Retiring in early 2019.

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Streamer
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Retiring in early 2019.

Post by Streamer » Mon May 21, 2018 6:01 pm

Retiring 1Q2019. Right now I'm all in cash 1.2Mil with brokered CDs and various bank accounts. 200K in 401k Target fund. Needing around $3200/month in addition to SS age 61 (widow) and small pension. Suggestions on how to achieve what I need and not draw down and run out.
Thanks all. I enjoy this forum.
Last edited by Streamer on Mon May 21, 2018 7:08 pm, edited 1 time in total.

trueblueky
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Re: Retiring in early 2019.

Post by trueblueky » Mon May 21, 2018 7:08 pm

Streamer wrote:
Mon May 21, 2018 6:01 pm
Retiring 1Q2019. Right now I'm all in cash 1.2M with brokered CDs and various bank accounts. 200K in 401k Target fund. Needing around $3200/month in addition to SS age 61 (widow) and small pension. Suggestions on how to achieve what I need and not draw down and run out.
Thanks all. I enjoy this forum.
1.4M times 4% = $4667 per month
Alternatively, $3200/month = 2.75% of $1.4M

You're safe as far as not running out, barring hyperinflation, but you will need to draw down. Increasing the percent in stocks should increase your total return and make your portfolio even safer from running out.

You seem conservative. Maybe a 40/60 stock/bond ratio would be good. It's ok to have the "bond" portion in CDs.

delamer
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Re: Retiring in early 2019.

Post by delamer » Mon May 21, 2018 7:25 pm

A 4% withdrawal rate from your initial portfolio (adjusted for inflation each year) makes it highly unlikely that you will spend down your portfolio.

However, that requires a minimum 30% allocation to stocks which you currently do not have. Also, you need to take into account federal/state income taxes on any withdrawals/earnings so that you net what you want to spend. The taxes will vary depending on whether you have tax-advantaged or taxable accounts.

So the best recommendations are to 1) up your stock allocation and 2) estimate your taxes.

For stocks, you could make it really simple and use an S&P 500 ETF. If you want to add smaller caps and/or international stocks, check out the “lazy portfolio” section in the Boglehead wiki for recommendations.

Streamer
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Re: Retiring in early 2019.

Post by Streamer » Mon May 21, 2018 7:38 pm

Thanks trueblueky.
Yes conservative. I dont have years on my side to recover stock market losses at this point in my life. I was planning on doubling my stock market exposure from 200k to 400k when I transfer my 401k to Fidelity.
The part about CDs vs Bonds I was questioning myself on. When interest rates eventually decline would I shift over to real bonds? Or something else. I plan on self managing my investments as long as I am able.

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amp
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Re: Retiring in early 2019.

Post by amp » Mon May 21, 2018 10:43 pm

Streamer wrote:
Mon May 21, 2018 7:38 pm
Thanks trueblueky.
Yes conservative. I dont have years on my side to recover stock market losses at this point in my life.
Are you sure about that? You may have a 30-40 year retirement ahead of you.
I was planning on doubling my stock market exposure from 200k to 400k when I transfer my 401k to Fidelity.
From what you stated, that's not quite right. You said that the 200K is currently invested in a target fund. You don't mention which fund it is, but the Fidelity Freedom Index 2020 fund is only about 57% equity. So if you have a total of 400K invested in this fund, you will only have 228K invested in stocks. That's a total stock market exposure of just 16% of the 1.4 million. Too me, that's just too low. I understand the fear of stock market losses when withdrawing from your portfolio, but relying on fixed income can be an even greater risk.

Have you read the Early Retirement Now Guide to Safe Withdrawal Rates? There's an incredible amount of information there for someone who's planning a greater than 30 year retirement.

A table from that blog is reproduced below. It shows how having a too small allocation to stocks can wipe out a portfolio during a long retirement. The percentages in the chart show the success rates of the various scenarios.
Image

However, if you truly can't stomach the volatility of the stock market, you could consider annuitizing part of your portfolio. That would provide much of the income you need and reduce any need for stock market exposure.
Last edited by amp on Tue May 22, 2018 7:38 am, edited 1 time in total.

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amp
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Re: Retiring in early 2019.

Post by amp » Mon May 21, 2018 11:04 pm

double post
Last edited by amp on Tue May 22, 2018 7:39 am, edited 1 time in total.

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amp
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Re: Retiring in early 2019.

