Retired: Don't want to outlive my funds

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M.Lee
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Retired: Don't want to outlive my funds

Post by M.Lee » Tue Jun 25, 2019 8:56 am

This is very long. Sorry.

I'm 73. Retired. Alone, recently widowed. No heirs. No bills. No mortgage. Auto only has 28k miles on it, so won't need a new one probably ever.

Social Security + Pension brings me in enough money to almost handle my current expenses. I'm short about 8k a year. The shortage is because of my expensive hobby (I'd rather not say what it is) and home maintenance. I have a large property and need to pay for lawn and garden care. I love where I live and do not want to move unless I really need to. That said, if I really got strapped, I could ditch the hobby and move, eliminating a lot of issues.

I've been on pension for quite a long time, so that money is not worth nearly what it was when I first retired. That of course will only get worse with inflation. I have sitting in my personal checking account 70k. I figure I could use that money to take care of the 8k I'm short each year. That would last me at least 5 years and 78 years old.

I have a Fidelity 401k and I have liquidated all stocks and the money is now sitting in the money market fund. There is 100k in the personal account and 1million in the 401k. Using the same logic I wrote about above, that additional 100k can supplement my income for several years. But again, we have that ugly inflation thing to consider.

Now we get down to what to do with the 1 million 401k money. I am thinking of putting it in CD's. Please don't cringe. Ok, so it's only 2%, but it is SAFE and 2% of a million dollars isn't chump change. However, the RMD is going to chew up most of that.

Can you see the quandary I'm in?

Circa 2000, I lost almost all my father's inheritance when I was invested with Merrill Lynch and their mutual funds. I do not want anyone handling my money and I hate mutual funds. Even more, I hate the idea of paying even one cent to someone to handle my money.

One last thing to consider is that I always have the option of a Reverse Mortgage if I run out of funds. Because I have no heirs, I really would rather use up all my money before I die. But then, the financial advisors will stress that we should save money so that we can pay it to a nursing home when we are old and infirm.

Based on what I've written, what would you do in my situation.

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TomatoTomahto
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Re: Retired: Don't want to outlive my funds

Post by TomatoTomahto » Tue Jun 25, 2019 9:09 am

Based on what you’ve written, what I would do in your situation is: Relax.

You might not maximize your returns, but I think you’ll be okay.
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cresive
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Re: Retired: Don't want to outlive my funds

Post by cresive » Tue Jun 25, 2019 9:23 am

M.Lee wrote:
Tue Jun 25, 2019 8:56 am
This is very long. Sorry.

I'm 73. Retired. Alone, recently widowed. No heirs. No bills. No mortgage. Auto only has 28k miles on it, so won't need a new one probably ever.

Social Security + Pension brings me in enough money to almost handle my current expenses. I'm short about 8k a year. The shortage is because of my expensive hobby (I'd rather not say what it is) and home maintenance. I have a large property and need to pay for lawn and garden care. I love where I live and do not want to move unless I really need to. That said, if I really got strapped, I could ditch the hobby and move, eliminating a lot of issues.

I've been on pension for quite a long time, so that money is not worth nearly what it was when I first retired. That of course will only get worse with inflation. I have sitting in my personal checking account 70k. I figure I could use that money to take care of the 8k I'm short each year. That would last me at least 5 years and 78 years old.

I have a Fidelity 401k and I have liquidated all stocks and the money is now sitting in the money market fund. There is 100k in the personal account and 1million in the 401k. Using the same logic I wrote about above, that additional 100k can supplement my income for several years. But again, we have that ugly inflation thing to consider.

Now we get down to what to do with the 1 million 401k money. I am thinking of putting it in CD's. Please don't cringe. Ok, so it's only 2%, but it is SAFE and 2% of a million dollars isn't chump change. However, the RMD is going to chew up most of that.

Can you see the quandary I'm in?

Circa 2000, I lost almost all my father's inheritance when I was invested with Merrill Lynch and their mutual funds. I do not want anyone handling my money and I hate mutual funds. Even more, I hate the idea of paying even one cent to someone to handle my money.

One last thing to consider is that I always have the option of a Reverse Mortgage if I run out of funds. Because I have no heirs, I really would rather use up all my money before I die. But then, the financial advisors will stress that we should save money so that we can pay it to a nursing home when we are old and infirm.

Based on what I've written, what would you do in my situation.

I agree with the second poster. the first thing I would do is relax, you will be fine with most anything you do. There are a couple things you may not have considered--at least not in your post. 1) RMDs. I assume you are taking out your RMD allotment from your Fidelity 401K. That will most certainly take care of your $8K shortfall on necessary expenses. By doing this, you can leave your checking account where it is and use it to support the intriguing hobby of yours. Since you have to accept the funds anyway, I would also use the money for frivolous items. Since you have another $100K in a MM account, you can use that for any emergencies that may arise.

Secondly, and if it was truly me, I would change my AA and move some money from the money market to growth funds. I know you are once-bitten and therefore hesitant to lose money, but you do need to build some growth into your AA as a hedge on inflation. If you take a percentage of your 401K, and reinvest in the market, you can ride out any market corrections while still living off your MM allocation, and see some real growth to support you when you are 88.

Good luck.
Ben
Last edited by cresive on Tue Jun 25, 2019 9:25 am, edited 1 time in total.

Luckywon
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Re: Retired: Don't want to outlive my funds

Post by Luckywon » Tue Jun 25, 2019 9:23 am

I would strongly consider purchasing an annuity. You can do this with your 401k funds. It is not what I would normally favor, but it will certainly provide an adequate income stream for your stated needs and will be better than CD's, given that you have no legacy concerns.

livesoft
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Re: Retired: Don't want to outlive my funds

Post by livesoft » Tue Jun 25, 2019 9:27 am

In your situation, I would relax and invest my money in passively-managed, low-expense ratio index fund portfolio such as a single fund Vanguard LifeStrategy Moderate Growth. Then I would add another expensive hobby to have fun with because I knew I had way more money than I could ever spend for the rest of my life.
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Re: Retired: Don't want to outlive my funds

Post by bloom2708 » Tue Jun 25, 2019 9:28 am

Welcome. You are likely not spending enough.

4% of $1 million is $40k additional income which should last for ~30 years.

I would move the $1 million to Vanguard and put it in the LifeStrategy Income fund. 20% stocks, 80% bonds.

You need some stocks to help keep up with inflation.

Keep your hobby, keep your house and use the RMD to enjoy life.
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HomeStretch
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Re: Retired: Don't want to outlive my funds

Post by HomeStretch » Tue Jun 25, 2019 9:31 am

+1.

Condolences on the loss of your spouse.

