How can I Invest 4 million dollars to earn 120k (inflation adjusted) a year for life?

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notcisko
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How can I Invest 4 million dollars to earn 120k (inflation adjusted) a year for life?

Post by notcisko » Wed Apr 11, 2018 12:40 am

Hi guys, I'm new to investing and would really appreciate some feedback on how I can achieve my goals with the least amount of risk possible.

I'm' 37, no debt, will have about 4 million (maybe 5 to 6) to invest within the next year, and emergency cash fund of around 250k to 400k. I do not plan on working anymore, so this will need to provide all my income on a steady basis.


The goals I would like to achieve are:
1: Receive at least 100k to $120k (inflation adjusted) a year for the rest of my life.
2: Not have to sell more than 2% of my investment per year.
3: Have my investment grow by at least 6% a year on average, over my lifetime. (after I draw the 1% to 2%.)
4. Be as hands-off, passive and simple as possible.
5. Be as safe for the long term as possible.
6: Take the smallest tax hit possible in the process.
7. Be somewhat crash proof for the next 5 years.


Of course I am flexible on all parameters, but that is what I would like to reach ideally.

From my limited research it seems like historically, investing all of it in VTSAX would be a good long term solution. The dividends would put me around 80k a year on a 4 million investment, so I would need to draw 1% per year to reach the 120k. In the future to keep up with inflation I could withdraw up to 2%.

However given the current market conditions, I do have real concerns that the market will not continue to perform so well over the next decade. If this is the case, what would be a safer option to reach my goals in the face of a looming market crash and/or decade long downturn and/or excessive inflation?

BTW, John Bogle (among many other top investors) also seems to think we won't see the same growth this next decade... https://www.youtube.com/watch?v=pRhUbkEzCT4


Thanks a bunch for any help, and apologies if I mixed up any terms or made any incorrect statements/assumptions, I am just starting out here.

nps
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Re: How can I Invest 4 million dollars to earn 120k (inflation adjusted) a year for life?

Post by nps » Wed Apr 11, 2018 5:42 am

notcisko wrote:
Wed Apr 11, 2018 12:40 am
However given the current market conditions, I do have real concerns that the market will not continue to perform so well over the next decade. If this is the case, what would be a safer option to reach my goals in the face of a looming market crash and/or decade long downturn and/or excessive inflation?
The simplest options are to either save more money or to moderate your goals.

simas
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Re: How can I Invest 4 million dollars to earn 120k (inflation adjusted) a year for life?

Post by simas » Wed Apr 11, 2018 5:48 am

apply the same process recommended regardless of the amount to invest - start with asset allocation , determine your risk tolerance, map investment products to your asset allocation, create implementation plan, and implement it. Whether you want to do all of it yourself, take help from custodian (at that level of asset they would and should be bending over backwards to help you), and/or get a second opinion from qualified resources , is up to you.

If I were in your shoes, I would have start slowly
- what do I really need? also, just because I am financially independent (FI), does it truly means I will not ever make another dime in my life?
- what matters to me ? right now you have very contradictory requirements of wanting very high real return and very little risk . it does not work that way, regardless of the amount invested. also you do not say whether you are accounting for taxes or not in that number
- what support do I need? CPA (for taxes)? investment manager? financial planner?


"
However given the current market conditions, I do have real concerns that the market will not continue to perform so well over the next decade. If this is the case, what would be a safer option to reach my goals in the face of a looming market crash and/or decade long downturn and/or excessive inflation?
"
no one knows. if you have real concerns that trigger desire to do market timing, then you have not worked through asset allocation properly and overestimating your risk tolerance. the typical solution is to keep X years in 'cash products' so market fluctuations matter less to you, set up asset allocation, rebalance, and refill spending account on regular basis. market went down x% percent - great! sale time for dividend reinvestments! market went up? great! ideally you turn off the tracking altogether,and check it once a year to determine if you need to rebalance/refill.

Grt2bOutdoors
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Re: How can I Invest 4 million dollars to earn 120k (inflation adjusted) a year for life?

Post by Grt2bOutdoors » Wed Apr 11, 2018 6:12 am

4,5,6 and 8- no problem. It’s points 1,2 and 3 where you are going to run into some hurdles that may or may not be overcome in the short to mid term. On point 6, set aside 5 years of spending and put it in a ladder of 3 months,6 months and 52 week T-bills.

Any advisor who says they can meet the goals of points 1,2 and 3 - ask for guarantee in writing and have it be backed by a bond or letter of credit: you will never get it.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

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corn18
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Re: How can I Invest 4 million dollars to earn 120k (inflation adjusted) a year for life?

Post by corn18 » Wed Apr 11, 2018 6:22 am

Make it a $6M portfolio and you are set for life. 50x expenses at age 37 should get you to the grim reaper with money to spare.

60/40 portfolio with 20% international. Withdraw 2% / year. Enjoy the rest of your life.

livesoft
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Re: How can I Invest 4 million dollars to earn 120k (inflation adjusted) a year for life?

Post by livesoft » Wed Apr 11, 2018 6:27 am

Read this series of articles about how to invest, retire very early, and withdraw your money over 60 years:
https://earlyretirementnow.com/2016/12/ ... t-1-intro/
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Tamarind
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Re: How can I Invest 4 million dollars to earn 120k (inflation adjusted) a year for life?

Post by Tamarind » Wed Apr 11, 2018 6:42 am

You can easily do #s 1, 4, 5, 6 and 7 all together. That's just the Boglehead method. Build a 3-fund portfolio as tax-efficiently as possible. You have somewhat more than $4M including your emergency cash. I'm assuming you have some minimal amount of money in tax-advantaged accounts. Unfortunately by stopping work you lose access to any further tax-deferrals, but assuming we are talking about a business sale, inheritance, or other lump sum, that wasn't going to help you much anyway.

$4M at 50/50 stocks/bonds is expected (nothing is guaranteed) to generate $80k annually in perpetuity (2% withdrawal rate), and $120k for some shorter period (more than 30 years but less than forever).

Retire with $6M and we would predict you are set for life in spite of your young age. At $4M and 37yo, you will need to know a bit more.

Start with this: there is no difference between taking dividends and selling shares, except for taxes, and the difference is not significant at your new tax bracket. Taking the $80k in dividends in cash and then selling 1% is a 3% withdrawal rate, because future growth is based on total return (ie assumes you reinvest the dividends). This is why no one is saying you can achieve #2.

Being able to do #3 depends on your asset allocation, but also market returns over which you have no control. That big lump of money does not make you more able to achieve outsized or safer returns than you were when you got your very first paycheck. It just makes you a juicier target for financial sharks.

VTSAX, VTIAX, VBTLX (or your state-specific Muni fund) in some proportion. I'd probably do 25/25/50 and call it a day. You could even put this in a LifeStrategy all in one fund though it's be slightly more expensive in fees and taxes.

If you take your time with setup, not only will you not need anyone to manage your investments, you probably can do your own taxes too. BTW, that $120k per year is pre-tax, right?

cjcerny
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Re: How can I Invest 4 million dollars to earn 120k (inflation adjusted) a year for life?

Post by cjcerny » Wed Apr 11, 2018 6:50 am

Sounds like you should be considering purchasing a simple fixed annuity with some or all of that $4 million.

Chicago60
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Re: How can I Invest 4 million dollars to earn 120k (inflation adjusted) a year for life?

Post by Chicago60 » Wed Apr 11, 2018 7:03 am

livesoft wrote:
Wed Apr 11, 2018 6:27 am
Read this series of articles about how to invest, retire very early, and withdraw your money over 60 years:
https://earlyretirementnow.com/2016/12/ ... t-1-intro/
Great resource. Thanks for posting.

retiredjg
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Re: How can I Invest 4 million dollars to earn 120k (inflation adjusted) a year for life?

