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Author: GrayWulff Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 169  
Subject: Re: Where to start Date: 8/24/1999 7:11 PM
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lotomony,

I know nothing about Canadian tax laws, but here is a general approach.

1) Estimate your cash requirements as you've already done.

2) Subtract any annuities from your cash needs (Social Security in the USA).

3) Is the remainder more than 4% of your liquid capital? If so either find another source of income or re-budget.

4) Set up a 5 year bond ladder with about 13% or your capital. That is, with $1,000,000 in liquid investments, put $130,000 into bonds.

5 yr: 27,821 (that's a 3% inflator per year)
4 yr: 26,224
3 yr: 25,461
2 yr: 24,720
1 yr: 24,000
Total 128,226

Annual dividend on this ladder would be $7,693 (at 6%)

5) Invest the remaining 87% or 870,000 in stocks. That will yield a dividend of about 1.0% (S&P500 index fund like VFINX) or $8,700.

6) Add up $24,000 $7,693 and $8,700 and you get relatively certain cashflow of $40,393 in the first year.

7) As your bonds mature, replace them with new 5 year ones, selling stock as required. Add on 3% each year.
(next year buy $28,655 worth of bonds.)

8) If the market is low for a year or three, don't replace the bonds until it recovers.


Unless we suffer a 5+ year depression, that should do it for you. The numbers of course are overprecise, round off to the nearest thousand when you buy your bonds and don't sweat it.

Cheers,
GW

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