Author Topic: I talked with a Vanguard Financial Planner :-(  (Read 8802 times)

soccerluvof4

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I talked with a Vanguard Financial Planner :-(
« on: January 16, 2016, 10:41:42 AM »
So I decided to talk to a Vanguard financial planner since I got a free consult and if I chose to have them manage it for a year basically its .30 on managed accounts. While I was planning on being Fire'd it happened sooner than expected so I wasn't totally prepared despite all I have read etc...which led to this. The thing I thought was weird is he basically gave me all the information so I could just copy it and do it myself but thats not my nature. I have a appointment with him January 26th and thats when I can basically tell him to adjust it, forget or whatever.

So keeping this light/as easy reading for myself as possible I am 51 and my DW is 47.  My NW is 28x's my cost of living minimum but i figured high just because i am conservative. This also doesn't include my value in our house which is paid in full valued at 275k .

So he came up with a 50/50 stock/ bond allocation and to the year 2058 came up with only a 74% success rate. They add 1% if you add SS to the equation so 75%.

If I reduce my equation by 8k then the percentage goes up to 72% and if I drop it another 8k so total 16k from my initial allocation based on a 4% draw it would be 90%.

I am not good at all these financial calculators and stuff but the general them on here that I have felt that if you take 25x's your needed amount your pretty well set. I have a buffer in there at 28x's and they said dont include your house because you will always need a place to live.

The next 3 years I probably will be a bit over my requirement BUT after that I at the very least will be able to live on the 8k # if not the 16k.

I know risk is a big part of this if I take more the % will go up. But there is no guarantee in that either as is there in anything.

So i guess i was kinda bummed but I am just curious as to its what you would expect or am I reading something wrong, maybe ask him some more questions etc..




Retire-Canada

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Re: I talked with a Vanguard Financial Planner :-(
« Reply #1 on: January 16, 2016, 12:27:09 PM »
Financial advisors are mostly useless. Get the info yourself and manage your own account. You are going to hold 2-5 different things. It's not hard.



Using the old cFIREsim site and a 50/50 stock vs. bond mix from now to 2058 with a 28x portfolio you get a 86% success rate.

http://gator3089.hostgator.com/~boknows/input.php



Going with 75/25 tilted towards stocks you get 92% success.



Going 90/10 gets you 96% success.

Keeping in mind this is a backtest against historical data.

Personally anything over 90% is good enough for me. If you wanted a solid amount of bonds the 75/25 split gives you that to weather downturns and the better growth of stocks to make running out of money less likely.

Exflyboy

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Re: I talked with a Vanguard Financial Planner :-(
« Reply #2 on: January 16, 2016, 12:50:56 PM »
Hi Soccerluv,

I agree, your first port of call should be CFiresim and to move to at least 70/30 stock/Bond allocation. I am surprised that Vanguard were so far off the mark. I mean CFiresim is ACTUAL data, they must have an extra layer of conservatism built into their estimates... "Historical data does not gurantee future results" and all that.

So question.. Why has ER come early?.. Did you lose a job or something?

Can you work part time to ease yourself into ER?... Iterseting that that market is 11% down at the moment.. I'd be tempted to earn income and thow it all into stocks and hope the market goes down another 10% in the meantime.. Prime buying time.


mozar

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Re: I talked with a Vanguard Financial Planner :-(
« Reply #3 on: January 16, 2016, 12:51:41 PM »
I'm far away from FIRE so I don't think about allocation much. I have been reading about the permanent portfolio: https://en.wikipedia.org/wiki/Fail-Safe_Investing

And here is more info: http://portfoliocharts.com/2015/10/19/your-ideal-route-to-financial-independence-may-be-off-the-beaten-path/

Personally 25 times expenses is enough for me. Being flexible is also important such as withdrawing less in a down year and drawing more in an up year.

browneyedgirl

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Re: I talked with a Vanguard Financial Planner :-(
« Reply #4 on: January 16, 2016, 01:18:31 PM »

