lifestyle investing for retirement (years, opinion, tax, investments)

[mathjak107]

erin botsford was on consuelo mac and has some very interesting ideas about investing to generate the incomes we need for various things throughout retirement.

her book "RUNNING OUT OF MONEY BEFORE YOU RUN OUT OF TIME" breaks things down in retirement to
needs
wants
wishes


how we invest for each catagory is very different from each other. the needs may be funded with reliable,safe secure investments like bonds and annuities. the wants can be funded with dividend income from reliable but not guaranteed dividend paying stocks. the wishes can be funded through more speculative investments.

anyway a very interesting concept. you can see the show here.


Consuelo Mack WealthTrack - Watch and Listen

[marcopolo]

The major problem I have with this is that very few people can meet their "needs" by investing in bonds at what may be the worst time in our history to do so. The touted guarantees of highly rated bonds have turned into guarantees of near-certain loss. When $1,000,000 in three-to-ten year government bonds only provides $1,000 in monthly income, who can afford to live on them?

Meanwhile, dividend-paying stocks are relegated to a category thought to be less safe, after a century in which the dividends on the S&P 500 went up by a factor of nearly 100.

Nice theory, just doesn't match up with the real world in my opinion.

[mathjak107]

i would dis-agree: if you think stocks , any kind of stocks fit into the definition of safe ,or guaranteed you better hit those books again and learn very quickly the difference.

the plan works even today.

the part of your expenses allocated to needs could be matched to immeadiate annuities which carry no additional expenses and are up around a 6% withdrawl rate even today..

even long term treasuries are paying between 3 and 4% . you can go out pretty far with bonds here as your looking to lock in this income stream for as long as you can.

you can still get the equal to a 3% withdrawl from long term municipals that are tax free which is pretty much on target for a typical withdrawl as your only looking to pay for the needs with this money.

its not your only investment so inflation isnt a problem, your still putting togather a diversified portfolio to carry you through, its just being allocated expense wise differently.

dividends dont meet the criteria of guaranteed and stocks dont meet the term safe.

dividends may go up and down just like stocks and they can and have years they are cut or suspended . the dividends collectively on the 500 largest companies in america was barely above 1% in the last down turn. not good enough to plan a withdrawl around for the "needs"

the problem is in a downturn if the dividend is cut or suspended you may have to sell shares at a loss to make up the income shortfall. a fluctuating total return doesnt work well from a spending bucket that needs to be safe,guaranteed and reliable.

its no different in the system i follow. bucket 1 which is my spending bucket would never contain dividend paying stock..

that bucket only contains income from things that are guaranteeded ,,safe and reliable. i dont care what kind of stocks your talking ,no stock is "safe" . we have had companies that were with us for well over 100 years vanish.


i do have in my bucket 3 which is my equities bucket a collection of dividend payers but i use the dividends to grow that bucket for future cash flow. i dont try to pay expenses directly off the dividend.


if you have a big enough bucket 3 so you dont have to re-invest the dividends you may channel some of the dividends in bucket 1 for spending but i wouldnt count on that amount for my needs ,only my wants. that dividend may not be there for a while .

for every issue you can think of that may have held up their dividend and share price through 2008-2009 i can guarantee you there were a few thousand that did not so the word safe and reliable will not apply.