Accumulating to Spending Stage

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clin341
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Accumulating to Spending Stage

Post by clin341 »

I believe I've met my goal in terms of accumulating net worth. However, there is preciously little material as to what to do next. Many people have suggested getting an annuity but I find that to be a horrible investment.

Here's my current situation:
1. I expect to live another 50 years.
2. My allocation is currently 5% cash (CD, savings acct, etc.) and 95% stock.
3. 50% are in retirement accounts (401K, Roth, IRA) while the other 50% is in taxable accounts.
4. I need 3% return to cover my current expenses.

I have not been able to find any articles or help on how to proceed. Would appreciate it if anyone can point me in the right direction.
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unclescrooge
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Re: Accumulating to Spending Stage

Post by unclescrooge »

clin341 wrote: Sun Feb 03, 2019 8:51 pm I believe I've met my goal in terms of accumulating net worth. However, there is preciously little material as to what to do next. Many people have suggested getting an annuity but I find that to be a horrible investment.

Here's my current situation:
1. I expect to live another 50 years.
2. My allocation is currently 5% cash (CD, savings acct, etc.) and 95% stock.
3. 50% are in retirement accounts (401K, Roth, IRA) while the other 50% is in taxable accounts.
4. I need 3% return to cover my current expenses.

I have not been able to find any articles or help on how to proceed. Would appreciate it if anyone can point me in the right direction.
Now you can stop saving and start enjoying your life.
MotoTrojan
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Re: Accumulating to Spending Stage

Post by MotoTrojan »

clin341 wrote: Sun Feb 03, 2019 8:51 pm I believe I've met my goal in terms of accumulating net worth. However, there is preciously little material as to what to do next. Many people have suggested getting an annuity but I find that to be a horrible investment.

Here's my current situation:
1. I expect to live another 50 years.
2. My allocation is currently 5% cash (CD, savings acct, etc.) and 95% stock.
3. 50% are in retirement accounts (401K, Roth, IRA) while the other 50% is in taxable accounts.
4. I need 3% return to cover my current expenses.

I have not been able to find any articles or help on how to proceed. Would appreciate it if anyone can point me in the right direction.
I’d probablg go closer to 70/30 (and never change), make sure I’m allocated tax-efficiently (bonds in tax-advantaged) and start projecting my actual expenses. Current implies you are working and thus likely doesn’t include healthcare.
Topic Author
clin341
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Re: Accumulating to Spending Stage

Post by clin341 »

Is that 70% stock or cash?

I quit my job back in August so have purchased health insurance from the market place for my family.
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22twain
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Re: Accumulating to Spending Stage

Post by 22twain »

There's some material in the Bogleheads Wiki:

https://www.bogleheads.org/wiki/Outline ... al_methods

There are also regular discussions that touch on which accounts to withdraw from, and how to withdraw. For example, this thread started just last Friday:

What do wise people do with 401(k) balances?

To find other threads with the forum search feature, possible keywords include "4% rule", "trinity study", "decumulation", and "roth conversion".

Strategies vary widely depending on individual circumstances.
Help save endangered words! When you write "princiPLE", make sure you don't really mean "princiPAL"!
AlohaJoe
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Re: Accumulating to Spending Stage

Post by AlohaJoe »

clin341 wrote: Sun Feb 03, 2019 8:51 pm I believe I've met my goal in terms of accumulating net worth. However, there is preciously little material as to what to do next.
Go to Amazon and type "retirement" and you'll find there is not precious little material as to what to do next. I see over 2,000 books on the subject.
klaus14
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Re: Accumulating to Spending Stage

Post by klaus14 »

My plan is to have 8x annual expenses in short to intermediate term bonds (something like VFSUX would work).
If I don't have at least 18x annual expenses in stocks, I don't think that I have enough long-term exposure to equity returns to sustain my retirement, so I need to sell bonds to fund my expenses and stock portfolio. And then when markets recover and I have something weird like 23x annual expenses in stocks and 3x in bonds, I'd sell down the excess equity position back to 18/8 to give myself some more protection against stock declines
Also it's a good idea to have 1x in gold as a portfolio insurance.