Post by retiredjg » Wed Apr 11, 2018 7:20 am

I think most of what you want can likely be done except #6. However, I think you may need to be a little cautious if the amount ends up being $4 million instead of more.

What you may not realize is that the dividends you are taking amount to a withdrawal rate of about 2%. Then add on the 1% to get to your number, maybe 2% in the future. That is a total withdrawal rate of 4% all by itself and I think you may be thinking it is a 2% withdrawal rate.

As you likely know a 4% withdrawal has worked in the past....for up to 30 years. It has not been tested beyond that to my knowledge. And that was the past - we don't know the future will be the same. You need to plan for longer than 30 years and you need to be mindful that 4% may not work for the future.

Also, the 4% "safe" withdrawal rate includes your taxes. You didn't mention taxes so you may be considering 4% before taxes. The taxes which would push your withdrawal rate up nearer 5%. We know a 5% withdrawal rate over 30 years worked sometimes. And sometimes the portfolio failed - ran dry before the 30 years finished running.

I would probably use the basic 3 fund portfolio, or Total Stock Index and Total Bond Index if you do not want foreign stocks. It does not appear that your income will be enough to need tax-exempt bonds. At your current age, maybe 75% stocks/25% bonds and migrating to 60/40 or even 50/50 as you age. I'd aim for a withdrawal rate of no more than 3.5% (including taxes) of the starting amount and adjust that number up for inflation.

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CyclingDuo
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Re: How can I Invest 4 million dollars to earn 120k (inflation adjusted) a year for life?

Post by CyclingDuo » Wed Apr 11, 2018 8:00 am

notcisko wrote:
Wed Apr 11, 2018 12:40 am
Hi guys, I'm new to investing and would really appreciate some feedback on how I can achieve my goals with the least amount of risk possible.

I'm' 37, no debt, will have about 4 million (maybe 5 to 6) to invest within the next year, and emergency cash fund of around 250k to 400k. I do not plan on working anymore, so this will need to provide all my income on a steady basis.


The goals I would like to achieve are:
1: Receive at least 100k to $120k (inflation adjusted) a year for the rest of my life.
2: Not have to sell more than 2% of my investment per year.
3: Have my investment grow by at least 6% a year on average, over my lifetime. (after I draw the 1% to 2%.)
4. Be as hands-off, passive and simple as possible.
5. Be as safe for the long term as possible.
6: Take the smallest tax hit possible in the process.
7. Be somewhat crash proof for the next 5 years.


Of course I am flexible on all parameters, but that is what I would like to reach ideally.

From my limited research it seems like historically, investing all of it in VTSAX would be a good long term solution. The dividends would put me around 80k a year on a 4 million investment, so I would need to draw 1% per year to reach the 120k. In the future to keep up with inflation I could withdraw up to 2%.

However given the current market conditions, I do have real concerns that the market will not continue to perform so well over the next decade. If this is the case, what would be a safer option to reach my goals in the face of a looming market crash and/or decade long downturn and/or excessive inflation?

BTW, John Bogle (among many other top investors) also seems to think we won't see the same growth this next decade... https://www.youtube.com/watch?v=pRhUbkEzCT4


Thanks a bunch for any help, and apologies if I mixed up any terms or made any incorrect statements/assumptions, I am just starting out here.
Plenty of good suggestions thus far for a total return portfolio strategy.

Allow us to toss out a couple more...

How about a hybrid approach? 8-)

$4M is plenty to set up a dividend paying portfolio that produces $100-$120K per year, plus put the rest away in index funds for total return investing. You could currently "buy" a dividend producing portfolio of stocks with a mix of dividend yields and sectors/industries that would throw off $120K a year for $2M for the dividend portion. Sock away the other $2M in an appropriate asset allocation of index funds to target the total return portion of the portfolio to get a typical hybrid portfolio set up. (Or you could probably wait for the bottom of a recession, and pick up a portfolio of growth & income dividend stocks for probably 1/2 the price it currently sells for right now that would do the same at producing annual income for you.)

You could also buy an immediate annuity with COLA for about $2.7M to $2.8M that begins paying immediately to produce $10K per month for life. Put the rest in the appropriate asset allocation index funds for the total return portion of your portfolio.

Or you could buy an annuity or two (or ladder them) that pays you the required monthly income you need for a set amount of time (say 10 years, or 20 years) with a guaranteed payout at the end of the period while your total return portion of the portfolio grows untouched.

Or you could do a hybrid of all three: immediate annuity, portfolio of dividend paying stocks, total return index fund mix. :mrgreen:
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corn18
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Re: How can I Invest 4 million dollars to earn 120k (inflation adjusted) a year for life?

Post by corn18 » Wed Apr 11, 2018 8:10 am

CyclingDuo wrote:
Wed Apr 11, 2018 8:00 am

You could also buy an immediate annuity with COLA for about $2.7M to $2.8M that begins paying immediately to produce $10K per month for life. Put the rest in the appropriate asset allocation index funds for the total return portion of your portfolio.

Or you could do a hybrid of all three: immediate annuity with COLA, portfolio of dividend paying stocks, total return index fund mix. :mrgreen:
A non COLA SPIA starting now with $10,000 / month is about $2.7M. A COLA SPIA (indexed to CPI) starting now for $10,000 is a LOT more expensive (only quote IA had was for $4.7M)

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CyclingDuo
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Re: How can I Invest 4 million dollars to earn 120k (inflation adjusted) a year for life?

Post by CyclingDuo » Wed Apr 11, 2018 8:24 am

corn18 wrote:
Wed Apr 11, 2018 8:10 am
CyclingDuo wrote:
Wed Apr 11, 2018 8:00 am

You could also buy an immediate annuity with COLA for about $2.7M to $2.8M that begins paying immediately to produce $10K per month for life. Put the rest in the appropriate asset allocation index funds for the total return portion of your portfolio.

Or you could do a hybrid of all three: immediate annuity with COLA, portfolio of dividend paying stocks, total return index fund mix. :mrgreen:
A non COLA SPIA starting now with $10,000 / month is about $2.7M. A COLA SPIA (indexed to CPI) starting now for $10,000 is a LOT more expensive (only quote IA had was for $4.7M)
Could be. I just quickly glanced at the Charles Schwab annuity calculator. If the OP ends up with 5 - 6 M, there are plenty of options to utilize in a total return, or a hybrid approach. Even $4M is plenty to work with for the stated goals.
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wrongfunds
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Re: How can I Invest 4 million dollars to earn 120k (inflation adjusted) a year for life?

Post by wrongfunds » Wed Apr 11, 2018 9:26 am

Since this is Boglehead Forum, the best advice you will be getting is to wait for few more years to increase your portfolio.

And when you come back after couple years with couple more millions, you will still get the same advice here.

Sometimes I do wonder if some of the postings on this forum are entered with the aim of proving that BH community has started to become a caricature of itself.

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welderwannabe
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Re: How can I Invest 4 million dollars to earn 120k (inflation adjusted) a year for life?

Post by welderwannabe » Wed Apr 11, 2018 9:35 am

emergency cash fund of $250k-$400k...that outta do it. That would be some emergency.
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dbr
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Re: How can I Invest 4 million dollars to earn 120k (inflation adjusted) a year for life?

Post by dbr » Wed Apr 11, 2018 9:35 am

The general answer is that you can impose a sufficient list of conditions as to cause a significant probability of not meeting some of them to some degree. If you are willing to be flexible then you are going to have to sit down and work out in numbers how flexible you are willing to be about each of the conditions. You have introduced so many variations of conditions that no one here can write you a prescription for what to do. It is too complicated for that.

