Retirement Income question

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be140
Posts: 1
Joined: Sat Feb 10, 2024 7:33 pm

Retirement Income question

Post by be140 »

We have $300,000 in cash from the recent sale of a house for my 77 year old mother. The goal for this cash is to yield ~ $1500-1800 of income per month (which may increase yearly to keep up with inflation). Looking for a conservative and simple approach with the goal of preserving capital. My thought was to keep $45K in a money market account, $170K in a total bond market fund, and $85K in a total stock market index fund and rebalance ~ each year or two with the thought of trying to maintain 3 years of cash on hand in the money market account.

Any suggestions or thoughts on thus. I am less familiar with bonds and am not sure if a bond ladder of some sort would make more sense than a total bond index fund.

Thank you,

BE140
delamer
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Joined: Tue Feb 08, 2011 5:13 pm

Re: Retirement Income question

Post by delamer »

The $85,000 in a total stock fund is fine for some growth. Consider keeping the entire remainder in a TIPS or CD ladder and/or other cash equivalents like a short-term Treasury fund.

At her age, putting 10 years of expenses in assets with no (or very little) principal risk is prudent. Total bond fund prices can fluctuate pretty significantly, as we’ve seen in the last few years.
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livesoft
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Re: Retirement Income question

Post by livesoft »

There is no guarantee that "preserving capital" can be achieved with the portfolio described. $1800 a month is 7.2% yield whilce $1500 is 6% yield.

Maybe single premium immediate annuity is worthwhile for some (but not all) of the money? but there are caveats with that, too. for

Of course, customers asking for big yields while "preserving capital" are exactly what unscrupulous sales reps love. They will promise such returns before fees and costs, so that clients gobble them up. But someone always ends up being the turkey.
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billfromct
Posts: 2018
Joined: Tue Dec 03, 2013 8:05 am

Re: Retirement Income question

Post by billfromct »

Maybe check out a “term” or “period certain” 15 year annuity, if they are still available.

If you had a Vanguard variable annuity back in the 1990s, you could get a 15 year “term certain” payment that would pay about $7 per each $1,000 of the value of the annuity per month. The “term certain” annuity was based on providing a 4% interest rate during the 15 year time period, so a $300,000 15 year “term certain” annuity would pay about $2,100/month, 300 x $7=$2,100. Maybe now with higher interest rates, there would be a higher monthly payment per $1,000 annuity value.

If my memory serves me correctly, the 10 year “term certain” annuity paid about $10 per $1,000 annuity value per month.

I believe that if the “term certain” owner passes away, the beneficiary will collect the remaining monthly payments.

Maybe someone with annuity expertise will “chime” in.

bill
ehh
Posts: 680
Joined: Mon Feb 01, 2021 10:04 am

Re: Retirement Income question

Post by ehh »

livesoft wrote: Sat Feb 10, 2024 8:21 pm Maybe single premium immediate annuity is worthwhile for some (but not all) of the money? but there are caveats with that, too.
https://www.immediateannuities.com/ is showing a $100,000 investment yielding $755 per month for a 77 year old female and a 2 percent inflation rider.

You give up 2/3 of the capital in return for $1,500 per month certain income with partial inflation protection. Leaves $100,000 for unexpected expenses. Is your mother healthy? Does she have longevity in her family? If so, an immediate annuity might be worth considering.
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ResearchMed
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Re: Retirement Income question

Post by ResearchMed »

ehh wrote: Sat Feb 10, 2024 9:35 pm
livesoft wrote: Sat Feb 10, 2024 8:21 pm Maybe single premium immediate annuity is worthwhile for some (but not all) of the money? but there are caveats with that, too.
https://www.immediateannuities.com/ is showing a $100,000 investment yielding $755 per month for a 77 year old female and a 2 percent inflation rider.

You give up 2/3 of the capital in return for $1,500 per month certain income with partial inflation protection. Leaves $100,000 for unexpected expenses. Is your mother healthy? Does she have longevity in her family? If so, an immediate annuity might be worth considering.

Where are you seeing an inflation rider at immediateannuities.com?

Also... I do check there occasionally for the SPIA for each of us and also for both.
But just now, for DH, I'm seeing that "Life" vs. "Life & 5 Years Certain"...??
The "Life" alone is paying just slightly LESS than the "Life & 5 Years Certain". How does that work!?

The actual payouts are identical for the first digits, and the last digist are very slightly different, but the "wrong way"'.
For all examples below, there is 100% paid to the survivor, but the second example guarantees that a beneficiary would get the remainder of 10 years' worth, if both passed before 10 years.

Monthly income:

Male:
X.54% for Life;
X.63% for Life & 5 Years Certain.

I see the same thing for me:
Female:
Y.13% for Life;
Y.28% for Life & 5 Years Certain.

