How to Invest $600K for Retirees

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VNPharmd
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How to Invest $600K for Retirees

Post by VNPharmd » Mon May 14, 2018 11:58 am

I'm new to investing. My elderly parents (75 and 78 years old) are living with me. I'm helping them to manage their retirement saving fund worth of $600,000. Given the current market situations (a potential end of the bull market and rising bond yield), what are their best options? Their goal is to generate a steady income, e.g. 4%, while preserving the principal. I'm thinking about 5 year fixed annuities that generate only 3.6% or a very conservative portfolio consists of mainly high quality bonds, but these options have low interest rates. Your advices/inputs would be greatly appreciated.

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onthecusp
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Re: How to Invest $600K for Retirees

Post by onthecusp » Mon May 14, 2018 1:39 pm

I would consider a 50/50 portfolio of a Total US Equity fund and a Total US Bond fund. That should provide them with 4% of the initial balance + inflation for the rest of their days even if markets do melt down.

Just because stock markets are up does not mean they will not continue to go up, even if growth expectations are tempered compared to a few years ago. If markets do not completely melt down, the assets should grow or at least stay stable in the face of withdrawals. The latter is my expectation for the next few years, but my expectations and your concerns on high valuation are both examples of market timing and really we don't know. A balanced portfolio and reasonable 4% withdrawal rate is a time tested strategy.

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BL
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Re: How to Invest $600K for Retirees

Post by BL » Mon May 14, 2018 2:24 pm

Can you talk them out of preserving principal? Total return should be considered, not just what it kicks off in dividends and distributed capital gains.

Then consider how to invest or get the income they wish. Perhaps a SPIA would suit them: take a portion of portfolio and buy an annuity that generates a specific $ amount for life. It would generate a lot more if they wait another 5 years. Perhaps looking at immediateAnnuities.com would give you an idea for 2 persons. There is no inflation protection, however, so you might have to buy more at a later date if that is much higher.

Investing in stock/bond ratios of 60/40 to 30/70 seems to be advised. The upper lever with Life Strategy Moderate to lower level of Target Retirement Income are sometimes recommended. Others stick to the 3-fund portfolio with single funds.

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Re: How to Invest $600K for Retirees

Post by VNPharmd » Mon May 14, 2018 8:08 pm

Thank you for your advices, BL and onthecusp. I really appreciate your quick responses.

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onthecusp
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Re: How to Invest $600K for Retirees

Post by onthecusp » Tue May 15, 2018 1:20 pm

Good luck with your education. I'm certain that doing it for your parents adds another level of concern and complexity to any decisions.

For the start of much more information we would be remiss not to mention the bogleheads wiki.

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

You don't have to do anything immediately, come back and ask more questions after perusing that page.

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BL
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Re: How to Invest $600K for Retirees

Post by BL » Tue May 15, 2018 2:19 pm

Yes, reading a few books and Wiki is a good idea.

I also like the Boglehead's book on retirement and have enjoyed the How to Make Your Money Last by Jane Bryant Quinn. That is a handy reference for topics that come up in retirement and full of common sense. Your library probably has them, or link to Amazon here at Boglehead's. Be sure to get the latest edition.

Sometimes reading something in a recommended book means more than coming from the kid you raised. (My kids don't tell us what to do and I don't ask them, and I do try to withhold suggesting things to them as well if they don't ask.) At our age we don't have as much time to recover from the market, so much more caution is required if you are living on that.

4% is a reasonable withdrawal rate for most times with at least 30% equities, but they may need to lower that during bad times. Also that % may or may not leave anything behind, so they really can't count on that. (The 4% Withdrawal Rate and increased by inflation you hear about is supposed to allow your portfolio to last 30 years, but no thought on whether there will be anything left or not.)

Sticking to high dividends and CGs for cash does not do anything for investors: you may end up choosing your portfolio based on dividends or may get less than desired, as well as the fact that total return is what counts and taking dividends is just a mind game because you are still decreasing your assets. Yes, I would take whatever is distributed first because you are already paying tax on that.

bobolinx
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Re: How to Invest $600K for Retirees

Post by bobolinx » Tue May 15, 2018 2:34 pm

While speaking with a Fidelity representative recently, he mentioned that there was a fixed annuity that pays 5.5% for life. At 600K, that yields approximately $2700/mo for life. 18 years to make up principle. Reasonable fees. Simple monthly income.

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Re: How to Invest $600K for Retirees

Post by dbr » Tue May 15, 2018 4:05 pm

bobolinx wrote:
Tue May 15, 2018 2:34 pm
While speaking with a Fidelity representative recently, he mentioned that there was a fixed annuity that pays 5.5% for life. At 600K, that yields approximately $2700/mo for life. 18 years to make up principle. Reasonable fees. Simple monthly income.
See immediateannuities.com Note that fixed annuities are subject to inflation and the principal is surrendered for good (without additional riders). An SPIA can be a valid tool.

