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No. of Recommendations: 44
If you have any thoughts for how best to address this scenario, I'd be most receptive to learning of them. ...

Sounds like you're doing a fine job.

In a way there are three broad categories of retired people with some funds--

* Those not particularly interested in leaving a big estate who are rich enough, or old enough, that a positive return on their funds is not a big problem.
Annuities are a common item for discussion, especially if they are older.

* Those that are a bit younger, also not primarily focused on leaving a big estate, whose main
interest is having a positive return to maximize spendable wealth which will last their lives.
This becomes a discussion about investing for positive return (generally equities) while
managing the longevity risk.
I usually suggest people first consider at two-step: put a small percentage of the money into
a long-deferred annuity (purchased either immediately or when that time comes), and put the rest
into an equity portfolio that you run down to zero at the date that kicks in.
e.g., a 65 year old might put 15% of the pot into an annuity that kicks in at 88,
and liquidate and spend the other 85% in a more or less straight line over 23 years.
Just as the investment portfolio runs out, the longevity insurance kicks in.
Annuity income rates starting at that age aren't bad.

* Those interested in living well, but also leaving a nice big estate.

As you're in the third category, maybe just keep doing what you're doing.
I'm a big fan of small periodic liquidations of a stock portfolio over time.
Some sales will be at terrible valuation levels, some will be at good multiples, but on average over long periods it will be average.
Especially if you can choose to have a little variability in the amount raised each quarter.
(if it's the first quarter of 2009, maybe defer that liquidation a few months ??)

The way I would manage money in that situation is forget that you have a finite life span:
Just invest for the long term. Which means, in this era, no bonds, just equities.
(plus a little cash for the current period or a bit longer--NOT a huge pile like 6 years of expenses)

If you want a small boost to your income, and reduce longevity risk further, maybe consider a small portion of the capital in an annuity?
You've reached the age that a bit of category 1 applies: you won't get a return on that money,
but it buys a lot of "tail risk" insurance for a modest fee if you live to age 120.
Given that you have a solid portfolio anyway, it's less about tail risk and more about adding
a bit of current income for the rest of your lives without worrying about calculations or its [further] effect on the estate.
Presumably you want to really enjoy yourselves and not leave it ALL in the estate.
No sense being imprudently frugal.

But if you consider an annuity slice, realize that it will almost certainly be a negative sum.
i.e., the amount of money you get from it, plus the amount of money in your estate, will be smaller having made this choice.

Annuities are a terrible, terrible deal for someone just retiring, since they generally have no return at all.
The premium is not an investment at all, it is an expense: an insurance premium.
But as you get older, it becomes much more about the advantages of risk pooling, not the return on money.
They're a lot more like a fair deal for someone 85 than they are for someone 65.

Then there is the question of what to invest in.
I trust Berkshire a lot, and that's most of my portfolio, but not everyone feels that comfortable.
It has an exceeding low single-company risk, but it is still a single company.
Some judicial decision could hit it, perhaps?
If I wanted to diversify some of that money I might consider having a block of QQQE, the Nasdaq 100 equal weight index.
It has 1/100th the company specific risk by definition, has typically risen in value at a remarkably similar rate,
and it not currently particularly overpriced compared to its history. A few percent at most, based on my estimates.
(both Berkshire and QQQE have risen in value in the vicinity of inflation + 8%/year for 20+ years--
a figure which dwarfs the value growth of the S&P 500 which is also expensive these days on almost any metric)
Sure, QQQE will probably be cheaper at some point, but it's hard to rely on "probably".
Just something for the suggestion box.
At the moment, Berkshire is quite cheap. If I were to switch a bit of money from BRK to QQQE, which I might do, I would keep an eye on the ratio of the two.
If switching an investment, it doesn't matter if what you're selling has done well or badly lately, only the ratio!
This is a graph of the ratio. When the line is flat, the two are doing equally well.
If one were going to switch money from BRK to QQQE, you'd want to do it when the ratio line spikes upwards.
This May would have been much better than last November.

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