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Author: ww4321 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 76418  
Subject: help -retirement investing plan Date: 6/4/2011 10:33 AM
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We are looking are help in a retirement investing plan.
My wife and I are both 71, no kids and no plans as of now to leave money to anyone, maybe charities a small amount at the end. We are both in fairly good shape and as others would not like to run out of money in our lifetime.

Our assets are as follows:
one bedroom coop worth $400000
cash $550000
401(for both of us) $450000
total $1,400,000 (none is invested now-0)
--------------------------------------------------------------
income
social security and pension $72000
------------------------------------------------------------------------
Our yearly expenses are about $60000, and have medicare and supplementary health insurance. We would like to travel a lot and spend more.

We have nothing invested as stated above, but have been doing very small stock trades. We have been in a state of analysis paralysis up to now.

We are looking for ideas of how to invest the money, and how much we can spend per year.

Thanks in advance for any ideas, or sources of information on the internet.
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Author: drippinfool Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 69116 of 76418
Subject: Re: help -retirement investing plan Date: 6/4/2011 11:53 AM
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"We are looking are help in a retirement investing plan.
My wife and I are both 71, no kids and no plans as of now to leave money to anyone, maybe charities a small amount at the end. We are both in fairly good shape and as others would not like to run out of money in our lifetime.

Our assets are as follows:
one bedroom coop worth $400000
cash $550000
401(for both of us) $450000
total $1,400,000 (none is invested now-0)
--------------------------------------------------------------
income
social security and pension $72000
------------------------------------------------------------------------
Our yearly expenses are about $60000, and have medicare and supplementary health insurance. We would like to travel a lot and spend more."


I'm sure others will have more helpful information, but my first impression is that you are more in need of a spending plan than an investing plan.

"We have nothing invested as stated above, but have been doing very small stock trades. We have been in a state of analysis paralysis up to now."

Stock trading is one way to spend more money by paying a broker's commissions. I wouldn't do it, but if it floats your boat ...

"We are looking for ideas of how to invest the money, and how much we can spend per year."

How is the 401 money currently "invested"? If it is in cash/equivalents, then with your income and taxable cash cushion, you could afford to take some risk with it by putting some of it into a total stock market fund and a total international fund, if you have low cost options in the 401(s). Absent good options, you could roll it/them into IRA(s) with a discount broker or fund company where you can buy low cost funds.

You can probably expect to need you money to last another twenty years or so. If you don't mind leaving nothing behind, you can safely spend 5% of your combined million every year - on top of your current income.

"Thanks in advance for any ideas, or sources of information on the internet."

You might find some helpful advice at bogleheads.org - a website frequented largely by advocates of low-cost broad index fund investing.

Good luck.

-drip

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Author: 0x6a74 Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 69117 of 76418
Subject: Re: help -retirement investing plan Date: 6/4/2011 1:51 PM
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How is the 401 money currently "invested"? If it is in cash/equivalents, then with your income and taxable cash cushion, you could afford to take some risk with it by putting some of it into a total stock market fund and a total international fund, if you have low cost options in the 401(s). Absent good options, you could roll it/them into IRA(s) with a discount broker or fund company where you can buy low cost funds.

You can probably expect to need you money to last another twenty years or so. If you don't mind leaving nothing behind, you can safely spend 5% of your combined million every year - on top of your current income.



yes ..Yes. (maybe a bond fund along with 'total stock'?)

i would add -- if OP is living in the coop, don't count that for the 5%

and *i* ,being a little paranoid, would wonder how secure any pension is.


=

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Author: mungofitch Big gold star, 5000 posts Top Favorite Fools Top Recommended Fools Feste Award Winner! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 69118 of 76418
Subject: Re: help -retirement investing plan Date: 6/4/2011 2:28 PM
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First advice: beware most advice, including this.
It's really easy to end up with something a bit more risky than you can afford.

A couple of random thoughts.

Much to be said for cash. If you're thinking of stocks, I would tend
not to buy them now. Wait till just after the end of the next
bear market before even thinking about investing in stocks; prices are
not low enough these days to make it a case of shooting fish in a barrel.
(there is actually a brutally simple indicator intended to identify
those points suitable for entering a very long term stock position,
as a big bad bear market is ending, called the "Coppock indicator".
It's not perfect, but it's sure better than a dart board. It was
invented in the early 60's and has had a very nice success rate).

The best single security I can think of right now for current income
is Wells Fargo Preferred Series L shares, ticker WFC-PL or something like that.
You buy them like shares. They cost $1077 each right now. The price
can go up and down with market conditions, but they will usually always
trade in the same range. They have a constant payout of $75 a year.
So, that's a current yield of 6.96% right now.
They are perpetual---you don't have to worry about them expiring.
They are callable, but not unless Wells Fargo stock goes up by some
gigantic factor from today's price, so it won't happen (if at all)
for a Looooong time. If the company falls on hard times for a while
they can suspend the dividend for a while, and they don't pay you
for the ones skipped when dividends are resumed. ("non cumulative").