By the way a current quote for a 75/78 year old couple is a joint and survivor payout of about 7.5%. That age range is a good time to think about an SPIA if it makes sense otherwise. What is the reason the principal has to be preserved if income is guaranteed? Not all the principal has to be annuitized.
Last edited by dbr on Tue May 15, 2018 7:31 pm, edited 1 time in total.

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Re: How to Invest $600K for Retirees

Post by David Jay » Tue May 15, 2018 5:43 pm

Look at these two together -an SPIA with a portion of the funds to provide income security and then a more aggressive (perhaps 60/40) portfolio for legacy. If all their needs are met then ups-and-downs in the legacy portfolio should be less of a worry.
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Re: How to Invest $600K for Retirees

Post by naha66 » Wed May 16, 2018 2:26 am

dbr wrote:
Tue May 15, 2018 4:05 pm
bobolinx wrote:
Tue May 15, 2018 2:34 pm
While speaking with a Fidelity representative recently, he mentioned that there was a fixed annuity that pays 5.5% for life. At 600K, that yields approximately $2700/mo for life. 18 years to make up principle. Reasonable fees. Simple monthly income.
See immediateannuities.com Note that fixed annuities are subject to inflation and the principal is surrendered for good (without additional riders). An SPIA can be a valid tool.

By the way a current quote for a 75/78 year old couple is a joint and survivor payout of about 7.5%. That age range is a good time to think about an SPIA if it makes sense otherwise. What is the reason the principal has to be preserved if income is guaranteed? Not all the principal has to be annuitized.
+1 on checking with immediateannuities.com, they have a online quote for a 78 and 75 couple of $3700 a month. I wouldn't put the whole $600k in a annuity that leaves them with no flexibility.

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Re: How to Invest $600K for Retirees

Post by RickBoglehead » Wed May 16, 2018 6:40 am

If $600K is their entire asset base, and you invest all of it in an annuity, what's going to pay for assisted living / nursing care when they need it? I'd also recommend a bunch of reading including Jane Bryant Quinn's book which I am 3/4 through right now. Annuities are not for everyone (or most people), best use is when they income is supplementary to everything else vs. putting all your eggs in that basket. There are numerous options and you need to look very, very carefully.

dbr
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Re: How to Invest $600K for Retirees

Post by dbr » Wed May 16, 2018 8:15 am

RickBoglehead wrote:
Wed May 16, 2018 6:40 am
If $600K is their entire asset base, and you invest all of it in an annuity, what's going to pay for assisted living / nursing care when they need it? I'd also recommend a bunch of reading including Jane Bryant Quinn's book which I am 3/4 through right now. Annuities are not for everyone (or most people), best use is when they income is supplementary to everything else vs. putting all your eggs in that basket. There are numerous options and you need to look very, very carefully.
No one would rationally put the entirety of their assets in an SPIA. On the other had at sufficiently advanced age annuitizing some assets might be a good idea compared to relying on withdrawals from assets. One consideration is to also evaluate how much annuitized income already exists from pensions and Social Security. The OP doesn't say. None of these situations can be figured out piecemeal.

An answer about paying for assisted living and nursing care is that it can come from the assets, from long term care insurance, from income, and from public assistance. A point is that if public assistance might be involved people should plan what the scenario is going to be for first spending down assets and what the effect of having annuity income might be.

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Re: How to Invest $600K for Retirees

Post by CyclingDuo » Wed May 16, 2018 9:00 am

VNPharmd wrote:
Mon May 14, 2018 11:58 am
I'm new to investing. My elderly parents (75 and 78 years old) are living with me. I'm helping them to manage their retirement saving fund worth of $600,000. Given the current market situations (a potential end of the bull market and rising bond yield), what are their best options? Their goal is to generate a steady income, e.g. 4%, while preserving the principal. I'm thinking about 5 year fixed annuities that generate only 3.6% or a very conservative portfolio consists of mainly high quality bonds, but these options have low interest rates. Your advices/inputs would be greatly appreciated.
Income producing for retirees on a base of $600K?

Stepping off the beaten path of the Boglehead index funds, or a recommendation for annuities - there are other alternatives.

You could "buy" a portfolio of dividend stocks for $530K and get $34K per year in dividends. Keep the remaining $60K in their emergency fund. That's a 6.4% dividend rate on the $530K investment in stocks. Share prices will fluctuate, but dividend income would meet their needs (even if it fluctuates) and if there is extra dividend money they don't need in a particular year, it could be used to purchase additional shares. Or you could buy 1/2 of the recommended shares to generate $17K a year in dividends, and still have $335K to work with for bonds, annuities, CD's, cash, index funds.

https://seekingalpha.com/article/417228 ... hts-famine

Based on their age, the Social Security is rolling in monthly and their longevity is a shorter term time frame.
"Everywhere is within walking distance if you have the time." ~ Steven Wright

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Re: How to Invest $600K for Retirees

Post by pkcrafter » Wed May 16, 2018 9:54 am

Welcome VNPharmd, how much of parents money is in tax-advantaged accounts. I'm asking because there are additional alternatives such as VG lifestrategy conservative growth (40/60) if tax advantaged, or total stock market and tax-efficient bonds for taxable. A 4% withdrawal rate at 77 can easily accommodate a 4% withdrawal and it will accommodate a 5% withdrawal for periods when the market is down.