MDM

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Re: I talked with a Vanguard Financial Planner :-(
« Reply #5 on: January 16, 2016, 03:12:45 PM »
I am not good at all these financial calculators and stuff but the general them on here that I have felt that if you take 25x's your needed amount your pretty well set. I have a buffer in there at 28x's and they said dont include your house because you will always need a place to live.
See https://www.bogleheads.org/forum/viewtopic.php?t=115839#p1686175 for a good summary of what makes a good retirement calculator.  E.g., in addition to cfiresim consider trying at least two of:
  http://www.i-orp.com/
  https://www.fidelity.com/calculators-tools/planning-guidance-center
  http://www.flexibleretirementplanner.com/wp/
  http://www.esplanner.com/
and compare results.

terran

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Another Reader

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Re: I talked with a Vanguard Financial Planner :-(
« Reply #7 on: January 16, 2016, 04:17:56 PM »
I might have mentioned this before, but another forum you may find helpful is early-retirement.org.  The folks over there are generally closer to you in age, income, and asset base.  Lots of mid-level corporate managers and some business owners.  Many of them share your concerns and have found ways to assure themselves their plans are solid.  You may find their suggestions and advice relevant to your situation.

You need to understand the assumptions the Vanguard rep is using.  Fifty percent bonds seems conservative for a 40 year retirement.  In 11 years you will be eligible for Social Security - I can't understand the conclusion that Social Security only raises your success by one percent.  Have you sat down with the Social Security worksheet and your earnings history to figure out what your primary annuity amount would be using current indexing and 11 years of zero contributions?  Given the years you and your wife worked, I think you will be pleasantly surprised at how much you will likely receive.

The Vanguard guy I talked to a year ago was maybe 28 and understood the basics.  He talked a good line about indexing, but was clueless about a lot of things, including Social Security.  I like to talk to a lot of different people before I decide which approach is best for me, and I give more weight to the opinions of people that have faced similar issues.  In your shoes, I would do the same thing here.

soccerluvof4

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Re: I talked with a Vanguard Financial Planner :-(
« Reply #8 on: January 16, 2016, 05:07:01 PM »
Thank you all for the insight!! That is why I so love being a follower here.

Another Reader I too was shocked he was though in his 40's. Having said that I will check out the website you recommended and also do the SS check/Actually the DW .

He did say he used the Monte Carlo method as well.

Exflyboy: I was planning on retiring soon and it just came sooner is all.  The number I used as I mentioned is more than I will need in 3 years when my two oldest go off to college. at least 25% higher and
like I said I am at 28x's that number plus the house value and this years tax returns yet so in my mind the number was solid. Which is why i wrote this. But yes I will always look to see if there is some cash i can make on a side hustle.

Retire-Canada....Awesome awesome graphs..Thanks much!!


And thanks to the rest of you. I will keep you in the loop!

purple monkey

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Re: I talked with a Vanguard Financial Planner :-(
« Reply #9 on: January 16, 2016, 05:08:31 PM »


The Vanguard guy I talked to a year ago was maybe 28 and understood the basics.  He talked a good line about indexing, but was clueless about a lot of things, including Social Security.  I like to talk to a lot of different people before I decide which approach is best for me, and I give more weight to the opinions of people that have faced similar issues.  In your shoes, I would do the same thing here.

I am using the personal advisor services now (.03%) for it.  The advisors REQUIRE an appt. to even get to them.  So they are the customer.  Been using it for six months, and would probably have done better to just use target funds.  Of course, the last six months have really sucked anyway.

I find that the different advisors that I have dealt with (at least 5) since you are not really assigned one and then you HAVE to have an appointment, they just have a formula and seem to know just a little more than you do about their own funds.

HTH.

soccerluvof4

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Re: I talked with a Vanguard Financial Planner :-(
« Reply #10 on: January 16, 2016, 05:42:35 PM »


The Vanguard guy I talked to a year ago was maybe 28 and understood the basics.  He talked a good line about indexing, but was clueless about a lot of things, including Social Security.  I like to talk to a lot of different people before I decide which approach is best for me, and I give more weight to the opinions of people that have faced similar issues.  In your shoes, I would do the same thing here.

I am using the personal advisor services now (.03%) for it.  The advisors REQUIRE an appt. to even get to them.  So they are the customer.  Been using it for six months, and would probably have done better to just use target funds.  Of course, the last six months have really sucked anyway.