Which Fidelity 401k Money Market Fund (MMF) is your $1 million in and what is the current rate? I have (non-institutional) MMF at both Fidelity and Vanguard, and usually Vanguard’s rates are higher as their expense ratio (ER) is about 0.3% lower than Fidelity’s comparable rates. 0.3% on $1 million is $3k more of income per year. If your 401k rate is not competitive, you have the option to rollover your 401k to another brokerage like Vanguard and invest in a higher rate MMF. Pluses and minuses to rolling a 401k to an IRA. Post the MMF symbol and fund rate to check this out.

Without equities, your portfolio like your pension is eroded by inflation. If your dislike of inflation outweighs your dislike for mutual funds, consider using a fund like Vanguard’s Life Strategy Income Fund VASIX in a rollover IRA which holds modest equity of 20% to help your portfolio keep up with inflation. My parents now in their 80s share your mutual fund dislike but have successfully used Life Strategy Funds with low equity %s to maintain their portfolio for many years (and hopefully many more to come).

Edited for typo
Last edited by HomeStretch on Tue Jun 25, 2019 12:26 pm, edited 1 time in total.

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Re: Retired: Don't want to outlive my funds

Post by KlingKlang » Tue Jun 25, 2019 9:34 am

M.Lee wrote:
Tue Jun 25, 2019 8:56 am
Now we get down to what to do with the 1 million 401k money. I am thinking of putting it in CD's. Please don't cringe. Ok, so it's only 2%, but it is SAFE and 2% of a million dollars isn't chump change. However, the RMD is going to chew up most of that.
RMD just means that you have to withdraw a certain amount of money from your pre-tax accounts and pay taxes on it every year. It's not like it disappears into thin air.

You might want to keep an eye on US Treasury rates, sometimes they are better than CDs and sometimes not.
M.Lee wrote:
Tue Jun 25, 2019 8:56 am
I do not want anyone handling my money and I hate mutual funds.
Most of the people on this board handle their own money, although there are certain transactions that you need a brokerage account for. Likewise most of us are rather fond of low cost index mutual funds, but it's your money and you get to do what you want with it.

It sounds like you have no one available to assist in case you need long term medical care. You may want to start investigating independent/assisted/nursing facilities in case your health takes a sudden turn for the worse.

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Re: Retired: Don't want to outlive my funds

Post by ResearchMed » Tue Jun 25, 2019 9:36 am

M.Lee wrote:
Tue Jun 25, 2019 8:56 am
This is very long. Sorry.

I'm 73. Retired. Alone, recently widowed. No heirs. No bills. No mortgage. Auto only has 28k miles on it, so won't need a new one probably ever.

Social Security + Pension brings me in enough money to almost handle my current expenses. I'm short about 8k a year. The shortage is because of my expensive hobby (I'd rather not say what it is) and home maintenance. I have a large property and need to pay for lawn and garden care. I love where I live and do not want to move unless I really need to. That said, if I really got strapped, I could ditch the hobby and move, eliminating a lot of issues.

I've been on pension for quite a long time, so that money is not worth nearly what it was when I first retired. That of course will only get worse with inflation. I have sitting in my personal checking account 70k. I figure I could use that money to take care of the 8k I'm short each year. That would last me at least 5 years and 78 years old.

I have a Fidelity 401k and I have liquidated all stocks and the money is now sitting in the money market fund. There is 100k in the personal account and 1million in the 401k. Using the same logic I wrote about above, that additional 100k can supplement my income for several years. But again, we have that ugly inflation thing to consider.

Now we get down to what to do with the 1 million 401k money. I am thinking of putting it in CD's. Please don't cringe. Ok, so it's only 2%, but it is SAFE and 2% of a million dollars isn't chump change. However, the RMD is going to chew up most of that.

Can you see the quandary I'm in?

Circa 2000, I lost almost all my father's inheritance when I was invested with Merrill Lynch and their mutual funds. I do not want anyone handling my money and I hate mutual funds. Even more, I hate the idea of paying even one cent to someone to handle my money.

One last thing to consider is that I always have the option of a Reverse Mortgage if I run out of funds. Because I have no heirs, I really would rather use up all my money before I die. But then, the financial advisors will stress that we should save money so that we can pay it to a nursing home when we are old and infirm.

Based on what I've written, what would you do in my situation.
Welcome to Bogleheads.
You've come to a good place. Although there may be a variety of perspectives here, no one is trying to benefit from offering suggestions; no one is trying to get any commissions, etc.
We've all learned from each other, and "pay it back" - and keep learning!

As TT mentioned, I think the first thing is for you to relax. Yes, that can be easier said than done, but try to get that mindset.

One little possible correction about something you mentioned: About the RMD's...RMD's don't "chew up" your money. It just transfers it from a pre-tax account to a taxable account. It is still YOUR money. The only difference is that you would have paid tax on it, at whatever marginal tax bracket you'd be in. And note: ALL of your tax-deferred money includes some tax that must be paid. That's why it's called "tax DEFERRED", not tax FREE.

So you can spend the after tax RMD money, or add it to your savings. Your choice. :happy

You haven't mentioned your actual monthly/annual budget needs, just that 8k shortfall, so that makes it a bit difficult for us to get a clear picture.

You seem to be in very good shape, once I got the the part about the $1M in 401k.
You apparently won't even need to touch that for quite a few years.

So... what specifically are you worried about now? Is it mostly a generalized fear of the future?

Do you have any plans for long term care, should you need it? This is important for anyone, but especially if there are no close family member nearby, etc.

And don't forget the value of your home, if you ever do need long term care!

I suspect that being recently widowed has also caused considerable stress, no surprise.

Good luck!

RM
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dm200
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Re: Retired: Don't want to outlive my funds

Post by dm200 » Tue Jun 25, 2019 9:37 am

Get married to the right (financially) person!

msk
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Re: Retired: Don't want to outlive my funds

Post by msk » Tue Jun 25, 2019 9:37 am

I am 74, so I can sense your anxiety. Basically there is a chance of dying this year or surviving till 90+ yet you wish to "spend it all". You CAN'T be relaxed and spend it all! You are short only $8k a year. If the future is similar to the past 100 years, 100% stocks can support a WR of 5% a year and, on average, keep up with inflation forever. Bonds can support a WR of 2.5% and both the withdrawals and the remaining portfolio ought to keep up with inflation forever. Basically NEVER exceed a 5% WR from a 100% stocks portfolio nor a 2.5% WR from a 100% bonds portfolio. Since you are terrified of losses because of the market, you can place that $1 million in 100% bonds and NEVER exceed 2.5% WR, averaging out with $25k a year in real terms, forever. Or in 100% stocks and average out $50k in real terms. Or any mix. Just never exceed those 2.5%/5% limits in each allocation. The portfolios both last forever, since you are withdrawing a percentage of the balance, not the usual 4% start and then inflated each year. It quickly rises above 5% of the balance and then you will get worried as you approach age 80 and see large chunks being cashed. Relax and enjoy. No need for anxiety.