Success and withdrawal rates

https://www.onefpa.org/journal/Pages/OC ... Rates.aspx

Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.

VNPharmd
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Re: How to Invest $600K for Retirees

Post by VNPharmd » Thu May 17, 2018 11:27 am

Thank you all for your valuable advices. I will read each of your replies carefully and come up with a reasonable solution that suits my parents’s needs. Reason to preserve the principal was my parents want to give their grandchildren some financial boosts after they pass. Can’t do the lifetime annuity though.

Vnpharmd

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Re: How to Invest $600K for Retirees

Post by VNPharmd » Thu May 17, 2018 11:46 am

CyclingDuo wrote:
Wed May 16, 2018 9:00 am
Income producing for retirees on a base of $600K?

Stepping off the beaten path of the Boglehead index funds, or a recommendation for annuities - there are other alternatives.

You could "buy" a portfolio of dividend stocks for $530K and get $34K per year in dividends. Keep the remaining $60K in their emergency fund. That's a 6.4% dividend rate on the $530K investment in stocks. Share prices will fluctuate, but dividend income would meet their needs (even if it fluctuates) and if there is extra dividend money they don't need in a particular year, it could be used to purchase additional shares. Or you could buy 1/2 of the recommended shares to generate $17K a year in dividends, and still have $335K to work with for bonds, annuities, CD's, cash, index funds.

https://seekingalpha.com/article/417228 ... hts-famine

Based on their age, the Social Security is rolling in monthly and their longevity is a shorter term time frame.
Any advices on how to pick good dividend stocks?

Vnpharmd
Last edited by VNPharmd on Thu May 17, 2018 2:49 pm, edited 1 time in total.

VNPharmd
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Re: How to Invest $600K for Retirees

Post by VNPharmd » Thu May 17, 2018 11:53 am

pkcrafter wrote:
Wed May 16, 2018 9:54 am
Welcome VNPharmd, how much of parents money is in tax-advantaged accounts. I'm asking because there are additional alternatives such as VG lifestrategy conservative growth (40/60) if tax advantaged, or total stock market and tax-efficient bonds for taxable. A 4% withdrawal rate at 77 can easily accommodate a 4% withdrawal and it will accommodate a 5% withdrawal for periods when the market is down.

Success and withdrawal rates

https://www.onefpa.org/journal/Pages/OC ... Rates.aspx

Paul
My parents don’t have a tax advantaged accounts like IRAs. They’re moving from another country. Can you be more specific about the VG life strategy conservative tax advantaged account? Thanks, Vnpharmd

VNPharmd
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Re: How to Invest $600K for Retirees

Post by VNPharmd » Thu May 17, 2018 12:01 pm

RickBoglehead wrote:
Wed May 16, 2018 6:40 am
An answer about paying for assisted living and nursing care is that it can come from the assets, from long term care insurance, from income, and from public assistance. A point is that if public assistance might be involved people should plan what the scenario is going to be for first spending down assets and what the effect of having annuity income might be.
It’s hard to predict their needs in the future. They’re going to live with me so assisted living is not part of the plan. They may need home health service or something like that.

What is the title of the book you are reading?

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Re: How to Invest $600K for Retirees

Post by pkcrafter » Fri May 18, 2018 11:09 am

VNPharmd wrote:
Thu May 17, 2018 11:53 am
pkcrafter wrote:
Wed May 16, 2018 9:54 am
Welcome VNPharmd, how much of parents money is in tax-advantaged accounts. I'm asking because there are additional alternatives such as VG lifestrategy conservative growth (40/60) if tax advantaged, or total stock market and tax-efficient bonds for taxable. A 4% withdrawal rate at 77 can easily accommodate a 4% withdrawal and it will accommodate a 5% withdrawal for periods when the market is down.

Success and withdrawal rates

https://www.onefpa.org/journal/Pages/OC ... Rates.aspx

Paul
My parents don’t have a tax advantaged accounts like IRAs. They’re moving from another country. Can you be more specific about the VG life strategy conservative tax advantaged account? Thanks, Vnpharmd
The LS fund is not tax-efficient due to the 60% in taxable bonds, so it is best used in a tax-advantaged account like an IRA. If no IRAs then you want tax efficient holdings.

You might consider Vanguard's tax-managed balanced (VTMFX), which is 50/50. If the allocation isn't what you want, then you can add tax-exempt bond funds to lower the asset allocation, or add total stock market to increase it. You can also just hold tax-exempt bonds and total stock market and total international, which would create a pretty tax-efficient portfolio.

