Where to invest cash to retire tomorrow?

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HenrysCreek
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Where to invest cash to retire tomorrow?

Post by HenrysCreek » Tue Sep 26, 2017 5:58 pm

In keeping with my other thread "Should I sell my business?" viewtopic.php?f=2&t=228469
the question now turns how to invest the cash?
Bottom Line:
Net Cash from business sale (after tax): $9M
Current 401K: $1M (various American Funds Target Dates)
Securities/Investment funds: $750k
Cash: $250k

Leaving the current cash and securities out of the equation (we'll use a lot of the securities that have big gains for philanthropic purposes and keep the cash for "daily" needs, that leaves about $10M to invest.

We have small balance on a 15 year mortgage (about $300k @ 2.7% rate), with 7 years remaining - we'll leave that alone. No other debt.

We're both about 55 years old and need to pull in about $300k-$400k per year to maintain current lifestyle.
How/where would you recommend these funds be invested to produce these returns and enable us to "live" off of the principal, with hopes of slightly growing the portfolio. I'm not risk averse, because we'll have some inheritance to add to this (in the next 10 years) and can also earn consulting income if/when the market tanked over the next 5-7 years.

Thanks!

Mors
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Re: Where to invest cash to retire tomorrow?

Post by Mors » Tue Sep 26, 2017 6:17 pm

Greetings. I am not suitable to give proper advice for managing such a large amount of money. But with the little I know, if you decide investing bogleheads style, there may be profit from letting betterment managing your savings. Automatic tax harvesting and other various small optimizations seem to be able to save you lots of money.

For a DIY approach, you should start by putting as much as possible of your equity funds at tax advantaged accounts. Going 50/50 equity/bonds seems fine to me. For allocation, the vanguard target retirement funds are a good start to mimic, but with admiral shares.
Last edited by Mors on Tue Sep 26, 2017 6:29 pm, edited 2 times in total.

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Alexa9
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Re: Where to invest cash to retire tomorrow?

Post by Alexa9 » Tue Sep 26, 2017 6:23 pm


HenrysCreek
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Re: Where to invest cash to retire tomorrow?

Post by HenrysCreek » Tue Sep 26, 2017 6:29 pm

Alexa9 wrote:
Tue Sep 26, 2017 6:23 pm
It's a very personal question:

https://www.bogleheads.org/wiki/Asset_allocation
Agreed. That's why I'm here. :D

Mors
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Re: Where to invest cash to retire tomorrow?

Post by Mors » Tue Sep 26, 2017 6:37 pm

HenrysCreek wrote:
Tue Sep 26, 2017 6:29 pm
Alexa9 wrote:
Tue Sep 26, 2017 6:23 pm
It's a very personal question:

https://www.bogleheads.org/wiki/Asset_allocation
Agreed. That's why I'm here. :D
Vanguard goes with about 30% us stocks, 20% international stocks, 30% us bonds, 10% international bonds, 10% short term tips. For the taxable accounts, replace us bonds with municipal/tax exempt bonds.

Betterment has a more aggressive allocation, tilted to emerging markets, value and small cap, as well as including emerging markets bonds. I would not bother slice and dice trying to copy it.
Last edited by Mors on Tue Sep 26, 2017 6:49 pm, edited 1 time in total.

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Alexa9
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Re: Where to invest cash to retire tomorrow?

Post by Alexa9 » Tue Sep 26, 2017 6:48 pm

Vanguard's asset allocation questionnaire is pretty good:
https://personal.vanguard.com/us/FundsInvQuestionnaire

HenrysCreek
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Re: Where to invest cash to retire tomorrow?

Post by HenrysCreek » Tue Sep 26, 2017 10:10 pm

Alexa9 wrote:
Tue Sep 26, 2017 6:48 pm
Vanguard's asset allocation questionnaire is pretty good:
https://personal.vanguard.com/us/FundsInvQuestionnaire
Allocation questionnaire says 60% Bonds, 40% stocks - but given some of the additional risk reducing revenue avenues listed above, I'd say I'm comfortable with 50% Bonds, 50% Stocks , or even 45% Bonds, 55% stocks.

Now the question is "Which Ones?"

Thanks!

skeptical
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Re: Where to invest cash to retire tomorrow?

