No. of Recommendations: 2
Thanks all for your replies. Yes, I left out some details because I was basically looking for thoughts on option A vs. B, which pauleckler responded to. I'm not worried about the later years beyond age 90 because my house is paid for, and I will also be getting some inheritance money in the next ten years or so which I don't plan on spending.
Yes, I can get CORBA ins. for 18 months at 6K per year, or company retirement health ins. for 9K per year until I am eligible for medicare. I have budgeted all my expenses, including the 9K per year health ins. and will actually need to withdraw 6% from my IRAs until I start collecting SS at age 66 and 4 months. Once I start collecting soc sec, my IRA withdrawal rate will drop to 4%. That's why the math didn't add up for some of you. Even so, for option A, the equities portion would probably avg. 60% depending on mkt conditions.
There are many places I can cut costs and shrink the budget further if needed, and my wife has about 100K saved up as well. Yes, I plan to roll my 401K over into a separate IRA, so I will have two IRAs. And, yes, I am getting 1 years salary for severance pay.
Hopefully, that answers all the response questions. Thank you all!
Definitely going to take a year off and see how the market treats us in 2018. I understand that a recession in the early years of retirement would not be good for the longevity of my retirement funds, so in that event, I would probably go back to work. Worse than that would be a return to high inflation, which I hope never happens. If I had to plan for the worst, then I'd never be able to retire.
Maybe option 3 could be to buy some investment properties and become a landlord living off of rental income. That would be a great hedge against the inflation possibility.
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So, I was layed off about 4 weeks ago and am considering making a go of it for retirement at this point.

Sux. I've been there. It sounds like you are better prepared than I was.

My only suggestion is "Don't pay taxes until you have to. Let you money soak."

If you noticed my situation, I am 100% in mutual funds. Mostly in American Funds. Yes, it's front loaded, but at $1 mil the load becomes zero. I also had a couple of REITs I liked. A fey Vanguard indexers to be sure I maximize my exposure.

CNC
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cloud09: "So, I was layed off about 4 weeks ago and am considering making a go of it for retirement at this point."

Sorry to learn of your job loss.

"I will be 61 after this 2017 Xmas, and 98% of my retirement savings is split between my traditional IRA and my ex-employer 401K ... all pre-tax money totaling 1.2 mil.

my 4% SWR withdrawals,

I am trying to decide between going with option A (1 year cash reserves, 5 year bond ladder, and the remaining 50% invested in growth stocks) versus option B (all money invested in traditional, bell weather dividend paying stocks to achieve a 4+% withdrawal rate from dividend income only)."


I do not know the answer to your question, but cannot follow your math.

4% of $1.2M is $48,000. (1 year cash reserves ($48,000), 5 year bond ladder ($240,000), leaves $912,000 to invest - not $600,00, i.e. remaining 50% invested in growth stocks.

Is the late hour causing to me not understand?

Regards, JAFO
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My main question here is this ... It seems since all this money will be taxable when I make my 4% SWR withdrawals, there is no tax advantage of any one income investment strategy over another in this situation. I am trying to decide between going with option A (1 year cash reserves, 5 year bond ladder, and the remaining 50% invested in growth stocks) versus option B (all money invested in traditional, bell weather dividend paying stocks to achieve a 4+% withdrawal rate from dividend income only).

I think you need to do some more reading on what the concept of the SWR is based on. Hint: It's based on an ~60/40 mix of stocks to bonds, and does not account for using cash reserves and/or bond ladders for withdrawals, nor does it in any way suggest that you should count completely on dividends to fund the withdrawals. Each year, the portfolio should be rebalanced to the same 60/40 mix.

Additionally, at age 61, you probably need to be counting on a longer timeframe than 30 years, so you may want to adjust your initial withdrawal rate down to say, 3.5% instead of 4%

AJ
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Sorry about the layoff

Questions you didn't answer

1) what is your health care situation? Do you have any remaining coverage from your ex-employer like some benefits for a separation period? Or coverage to 65? Do you have a spouse who can put you on her insurance? Do you even have a spouse to worry about? Can you go on COBRA with your employer to get health benefits for 18 months and what is the cost of that vs getting your own policy? Do you have any other sources of income?

2) In any event, I would suggest you go with mutual funds. There are some that do 'dividend paying stocks' in the Vanguard family if you wish to stay with that. In an IRA, income is income. It is not treated separately

3) You might like to look at REITs as a minor portion of your holdings.

4) I assume you will roll over your 401K plan to an IRA at Fidelity or Vanguard to lower your investment expenses? Most 401K plans have high costs.

5) Budgeting - have you even begun to look at your annual costs in detail and realism? Could you cut expenditures? Would you relocate? Downsize?


t.
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Presumably either choice will be made within your IRA. Then it does not matter so much as the distributions will be taxed as ordinary income in either case.

If the investments were in a taxable account, then the interest income would be taxed at ordinary income tax rates, but the dividend income would be taxed at capital gains rates (to the extent you select investments paying qualified dividends). But you cannot get funds from your IRA or 401k to taxable investments without paying income taxes. So its probably a mute point. (Roth conversion in low tax years can be one way to minimize those taxes.)

