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mhb2404:

<<<<I'm not sure whether or not you realize it, but if you go the immediate annuity route, the $50K annual payments are funded mostly by principle each time, and at the end, the $205K will be gone.>>>>

Yes, I'm aware of this. However, these were the numbers:

1) Bond-based:
--Income portion: 60% of portfolio, or $720k. Yields of approx 6 - 6.5% gives about $50k/yr. Balance at end of 5 years: $720k (no principal used).
--Growth portion: 40% of portfolio, or $480k. Balance at end of 5 years with 11% growth (a little high but ok): $808k.

2) GIA-based:
--Income portion: 15% of portfolio, or $205k. Distributions of $50k/year. Balance at end of 5 years: $0.
--GRowth portion: 85% of portfolio, or $995. Balance at end of 5 years with 11% growth: $1.6M.

I think my numbers are a little off, but the main point remains: it seems that using the bond strategy ties up more of your principal in bond instruments, leaving less of your principal in a growth portfolio."

Yes, but so what.

Assuming that your numbers are accurate, the difference is between 1.528M and 1.6M --- not insignificant, but less than 5%. You really need to verify the numbers are accurate. By my calculation, 995 @11% for 5 years is 1.676M. 480K @11% is .817M + .720M = 1.537M Delta = 139k

Secondly, what if the growth portfolio returned 10% and not 11%. 485 @10% for 5 years is .781 + .720 = 1.501M; 995K @10% is 1.602M Delta = 101k.

What if return is 9%? How confident are you that you can predict whether it will be 7%, 9% or 11%

The latter portfolio will also be more volatile. Will you parents have the stomach for the ride?

In addition, it was not clear to me if all (or any part) of these funds are in tax sheltered accounts or whether investment gains will cause current year tax consequences.

Using 4% rule of thumb, 1.2M would generally support 48K initial year withdrawal (not far off from 50K) and annual inflation adjustment thereafter --- whichis not in your other plans.

Regards, JAFO


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