Link to Vanguard funds

https://investor.vanguard.com/mutual-fu ... nd-returns

VTMFX on Morningstar. Use the tax link to compare different funds. Use the portfolio link to look at portfolio construction. Put new tickers in the quote box at the top of the page.

http://performance.morningstar.com/fund ... ture=en-US

Link to tax-efficient investing (Wiki)

https://www.bogleheads.org/wiki/Tax-eff ... _placement

Paul
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Re: How to Invest $600K for Retirees

Post by rgs92 » Fri May 18, 2018 11:19 am

Beware that the Fidelity annuity that is being offered is probably not a pure immediate annuity because they are talking about a "rate" that is guaranteed. That sounds like some more complex/expensive product that wades into bad-annuity territory.

Vanilla SPIAs do not have a rate, just a contracted fixed amount paid each month. (It is usually a monthly payment.)
You can back into a "rate" but since it includes a return of principal, it is not like a bond or CD rate.

Fidelity offers SPIAs (from Fidelity itself and brokered ones). Ask specifically for those.

(This is in response to this above:

While speaking with a Fidelity representative recently, he mentioned that there was a fixed annuity that pays 5.5% for life. At 600K, that yields approximately $2700/mo for life. 18 years to make up principle. Reasonable fees. Simple monthly income.
)

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Re: How to Invest $600K for Retirees

Post by unclescrooge » Fri May 18, 2018 1:02 pm

CyclingDuo wrote:
Wed May 16, 2018 9:00 am
VNPharmd wrote:
Mon May 14, 2018 11:58 am
I'm new to investing. My elderly parents (75 and 78 years old) are living with me. I'm helping them to manage their retirement saving fund worth of $600,000. Given the current market situations (a potential end of the bull market and rising bond yield), what are their best options? Their goal is to generate a steady income, e.g. 4%, while preserving the principal. I'm thinking about 5 year fixed annuities that generate only 3.6% or a very conservative portfolio consists of mainly high quality bonds, but these options have low interest rates. Your advices/inputs would be greatly appreciated.
Income producing for retirees on a base of $600K?

Stepping off the beaten path of the Boglehead index funds, or a recommendation for annuities - there are other alternatives.

You could "buy" a portfolio of dividend stocks for $530K and get $34K per year in dividends. Keep the remaining $60K in their emergency fund. That's a 6.4% dividend rate on the $530K investment in stocks. Share prices will fluctuate, but dividend income would meet their needs (even if it fluctuates) and if there is extra dividend money they don't need in a particular year, it could be used to purchase additional shares. Or you could buy 1/2 of the recommended shares to generate $17K a year in dividends, and still have $335K to work with for bonds, annuities, CD's, cash, index funds.

https://seekingalpha.com/article/417228 ... hts-famine

Based on their age, the Social Security is rolling in monthly and their longevity is a shorter term time frame.
How are you getting over 6% dividends yield in sucks without exposure to capital risk?

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CyclingDuo
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Re: How to Invest $600K for Retirees

Post by CyclingDuo » Fri May 18, 2018 1:56 pm

unclescrooge wrote:
Fri May 18, 2018 1:02 pm
CyclingDuo wrote:
Wed May 16, 2018 9:00 am
VNPharmd wrote:
Mon May 14, 2018 11:58 am
I'm new to investing. My elderly parents (75 and 78 years old) are living with me. I'm helping them to manage their retirement saving fund worth of $600,000. Given the current market situations (a potential end of the bull market and rising bond yield), what are their best options? Their goal is to generate a steady income, e.g. 4%, while preserving the principal. I'm thinking about 5 year fixed annuities that generate only 3.6% or a very conservative portfolio consists of mainly high quality bonds, but these options have low interest rates. Your advices/inputs would be greatly appreciated.
Income producing for retirees on a base of $600K?

Stepping off the beaten path of the Boglehead index funds, or a recommendation for annuities - there are other alternatives.

You could "buy" a portfolio of dividend stocks for $530K and get $34K per year in dividends. Keep the remaining $60K in their emergency fund. That's a 6.4% dividend rate on the $530K investment in stocks. Share prices will fluctuate, but dividend income would meet their needs (even if it fluctuates) and if there is extra dividend money they don't need in a particular year, it could be used to purchase additional shares. Or you could buy 1/2 of the recommended shares to generate $17K a year in dividends, and still have $335K to work with for bonds, annuities, CD's, cash, index funds.

https://seekingalpha.com/article/417228 ... hts-famine

Based on their age, the Social Security is rolling in monthly and their longevity is a shorter term time frame.
How are you getting over 6% dividends yield in sucks without exposure to capital risk?
I believe I said Share prices will fluctuate...

Whether you read the writings of Bruce Miller and his book to pick and choose your own dividend stock portfolio: https://www.amazon.com/Retirement-Inves ... r+dividend or subscribe to something such as the RODAT (Retirement: One Dividend At A Time) / Fill-The-Gap portfolio from George Schneider: https://seekingalpha.com/checkout?slug=george-schneider or follow plenty of other sources and services for dividend investors - they will illustrate how to create an income in retirement that as with any equity investment is exposed to capital risk.

The same is true if the OP plugs in the $600K his parents have into FIREcalc. Even a 50/50 equity/bond index fund portfolio for their time frame based on their ages has a 100% chance of success with the withdrawal rate the OP mentioned. That doesn't mean their portfolio will still be $600K at the end of the period - so the exposure to capital risk is required.