A starting point is to start looking at financial models for this type of thing such as www.firecalc.com and the many, many similar models that attempt to forecast this sort if thing. A first step in using those models is to appreciate the nature of the inputs that determine the outcome. You may find some of those a little different from your list. A second step is to examine the outputs to understand the nature of the uncertainty that applies to the outputs.

bigred77
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Re: How can I Invest 4 million dollars to earn 120k (inflation adjusted) a year for life?

Post by bigred77 » Wed Apr 11, 2018 9:38 am

You put 1/3 each into the US stocks, International stocks, and US Bonds.

You spend 10k a month. You adjust it every year by the CPI change. You rebalance once a year on your birthday.

You live your life. Your big financial issue isn't going to be will you run out of money, it will be how will you allocate such a huge estate after you die.

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sperry8
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Re: How can I Invest 4 million dollars to earn 120k (inflation adjusted) a year for life?

Post by sperry8 » Wed Apr 11, 2018 9:44 am

notcisko wrote:
Wed Apr 11, 2018 12:40 am
Hi guys, I'm new to investing and would really appreciate some feedback on how I can achieve my goals with the least amount of risk possible.

I'm' 37, no debt, will have about 4 million (maybe 5 to 6) to invest within the next year, and emergency cash fund of around 250k to 400k. I do not plan on working anymore, so this will need to provide all my income on a steady basis.


The goals I would like to achieve are:
1: Receive at least 100k to $120k (inflation adjusted) a year for the rest of my life.
2: Not have to sell more than 2% of my investment per year.
3: Have my investment grow by at least 6% a year on average, over my lifetime. (after I draw the 1% to 2%.)
4. Be as hands-off, passive and simple as possible.
5. Be as safe for the long term as possible.
6: Take the smallest tax hit possible in the process.
7. Be somewhat crash proof for the next 5 years.


Of course I am flexible on all parameters, but that is what I would like to reach ideally.

From my limited research it seems like historically, investing all of it in VTSAX would be a good long term solution. The dividends would put me around 80k a year on a 4 million investment, so I would need to draw 1% per year to reach the 120k. In the future to keep up with inflation I could withdraw up to 2%.

However given the current market conditions, I do have real concerns that the market will not continue to perform so well over the next decade. If this is the case, what would be a safer option to reach my goals in the face of a looming market crash and/or decade long downturn and/or excessive inflation?

BTW, John Bogle (among many other top investors) also seems to think we won't see the same growth this next decade... https://www.youtube.com/watch?v=pRhUbkEzCT4


Thanks a bunch for any help, and apologies if I mixed up any terms or made any incorrect statements/assumptions, I am just starting out here.
Shouldn't be a problem. Bogleheads are a conservative lot. I retired in 2007 at 38 with $5 mil. I spend ~3% annually (similar to what you want to draw) and today my nest egg is still up 40% since 2007 (inclusive of all spend). 70/30 split, equities to cash. And of the 70, 60/40 domestic/int'l.

The 30% cash buffer allows for me to be "crash proof" as per your #7. I actually haven't sold any of my equities. I live "off" the dividends and interest income of the 30% which is easily doable at 3% spend. As long as you are only spending 3% (or less) of your nest egg, you'll be fine imo.
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msk
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Re: How can I Invest 4 million dollars to earn 120k (inflation adjusted) a year for life?

Post by msk » Wed Apr 11, 2018 10:05 am

You can research 300 years (Piketty, Capital in the 21st Century) and come up with Trade and Industry having returned 5+%p.a. real terms. You can backtest 50 years (I did 1966 to 2016) and conclude that a WR of 5% of a 100% stocks portfolio (i.e. withdrawn cash swinging with annual market performance) will last forever and keep up with inflation, on average. You can confirm the same from a Monte Carlo simulation. Again, a 5% WR of a 100% stocks portfolio value will last forever and the annual withdrawals will keep up with inflation. So the question is actually whether your required $120k+inflation will last forever. It's only 3%, so, as long as you do not withdraw more than 5% of your portfolio (100% stocks!) after a severe market fall (say, 40%) you are all set to go. Personally I tell my kids to put it all in VT (vanguard Total World) and never withdraw more than 5% in any year, then they will be fine for the rest of their lives. They each stand to inherit enough that they never need to work, ever. PS you can exceed the 5% if it goes into paying the principal in a home since that "investment" normally also keeps up with inflation.

wolf359
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Re: How can I Invest 4 million dollars to earn 120k (inflation adjusted) a year for life?

Post by wolf359 » Wed Apr 11, 2018 10:08 am

Several questions immediately come to mind:

1) Do you have experience handling this level of wealth? Are you accustomed to investing large amounts in the stock market?
The reason I ask is that the first time you see a 10% drop in the market (as occurred in the last 1-2 months), you will see your portfolio drop by $400,000. This may cause you to panic, sell out, and lock in your losses. If you invest today, and your portfolios is down $400,000 by June, how will you feel?

If this represents a windfall to you, please see https://www.bogleheads.org/wiki/Managing_a_windfall

2) What are your living expenses now? Are you currently spending $120K/year? Is your current income predictable or variable? What are your fixed expenses (mortgage/rent, food, utilities, etc) that you cannot cut? That's the amount that you should aim to cover with guaranteed, reliable income. You can always decide not to go to Europe this year. You can't decide not to pay your mortgage.

If $120K/year is an increase over your current expenses, I'd suggest not increasing to that level yet. Learn how to live off a portfolio, which generally provides variable income. If you can do that, then your portfolio will last forever. The sequence of returns problem comes from drawing large fixed amounts from a portfolio when the returns are low. If you can accept variable returns from a variable portfolio, then the problem goes away. If your dividends/interest cover your core expenses, then you need do nothing further. Live off the dividends/interest in bad years, and ramp up spending to a percentage limit of your portfolio in good years. If dividends/interest don't cover your core living expenses, then convert part of your portfolio to something with predictable income streams. Bonds, rental property, annuities, and other techniques may be used.

If $120K/year is a decrease over your current expenses, then you're going to have a hard time cutting back. The key to living on a portfolio is flexibility. If you're constantly feeling constrained by spending, this will be tough.

3) Is this amount of money pre-tax or post-tax? If you're receiving it as a lump sum, don't forget to set aside sufficient funds to pay the taxes on it. Don't include the money you owe in taxes in the amount that you're investing.

4) You have too many conditions for the money that contradict each other. Adjusting your conditions can make them achievable. Which of the conditions are most important to you? You may have to compromise on some of the others.

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ruralavalon
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Re: How can I Invest 4 million dollars to earn 120k (inflation adjusted) a year for life?

Post by ruralavalon » Wed Apr 11, 2018 10:41 am

Welcome to the forum :) .

I assume you will be investing in a taxable account, rather than a tax-advantaged account like an IRA or 401k. Is that correct?

You could consider Vanguard Tax-Managed Balanced Fund Admiral Shares (VTMFX) ER 0.09%, with a 50/50 asset allocation investing in U.S. stocks and bonds.

You could also consider a three-fund portfolio consisting of:
45%, Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) ER 0.04%;
15%, Vanguard Total International Stock Index Fund Admiral Shares (VTIAX) ER 0.11%; and
40%, Vanguard Intermediate-term Tax-exempt Fund Admiral Shares (VWIUX) ER 0.09%

. . . . .

Do study the wiki article on "managing a windfall". In summary:
1) take your time, there is no rush;
2) do some reading to educate yourself, please see the wiki article "books: recommendations and reviews";
3) beware of anyone (family, friend, neighbor, co-worker, banker, broker, insurance agent, or anyone else) trying to sell you anything (stocks, bonds, mutual funds, ETFs, CDs, insurance, annuity, or any other investing product).