I find that the different advisors that I have dealt with (at least 5) since you are not really assigned one and then you HAVE to have an appointment, they just have a formula and seem to know just a little more than you do about their own funds.

HTH.




yea your probably right. I do seem to make alot of appointments and so far hasnt cost me anything. I also it would be a good comparable for what i have seen/learned at MMM. I doubt i will go through with it.  The good thing is that because I wasnt set yet with retirement the dip for me at least is welcomed.

Retire-Canada

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Re: I talked with a Vanguard Financial Planner :-(
« Reply #11 on: January 17, 2016, 07:36:12 AM »
He did say he used the Monte Carlo method as well.

You can use cFIREsim to run Monte Carlo simulations. Results are usually worse than historical data. You portfolio has to survive random movements in the variables you set that might not happen in practice in the historical data set.

lhamo

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Re: I talked with a Vanguard Financial Planner :-(
« Reply #12 on: January 17, 2016, 10:49:54 AM »
Re:  SS numbers, MDM's case study spreadsheet has an awesome new tab where you can put in your historical earnings and see what your SS benefit will be at different starting ages.  If you plan to do some part-time work in retirement it is also really easy to add that in.  Best of all, the data and formulas are all right in front of you so you can see how the calculations are being made -- much better in my opinion than the sss.gov calculators and other sites that do the calculations in the background.

And a 50/50 allocation at your age seems ridiculously conservative. 

Oh, MDM, I'm curious (though the answer will probably be too technical for me to understand):  is there some reason you left Firecalc off your list of estimator tools?  I have been using that and the Fidelity RIP to assess our situation.

MDM

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Re: I talked with a Vanguard Financial Planner :-(
« Reply #13 on: January 17, 2016, 11:03:16 AM »
Oh, MDM, I'm curious (though the answer will probably be too technical for me to understand):  is there some reason you left Firecalc off your list of estimator tools?  I have been using that and the Fidelity RIP to assess our situation.
A very non-technical reason: I simply copied the specific suggestions linked in the linked Bogleheads post.  Firecalc is included in the "big list" at https://www.bogleheads.org/wiki/Retirement_calculators_and_spending.

Indexer

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Re: I talked with a Vanguard Financial Planner :-(
« Reply #14 on: January 17, 2016, 07:03:48 PM »
He did say he used the Monte Carlo method as well.

You can use cFIREsim to run Monte Carlo simulations. Results are usually worse than historical data. You portfolio has to survive random movements in the variables you set that might not happen in practice in the historical data set.

So there is pure monte carlo which is what cFIREsim uses, and then there are the professional level monte carlo analysis tools that look at more variables and the interconnectedness of those variables.  Straight monte carlo just looks at mean returns and standard deviation. It isn't smart enough to look at how bonds and stocks normally perform against each other. It isn't smart enough to know that if stocks go up 50% 5 years in a row you are probably in a bubble so the odds of lower returns in the future increases. It isn't smart enough to look at inflation's effects on stocks/bonds.

Example:  pure monte carlo could run 10,000 scenarios and one of them shows the potential for +30% returns every year for 40 years. From a math perspective it is possible.  However we know it probably shouldn't actually be included in the possible results of the future.  If you run 10,000 scenarios you could have one scenario where you have -30% per year for 40 years, and one with positive 30% returns for 40 years.  Your $100,000 could be worth $10 or $10 billion...  Some of the results look realistic, but your extremes get very very extreme.

Professional investment firm level monte carlo simulations might start with stocks average 10% returns and have a 15% standard deviation, bonds are X and X%, cash is X and X%, etc. But then they will say that if stocks are exceeding that average by a significant margin the probability that stocks could have lower returns in the future increases. Stocks could keep going up, but the 'odds' start to shift the other way after an extended period of really high returns. They are smart enough to say that if stocks are down 20% the odds that bonds will go up in value increases. So instead of very very extreme results you might see 10,000 possible solutions where the bottom one includes a few really bad bear markets or even a scenario that looks worse than the great depression and then some amazing scenarios with very good but still realistic future returns.

So the worst case might be -50% returns for stocks over 20 years, and the best might be stocks averaging 15% returns over 20 years but plenty of ups and downs to get that 15% average.  So your 100k could be 50k or in the low millions. You get results that are actually probable, useful, and at least the possibilities near the mean look similar to what we have seen in history.