The Fill-the-Gap Portfolio that began in December of 2014 with $411,600 investment, has now grown to this and produces $34K of annual income. Original intent of the portfolio was to be married to a couple's SS payments to "fill-the-gap" and produce enough income to meet their expenses: https://seekingalpha.com/article/277963 ... -portfolio

The average retired couple requires about $50,000 to live in some semblance of comfort today. For most of us, without a defined benefit pension plan, that leaves us with an annual gap of $21,200 that needs to be filled.

The Fill-The-Gap portfolio has been constructed to offer a way out of this hole that many have dug for themselves. It assumes a working couple, near or just starting in retirement, even after all the spending, has managed to squirrel away around $400,000 over their working lives.


Image

This is how it started in 2014 when it produced $21K of annual income.

Image

So far, so good. The dividend growth has provided more than expected in this hypothetical couple's portfolio to the point they could reinvest dividends into more shares and other stocks to use the DGI strategy and boost income even more.

This is not some new concept or voodoo investment strategy. The OP is not required to even look into it, I just posted up an option based on what I read: a retired couple in their 70's needing to produce annual income of at least $24K with a nest egg of $600K. Buying an income stream - or pension - if you will can be done through SPIA, dividend portfolio, bonds, real estate.

We do not own that particular portfolio in the photos above, but do have many dividend paying stocks as well as plenty of index funds and alternative investments. We used a similar strategy in two accounts set up for our children the past 23-25 years (was not focused on index fund investing way back in 1993), but the basket of stocks they each had using DGI by reinvesting all dividends along the way paid for both of their college educations and then some and the remaining basket of stocks has been passed on to each of these children. Their new money that they put into their tIRA/Roth IRA and 401k plans is all directed into the Three Fund Portfolio while the individual stocks they are just going to let sit and compound for a few decades.
"Everywhere is within walking distance if you have the time." ~ Steven Wright

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Re: How to Invest $600K for Retirees

Post by unclescrooge » Sat May 19, 2018 2:14 am

CyclingDuo wrote:
Fri May 18, 2018 1:56 pm
unclescrooge wrote:
Fri May 18, 2018 1:02 pm
CyclingDuo wrote:
Wed May 16, 2018 9:00 am
VNPharmd wrote:
Mon May 14, 2018 11:58 am
I'm new to investing. My elderly parents (75 and 78 years old) are living with me. I'm helping them to manage their retirement saving fund worth of $600,000. Given the current market situations (a potential end of the bull market and rising bond yield), what are their best options? Their goal is to generate a steady income, e.g. 4%, while preserving the principal. I'm thinking about 5 year fixed annuities that generate only 3.6% or a very conservative portfolio consists of mainly high quality bonds, but these options have low interest rates. Your advices/inputs would be greatly appreciated.
Income producing for retirees on a base of $600K?

Stepping off the beaten path of the Boglehead index funds, or a recommendation for annuities - there are other alternatives.

You could "buy" a portfolio of dividend stocks for $530K and get $34K per year in dividends. Keep the remaining $60K in their emergency fund. That's a 6.4% dividend rate on the $530K investment in stocks. Share prices will fluctuate, but dividend income would meet their needs (even if it fluctuates) and if there is extra dividend money they don't need in a particular year, it could be used to purchase additional shares. Or you could buy 1/2 of the recommended shares to generate $17K a year in dividends, and still have $335K to work with for bonds, annuities, CD's, cash, index funds.

https://seekingalpha.com/article/417228 ... hts-famine

Based on their age, the Social Security is rolling in monthly and their longevity is a shorter term time frame.
How are you getting over 6% dividends yield in sucks without exposure to capital risk?
I believe I said Share prices will fluctuate...

Whether you read the writings of Bruce Miller and his book to pick and choose your own dividend stock portfolio: https://www.amazon.com/Retirement-Inves ... r+dividend or subscribe to something such as the RODAT (Retirement: One Dividend At A Time) / Fill-The-Gap portfolio from George Schneider: https://seekingalpha.com/checkout?slug=george-schneider or follow plenty of other sources and services for dividend investors - they will illustrate how to create an income in retirement that as with any equity investment is exposed to capital risk.

The same is true if the OP plugs in the $600K his parents have into FIREcalc. Even a 50/50 equity/bond index fund portfolio for their time frame based on their ages has a 100% chance of success with the withdrawal rate the OP mentioned. That doesn't mean their portfolio will still be $600K at the end of the period - so the exposure to capital risk is required.

The Fill-the-Gap Portfolio that began in December of 2014 with $411,600 investment, has now grown to this and produces $34K of annual income. Original intent of the portfolio was to be married to a couple's SS payments to "fill-the-gap" and produce enough income to meet their expenses: https://seekingalpha.com/article/277963 ... -portfolio

The average retired couple requires about $50,000 to live in some semblance of comfort today. For most of us, without a defined benefit pension plan, that leaves us with an annual gap of $21,200 that needs to be filled.