There are some nice graphs here about historical successful withdrawal rates of various portfolios:
https://portfoliocharts.com/portfolio/withdrawal-rates/
Thecallofduty
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Re: Accumulating to Spending Stage

Post by Thecallofduty »

I am not reitred nor am I an expert. I do completely agree with you that if you are expecting to live 50 years than an annuity is not the wisest investment.

Lets assume you are currently retiring. When do you expect social security? Any pension?

I do think you are too stock heavy at 95% but then again I do not know what your portfolio worth is and what your projected yearly expenses are.

What funds are in your accounts? Might be a good
Time to rebalance accordingly. At least in the 401ks/iras.
-thecallofduty
The Wizard
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Re: Accumulating to Spending Stage

Post by The Wizard »

With 50 years additional expected, OP is likely in his 40s, a long way from getting any SS.
Expenses need to be funded 100% from portfolio withdrawals for next 20 years.
With a 3% withdrawal rate and a high stock percentage, this could work out fine or not, depending on what stocks do in coming years.

I would probably want more of a buffer in a situation like this, perhaps part-time high paying work for a few years to avoid portfolio stress...
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Raybo
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Re: Accumulating to Spending Stage

Post by Raybo »

I'd suggest you read Michael McClurg's book Living Off Your Money (http://livingoffyourmoney.com/) as a start. Also, check out the long thread discussing his book (viewtopic.php?t=192105). That should jump start your study on withdrawal methods and provide you with topics to study after that.

You might also check out threads on Liability Matching.
No matter how long the hill, if you keep pedaling you'll eventually get up to the top.
andrew99999
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Re: Accumulating to Spending Stage

Post by andrew99999 »

clin341 wrote: Sun Feb 03, 2019 8:51 pm I have not been able to find any articles or help on how to proceed. Would appreciate it if anyone can point me in the right direction.
Then you have clearly missed the definitive guide to early retirement.
earlyretirementnow.com
dbr
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Re: Accumulating to Spending Stage

Post by dbr »

clin341 wrote: Sun Feb 03, 2019 8:51 pm I believe I've met my goal in terms of accumulating net worth. However, there is preciously little material as to what to do next. Many people have suggested getting an annuity but I find that to be a horrible investment.

Here's my current situation:
1. I expect to live another 50 years.
2. My allocation is currently 5% cash (CD, savings acct, etc.) and 95% stock.
3. 50% are in retirement accounts (401K, Roth, IRA) while the other 50% is in taxable accounts.
4. I need 3% return to cover my current expenses.

I have not been able to find any articles or help on how to proceed. Would appreciate it if anyone can point me in the right direction.
I agree references like McClung and some others may be helpful. Jim Otar http://www.retirementoptimizer.com/ has also written a book entirely devoted to the subject and there is this by Larry Swedroe: https://www.amazon.com/Complete-Guide-S ... ds=swedroe

There is a lot here as well: http://www.early-retirement.org/forums/

Note, I am puzzled how you can know you have reached your accumulation target without knowing what to do next.
sailaway
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Re: Accumulating to Spending Stage

Post by sailaway »

dbr wrote: Mon Feb 04, 2019 10:34 am
clin341 wrote: Sun Feb 03, 2019 8:51 pm I believe I've met my goal in terms of accumulating net worth. However, there is preciously little material as to what to do next. Many people have suggested getting an annuity but I find that to be a horrible investment.

Here's my current situation:
1. I expect to live another 50 years.
2. My allocation is currently 5% cash (CD, savings acct, etc.) and 95% stock.
3. 50% are in retirement accounts (401K, Roth, IRA) while the other 50% is in taxable accounts.
4. I need 3% return to cover my current expenses.