Short answer: I believe any monte carlo analysis used by Vanguard(or any other firm that size) is going to be a lot more advanced than what cFIREsim is using.

Exflyboy

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Re: I talked with a Vanguard Financial Planner :-(
« Reply #15 on: January 17, 2016, 07:23:30 PM »
Hang on a minute.. Quite possibly I'm missing something but I thought CFiresim gave you a family of curves based on you retiring in any possible year since whenever the data was available.

So if you retire in 1928 for example with $x.. then sure, the 1929 onward curve starts to look ugly because the stock market actually crashed. In other words, in 1928 stocks had been bid up to insane levels and sure enough the risk is already taken into account because the market crashed.. and bonds did whatever they did etc etc.

So how is allowing for an extra margin of risk advantageous to planning a more realistic outcome.. compared to what actually happened?


soccerluvof4

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Re: I talked with a Vanguard Financial Planner :-(
« Reply #16 on: January 18, 2016, 05:52:46 AM »
Vanguard said that verbatim that they run 10,000 scenario's.

To be more specific he basically used 2.25 million till 2058 with an 80k withdrawl 50/50 split and came up with 74% success rate and 75% with SS with inflation and 20k taxes figured in so the net would be 80k after taxes. As I had mentioned in my opening the first 3 years will be the tougher years but I dont see needing that after that. Sure 60-70k will be more than enough if not less as I am still weeding things down in cost savings. But i like to be conservative and I also am looking for some ways to earn a few hundred bucks cash a week. And again did not use value of Home of 275k which is paid for.  Average rate of return 8.35% and 17 of 89 years with a loss (2008-2009) being -21.81%.

I am going to try to run some scenarios this week of 65/35 and 70/40.

this model also was as such
Stocks:
21% us large cap
9% us mid/small cap
20% International stock

Bonds:
14% us short-term bond
18% us intermediate-term bond
4% us long-term bond
15% international bond.




ooeei

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Re: I talked with a Vanguard Financial Planner :-(
« Reply #17 on: January 18, 2016, 06:39:50 AM »
Vanguard said that verbatim that they run 10,000 scenario's.

To be more specific he basically used 2.25 million till 2058 with an 80k withdrawl 50/50 split and came up with 74% success rate and 75% with SS with inflation and 20k taxes figured in so the net would be 80k after taxes. As I had mentioned in my opening the first 3 years will be the tougher years but I dont see needing that after that. Sure 60-70k will be more than enough if not less as I am still weeding things down in cost savings. But i like to be conservative and I also am looking for some ways to earn a few hundred bucks cash a week. And again did not use value of Home of 275k which is paid for.  Average rate of return 8.35% and 17 of 89 years with a loss (2008-2009) being -21.81%.

I am going to try to run some scenarios this week of 65/35 and 70/40.

this model also was as such
Stocks:
21% us large cap
9% us mid/small cap
20% International stock

Bonds:
14% us short-term bond
18% us intermediate-term bond
4% us long-term bond
15% international bond.

The value of your home doesn't really matter unless you plan on downsizing and getting some money out of it.  Having a paid off home is a great thing, but since it's not generating income it doesn't matter in your calculations. 

Reducing your expenses, or being willing to reduce them temporarily if the market crashes will add to your success rate significantly.  Having a side job will do the same.  Remember that most of these calculators assume you'll make no extra money, and will blindly spend the same amount adjusting for inflation no matter what happens.  One advantage to having a paid off house is that you probably have more flexibility in your budget than someone with a mortgage.

soccerluvof4

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Re: I talked with a Vanguard Financial Planner :-(
« Reply #18 on: January 18, 2016, 06:56:05 AM »
Vanguard said that verbatim that they run 10,000 scenario's.

To be more specific he basically used 2.25 million till 2058 with an 80k withdrawl 50/50 split and came up with 74% success rate and 75% with SS with inflation and 20k taxes figured in so the net would be 80k after taxes. As I had mentioned in my opening the first 3 years will be the tougher years but I dont see needing that after that. Sure 60-70k will be more than enough if not less as I am still weeding things down in cost savings. But i like to be conservative and I also am looking for some ways to earn a few hundred bucks cash a week. And again did not use value of Home of 275k which is paid for.  Average rate of return 8.35% and 17 of 89 years with a loss (2008-2009) being -21.81%.