PS I am 100% stocks worldwide by free market weight, as in VT where the dividend yield alone is 1.8+% so to get 5% max WR (if required) I need to sell only 3.2% of the then remaining each year. IMHO much better for inflation proofing than bonds... But you'll also be OK with 100% bonds and staying below 2.5%.

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Re: Retired: Don't want to outlive my funds

Post by michaeljc70 » Tue Jun 25, 2019 9:40 am

bloom2708 wrote:
Tue Jun 25, 2019 9:28 am
Welcome. You are likely not spending enough.

4% of $1 million is $40k additional income which should last for ~30 years.

I would move the $1 million to Vanguard and put it in the LifeStrategy Income fund. 20% stocks, 80% bonds.

You need some stocks to help keep up with inflation.

Keep your hobby, keep your house and use the RMD to enjoy life.
+1

Even if risk averse, I feel some stocks (or TIPS or annuity with COLA) is needed to counter potential inflation.

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Re: Retired: Don't want to outlive my funds

Post by retiredjg » Tue Jun 25, 2019 9:41 am

M.Lee wrote:
Tue Jun 25, 2019 8:56 am
Can you see the quandary I'm in?
I don't see it.

You already have to take about $40k a year from that 401k in RMDs and that amount may or may not increase over time. Even after paying taxes, that is way more than the $8k extra a year you currently need to pay all your expenses.

Even if the $8k need grows some each year, you should still have way more money than you need for the rest of your life unless I'm misunderstanding your situation.

In order to put your $1 million into CDs, you are going to have to take it out of the 401k and put it in an IRA. Most people don't buy CDs in an IRA although it is possible. However, I think you have to use "brokered CDs" and maybe they pay less or something. Maybe that's why people don't use CDs in an IRA much.

I'd either leave the money where it is or roll it to IRA and invest it very conservatively in an all in one fund such as Vanguard's LifeStrategy Income Fund (20% stocks and 80% bonds).

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Re: Retired: Don't want to outlive my funds

Post by JoeRetire » Tue Jun 25, 2019 9:42 am

M.Lee wrote:
Tue Jun 25, 2019 8:56 am
I'm 73. Retired. Alone, recently widowed. No heirs. No bills. No mortgage.

Now we get down to what to do with the 1 million 401k money. I am thinking of putting it in CD's. Please don't cringe. Ok, so it's only 2%, but it is SAFE and 2% of a million dollars isn't chump change. However, the RMD is going to chew up most of that.

Can you see the quandary I'm in?
Not really, no.
Circa 2000, I lost almost all my father's inheritance when I was invested with Merrill Lynch and their mutual funds. I do not want anyone handling my money and I hate mutual funds. Even more, I hate the idea of paying even one cent to someone to handle my money.
Okay. So you don't want anyone handling your money. You don't want mutual funds. So you are considering putting it in CDs.

That seems fine.
Based on what I've written, what would you do in my situation.
Put your money in CDs and be happy.

Unless some huge unexpected expense comes up, you'll never run out of money. And you won't have to be unhappy having someone else handle your money, or having it in mutual funds, or paying someone.

Decide now where you want your fortune to go when you pass, since you'll likely have plenty left. Since you don't want to pay someone, write your own will.

It's your money to do with whatever you prefer. I don't see any quandry.

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Re: Retired: Don't want to outlive my funds

Post by Beehave » Tue Jun 25, 2019 9:47 am

Here's something to consider. You can take up to $130 K of your 401K funds to open a QLAC. As I understand it, you can ladder your QLACs, as long as they start no sooner than in 2 year and no later than age 85. I believe I've seen that QLACs can be purchased from $10K up.

So if you invest in a ladder now and start collecting at age 76, you could ladder ten QLACs of $13K each, one each year for ages 76 through 85.

Each year's QLAC would pay more each month than the year before because of increasing mortality credits for the deferral of the annuity, and each QLAC would be additive. You would thus be building a continually increasing (very strongly increasing each year) stream of income through age 85 that will last your lifetime.

The income from the annuity stream might give you peace of mind that you'll have sufficient lifetime income and perhaps you might choose once again to put some funds to work in the stock market for growth - - maybe in the form of a conservative target retirement or life strategy fund that is balanced between stocks and bonds (so the manager takes care of the rebalancing and any emotions associated with those decisions) and is in a ratio you can stomach.

I've been looking at this idea for myself and would be interested in comments.

Best wishes.

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dm200
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Re: Retired: Don't want to outlive my funds

Post by dm200 » Tue Jun 25, 2019 10:08 am

Owning a home can help with this goal - it can keep housing expenses fairly flat over a long period.

Check to see of senior homeowners in your jurisdiction can qualify for any type of real estate tax deferral or exemption. Our jurisdiction has a generous program. I run into many folks who do not know about the program - until I tell them. One person I know - had spent tens of thousands of dollars paying real estate taxes over the years - the could have been either exempted from or deferred until she sold her condo.

Fortunately, now, she is paying no rel estate tax each year.

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HomerJ
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Re: Retired: Don't want to outlive my funds

Post by HomerJ » Tue Jun 25, 2019 10:14 am

M.Lee wrote:
Tue Jun 25, 2019 8:56 am
Based on what I've written, what would you do in my situation.
Enjoy your hobby and retirement.

Obviously, $1 million in CDs will take care of your $8000 a year shortfall.

2% CDs will throw off $20,000 a year. And that's without touching any of the principal.

You are in amazing shape, and should never have to worry about money.

Go spend more if you want.

Edit: RMDs are no big deal. You'll have to cash out some of your $1 million each year, but you can just put it in a normal bank and buy another CD. It will be considered income, so you'll have to pay some taxes, but again, the interest you're pulling will more than pay for it.
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HomerJ
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Re: Retired: Don't want to outlive my funds

Post by HomerJ » Tue Jun 25, 2019 10:24 am

dm200 wrote:
Tue Jun 25, 2019 9:37 am
Get married to the right (financially) person!
What?
The J stands for Jay

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Re: Retired: Don't want to outlive my funds

Post by dknightd » Tue Jun 25, 2019 10:25 am

M.Lee wrote:
Tue Jun 25, 2019 8:56 am

I'm 73. . .

Social Security + Pension brings me in enough money to almost handle my current expenses. I'm short about 8k a year. . .


Now we get down to what to do with the 1 million 401k money. . . .

Can you see the quandary I'm in?

Based on what I've written, what would you do in my situation.
I do not see a quandary, or a problem. You have $1m in 401k. You have to take RMD from this. Taking RMD should mean you never run out of money. The RMD from $1m easily fills your $8k shortfall from pension and SS.
Unless you were saying RMD and SS and Pension sill left you with an $8k shortfall, in which case there might be a problem.