Post by amp » Mon May 21, 2018 11:04 pm

triple post
Last edited by amp on Tue May 22, 2018 7:39 am, edited 1 time in total.

Streamer
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Re: Retiring in early 2019.

Post by Streamer » Tue May 22, 2018 3:35 am

Thanks for the feedback amp.

"I was planning on doubling my stock market exposure from 200k to 400k when I transfer my 401k to Fidelity. "

I am closing the 401K 2020 fund . I plan to buy an S&P 500 ETF and move to a 30/70 split using CDs as the bonds. I assume the S&P 500 fund is all equities. Suggestions....

carolinaman
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Re: Retiring in early 2019.

Post by carolinaman » Tue May 22, 2018 6:40 am

delamer wrote:
Mon May 21, 2018 7:25 pm
A 4% withdrawal rate from your initial portfolio (adjusted for inflation each year) makes it highly unlikely that you will spend down your portfolio.

However, that requires a minimum 30% allocation to stocks which you currently do not have. Also, you need to take into account federal/state income taxes on any withdrawals/earnings so that you net what you want to spend. The taxes will vary depending on whether you have tax-advantaged or taxable accounts.

So the best recommendations are to 1) up your stock allocation and 2) estimate your taxes.

For stocks, you could make it really simple and use an S&P 500 ETF. If you want to add smaller caps and/or international stocks, check out the “lazy portfolio” section in the Boglehead wiki for recommendations.
I agree with this recommendation. Does the $3200 monthly expense include health care? If not, you need to determine what this will be now and also after you go on medicare. You also need to estimate your taxes so you know how much you gross income you will need.

You may have some real tax saving opportunities, but you will need to estimate your taxes in retirement and determine what tax strategies might enable you to reduce your taxes. For example, converting the 401k funds to a Roth might save taxes in the long run. You are in a good position at your age to execute tax saving strategies. Once you go on medicare, that opportunity becomes more difficult as medicare part B costs increase when your income crosses certain threshholds ($85,000).

gotester2000
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Re: Retiring in early 2019.

Post by gotester2000 » Tue May 22, 2018 7:49 am

Does SS + small pension covers expenses of 3200/month?

Additional 200k in stocks means 30/70 allocation - little conservative. You can look at laddering CDs. Bonds tend to go down as interest rates increases.

Streamer
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Re: Retiring in early 2019.

Post by Streamer » Tue May 22, 2018 8:12 am

carolinaman wrote:
Tue May 22, 2018 6:40 am
delamer wrote:
Mon May 21, 2018 7:25 pm
A 4% withdrawal rate from your initial portfolio (adjusted for inflation each year) makes it highly unlikely that you will spend down your portfolio.

However, that requires a minimum 30% allocation to stocks which you currently do not have. Also, you need to take into account federal/state income taxes on any withdrawals/earnings so that you net what you want to spend. The taxes will vary depending on whether you have tax-advantaged or taxable accounts.

So the best recommendations are to 1) up your stock allocation and 2) estimate your taxes.

For stocks, you could make it really simple and use an S&P 500 ETF. If you want to add smaller caps and/or international stocks, check out the “lazy portfolio” section in the Boglehead wiki for recommendations.
I agree with this recommendation. Does the $3200 monthly expense include health care? If not, you need to determine what this will be now and also after you go on medicare. You also need to estimate your taxes so you know how much you gross income you will need.

You may have some real tax saving opportunities, but you will need to estimate your taxes in retirement and determine what tax strategies might enable you to reduce your taxes. For example, converting the 401k funds to a Roth might save taxes in the long run. You are in a good position at your age to execute tax saving strategies. Once you go on medicare, that opportunity becomes more difficult as medicare part B costs increase when your income crosses certain threshholds ($85,000).
Carolnaman thanks for input.

Healthcare is covered in retirement by employer funds.
$3200 is additional needed over and above SS and small pension annuity.
Based on input I am moving toward 30% equities /70% CD ladders as long as interest are up to support the plan.

protagonist
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Re: Retiring in early 2019.

Post by protagonist » Tue May 22, 2018 8:33 am

I look at it a little differently than some other folks. You say you need $32K/yr beyond social security.

1,200,000/32000= 37.5. So if you just kept up with inflation and if your assessment of your needs is realistic you would not run out of money until age 61+37.5= 98.5. That's pretty old, especially for a man, and you would still get SS. No matter what you do, if you don't do anything stupid, you will probably be OK. If you also own real estate, in the unlikely scenario that you were desperate, you could sell. In other words, if you have a half decent head on your shoulders you are fine. Don't worry. Be happy.