I am going to try to run some scenarios this week of 65/35 and 70/40.

this model also was as such
Stocks:
21% us large cap
9% us mid/small cap
20% International stock

Bonds:
14% us short-term bond
18% us intermediate-term bond
4% us long-term bond
15% international bond.

The value of your home doesn't really matter unless you plan on downsizing and getting some money out of it.  Having a paid off home is a great thing, but since it's not generating income it doesn't matter in your calculations. 

Reducing your expenses, or being willing to reduce them temporarily if the market crashes will add to your success rate significantly.  Having a side job will do the same.  Remember that most of these calculators assume you'll make no extra money, and will blindly spend the same amount adjusting for inflation no matter what happens.  One advantage to having a paid off house is that you probably have more flexibility in your budget than someone with a mortgage.



right!

FrugalFan

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Re: I talked with a Vanguard Financial Planner :-(
« Reply #19 on: January 18, 2016, 07:11:37 AM »
But if he figured in 80k net because of 20k in taxes, he is actually having you withdraw 100k, which is more than 4%, or am I missing something?

Indexer

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Re: I talked with a Vanguard Financial Planner :-(
« Reply #20 on: January 18, 2016, 07:42:14 AM »
Hang on a minute.. Quite possibly I'm missing something but I thought CFiresim gave you a family of curves based on you retiring in any possible year since whenever the data was available.

So if you retire in 1928 for example with $x.. then sure, the 1929 onward curve starts to look ugly because the stock market actually crashed. In other words, in 1928 stocks had been bid up to insane levels and sure enough the risk is already taken into account because the market crashed.. and bonds did whatever they did etc etc.

So how is allowing for an extra margin of risk advantageous to planning a more realistic outcome.. compared to what actually happened?

cFIREsim has two options that I know of. One is using historical data. So it does exactly what you describe.

It also has a monte carlo simulator that uses mean returns and standard deviations for different investments. The monte carlo simulator can give you some pretty crazy results(+30% returns for 40 years being an example). Many people prefer the historical chart because it gives more realistic results. The historical chart ends up taking into account how variables affect each other because that is what actually happened in history.

The disadvantage of a historical chart is the limited data. You might only be able to run 40-50 simulations based on the time frame. The disadvantage of pure monte carlo is the possibility of super extremes. Monte carlo analysis with modifications for how variables interact with each other helps offset the extremes of pure monte carlo analysis to give more realistic results. The disadvantage of this type of analysis is cost. It is no longer an easy math program. You need some serious programming, data gathering, in depth analysis done by highly educated individuals, and computer power to run the thousands of simulations. Most of your big firms are using this because it allows for a lot more data than just using historical numbers, more realistic results than pure monte carlo, and honestly the big firms can afford it.

Indexer

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Re: I talked with a Vanguard Financial Planner :-(
« Reply #21 on: January 18, 2016, 07:47:49 AM »
But if he figured in 80k net because of 20k in taxes, he is actually having you withdraw 100k, which is more than 4%, or am I missing something?

I'm thinking the same thing. If your withdrawal rate is under 4% I would expect you to have a higher success rate. In my own experience playing with similar software in the past the success rate is normally pretty high if the withdrawal rate is under 4%, and it is normally pretty low if you start to get over 5%.

50/50 allocation also seems conservative for an early retiree. Did they have you go through a risk questionnaire, and is there anything on there that might lead them to believe you are a conservative investor?

soccerluvof4

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Re: I talked with a Vanguard Financial Planner :-(
« Reply #22 on: January 18, 2016, 08:24:07 AM »
I think that is an area that i always misunderstood about the 25xs what you need to live on. I basically figured that net what i need x 25x's was the formula so 80x25=2M and hence the 3 years padding with actually being 2.25M so thats on me.