The way I read your post. Your RMD gives you more money than you need. So put the excess into the bank, or donate it.

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Re: Retired: Don't want to outlive my funds

Post by Sandtrap » Tue Jun 25, 2019 10:27 am

Considerations:
1
Your existing plan is well thought out and more than adequate for your needs.
Consider diversification of your funds in: CD ladders, High Yield Accounts, Money Market (federal treasuries), etc.

2
Consider an SPIA Annuity. No other type. For some of your existing funds. You don't have to use all of it.
Look up rates at "ImmediateAnnuities.com" to get an idea.
"Beehave" had an interesting strategy using QLAC's, (Qualified Annuity Longevity Contract).

3
Consider allocating some of your existing funds to a single balanced index fund such as a Vanguard LifeStrategy Fund or Balanced Index Fund, etc.

Your strategy is sound.
Enjoy your hobby(s).

Condolences for the loss of your spouse.
j :happy
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Re: Retired: Don't want to outlive my funds

Post by Toons » Tue Jun 25, 2019 10:31 am

TomatoTomahto wrote:
Tue Jun 25, 2019 9:09 am
Based on what you’ve written, what I would do in your situation is: Relax.

You might not maximize your returns, but I think you’ll be okay.


Bingo :happy
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee

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Re: Retired: Don't want to outlive my funds

Post by michaeljc70 » Tue Jun 25, 2019 10:31 am

As I said above, you are in great shape. As I was reading your post part way through, I thought you were going to be trying to get $8k annually from the $70k.

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Re: Retired: Don't want to outlive my funds

Post by HomerJ » Tue Jun 25, 2019 10:36 am

msk wrote:
Tue Jun 25, 2019 9:37 am
If the future is similar to the past 100 years, 100% stocks can support a WR of 5% a year and, on average, keep up with inflation forever.
This is misleading.

Pulling 5% a year of your starting portfolio from 100% stocks if you retired right before the Great Depression would leave someone completely bankrupt in less than 20 years.

That's how most people read what you wrote. Because that's what we usually mean when we talk about withdrawal rates.

Of course, what you actually mean is pulling 5% of the CURRENT balance each year. Which means during a 50% crash, you have to drop spending 50%, and during a 80% crash, you'll have to cut spending 80%.

Yeah, you'll never go broke, but you might lose your house or be unable to afford medical care. That's not exactly great advice.

One can make the exact same statement about pulling 60% a year. One will never go to zero pulling 60% a year of your current portfolio.

You will get the point where you might starve to death, but you won't technically go broke!
Last edited by HomerJ on Tue Jun 25, 2019 11:47 am, edited 2 times in total.
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Taylor Larimore
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Re: Retired: Don't want to outlive my funds

Post by Taylor Larimore » Tue Jun 25, 2019 10:57 am

M.Lee:

Welcome to the Bogleheads Forum!
Circa 2000, I lost almost all my father's inheritance when I was invested with Merrill Lynch and their mutual funds. I do not want anyone handling my money and I hate mutual funds. Even more, I hate the idea of paying even one cent to someone to handle my money.

One last thing to consider is that I always have the option of a Reverse Mortgage if I run out of funds. Because I have no heirs, I really would rather use up all my money before I die. -- Based on what I've written, what would you do in my situation.
I think you should consider a Single Premium Immediate Annuity (SPIA) (the only good annuity). I own two.

At age 73, $1,000,000 will give a man (a woman less) a guaranteed monthly income of $96,000/year as long as you live. Use this link for more information:

https://www.immediateannuities.com/info ... tep-1.html

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

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dm200
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Re: Retired: Don't want to outlive my funds

Post by dm200 » Tue Jun 25, 2019 11:00 am

Taylor Larimore wrote:
Tue Jun 25, 2019 10:57 am
M.Lee:
Welcome to the Bogleheads Forum!
Circa 2000, I lost almost all my father's inheritance when I was invested with Merrill Lynch and their mutual funds. I do not want anyone handling my money and I hate mutual funds. Even more, I hate the idea of paying even one cent to someone to handle my money.
One last thing to consider is that I always have the option of a Reverse Mortgage if I run out of funds. Because I have no heirs, I really would rather use up all my money before I die. -- Based on what I've written, what would you do in my situation.
I think you should consider a Single Premium Immediate Annuity (SPIA) (the only good annuity). I own two.
At age 73, $1,000,000 will give a man (a woman less) a guaranteed monthly income of $96,000/year as long as you live. Use this link for more information:
https://www.immediateannuities.com/info ... tep-1.html

Best wishes.
Taylor
Yes - but might it not be worth considering and evaluating whether waiting to purchase such an SPIA is really needed? The older you are when you purchase one, the more you get each year for your lifetime.

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HomerJ
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Re: Retired: Don't want to outlive my funds

Post by HomerJ » Tue Jun 25, 2019 11:46 am

An SPIA - Single premium Immediate Annuity (the only good annuity) is a decent plan for someone with no inheritance plans.

Lets you spend a lot more with no risk of outliving your money. You give an insurance company a Single Premium (one lump sum), and they give you annual money for the rest of your life.

Maybe buy one with $100,000 and that will cover the $8000 annual shortfall.

But the OP has plenty of money. CDs will work just fine.
Last edited by HomerJ on Tue Jun 25, 2019 11:48 am, edited 1 time in total.
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Re: Retired: Don't want to outlive my funds

Post by Watty » Tue Jun 25, 2019 11:47 am

M.Lee wrote:
Tue Jun 25, 2019 8:56 am
Now we get down to what to do with the 1 million 401k money. I am thinking of putting it in CD's. Please don't cringe. Ok, so it's only 2%, but it is SAFE and 2% of a million dollars isn't chump change. However, the RMD is going to chew up most of that.

Can you see the quandary I'm in?
I don't see the quandary. You are risk averse but you know that you are and you can afford to be. When you are afraid of taking risks that "is what it is" so you need to acknowledge it and invest accordingly. That can be a problem for some people because they do not have enough to live on but you should be fine.

The problem with CDs is that they could lose investing power to inflation like you have run into with your pension. An alternative would be to buy a ladder of individual TIPS where one of them matures each year.

If you are not familiar with TIPS that stands for Treasury Inflation Protected Security which is a very safe government bond that will pay you a small amount of interest and adjust for inflation each year. There is a wiki on these. For example if you buy a $10,000 TIPS bond that matures in 2040 it will likely pay you a bit less than $100 each year and then in 2040 you would get the equivalent of $10,000 adjusted for inflation.

https://www.bogleheads.org/wiki/Treasur ... d_Security

What I mean by a ladder is you would buy one that matures in 2020,2021,2022, and so on and when it matures it is cashed so the money becomes available for you to spend. For example you could buy $20,000 in TIPS that mature each year for the next 30 year. That would cost $600,000. You can only buy TIPS that mature 30 years into the future which is why I used 30 years.