The Fill-The-Gap portfolio has been constructed to offer a way out of this hole that many have dug for themselves. It assumes a working couple, near or just starting in retirement, even after all the spending, has managed to squirrel away around $400,000 over their working lives.


Image

This is how it started in 2014 when it produced $21K of annual income.

Image

So far, so good. The dividend growth has provided more than expected in this hypothetical couple's portfolio to the point they could reinvest dividends into more shares and other stocks to use the DGI strategy and boost income even more.

This is not some new concept or voodoo investment strategy. The OP is not required to even look into it, I just posted up an option based on what I read: a retired couple in their 70's needing to produce annual income of at least $24K with a nest egg of $600K. Buying an income stream - or pension - if you will can be done through SPIA, dividend portfolio, bonds, real estate.

We do not own that particular portfolio in the photos above, but do have many dividend paying stocks as well as plenty of index funds and alternative investments. We used a similar strategy in two accounts set up for our children the past 23-25 years (was not focused on index fund investing way back in 1993), but the basket of stocks they each had using DGI by reinvesting all dividends along the way paid for both of their college educations and then some and the remaining basket of stocks has been passed on to each of these children. Their new money that they put into their tIRA/Roth IRA and 401k plans is all directed into the Three Fund Portfolio while the individual stocks they are just going to let sit and compound for a few decades.
I still don't understand how you are generating 6.4% today. Where did you come up with this number?

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Re: How to Invest $600K for Retirees

Post by CyclingDuo » Sat May 19, 2018 6:33 am

unclescrooge wrote:
Sat May 19, 2018 2:14 am
CyclingDuo wrote:
Fri May 18, 2018 1:56 pm
unclescrooge wrote:
Fri May 18, 2018 1:02 pm
CyclingDuo wrote:
Wed May 16, 2018 9:00 am
VNPharmd wrote:
Mon May 14, 2018 11:58 am
I'm new to investing. My elderly parents (75 and 78 years old) are living with me. I'm helping them to manage their retirement saving fund worth of $600,000. Given the current market situations (a potential end of the bull market and rising bond yield), what are their best options? Their goal is to generate a steady income, e.g. 4%, while preserving the principal. I'm thinking about 5 year fixed annuities that generate only 3.6% or a very conservative portfolio consists of mainly high quality bonds, but these options have low interest rates. Your advices/inputs would be greatly appreciated.
Income producing for retirees on a base of $600K?

Stepping off the beaten path of the Boglehead index funds, or a recommendation for annuities - there are other alternatives.

You could "buy" a portfolio of dividend stocks for $530K and get $34K per year in dividends. Keep the remaining $60K in their emergency fund. That's a 6.4% dividend rate on the $530K investment in stocks. Share prices will fluctuate, but dividend income would meet their needs (even if it fluctuates) and if there is extra dividend money they don't need in a particular year, it could be used to purchase additional shares. Or you could buy 1/2 of the recommended shares to generate $17K a year in dividends, and still have $335K to work with for bonds, annuities, CD's, cash, index funds.

https://seekingalpha.com/article/417228 ... hts-famine

Based on their age, the Social Security is rolling in monthly and their longevity is a shorter term time frame.
How are you getting over 6% dividends yield in sucks without exposure to capital risk?
I believe I said Share prices will fluctuate...

Whether you read the writings of Bruce Miller and his book to pick and choose your own dividend stock portfolio: https://www.amazon.com/Retirement-Inves ... r+dividend or subscribe to something such as the RODAT (Retirement: One Dividend At A Time) / Fill-The-Gap portfolio from George Schneider: https://seekingalpha.com/checkout?slug=george-schneider or follow plenty of other sources and services for dividend investors - they will illustrate how to create an income in retirement that as with any equity investment is exposed to capital risk.

The same is true if the OP plugs in the $600K his parents have into FIREcalc. Even a 50/50 equity/bond index fund portfolio for their time frame based on their ages has a 100% chance of success with the withdrawal rate the OP mentioned. That doesn't mean their portfolio will still be $600K at the end of the period - so the exposure to capital risk is required.

The Fill-the-Gap Portfolio that began in December of 2014 with $411,600 investment, has now grown to this and produces $34K of annual income. Original intent of the portfolio was to be married to a couple's SS payments to "fill-the-gap" and produce enough income to meet their expenses: https://seekingalpha.com/article/277963 ... -portfolio

The average retired couple requires about $50,000 to live in some semblance of comfort today. For most of us, without a defined benefit pension plan, that leaves us with an annual gap of $21,200 that needs to be filled.

The Fill-The-Gap portfolio has been constructed to offer a way out of this hole that many have dug for themselves. It assumes a working couple, near or just starting in retirement, even after all the spending, has managed to squirrel away around $400,000 over their working lives.


Image

This is how it started in 2014 when it produced $21K of annual income.

Image

So far, so good. The dividend growth has provided more than expected in this hypothetical couple's portfolio to the point they could reinvest dividends into more shares and other stocks to use the DGI strategy and boost income even more.