Here is a calculator you can use www.firecalc.com.
Last edited by ruralavalon on Wed Apr 11, 2018 11:15 am, edited 3 times in total.
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wolf359
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Re: How can I Invest 4 million dollars to earn 120k (inflation adjusted) a year for life?

Post by wolf359 » Wed Apr 11, 2018 10:51 am

1: Receive at least 100k to $120k (inflation adjusted) a year for the rest of my life.
2: Not have to sell more than 2% of my investment per year.
3: Have my investment grow by at least 6% a year on average, over my lifetime. (after I draw the 1% to 2%.)
4. Be as hands-off, passive and simple as possible.
5. Be as safe for the long term as possible.
6: Take the smallest tax hit possible in the process.
7. Be somewhat crash proof for the next 5 years.
As a thought exercise, I'd consider the following (CAUTION: FOLLOW THE WINDFALL ADVICE GIVEN PREVIOUSLY BEFORE DOING ANYTHING)

You've already set aside $400K for emergency savings.

Invest $1.6M in real estate properties diversified in multiple LCOL states and cities, using Roofstock and similar vendors to identify the properties. The idea is to use part of your money to generate income that is hands-off, with built-in tenants and property management. If you find properties that return at least 7% return after costs (which should be achievable in real estate), you need sell nothing from the rest of your portfolio. Using real estate for income generation provides predictable income that is inflation adjusted (rents rise with inflation), crash proof (rent isn't tied to stock market), and safe for the long-term (rents are sticky). Taxes are problematic, because all rents are taxed as ordinary income, but should be offset by depreciation of real estate. $1.6M is the amount necessary to generate $100K-120K in income at 7% return. It should be about 8 single family homes at approximately $200K each. This income is relatively safe -- all houses will not be vacant at the same time if you have competent property management. Any time you have real estate, you should also keep a large emergency fund for unexpected expenditures. You're already doing that.

At an older age I'd consider an annuity for that amount. A 65 year old could get a 6-7% return on an annuity. That isn't an option for you.

The remaining $2 million would go into the 3-fund Boglehead portfolio of Total Stock Market, Total International Stock Market, and a bond fund. Your $400K emergency fund may count as part of the bond fund. To reduce taxes, any other bond holdings in the taxable account should be in a municipal bond fund. At this point, the riskiness of the equity portfolio is only limited by your risk tolerance. Since all your income needs are addressed by the rental properties, you can withstand any short-term drops in the market.

You can probably achieve your goals with ONLY a 3-fund Boglehead portfolio, but not with all the conditions you set (unless you start with a larger amount of money.)

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HomerJ
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Re: How can I Invest 4 million dollars to earn 120k (inflation adjusted) a year for life?

Post by HomerJ » Wed Apr 11, 2018 11:07 am

notcisko wrote:
Wed Apr 11, 2018 12:40 am
From my limited research it seems like historically, investing all of it in VTSAX would be a good long term solution. The dividends would put me around 80k a year on a 4 million investment, so I would need to draw 1% per year to reach the 120k. In the future to keep up with inflation I could withdraw up to 2%.
Bonds also pay 2%-3% in dividend, and are more crash-proof than stocks.

Why not go 50/50 stocks/bonds, you'll get close to $100k in dividends, and then sell whichever asset is doing better to get the final 1% withdrawal.

Your idea of getting 6% gains AFTER pulling 3% is quite optimistic. You'd have a chance for long-term returns like that if you went 100% stocks, but then you're going to have to deal with huge up and down swings, and there's a non-zero chance that a bad sequence of returns could bankrupt you.

What I mean by that is if you go 100% stocks, and the market crashes 50% starting tomorrow (and it could), you'd be down a lot, and still pulling money each from your portfolio. If the market took a long time to recover (like during the Great Depression), you could go broke, as you kept pulling money out.

100% stocks has always worked in the long-term if you can just let it sit there during a crash and recover (or even better, add new money as you're working). But 100% stocks and withdrawing can be dangerous.

So again, I'd recommend something more safe like 50/50 stocks/bonds. But then you're going to have to give up on your idea of getting 6% a year gains even after withdrawals.

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Re: How can I Invest 4 million dollars to earn 120k (inflation adjusted) a year for life?

Post by deltaneutral83 » Wed Apr 11, 2018 11:16 am

I'd go 3F with a 60/40 split and fill up tax advantaged accounts with the bonds. Figure out your Intl AA in the "60" of the 60/40 and rebalance once a year. If you have no tax advantaged accounts I'd just put it all in the Moderate Balanced fund which is 60/40 with I think Intl. being 35-40% of the equities allocation, simple and it re balances automatically. Withdraw $120k a year or $30k quarterly or whatever and adjust for inflation. Can up to 70/30 or downsize to 50/50. Bear market and how you react will likely determine that but 60/40 gives you tremendous protection as opposed to 100/0. I also don't see many posts asking for the follow up on the "maybe 5 to 6" part. That plays a role as well. You will also get bored and likely generate some income from somewhere if you earned this kind of money at this age. Congrats

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Re: How can I Invest 4 million dollars to earn 120k (inflation adjusted) a year for life?

Post by gmaynardkrebs » Wed Apr 11, 2018 12:24 pm

You are kind of on the edge of "having it made." I'd say losing half your money will hurt you more than doubling it will help you. So, I'd be very conservative -- you are so close winning the game.

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Re: How can I Invest 4 million dollars to earn 120k (inflation adjusted) a year for life?

Post by wrongfunds » Wed Apr 11, 2018 1:09 pm

What I mean by that is if you go 100% stocks, and the market crashes 50% starting tomorrow (and it could), you'd be down a lot, and still pulling money each from your portfolio. If the market took a long time to recover (like during the Great Depression), you could go broke, as you kept pulling money out.
Can you show the math on how one goes bankrupt with $4M in stocks and taking $120K every year? I would at least like to know what scenario do you have in mind.

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Re: How can I Invest 4 million dollars to earn 120k (inflation adjusted) a year for life?

Post by GibsonL6s » Wed Apr 11, 2018 1:26 pm

Simple divide 4,000,000 by 120,000 you get 33.33 years. So if the portfolio earned a net zero return over 33.33 years you run out of money. Earn a negative return of 10% and the money is gone in 30 years. Who know the future?

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Re: How can I Invest 4 million dollars to earn 120k (inflation adjusted) a year for life?

Post by Da5id » Wed Apr 11, 2018 1:32 pm

I'm wondering if OP will ever appear again. Seems like one of a decent number of first posts that are vaguely like this? OP you there? Is your question answered?

As people said above, some of your points are in conflict. You want safe, crash proof ~8% (real?) return. Hmm.

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Re: How can I Invest 4 million dollars to earn 120k (inflation adjusted) a year for life?

Post by wrongfunds » Wed Apr 11, 2018 2:21 pm

GibsonL6s wrote:
Wed Apr 11, 2018 1:26 pm
Simple divide 4,000,000 by 120,000 you get 33.33 years. So if the portfolio earned a net zero return over 33.33 years you run out of money. Earn a negative return of 10% and the money is gone in 30 years. Who know the future?
Is there a number which will give a full "guarantee"? For example, if instead of $4M it is $8M starting and the same $120K per year draw? What is the amount which will NOT bankrupt him? At which point you will say "hey, this is unrealistic scenario! there is no need to bring that in to discussion" ?

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Re: How can I Invest 4 million dollars to earn 120k (inflation adjusted) a year for life?

Post by ThriftyPhD » Wed Apr 11, 2018 2:25 pm

wrongfunds wrote:
Wed Apr 11, 2018 9:26 am
Since this is Boglehead Forum, the best advice you will be getting is to wait for few more years to increase your portfolio.

And when you come back after couple years with couple more millions, you will still get the same advice here.