The way TIPS are taxed usually only makes them a good choice within a retirement account. If for some reason you need the money before a TIPS bond matures then they can be sold but the amount that you can sell them for may be higher or lower depending on if interest rates are higher or lower than when you bought the TIPS. If you hold them until they mature they will be worth the expected amount.

You likely cannot buy TIPS in your 401k since you only have limited mutual fund selections in the 401k. You can call Fidelity and have then move your 401k money into an IRA with them and not have to pay any taxes because of the "rollover"(use that term) until you eventually withdraw the money from the IRA years from now. If you call them they will be glad to walk you through the process which is mainly just signing some forms.

They can also likely walk you through buying the TIPS ladder will mean that you need to do 30 individual purchases but that is something that you will only have to do one. Once you have done a couple the rest will be easy. If you live near a large city there is likely a Fidelity office that you could go into to get this set up in person.

There are also mutual funds that only buy TIPS and those are an option but they will vary in price a bit each day as interest rates change and they will not automatically be provide you with the income each year. They could work fine but I suspect that they might cause you more stress so I think the ladder of individual TIPS would be better for you.

I used buying $20K of TIPS for each year since that would give you plenty to pay taxes on the IRA withdrawal and to make up for the purchasing power that your pension loses to inflation each year. There is nothing magic about that number and you could select some other number that makes sense to you.

In my example the TIPS cost $600K so you would still have another $400K to figure out what to do with. Fidelity calls their target date funds "Freedom" funds and they will use a date like 2020 in the fund name to say that it would be appropriate for people that retire in around 2020. For people that have already been retired a while they replace the number with the word "Income" to indicate that is is appropriate for older people that are more conservative. You could put the remaining $400K onto their "Fidelity Freedom Index Income Fund - Investor Class" fund which has the ticker symbol FIKFX. They also have a version without the word INDEX in the name but you would want the INDEX version since it has a lower expense ratio.

https://fundresearch.fidelity.com/mutua ... /315792150

This is very conservative but it does still have some stock exposure which is very important so that the money will likely grow a bit which could be important if you need something like an expensive nursing home 20 years from now.
M.Lee wrote:
Tue Jun 25, 2019 8:56 am
That said, if I really got strapped, I could ditch the hobby and move, eliminating a lot of issues.
You are not even close to that, if anything you could easily spend a bit more on your hobby if you wanted. Going out and doing something like buying a 50 foot boat instead of a 30 foot boat is probably not a good idea but within reason there is no reason to skimp on it.
M.Lee wrote:
Tue Jun 25, 2019 8:56 am
Based on what I've written, what would you do in my situation.
I am not as risk averse as you so what I would do would be a lot different. I would probably just put all the 401k money into the Fidelity Freedom Index Income Fund that I mentioned and be done with it, but I am not you so that probably does not matter a lot. My situation is a lot different but when I retired a few years ago I actually put most of my money into Vanguards version of a 2015 fund but the Fidelity INDEX versions are fine too.

You have been recently widowed, regardless of all the stuff I said above there is a lot to be said for putting the money into something ultra safe for a year and do nothing for a year. It will not pay much but for the next year I would just put it into a short term government bond fund while things settle down.

One problem with CDs is that the FDIC insurance limit is $250K, there are some ways to work around that but for right now short term government bonds would be fine.

Parking the money somewhere safe for a while is a reasonable thing to do but there are two risks;
1) You may still fret about the money for the next year so that might not buy you much peace of mind.
2) You never get around to unparking the money and setting up a long term plan.

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M.Lee
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Re: Retired: Don't want to outlive my funds

Post by M.Lee » Tue Jun 25, 2019 1:55 pm

HomerJ wrote:
Tue Jun 25, 2019 11:46 am
An SPIA - Single premium Immediate Annuity (the only good annuity) is a decent plan for someone with no inheritance plans.

Lets you spend a lot more with no risk of outliving your money. You give an insurance company a Single Premium (one lump sum), and they give you annual money for the rest of your life.
With Annuities, what happens if the insurance company goes bankrupt? That can happen.

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Re: Retired: Don't want to outlive my funds

Post by dm200 » Tue Jun 25, 2019 1:58 pm

HomerJ wrote:
Tue Jun 25, 2019 11:46 am
An SPIA - Single premium Immediate Annuity (the only good annuity) is a decent plan for someone with no inheritance plans.
Lets you spend a lot more with no risk of outliving your money. You give an insurance company a Single Premium (one lump sum), and they give you annual money for the rest of your life.
Maybe buy one with $100,000 and that will cover the $8000 annual shortfall.
But the OP has plenty of money. CDs will work just fine.
Note that, as best I know, there is a significant difference for the same purchase amount and the same age between men and women [unlike just about all defined benefit plans, social security, etc.). Since women, on average, significantly outlive men - women get less per year than men OR pay more for the same benefit as men.

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Re: Retired: Don't want to outlive my funds

Post by Thegame14 » Tue Jun 25, 2019 2:18 pm

You can take the $1M, get an SPIA, and prob get 40-50K a year easily from it, and have no worries.

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Taylor Larimore
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Re: Retired: Don't want to outlive my funds

Post by Taylor Larimore » Tue Jun 25, 2019 2:19 pm

M.Lee wrote:
Tue Jun 25, 2019 1:55 pm
HomerJ wrote:
Tue Jun 25, 2019 11:46 am
An SPIA - Single premium Immediate Annuity (the only good annuity) is a decent plan for someone with no inheritance plans.

Lets you spend a lot more with no risk of outliving your money. You give an insurance company a Single Premium (one lump sum), and they give you annual money for the rest of your life.
With Annuities, what happens if the insurance company goes bankrupt? That can happen.
M.Lee:

Each State has a "Guarantee Association" that guarantees continued benefits to annuity policyholder if a company goes bankrupt. You can read more here:

https://www.investopedia.com/terms/i/in ... iation.asp

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

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HomerJ
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Re: Retired: Don't want to outlive my funds

Post by HomerJ » Tue Jun 25, 2019 2:38 pm

Thegame14 wrote:
Tue Jun 25, 2019 2:18 pm
You can take the $1M, get an SPIA, and prob get 40-50K a year easily from it, and have no worries.
At his age, he can get twice that.

But I would never put ALL (or even a large percentage) of my money into a SPIA.

But a small chunk to create a lifetime income stream (basically creating your own pension) to supplement Social Security, and other pensions, sure.. It's good for that if you don't want to bother with investing.
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Re: Retired: Don't want to outlive my funds

Post by aristotelian » Tue Jun 25, 2019 2:51 pm

Spend more, or donate to charity.

