income this year & I think it expires at the end if 2017, but it's something to be aware of. If you qualify, a $4k payment of tuition gets you a $2.5k tax credit. Money from a 529 to pay tuition does not count.

bill
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nedsaid
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Re: 58 years old and laid off seeking advices

Post by nedsaid »

WolfgangPauli wrote:One interesting fact is if you are 55 or older when you are let go you can withdraw from the 401(k) penalty free. That is NOT TRUE of IRAs so my advice is do not roll over into an IRA. Keep in 401(k) in case you want to access it before 59.5.

Nedsaid: Great point. I have a 403(b) and a 401(k) from prior employers that I have not rolled over for this reason. Will be turning age 58 pretty soon, so I have about another year and a half to go before deciding on a rollover.


I also agree you have "won the game" and use this as a time to just figure out what you want to do next. No need to work at all which is a very liberating feeling.

I am very interested in the health care question (I am 55 and have decided to leave work and just explore). I have of course Cobra for 18 months but thinking about what comes after that. Any thoughts?

Good luck and honestly, congratulations! You have planned well and who needs the rat race...
A fool and his money are good for business.
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nedsaid
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Re: 58 years old and laid off seeking advices

Post by nedsaid »

Besty2017 wrote:We thought that we could wait as long as possible before taking Social Security assuming that our taxable account could support us for a few years. I have not yet organized myself enough about my job searching decision. As for health insurance, that is least familiar task for me. Thanks for pointing them out.
Your Social Security benefits increase about 8% a year for every year you wait. If you and spouse have family history of longevity, you might even consider waiting until age 70 to start taking benefits. In effect, by waiting, you are spending money from your investments to buy an inflation adjusted annuity guaranteed by Uncle Sam.

Get your annual statement from the Social Security Administration. It will show your earnings year by year and also give you an estimate of your eventual benefits. You need to look into this too.

Another factor are your future goals. Do you want to live it up a little? Travel? Buy a vacation home? You might find that your wants are expensive. $3 million sounds like a lot but money spends a lot easier than earned and saved. You need to plan for those things you always wanted to do but because of work and family didn't have the time.
A fool and his money are good for business.
2pedals
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Re: 58 years old and laid off seeking advices

Post by 2pedals »

Besty2017 wrote:I am 58 years old and DW is 53. I am mentally tired of my ex-position and not allowed to talk about the situation as part of the deal to get the severance pay.
But if after 26 weeks you started to talk negatively about the situation? What would they do to you then? :twisted:

You have won the game, I would try to consolidate and simplify your investment like "Nedsaid" said, very good advice. I would also take a look at some of the retirement planners like FireCalc FireCalc, i-orp I-ORP and the Retiree Portfolio Model.
delamer
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Re: 58 years old and laid off seeking advices

Post by delamer »

WolfgangPauli wrote:One interesting fact is if you are 55 or older when you are let go you can withdraw from the 401(k) penalty free. That is NOT TRUE of IRAs so my advice is do not roll over into an IRA. Keep in 401(k) in case you want to access it before 59.5.

I also agree you have "won the game" and use this as a time to just figure out what you want to do next. No need to work at all which is a very liberating feeling.

I am very interested in the health care question (I am 55 and have decided to leave work and just explore). I have of course Cobra for 18 months but thinking about what comes after that. Any thoughts?

Good luck and honestly, congratulations! You have planned well and who needs the rat race...
You can withdraw without penalty from an IRA before 59.5 years under rule 72(t) -- basically requires 5 years of equal withdrawals. It is worth understanding this option, even if you don't end up using it.

Also make sure you understand your COBRA options for health insurance. Usually COBRA will give you better coverage at a better price than individual insurance. This is of particular concern for your wife, who has 12 years until she is eligible for Medicare. And you'll find that your health insurance costs go up regardless of how you get coverage.