I have not been able to find any articles or help on how to proceed. Would appreciate it if anyone can point me in the right direction.
I agree references like McClung and some others may be helpful. Jim Otar http://www.retirementoptimizer.com/ has also written a book entirely devoted to the subject and there is this by Larry Swedroe: https://www.amazon.com/Complete-Guide-S ... ds=swedroe

There is a lot here as well: http://www.early-retirement.org/forums/

Note, I am puzzled how you can know you have reached your accumulation target without knowing what to do next.
I'm not. For one thing, we get a lot retirees, some several months into retirement asking these questions. Moreover, if OP is planning for a 50 year retirement, they might have been accumulating on automatic without real plans and looked at the balance one day and decided they could retire. I have a few friends who have "won the game" as folks say around here who are shocked by our plans to use our funds to retire/extended sabbatical. It just never occurred to them to stop accumulating before their mid 50s.
NotWhoYouThink
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Re: Accumulating to Spending Stage

Post by NotWhoYouThink »

Why do you need 3% return to cover your current expenses? Do you mean you need to withdraw 3% from your portfolio this and every year? 3% this year, with expectations to index withdrawals to inflation no matter the portfolio performance?

At 95% stocks, your portfolio could drop by 50% next year, or maybe increase by 50%. Would either event affect your spending plan?

Jane Bryant Quinn's Making Your Money Last is a well known book on how to spend what you have saved.
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White Coat Investor
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Re: Accumulating to Spending Stage

Post by White Coat Investor »

unclescrooge wrote: Sun Feb 03, 2019 9:20 pm

Now you can stop saving and start enjoying your life.
There is a big assumption in there that may not be true.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course
Topic Author
clin341
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Re: Accumulating to Spending Stage

Post by clin341 »

dbr wrote: Mon Feb 04, 2019 10:34 am
Note, I am puzzled how you can know you have reached your accumulation target without knowing what to do next.
I am 40 years old, have lived relatively frugally and invested in stocks for 20 years. One day I came to the realization that my job makes me a horrible, miserable person that I don't even like. I reviewed my expenses and gathered my financial assets and liabilities which then helped me to conservatively estimate that my annual pretax expenditure in retirement ($60k) is 3% of my investment portfolio ($2M). From what I can tell, that should be sufficient.

However, since I've been focused on accumulating and have only ever invested in stocks, I was at a loss on where to go from here. The 4 "professionals" that I spoke with just want to sell me annuities and that just does not seem right for me.

I'm very glad to have found this forum and will go through the materials you all shared!
02nz
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Re: Accumulating to Spending Stage

Post by 02nz »

Lots for you to learn, but one big thing to keep in mind: smooth out your income and take advantage of low tax brackets.

Every year you have about $24K (married filing jointly) of income free from federal taxes, with the new standard deduction. Then the 10% bracket, then 12%, etc. By filling up these low tax rate brackets with withdrawals or Roth conversions from tax deferred (traditional) 401k/IRA balances, you pay a much lower rate than in your working years. As an example, a couple with no other income can take out (or convert to Roth) about $100K a year and pay an average of about 9% in federal tax.

There's tons more online about this and other strategies (like 0% long-term capital gains tax). The trick is to mix and match to get the optimal outcome for you.

+1 on the recommendations for earlyretirementnow.com and Jane Bryant Quinn's book.
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unclescrooge
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Re: Accumulating to Spending Stage

Post by unclescrooge »

White Coat Investor wrote: Mon Feb 04, 2019 11:12 am
unclescrooge wrote: Sun Feb 03, 2019 9:20 pm

Now you can stop saving and start enjoying your life.
There is a big assumption in there that may not be true.
True. I should've said you can continue to enjoy your life.
marcopolo
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Re: Accumulating to Spending Stage

Post by marcopolo »

clin341 wrote: Mon Feb 04, 2019 11:50 am
dbr wrote: Mon Feb 04, 2019 10:34 am
Note, I am puzzled how you can know you have reached your accumulation target without knowing what to do next.
I am 40 years old, have lived relatively frugally and invested in stocks for 20 years. One day I came to the realization that my job makes me a horrible, miserable person that I don't even like. I reviewed my expenses and gathered my financial assets and liabilities which then helped me to conservatively estimate that my annual pretax expenditure in retirement ($60k) is 3% of my investment portfolio ($2M). From what I can tell, that should be sufficient.

However, since I've been focused on accumulating and have only ever invested in stocks, I was at a loss on where to go from here. The 4 "professionals" that I spoke with just want to sell me annuities and that just does not seem right for me.