Post by skeptical » Wed Sep 27, 2017 5:47 am

I would consider starting off with the following as a straw model :

50% Vanguard Total Stock (VTSAX) in taxable, or equivalent
40% Vanguard Intermediate Muni (VWIUX) in taxable, or equivalent
10% Vanguard Total Bond (VBTLX) in tax deferred, or equivalent

Adjust stock with some international if desired. This is the "accepted wisdom", I personally stick with US.

Adjust national muni with some home state muni if desired. You get more interest, take more risk, pay less taxes.

Adjust national muni with Total Bond and/or Corp bond if desired, for diversity. A lot of muni specific risk here, alternative is getting far less for your money - at your level of assets, each dollar of taxable income is going to be double taxed - once for being ordinary interest and then again for pushing a dollar of qualified dividends into the taxable area. Roughly speaking, you will get one half the income after tax from Total Bond as you would from National Intermediate Muni.

Or, just keep it really simple with the three funds, and rebalance occasionally.

The base portfolio will generate close to $250K per year in dividends/interest, with no fed tax (unless you have other income)
This is equivalent to about $400K per year "salary". You might even have some extra space each year for doing some Roth conversions to move the funds from the 401K to a Roth, or to do some tax gain harvesting, or some tax free rebalancing - depends on your specific tax situation.

If this income is sufficient, your portfolio will have a good chance of growing with inflation, as long as the stocks grow by twice the inflation rate (not including the dividends). Of course, you can draw down on principal as needed.

While I am a believer in "Total Return", I do believe that the market is telling us it thinks that the really safe long term withdrawal rate is about 2.5%, the return from this portfolio. Companies are providing dividends that they believe are sustainable, and the bond market is saying that this is the interest it can provide while keeping principal intact. This seems to in alignment with other ways of measuring a safe withdrawal rate in today's environment.

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TomatoTomahto
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Re: Where to invest cash to retire tomorrow?

Post by TomatoTomahto » Wed Sep 27, 2017 6:32 am

We decided (pronounced "I decided, wife agreed") that for us, in a somewhat similar boat, that the percentage based allocation model didn't work well for us, that I was spending too much time checking on our AA, etc.

What I settled on is something like a liability matching portfolio, but simplified.

We have something around $2.5M in bond funds (and some smattering of iBonds). We let this grow organically (i.e. ,dividends are reinvested). Since we had that amount of space in tax deferred, we used TBM. If we didn't, we'd have used Intermediate Term Tax-Free in taxable. Money is fungible, so move things around if necessary.

Everything else, new or old, goes to equities with a substantial, but not majority, in international. My wife is still working, so her bonuses go there.

radiowave
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Re: Where to invest cash to retire tomorrow?

Post by radiowave » Wed Sep 27, 2017 7:34 am

A footnote re OP cash $250k . . . if not already done, he can place up to 250K in a no penalty 11 mo CD at 1.50% at Ally bank, spouse can have an additional 250k all FDIC insured and about as safe a reserve available. Break this into smaller lots, e.g. $50k CDs and cash them in as needed. Longer term 5 yr CD is at 2.25% at Ally. Just an FYI.
Bogleheads Wiki: https://www.bogleheads.org/wiki/Main_Page

dbr
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Re: Where to invest cash to retire tomorrow?

Post by dbr » Wed Sep 27, 2017 8:24 am

skeptical wrote:
Wed Sep 27, 2017 5:47 am
I would consider starting off with the following as a straw model :

50% Vanguard Total Stock (VTSAX) in taxable, or equivalent
40% Vanguard Intermediate Muni (VWIUX) in taxable, or equivalent
10% Vanguard Total Bond (VBTLX) in tax deferred, or equivalent


The general idea is going to look something like this. What is different between you and most people asking here is that your level of income imposes significant tax cost, hence the advice above to look at muni's for the bond component. I would suggest enrolling professional tax advice to look at your situation.

It might be your level of discomfort is high enough to justify advice from a financial planner but I am reluctant to suggest that because someone with as much money as you have is a goose waiting to be fleeced by that industry. It might be Vanguard Personal Advisory Service would be appropriate for you, but again, I am not one of those with high confidence in that nor enthusiasm for paying out even 0.3%. What they can do is give you some grounding in how a portfolio can meet your needs and a reasonable suggestion for what portfolio to hold. How well they will do with your tax level I can't say.

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Sandtrap
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Re: Where to invest cash to retire tomorrow?

Post by Sandtrap » Wed Sep 27, 2017 9:21 am

Read the wiki on managing a windfall [urlhttps://www.bogleheads.org/wiki/Managing_a_windfall[/url]

Theseus
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Re: Where to invest cash to retire tomorrow?