Using the Vanguard advisory service would be a good option for you.
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FrugalInvestor
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Re: 58 years old and laid off seeking advices

Post by FrugalInvestor »

delamer wrote:Also make sure you understand your COBRA options for health insurance. Usually COBRA will give you better coverage at a better price than individual insurance. This is of particular concern for your wife, who has 12 years until she is eligible for Medicare. And you'll find that your health insurance costs go up regardless of how you get coverage.
Cobra lasts for 18 months so not a long-term solution but will give you some time to plan.
Have a plan, stay the course and simplify. Then ignore the noise!
delamer
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Re: 58 years old and laid off seeking advices

Post by delamer »

FrugalInvestor wrote:
delamer wrote:Also make sure you understand your COBRA options for health insurance. Usually COBRA will give you better coverage at a better price than individual insurance. This is of particular concern for your wife, who has 12 years until she is eligible for Medicare. And you'll find that your health insurance costs go up regardless of how you get coverage.
Cobra lasts for 18 months so not a long-term solution but will give you some time to plan.
Also, you may be able to keep the same insurance as an individual policy -- at a higher premium -- once COBRA expires. It depends on the insurance company.
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
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bligh
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Re: 58 years old and laid off seeking advices

Post by bligh »

I have nothing to add to the excellent advice given above. I just wanted to say Congratulations on your early retirement. :sharebeer
btenny
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Re: 58 years old and laid off seeking advices

Post by btenny »

I think you are in good shape. You have a lot of money saved to live on. Your capital gains taxes will be much lower if you are not working for a salary so you can sell some stocks each year to live on until you get to 65ish. Then you will need to decide if you want to take Social Security or wait longer. Have you decided if you want to go back to work or just retire completely?

What are your expenses? Are you spending anything to help your college kid or is his 529 and scholarships enough for him? And is your wife still working? What is your health care insurance situation after you are completely layed off? Will you get health insurance via your wife's employment or will you be allowed to purchase some health insurance via former employer?

Please advise with this added data. I know all this stuff is stressful but just do things one step at a time and it will all work out.

Good Luck.
Chip
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Re: 58 years old and laid off seeking advices

Post by Chip »

As others have said, you seem to be in fine shape financially for retirement.

Assuming you are going to stay retired you have some tax planning opportunities between now and the year you turn 70, when social security and tIRA/401k RMDs start.

RMDs start at 3.7% of account value and go up each year. So on your current balance that would be about 36k/year. Your wife's would be 22k/year. Add in SS (wild guess of 30k each) and you will be into the 25% tax bracket. And that's not counting other income nor account growth between now and then.

So you have an opportunity for some tax arbitrage: pay taxes now at less than 25% to avoid paying at 25% or above later. Plus you want to clean up the individual stocks in your portfolio.

If 60% of your individual stock positions in the taxable account are capital gains, that's about 270k of gains (I'm assuming all long term gains). Your tIRA+401k balance is 983k. Your wife's is 605k.

Expanding on billfromct's calculations: you probably have qualified dividends in your taxable account of around 18k (3% on 451k of individual stocks, 2% on 236k of index funds). Plus 8k of ordinary income (1% on 800k) on the money market fund. So you have 67k of "room" (93-18-8) in the 15% bracket, where LTCG and QDI are taxed at 0%.

So you could spread those gains over 4 years (67*4 = 268) and pay little if any federal tax. But I wouldn't recommend that. I'd clean up the individual stock positions more quickly, say over two years. If you do that, spreading the gains equally over 2018 and 2019, you'll pay about 10k federal tax per year [15% * (270/2 - 67)]. This could be reduced by any non-refundable tax credits for which you're eligible (e.g. foreign tax credit, education credits).

Then you can start Roth conversions each year, filling the 15% bracket with that income. Roughly 70k per year for 9 years would reduce your RMDs by about a third, probably dropping you back down into the 15% bracket post age 70.

Obviously these are VERY rough numbers. The suggestion to run your specific situation through a tax calculator is a good one.

There have been many threads here on the Roth conversion tax strategy. Use the search box at the upper right and try Roth Conversion as the search term if you'd like to look at some of them.
core4portfolio
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Re: 58 years old and laid off seeking advices

Post by core4portfolio »

As all experts already advised, I have one advise to give.

You can sell the individual stocks first then go for EFT/Mutual funds selling in taxable account

When selling individual stocks, dont sell entire stock until all stock value reaches you needed money value.