If you want to get technical, look into Variable Percentage Withdrawal, i.e. withdrawing higher and higher perecentage based on your age.

Regardless, this falls in the category of good "problems" to have.

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Re: Retired: Don't want to outlive my funds

Post by retiredjg » Tue Jun 25, 2019 3:50 pm

M.Lee, I agree with others that considering a SPIA (the only type of annuity to consider) could be a good choice for you because it is like buying another pension. It would relieve the anxiety you are having about having enough money to last the rest of your life.

If you decide to do this, DO NOT put the entire $1 million into an annuity. You do not need anything near that. Put in enough to pay you something like $10k or $12k a year and spend whatever amount of that you want. If there ever comes a time that is not enough, buy another small SPIA to give that income a boost.

The truth is you have plenty of money to last a good long while. Financially, you don't need a SPIA, you just need to be spending the 401k.
But if a SPIA makes you more comfortable, then it could be a good choice for you.


Also, I'm wondering if the "recently widowed" aspect of your situation may be making you more anxious than you really need to be. It is possible you should just leave everything alone for a year and then make decisions about how to handle this money.

You have plenty of money and you have plenty of time to make this decision. There is no need to rush into anything right now when you may be at your lowest ability to make good decisions for the long run.

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Re: Retired: Don't want to outlive my funds

Post by BL » Tue Jun 25, 2019 4:04 pm

There is no rush to make final decision on your money. Just park it in a comfortable place where you can get a bit of interest on it, maybe 2+%. It is recommended that one should delay unnecessary decisions for up to a year after events such as a death in family; there is already enough stress so that it is unwise to add more than the necessary decisions.

Bookmark this thread and come back to it later when some time has passed.

Some like Ally bank, an on-line bank with decent rates for FDIC insured CDs and bank money market or savings. Another favorite is Vanguard Target Income fund, Life Strategy Income fund, or money market funds (Prime, Treasury, Federal) which have decent rates. (I think MM rates and CDs are gradually decreasing this year.) Fidelity has acceptable ones as well.

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Re: Retired: Don't want to outlive my funds

Post by MathWizard » Tue Jun 25, 2019 4:38 pm

I agree, with your recent loss, I would not worry about finances too much, you should be fine.

In your shoes, I would use some use some funds from the 401k to buy a single premium immediate annuity (SPIA) with about $100 K
to provide you with the $8K/year to fill the gap. Without inflation adjustment, at 73, that would be about $100 K.

Then you have base needs covered, you get a monthly check from your annuity company along with a pension check, and Social Security,
and can use the $70 K you have in the bank however you chose. SS is inflation adjusted, so some purchasing power will be maintained.

You may want to buy a smaller one SPIA later to adjust for the loss in purchasing power.

I give to charity, and if you do, you can convert some your 401K to an IRA for the purposes of taking Qualified Charitable Distributions

You will have RMDs from your IRA as well, but you can take a portion of the RMD from the IRA as a Qualified Charitable Distribution.
The IRA holder would send a check directly to the eligible charity, and if that is the first distribution in the year, that counts against
your RMD for the IRA, and you won't pay tax on the distribution.

For some reason, you can't do the same RMD trick from a 401k.

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Re: Retired: Don't want to outlive my funds

Post by Wiggums » Tue Jun 25, 2019 6:12 pm

HomerJ wrote:
Tue Jun 25, 2019 10:14 am
M.Lee wrote:
Tue Jun 25, 2019 8:56 am
Based on what I've written, what would you do in my situation.
Enjoy your hobby and retirement.

Obviously, $1 million in CDs will take care of your $8000 a year shortfall.

2% CDs will throw off $20,000 a year. And that's without touching any of the principal.

You are in amazing shape, and should never have to worry about money.

Go spend more if you want.

Edit: RMDs are no big deal. You'll have to cash out some of your $1 million each year, but you can just put it in a normal bank and buy another CD. It will be considered income, so you'll have to pay some taxes, but again, the interest you're pulling will more than pay for it.
I agree!

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Re: Retired: Don't want to outlive my funds

Post by tibbitts » Tue Jun 25, 2019 6:26 pm

dm200 wrote:
Tue Jun 25, 2019 10:08 am
Owning a home can help with this goal - it can keep housing expenses fairly flat over a long period.

Check to see of senior homeowners in your jurisdiction can qualify for any type of real estate tax deferral or exemption. Our jurisdiction has a generous program. I run into many folks who do not know about the program - until I tell them. One person I know - had spent tens of thousands of dollars paying real estate taxes over the years - the could have been either exempted from or deferred until she sold her condo.

Fortunately, now, she is paying no rel estate tax each year.
I agree about not missing out on tax breaks, but...

Renting makes for much more stable outflows than owning a home. All kinds of unexpected (and of course some expected) expenses come up when you own a home that don't apply to renting. And those expenses are just as subject to inflation as rent is.

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Re: Retired: Don't want to outlive my funds

Post by GrowthSeeker » Tue Jun 25, 2019 6:32 pm

Step One: Relax
Step Two: Realize that you're going to be absolutely fine, no matter what you do financially (see Step One).
Step Three: Hurry up and don't do anything right away; except read, think, discuss, figure it out.

A few rambling thoughts which I hope will help.

First of all, I know I hate it when someone tries to tell me what I feel; they don't know how I feel; but I'm going to suggest that rather than hating mutual funds, what you really hate is your experience so far with mutual funds and your notion about what mutual funds (which might not be entirely accurate). I'm not sure how you could have lost the entire Merrill Lynch account in 2000; yes the market dropped 50-60%, but it didn't drop 100%; so there must be more to the story. I'm not asking you to tell that story, I'm just saying a lot of people went through 2000 and didn't lose everything. Personally I hate money managers taking 1% of the account value, putting someone into high expense ratio mutual funds for which the manager also takes a commission, and needlessly churning the account buying and selling generating more fees.

Several have mentioned the most conservative of the Vanguard Life Strategy Funds (20% stock, 80% bond): note that, AFAIK, that low cost fund owns little pieces of maybe 10,000 different stocks and 14,000 different bonds, so it is very diversified.
Vanguard LifeStrategy Income Fund (symbol: VASIX) current SEC yield: 2.29%
One thing about stocks is they provide some protection against inflation.

Your annual deficit is $8,000, but your $1,100,000 portfolio is 137 times that!! I am one who has just SS with no pension so I have a substantial annual deficit. I have enough portfolio that I don't have to worry about it. But psychologically, that deficit is still there so I know what you're probably feeling about it.
One solution, already mentioned above, could be to put about $100,000 into a SPIA and expect a payout of about $8,000 per year forever. No more deficit. If inflation or lifestyle changes bring on a new deficit in 10 years, maybe get another SPIA if it makes sense. Others can advise you re whether to purchase such a SPIA from within a rollover IRA, or within a 401k if that is allowed, or with after tax money.
Just because you're paranoid doesn't mean they're NOT out to get you.

