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

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

Post by Sandtrap » Thu Apr 12, 2018 9:20 am

What is the nature of the business you are starting or in?

retired businessman
aloha
j :D

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

Post by wolf359 » Thu Apr 12, 2018 9:39 am

cjcerny wrote:
Thu Apr 12, 2018 9:15 am
notcisko wrote:
Thu Apr 12, 2018 4:04 am

@cjcerny Thanks, will look into that. Any recommendations?
A SPIA (single premium immediate annuity) is a simple insurance contract. You give an insurance company as much money as you want to and they, in turn, pay you a guaranteed monthly amount for as long as you live based on their calculations about your lifespan. Think of it as a do it yourself pension. Plenty of info available on the interwebz. Be sure to shop around and make sure the costs are as low as possible if you want to purchase one. Consider maybe purchasing a SPIA with some of your money and investing the rest of it in low cost stock and bond index funds to get the best of both worlds.
37 is too young for a SPIA. The insurance company may not issue it at that age, or they would offer some really horrible returns. It would be worse if he added his wife to it as well (assuming they're of a similar age.)

The earliest time to buy a SPIA is generally in your 50's. Prices (and mortality credits) get better the older you are.

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

Post by ruralavalon » Thu Apr 12, 2018 3:37 pm

notcisko wrote:
Thu Apr 12, 2018 4:04 am
@ruralavalon Yes it will be a taxable account. I will look into VTMFX and the three-fund portfolio. Thanks for the tips. Fully plan to do the proper research first. That's why I am here like a year early.
Here are some links on the three-fund portfolio. Wiki article "Three-fund portfolio". Forum discussion, "The Three-Fund Portfolio".

Here are some links about further reading. Wiki article, "Books: recommendations and reviews". When I first stated managing my own investments, I found this tutorial very helpful in learning investing terminology/jargon and some of the investing basics. Morningstar, "Investing Classroom". Also take a look at the Boglehead’s wiki, the "getting started" link I give below.
notcisko wrote:
Thu Apr 12, 2018 4:04 am
I misspoke when I said I don't plan on working anymore. I don't want to have to work anymore if I don't want, and I don't want to depend on work to survive. I am actually starting a new business, but am not sure how long that will take to generate decent income.
Since you will own your own business you could consider using a SEP IRA, SIMPLE IRA, individual (solo) 401k, or small-business 401k. Vanguard, small-business plans,"Compare plans". Fidelity also offers the same types of plans. Fidelity "Retirement plans for small businesses ". The Bogleheads' wiki has articles on each type of plan. Boglehead's wiki, "SEP IRA". Boglehead's wiki, "SIMPLE IRA". Boglehead's wiki, "Solo 401k Plan".
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

inbox788
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Re: How can I Invest 4 million dollars to earn 120k (inflation adjusted) a year for life?

Post by inbox788 » Thu Apr 12, 2018 6:40 pm

wolf359 wrote:
Thu Apr 12, 2018 9:39 am
37 is too young for a SPIA. The insurance company may not issue it at that age, or they would offer some really horrible returns. It would be worse if he added his wife to it as well (assuming they're of a similar age.)

The earliest time to buy a SPIA is generally in your 50's. Prices (and mortality credits) get better the older you are.
FWIW, I got a quote of around $15k/month on $4M for a 40 year old. This would generate the 120k initially, but don't know if inflation would keep up with what OP wants and it would also consume much of the $4M, which OP wants to preserve. You can't have both a guarantee and market returns. You've got to pick. I wouldn't do the annuity and take my chances with the market with moderate risk like Vanguard LifeStrategy Moderate Growth Fund (VSMGX) or similar.

https://www.immediateannuities.com

https://personal.vanguard.com/us/funds/ ... irect=true

https://www.whitecoatinvestor.com/150-p ... han-yours/

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

Post by chessknt » Thu Apr 12, 2018 7:04 pm

livesoft wrote:
Thu Apr 12, 2018 8:22 am
chessknt wrote:
Thu Apr 12, 2018 7:42 am
It is dangerous to go without healthcare insurance.
Quite a lot of people don't think so, but that's politics, so we cannot discuss it.
It isn't about politics--the financial risk of a catastrophic illness can easily exceed the entire cost of a total loss on a home. And for someone who likes to race cars that risk is that much higher.

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

Post by PhilosophyAndrew » Thu Apr 12, 2018 7:18 pm

gmaynardkrebs wrote:
Wed Apr 11, 2018 12:24 pm
You are kind of on the edge of "having it made." I'd say losing half your money will hurt you more than doubling it will help you. So, I'd be very conservative -- you are so close winning the game.
Gmaynardkrebs, to your mind is OP close to meeting each of the conditions he sets out, or is he close to “winning the game” in the less stringent sense normally used here, that is attaining financial independence?

If the OP did not have the huge bequest motive entailed by his desires 6% annual portfolio growth for life, it would seem to me he will reach financial independence for his desired level of consumption if he receives the predicted windfall. Do you disagree? If so, please say more!

OP, how committed are you to the extremely large bequest motive that your lifetime desired portfolio growth suggests you possess? As others have suggested, this motive constrains your ability to use your wealth during your lifetime, and perhaps relaxing this expectation would ease your fears about future short-corrections and bear markets.


Andy.

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

Post by CyclingDuo » Thu Apr 12, 2018 8:39 pm

notcisko wrote:
Thu Apr 12, 2018 4:04 am
@CyclingDuo Thanks for the hybrid approach! the idea of having half in a dividend paying portfolio is appealing to me. I definitely need to research this more. Is there any downside regarding complexities or risk?


Downsides? Share price of the underlying assets paying you dividends will fluctuate - especially throughout the business cycle. Point being, you would be purchasing for the dividends - not the share price. Over time (as in decades) the share prices would appreciate as well mainly to keep pace with inflation and due to those increases in their dividends. Other downsides could be a company that suspends or cuts a dividend (GE, the bank stocks during the Financial Crisis, etc...). Those are the rarer circumstances that happened in the 1929 crash and the Financial Crisis - but only for particular sectors (Financial). Compared to capital gains and based on your tax bracket, dividends when held in taxable accounts could become a tax drag. However, you were seeking annual income which as you mentioned in a later post would include enough to cover the taxes.