For example, if you want 65k then dont sell the entire GE stocks.
Divide the amount needed equally among individual stocks and sell them at appropriate propotional
Atleast you have some diversification on individual stocks left out for few more years

Experts can advise if we sell the stock that considered as income to fund Roth account next year for him
I dont know that option. If thats possible then do that.
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retiredjg
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Re: 58 years old and laid off seeking advices

Post by retiredjg »

Total = $3,117,000 (rounding error or I may have missed something). All percentages below based on this total number.

Here's an idea that leaves His 401k without any changes for now. The taxable account is unchanged except for buying mutual funds with some of the money market.

Joint Taxable account 47.7% $1,487,000
2.2% BA Boeing $70K
2% BRKB Berkshire Hathaway B $61K
2.1% GE $65K
1.7% IVV iShare S&P 500 $55K
2.8% JNJ Johnson & Johnson $88K
3.2% PG Procter & Gamble $99K
2% VFIAX 500 index $61K
11.8% VTI total market. <---some money added here
.4% Some small stocks $13K
7.5% Money market or Short Term Tax Exempt Bond $223,775 <---new fund?
12% Total International Index <---new fund


DW - Rollover IRA 17% $529,000
17% Total Bond Index


DW – Roth IRA 2.3% $71,000
2.3% REIT or individual stock


DW – after tax Trad IRA 2.1% $66,000<---documented with Forms 8606 each year?
2.1% Total Bond


DH – Roth IRA 2.5% $78,000
2.5% REIT or individual stock


DH – IRA 13.6% $423,000 <--is this all pre-tax?
13.6% Total Bond Index


DH – 401k 14.9% $463,000
9.1% US stock fund $283K
.1% US bond fund $30K
4.7% Stable value fund $147K

This idea is about 60% stocks and 40% bonds (or fixed income) with 20% of the stocks (12% of the portfolio) in international. This is a somewhat low allocation to international, but I sensed you didn't want a high allocation.

There should be no taxes triggered by changing your current portfolio into this one (or something similar).

If you decide to roll DH's 401k into IRA, the portfolio could be even simpler.

I don't see much point in selling anything in taxable at this point. You would gain some simplicity, but individual stocks don't have an ongoing expense ratio so you would not really save a lot of money.

You could use the dividends from that taxable account as part of (or maybe all) the $65k you need to live on.

I do have a question. You seem uncertain that you have enough money to live on, yet you say your annual expenses are only about $65k. Add taxes to that and maybe you'll be taking $80k a year from the portfolio. That is only a 2.5% withdrawal rate based on the portfolio size today. Since you live very frugally and have no debt and college is paid for and there will eventually be SS added to your income, there is a very high probability that neither of you will ever have to work again. Obviously, you should work if you want to.

It does make me wonder if you are using the "K" (as in 1680k) to represent something other than what we think of. It has happened before. So please forgive this question, but can you clarify...is your portfolio over $3 million or not? I think it probably is and you just have not realized that it may be enough. But it does not hurt to check to make sure we are not giving you bad advice.
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Re: 58 years old and laid off seeking advices

Post by Vanguard Fan 1367 »

You might consider keeping 120K in the money market account and investing the other 1.3 million of the Money Market in a bond fund. Bogleheads like Vanguard’s Total Bond Index Fund yielding 2 plus percent. I like Vanguard’s intermediate corporate bond fund with a 3.1 percent yield. That 1.3 million could give you almost 40K in income from bond dividends. If you won’t panic and sell if there are some fluctuations with the fund then over the long term I think you would be better off with some intermediate term bonds rather than the Money Market. As Bogle would say, buy and hold, stay the course.

