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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 75829  
Subject: Re: retirement stress Date: 1/3/2005 11:24 PM
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Author: radman93003 | Date: 12/29/04 8:34 PM | Number: 43770
How can I earn a reliable 120,000 from 3 mil.I have about 1,400,000 in short munis which earn prob 3% over all. I have 1 mil in equities but this is iffy if there is a bubble and things crash. All I want to do is relax and live like a king.

With 3.0 mil, you should be able to generate $120,000 a year (with increases for inflation) for 30 years. I realize that you said 'safety is the byword', but be careful not to equate bonds with safety. They give the 'illusion' of safety while exposing you to the full ravages of inflation. You need sufficient equities to provide growth to offset inflation if you want to withdraw safely from your portfolio for 30 years. Typically, you need about 60% equities and 40% bonds to support a 4% long term withdrawal rate with increases for inflation with a 96% success rate. Right now, you have 66% bonds and 33% equities which has a lower probability of success.

One way to simplify your life would be to invest all your funds in one or more of the many low cost mutual funds that maintain a 60%/40% equity/bond ratio. Then, you don't even have to worry about rebalancing - they do it for you with no commission charges. There are also funds that maintain lower equity and higher bond ratios, but your long term chance of success with a 4% withdrawal rate will be less.

The Vanguard Balanced Index Fund (Admiral Shares), VBIAX, maintains 60% S&P 500 and 40% Total Bond Market, and has an expense ratio of only 0.15%. With this fund (and most of the other funds at Vanguard), you can arrange for full dividend reinvestment and then have a monthly check sent to you for any amount you choose. You would choose 4% divided by 12 or 0.333% per month. Then, once a year, look at the value. If it is higher than last year, increase your check by the rate of inflation. If it is lower, keep your check the same (or lower it if you want to).

Since 4% is about the maximum you can expect to 'safely' withdraw, you should not expect much growth from your portfolio during your 30 years of withdrawals.

Russ
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