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Wow, hot thread, lots of ideas and planning concepts. Thanks to all. I would offer the following observations.
1. As to what is needed in retirement, the "rules of thumb" are useless. The "80% rule" is the worst example. If your household income is $100,000, and $15,000 goes into 401(k) and $6,000 goes into a Roth IRA, then you are only living on about 72% of your income, pre-retirement: about 28% of income is saving for retirement and payroll taxes, which go away when you retire. 80%, my foot.
2. The alternative is to figure out your pro-forma retirement budget, reflecting the changes from relocating, downsizing your home, eliminating a car, eliminating work-related expenses and commuting, adding in for travel or a hobby, etc., etc., etc. How do you want to live, what do you want to do, how much will that lifestyle cost? My income has been on a tear upward; consequently, with years to go before retirement, I know that 35-40% of my ending compensation will afford me a decent retirement.
3. About the withdrawal rate: I own six blue chip stocks with a 4.7% yield on my cost; five of the six have a sterling record of dividend increases. I also own a carefully researched high yield bond, which I am convinced is good money--it yields in the double digits on my cost (bought it low in the crisis) and over 8% on today's market value. WHY in the world would I ever think that I could only withdraw 4% when dividends and interest on my portfolio are far above 4% on average? If you own the orchard, you can eat the whole fruit crop every year and still have the orchard.
3. (A). If you joined the crowd of lemmings into bond funds with a 3% yield or CD's and Treasuries with a 2% yield, then sorry: 4% eats your principal. If you sold out of stocks at the lows in 2008 and 2009, you locked in your first mistake and made a second one to boot.
3. (B). There is something to be said for living better while you are healthiest in retirement, say the first ten years, then planning to scale back as you age. Household spending shows a marked decline from age 65-74 compared to 75-84. Maybe its OK to draw down principal in the first part of retirement. I'm not planning that way, but maybe it makes sense.
4. Medical expenses: I hope if I am on course to run up $1 million in medical bills, someone who loves me will just shoot me.
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Quote:
Originally Posted by marcopolo
Wow, hot thread, lots of ideas and planning concepts. Thanks to all. I would offer the following observations.
...3. (B). There is something to be said for living better while you are healthiest in retirement, ... Maybe its OK to draw down principal in the first part of retirement. I'm not planning that way, but maybe it makes sense.
4. Medical expenses: I hope if I am on course to run up $1 million in medical bills, someone who loves me will just shoot me.
.
Thx for the details, I like to run the numbers (couch planning, much ez'r that actually DOING it ) Less risky too
I do plan to spend down considerably in early retirement while I'm healthy. I hope no one has to shoot me, but a skillfully placed (and effective) booby trap would be fine. (at least while I still have some Term Insurance left). There are lots of illegal growers in our region, I might just run into a 'trap' while roaming around. (beats the alternative... diapers). I have a couple friends who are not keen on their new DePends... It really cramps our activites of running around all day and going out to breakfast. They are not too happy, but then I've seen MUCH worse conditions (being a caregiver for a disabled parent for 32 yrs).
I say, take it while you can use it for your benefit. Roll-up the shades & close down the 'bank' when you are heading to 'the home'.
Wow, hot thread, lots of ideas and planning concepts. Thanks to all. I would offer the following observations.
1. As to what is needed in retirement, the "rules of thumb" are useless. The "80% rule" is the worst example. If your household income is $100,000, and $15,000 goes into 401(k) and $6,000 goes into a Roth IRA, then you are only living on about 72% of your income, pre-retirement: about 28% of income is saving for retirement and payroll taxes, which go away when you retire. 80%, my foot.
2. The alternative is to figure out your pro-forma retirement budget, reflecting the changes from relocating, downsizing your home, eliminating a car, eliminating work-related expenses and commuting, adding in for travel or a hobby, etc., etc., etc. How do you want to live, what do you want to do, how much will that lifestyle cost? My income has been on a tear upward; consequently, with years to go before retirement, I know that 35-40% of my ending compensation will afford me a decent retirement.
3. About the withdrawal rate: I own six blue chip stocks with a 4.7% yield on my cost; five of the six have a sterling record of dividend increases. I also own a carefully researched high yield bond, which I am convinced is good money--it yields in the double digits on my cost (bought it low in the crisis) and over 8% on today's market value. WHY in the world would I ever think that I could only withdraw 4% when dividends and interest on my portfolio are far above 4% on average? If you own the orchard, you can eat the whole fruit crop every year and still have the orchard.
3. (A). If you joined the crowd of lemmings into bond funds with a 3% yield or CD's and Treasuries with a 2% yield, then sorry: 4% eats your principal. If you sold out of stocks at the lows in 2008 and 2009, you locked in your first mistake and made a second one to boot.
3. (B). There is something to be said for living better while you are healthiest in retirement, say the first ten years, then planning to scale back as you age. Household spending shows a marked decline from age 65-74 compared to 75-84. Maybe its OK to draw down principal in the first part of retirement. I'm not planning that way, but maybe it makes sense.
4. Medical expenses: I hope if I am on course to run up $1 million in medical bills, someone who loves me will just shoot me.
Bottom line, do your own arithmetic.
whats your total return on those dividend stocks the past 12 years? same question on the high yield... many times while collecting the dividends the share prices are sucking wind.
im not saying thats what its doing in your case but in many they are being fooled.
Wow, hot thread, lots of ideas and planning concepts. Thanks to all. I would offer the following observations.
1. As to what is needed in retirement, the "rules of thumb" are useless. The "80% rule" is the worst example. If your household income is $100,000, and $15,000 goes into 401(k) and $6,000 goes into a Roth IRA, then you are only living on about 72% of your income, pre-retirement: about 28% of income is saving for retirement and payroll taxes, which go away when you retire. 80%, my foot.