You also might consider just keeping your stocks and using the dividends for spending money. Again if you don’t panic and sell if there is a downturn your basket of stocks should be ok.
John Bogle: "It's amazing how difficult it is for a man to understand something if he's paid a small fortune not to understand it."
Topic Author
Besty2017
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Re: 58 years old and laid off seeking advices

Post by Besty2017 »

retiredjg wrote: DW – after tax Trad IRA 2.1% $66,000<---documented with Forms 8606 each year?
Yes, it is documented with Forms 8606.
retiredjg wrote: DH – IRA 13.6% $423,000 <--is this all pre-tax?
13.6% Total Bond Index
I made a mistake to rollover my first 401k to this IRA. :oops: I had no idea what IRA was. So it contains after tax contributions, documented with Forms 8606.
retiredjg wrote: I do have a question. You seem uncertain that you have enough money to live on, yet you say your annual expenses are only about $65k. Add taxes to that and maybe you'll be taking $80k a year from the portfolio. That is only a 2.5% withdrawal rate based on the portfolio size today. Since you live very frugally and have no debt and college is paid for and there will eventually be SS added to your income, there is a very high probability that neither of you will ever have to work again. Obviously, you should work if you want to.

It does make me wonder if you are using the "K" (as in 1680k) to represent something other than what we think of. It has happened before. So please forgive this question, but can you clarify...is your portfolio over $3 million or not? I think it probably is and you just have not realized that it may be enough. But it does not hurt to check to make sure we are not giving you bad advice.
We have $3 million hard earned money and "K" is 1,000. Thanks for advice.
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welderwannabe
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Re: 58 years old and laid off seeking advices

Post by welderwannabe »

There are far smarter people on this site than me, but it seems like you are holding an awful lot of cash in Money Markets. I would look to be moving some of that over to short and intermediate term bonds...get a little bit more yield while still keeping it reasonably safe. Best of luck and sorry to hear about your job. I am going through some similar turmoil with mine too. It stinks.
I am not an investment professional, but I did stay at a Holiday Inn Express last night.
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Besty2017
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Re: 58 years old and laid off seeking advices

Post by Besty2017 »

Thank you Chip! You basically gave me a year by year plan all the way to our 70's. :happy I do have a simple question for you. Why 64k/year, 36+22+3+3, is in 25% tax bracket? ( laid off is still bothering me ) I thought it is between $75,901 and $153,100 for 2017.
Chip wrote: RMDs start at 3.7% of account value and go up each year. So on your current balance that would be about 36k/year. Your wife's would be 22k/year. Add in SS (wild guess of 30k each) and you will be into the 25% tax bracket. And that's not counting other income nor account growth between now and then.
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Besty2017
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Re: 58 years old and laid off seeking advices

Post by Besty2017 »

nedsaid wrote:
Besty2017 wrote:We thought that we could wait as long as possible before taking Social Security assuming that our taxable account could support us for a few years. I have not yet organized myself enough about my job searching decision. As for health insurance, that is least familiar task for me. Thanks for pointing them out.
Your Social Security benefits increase about 8% a year for every year you wait. If you and spouse have family history of longevity, you might even consider waiting until age 70 to start taking benefits.
Thank your pointing out this as deciding factor. Our parents are at 88, 87, and 86. Her mother passed away at 84.
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Re: 58 years old and laid off seeking advices

Post by Chip »

Besty2017 wrote:Thank you Chip! You basically gave me a year by year plan all the way to our 70's. :happy I do have a simple question for you. Why 64k/year, 36+22+3+3, is in 25% tax bracket? ( laid off is still bothering me ) I thought it is between $75,901 and $153,100 for 2017.
Your brackets are correct. I didn't explain myself well.

I was guessing 30k each from social security, so gross income of 15k (divs+int) + 36k+22k (RMDs)+.85*(30+30) (85% of social security taxable. So, gross income of 124k, less about 23k of standard deduction plus exemptions gives taxable income of ~100k, well into the 25% bracket.

Your wife's RMDs don't kick in until five years after yours, so the above isn't valid until you're 75, but the principle holds.

For what it's worth I followed a similar tax management path to what I outlined, though retired a little earlier than you. I'm in the last few years before RMDs hit and am trying to decide whether to convert at even higher tax rates than I have been. It's not an easy decision -- lots of factors to consider. But in your case I think top of the 15% bracket is likely a no-brainer.
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nedsaid
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Re: 58 years old and laid off seeking advices

Post by nedsaid »

It looks like you are getting very good advice here, what you would have paid hundreds if not thousands for if you saw an advisor.