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Re: Retired: Don't want to outlive my funds

Post by kellyfj » Tue Jun 25, 2019 6:44 pm

My condolences on your loss.

If the loss is truly recent < 12-18 months I'd suggest you consider talking to someone about your loss e.g a social worker or perhaps a therapist.
Often when someone experiences a terrible loss they'll experience depression or depression-like symptoms which can result in poor (risk averse) decision making.
Sometimes it takes a few years to recover during which time I'd suggest not making any rash decisions.

Frank

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Re: Retired: Don't want to outlive my funds

Post by Bacchus01 » Tue Jun 25, 2019 6:50 pm

First, I’m sorry for your loss.

Second, I think you should consider the fact that, based on the information you provided, you are more likely to die with a net worth in the millions than you are to come close to running out of money. You either have a lot of room to spend more, or you need to consider where you want the money to go.

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Re: Retired: Don't want to outlive my funds

Post by Bacchus01 » Tue Jun 25, 2019 6:52 pm

HomerJ wrote:
Tue Jun 25, 2019 10:36 am
msk wrote:
Tue Jun 25, 2019 9:37 am
If the future is similar to the past 100 years, 100% stocks can support a WR of 5% a year and, on average, keep up with inflation forever.
This is misleading.

Pulling 5% a year of your starting portfolio from 100% stocks if you retired right before the Great Depression would leave someone completely bankrupt in less than 20 years.

That's how most people read what you wrote. Because that's what we usually mean when we talk about withdrawal rates.

Of course, what you actually mean is pulling 5% of the CURRENT balance each year. Which means during a 50% crash, you have to drop spending 50%, and during a 80% crash, you'll have to cut spending 80%.

Yeah, you'll never go broke, but you might lose your house or be unable to afford medical care. That's not exactly great advice.

One can make the exact same statement about pulling 60% a year. One will never go to zero pulling 60% a year of your current portfolio.

You will get the point where you might starve to death, but you won't technically go broke!
I don’t think that’s what the OP meant at all and is not what the studies have shown.

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Re: Retired: Don't want to outlive my funds

Post by HomerJ » Wed Jun 26, 2019 12:19 am

Bacchus01 wrote:
Tue Jun 25, 2019 6:52 pm
HomerJ wrote:
Tue Jun 25, 2019 10:36 am
msk wrote:
Tue Jun 25, 2019 9:37 am
If the future is similar to the past 100 years, 100% stocks can support a WR of 5% a year and, on average, keep up with inflation forever.
This is misleading.

Pulling 5% a year of your starting portfolio from 100% stocks if you retired right before the Great Depression would leave someone completely bankrupt in less than 20 years.

That's how most people read what you wrote. Because that's what we usually mean when we talk about withdrawal rates.

Of course, what you actually mean is pulling 5% of the CURRENT balance each year. Which means during a 50% crash, you have to drop spending 50%, and during a 80% crash, you'll have to cut spending 80%.

Yeah, you'll never go broke, but you might lose your house or be unable to afford medical care. That's not exactly great advice.

One can make the exact same statement about pulling 60% a year. One will never go to zero pulling 60% a year of your current portfolio.

You will get the point where you might starve to death, but you won't technically go broke!
I don’t think that’s what the OP meant at all and is not what the studies have shown.
The OP? (Original poster?) or are you talking about msk?

msk is indeed talking about taking 5% of the portfolio each year. Yes, you don't go broke, but if the market goes down 30%, your income that year goes down 30% as well...

That's why it's confusing... Usually when we talk about withdrawal rates, we mean x% of the original portfolio.

If I have $1 million of a 60/40 stocks/bonds portfolio, I can take 4% of the original amount or $40,000 every year, even in down years, and still be very likely to not run out of money. That's what the Trinity Study looked at.

100% stocks absolutely is risky. Stocks dropped 80+% during the Great Depression. 4% or 5% withdrawals of the original portfolio left you dead broke after a decade or two if you retired the day before the Great Depression started.
The J stands for Jay

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Re: Retired: Don't want to outlive my funds

Post by msk » Wed Jun 26, 2019 12:56 am

That's why I specifically checked out what is the steady state WR ON THE ANNUAL BALANCE that ought to keep up, on average, with inflation forever, and the portfolio balance also keeps up with inflation forever on BONDS; 2.5%. Fundamental problem with the standard 4% guide for 30 years comes up as you age. This is an issue that is not appreciated fully by spritely 65 year-olds. Kids! What do they know? I have friends who are in their 80s and I assure you that they are terrified of running out of money, or having to cut down on their standard of living. It is really quite traumatic for an 80 year-old to contemplate moving from his $x million $ over-sized ocean-side home regardless of what logic dictates. My current home is 14,000 sq ft and of course all sensible logic would say that myself and DW ought to move into an ocean-side condo with a supermarket on the ground floor. Hence my own research was to find perpetual guidelines; 5% of balance on an all-stocks portfolio and 2.5% on an all bonds portfolio. All-stocks WILL yoyo up and down fiercely, but you do get an extra 2.5% spending, on average, in real terms forever. We can all decide on our own AA. Mine is 100% stocks because my NW is primarily for my heirs and charity. The OP is also almost in the same boat. He CAN withstand violent swings in the stock market, but if that terrifies him anyway, he can opt for 2.5% of portfolio balance annually from a 100% bonds portfolio. That ought also to last forever. Or SPIAs. Our attitudes change quite dramatically between ages 65 and below and 85+. Trust me :twisted: I am almost 75, so halfway :sharebeer

PS simple arithmetic indicates that a 50:50 AA ought to withstand a 3.75% withdrawal of annual portfolio balance and, on average, keep up with inflation forever. When in doubt, go halfway :beer

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Re: Retired: Don't want to outlive my funds

Post by student » Wed Jun 26, 2019 4:42 am

TomatoTomahto wrote:
Tue Jun 25, 2019 9:09 am
Based on what you’ve written, what I would do in your situation is: Relax.

You might not maximize your returns, but I think you’ll be okay.
Excellent analysis. You just have to hold serve. All you need to is keep pace with inflation. I know you said you do not like mutual fund; otherwise I would say inflation linked bond fund if you do not want to invest in stocks.