Sometimes I do wonder if some of the postings on this forum are entered with the aim of proving that BH community has started to become a caricature of itself.
Take a look at the OP's list of goals. It's not just $120k off of $4 million. That's a 3% withdrawal rate, and very conservative even around here.

The OP has a list of goals that in addition to the 3% SWR. They also want the fund to grow at least 6% year over year, after withdrawing the 3%. That's 9% growth, so you're looking at a pretty equity heavy portfolio. Then goal 7 is: "Be somewhat crash proof for the next 5 years." An equity heavy portfolio isn't going to be crash proof for the next 5 years.

The wording in the OP also is a bit unclear. Is the $120k dividends only, and they want to sell 1-2% on top of that? Goals 1-3 make me suspect that there is a mix of dividend/capital sale differentiation taking place in the OP's mind, rather than just considering total return. Later in the post it sounds more like a 3% withdrawal now, 4% later. Depending when that 4% later happens, it could cause problems.

If the plan is $120k in dividends AND sell 1-2%, then you're at a 4-5% withdrawal rate and that does fail over time, especially with the 60 year window.

On top of that, you have the general concern of someone coming into a bolus of cash. Maybe selling a business, maybe an inheritance, but regardless it doesn't sound like the OP is used to handling an investment of this size. Jumping right into retirement at 37 might be a bit brash. Does the 120k cover the OP now while on employer health insurance, or is that factoring in buying on the open market? If the OP goes 100% VTSAX as planned, how will they handle a loss of $2 million in a 50% drop? Would they sell the rest and run to savings accounts and gold? Remember, they wouldn't be working at this time, so it's a lot more skin in the game.

All that said, I think the OP should be fine taking $120k out of their $4 million portfolio, a 3% SWR is very conservative even for 60 years. Just make sure that $120k covers the expenses of the lifestyle the OP wants to live.

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Re: How can I Invest 4 million dollars to earn 120k (inflation adjusted) a year for life?

Post by eye.surgeon » Wed Apr 11, 2018 2:57 pm

Your emergency fund is too large. Target 1 year expenses and even that is probably too much given your net worth.
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Re: How can I Invest 4 million dollars to earn 120k (inflation adjusted) a year for life?

Post by inbox788 » Wed Apr 11, 2018 5:18 pm

notcisko wrote:
Wed Apr 11, 2018 12:40 am
The goals I would like to achieve are:
1: Receive at least 100k to $120k (inflation adjusted) a year for the rest of my life.
2: Not have to sell more than 2% of my investment per year.
3: Have my investment grow by at least 6% a year on average, over my lifetime. (after I draw the 1% to 2%.)
4. Be as hands-off, passive and simple as possible.
5. Be as safe for the long term as possible.
6: Take the smallest tax hit possible in the process.
7. Be somewhat crash proof for the next 5 years.
You can achieve any one of the goals with some risk of failure, but some just can't be guaranteed or require higher risk. The one that jumps out is 3) which is pretty much asking for 7-8% returns over your lifetime, which is possible but unrealistic. And aiming for all of them will be challenging if you're looking for a guarantee. You've got to choose risk or reward balance.
1) 120k on 4M is 3% which is around where the 30 year treasury rate is.
2) You don't have to sell any, but then you don't spend much either.
3) You can hope for this result, but probably 50/50 if we actually achieve this, and there will be ups and downs.
4/5/6) BH strategy is nearly synonymous with these ideas
7) This runs counter to any meaningful return. Only way to achieve this is to limit your risk and that in turn impacts your return. No free lunch.

Ditto on the emergency fund. If you're FIRE, why do you need an emergency fund?

viewtopic.php?t=219060

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Re: How can I Invest 4 million dollars to earn 120k (inflation adjusted) a year for life?

Post by 22twain » Wed Apr 11, 2018 6:00 pm

notcisko wrote:
Wed Apr 11, 2018 12:40 am
However given the current market conditions, I do have real concerns that the market will not continue to perform so well over the next decade.
Why just the next decade, when you have possibly 50 to 60 years ahead of you?

I see someone has already mentioned Firecalc. I second the suggestion that you play with it a bit. Keep in mind that its predictions of possible future portfolio size are in today's dollars, so you need to subtract an estimate of the future average inflation rate from your desired 6% per year gain.

People have often debated future inflation here, but a typical long-term planning value is 3%, if I remember correctly. That gives a gain of 6 - 3 = 3% per year, in today's dollars. Projected over 60 years, that gives a portfolio value of 5.89 times today's value. What do you plan to do with $23.5 million (in today's dollars) when you die?
My investing princiPLEs do not include absolutely preserving princiPAL.

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Re: How can I Invest 4 million dollars to earn 120k (inflation adjusted) a year for life?

Post by livesoft » Wed Apr 11, 2018 6:14 pm

Da5id wrote:
Wed Apr 11, 2018 1:32 pm
I'm wondering if OP will ever appear again. Seems like one of a decent number of first posts that are vaguely like this? OP you there? Is your question answered?
I'm not wondering. I think the OP is off reading the Early Retirement Now link that I gave them. :beer
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Re: How can I Invest 4 million dollars to earn 120k (inflation adjusted) a year for life?

Post by HomerJ » Thu Apr 12, 2018 12:30 am

wrongfunds wrote:
Wed Apr 11, 2018 1:09 pm
What I mean by that is if you go 100% stocks, and the market crashes 50% starting tomorrow (and it could), you'd be down a lot, and still pulling money each from your portfolio. If the market took a long time to recover (like during the Great Depression), you could go broke, as you kept pulling money out.
Can you show the math on how one goes bankrupt with $4M in stocks and taking $120K every year? I would at least like to know what scenario do you have in mind.
3% is almost certainly golden (although the OP might need nerves of steel - 50% drops where you lose millions has to be hard on anyone).

Anyway, I was thinking 4% withdrawals. 100% stocks pulling 4% would indeed have left you bankrupt during the Great Depression.

3% would have worked (but again, there would have been a couple of years there, where NOT knowing the future, anyone would have some serious heartburn)

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Re: How can I Invest 4 million dollars to earn 120k (inflation adjusted) a year for life?

Post by AlohaJoe » Thu Apr 12, 2018 12:50 am

bigred77 wrote:
Wed Apr 11, 2018 9:38 am
You put 1/3 each into the US stocks, International stocks, and US Bonds.
The OP said he wants 8+% annual growth. This portfolio won't do that.

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Re: How can I Invest 4 million dollars to earn 120k (inflation adjusted) a year for life?

Post by notcisko » Thu Apr 12, 2018 4:04 am

Wow, to say I am blown-away by the support here would be an understatement. Thank you guys so much for all the advice, it's greatly appreciated!

Little overwhelmed by the response to be honest. I had to re-read everything a few times to better understand what is being said since this is all still new to me and every question I read causes me to have to pause and think.

But I already feel like I have a much clearer picture now, and from the response it's clear I need to offer more clarity on my goals and situation, and adjust some of my expectations.

Apologies in advance if anything is unclear or I used incorrect terminology.