Post by Theseus » Wed Sep 27, 2017 9:28 am

Considering that you are
1. Not risk averse
2. Have marketable skills
3. Inheritance coming
4. Most likely you can adjust your lifestyle (in the worst case scenario)

I would recommend no more than 20% in the bond index funds. Rest in broad market index funds and and some in international. Higher equity allocation (with higher risk of course) will give you more money for philanthropic projects.

There is no need to pay a % to Betterment, financial advisors etc. You built a business yourself. When you interview financial advisors you will find you know more than they do. However if needed get a fee only planner. Or if you are fidelity high net worth client, they can assign a senior financial advisor for free. In fact you can insist on interviewing them (I just did that when my guy at fidelity left - I didn't want them to randomly assign me someone) and decide based on that.

Many people don't like it, but I used Financial Engines to build my portfolio. It is just like a boglehead portfolio and it always recommends lowest possible cost index funds. I did adjust FE recommended allocation based on my risk tolerance. Then I use WealthTrace to monitor it.

Have fun!! These are good problems to have :)

HenrysCreek
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Re: Where to invest cash to retire tomorrow?

Post by HenrysCreek » Wed Sep 27, 2017 10:09 am

Sandtrap wrote:
Wed Sep 27, 2017 9:21 am
Read the wiki on managing a windfall [urlhttps://www.bogleheads.org/wiki/Managing_a_windfall[/url]
Thanks. Good advice.

Punched-Out
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Re: Where to invest cash to retire tomorrow?

Post by Punched-Out » Wed Sep 27, 2017 10:12 am

Similar boat to you HenrysCreek.

I'm 50, recently sold my company to private equity (btw, per your original thread, always sell on the way up. By the time your EBITDA (or other key metrics) even hints at leveling off, PE knows it and your EV drops significantly), and have investable assets +/- your neighborhood. We also burn $350-$400K annually (working on reducing the significant excess).

I don't have a finance background, and after many years of lifestyle spending (high 6/low 7 figure distributions), found myself in the (blessed) terrifying situation of 'managing' my own money.

I hired a pro.

For me, it's worth the %. Piece of mind + bundled tax/financial expertise + access to private investments (non/less correlated to Market) at a much lower buy-in (ie, ability to diversify) than normally available to a guy off the street.

We have some additional $ coming back from the 2nd bite and may elect to shepherd that myself. TBD.

Here's a snapshot of my current (invested) asset class % and below, the % recommended by the firm I use @ a mid-level risk tolerance

Personal Asset Distribution

Cash & Equiv - 2.61%
Liquid Debt - 23.09%
Liquid Equity- 31.43%
Real Assets - 4.06%
Alternative Debt - 10.44%
Private Debt - 9.52%
Alt/Private Equity - 18.86%


Pro Mid-Risk Asset Allocation
Cash & Equiv - 2%
Liquid Debt - 16%
Liquid Equity - 35%
Real Assets - 4.00%
Alternative Debt - 16%
Private Debt - 16%
Alt/Private Equity - 11%

Pro feels we should yield ~6-9% annual (net of fees) with this model while reducing the possible/likely dip in the equities market. In first 2 full years, our returns have been right on.

YMMV but I hope that's helpful.

book lover
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Re: Where to invest cash to retire tomorrow?

Post by book lover » Wed Sep 27, 2017 10:44 am

If you have ten million to draw from, then $300,000 to $400,000 would be drawing down three to four percent per year. If you can keep it at $300,000 to $350,000 you should be in good shape.Guess it depends on how conservative you want to be between stocks and bonds and legacy issues. May want to look at umbrella insurance if you do not already have it up to ten millions to protect your current assets.

HenrysCreek
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Re: Where to invest cash to retire tomorrow?

Post by HenrysCreek » Wed Sep 27, 2017 11:14 am

[/quote]The general idea is going to look something like this. What is different between you and most people asking here is that your level of income imposes significant tax cost, hence the advice above to look at muni's for the bond component. I would suggest enrolling professional tax advice to look at your situation.[/quote]

Since I'm currently at 45.35 (39.6 Federal + 5.75 Virginia), I'm confident my days of paying big tax bills will be limited. I like the idea of tax free muni's.
My parents have lived off of these for many years after retiring from selling their business.

