allocation questions

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CulmervilleKid
Posts: 2
Joined: Mon Oct 30, 2017 11:31 pm

allocation questions

Post by CulmervilleKid » Tue Oct 31, 2017 12:07 am

Hi,
I'm new to this forum as a poster but longtime reader. I'm 60 years old and recently diagnosed with an illness. I may live for years but I will have to quit working in the next 3-6 months. So instead of gradually easing into retirement I'm going to be ejected into it. I need some advice and feedback on my asset allocation model.

My house is paid off, two kids in college but I bought a prepaid tuition deal so that is largely covered.
My wife is 58 yo and in good health and will need income after I'm gone so I can't blow it all on me.
I have about 3 million and need about $105,000 per year to live on.
My investments are as follows
2M in Vanguard funds ( international, total stock market, Dividend growth) some real estate exposure via TIAA/CREF
1M in laddered CDs. Paying not much. No bonds.I'm not very comfortable with buying bonds at this point in the economic cycle unless they are short term.
Depending on how things go I may put off SS for another year or two.

Questions
Will this model work? or are there better or alternative ones.
How do I withdraw using this model? Do I cash in the CDs each year and keep the stocks going for about 10 years?
Do I take a little from each pile every year instead of cashing the CDs?
It seems that accumulating money is easier and more straightforward than deciding how much and what sequence to spend it.
Any other suggestions? This has come up very quickly and I'm not confident that I'm doing the correct thing.
Thanks in advance.

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Sandtrap
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Re: allocation questions

Post by Sandtrap » Tue Oct 31, 2017 2:28 am

Welcome.
Sorry to hear about your illness and forced retirement.
The experts can give you more comprehensive help if you can edit your post and give better details.
IE: allocation, projected SS, Fund details, durations of the cd ladder, healthcare until medicare, alternative income streams. . SPIA's, etc.

Here's a link how to do it:
Asking Portfolio Questions
/forum/viewt ... =1&t=6212

Some helpful links:
Bogle Philosophy
/wiki/Bogleh ... hilosophy
Here are links to the wiki's "Getting Started" and "Investing Startup Kit" pages:
/wiki/Getting_started
/wiki/Bogleh ... rt-up_kit
Define General Investment Goals and Objectives
/wiki/Invest ... statement
Outline of Investing
/wiki/Outline_of_investing
Suggested Reading List
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What the experts say about investing
/wiki/What_ ... investing

dbr
Posts: 23674
Joined: Sun Mar 04, 2007 9:50 am

Re: allocation questions

Post by dbr » Tue Oct 31, 2017 9:11 am

A rough rule of thumb is that you can take about 4% of initial portfolio value a year increased annually by inflation. 4% of $3M is $120,000 per year. In addition to that you have any SS and pensions you might be entitled to. This assumes a balanced portfolio of about 50/50 stocks bonds which would be kept that way by rebalancing. You might want to look at some of the retirement models such as FireCalc to get an idea how this works. I would not go so far as to consider these models to be plans in detail. It is easy to get sucked into esoteric discussions about safe withdrawal rates. I would suggest instead giving more attention to your expenses, especially considering what contingencies might arise and being comfortable you can deal with them.

One thing that can cripple your income in this scenario is paying too much in investment costs. Realize that if you lose 1%-2% paying AUM advisors, fund expenses, and so on that the cost comes out of your 4%. Also taxes have to be paid out of that.

Ron Scott
Posts: 329
Joined: Tue Apr 05, 2016 5:38 am

Re: allocation questions

Post by Ron Scott » Tue Oct 31, 2017 10:33 am

Agree that keeping investment costs down is key. Low cost, broadly diversified, passively managed index funds--VG, Fidelity, et al--works nicely.

I believe the general experience on dividend funds is that their total return lags the market, like most actively managed funds do. Plus they may cost more, further eating into returns.

CDs are not keeping pace with inflation...maybe short term bonds, maybe just a little intermediate?

I'm not sure what your pension/SS situation is but you should run a quick calc to determine the current capitalized value (the present value of likely future returns) for your wife and treat that amount along with your CDs as "bonds" in developing an asset allocation model. I'll take a guess and say its worth $1 million total, which would give you a 50-50 allocation, which seems reasonable to me.

You and your wife should be good at $105k, which is ~3.5% withdrawal rate on your $3M in investable assets PLUS you've got SS coming online at some point. So you look good in the grand scheme, but cannot afford to make strategic mistakes.

BTW, what's the tax plan? Do you have tax deferred and taxable accounts now?

Re: withdrawals, you do need a strategy. Your accountant can help but you should be thinking of maintaining your asset allocations while withdrawing assets for living. Maye take some from the CDs and dividends from the stocks (which is taxed anyway).

Buy this book and read the wikis in this site:

Finally, it might be a good exercise for you and your wife to develop a full investment/tax strategy for the future. Writing it down forces some big issues to come to fore, and doing it together can help ease both your minds that the plan is what she wants too and is well-understood by all.


I hope the best for you.

CulmervilleKid
Posts: 2
Joined: Mon Oct 30, 2017 11:31 pm

Re: allocation questions

Post by CulmervilleKid » Wed Nov 01, 2017 12:24 am

Thank-you for the assistance.

I've run a number of scenarios through Firecalc and the results are reassuring. No failures.
The combined SS if both my wife and I start at our full retirement age is about 4K per month. I guess this would equal a 1M fixed income investment earning 4% as one of the responders pointed out.
BTW most of my mutual funds are low expense ratio funds in Vanguard except for VDIDX 0.03% and Akre a whopping 1.34% but has out performed the S&P. I'm addressing some of the qualified and non qualified tax issues with my CPA.


So more advice if you are willing.

My fixed income allocation is divided into almost equal parts of 1,2,3 and 5 year CDs bought through the Vanguard website. I could have gotten a bit better rates elsewhere but used Vanguard for simplicity. Is it worth buying some bond funds instead with slightly better yields but more risk? Is there an realistic upside- I know the downside. I ask because some of the simple model portfolios use vanguard bond index funds. The yields are better but again it seems that at least the intermediate funds have interest rate risk.

Finally one way to look at the cd ladder is to treat each 100k cd as a "bucket" and fund each year with a cd as it matures. Is there a weakness with this strategy?

Thank-you again!

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