- I am pretty flexible. I came up with the goals I listed in the OP based on what I imagined to be reasonable based on my limited research. Not because I expect them to all be met.
- The 100k-120k I would like is post-tax. But 100k after taxes (even 80k if I had to) could suffice. I can survive off less in "hard times" as my monthly expenses are less than $5000/m However, predictable 80k to 100k post tax is at the top of the list for me.
- The 6% in #3 is not a must. Mainly, I want to beat inflation, so that my 4 million is still worth 4 million when I die.
- I already have the funds to pay for a house in cash, and plan to do so, simply for peace of mind and to avoid having increased monthly debt obligations.
- I misspoke when I said I don't plan on working anymore. I don't want to have to work anymore if I don't want, and I don't want to depend on work to survive. I am actually starting a new business, but am not sure how long that will take to generate decent income.
- The ups and downs of the markets won't faze me. I have been through routine 50% (and worse) "losses" for the last 4 years. Holding during the volatility is why I have a decent stash now. Yes, cryptocurrencies.
- We won't need to pay taxes on the 4 million. They are technically my wife's assets and she has never stepped foot on American soil. She will cash out into USD to her foreign bank before applying for a green card.
- I literally started researching this stuff a few weeks ago, with the hopes that I will be ready before the end of the year. Things like "CPA (for taxes)? investment manager? financial planner? " have never even crossed my mind yet. It's clear from reading all the post here that I have a lot to learn before I do anything.
- That said, I am aiming to keep everything as simple, safe and easy as possible. Even if that means slightly less profit each year.
- I want to enjoy these next 5 to 7 years to the fullest. So rather not be 100% in on stocks at this moment, considering I expect a prolonged down-market soon.
- A hybrid 50/50 bond/stocks approach that could provide me 100k-120k post-tax in dividends predictably (the key word here) for the next 5-7 years, while only needing to invest 2mm or less would be ideal. The other 2mm could go towards stocks. Not clear what the consequences of a hybrid approach are though....




@simas your comment regarding asset allocation and risk tolerance helped me get a much clearer picture. Thanks! I had to read it a few times but now I think I get the framework we are working with.

@Grt2bOutdoors What is considered short to mid-term? Thanks for the suggestion regarding T-bills, will look into it.

@corn18 I could probably make it 6 million. But to get there might take another year or two, maybe longer and maybe not at all. Would rather plan for 4, take less income monthly and add to the position later if possible. Thanks for the advice though.

@livesoft Thanks! Looks like exactly what I need. To the top the top of my reading list!

@Tamarind I have no other money in tax-advantaged accounts. Just a little over 1 million cash in hand that we will use for a home, car, and some towards the emergency cash fund. Please see my note above regarding receiving the lump sum, and work. Regarding "future growth is based on total return", this clarifies my misconception that there was a difference between taking dividends and selling shares. So to clarify, the average returns we see advertised on these index funds includes the dividends right? Thanks for the portfolio recommendation, will look into this for sure. The 120k I was hoping post-tax. However, 100k post tax would suffice. Like I said, I live off way less, I just would like a higher standard than I have now. Without going into debt.

@cjcerny Thanks, will look into that. Any recommendations?

@retiredjg Regarding the total withdraw rate, I just realized this, thanks for clarifying. "As you likely know a 4% withdrawal has worked in the past....for up to 30 years." Does this mean the money is exhausted after 30 years? I thought the average return we can expect was something like 8%. If I am withdrawing only 4% how could I ever have less than what I started with? I must be missing something. Inflation will be around 4% or less on average right. So if I want the same purchasing power I need to withdraw 4% or less and that should last forever right? Regarding withdraw of 3.5%. Just 3% would put me at 120k pre-tax. After taxes I could live fine off the rest. If I went with 3% withdraw would that last for life, assuming I wanted around 100k after taxes inflation adjusted?

@CyclingDuo Thanks for the hybrid approach! the idea of having half in a dividend paying portfolio is appealing to me. I definitely need to research this more. Is there any downside regarding complexities or risk? I also like the idea of buying at the bottom of a recession, but I have no clue when it will be. I do feel within the next 5 years though.... hopefully by then I have extra cash to invest. Regarding the "immediate annuity" and "annuity" any downsides I should be aware of? Why do that over a dividend paying portfolio? "Or you could do a hybrid of all three" ::head spinning:: lol Thanks again, you have gave me a lot to think about.

@dbr Definitely flexible. I just don't know the parameters I can tweak, or the results, since I am a newbie at all of this. Hopefully the info above clarifies my position and goals. Thanks for the info and for the link, I will take time to figure that out.

@bigred77 Thank you! Felt good reading your post, haha. I like a simple approach and will add it to the list if possible solutions I need to research further. Cheers!

@sperry8 "Shouldn't be a problem. Bogleheads are a conservative lot." Kind of figured, that's good with me! Your situation sounds similar to mine, would love to hear more specific allocations if you don't mind. : ) Withdrawing 3% or less should not be a problem. I live off way less, just want to enjoy more luxuries if I can, without increasing my debt burden. So I basically just want to buy what I can afford in cash, and have my monthly bills be as small as possible.

@msk Thanks. I plan to withdraw around 3%, so I guess the fear I have is that 100% stock portfolio will have lots of volatility soon. I believe we are due for a market crash/recession. If I continue to withdraw 3% during a worst-case scenario of a 10 year recession, starting right after I invest during the high, what would be the consequence? If I can sustain myself on guaranteed dividends for 1-5 years then transition into more stocks when they are down, wouldn't that be best?

@wolf359 1-Yes, 10% drop is no problem for me to see, dealt with much worse. Please see the comment above. 2-Living expenses are less than 5k a month. I will have no expenses except for food, currently rent, utilities, gasoline, tax, travel, etc. I plan to buy my house outright with the money I have now. Current income is variable, and currently zero. Please see my note above. Great advise about living on variable income. That is doable. I like the idea of having a portion in "predictable income streams" If 80k after taxes was guaranteed a year and the rest depended on the market, I would be happy with that. I don't plan to draw when returns are low, that would be way too painful for me. Rather get a job at that point. I guess the only issue I have is that I expect a down market within 5 years that could last 10 in a worst case scenario. Would the dividends/interest also decrease by the same factor of the depreciating stock price? 3- It's post-tax, can see my message above. 4- That's no problem. I had to start somewhere, so I just wrote what I thought might be reasonable. Most important is have my funds support me for life, with a high standard of living, and don't depreciate. For me that's between 80k and 120k IA. The extra money is not for obligations, but for travel, cars, toys etc. I am 37 now and want the next 5 to 7 years to me my most enjoyable and stress free. So I am concerned with short term volatility and would like predicted stability for the next 5 to 7 years. Thank you so much for the detailed reply, the picture is clearer now.

@ruralavalon Yes it will be a taxable account. I will look into VTMFX and the three-fund portfolio. Thanks for the tips. Fully plan to do the proper research first. That's why I am here like a year early.

@wolf359 "Using real estate for income generation provides predictable income that is inflation adjusted" This sounds ideal, and I like the hybrid approach, however, would owning real estate via Roofstock be a lot of more work? What are the downsides? BTW, the 250k to 400k fund will be separate from the 4mm. Thanks for the advice on the "3-fund Boglehead portfolio of Total Stock Market"

@HomerJ Thanks, I didn't know where to start, so just said what I thought might be reasonable. Seems I am off. But actually, the fund growing by 6% is not my biggest concern. Main concern is I beat inflation and earn between 80k and 120k annually. What is the downside to bonds, and how would they act in a down market?

@deltaneutral83 Thank you. I do plan to generate more income, just have no clue when that will be, and rather not have to depend on it in the short term. The more I read here the more I realize 100% bonds is not for me right now. Next step is to research the downsides/risk/dynamics of bonds.

@gmaynardkrebs haha, thanks. Yeah, I am going to be super conservative, no way am I messing this up. Learned a lot just today.

@Da5id of course! Just had to read everything a few times and let it all sink in. It's an information overload right now, and I am just trying to process it all. I've been processing this all and typing away for the last 4 hours, lol

@ThriftyPhD Thanks. 120k is actually more than enough. That's why I set it as my goal. Please see my above post for clarification regarding your other comments.

@eye.surgeon Thanks, I set that because I want to have cash on hand for a prolonged bear market (5-10 years), as well as family emergency, and also the ability to buy stocks if the market cashes, etc etc. Still too much you think? Should I park the cash elsewhere?