Let me summarize a bit and mention some concepts that you need to understand for good retirement planning. These are not in any order.

1) The taxability of Social Security in retirement, it looks like whenever you start taking Social Security that probably 85% of what you receive will be taxable.
2) Understanding how capital gains are taxed and the concept of Qualified Dividends which are taxed just like capital gains. Stocks held for over a year qualify for long term capital gains treatment. If held less than a year, sales of stock held less than a year are taxed as ordinary income. Also understand that tax rates for Long Term Capital Gains are lower than for ordinary income. Understand the Schedule D and the Form 8949.
3) Understand how the Form 8606 works and its purpose. The Form 8606 calculates how much of a distribution from a Traditional IRA is taxed and it keeps track of non-deductible contributions. The Form 8606 also keeps track of your ROTH IRA contributions year by year. You can always withdraw your contributions tax free.
4) Understand about how the Federal Income Tax works, study the Form 1040 and any supplemental schedules that you file with the 1040 every year. The best publication to download is the Pub 17 Your Income Tax. This and other tax booklets and tax forms can be downloaded from www.irs.gov. What I am trying to tell you is to be aware of how your income will be taxed in retirement.
5) If you live in a state with an Income Tax, you need to understand how your state will tax your income in retirement. For example, US Treasury interest is not taxed by state income tax. Your state will tax municipal bond income from bonds issued outside of your state.
6) Buy a tax program like H&R Block at home or TurboTax and run simulations through them. This will help you understand how doing such things as selling stocks will impact your taxes. I still think you should spend an hour or two with a good tax person with expertise in retirement or a Certified Public Accountant.
7) Write up an Investment Policy Statement. There is a good article in the Wiki and Morningstar has a good worksheet on its website in .pdf format. This will act as an investment plan, it is amazing what putting things down on paper will do for you.
8) Understand what Minimum Required Distributions from your 401k and Traditional IRA are and how they are calculated. These start at age 70 1/2. Roth IRAs don't have RMD.
9) Get your Social Security earnings statement. This is important because mistakes happen. You want to make sure that all your income taxed for Social Security gets reported. The statement also has estimates of future monthly benefits.
10) Understand Roth conversions and how they work. You may decide or decide not to do them.
11) Understand your options for health insurance between the time your employer cuts you off and when you are eligible for Medicare. Looks like your best option is COBRA, which you can continue for 18 months. One reason to consider another job, health insurance at your ages is very expensive. Shoot, even a lower wage, low stress job with health insurance benefits could go a long ways towards stretching your retirement.
12) Understand that you can take money out of a 401k penalty free at age 55. You may not want to roll these over until you reach age 59 1/2. You can do a 72(t), which are substantially equal withdrawals from an IRA before age 59 1/2 which avoids the 10% early withdrawal penalty. I consulted the IRS website and it warned that the 72(t) can be complex, so get help before doing this.
13) Understand the concept of sustainable withdrawal strategies from retirement and investment accounts in retirement. Academic research said that a sustainable withdrawal rate was 4%. More recent thinking is that the sustainable rate is more like 3.5%. In part, the reason for the reduced rate is the very low level of interest rates, which are still historically low.
14) Another thing to do is the bare minimum for estate planning. The three basic documents are will, durable power of attorney, and healthcare directive.

So I will stop here for now.
A fool and his money are good for business.
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nedsaid
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Re: 58 years old and laid off seeking advices

Post by nedsaid »

I have read through the thread and I so far haven't seen any flaws with what people have told you so far. What I will say is that retiredjg is one of our better posters on the forum and she has tirelessly helped many investors here. I have crossed paths with her on many threads and I find her advice to be excellent. If she decides to walk you through this step by step, I can assure you that you are in good hands. Everything that we tell you should be verified, so go direct to the source and check on what you have learned here. We are just flawed human beings here. The cool thing is that other posters will bring up things no one else has thought of.
A fool and his money are good for business.
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nedsaid
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Re: 58 years old and laid off seeking advices

Post by nedsaid »

Despite all the good advice given here, I still recommend that you see a fee only financial planner that charges by the hour. What you don't want is a commissioned salesperson. So avoid advisors from full-service brokerage houses like Edward Jones or Ameriprise. Other advisors are actually insurance salespersons who will try to get you to buy expensive and unnecessary insurance products, particularly annuities. The only two types of annuities recommended here are the plain vanilla Single Premium Immediate Annuities and perhaps deferred annuities which pay at a later age perhaps at age 80 or 85; such deferred annuities are often called longevity insurance. Avoid advisors who sell financial products for a commission as they will steer you towards whatever pays the highest commission.