Estate tax planning is complete. We have a high caliber trust attorney and a CPA that is conservative, but thorough. I'm leaning towards managing these funds myself, with a little advice from others. The goal is simplicity and some tweaking as needed going forward.

Thanks everyone!

livesoft
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Re: Where to invest cash to retire tomorrow?

Post by livesoft » Wed Sep 27, 2017 11:20 am

I don't see anything wrong with a 60/40 3-fund portfolio as has been already mentioned. The differences between 40/60, 50/50, and 60/40 will actually be quite minor. The fund selections are the typical Total US Stock index, Total Int'l Stock Index, and a tax-exempt bond fund or two.

Your 401(k) should be moved to a single low-expense ratio, passively-managed bond index fund such as VBTLX. And you should pay zero fees for an advisor.

And if those 3 or 4 funds are enough, you can always change things in a year or in 2 years or whatever.
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Hyperborea
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Re: Where to invest cash to retire tomorrow?

Post by Hyperborea » Wed Sep 27, 2017 11:37 am

HenrysCreek wrote:
Tue Sep 26, 2017 5:58 pm
Leaving the current cash and securities out of the equation (we'll use a lot of the securities that have big gains for philanthropic purposes and keep the cash for "daily" needs, that leaves about $10M to invest.

We're both about 55 years old and need to pull in about $300k-$400k per year to maintain current lifestyle.
I will suggest that you read the retirement withdrawal studies at Early Retirement Now. It covers in incredible detail and has some great insight into withdrawal strategies.


You need to think about the allocation as deriving from your other inputs. First how long do you need to be thinking about withdrawing from the portfolio. At 55 there is a 10% chance that at least one of you will still be here in 40 years. So, I would think about 40 year investment horizon.

Next, the withdrawal amount of $300K-400K is 3-4% of your $10M. Hopefully that is before tax. If it's after tax you may need to rethink your lifestyle numbers.

Image

With a 40 year horizon and a 3% withdrawal ($300K) you are ok with maybe as low as 25% stocks but 50% would give you more safety in case of a longer retirement.

With a 40 year horizon and a 4% withdrawal ($400K) you need to be looking 75%+ in stocks and even then there is some risk of failure.

These numbers are withdrawals and survivals that would have gone through the worst times to retire over the historical data. That includes the great depression and the 70's stagflation. So, in most cases it won't have been so bad and you could actually withdraw more but we don't know in advance.

If you are willing to be a bit more complicated with your portfolio then I recommend having a look at the recent chapters in the withdrawal rate series at Early Retirement Now on glide paths - i.e. changing your allocation over time.

PhilosophyAndrew
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Re: Where to invest cash to retire tomorrow?

Post by PhilosophyAndrew » Wed Sep 27, 2017 11:57 am

A simple three fund portfolio invested in accord with whatever reasonable asset allocation you prefer should work fine. Your investable assets align nicely with your annual spending; as long as your spending does not increase significantly, you should leave a significant inheritance for your heirs.

The simplicity of a three find portfolio would provide more time to enjoy retirement when healthy, and would require minimal attention even as inevitable old-age decline sets in. I don’t see any need for a more complex investment plan than this, although you could move to a single-fund or single-fund + SPIA combination if you end up needing something even simpler in the far future.

(The question asked above about taxes is a good one: If you will have $10M in investable assets after the sale of your business AND after paying any taxes due after that transaction, there is good alignment between your expenses and assets. If you will end up with significantly less than $10M, then you may need to cut back on expenses, revise your expectations for current philanthropy and future bequests, plan to add some consulting income into the mix, or some combination of these.)

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Toons
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Re: Where to invest cash to retire tomorrow?

Post by Toons » Wed Sep 27, 2017 1:07 pm

Vanguard Balanced Index Fund(Admiral)
:happy
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee

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Sandtrap
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Re: Where to invest cash to retire tomorrow?

Post by Sandtrap » Wed Sep 27, 2017 2:01 pm

Vanguard Balanced Index Fund with perhaps Wellesley and/or Wellington on the side for extra flavor.
All Admiral.
:D

HenrysCreek
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Re: Where to invest cash to retire tomorrow?

Post by HenrysCreek » Wed Sep 27, 2017 4:37 pm

Al great advice guys. I've got some research to do and planning for the upcoming sale. My budget figures remain "after tax" for the sale of the business and "before tax" for income purposes, the the comments above are accurate.

I'll begin to move my current investments, plus excess cash from the business profits, into some of these allocations prior to the business sale.

Thanks again. Love this place!

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