@inbox788 Thanks. The treasury rate is 3%, but then I would lose to inflation right? I will look into the info on the emergency fund. I honestly never researched it, just figured it would be safe to have. Can see my comment above this for the reasoning. But I still need to check the link you sent me.

@2twain Because I want to enjoy the next decade or so to the fullest and not worry about drawing on a down portfolio. Wow, I didn't do the math, lol. So yeah, the 6% seems like I am asking for a bit much. Perfectly happy with beating inflation and then getting some on top. Not greedy, just want to live well and pass my savings on.

@livesoft Not yet, but will get on that tonight, I need to go for a run, been reading/writing for the last 4.5 hours.....

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Re: How can I Invest 4 million dollars to earn 120k (inflation adjusted) a year for life?

Post by chessknt » Thu Apr 12, 2018 4:18 am

Might want to make sure your tax plan in terms of cashing out on foreign soil is legal--the USA taxes income generated in other countries as long as you are a citizen and the irs will definitely notice that amount of money and if you are other married it might be considered joint property and thus subject to our laws.

One thing that has not been mentioned is healthcare. I don't know what you pay now, but if you both plan to be living in the US and not getting benefits through an employer this could be over 2k/month and significantly impact your budget.

Your prediction of a market down turn and adjusting your aa in response is still market timing. People thought the same thing in 2013 and 2016 after trump won and look where we ended up going. You could be wrong too. This is the wrong forum/ideology to discuss timing and goes against your own professed desire to have things be hands off.

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Re: How can I Invest 4 million dollars to earn 120k (inflation adjusted) a year for life?

Post by Toons » Thu Apr 12, 2018 5:20 am

Vanguard Balanced Index Fund. :happy
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Re: How can I Invest 4 million dollars to earn 120k (inflation adjusted) a year for life?

Post by F150HD » Thu Apr 12, 2018 5:50 am

I'm' 37...I do not plan on working anymore
just out of curiosity, what will you do with your time if you're not working?

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Re: How can I Invest 4 million dollars to earn 120k (inflation adjusted) a year for life?

Post by notcisko » Thu Apr 12, 2018 6:30 am

chessknt wrote:
Thu Apr 12, 2018 4:18 am
Might want to make sure your tax plan in terms of cashing out on foreign soil is legal--the USA taxes income generated in other countries as long as you are a citizen and the irs will definitely notice that amount of money and if you are other married it might be considered joint property and thus subject to our laws.

One thing that has not been mentioned is healthcare. I don't know what you pay now, but if you both plan to be living in the US and not getting benefits through an employer this could be over 2k/month and significantly impact your budget.

Your prediction of a market down turn and adjusting your aa in response is still market timing. People thought the same thing in 2013 and 2016 after trump won and look where we ended up going. You could be wrong too. This is the wrong forum/ideology to discuss timing and goes against your own professed desire to have things be hands off.

Thanks for the reply. The assets are owned by my wife and she is not American, nor can be considered a USA resident of any kind. So no tax burden on the gains unless she becomes a resident first then cashes out.

Thanks for the info about healthcare. Never considered it really, but 2k is a bit much imho. Not sure if I will go for that since we live a pretty healthy and active lifestyle. Will need to look into my options here.

I know market timing is a fools game. But this time is different. haha, j/k of course. But I do want to act accordingly for the coming 5 years and if I miss it that's fine too. At least i tried. After that I would just let it rise, trying my best not to draw more than necessary.

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Re: How can I Invest 4 million dollars to earn 120k (inflation adjusted) a year for life?

Post by notcisko » Thu Apr 12, 2018 6:33 am

F150HD wrote:
Thu Apr 12, 2018 5:50 am
I'm' 37...I do not plan on working anymore
just out of curiosity, what will you do with your time if you're not working?
Like to travel a lot, race cars, eat good food. In general I like to have nice things (laptop, clothes, phone etc) I also enjoy donating money when I can.

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Re: How can I Invest 4 million dollars to earn 120k (inflation adjusted) a year for life?

Post by notcisko » Thu Apr 12, 2018 6:33 am

Toons wrote:
Thu Apr 12, 2018 5:20 am
Vanguard Balanced Index Fund. :happy
Thanks, added to my research list!

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Re: How can I Invest 4 million dollars to earn 120k (inflation adjusted) a year for life?

Post by BuckyBadger » Thu Apr 12, 2018 7:19 am

wrongfunds wrote:
Wed Apr 11, 2018 9:26 am
Since this is Boglehead Forum, the best advice you will be getting is to wait for few more years to increase your portfolio.

And when you come back after couple years with couple more millions, you will still get the same advice here.

Sometimes I do wonder if some of the postings on this forum are entered with the aim of proving that BH community has started to become a caricature of itself.
This is unfair and i wonder if you read the previous replies? The OP isn't just asking to retire. He's asking for a long list of very large goals. People are tl suggesting to him which of those goals he can accomplish with that money.

No one is saying it's not a lot of money, just that if you have 4 million you can't spend 5 million. No different that knocking off two zeroes and asking the exact same thing in percentages.

I know you feel about this board, but surely you see that the OP wants to do a number of conflicting things with his money.

As i think was mentioned in your thread, if you don't like reading about advice for people who have millions of dollars, then maybe don't read the threads about people with millions of dollars.

I certainly don't have 4 million dollars, but I'm finding this advice very interesting.

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Re: How can I Invest 4 million dollars to earn 120k (inflation adjusted) a year for life?

Post by chessknt » Thu Apr 12, 2018 7:42 am

notcisko wrote:
Thu Apr 12, 2018 6:30 am
chessknt wrote:
Thu Apr 12, 2018 4:18 am
Might want to make sure your tax plan in terms of cashing out on foreign soil is legal--the USA taxes income generated in other countries as long as you are a citizen and the irs will definitely notice that amount of money and if you are other married it might be considered joint property and thus subject to our laws.

One thing that has not been mentioned is healthcare. I don't know what you pay now, but if you both plan to be living in the US and not getting benefits through an employer this could be over 2k/month and significantly impact your budget.

Your prediction of a market down turn and adjusting your aa in response is still market timing. People thought the same thing in 2013 and 2016 after trump won and look where we ended up going. You could be wrong too. This is the wrong forum/ideology to discuss timing and goes against your own professed desire to have things be hands off.

Thanks for the reply. The assets are owned by my wife and she is not American, nor can be considered a USA resident of any kind. So no tax burden on the gains unless she becomes a resident first then cashes out.

Thanks for the info about healthcare. Never considered it really, but 2k is a bit much imho. Not sure if I will go for that since we live a pretty healthy and active lifestyle. Will need to look into my options here.

I know market timing is a fools game. But this time is different. haha, j/k of course. But I do want to act accordingly for the coming 5 years and if I miss it that's fine too. At least i tried. After that I would just let it rise, trying my best not to draw more than necessary.
It is dangerous to go without healthcare insurance. A car accident or lymphoma could set you back 6 figures or more. If you had an 8 figure net worth you could probably safely insure against medical disaster but 4m is nowhere near enough in the USA.

livesoft
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Re: How can I Invest 4 million dollars to earn 120k (inflation adjusted) a year for life?

Post by livesoft » Thu Apr 12, 2018 8:22 am

chessknt wrote:
Thu Apr 12, 2018 7:42 am
It is dangerous to go without healthcare insurance.
Quite a lot of people don't think so, but that's politics, so we cannot discuss it.
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HomerJ
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Re: How can I Invest 4 million dollars to earn 120k (inflation adjusted) a year for life?