Some places to look. I have a high regard for Dimensional Fund Advisors, their mutual funds are for the most part available only through advisors. A lot of the DFA advisors are mostly portfolio managers. Other Bogleheads have recommended the Garrett Planning Network. I don't think you need portfolio management as much as you would need comprehensive financial planning. Again, be prepared to pay $150 to $400 an hour.

If you hire a portfolio manager, be certain that he or she is a Fiduciary. A fiduciary is legally required to act in your best interest as a client.

The reason that you hire a financial planner is for their experience, they have seen people do many things wrong, and they can steer you away from other people's bad mistakes. A good planner has seen hundreds if not thousands of people's financial situations. No matter how many books you read and how much research you do on your own, there is always something that you never thought of. I think this would give you great peace of mind.
A fool and his money are good for business.
mouses
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Re: 58 years old and laid off seeking advices

Post by mouses »

Besty2017 wrote: ( laid off is still bothering me )
It sucks to be laid off, but the country is full of hard working, well qualified people that this has happened to. It bothers me that I got laid off, but that's the way our economy is currently. There is a lot of flux as industries adjust to new ways of doing things, new (lower) standards of quality, bigotry about age of workers, outsourcing, etc.

Thank your lucky stars that you and DW have socked away enough money so that you are in good shape financially. I am a little concerned about your remark about not previously understanding IRAs and yet putting money into one. I think you may have to start educating yourself more about finances, but don't fall into the hands of crooked investment advisers.

One thing you might do is think about working in some volunteer capacity for a local charity.
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nedsaid
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Re: 58 years old and laid off seeking advices

Post by nedsaid »

Okay, a couple more things.

First, a lawsuit can derail even the best planned and financed retirements. Be certain that you have good auto and home insurance with proper liability limits. I would also recommend an umbrella policy which gets you additional liability coverage beyond the limits of your auto and home policies. You should get a minimum of $1,000,000 in additional liability coverage and perhaps $2,000,000. This is where a good insurance agent can really help you but with property, casualty and liability insurance. Don't let him sell you stuff like Variable Annuities, Variable Universal Life Insurance, Whole Life, etc.

Second concept is the Monte Carlo simulation. Pretty much you plug in the amount of financial assets, how much in each asset class, and how much you will withdrawal each year. The financial planner can run simulations, thousands of scenarios including best case and worst case and give you a percentage chance that your portfolio won't run out of money. They can give you an idea of what might be the best mix of asset classes like stocks and bonds to use for your portfolio. There are also online calculators that can do this.

I took some time, but hopefully this will remind you of things and perhaps highlight things that you didn't think of.

Best wishes for your future.

Ned
A fool and his money are good for business.
MarkVH0518
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Re: 58 years old and laid off seeking advices

Post by MarkVH0518 »

Your situation is not so very different from mine. I'm 59; DW 57. I retired 2 years ago; she retired 3 years ago.
Our assets are a bit larger than your and our expenses a bit more too. But we are close.

My last 2 years of work I was hoping for a lay off to receive severance. It never came
so when a reorganization required me to train new managers I said enough.

The advice you've already received is all quite good. My ideas below are refinements or complications depending
on your perspective - which means feel free to completely ignore them.

1) Let go of 'laid off is still bothering me'. I realize it's easier said then done. Did you love your job? If so, then you may miss it.
If not really, I think you'll find retirement a lot of fun. Search this forum for what people do in retirement. You'll find that very,
very few miss work and those that do find paying opportunities. They just don't worry much about the pay.