Example of a typical dividend paying stock would be Proctor & Gamble. They just announced a 4% dividend hike and currently the stock has a 3.7% dividend yield. They have paid a dividend to shareholders for 128 consecutive years. That doesn't mean the share price won't fluctuate - because it will. But if you build a portfolio of companies that historically pay dividends in a variety of industries, sectors, market cap, and location of country - they pay the dividends no matter where we are in the business cycle. A few examples: Coke. Clorox. Chevron. Qualcomm. AT&T. Verizon. McDonalds. Vale. Con Edison. New Residential. Altria. Realty Income. Johnson & Johnson. 3M. Iron Mountain. Dine Brands. W.P. Carey. Sun Communities. RMR Group. GEO Group. Vector Group. Main Street Capital. Chatham Lodging. Boeing. Apple. Microsoft. Home Depot. Abbott Labs. Mastercard. British American Tobacco. Wells Fargo. Bank of America. Walmart. Medtronic. Amgen. Rio Tinto. Kraft Heinz. And on and on.
notcisko wrote:
Thu Apr 12, 2018 4:04 am
I also like the idea of buying at the bottom of a recession, but I have no clue when it will be. I do feel within the next 5 years though.... hopefully by then I have extra cash to invest. Regarding the "immediate annuity" and "annuity" any downsides I should be aware of? Why do that over a dividend paying portfolio? "Or you could do a hybrid of all three" ::head spinning:: lol Thanks again, you have gave me a lot to think about.
If we assumed that a recession could easily shave 30%, 40%, or even 50% of share prices off of some dividend companies - obviously one could purchase dividend paying stocks at a discount compared to the peak or late stage of a bull market. Share price would eventually appreciate in the business cycle, so the overall cost of the portfolio for the same amount of dividends would be lower in terms of an entry point. Difficult to time, so legging in with shares at various prices could be a strategy that would work out well in the long run. Many investors start with a small position and let the dividends each quarter be reinvested (through DRIP's or dividend reinvestment plans) to purchase more shares over the years to build a dividend paying portfolio. Then, once they stop working or retire - they may turn off the DRIP's and live off of the dividends. The intent being not to ever sell the shares, but simply utilize the dividends as monthly/quarterly income.

With your $4M, you could easily "buy" your goal of $100 - $120K of annual income from dividends using only a portion of the $4M.

As to the annuity, the insurance/annuity company would take your lump sum payment and make more money off it for themselves, while guaranteeing you a monthly income to meet or partially meet your $100-120K inflation adjusted annual income for life. The downsides are you are paying for the income more than history shows you could make with the same amount of money invested on your own and utilizing safe withdrawal rates. So you trade in higher returns you would most likely get on your own via index fund investments for guaranteed safety of income. It's like "buying" a pension. Some are able to sleep better at night with this knowledge of guaranteed income.

According to FIRECalc....

If you put $4M in a 75% equity/25% bond portfolio at age 37 until age 92 and never worked another lick in your life while spending $120K a year inflation adjusted - you have 100% chance of successfully not outliving your money with a median ending portfolio value at age 92 of $32M and a high ending portfolio value of $83M, with a low of $4M.

If you put $4M into a 100% equity portfolio at age 37 until age 92 and never worked another lick in your life while spending $120K a year inflation adjusted - you have 100% chance of successfully not outliving your money with a median ending portfolio value of $58M at age 92 and a high ending portfolio value of $173M, with a low of $4M.

I don't foresee any problems no matter what direction you go of making this work for you. Total Return. Hybrid with total return and dividend paying stocks. Or a combo of total return, dividends, and an annuity.
"Everywhere is within walking distance if you have the time." ~ Steven Wright

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

Post by Agggm » Thu Apr 12, 2018 9:53 pm

cjcerny wrote:
Wed Apr 11, 2018 6:50 am
Sounds like you should be considering purchasing a simple fixed annuity with some or all of that $4 million.
No.

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

Post by Da5id » Fri Apr 13, 2018 8:04 am

Agggm wrote:
Thu Apr 12, 2018 9:53 pm
cjcerny wrote:
Wed Apr 11, 2018 6:50 am
Sounds like you should be considering purchasing a simple fixed annuity with some or all of that $4 million.
No.
Why not? I'm not a huge annuity fan, but among OPs conflicting requirements is a desire for security/safety. An SPIA (or deferred version) would provide an income floor and give him lots of that security/safety. At least worth pondering or giving more reasons than "No".

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

Post by dbr » Fri Apr 13, 2018 8:34 am

I made a comment on another thread that applies here: "In investing it is very easy to list a set of conditions that excludes all possible options."

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

Post by retiredjg » Fri Apr 13, 2018 8:56 am

notcisko wrote:
Thu Apr 12, 2018 4:04 am
@retiredjg Regarding the total withdraw rate, I just realized this, thanks for clarifying. "As you likely know a 4% withdrawal has worked in the past....for up to 30 years." Does this mean the money is exhausted after 30 years?
In the study that produced this often quoted 4% number, I believe a small percentage of the portfolios were exhausted and obviously some were near exhaustion at the 30 year period.
I thought the average return we can expect was something like 8%. If I am withdrawing only 4% how could I ever have less than what I started with?
I suppose because some years you will still be drawing the same amount (plus increases for inflation) even though half the portfolio has vanished into thin air during a market crash.
I must be missing something. Inflation will be around 4% or less on average right
.
I think the average is closer to 3% over time, but there are times when inflation is much higher.

So if I want the same purchasing power I need to withdraw 4% or less and that should last forever right? Regarding withdraw of 3.5%. Just 3% would put me at 120k pre-tax. After taxes I could live fine off the rest. If I went with 3% withdraw would that last for life, assuming I wanted around 100k after taxes inflation adjusted?
None of this is guaranteed. What the study showed was that portfolios with more than a 4% withdrawal rate (defined below) failed an unacceptable number of times. But there were also times when a higher withdrawal rate worked just fine. The trouble is, we don't know what kind of cycle we are in now and for the next 30 or 40 or 50 years.

Many people believe that an average withdrawal of 3% or maybe 3.5% should last a lot longer than 30 years. I think you would be perfectly safe to start at 3.5% or even 4% and adjust accordingly over the years as you see what the portfolio actually does.

Definition of the 4% - if you have $1 million, take $40k the first year. If inflation that year is 2% you take $40k plus 2% of $40k the next year for a total of $40,800 in year two. If inflation that year is 1%, you take $40,800 plus 1% of $40,800 the third year ($41,208). And so on.

I can tell you from my own experience it does not work exactly like that. Some years I've taken much less than "my number" and occasionally I'll take more. The important thing is that I always keep that number in mind and try not to be "over" for several years in a row. And during the market unpleasantness of 2007 - 2009 and later, I did stay under the number.

Here is some information about the study that brought the 4% number into the public eye. Keep in mind that it is a study of what happened in different 30 year periods in the past. The authors never intended anyone to latch onto that number and use it for the future. The trouble is, there is little other guidance for people to depend on so that is what has happened.

Even if the 4% number is "not right", it is easy to tell that you cannot repeatedly take 8% or 10% of portfolio each year and expect to have some money for a full 30 years.

https://www.bogleheads.org/wiki/Safe_withdrawal_rates

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

Post by dbr » Fri Apr 13, 2018 9:05 am

A general comment about the above excellent reply by retiredjg is that the underlying fact about investing that retiredjg is pointing out is that investment returns and inflation are highly variable and can only be estimated with great uncertainty. To do this problem a person has to take a fundamentally statistical approach to it. This cannot be avoided. That is why so many people have written retirement models that are formulated that way.

