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Author: shess Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 76237  
Subject: Re: I'm Rich - Now What? Date: 9/25/1998 5:58 PM
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Maphisto wrote:

<<(I ended up with about $5 million)>...<How do I organize my portfolio? Do I still need to take risks?>...<I can live very nicely on $150,000 a year.>>


Good work - if you can get it...



The odd thing about investing, especially when you're this far ahead of the game, is that you can reasonably take _bigger_ risks than if you had half as much and were 15 years older. Not with all of it, obviously, but with some.



If I were feeling really conservative, I'd probably go with bonds, possibly municipal bonds, for $3M or so, with the goal being to live off of the interest, and put the remaining $2M into a growth/capital gains strategy. Foolish Four would be alright (and the dividend kicker might be nice), but you'll be paying taxes all the time. Better to use Cash King or somesuch, and let it ride for the 10-15 years or so that the bond income will continue to be reasonable.





BTW, what is your goal for after-tax income? Obviously, if you're going to pull a Ross Perot with municipal bonds, your taxes would fall substantially. And keep in mind that you only pay SS taxes (aka FICA) on _earned_ income. And if you can organize so that most income is from long term capital gains, that'll be another win.



$150k earned income before taxes for me (self-employed, filing jointly) works out to federal payments of about $43k, including social security taxes. If that $150k were all interest on bonds, the taxes would drop to $33k (no SS tax!). If that $150k were instead long-term capital gains, taxes would drop to $22.5k. After Y2K, if that $150k were instead five-year long-term capital gains, it would knock another $3k off.



If I need $150k earned income to maintain my current standards, I'd only need $130k in interest income, or $123k in long-term capital gains income, or $120k in five-year long-term capital gains income.
Obviously, it should be easier to kick off $125k forever from a $5M portfolio than $150k!


[This is all back-of-the-envelope to demonstrate that it makes a big difference. These aren't _specific_ amounts, just estimates.]



Later,

scott

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