And for Joint:
Z.99%
(Z+1).08%

:confused

RM
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Jovby
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Re: Retirement Income question

Post by Jovby »

ResearchMed wrote: Sat Feb 10, 2024 10:23 pm
Where are you seeing an inflation rider at immediateannuities.com?
After you run your first quote, you have the option to run the quote again with an inflation rider. You do have to put in your email address.
ehh
Posts: 680
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Re: Retirement Income question

Post by ehh »

Jovby wrote: Sat Feb 10, 2024 11:48 pm
ResearchMed wrote: Sat Feb 10, 2024 10:23 pm
Where are you seeing an inflation rider at immediateannuities.com?
After you run your first quote, you have the option to run the quote again with an inflation rider. You do have to put in your email address.
Correct. But in my experience, if you uncheck the "send me information" box, they honor your request and don't send you Emails.
ehh
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Re: Retirement Income question

Post by ehh »

Op, you can use the Vanguard Nest Egg Calculator https://retirementplans.vanguard.com/VG ... ggCalc.jsf to get an idea of the probability of a specified savings balance lasting for a specified number of years.

It is only an estimate but gives you some numbers to compare to an immediate annuity option.

For example, $300,000 in savings invested 40/40/20 (stock, bond, cash) with an $18,000 per year initial withdrawal rate, has a 78% chance of lasting 20 years. Bump the initial withdrawal rate to $21,000 per year and the probability of the portfolio sustaining that (inflation indexed) withdrawal rate for 20 years drops to 53%.
ehh
Posts: 680
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Re: Retirement Income question

Post by ehh »

ResearchMed wrote: Sat Feb 10, 2024 10:23 pm Also... I do check there occasionally for the SPIA for each of us and also for both.
But just now, for DH, I'm seeing that "Life" vs. "Life & 5 Years Certain"...??
The "Life" alone is paying just slightly LESS than the "Life & 5 Years Certain". How does that work!?
That is odd.

How old are you? The younger you are, the less difference is expected - the probability of dying within the next five years is lower. And, with just five years certain, the expected number of years the insurance company will pay after your death is very small.

Maybe people looking for "x years certain" annuities are, in general, in worse health than those not concerned with "years certain". Hence, the total years (even with the guarantee) the company will be required to pay is (slightly) less.

If I look at ten years guaranteed, the results are as expected - slightly lower rate than no guarantee.

You might call Immediate Annuities and ask them.
backpacker61
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Re: Retirement Income question

Post by backpacker61 »

Perhaps a holding in the Vanguard LifeStrategy Income Fund?

https://investor.vanguard.com/investmen ... file/vasix
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babystep
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Re: Retirement Income question

Post by babystep »

be140 wrote: Sat Feb 10, 2024 7:43 pm We have $300,000 in cash from the recent sale of a house for my 77 year old mother. The goal for this cash is to yield ~ $1500-1800 of income per month (which may increase yearly to keep up with inflation). Looking for a conservative and simple approach with the goal of preserving capital. My thought was to keep $45K in a money market account, $170K in a total bond market fund, and $85K in a total stock market index fund and rebalance ~ each year or two with the thought of trying to maintain 3 years of cash on hand in the money market account.

Any suggestions or thoughts on thus. I am less familiar with bonds and am not sure if a bond ladder of some sort would make more sense than a total bond index fund.

Thank you,

BE140
How does it meet your $1500 number in year 4, 5 and onward?
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ResearchMed
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Re: Retirement Income question

Post by ResearchMed »

ehh wrote: Sun Feb 11, 2024 7:46 am
ResearchMed wrote: Sat Feb 10, 2024 10:23 pm Also... I do check there occasionally for the SPIA for each of us and also for both.
But just now, for DH, I'm seeing that "Life" vs. "Life & 5 Years Certain"...??
The "Life" alone is paying just slightly LESS than the "Life & 5 Years Certain". How does that work!?
That is odd.

How old are you? The younger you are, the less difference is expected - the probability of dying within the next five years is lower. And, with just five years certain, the expected number of years the insurance company will pay after your death is very small.

Maybe people looking for "x years certain" annuities are, in general, in worse health than those not concerned with "years certain". Hence, the total years (even with the guarantee) the company will be required to pay is (slightly) less.

If I look at ten years guaranteed, the results are as expected - slightly lower rate than no guarantee.

You might call Immediate Annuities and ask them.

I might call them, just out of curiosity.
And it's good to know that if one unchecks the "send me" box, they won't.

Look at the "Life plus FIVE years".
The Life plus TEN years" does work in the expected direction, as do the +15 and +20 amounts.
You'll probably need to click on the "Expand" bit below the initial, limited table.
Do you by any chance see something odd with the "Life plus 5 Years"?

RM
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ehh
Posts: 680
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Re: Retirement Income question

Post by ehh »

ResearchMed wrote: Sun Feb 11, 2024 9:21 am Do you by any chance see something odd with the "Life plus 5 Years"?
I do see your reported (odd) results with life with five years certain. I am 73 years old. I guess this means my chance of dying in the next five years is less than zero. :mrgreen:

Other than what I speculate above (a less healthy population is buying five year certain annuities), I can't think of an explanation.
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