2) Consider taking different SSI approaches for you and your wife. Because of spousal survival benefits, I highly recommend the spouse
with the highest payout wait until 70. But I think we will be taking my wife's lower benefit at 62. The payback age for all the choices is
82 (or so), so if one of us dies before then we win. If we both live to 90 we are are a bit behind. But the single surviving spouse is always ahead.
Of course, this decision is down the road. Note that if Chip's reasonable guess of SSI of $30K for each of you is at all accurate, SSI
almost covers your stated expenses. SSI is a lot of money.

3) I too have after tax money in IRA and have been converting it to Roth IRA as quickly as makes sense for my tax bracket.
We've been living on my 401k. We will not roll the 401k into IRA until the IRA goes the 0. The goal is to drive the IRA
completely to 0 before the 401k rollover so that I can be done with filing 8606. With the size of your IRA it may take you a while,
but you might consider this worth the trouble. You will be able to withdraw the IRA funds for living expenses soon.
You also must have a 401k that is inexpensive and trustworthy, some aren't.

Finally, I think congratulations are in order, even if you're not yet convinced.
Regards,
Mark
The advantage of Get Rich Slow is that you actually Get Rich.
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nedsaid
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Re: 58 years old and laid off seeking advices

Post by nedsaid »

Besty2017, I experience the pain of lay-off back in 2014 after working over 15 years at a job and with a company that I loved. It was hard to take as we get so much of our identity from our job, we see our co-workers eight hours a day five days a week more than we see our own friends and family. It is really hard not to form relationships on a job and when the job ends, those relationships tend to end as well. It is a lot like a death in the family, a divorce, moving out of your home, or other tough transitions in life.

I found that I was pretty hurt and angry and this would at times affect my performance in job interviews. It takes a while to come to grips with the loss. I would say that after 2 1/2 years, the anger has pretty well dissipated and I have accepted what happened. Fortunately, I have been able to do seasonal tax work and contract work to stretch my severance and collecting unemployment has been helpful as well. I have had stretches of time off and found that I have enjoyed being able to reflect back on my life and take time to learn new things.

Fortunately, you and your spouse really don't have to do anything. You have enough money that you don't have to work again if you don't want to. I am not in that position, however, I need to work at least a few more years. So count your blessings.

Really what you are going through is a grieving process: shock, guilt, anger, depression, adjustment, and finally acceptance. It just takes time to work through this.

Just remember, a whole lot of folks have gone through this. Lay-offs are the new normal.
A fool and his money are good for business.
2015
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Re: 58 years old and laid off seeking advices

Post by 2015 »

delamer wrote:
FrugalInvestor wrote:
delamer wrote:Also make sure you understand your COBRA options for health insurance. Usually COBRA will give you better coverage at a better price than individual insurance. This is of particular concern for your wife, who has 12 years until she is eligible for Medicare. And you'll find that your health insurance costs go up regardless of how you get coverage.
Cobra lasts for 18 months so not a long-term solution but will give you some time to plan.
Also, you may be able to keep the same insurance as an individual policy -- at a higher premium -- once COBRA expires. It depends on the insurance company.
If you live in California (I can't tell), you can get COBRA for 18 months, followed by CAL-COBRA for another 18 months. I am on CAL-COBRA now.
GMT-8
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Re: 58 years old and laid off seeking advices

Post by GMT-8 »

Just to reaffirm what a few people have said = there may always be something in the back of your mind about "why me?" and "I put the company ahead of myself and look how they treated me!"

Try to let it go.

I went through this 20 years ago after almost 20 years at a small company (when I joined) that became a big one (by the time I left). I did lose most of those friends, although I go have lunch with 4-5 close friends once a year. Other than that, I have totally avoided the reunions, drinking nights, ball games, etc. with my co-workers. I went to one or two and always found myself angry or upset at the end of the evening.

So I focused on my family, church friends, bicycling and other hobbies, and new consulting jobs as they came my way.

Even though it was a great job that I lost, getting showed the door was the best thing to happen to me. And I am sure many other people will say the same.

So use your severance money wisely, but cheerfully, knowing you earned it and you can enjoy it. And don't be afraid of retiring - it's great!