Post by HomerJ » Thu Apr 12, 2018 8:45 am

AlohaJoe wrote:
Thu Apr 12, 2018 12:50 am
bigred77 wrote:
Wed Apr 11, 2018 9:38 am
You put 1/3 each into the US stocks, International stocks, and US Bonds.
The OP said he wants 8+% annual growth. This portfolio won't do that.
The OP said he wants "somewhat crash-proof for the next 5 years". 100% stocks won't do that either.

notcisko
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Re: How can I Invest 4 million dollars to earn 120k (inflation adjusted) a year for life?

Post by notcisko » Thu Apr 12, 2018 8:55 am

@ chessknt You are right. I will have to look into this and see what I come up with. However, because my home will be paid for in full, vs renting now, I will actually still be able to maintain the current lifestyle with health insurance for about 5k. The extra over that will be for living it up a little more, and/or stashing/reinvesting the rest.

wolf359
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Re: How can I Invest 4 million dollars to earn 120k (inflation adjusted) a year for life?

Post by wolf359 » Thu Apr 12, 2018 9:08 am

notcisko wrote:
Thu Apr 12, 2018 4:04 am
- The 100k-120k I would like is post-tax. But 100k after taxes (even 80k if I had to) could suffice. I can survive off less in "hard times" as my monthly expenses are less than $5000/m However, predictable 80k to 100k post tax is at the top of the list for me.

- I already have the funds to pay for a house in cash, and plan to do so, simply for peace of mind and to avoid having increased monthly debt obligations.
Once you pay for the house in cash, your monthly expenses should drop because more of your housing expenses would be covered. Don't forget to still account for property taxes, maintenance, and homeowner's insurance.

If you identify your core expenses, you can do things to make sure you have that amount covered for life. There are costs involved -- making income predictable involves fees, loss of control, and/or loss of growth. Typically you would do it only for the minimal acceptable lifestyle, as a failsafe. Techniques include annuities (SPIAs), long-term bonds, real estate, or real estate notes.

- I misspoke when I said I don't plan on working anymore. I don't want to have to work anymore if I don't want, and I don't want to depend on work to survive. I am actually starting a new business, but am not sure how long that will take to generate decent income.
- That said, I am aiming to keep everything as simple, safe and easy as possible. Even if that means slightly less profit each year.
- I want to enjoy these next 5 to 7 years to the fullest. So rather not be 100% in on stocks at this moment, considering I expect a prolonged down-market soon.
- A hybrid 50/50 bond/stocks approach that could provide me 100k-120k post-tax in dividends predictably (the key word here) for the next 5-7 years, while only needing to invest 2mm or less would be ideal. The other 2mm could go towards stocks. Not clear what the consequences of a hybrid approach are though....
Putting the entire amount into 50/50 stocks/bonds until your business takes off is not a bad idea. The dividends/interest alone should generate about $80,000 (or 2% of the amount). If the market drops by 50%, your overall portfolio would only drop by 25%. More typical 20% bear markets would be reduced to 10% drops.

The cost of doing this is lower returns. Returns in accumulation mode in the stock market are a combination of dividends/interest and capital gains. You would be withdrawing and literally eating all the dividends/interest, and you limit the capital gains by having such a high bond allocation. It works to keep your portfolio stable over the next 5-7 years, and would even make it last for more than 30. The original withdrawal rate study by William Bengen backtested a 50/50 stock/bond allocation over 30 years, with a 4% safe withdrawal rate. You're proposing 50/50 but with a 3% SWR.

The catch -- Bengen's study allowed for the portfolio to be depleted at the end. You want it to be run on the pension model, where the portfolio is perpetual and preserved.

However, what if you only did it for 5-7 years, then as you start living off your business income, you gradually increase your equity allocation? You stop withdrawing from the portfolio, using it only to stabilize your income during the launch phase.

For that matter, you could make the math even simpler. If you want $100,000 of income for 5 years, the cost is $500,000 ($100K times 5). Put it in a CD ladder so that $100K becomes available each year for five years. It sounds like you might have that amount without even touching the $4 million. In any case, invest the rest for growth, using a reasonable asset allocation. You then have a 5 year runway for the business. Meanwhile, you have a safe, predictable income for that time period. Revisit the portfolio in 5 years if you still need to live off it -- in the meantime, the whole thing grows undisturbed (dividends, capital gains, etc.). The 3-fund portfolio works well in that case.

@Tamarind So to clarify, the average returns we see advertised on these index funds includes the dividends right? Thanks for the portfolio recommendation, will look into this for sure. The 120k I was hoping post-tax. However, 100k post tax would suffice. Like I said, I live off way less, I just would like a higher standard than I have now. Without going into debt.
This line disturbed me. Index funds aren't advertised, and don't guarantee anything. All they actually provide are market returns, minus costs. This sounds technical and nitpicky, but isn't. If the market went up 25%, the index fund tracking that index goes up 25% (minus the expense ratio.) If the market goes down 25%, the index fund also drops 25%. That's all they're designed to do. (But yes, that market return is the total return of capital gains and dividends.)

The stock market itself has had an average return of 8% over the long term, but you cannot eat an average. The index fund might not even give you 8% in any given year. The distinction is unimportant in accumulation mode, but is critical when you're living off the portfolio. If the S&P 500 index fund throws off 2% dividends one year, but drops 20%, and you withdraw from it, you're going to be withdrawing from the principal. If the market is down for 3 years in a row, you will withdraw more and more from principal. In an extended bear market, insisting on withdrawing a fixed amount year after year will deplete the portfolio. This is called "the sequence of returns" risk. Google it for more detail. The SWR is smaller than the average returns to avoid this sequence of returns risk, but there are no guarantees.

@retiredjg Regarding the total withdraw rate, I just realized this, thanks for clarifying. "As you likely know a 4% withdrawal has worked in the past....for up to 30 years." Does this mean the money is exhausted after 30 years? I thought the average return we can expect was something like 8%. If I am withdrawing only 4% how could I ever have less than what I started with? I must be missing something. Inflation will be around 4% or less on average right. So if I want the same purchasing power I need to withdraw 4% or less and that should last forever right? Regarding withdraw of 3.5%. Just 3% would put me at 120k pre-tax. After taxes I could live fine off the rest. If I went with 3% withdraw would that last for life, assuming I wanted around 100k after taxes inflation adjusted?
You're starting to see some of the contradictions in the goals.

You can withdraw a predictable amount for a lifetime, but it will draw down the portfolio. You could actually withdraw a set percentage every year, say 3%, and recalculate it every year. In that case, you would NEVER deplete the portfolio. But your income would be variable. This year, 3% of $4 million is $120,000. Next year, if the market has dropped 15%, your portfolio is now $3,400,000, and you only get to pull out $102,000. The next year, if it drops another 15%, you're now down to $2,890,000, and your withdrawal of 3% yields you $86,700. In good years, you get a higher income, in bad years, less. In really bad years you might get approach income that only covers your core expenses ($60,000). You could probably do that forever, given that your core expenses are less than half your target, and you have a large emergency fund in case the income drops below the level necessary to support your minimum living standard. (But keep in mind that we would have to be facing an economic disaster worse than the Great Depression at that point. During the Great Depression, stocks didn't recover for 20 years.)

cjcerny
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Re: How can I Invest 4 million dollars to earn 120k (inflation adjusted) a year for life?

Post by cjcerny » Thu Apr 12, 2018 9:15 am

notcisko wrote:
Thu Apr 12, 2018 4:04 am

@cjcerny Thanks, will look into that. Any recommendations?
A SPIA (single premium immediate annuity) is a simple insurance contract. You give an insurance company as much money as you want to and they, in turn, pay you a guaranteed monthly amount for as long as you live based on their calculations about your lifespan. Think of it as a do it yourself pension. Plenty of info available on the interwebz. Be sure to shop around and make sure the costs are as low as possible if you want to purchase one. Consider maybe purchasing a SPIA with some of your money and investing the rest of it in low cost stock and bond index funds to get the best of both worlds.

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