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

Post by wolf359 » Fri Apr 13, 2018 9:43 am

Da5id wrote:
Fri Apr 13, 2018 8:04 am
Agggm wrote:
Thu Apr 12, 2018 9:53 pm
cjcerny wrote:
Wed Apr 11, 2018 6:50 am
Sounds like you should be considering purchasing a simple fixed annuity with some or all of that $4 million.
No.
Why not? I'm not a huge annuity fan, but among OPs conflicting requirements is a desire for security/safety. An SPIA (or deferred version) would provide an income floor and give him lots of that security/safety. At least worth pondering or giving more reasons than "No".
As stated above, 37 is too young for a SPIA. Companies won't write the policies. If you can find one that does, they would offer horrible returns (due to the risk they'd be assuming). For example, if you try to get a quote at immediateannuities.com, the youngest age they have on their pulldown menu is 40. If you get a quote for 40, they'll give you a flat (no inflation adjustment) return of around 4-4.5%. If you add in a spouse of similar age, the return is closer to the 4% side of that range. If you limit the annuity contract to the price protected by your state's insurance guaranty association, you're generally talking about a $250,000 limit. At 4%, that's $10,000 in income. To cover $120,000 in income, you're buying 12 separate contracts for about $3 million.

This isn't the 4% rule we're talking about. It's a non-inflation adjusted $120K, and you lose 3/4 of the money to do it.

It's better to find some means of predictable income for core expenses, and use the investments for variable expenses. Annuities can be used, but at a much later age.

This is much better summarized as...

No.

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

Post by Da5id » Fri Apr 13, 2018 9:59 am

wolf359 wrote:
Fri Apr 13, 2018 9:43 am
It's better to find some means of predictable income for core expenses, and use the investments for variable expenses. Annuities can be used, but at a much later age.

This is much better summarized as...

No.
I personally believe giving actual reasons makes the forum a much better place. You appear to disagree, or feel that a simple "no" from "wolf359" should be a persuasive case to someone who doesn't know you?

I'd not annuitize myself, certainly not most of his money either. I also wouldn't have the same list of priorities. But that doesn't mean it shouldn't be considered, particularly a deferred one. He is big on security, safety, etc. An annuity does meet some of his criteria.

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

Post by wolf359 » Fri Apr 13, 2018 10:03 am

I gave all the actual reasons in the discussion just above Agggm's "no" response. I didn't provide the original "no" with no explanation. In fact, I didn't consider it to have no explanation given the context.

My final "no" was tongue in cheek.

My intent was humor, not snark. :sharebeer

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

Post by gotester2000 » Fri Apr 13, 2018 10:39 am

Put 5 years worth of expenses in cash and the rest in equity - rebalance yearly. So about 500k and 3500k and it will work fine.

But somewhere I read OP mentioning keywords like racing, love for cars,like dining out,clothes plus money is wife's inheritance, gc processing etc - so I suspect OP doesnt have experience of handling large sums of money.

So at 37 I think OP cannot just depend on the above portfolio.

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

Post by BruceM » Fri Apr 13, 2018 10:58 am

Hi nocisko

The answer to your question of how to invest $4MM to generate a REAL $120K for life (REAL = Inflation adjusted), really depends on your overall investment goals. These goals need to speak to the following:

1. Reliability of Income (consistency of income through economic cycles and portfolio survivability)
2. Liquidity (the ability to convert your investments into cash with short notice and without loss of principal)
3. Preservation of Capital for later years or to estate
4. Willingness to self-manage
5. Ability/Willingness of others (spouse/children/investment advisor) to manage if you are unable
6. Valuation volatility (psychological)

It is the answer to these questions that will drive what you invest in and how it is managed.

Our goal priorities are reliable REAL income, moderate liquidity and ability of family to self-manage. Mid priorities are preservation of capital that may be required in later years for assisted living (we don't do long term care insurance). Lower priorities are estate legacy and volatility.

As a result, I am a pure income investor. Due to other sources of Income, our household requires only about $60K in annual REAL income from a base of about $1.5MM. We invest only for reliable and growing dividends and have taught ourselves to ignore market fluctuations and instead track the ability of the 64 stocks we hold to generate dividends. This is our 18th year using this approach, and it works fine. But it requires the discipline to focus on income only, which is much harder than it sounds. It is also a lot of work, so is important that one using this approach be willing to spend the time to do it correctly.

BruceM

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

Post by CyclingDuo » Sat Apr 14, 2018 7:42 am

BruceM wrote:
Fri Apr 13, 2018 10:58 am
Our goal priorities are reliable REAL income, moderate liquidity and ability of family to self-manage. Mid priorities are preservation of capital that may be required in later years for assisted living (we don't do long term care insurance). Lower priorities are estate legacy and volatility.

As a result, I am a pure income investor. Due to other sources of Income, our household requires only about $60K in annual REAL income from a base of about $1.5MM. We invest only for reliable and growing dividends and have taught ourselves to ignore market fluctuations and instead track the ability of the 64 stocks we hold to generate dividends. This is our 18th year using this approach, and it works fine. But it requires the discipline to focus on income only, which is much harder than it sounds. It is also a lot of work, so is important that one using this approach be willing to spend the time to do it correctly.
Curious about a couple of things if you wouldn't mind addressing.

But it requires the discipline to focus on income only, which is much harder than it sounds.


What part of it is much harder than it sounds?

It is also a lot of work, so is important that one using this approach be willing to spend the time to do it correctly.


Are you speaking of an active management standpoint where you feel that it is a requirement to change components of your portfolio all the time to meet your annual income need of $60K?

TIA
"Everywhere is within walking distance if you have the time." ~ Steven Wright

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

Post by naha66 » Sat Apr 14, 2018 8:01 am

The same you would to get10k to 12K out of 400k, it's just 2.5-3%. 70% VTI 30% bonds. :beer I see that's it's 100k-120k

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

Post by retiredjg » Sat Apr 14, 2018 8:34 am

notcisko, I thought you might be interested in this thread that contains updated information on the Trinity study and the "safe withdrawal rate". There is also mention of other types of withdrawal strategies.

viewtopic.php?p=3880456#p3880456

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

Post by BruceM » Sat Apr 14, 2018 10:42 am

Hi Cyclingduo
Curious about a couple of things if you wouldn't mind addressing.

But it requires the discipline to focus on income only, which is much harder than it sounds.


What part of it is much harder than it sounds?
What is difficult if not impossible for most wanting to adopt a pure income approach is letting go of total return and ignoring the price movement of the dividend paying stock...but in my experience, one has to do this. Example: if stock X is paying a dividend of $Y, the company is in a stable industry, the company has a wide moat and a study of company cash flows shows the dividend to be well covered, as the dividend grows, so will the stock price. However, the price will fluctuate along the way. The income investor must teach themselves to ignore these price movements and instead, focus on tracking company cash flow trending and the position the company occupies in its industry. The former is quantitative, the latter is more qualitative.