A nice portfolio is lots of cash to cover expenses for the next five
years, and the rest invested in something that will do very well but
you have no idea when it will pay off. Berkshire Hathaway is an
excellent example right now---unusually undervalued, and certain not
to blow up, and certain to beat the broad market in the next 10-20 years.
No dividend though, and market prices can be too low for five years
at a time, so it can't be relied on to provide anything towards
the next five years of expenses. That's the reason to keep a cash pile.
Never worry about a cash pile not generating enough income. If the
cash is eventually deployed on something during one of those rare times
that everything gets really cheap, like March 2009, then in the end the
cash had a really nice return. It's like a free option.
The hard part is knowing to deploy it when the time comes.

Having been invited over to this thread from the Mechanical Investing
board, if you really want to have some fun with a few stocks, I strongly
recommend a method there known as YldEarnYear. In a nutshell, buy
some dividend paying stocks on a certain list, hold them for a month,
and repeat. This particular method was devised in June 3003, based on
a back test to 1986. It has continued to beat the S&P by 18%/year
since it was invented in 2003, very similar to the original back test result.

A final thought about expenditure planning: most retirees have a
"U" shaped spending pattern---fairly high at first as you catch up
on travel and leisure, lower as you settle down, and higher again
later on if/when health expenses rise. Something to keep in mind.

Jim

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Author: ptheland Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 69119 of 76418
Subject: Re: help -retirement investing plan Date: 6/4/2011 2:38 PM
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This particular method was devised in June 3003, based on
a back test to 1986.


No wonder it's doing well. You're not out of sample yet. ;-)

--Peter <== can't resist a good typo

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Author: CABob Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 69120 of 76418
Subject: Re: help -retirement investing plan Date: 6/4/2011 2:38 PM
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If I understand correctly you have social security and pension income of $72K and expenses of $60K. I doesn't sound to me that you have much of a problem.
The co-op is a place to live and not an investment in my opinion so you really have a portfolio of $1 million.
Studies have shown that you can withdraw an initial 4% of ones portfolio and that amount annually and have a pretty good chance of not running out of money for 30 years. At your ages I would think that this amount of spending would be quite safe.
I indicate that you have nothing invested. So where is the cash and the 401k? I would submit that it is invested although it may be invested in cash accounts earning a very small amount of interest that may in fact not be keeping up with inflation.
Personally I would stay away from "small stock trades". Instead, a portfolio made up of broadbased index mutual funds would be preferable in my mind. Perhaps something like the Vanguard Target Retirement Income fund or individual mutual funds with similar asset allocations might be a good starting point.
https://personal.vanguard.com/us/funds/snapshot?FundId=0308&...

Bob

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Author: ResNullius Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 69121 of 76418
Subject: Re: help -retirement investing plan Date: 6/4/2011 2:51 PM
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For the cash/liguid part, I would consider putting about 70% in short and intermediate Vanguard investment grade bond funds, possibly as high as 75%. The other 25% to 30%, I would put in the Total Market Index with Vanguard. I would reinvest the interest and distrubtuions, then withdraw no more than 4 or 5% per year for your additional spending. This is just some rough ideas. Looks like you're doing fairly well all by yourself, so I wouldn't pay anyone for help. Good luck. Even at your age, you still could use some growth in case one of you lives a very long time.

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Author: RHinCT Big gold star, 5000 posts Ticker Guide SC1 Red Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 69122 of 76418
Subject: Re: help -retirement investing plan Date: 6/4/2011 4:13 PM
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"We have nothing invested as stated above, but have been doing very small stock trades. We have been in a state of analysis paralysis up to now."

Stock trading is one way to spend more money by paying a broker's commissions. I wouldn't do it, but if it floats your boat ...


My broker is pretty typical and charges a flat $7.95 per trade, so for a buy-and-hold approach to investing in stocks, broker commissions aren't all that big a factor. There are plenty of other issues, pro and con, that are far more significant.

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Author: hockeypop Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 69123 of 76418
Subject: Re: help -retirement investing plan Date: 6/4/2011 5:43 PM
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1. What are your expenses after SS? That number is important.

2. If one of you died would you be able to reduce your expenses or are they likely to remain the same?

3. While you're calculating your expenses after SS and a worst case expense option if one of you died, I'd do the following:

a) Check Vanguard and determine the cost of an immediate fixed annuity on each of you for the amount of #1. You might not want to do that but it would be nice to know the cost of insuring all your risk.

b) After you figure #2, I'd check on the cost of just enough life insurance to reduce that risk. Again, you might not have to do that but it would be good to know the number.