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Re: Retired: Don't want to outlive my funds

Post by TomatoTomahto » Wed Jun 26, 2019 4:57 am

student wrote:
Wed Jun 26, 2019 4:42 am
TomatoTomahto wrote:
Tue Jun 25, 2019 9:09 am
Based on what you’ve written, what I would do in your situation is: Relax.
You might not maximize your returns, but I think you’ll be okay.
Excellent analysis. You just have to hold serve. All you need to is keep pace with inflation. I know you said you do not like mutual fund; otherwise I would say inflation linked bond fund if you do not want to invest in stocks.
I like the “hold serve” analogy. I will unabashedly steal it from you and use it :D Just serve out the match.

Some of the other advice, IMO, doesn’t pay heed to OP’s obvious stress. He had a traumatic flight and is afraid to fly. He only needs to go a couple of hundred miles, so a train or car will suffice; no need for OP to force himself onto a plane.
Okay, I get it; I won't be political or controversial. The Earth is flat.

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Re: Retired: Don't want to outlive my funds

Post by student » Wed Jun 26, 2019 5:07 am

TomatoTomahto wrote:
Wed Jun 26, 2019 4:57 am
student wrote:
Wed Jun 26, 2019 4:42 am
TomatoTomahto wrote:
Tue Jun 25, 2019 9:09 am
Based on what you’ve written, what I would do in your situation is: Relax.
You might not maximize your returns, but I think you’ll be okay.
Excellent analysis. You just have to hold serve. All you need to is keep pace with inflation. I know you said you do not like mutual fund; otherwise I would say inflation linked bond fund if you do not want to invest in stocks.
I like the “hold serve” analogy. I will unabashedly steal it from you and use it :D Just serve out the match.

Some of the other advice, IMO, doesn’t pay heed to OP’s obvious stress. He had a traumatic flight and is afraid to fly. He only needs to go a couple of hundred miles, so a train or car will suffice; no need for OP to force himself onto a plane.
I wasn't suggesting that the OP buys inflation linked bond fund now. My point was if someone does not have this stress, one could buy inflation linked bond fund to ensure keeping pace with inflation. Sorry if this wasn't clear.

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Re: Retired: Don't want to outlive my funds

Post by TomatoTomahto » Wed Jun 26, 2019 5:39 am

student wrote:
Wed Jun 26, 2019 5:07 am
TomatoTomahto wrote:
Wed Jun 26, 2019 4:57 am
student wrote:
Wed Jun 26, 2019 4:42 am
TomatoTomahto wrote:
Tue Jun 25, 2019 9:09 am
Based on what you’ve written, what I would do in your situation is: Relax.
You might not maximize your returns, but I think you’ll be okay.
Excellent analysis. You just have to hold serve. All you need to is keep pace with inflation. I know you said you do not like mutual fund; otherwise I would say inflation linked bond fund if you do not want to invest in stocks.
I like the “hold serve” analogy. I will unabashedly steal it from you and use it :D Just serve out the match.
Some of the other advice, IMO, doesn’t pay heed to OP’s obvious stress. He had a traumatic flight and is afraid to fly. He only needs to go a couple of hundred miles, so a train or car will suffice; no need for OP to force himself onto a plane.
I wasn't suggesting that the OP buys inflation linked bond fund now. My point was if someone does not have this stress, one could buy inflation linked bond fund to ensure keeping pace with inflation. Sorry if this wasn't clear.
The lack of clarity was mine. By “other advice” I meant the posters who wanted OP to have a more traditional AA, not you.
Okay, I get it; I won't be political or controversial. The Earth is flat.

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Re: Retired: Don't want to outlive my funds

Post by 3-20Characters » Wed Jun 26, 2019 6:41 am

M.Lee, there’s conservative and then there’s “money under the mattress” conservative. Can you please clarify this statement?
Circa 2000, I lost almost all my father's inheritance when I was invested with Merrill Lynch and their mutual funds. I do not want anyone handling my money and I hate mutual funds.
What sort of fund(s) were these? Maybe internet/tech? Many of us lost a ton of money back then because we got wild and greedy. I personally took about $30-35k and halved it. Some of my individual stocks went to zero and a “blue chip” that couldn’t lose money dropped significantly. Although I was a boglehead-minded individual back then, I lost the narrative thread but thankfully not in a big way.

Now, when you say you hate mutual funds, even a money market fund is a mutual fund. But if you want to be 100% in CDs and other bank deposits, go ahead. But maximize the returns, at least. 70k in checking? That’s crazy! Ally is paying .10% in checking and over 2% in savings. I can transfer funds between checking and savings instantaneously with a couple of taps on my iPad if I need money in checking to pay bills. So no way I’d leave 70k in checking because that’s free money sitting there in the form of interest.

What about almost free money: Look for banks that offer bonuses and transfer some funds to get the bonus. I see bonuses for $200-500. It takes a bit of work but it pays a good rate when calculated by the hour.

Conclusions:
Personally, if I were you I’d still go 20% stocks for some growth/inflation protection but I understand if you choose not to. If you want to stay with just banks, CDs, etc, maximize interest and bonuses.

SPIAs: I’m not against them but in your case, unless you can find a true COLA one, I’m not in favor of it because it does not address what I think is your biggest risk (inflation).

alibaba123
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Joined: Mon Dec 31, 2018 12:51 pm

Re: Retired: Don't want to outlive my funds

Post by alibaba123 » Wed Jun 26, 2019 8:04 am

msk wrote:
Tue Jun 25, 2019 9:37 am
I am 74, so I can sense your anxiety. Basically there is a chance of dying this year or surviving till 90+ yet you wish to "spend it all". You CAN'T be relaxed and spend it all! You are short only $8k a year. If the future is similar to the past 100 years, 100% stocks can support a WR of 5% a year and, on average, keep up with inflation forever. Bonds can support a WR of 2.5% and both the withdrawals and the remaining portfolio ought to keep up with inflation forever. Basically NEVER exceed a 5% WR from a 100% stocks portfolio nor a 2.5% WR from a 100% bonds portfolio. Since you are terrified of losses because of the market, you can place that $1 million in 100% bonds and NEVER exceed 2.5% WR, averaging out with $25k a year in real terms, forever. Or in 100% stocks and average out $50k in real terms. Or any mix. Just never exceed those 2.5%/5% limits in each allocation. The portfolios both last forever, since you are withdrawing a percentage of the balance, not the usual 4% start and then inflated each year. It quickly rises above 5% of the balance and then you will get worried as you approach age 80 and see large chunks being cashed. Relax and enjoy. No need for anxiety.

PS I am 100% stocks worldwide by free market weight, as in VT where the dividend yield alone is 1.8+% so to get 5% max WR (if required) I need to sell only 3.2% of the then remaining each year. IMHO much better for inflation proofing than bonds... But you'll also be OK with 100% bonds and staying below 2.5%.
Hi msk, may i know how you get 5% withdrawal rate from 100% stocks? All the literature i've read indicates that is too high a withdrawal rate to be considered safe.

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