I'm very glad to have found this forum and will go through the materials you all shared!
While it would have been better to have figured that out before you quit your job, that is water under the bridge at this point.
You have doe well in the accumulation phase. Your instincts about the advice from the annuity salesman is spot on.

Take your time and review the helpful links other have provided (I personally find the McCLung and EarlyRetirmentNow references very helpful), then come back here and ask any clarifying questions you have. You will get much better advice than from most salesman disguised as advisors, and a lot cheaper too.

If after all that you still feel like you need professional help, seek out a fee-only (by the hour) fiduciary, or alternatively a low-cost money management such as Vanguard PAS. There are some very good advisors that provide the value that they charge, but by the time you know enough to recognize one, you will have the tools to do it yourself, if you choose.

Good luck to you
Once in a while you get shown the light, in the strangest of places if you look at it right.
GmanJeff
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Re: Accumulating to Spending Stage

Post by GmanJeff »

Take a look at today's WSJ, p. R2, which discusses tools to help with tapping retirement savings.
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Ben Mathew
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Re: Accumulating to Spending Stage

Post by Ben Mathew »

Living on $60K on a $2 million portfolio should be doable, if your AA stays at least moderately aggressive. How much social security will you get? And did you factor in health insurance costs in your living expenses?
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bligh
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Re: Accumulating to Spending Stage

Post by bligh »

clin341 wrote: Mon Feb 04, 2019 11:50 am I reviewed my expenses and gathered my financial assets and liabilities which then helped me to conservatively estimate that my annual pretax expenditure in retirement ($60k) is 3% of my investment portfolio ($2M). From what I can tell, that should be sufficient.
You're gonna be fine. That is a comfortably conservative withdrawal rate. The only two things I would consider, were I in your shoes, are:

1) I would hold at least 20% bonds (and quite possibly 30%). (Historically you have not given up too much in returns for having this much in bonds). I would use these for withdrawals during times of panic. Market crashes can last several years. This would protect me from having to sell stocks in the middle of a market crash.

2) I would identify what my "hard times" withdrawal amount is. This is your cost of living minus the discretionary expense you could pull back on if times got tough. For example, if a market crash turns into an extended recession, or heaven forbid, a global depression, would you be able to drop your spending to, for example, $40K/year for 3-4 years or longer? In other words, I would identify (or build in) some cushion into my annual expense budget so that there was something for me to squeeze down on if I had to.

Congratulations on your success, I wish you a long, happy and productive retirement. :sharebeer
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clin341
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Re: Accumulating to Spending Stage

Post by clin341 »

Ben Mathew wrote: Mon Feb 04, 2019 12:24 pm Living on $60K on a $2 million portfolio should be doable, if your AA stays at least moderately aggressive. How much social security will you get? And did you factor in health insurance costs in your living expenses?
Yes, i included health insurance costs. I will not be collecting SS for another almost 30 years so I did not consider that at all.
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Ben Mathew
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Re: Accumulating to Spending Stage

Post by Ben Mathew »

clin341 wrote: Mon Feb 04, 2019 5:45 pm
Ben Mathew wrote: Mon Feb 04, 2019 12:24 pm Living on $60K on a $2 million portfolio should be doable, if your AA stays at least moderately aggressive. How much social security will you get? And did you factor in health insurance costs in your living expenses?
Yes, i included health insurance costs. I will not be collecting SS for another almost 30 years so I did not consider that at all.
SS is 30 years away for you, but it is still worth including in your model as you plan.

A lot of points that apply to accumulation phase will apply to decumulation as well. Main points:

- Stay away from advisors unless they are fee-only (not fee-based) and charge by the hour.

- Don't panic and sell when market is down. Pick an AA conservative enough that you can tolerate the bumps, yet aggressive enough that you don't run out money.

- The simple three fund portfolio is excellent. It's be hard to do better.

- Include international stocks.

- If you are up to it, read up on small cap and value factors. Tilt the portfolio to these factors if you are convinced. But it's not necessary to do well, and will add a layer of complexity and psychological toll that may not be to some people's taste.

- Use your low earning years (pre-social security) to harvest capital gains (take gains at the 0% tax rate), and convert traditional retirement accounts to Roth (at low marginal tax rates).
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