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Author: rkmacdonald Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75339  
Subject: Re: decisions, decisions. Date: 2/18/2002 7:57 PM
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Author: kfclabo Date: 2/18/02 5:43 PM Number: 33832
I will be retiring in a couple of months. Age 62. My pension can be $1200/month 10 year certain and life or $182,000 lumpSum. My wife is much younger than I am and earns $60,000/yr. Relatively debt free. The market is terrible, wouldn't want ind. stocks.I have approx. $30,000 in blue chip stocks. I was thinking about $90,000 vanguard S&P 500 index fund and $90,000 tax deferred municipal bonds.Will be receiving approx. $2,000 soc. Sec. monthly benefit. (We have a 15 yr old mentally challenged child.)WE would like to supplement our income with $500/month from the $182,000. We will still be in a high tax bracket that is why I was considering the Tax free municipal bonds.I am in good health and feel altho I am retiring, I can handle a little risk than all fixed income. I would appreciate any suggestions or advise.

At age 62, you could easily live another 30 years, and you need to invest with that in mind.

The fact that the market is, indeed, terrible, suggests that now may be the time to invest in it. The fact that you will be in a high tax bracket after retirement indicates that you won't have any money worries, so that means you can be more agressive.

$1200 a month is statistically equal to $182,000 based on mortality tables. Said another way, if you invest the $182,000 in fixed income instruments, and withdraw interest plus a small part of principle each month for the rest of your life, you'll be just out of money when you die. However, if you take the $182,000 lump sum and invest it more agressively, you'll likely be able to beat the annuitized approach. However, to do that, you'll need to draw only about 4% per year from the $182,000, or only about $607 per month at the start, and then increase that by inflation each year.

If it were me, I think I'd take the $182,000 and invest it 75% in VTSMX (Vanguard Total Market Index), and 25% in VGSIX (Vanguard REIT Index). I like Vanguard because they have some of the lowest costs in the industry and a great website, www.vanguard.com .

The dividends from the VGSIX will give you about $230 per month, and the dividends from VTSMX will generate about $171 per month. The rest of the 4% can be taken from selling long-term shares of VTSMX. You'll pay marginal income tax rates for the dividend income and long term capital gains rates on the sale of the shares. That should keep your taxes under control.

I don't think the municiple bonds are a good idea, because they won't grow in value, and you'll lose to inflation in the long run.

RK
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