4. I'd guess the chances are good that you might not have to take either the annuity or the life insurance if the expenses you need to fund are small based upon your $1 million dollar investment sum. If that is true then you could buy a ladder of specific 10 year treasuries and beyond to take care of any expenses (very conservative).

As an alternative you might be able to fund a 30% stock 70% bond portfolio that would provide you with nice income.

5. If I wanted to "play" with individual stocks at your age and you are concerned with that I'd go wither go with index funds OR practice with the TMF CAPS to test your ability to choose.

Congratulations on being a millionaire. It doesn't seem as much as it once was does it?

Hockeypop

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Author: JLC Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 69124 of 76418
Subject: Re: help -retirement investing plan Date: 6/4/2011 5:52 PM
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Food for thought in no particular order.....

--$72k/year SS and pension with $60k/year expenses. Sounds like you have money to burn. Not so fast Sparky. While the government is stating near zero inflation, as the common man who buys gas and groceries how much more expensive things have gotten over the past couple years. And with all the "free money" being printed by various governments, real inflation is likely to continue at a high rate. I would save this "extra" money.

--how safe is your pension? Is it guaranteed by a private company or some level of government? Can you get a lump sum payment? I would rather have the money in my own grubby little hands than somewhere else. The risk of default/restructuring may be small (or big - think GM or any other company that has filed bankruptcy that was once though "too big to fail") I would eliminate it if I could.

--I would have 3-5 years of living expenses (needs not wants) laddered in CDs.

--don't count your house as an investment. It is a place to live. If you get your money out of it when you sell it great. Look around, too many people bought more than they could afford because it was an "investment" and they were foreclosed.

--So you are now down to $700k to invest ($1400k - 400k house - 300k living expenses.

--I would pick 10-12 Dividend Champion or Divided Aristocrat stocks (Google the terms). These are companies that have decent dividend yields (many 5-6% range) and increase their payout every year. Some at a rate higher than inflation. This might sound too good to be true, and it can be. Some recent companies on these lists that fell off because they decreased and stopped their dividends: GM, GE, BAC. But they can provide a nice steady income stream that can increase each year.

JLC

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Author: aj485 Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 69125 of 76418
Subject: Re: help -retirement investing plan Date: 6/4/2011 7:04 PM
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My wife and I are both 71,
.
.
.
401(for both of us) $450000


Just remember, now that you have both turned at least 70 1/2, you are required to take minimum distributions from your 401(k)/IRA assets each year. With a combined $450k, at age 71, your combined minimum distribution for 2011 is about $17k, depending on your 401(k)/IRA balance as of Dec 31, 2010.

You may want to look at IRS Pub 590 for details. www.irs.gov/pub/irs-pdf/p590.pdf

AJ

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Author: RHinCT Big gold star, 5000 posts Ticker Guide SC1 Red Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 69126 of 76418
Subject: Re: help -retirement investing plan Date: 6/4/2011 8:25 PM
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Minimum distributions are important to keep in mind when planning. Of course just because the money comes out of the IRA doesn't mean it can't be re-invested in a taxable account. (Sometimes I seem to see people equating distribution with spending.)

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Author: op456op Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 69127 of 76418
Subject: Re: help -retirement investing plan Date: 6/5/2011 12:47 AM
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For the 401k I would roll to a Vanguard IRA account and use the brokerage services for their no fee ETF'S:

1/3 in BIV - Intermediate-Term Bond (Investmnt Grade Government bonds for the most part)
1/3 in VTI - Total Stock Market (US)
1/3 in VT - Total World Stock

You could even do the cash the same way in a Vanguard Taxable account.

In addition to the no fee ETF's, Vanguard's expense ratios are among the lowest, if not the lowest in the industry.

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Author: Watty56 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 69128 of 76418
Subject: Re: help -retirement investing plan Date: 6/5/2011 1:15 AM
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You are doing great and should really do the traveling while you can and feel free to spend more too.

Since you are a couple you really need to look at the numbers three different ways assuming;

1) Both of you live into your 90's
2) Husband outlives his spouse by a long time.
3) Wife outlives her spouse by a long time.

The problem is that when one of you passes away the amount of social security and possibly the pension could be greatly reduced. The survivors expenses might not be reduced much or could even increase if they have to hire more help to do what their spouse used to do.

Between the possibly of reduced income someday and inflation even though you are set VERY well you can't just leave it all uninvested.

Be very very careful about planning to do a lot of active stock investing yourself. The problem is that you may be capable of doing it now, but maybe less so by the time you are 80 or 90. Unfortunately it is not uncommon for older people who are having problems with reduced mental capability to have their portfolio crash and burn while they are trying to still manage it. You really need to find a way to get the investments on automatic pilot so that you will not risk making mistakes with it later in life.

Keeping it simple also helps if one spouse does most of the financial planning, but then the other spouse has to take it over some day. you need to make all the plans so that either of you can handle it.