It is also a lot of work, so is important that one using this approach be willing to spend the time to do it correctly.

Are you speaking of an active management standpoint where you feel that it is a requirement to change components of your portfolio all the time to meet your annual income need of $60K?

TIA
If one derives household income from individual securities, the goal is to hold each security as long as it is providing the income you expect it to. For example, I've held about half the stocks in our income portfolio for the 17 full years we've been using the income approach. This provides advantages and disadvantages. The advantage is my annual expenses, direct and indirect are $zero, and much of the total dividends we receive are taxed at the 0% rate in a taxable account. The disadvantage is we are sitting on many high 5-figure capital gains. Now, if the likes of JNJ or KMB continue as they have over the past 20 to 50 years and raise their dividend each year and are able to sustain their cash flow growth, we will be holding these on the day we die, and if we still have an estate tax, they should then step-up to fair market value and pass to our heirs without ever having been exposed to capital gains tax. But if a company elects to sell to another in a cash-transaction or it elects to go private, we will have a very large and unexpected tax bill.

One workaround to the latter problem is to derive the required income from an income-oriented ETF, such as SPY, XLU or VNQ. But the internal fund expense will usually take from 5% to 10% of the income it derives and it will invariably be holding low yielding stocks in its portfolio and so the overall yield on the ETF will usually be below my income threshold I require.

Hope that helps

BruceM

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

Post by BruceM » Sat Apr 14, 2018 11:01 am

chessknt wrote:
Thu Apr 12, 2018 7:04 pm
livesoft wrote:
Thu Apr 12, 2018 8:22 am
chessknt wrote:
Thu Apr 12, 2018 7:42 am
It is dangerous to go without healthcare insurance.
Quite a lot of people don't think so, but that's politics, so we cannot discuss it.
It isn't about politics--the financial risk of a catastrophic illness can easily exceed the entire cost of a total loss on a home. And for someone who likes to race cars that risk is that much higher.
As financial insolvency risks go, for most households, its auto liability risk that should be the first risk mitigated, as not adequately insuring this risk can put a household into financial insolvency quickly. Protracted and expensive medical need can also be quite costly to the household, but for those without the insurance to mitigate this risk, there are numerous non-profit foundations, particularly for children, to help offset costs. Also, medical treatment facilities and Doctors offices will often extend payment periods and other internal financial assistance. Auto liability claims offer none of these forms of financial assistance....you're on your own.

BruceM

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

Post by Hyperborea » Sat Apr 14, 2018 1:17 pm

CyclingDuo wrote:
Thu Apr 12, 2018 8:39 pm
According to FIRECalc....

If you put $4M in a 75% equity/25% bond portfolio at age 37 until age 92 and never worked another lick in your life while spending $120K a year inflation adjusted - you have 100% chance of successfully not outliving your money with a median ending portfolio value at age 92 of $32M and a high ending portfolio value of $83M, with a low of $4M.

If you put $4M into a 100% equity portfolio at age 37 until age 92 and never worked another lick in your life while spending $120K a year inflation adjusted - you have 100% chance of successfully not outliving your money with a median ending portfolio value of $58M at age 92 and a high ending portfolio value of $173M, with a low of $4M.

I don't foresee any problems no matter what direction you go of making this work for you. Total Return. Hybrid with total return and dividend paying stocks. Or a combo of total return, dividends, and an annuity.
You need to be very careful with these kind of tools when using long portfolio durations. Using a period from 37 until 92 is 55 years long which puts the last start year in 1962 (last year of data in the calculator is 2017). That means missing the terrible start years of the late 60's which are probably the worst years to retire. That understates the risk / overstates the withdrawal rates. If you shorten the period to allow a start in 1966 then you get close to failure.

I used cfiresim and ran some 1966 scenarios. The OP's 3% while successful has some risk then and wouldn't meet all of his criteria - the portfolio spends almost the whole time period below his $4M start amount and would still be below that level whether he had 100/0 or 75/25. Not that I think that is a valid criterion but if that is the OP's desire then he needs to think about dropping his withdrawal rate.

It's also instructive to tweak the yearly spending rate to find the failure point. It shows you how close to the edge you are running at 3%. Going to $140K from $120K per year would kill the portfolio for the 1966 scenario. Yes, most of the time you will never get there and your portfolio will end up enourmous when you are 60. But we don't know in advance so you need to be careful to mitigate those serious downside possibilities.
"Plans are worthless, but planning is everything." - Dwight D. Eisenhower

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

Post by dbr » Sat Apr 14, 2018 1:25 pm

Hyperborea wrote:
Sat Apr 14, 2018 1:17 pm

It's also instructive to tweak the yearly spending rate to find the failure point. It shows you how close to the edge you are running at 3%. Going to $140K from $120K per year would kill the portfolio for the 1966 scenario. Yes, most of the time you will never get there and your portfolio will end up enourmous when you are 60. But we don't know in advance so you need to be careful to mitigate those serious downside possibilities.
I agree that using these models to test the lay of the land is very helpful, probably more so than just trying to set up one point as a plan. It is instructive to understand how far and how fast you fall off the cliff. Often the disaster is quite gentle showing that the issue under discussion does not have a large effect -- or vice versa.

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

Post by CyclingDuo » Sat Apr 14, 2018 6:06 pm

Hyperborea wrote:
Sat Apr 14, 2018 1:17 pm
CyclingDuo wrote:
Thu Apr 12, 2018 8:39 pm
According to FIRECalc....

If you put $4M in a 75% equity/25% bond portfolio at age 37 until age 92 and never worked another lick in your life while spending $120K a year inflation adjusted - you have 100% chance of successfully not outliving your money with a median ending portfolio value at age 92 of $32M and a high ending portfolio value of $83M, with a low of $4M.

If you put $4M into a 100% equity portfolio at age 37 until age 92 and never worked another lick in your life while spending $120K a year inflation adjusted - you have 100% chance of successfully not outliving your money with a median ending portfolio value of $58M at age 92 and a high ending portfolio value of $173M, with a low of $4M.

I don't foresee any problems no matter what direction you go of making this work for you. Total Return. Hybrid with total return and dividend paying stocks. Or a combo of total return, dividends, and an annuity.
You need to be very careful with these kind of tools when using long portfolio durations. Using a period from 37 until 92 is 55 years long which puts the last start year in 1962 (last year of data in the calculator is 2017). That means missing the terrible start years of the late 60's which are probably the worst years to retire. That understates the risk / overstates the withdrawal rates. If you shorten the period to allow a start in 1966 then you get close to failure.

I used cfiresim and ran some 1966 scenarios. The OP's 3% while successful has some risk then and wouldn't meet all of his criteria - the portfolio spends almost the whole time period below his $4M start amount and would still be below that level whether he had 100/0 or 75/25. Not that I think that is a valid criterion but if that is the OP's desire then he needs to think about dropping his withdrawal rate.