The dividend income can be more attractive with better rates in a low interest rate age. Higher yield but less secure depending on quality. Investment grade bonds can pay low yields but in the ladder will rise with rates gradually. The dividend income tends to be more constant but some do have a record of increasing dividends over time.

I'd say its pretty much a toss up.
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Thanks all for your replies. Yes, I left out some details because I was basically looking for thoughts on option A vs. B, which pauleckler responded to. I'm not worried about the later years beyond age 90 because my house is paid for, and I will also be getting some inheritance money in the next ten years or so which I don't plan on spending.
Yes, I can get CORBA ins. for 18 months at 6K per year, or company retirement health ins. for 9K per year until I am eligible for medicare. I have budgeted all my expenses, including the 9K per year health ins. and will actually need to withdraw 6% from my IRAs until I start collecting SS at age 66 and 4 months. Once I start collecting soc sec, my IRA withdrawal rate will drop to 4%. That's why the math didn't add up for some of you. Even so, for option A, the equities portion would probably avg. 60% depending on mkt conditions.
There are many places I can cut costs and shrink the budget further if needed, and my wife has about 100K saved up as well. Yes, I plan to roll my 401K over into a separate IRA, so I will have two IRAs. And, yes, I am getting 1 years salary for severance pay.
Hopefully, that answers all the response questions. Thank you all!
Definitely going to take a year off and see how the market treats us in 2018. I understand that a recession in the early years of retirement would not be good for the longevity of my retirement funds, so in that event, I would probably go back to work. Worse than that would be a return to high inflation, which I hope never happens. If I had to plan for the worst, then I'd never be able to retire.
Maybe option 3 could be to buy some investment properties and become a landlord living off of rental income. That would be a great hedge against the inflation possibility.
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No. of Recommendations: 31
Maybe option 3 could be to buy some investment properties and become a landlord living off of rental income.

When I had that brilliant idea, my lawyer asked me if I was prepared to become the most despised person in the world. And if I had the temperament to deal with the financial deadbeats that I would be doing business with. The most on-target description of the people you will be renting to came from another RE investor/landlord: "People who have never had $500 all at the same time in their entire life."

Being a landlord is more accurately described as a job than an investment.
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Maybe option 3 could be to buy some investment properties and become a landlord living off of rental income.

When I had that brilliant idea, my lawyer asked me if I was prepared to become the most despised person in the world. And if I had the temperament to deal with the financial deadbeats that I would be doing business with.


A coworker of mine had a couple rental properties. Luckily, his wife was a lawyer, and they had to use that to get their rent money sometimes and to look for renters who skipped out owing a month or two.

One especially interesting episode was when the renters were moving out and just drained their water bed onto the floor. Soaking the hardwood floors caused them to warp and buckle, ruing them.

Owning rental properties is not "passive income."
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Luckily, his wife was a lawyer, and they had to use that to get their rent money sometimes and to look for renters who skipped out owing a month or two.

It is true that owning rental property often is a job and that's also why a lot of owners have property managers to handle all the 'details' including vetting tenants, repairs, collecting rents, etc.

Another way of using rental property is having short-term leases. This depends on the type of property and location/environment. My area includes large universities and high-tech industries. There are many people who come to town needing a place for a week or two or a month or few. These folks are generally high earners who can be counted on to pay their rent. The property may not always be leased, of course, but the higher rent charged more than makes up for the difference.

Pete
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Since all your monies are in tax deferred accounts, it doesn't really make a difference. All money coming out is taxed as income wither from bonds or dividends. However, if you invest in dividend growing stocks, your withdrawal amount can potentially grow faster than inflation.

My situation is a little different from yours in that I have about 1/2 my retirement money in a taxable account. Fortunate enough to max out tax deferred contributions and set aside another good chunk of my paycheck. I have done your option B, I have enough invested in dividend growing stocks to cover all our basic needs: utilities, insurance, property taxes, groceries, etc. And this amounts to about 75% of my portfolio. The other 25% I have in ETFs for generic overall growth, this will cover my "wants": travel, new car, spoiling the niece/nephew, making it rain at the club, etc.

Others have talked about rental property, I have some of that as well. The best thing I did was hire management companies to handle it and then I just have to manage the management company. Almost no headaches, worth the cost. While the overall return has been about on par with stocks, it has been way more consistent, almost like a bond. The biggest advantage it did give me was a paper loss, via property depreciation, and thus decreasing my AGI and lower my personal tax bill some.

JLC
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No. of Recommendations: 2
option B (all money invested in traditional, bell weather dividend paying stocks to achieve a 4+% withdrawal rate from dividend income only).

This is the option we use. On the surface it sounds pretty easy....invest in dividend paying stocks and live on the dividends they produce. What is difficult is screening for reliable long term dividend payers. What is even more difficult is teaching yourself to quit using total return metrics but instead to treat each stock as though you were a creditor and your concern is the company's ability and willingness to pay you.

At the expense of a shameless plug, you might be interested in a book I've written on this topic

https://www.amazon.com/Retirement-Investing-Income-ONLY-Divi...

BruceM
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