TIPS are good for inflation protection but because of the way they are taxed they should usually only be held in a retirement account.

As a starting point you might consider putting;

1) All the tax protected retirement account money into individual TIPS. You may need to move the 401K money into an IRA to invest in individual TIPS, but this would generally be good to do anyway to give your more flexibility.

2) Put most of the rest of taxable cash account into the Vanguard targeted Retirement income fund. This would give you some reasonable stock and international exposure that you will need to provide more growth.

https://personal.vanguard.com/us/funds/snapshot?FundId=0308&...


This is a bit simplistic and can of course be fine tuned but this would be a good benchmark to compare other alternatives to and to use as a starting point.

Greg

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Author: ResNullius Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 69129 of 76418
Subject: Re: help -retirement investing plan Date: 6/5/2011 9:50 AM
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I think a lot of folks forget or don't realize that when their spouse dies, the SS that went to that spouse stops coming. The other issue is if on spouse has to go into a nursing home, while the other spouse lives somewhere else, thus doubling the cost of housing.

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Author: mungofitch Big gold star, 5000 posts Top Favorite Fools Top Recommended Fools Feste Award Winner! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 69130 of 76418
Subject: Re: help -retirement investing plan Date: 6/5/2011 11:10 AM
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This particular method was devised in June 3003, based on
a back test to 1986.

No wonder it's doing well. You're not out of sample yet. ;-)


Yeah, well, it's amazing what you can do with a financial database covering the next thousand years or so.

Jim

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Author: hirundo Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 69131 of 76418
Subject: Re: help -retirement investing plan Date: 6/5/2011 4:51 PM
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I'd second the kinds of advice given by just about everyone else so far, and add: if either or both of you can still qualify for long term care insurance, get some.

hirundo

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Author: yttire Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 69132 of 76418
Subject: Re: help -retirement investing plan Date: 6/5/2011 8:40 PM
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It seems like your social security payments and pension are worth enough that you really don't need the rest of your assets.

I would ask though- is your pension inflation adjusted, or not? If it is not inflation adjusted, then your income may need some further buttressing.

Basically, the thing that will nail you financially is a bad run of health- this may be worth considering taking out some hedges against (like long term care insurance possibly).

If I were in your position, this is what I would do:

- Keep the 400k one bedroom place if you like living there. If you want to live somewhere else, consider moving to that new location and sell it to buy the new place.

- Take the rest of your money and break it up as follows:

20%- annuities which pay out until both of you are deceased. This transfers the risk of a falling market, or a very long live span, onto someone elses shoulders. Annuities are a terrible investment. Unless.. unless you live a very long time or the market (or other investment vehicles) tank horribly. I would research this carefully and consider Vanguard annuities, only consider inflation adjusted ones.

20% - put it into high quality dividend stocks. The stock market is very high right now, and probably will go down. But very well could not. Taking advantage of income producing stocks is a wise idea as they are likely to pace inflation. I would dollar cost average into these, planning that they will go up and down in value.

20% - put it into an investment property and get someone to manage it for you.

20% - put into TIPS of various maturities

20% - put into short term bonds.


Good luck (I would seek the advice of a real professional who charges based on their time, not on the products they sell)

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Author: JLC Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 69133 of 76418
Subject: Re: help -retirement investing plan Date: 6/6/2011 9:33 AM
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20% - put into TIPS of various maturities

Personally I would do CDs instead of TIPS. TIPS on the surface sound great. Everyone is talking about how inflation has to hit sooner rather than later. But look at how the government is calculating inflation. IIRC, a significant part is housing (who buys a house every month?) nor do they take into account "volatile" things such as gas and groceries. So the government inflation is falsely very low. Besides, CDs get better rates.

JLC

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Author: ww4321 Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 69134 of 76418
Subject: Re: help -retirement investing plan Date: 6/6/2011 11:42 AM
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I wanted to add some info ---so people will not think we have it as great as it sounds.


Our assets are as follows:
one bedroom coop worth $400000
cash $550000
401(for both of us) $450000
total $1,400,000 (none is invested now-0)
--------------------------------------------------------------
income
social security and pension $72000
actually I figured again and our expenses are about the same as income, $72000

We live in maybe the highest "cost of living" city in the country Usually, when I compare to other cities it cost twice as much here---double. I have compared at web sites many times.

We live in a small 700 sq. ft. coop in Manhattan New York City- maintenance $18000 per year, in a very good area but nothing like Park or Fifth Avenue.

Parking costs about $450 per month, so I park on the street and have to do the alternate side parking thing, moving and sitting in the car twice a week, and sitting in it for 11/2 hr. each time. When coming home with the care you have to drive.

I will not go into all the high costs here, maybe you can imagine.

We live here with the high costs because we like it, but may move some day, for financial or other reasons. For the near future, we plan to stay here.

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