It's also instructive to tweak the yearly spending rate to find the failure point. It shows you how close to the edge you are running at 3%. Going to $140K from $120K per year would kill the portfolio for the 1966 scenario. Yes, most of the time you will never get there and your portfolio will end up enourmous when you are 60. But we don't know in advance so you need to be careful to mitigate those serious downside possibilities.
Points well taken, Hyperborea. We certainly are not experts using FIRECalc (just started looking at it ourselves). It would never have occurred to me to choose 1966 as a starting point. Most have mentioned that all items on the OP's checklist may be more than difficult to achieve.

I believe the OP later indicated in the thread still working, and perhaps an amount even more than $4M as a possibility.

Regardless, we would be all eyes/ears on tips and tricks to learn how to use FIRECalc in the best, and most realistic manner.
"Everywhere is within walking distance if you have the time." ~ Steven Wright

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

Post by CyclingDuo » Sat Apr 14, 2018 8:26 pm

BruceM wrote:
Sat Apr 14, 2018 10:42 am
Hi Cyclingduo
Curious about a couple of things if you wouldn't mind addressing.

But it requires the discipline to focus on income only, which is much harder than it sounds.


What part of it is much harder than it sounds?
What is difficult if not impossible for most wanting to adopt a pure income approach is letting go of total return and ignoring the price movement of the dividend paying stock...but in my experience, one has to do this. Example: if stock X is paying a dividend of $Y, the company is in a stable industry, the company has a wide moat and a study of company cash flows shows the dividend to be well covered, as the dividend grows, so will the stock price. However, the price will fluctuate along the way. The income investor must teach themselves to ignore these price movements and instead, focus on tracking company cash flow trending and the position the company occupies in its industry. The former is quantitative, the latter is more qualitative.

It is also a lot of work, so is important that one using this approach be willing to spend the time to do it correctly.

Are you speaking of an active management standpoint where you feel that it is a requirement to change components of your portfolio all the time to meet your annual income need of $60K?

TIA
If one derives household income from individual securities, the goal is to hold each security as long as it is providing the income you expect it to. For example, I've held about half the stocks in our income portfolio for the 17 full years we've been using the income approach. This provides advantages and disadvantages. The advantage is my annual expenses, direct and indirect are $zero, and much of the total dividends we receive are taxed at the 0% rate in a taxable account. The disadvantage is we are sitting on many high 5-figure capital gains. Now, if the likes of JNJ or KMB continue as they have over the past 20 to 50 years and raise their dividend each year and are able to sustain their cash flow growth, we will be holding these on the day we die, and if we still have an estate tax, they should then step-up to fair market value and pass to our heirs without ever having been exposed to capital gains tax. But if a company elects to sell to another in a cash-transaction or it elects to go private, we will have a very large and unexpected tax bill.

One workaround to the latter problem is to derive the required income from an income-oriented ETF, such as SPY, XLU or VNQ. But the internal fund expense will usually take from 5% to 10% of the income it derives and it will invariably be holding low yielding stocks in its portfolio and so the overall yield on the ETF will usually be below my income threshold I require.

Hope that helps

BruceM
Thanks for you reply. Yes, that helps and puts me in the know of your previous comments a bit better.

Dividend investing threads tend to go over like a lead balloon here at BH, but we have a dividend producing portfolio spread between taxable and tax deferred that is - for lack of a better word - a hybrid of Vanguard, iShare, and Fidelity index funds, as well as many individual stocks (not all of them are dividend paying stocks) - 57 stocks to be exact. You mentioned $1.5M base, which is similar to the base we are working with at the moment ($1.7). All of our stocks are set to reinvest the dividends as my plan or idea was to grow the number of shares between now and retirement, perhaps take advantage of a trough/recession to add to positions or initiate some new positions. Due to an upcoming loss of employment on September 1st, I am looking at the strategy of dividends as partial income replacement since I am only age 56 and have quite a few gap years to fill before SS and before my wife takes her pension and SS in 6 and 10 years respectively. Life threw me a curve, so I am trying to step back and view all options.

6% is in Berkshire - so no dividends there. Suffice it to say, nearly 15% or $252K is in non-dividend producing growth stocks leaving me room to utilize some capital for dividend producing income stocks. Would be fun to chat with you and your strategy, but I know it is not typical BH fodder.
"Everywhere is within walking distance if you have the time." ~ Steven Wright

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

Post by kenoryan » Sat Apr 14, 2018 8:53 pm

Is this a taxable account or taxable plus tax-deferred we are talking about
Last edited by kenoryan on Sat May 05, 2018 6:14 pm, edited 1 time in total.

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

Post by drzzzzz » Sat Apr 14, 2018 9:11 pm

chessknt wrote:
Thu Apr 12, 2018 7:04 pm
livesoft wrote:
Thu Apr 12, 2018 8:22 am
chessknt wrote:
Thu Apr 12, 2018 7:42 am
It is dangerous to go without healthcare insurance.
Quite a lot of people don't think so, but that's politics, so we cannot discuss it.
It isn't about politics--the financial risk of a catastrophic illness can easily exceed the entire cost of a total loss on a home. And for someone who likes to race cars that risk is that much higher.
Totally agree - one of the few unexpected things that can totally destroy you, your health, and your wealth with medical bills often described as the leading cause of bankruptcy so not having health insurance (if you can afford it) imperils your financial health.

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

Post by sambb » Sat Apr 14, 2018 9:33 pm

people are using past performance
past performance has no bearing on future results
i would work a little more and keep your health insurance

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

Post by BruceM » Sun Apr 15, 2018 3:43 pm

CyclingDuo wrote:
Sat Apr 14, 2018 8:26 pm
Would be fun to chat with you and your strategy, but I know it is not typical BH fodder.
Yes, it isn't typical BH fodder, but I consider myself of the BH strain. I don't listen to middlemen, I keep expenses lower than any BH investor and I rely only on objective measures I take right off the Statement of Cash Flows (the corporate check book). Once purchased, I ignore price and keep focused on trends in cash flows for those dividend paying stocks I hold. Its an approach to providing retirement income that requires focus and discipline.

You may be interested in reading my book on this subject....(I hope the BH Police don't mind my posting this link)

https://www.amazon.com/Retirement-Inves ... r+dividend

And FWIW, I retired at 48 and kind of stumbled into this method of investing for retirement income, just teaching myself as I went. There is virtually NOTHING written on this in the popular media. I reason this is because with the exception of infrequent buys/sells, with my paying $0 each year to generate household income, middlemen cannot make any money on it.