Consider the money you put in the stock market gambling money. The odds are in your favor, but you don't know what will happen to it. Don't listen to people who say it will definitely bounce back while you are alive or not fall more than it did in 1929- nobody knows the future. So keep enough invested very conservatively so that you can sleep at night. Not knowing your sleep habits, we cannot say what that number is. You might not get much richer doing what you are currently doing but you are also living with little risk. Where you draw that line is a personal decision based on what you know about yourself. You are rich enough to have the luxury of that decision. Just don't go crazy over trying to get too much richer...it will cause you agita you don't need.

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amp
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Re: Retiring in early 2019.

Post by amp » Tue May 22, 2018 8:45 am

Streamer wrote:
Tue May 22, 2018 8:12 am
Carolnaman thanks for input.

Healthcare is covered in retirement by employer funds.
$3200 is additional needed over and above SS and small pension annuity.
Based on input I am moving toward 30% equities /70% CD ladders as long as interest are up to support the plan.
One way to think of it is that you want to spend $38,400 per year. With your current $1.4 million portfolio it will take more than 38 years to deplete that portfolio. So as long as your portfolio at least keeps up with inflation than I think that you will be fine.
Edit: I see that protagonist said the same thing in the post above this one.

As I see it, you face two main risks:
  1. That you have underestimated the amount of money that you need to pull from your portfolio.
  2. That inflation wreaks havoc with the bond portion of your allocation.
The first risk is manageable as you are only planning on a 2.75% withdrawal rate from your portfolio. Even if you were to take 3% (42K/year) it would still take 33 years to deplete a portfolio that only matches inflation.

The second risk is more dangerous. Plenty of seniors ran into trouble in the 70s and 80s when their fixed income investments lagged inflation. One way to mitigate this without increasing your percentage of stocks would be a healthy dose of TIPS as a part of your bond allocation.

dandinsac
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Re: Retiring in early 2019.

Post by dandinsac » Tue May 22, 2018 9:25 am

I suggest you hire a CPA or another type of "per hour" financial advisor who has fiduciary responsibility to advise you relative to taxes. For your taxable funds, depending on your state, treasury bonds, i bonds, or a municipal bond fund may be a good approach as well.

Filing as a single taxpayer makes a big difference and you have a few years to withdraw from your 401K/IRA before you are required to take RMD distributions. The goal would be to withdraw from these funds now so that you minimize long-term taxes. As a point of reference, my mother-in-law has comparable balances as you do (~$1.2M). Her income streams (after tax withholding) are social security ($1700); pension ($1160); IRA ($1350) and taxable withdrawals ($1400). From a taxes standpoint, my MIL is stuck in the 22% bracket and has minimal opportunity to avoid them.

A second area to focus on would be your estate planning, disability insurance, trust, etc. in case something should happen to you.

trueblueky
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Re: Retiring in early 2019.

Post by trueblueky » Tue May 22, 2018 10:21 am

Streamer wrote:
Mon May 21, 2018 7:38 pm
Thanks trueblueky.
Yes conservative. I dont have years on my side to recover stock market losses at this point in my life. I was planning on doubling my stock market exposure from 200k to 400k when I transfer my 401k to Fidelity.
The part about CDs vs Bonds I was questioning myself on. When interest rates eventually decline would I shift over to real bonds? Or something else. I plan on self managing my investments as long as I am able.
CDs vs bond fund:

CDs are safer because of FDIC.

With brokered CD, you face the risk of needing to sell one early. A ladder mitigates that, if it has enough rungs. There's a similar risk for a bond fund -- that you would need to sell when price is down.

CDs are often competitive with, and sometimes superior to, bond funds as far as rate. Each time you need to purchase, you can decide what is best at that time.

Bond funds are less work. If you have multiple CDs maturing each year, that's multiple times to research (admittedly not that hard through a brokerage website) and decide.

There are other threads on this. FWIW, I have both.

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Sandtrap
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Re: Retiring in early 2019.

Post by Sandtrap » Tue May 22, 2018 10:29 am

Streamer wrote:
Mon May 21, 2018 6:01 pm
Retiring 1Q2019. Right now I'm all in cash 1.2Mil with brokered CDs and various bank accounts. 200K in 401k Target fund. Needing around $3200/month in addition to SS age 61 (widow) and small pension. Suggestions on how to achieve what I need and not draw down and run out.
Thanks all. I enjoy this forum.
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