This is not some new concept or voodoo investment strategy. The OP is not required to even look into it, I just posted up an option based on what I read: a retired couple in their 70's needing to produce annual income of at least $24K with a nest egg of $600K. Buying an income stream - or pension - if you will can be done through SPIA, dividend portfolio, bonds, real estate.

We do not own that particular portfolio in the photos above, but do have many dividend paying stocks as well as plenty of index funds and alternative investments. We used a similar strategy in two accounts set up for our children the past 23-25 years (was not focused on index fund investing way back in 1993), but the basket of stocks they each had using DGI by reinvesting all dividends along the way paid for both of their college educations and then some and the remaining basket of stocks has been passed on to each of these children. Their new money that they put into their tIRA/Roth IRA and 401k plans is all directed into the Three Fund Portfolio while the individual stocks they are just going to let sit and compound for a few decades.
I still don't understand how you are generating 6.4% today. Where did you come up with this number?
Simple math...

Current portfolio value (or cost to "buy in") is $533,341.84.
Current annual dividends on the portfolio are $34,098.78.

Annual Dividend Yield = Annual Dividends divided by Portfolio Value

Current Dividend Yield based on Friday's closing price = 6.39%

Image

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

hudson
Posts: 1428
Joined: Fri Apr 06, 2007 9:15 am

dump it all in safe fixed income and DRAW DOWN

Post by hudson » Sat May 19, 2018 11:58 am

VNPharmd wrote:
Mon May 14, 2018 11:58 am
I'm new to investing. My elderly parents (75 and 78 years old) are living with me. I'm helping them to manage their retirement saving fund worth of $600,000. Given the current market situations (a potential end of the bull market and rising bond yield), what are their best options? Their goal is to generate a steady income, e.g. 4%, while preserving the principal. I'm thinking about 5 year fixed annuities that generate only 3.6% or a very conservative portfolio consists of mainly high quality bonds, but these options have low interest rates. Your advices/inputs would be greatly appreciated.
After doing much more research consider the following:
My recommendation: dump it all in safe fixed income and draw down conservatively! Avoid equities!

Bill Bernstein on Stocks: viewtopic.php?p=1869017#p1869017

I haven't read the other posts.
For their age, stocks are too risky; a 2008 incident could take them down to 300K.
I would disregard future supposed bond yield issues.
Single Premium Immediate Annuities are worth a look up to your states insurance max; Probably the best "return" available...but you lose principal. SPIA's don't work for me. I would just put my principal in a safe bond fund and draw down as needed.

If munis were right for them, I would go 100% intermediate term muni fund like VWIUX or BMBIX.
If munis didn't work for them, I would go with brokered CDs or a total bond fund like VBTLX....or just about any Vanguard "Risk Potential" 2 rated fund.
I'll let you study the taxable/tax exempt options...extremely critical stuff.

Also consider reading books by Swedroe, Bernstein, Larimore etc. or search for their forum contributions:
https://www.bogleheads.org/w/index.php? ... arch&go=Go

The Variable Percentage Withdrawal method might give them an idea of how much they could withdraw a year... viewtopic.php?f=10&t=120430&p=1761580#p1761563

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unclescrooge
Posts: 2273
Joined: Thu Jun 07, 2012 7:00 pm

Re: How to Invest $600K for Retirees

Post by unclescrooge » Sat May 19, 2018 2:47 pm

CyclingDuo wrote:
Sat May 19, 2018 6:33 am
unclescrooge wrote:
Sat May 19, 2018 2:14 am
CyclingDuo wrote:
Fri May 18, 2018 1:56 pm
unclescrooge wrote:
Fri May 18, 2018 1:02 pm
CyclingDuo wrote:
Wed May 16, 2018 9:00 am


Income producing for retirees on a base of $600K?

Stepping off the beaten path of the Boglehead index funds, or a recommendation for annuities - there are other alternatives.

You could "buy" a portfolio of dividend stocks for $530K and get $34K per year in dividends. Keep the remaining $60K in their emergency fund. That's a 6.4% dividend rate on the $530K investment in stocks. Share prices will fluctuate, but dividend income would meet their needs (even if it fluctuates) and if there is extra dividend money they don't need in a particular year, it could be used to purchase additional shares. Or you could buy 1/2 of the recommended shares to generate $17K a year in dividends, and still have $335K to work with for bonds, annuities, CD's, cash, index funds.

https://seekingalpha.com/article/417228 ... hts-famine

Based on their age, the Social Security is rolling in monthly and their longevity is a shorter term time frame.
How are you getting over 6% dividends yield in sucks without exposure to capital risk?
I believe I said Share prices will fluctuate...

Whether you read the writings of Bruce Miller and his book to pick and choose your own dividend stock portfolio: https://www.amazon.com/Retirement-Inves ... r+dividend or subscribe to something such as the RODAT (Retirement: One Dividend At A Time) / Fill-The-Gap portfolio from George Schneider: https://seekingalpha.com/checkout?slug=george-schneider or follow plenty of other sources and services for dividend investors - they will illustrate how to create an income in retirement that as with any equity investment is exposed to capital risk.