BruceM

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

Post by jpsc » Sun Apr 15, 2018 3:57 pm

You could buy a Vanguard Target Retirement Income Trust Plus - there are several different one
that pay anywhere from 2% to 6%, instead of buying a life insurance/annuities

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

Post by CyclingDuo » Sun Apr 15, 2018 6:48 pm

BruceM wrote:
Sun Apr 15, 2018 3:43 pm
CyclingDuo wrote:
Sat Apr 14, 2018 8:26 pm
Would be fun to chat with you and your strategy, but I know it is not typical BH fodder.
Yes, it isn't typical BH fodder, but I consider myself of the BH strain. I don't listen to middlemen, I keep expenses lower than any BH investor and I rely only on objective measures I take right off the Statement of Cash Flows (the corporate check book). Once purchased, I ignore price and keep focused on trends in cash flows for those dividend paying stocks I hold. Its an approach to providing retirement income that requires focus and discipline.

You may be interested in reading my book on this subject....(I hope the BH Police don't mind my posting this link)

https://www.amazon.com/Retirement-Inves ... r+dividend

And FWIW, I retired at 48 and kind of stumbled into this method of investing for retirement income, just teaching myself as I went. There is virtually NOTHING written on this in the popular media. I reason this is because with the exception of infrequent buys/sells, with my paying $0 each year to generate household income, middlemen cannot make any money on it.

BruceM
BruceM - thanks! It's now in my Kindle App and I will dive in for a read. Looking forward to it. :beer
"Everywhere is within walking distance if you have the time." ~ Steven Wright

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

Post by Nestegg_User » Sun Apr 15, 2018 7:11 pm

What I found amusing was that the OP, in their later response, noted that the funds were safe....in crypto currency :oops:

I kind of stopped reading after that...especially when they required safety as part of the initial conditions
(the conflict of the two didn’t compute)

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

Post by cantos » Sun Apr 15, 2018 10:24 pm

Nestegg_User wrote:
Sun Apr 15, 2018 7:11 pm
What I found amusing was that the OP, in their later response, noted that the funds were safe....in crypto currency :oops:

I kind of stopped reading after that...especially when they required safety as part of the initial conditions
(the conflict of the two didn’t compute)
Same here. Wondering when someone was going to call out "troll". Lotsa BHer's biting, god bless your souls, it is a fun exercise. 4 million to 0 in the next 5 years. Hobbies: racing cars, fine dining, giving money to charities. Doesn't make sense to me with just $4 mil.

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

Post by clutchied » Mon Apr 16, 2018 9:55 am

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

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


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


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

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

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

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


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

40% VCADX
30% VWEAX
30% VFIDX

I put this portfolio together in order to provide income. it's not without risk but produces about 3.6% in income stream not considering tax.

It's just a small piece of the total but it's fun to watch it grow.

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

Post by dcliev91024 » Sat May 05, 2018 11:26 am

In September 2017, I started a combined dividend portfolio following the
My 7.5% Income Portfolio ( https://seekingalpha.com/article/409877 ... -portfolio )
and then adding some additional CEFS stocks, (1) Market Fund & ETF's.

So far, I have seen the portfolio value fluctuate within 2.5% up & down, but Even with the ups and downs in the stock market my dividend portfolio is still on target to average 7 to 8 % annual dividend yield :D - I'm hoping it will continue to do that.

Percent / Symbol / Security

1.47% ABBV - AbbVie Inc
2.09% APPL - Apple Inc
2.95% ARCC - Ares Capital Corp
3.01% T - AT&T Inc
1.34% MCI - Barings Corporate Investors
2.09% BGH - Barings Global Short Duration High Yield
1.62% BIF - Boulder Growth & Income
1.65% BMY - Bristol-Myers Squibb Company
0.95% UTF - Cohen & Steers Infrastructure
1.34% STK - Columbia Seligman Premium Tech Growth
1.31% COST - Costco Wholesale Corp
0.83% CIK - Credit Suisse Asset Mgmt Income
1.10% DLR - Digital Realty Trust Inc
3.67% ECC - Eagle Point Credit Co LLC
1.05% FPF - First Trust Inter Dur Pref & Income Fund
2.05% HYLS - First Trust Tactical High Yield ETF
0.69% FVD - First Trust Value Line Dividend ETF
2.95% FSIC - FS Investment Corp
0.60% GILD - Gilead Sciences Inc
2.95% GSBD - Goldman Sachs BDC Inc
1.37% AMZA - InfraCap MLP ETF
1.92% FFTY - Innovator IBD® 50 ETF
0.94% USA - Liberty All-Star Equity
0.75% MH-C - Maiden Holdings Ltd 7.125% Pref Share
2.31% HIE - Miller/Howard High Income Equity
1.48% MS-E - Morgan Stanley 7.125% Pref Share
1.61% EDD - MS Emerging Markets Domestic
0.91% NHF - NexPoint Strategic Opportunities Fund
0.65% JDD - Nuveen Diversified Div & Income
1.10% OHI - Omega Healthcare Investors Inc
1.46% PEGI - Pattern Energy Group Inc Class A
6.13% PCI - PIMCO Dynamic Credit and Mortgage Inc
1.91% PDI - PIMCO Dynamic Income
1.30% PFN - PIMCO Income Strategy Fund II
1.33% SPHD - PowerShares S&P 500® High Div Low Vol ETF
1.45% UTG - Reaves Utility Income
2.31% RIVRT - RiverNorth Opportunities
1.73% CEFS - Saba Closed-End Funds ETF
0.43% EDI - Stone Harbor Emg Mkts Total Income
2.95% TCPC - TCP Capital Corp
2.94% TCRD - THL Credit Inc
2.95% TSLX - TPG Specialty Lending Inc
0.32% TNP-C - Tsakos Energy Navigation Ltd 8.875% Pref Share
1.26% ANGL - VanEck Vectors Fallen Angel HiYld Bd ETF
5.89% VWO - Vanguard FTSE Emerging Markets ETF
5.89% VEA - Vanguard FTSE Developed Markets ETF
1.95% VNQ - Vanguard Real Estate ETF
5.89% VTSAX - Vanguard Total Stock Mkt Idx Adm
1.20% VZ - Verizon Communications Inc
1.96% WPC - W.P. Carey Inc

100 %

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

Post by CyclingDuo » Sat May 05, 2018 1:03 pm

dcliev91024 wrote:
Sat May 05, 2018 11:26 am
In September 2017, I started a combined dividend portfolio following the
My 7.5% Income Portfolio ( https://seekingalpha.com/article/409877 ... -portfolio )
and then adding some additional CEFS stocks, (1) Market Fund & ETF's.

So far, I have seen the portfolio value fluctuate within 2.5% up & down, but Even with the ups and downs in the stock market my dividend portfolio is still on target to average 7 to 8 % annual dividend yield :D - I'm hoping it will continue to do that.