2. The alternative is to figure out your pro-forma retirement budget, reflecting the changes from relocating, downsizing your home, eliminating a car, eliminating work-related expenses and commuting, adding in for travel or a hobby, etc., etc., etc. How do you want to live, what do you want to do, how much will that lifestyle cost? My income has been on a tear upward; consequently, with years to go before retirement, I know that 35-40% of my ending compensation will afford me a decent retirement.
3. About the withdrawal rate: I own six blue chip stocks with a 4.7% yield on my cost; five of the six have a sterling record of dividend increases. I also own a carefully researched high yield bond, which I am convinced is good money--it yields in the double digits on my cost (bought it low in the crisis) and over 8% on today's market value. WHY in the world would I ever think that I could only withdraw 4% when dividends and interest on my portfolio are far above 4% on average? If you own the orchard, you can eat the whole fruit crop every year and still have the orchard.
3. (A). If you joined the crowd of lemmings into bond funds with a 3% yield or CD's and Treasuries with a 2% yield, then sorry: 4% eats your principal. If you sold out of stocks at the lows in 2008 and 2009, you locked in your first mistake and made a second one to boot.
3. (B). There is something to be said for living better while you are healthiest in retirement, say the first ten years, then planning to scale back as you age. Household spending shows a marked decline from age 65-74 compared to 75-84. Maybe its OK to draw down principal in the first part of retirement. I'm not planning that way, but maybe it makes sense.
4. Medical expenses: I hope if I am on course to run up $1 million in medical bills, someone who loves me will just shoot me.
Bottom line, do your own arithmetic.
whats your total return on those dividend stocks the past 12 years? same on the high yield... many times while collecting the dividends the share prices are not keeping up with the dividend.
im not saying thats what its doing in your case but in many they are being fooled.
look at ge, its returned a little over 3% a year average annual return over the last 15 years even with all those dividends. it lost 3% per year the last 10 years. if you were living off that dividend basically you were spending principal.
when figuring withdrawls you need to look at the whole total return .
why? two reasons.
because when there is a downturn and dividends are cut or eliminated you will have to liquidate some shares to make up the shortfall in income if you need that withdrawl rate to live on. you will have to liquidate more shares if the prices are lower killing your goose laying the golden eggs.
the other reason is the share price may never bounce back after a downturn. so share price is a very important part of determining withdrawl rate too and not just dividends.
nothing has a memory of what it once was..
Last edited by mathjak107; 01-24-2012 at 03:08 AM..
whats your total return on those dividend stocks the past 12 years? same on the high yield... many times while collecting the dividends the share prices are not keeping up with the dividend.
im not saying thats what its doing in your case but in many they are being fooled.
look at ge, its returned a little over 3% a year average annual return over the last 15 years even with all those dividends. it lost 3% per year the last 10 years. if you were living off that dividend basically you were spending principal.
when figuring withdrawls you need to look at the whole total return .
why? two reasons.
because when there is a downturn and dividends are cut or eliminated you will have to liquidate some shares to make up the shortfall in income if you need that withdrawl rate to live on. you will have to liquidate more shares if the prices are lower killing your goose laying the golden eggs.
the other reason is the share price may never bounce back after a downturn. so share price is a very important part of determining withdrawl rate too and not just dividends.
nothing has a memory of what it once was..
Two part answer: I have unrealized gains of 32% on those particular stocks, over an average holding period of two to three years. My overall portfolio rate of return is 11% annually since 2005. Part of the return is from doubling my money on one set of high yield bonds, and notching 80% gains on another. The double came from a company that went broke, stopped paying interest, and delivered twice my cost in new securities--which I sold--all in less than one year. The interruption of interest payments was a small price to pay; buying bonds for 40 cents on the dollar and recovering more than 80 cents on the dollar was sweet.
Second, if the fruit crop is big enough, I don't need to know or care what the neighbor would bid for the orchard, or whether his latest bid is higher or lower than the one before. At the March 2009 low (when most were freaking out), I looked for sustainable yields, which were available in profoundly amazing abundance. How'd you like to be getting 7% dividends on cost from Intel, and be sitting on 100% gains three years later? Especially knowing that the dividend has doubled in the last five years, increasing every year?
I understand your point about many being fooled; I make money by being contrarian, and going against the stampede of fools at the turning points. Nobody's perfect, I got crushed in 2007-2009 downturn, but came back much faster to record balances. And not everything works like you hope; Walmart has been fairly dead money for more than a decade, but the dividends have quadrupled.
It isn't about magic numbers or preferring one class or type of investment over another--it's about buying bargains wherever they are, with a preference for income. It is ironic now that my companies have issued bonds at ridiculously low rates (1.3% five year, 2.7% ten year, etc.)--while people flock to buy the bonds and shun the stocks--which had a higher yield than the bonds! Thanks a lot, stampeding crowds! We'll be making money off you for years to come.
Any advice for people who made the mistake of purchasing a variable annuity, and are now 8 years into a ten year timeframe for payout? Do you just wait another two years and take monthly payments, or is there some way to convert it to something else at this late date?
If you bought a variable annuity with guarantees 8 years ago you are in pretty good shape now. Your guarantee is worth a lot more then if you had invested in stocks
Does the policy have any guarantee that is worth anything?
At the end of the surrender charge period you might be able to roll it over into a 401k I would check with a financial planner. Your best bet is to have a sound financial plan. If you do buy an annuity you should buy the payout annuity but again it depends on your overall plan.
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) Less risky too 
It really cramps our activites of running around all day and going out to breakfast. They are not too happy, but then I've seen MUCH worse conditions (being a caregiver for a disabled parent for 32 yrs).