The same is true if the OP plugs in the $600K his parents have into FIREcalc. Even a 50/50 equity/bond index fund portfolio for their time frame based on their ages has a 100% chance of success with the withdrawal rate the OP mentioned. That doesn't mean their portfolio will still be $600K at the end of the period - so the exposure to capital risk is required.

The Fill-the-Gap Portfolio that began in December of 2014 with $411,600 investment, has now grown to this and produces $34K of annual income. Original intent of the portfolio was to be married to a couple's SS payments to "fill-the-gap" and produce enough income to meet their expenses: https://seekingalpha.com/article/277963 ... -portfolio

The average retired couple requires about $50,000 to live in some semblance of comfort today. For most of us, without a defined benefit pension plan, that leaves us with an annual gap of $21,200 that needs to be filled.

The Fill-The-Gap portfolio has been constructed to offer a way out of this hole that many have dug for themselves. It assumes a working couple, near or just starting in retirement, even after all the spending, has managed to squirrel away around $400,000 over their working lives.


Image

This is how it started in 2014 when it produced $21K of annual income.

Image

So far, so good. The dividend growth has provided more than expected in this hypothetical couple's portfolio to the point they could reinvest dividends into more shares and other stocks to use the DGI strategy and boost income even more.

This is not some new concept or voodoo investment strategy. The OP is not required to even look into it, I just posted up an option based on what I read: a retired couple in their 70's needing to produce annual income of at least $24K with a nest egg of $600K. Buying an income stream - or pension - if you will can be done through SPIA, dividend portfolio, bonds, real estate.

We do not own that particular portfolio in the photos above, but do have many dividend paying stocks as well as plenty of index funds and alternative investments. We used a similar strategy in two accounts set up for our children the past 23-25 years (was not focused on index fund investing way back in 1993), but the basket of stocks they each had using DGI by reinvesting all dividends along the way paid for both of their college educations and then some and the remaining basket of stocks has been passed on to each of these children. Their new money that they put into their tIRA/Roth IRA and 401k plans is all directed into the Three Fund Portfolio while the individual stocks they are just going to let sit and compound for a few decades.
I still don't understand how you are generating 6.4% today. Where did you come up with this number?
Simple math...

Current portfolio value (or cost to "buy in") is $533,341.84.
Current annual dividends on the portfolio are $34,098.78.

Annual Dividend Yield = Annual Dividends divided by Portfolio Value

Current Dividend Yield based on Friday's closing price = 6.39%

Image

Image
Ah, I see. Thanks for posting.

I see GOV yields North of 12%. How safe is this dividend? Usually there is some uncertainty regarding future payouts that causes dividend yields to go do high.

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CyclingDuo
Posts: 1590
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Re: How to Invest $600K for Retirees

Post by CyclingDuo » Sat May 19, 2018 5:16 pm

unclescrooge wrote:
Sat May 19, 2018 2:47 pm
Ah, I see. Thanks for posting.

I see GOV yields North of 12%. How safe is this dividend? Usually there is some uncertainty regarding future payouts that causes dividend yields to go do high.
Yes, you are correct with not chasing high yielding stocks that don't have a stable dividend payout or the balance sheet to service that dividend. I mentioned in my posts in this thread - I do not own the Fill-the-Gap Portfolio. However, I do track it and follow along as the author is a well respected writer for Seeking Alpha and as I morph into a near retiree - I enjoy reading his and other's writings about managing an income producing portfolio for retirement.

GOV is not a stock I own outside of index funds. All I know about GOV is that it is a REIT that primarily leases office space to Government tenants in and around Washington, D.C. and in spite of good earnings, has been caught in the downdraft of initial share price corrections in REITS as interest rates rise. On top of that, plenty of contributors at Seeking Alpha have been negative about GOV for a long time claiming the dividend would be cut as they are having to sell properties to cover it. Their Q1 earnings were good, and did not lead to any cut in dividends which has led to a 10% rise in the share price. In spite of that, they have had to take on debt for cap ex and to cover the dividend. So the health of this one is in question and management is working with the board of directors to maintain the dividend beyond 2018. Regardless, with the rising interest rates we see yields go up in such an environment as the REITS correct, yet the trade off in good economic times creating rate rises usually leads to improved earnings and share price appreciation as occupancy is high and rental rates rise. At some point, a threshold is met in sectors such as REITs, Utilities, Consumer Defensive, Telecom, etc... where share prices correct enough and yields rise where the price finally stops dropping and shares are accumulated. That's why cyclical stocks do well in the current environment. The astute investor with a longer time horizon and a balanced portfolio has the opportunity to buy the out of favor sectors when nobody wants them at lower prices rather than play the sector rotation game.

That being said, the author who set up the portfolio is fairly proactive with his selections and I imagine if GOV was not providing or upholding its position and providing the desired income in the Fill-the-Gap portfolio he would have jettisoned it long ago as there are plenty of other potential candidates.
"Everywhere is within walking distance if you have the time." ~ Steven Wright

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