Percent / Symbol / Security

1.47% ABBV - AbbVie Inc
2.09% APPL - Apple Inc
2.95% ARCC - Ares Capital Corp
3.01% T - AT&T Inc
1.34% MCI - Barings Corporate Investors
2.09% BGH - Barings Global Short Duration High Yield
1.62% BIF - Boulder Growth & Income
1.65% BMY - Bristol-Myers Squibb Company
0.95% UTF - Cohen & Steers Infrastructure
1.34% STK - Columbia Seligman Premium Tech Growth
1.31% COST - Costco Wholesale Corp
0.83% CIK - Credit Suisse Asset Mgmt Income
1.10% DLR - Digital Realty Trust Inc
3.67% ECC - Eagle Point Credit Co LLC
1.05% FPF - First Trust Inter Dur Pref & Income Fund
2.05% HYLS - First Trust Tactical High Yield ETF
0.69% FVD - First Trust Value Line Dividend ETF
2.95% FSIC - FS Investment Corp
0.60% GILD - Gilead Sciences Inc
2.95% GSBD - Goldman Sachs BDC Inc
1.37% AMZA - InfraCap MLP ETF
1.92% FFTY - Innovator IBD® 50 ETF
0.94% USA - Liberty All-Star Equity
0.75% MH-C - Maiden Holdings Ltd 7.125% Pref Share
2.31% HIE - Miller/Howard High Income Equity
1.48% MS-E - Morgan Stanley 7.125% Pref Share
1.61% EDD - MS Emerging Markets Domestic
0.91% NHF - NexPoint Strategic Opportunities Fund
0.65% JDD - Nuveen Diversified Div & Income
1.10% OHI - Omega Healthcare Investors Inc
1.46% PEGI - Pattern Energy Group Inc Class A
6.13% PCI - PIMCO Dynamic Credit and Mortgage Inc
1.91% PDI - PIMCO Dynamic Income
1.30% PFN - PIMCO Income Strategy Fund II
1.33% SPHD - PowerShares S&P 500® High Div Low Vol ETF
1.45% UTG - Reaves Utility Income
2.31% RIVRT - RiverNorth Opportunities
1.73% CEFS - Saba Closed-End Funds ETF
0.43% EDI - Stone Harbor Emg Mkts Total Income
2.95% TCPC - TCP Capital Corp
2.94% TCRD - THL Credit Inc
2.95% TSLX - TPG Specialty Lending Inc
0.32% TNP-C - Tsakos Energy Navigation Ltd 8.875% Pref Share
1.26% ANGL - VanEck Vectors Fallen Angel HiYld Bd ETF
5.89% VWO - Vanguard FTSE Emerging Markets ETF
5.89% VEA - Vanguard FTSE Developed Markets ETF
1.95% VNQ - Vanguard Real Estate ETF
5.89% VTSAX - Vanguard Total Stock Mkt Idx Adm
1.20% VZ - Verizon Communications Inc
1.96% WPC - W.P. Carey Inc

100 %
What percentage of your return is going to the ER fees and loads on the CEF's, ETF's?
"Everywhere is within walking distance if you have the time." ~ Steven Wright

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

Post by TheBogleWay » Sun May 06, 2018 1:41 am

welderwannabe wrote:
Wed Apr 11, 2018 9:35 am
emergency cash fund of $250k-$400k...that outta do it. That would be some emergency.
Don't act like you don't have those emergencies where you need to buy 5 new boats and repair your roof all in one month. It happens.

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

Post by aristotelian » Sun May 06, 2018 8:01 am

It is easy to do all but #3. In my opinion, #3 is not a necessary goal. Everything else is easily done with a total market portfolio anywhere from 40% to 80% stocks. I am pretty sure this set of articles covers everything you are asking.
https://earlyretirementnow.com/2016/12/ ... t-1-intro/

Regarding tax efficiency, this thread may be instructive.
viewtopic.php?t=87471

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

Post by BruceM » Sun May 06, 2018 3:45 pm

CyclingDuo wrote:
Sat May 05, 2018 1:03 pm
dcliev91024 wrote:
Sat May 05, 2018 11:26 am
In September 2017, I started a combined dividend portfolio following the
My 7.5% Income Portfolio ( https://seekingalpha.com/article/409877 ... -portfolio )
and then adding some additional CEFS stocks, (1) Market Fund & ETF's.

So far, I have seen the portfolio value fluctuate within 2.5% up & down, but Even with the ups and downs in the stock market my dividend portfolio is still on target to average 7 to 8 % annual dividend yield :D - I'm hoping it will continue to do that.

Percent / Symbol / Security

1.47% ABBV - AbbVie Inc
2.09% APPL - Apple Inc
2.95% ARCC - Ares Capital Corp
3.01% T - AT&T Inc
1.34% MCI - Barings Corporate Investors
2.09% BGH - Barings Global Short Duration High Yield
1.62% BIF - Boulder Growth & Income
1.65% BMY - Bristol-Myers Squibb Company
0.95% UTF - Cohen & Steers Infrastructure
1.34% STK - Columbia Seligman Premium Tech Growth
1.31% COST - Costco Wholesale Corp
0.83% CIK - Credit Suisse Asset Mgmt Income
1.10% DLR - Digital Realty Trust Inc
3.67% ECC - Eagle Point Credit Co LLC
1.05% FPF - First Trust Inter Dur Pref & Income Fund
2.05% HYLS - First Trust Tactical High Yield ETF
0.69% FVD - First Trust Value Line Dividend ETF
2.95% FSIC - FS Investment Corp
0.60% GILD - Gilead Sciences Inc
2.95% GSBD - Goldman Sachs BDC Inc
1.37% AMZA - InfraCap MLP ETF
1.92% FFTY - Innovator IBD® 50 ETF
0.94% USA - Liberty All-Star Equity
0.75% MH-C - Maiden Holdings Ltd 7.125% Pref Share
2.31% HIE - Miller/Howard High Income Equity
1.48% MS-E - Morgan Stanley 7.125% Pref Share
1.61% EDD - MS Emerging Markets Domestic
0.91% NHF - NexPoint Strategic Opportunities Fund
0.65% JDD - Nuveen Diversified Div & Income
1.10% OHI - Omega Healthcare Investors Inc
1.46% PEGI - Pattern Energy Group Inc Class A
6.13% PCI - PIMCO Dynamic Credit and Mortgage Inc
1.91% PDI - PIMCO Dynamic Income
1.30% PFN - PIMCO Income Strategy Fund II
1.33% SPHD - PowerShares S&P 500® High Div Low Vol ETF
1.45% UTG - Reaves Utility Income
2.31% RIVRT - RiverNorth Opportunities
1.73% CEFS - Saba Closed-End Funds ETF
0.43% EDI - Stone Harbor Emg Mkts Total Income
2.95% TCPC - TCP Capital Corp
2.94% TCRD - THL Credit Inc
2.95% TSLX - TPG Specialty Lending Inc
0.32% TNP-C - Tsakos Energy Navigation Ltd 8.875% Pref Share
1.26% ANGL - VanEck Vectors Fallen Angel HiYld Bd ETF
5.89% VWO - Vanguard FTSE Emerging Markets ETF
5.89% VEA - Vanguard FTSE Developed Markets ETF
1.95% VNQ - Vanguard Real Estate ETF
5.89% VTSAX - Vanguard Total Stock Mkt Idx Adm
1.20% VZ - Verizon Communications Inc
1.96% WPC - W.P. Carey Inc

100 %
What percentage of your return is going to the ER fees and loads on the CEF's, ETF's?
The fees on funds....open end, closed end and ETFs, are internal to the fund and net of the fund's yield. But having said that, one of my measures of an income ETF is the Income Expense Ratio or IER. This is the total of the fund's reported expenses divided by the income from its investments (dividends and interest), as shown on the semi-annual and annual Statement of Operations in the shareholder report. The IER shows how much of the fund's income is kept by the house. A typical IER will be from 5% to 12% for most, with Vanguar's VIG, for example, coming in at about 3% while the Wisdom Tree High Dividend Fund (DHS), for 2017, shows a 10.8% IER.