He asked my my risk tolerance more than filling out a form but Risk tolerance is based more on what I didnt know based on what I am learning on here which is why I am thinking of a larger stocks to bond ratio now

tooqk4u22

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Re: I talked with a Vanguard Financial Planner :-(
« Reply #23 on: January 18, 2016, 09:45:20 AM »
Vanguards simulator is available to all https://personal.vanguard.com/us/insights/retirement/nearing/when-can-i-retire

Based on your variables - $2.25M, 50/50 allocation, $100k withdrawal, and 42 years....it comes up with 70% probability being ok....if you just did $80k it would increase to 89%.

Also, 20% tax seems high for that level of income....even if 100% came from taxable interest or tax-defferred retirement accounts your taxes on $100k would be $11k at current rates and on $80k would be about $8k......that's assuming nothing is coming from dividends, principal, roths, etc....of tax rates can change.

FrugalFan

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Re: I talked with a Vanguard Financial Planner :-(
« Reply #24 on: January 18, 2016, 10:40:15 AM »
I think that is an area that i always misunderstood about the 25xs what you need to live on. I basically figured that net what i need x 25x's was the formula so 80x25=2M and hence the 3 years padding with actually being 2.25M so thats on me.

He asked my my risk tolerance more than filling out a form but Risk tolerance is based more on what I didnt know based on what I am learning on here which is why I am thinking of a larger stocks to bond ratio now

No, the 4% rule is based on the total you withdraw, so you have to account for taxes. But as the poster above indicates, 20k on 100k may be an overestimate depending on where you live.

Exflyboy

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Re: I talked with a Vanguard Financial Planner :-(
« Reply #25 on: January 18, 2016, 11:14:18 AM »
I think that is an area that i always misunderstood about the 25xs what you need to live on. I basically figured that net what i need x 25x's was the formula so 80x25=2M and hence the 3 years padding with actually being 2.25M so thats on me.

He asked my my risk tolerance more than filling out a form but Risk tolerance is based more on what I didnt know based on what I am learning on here which is why I am thinking of a larger stocks to bond ratio now

No, the 4% rule is based on the total you withdraw, so you have to account for taxes. But as the poster above indicates, 20k on 100k may be an overestimate depending on where you live.

At the risk of stating the obvious.. The taxes you pay will be the dividends (which if you manage to kee withing the 15% tax bracket will be taxed at ZERO %) plus any long term capital gains tax from selling securities.. As currently long term capital gains tax is lower than normal income tax.

The point being you only pay taxes on the securities that you sell.. I.e the fact you have $2M plus sitting in either a 401k, IRA or even an after tax account.. as long as you don't sell anything you don't pay taxes on it.

Also of course the dividend that is taxable is only those divs in the after tax account.. if the divs are within a TIRA/401k.. you only pay taxes when you withdraw from the account.

I know this is a huge "DUH!" but you'd be surprised at the number of people that think that somehow the is a "Wealth tax".... Not yet anyway..:)

soccerluvof4

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Re: I talked with a Vanguard Financial Planner :-(
« Reply #26 on: January 18, 2016, 02:15:13 PM »
I think that is an area that i always misunderstood about the 25xs what you need to live on. I basically figured that net what i need x 25x's was the formula so 80x25=2M and hence the 3 years padding with actually being 2.25M so thats on me.

He asked my my risk tolerance more than filling out a form but Risk tolerance is based more on what I didnt know based on what I am learning on here which is why I am thinking of a larger stocks to bond ratio now





I made one DUH as you noticed so good to know!! thanks much!

No, the 4% rule is based on the total you withdraw, so you have to account for taxes. But as the poster above indicates, 20k on 100k may be an overestimate depending on where you live.

At the risk of stating the obvious.. The taxes you pay will be the dividends (which if you manage to kee withing the 15% tax bracket will be taxed at ZERO %) plus any long term capital gains tax from selling securities.. As currently long term capital gains tax is lower than normal income tax.

The point being you only pay taxes on the securities that you sell.. I.e the fact you have $2M plus sitting in either a 401k, IRA or even an after tax account.. as long as you don't sell anything you don't pay taxes on it.

Also of course the dividend that is taxable is only those divs in the after tax account.. if the divs are within a TIRA/401k.. you only pay taxes when you withdraw from the account.

I know this is a huge "DUH!" but you'd be surprised at the number of people that think that somehow the is a "Wealth tax".... Not yet anyway..:)