GMT-8
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Besty2017
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Re: 58 years old and laid off seeking advices

Post by Besty2017 »

retiredjg wrote: Joint Taxable account 47.7% $1,487,000
2.2% BA Boeing $70K
2% BRKB Berkshire Hathaway B $61K
2.1% GE $65K
1.7% IVV iShare S&P 500 $55K
2.8% JNJ Johnson & Johnson $88K
3.2% PG Procter & Gamble $99K
2% VFIAX 500 index $61K
11.8% VTI total market. <---some money added here
.4% Some small stocks $13K
7.5% Money market or Short Term Tax Exempt Bond $223,775 <---new fund?
12% Total International Index <---new fund

You could use the dividends from that taxable account as part of (or maybe all) the $65k you need to live on.
retiredjg,

This taxable account could generate dividend about $28,319/year. If I withdrew 60% of my 401k and added to VTI and rolled over 40% of my 401k to IRA and maintained that portion in total bond, we could get dividend close to 32,500. It is obviously not quite $65k yet. So, I am interested in living on dividends from our taxable account if possible. Please correct me if I misunderstood you. Please educate me what approach to get the rest of our annual expenses from dividends before taking SS.

BA 70000 2.81% 1967
BRAB 61000 0% 0
GE 65000 3.48% 2262
IVV 55000 1.80% 990
JNJ 88000 2.46% 2165
PG 99000 3.08% 3049
VFIAX 61000 1.97% 1202
VTI 644800 1.87% 12058
VMMXX 153582 1.05% 1613 <<< reduced value because of expenses in 2018 and 2019
VXUS 374000 2% 7480
Thank you
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nedsaid
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Re: 58 years old and laid off seeking advices

Post by nedsaid »

Besty2017, I think you are getting things mostly right. What I am not hearing is discussion of asset allocation. Seeing that you have large taxable as well as tax deferred accounts, we could also be discussing the most tax efficient placement of asset classes. Hint: Your taxable accounts should be more stock heavy and your tax deferred retirement accounts should be more bond heavy. A couple big reasons, favorable capital gains treatment for sale of stock held more than a year and capital gains tax treatment for qualified dividends.

I think you need a big picture view. You have done a great job saving and you probably have invested fairly well. What you need now is a comprehensive financial plan for how you plan to live off of this. I can see that it is starting to come together. For example, you have a good idea now how to manage your taxes in retirement. You are thinking about living off the income from your portfolio. You are getting there.
A fool and his money are good for business.
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retiredjg
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Re: 58 years old and laid off seeking advices

Post by retiredjg »

This taxable account could generate dividend about $28,319/year. If I withdrew 60% of my 401k and added to VTI and rolled over 40% of my 401k to IRA and maintained that portion in total bond, we could get dividend close to 32,500. It is obviously not quite $65k yet. So, I am interested in living on dividends from our taxable account if possible. Please correct me if I misunderstood you. Please educate me what approach to get the rest of our annual expenses from dividends before taking SS.
When I was talking about using those dividends, I didn't mean for your entire annual expense. Not at all. I just did not know what the expected dividends from that account might be.

A portfolio grows in two ways. Stock funds and bond funds may pay dividends, but dividends are only part of the return. Both stocks and bonds also increase in price per share, AKA net asset value. The two together are the "total return".

You should spend from the total return of the whole portfolio, not just the dividends in your taxable account. So some years, maybe most years, you will be selling shares of stocks/stock funds in your taxable account and/or in your IRAs.

You definitely do not want to withdraw any 401k money to put it into taxable to generate dividends.

After all this saving and being frugal for years, you may find it difficult to spend the portfolio at first. But that's what you have it for. And it appears that your withdrawals may not even be enough to ever deplete the portfolio, not even if your expenses go up a fair amount.

Here is a paper from Vanguard about spending from your portfolio.

https://personal.vanguard.com/pdf/s557.pdf
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retiredjg
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Re: 58 years old and laid off seeking advices

Post by retiredjg »

Here is also a link about early retirement, if that is what this turns out to be for you.

https://www.bogleheads.org/wiki/Early_retirement
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