Eyeballing down this list, I see some 2%-2.5% yielding funds and stocks, several higher yielding REITs, some high yielding financials and a gaggle of highly leveraged closed end funds.

My concern with such a mix is how it's distributions will hold up with another recession. My core holdings with names like MCD, WM, MO, PEP and JNJ are boring, boring, boring....but they are in the business of making things we either want, need or are addicted to and so tend to weather financial downturns very well. Financials, OTOH, tanked hard in the last recession. The financials ETF XLF, lost about 85% of its dividend and hasn't even returned to half that level today.

Sustainability and growth of the dividend are high priorities to our household, as we require those dividends to pay many of our living expenses and we can't afford to lose, say, 50% of the income they generate in another recession.

BruceM

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

Post by CyclingDuo » Sun May 06, 2018 6:15 pm

BruceM wrote:
Sun May 06, 2018 3:45 pm
The fees on funds....open end, closed end and ETFs, are internal to the fund and net of the fund's yield. But having said that, one of my measures of an income ETF is the Income Expense Ratio or IER. This is the total of the fund's reported expenses divided by the income from its investments (dividends and interest), as shown on the semi-annual and annual Statement of Operations in the shareholder report. The IER shows how much of the fund's income is kept by the house. A typical IER will be from 5% to 12% for most, with Vanguar's VIG, for example, coming in at about 3% while the Wisdom Tree High Dividend Fund (DHS), for 2017, shows a 10.8% IER.

Eyeballing down this list, I see some 2%-2.5% yielding funds and stocks, several higher yielding REITs, some high yielding financials and a gaggle of highly leveraged closed end funds.

My concern with such a mix is how it's distributions will hold up with another recession. My core holdings with names like MCD, WM, MO, PEP and JNJ are boring, boring, boring....but they are in the business of making things we either want, need or are addicted to and so tend to weather financial downturns very well. Financials, OTOH, tanked hard in the last recession. The financials ETF XLF, lost about 85% of its dividend and hasn't even returned to half that level today.

Sustainability and growth of the dividend are high priorities to our household, as we require those dividends to pay many of our living expenses and we can't afford to lose, say, 50% of the income they generate in another recession.

BruceM
Thanks, Bruce.

Yes - we like boring as well. :beer

That list above looked a little overwhelming and wanted to ask what the ER fees were for some of the funds.

We do agree with you that items the world needs in good times and in bad certainly stand out as core investments. We have been in boring portfolios for our children for 22 and 24 years respectively. Booze. Smokes. Coffee. Non alcoholic beverages. Utilities. Garbage service. Food. Toiletries. Cleaning supplies. Health care. Insurance. Laundry soap. Gas for the vehicles. And growth stocks (Apple, Salesforce, United Healthcare, Google, Facebook). So I know how those boring stocks and dividends reacted from 1993/95 to present. Enjoyed your book. It's helping me formulate a plan. Slowly.
"Everywhere is within walking distance if you have the time." ~ Steven Wright

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

Post by BruceM » Mon May 07, 2018 9:47 am

Thanks....I hope it helps.

The hard part for an accumulator who has spent a lifetime investing for total return where share price is the center of every measure, whether managed or passive, and who wishes to transition to an income only method of generating long term reliable income, is letting go of total return. Its easy to say, but very hard to actually do, as lifetime methods have deep roots.

BruceM

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

Post by dbr » Mon May 07, 2018 9:51 am

BruceM wrote:
Mon May 07, 2018 9:47 am
Thanks....I hope it helps.

The hard part for an accumulator who has spent a lifetime investing for total return where share price is the center of every measure, whether managed or passive, and who wishes to transition to an income only method of generating long term reliable income, is letting go of total return. Its easy to say, but very hard to actually do, as lifetime methods have deep roots.

BruceM
Why would you let go of total returns? You still need to know what is happening to your assets, maybe even more than before.

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

Post by BruceM » Mon May 07, 2018 12:11 pm

dbr wrote:
Mon May 07, 2018 9:51 am
BruceM wrote:
Mon May 07, 2018 9:47 am
Thanks....I hope it helps.

The hard part for an accumulator who has spent a lifetime investing for total return where share price is the center of every measure, whether managed or passive, and who wishes to transition to an income only method of generating long term reliable income, is letting go of total return. Its easy to say, but very hard to actually do, as lifetime methods have deep roots.

BruceM
Why would you let go of total returns? You still need to know what is happening to your assets, maybe even more than before.
Simply because capital appreciation is a low priority investment goal. Our primary goal is reliable and growing income over retirement years. A legacy to our estate is not a goal. Our estate will almost certainly leave a legacy to kids and grandkids and a couple of favored charities..... but it is not an investment goal.

Think of it this way. If I could provide the same (or close) level of income by purchasing an inflation adjusted single premium immediate annuity from an insurer, I would do it. If I did, should I also monitor total return? Should I monthly track the investment performance of the insurers reserve accounts? No, I wouldn't. My only concern is that the insurer will be there to make their monthly payments, and so I might periodically track their A.M. Best rating. Otherwise, the price of the securities generating our monthly income payment is not a factor. Now, just insert income portfolio in place of Single Premium Immediate Annuity and you have what a true income investor creates.

Another example: Buy a portfolio of 30 to 50 high yield preferred stock paying a weighted current yield of 7%, when the first year income need is 4%. Direct the surplus each month to a separate account where it will accumulate. At a 3% annual increased income, eventually the current income need will exceed the 7% yield and so the retired household will have to begin drawing from the accumulated reserves. Continue increasing the annual payout until the reserve is gone and income drops to the original 7%. How long will such an inflation adjusted preferred stock income portfolio last? About 38 years....long enough for the vast majority of retired households. What was the preferred portfolio valuation along the way? What was its total return at various points along the way? Does it matter? Take a look at this example. https://seekingalpha.com/article/395890 ... fe-annuity

As I said, letting go of the total return paradigm is very difficult for most....and for some, I've found through experience, is just not possible. Now, I'm not saying this is any kind of deficiency or weakness or fault to those who will not let go of total return. I'm just saying that the roots of learned behaviors can be hard to learn to ignore....it certainly was for me.

BruceM

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