Author Topic: How to get 6k a month off $1MM portfolio?  (Read 27091 times)

Miss Prim

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Re: How to get 6k a month off $1MM portfolio?
« Reply #50 on: May 31, 2015, 07:25:23 AM »
I have some experience with multiple myeloma as I have a brother-in-law and a neighbor that has it.  Has he had a stem cell transplant yet?  I am assuming he probably has had one.  When he has the second one, assuming he had enough to do 2, he probably will have only about 2-4 years left after that.  That is what my brother-in-law is facing now.  So probably 10 years give or take a few is probably all he has total. 

So, he should be able to take 6% due to his decreased expected life span.  Sorry you have to deal with this.  It is not fun to watch someone suffer with the treatments for this disease. 

                                                                                    Miss Prim

SnackDog

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Re: How to get 6k a month off $1MM portfolio?
« Reply #51 on: May 31, 2015, 07:32:36 AM »
He will need to boost his savings to almost $2MM. Risk-taking will be required.  Not many stocks will get you there quickly but for example in the last twelve months he could have gotten there with Sony, Apple, Kroger, Netflix, etc.  Everyone has recommended Apple for ages so that could be a safe bet.  On the other hand, he could lose half...
« Last Edit: May 31, 2015, 07:37:10 AM by SnackDog »

arebelspy

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Re: How to get 6k a month off $1MM portfolio?
« Reply #52 on: May 31, 2015, 08:43:13 AM »
For the investing, I think you are getting some bad advice here.

I agree.  Quite poor.

However, when you are in a bad situation (as the given parameters, 6k/mo on 1MM portfolio, or 7.2% WR), there are no "good" answers.

For example, yours:
He needs a portfolio.  A sensible portfolio that includes stocks.  You need an advisory.

This is problematic.

cFIREsim shows a 50/50 portfolio (he's more conservative, so he might not like even that much volatility, but we'll assume it's okay) running out (failing) on a 30 year time frame 80% of the time (only a 20% success rate).  And that's not counting your "advisory" that will, no doubt, come with higher fees (and a corresponding increased failure rate).

Giving someone advice that has failed 80% of the time probably falls under "bad advice," like most of the rest that you mentioned, but, again, there is no good advice for a bad situation.  :)
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maizefolk

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Re: How to get 6k a month off $1MM portfolio?
« Reply #53 on: May 31, 2015, 10:10:39 AM »
Regarding the child support issue, I assume the children are not newborn quadruplets. So for how long does he have to pay child support, and for how many children? 5, 10, 15 years? Is there a legal way to make a lump sum payment to each of them? Talk to their morther(s): "look, I might run out of money, let's reduce the monthly payments a bit so I will be able to pay for longer, and I promise to split the rest evenly and fairly among my offspring once I die".

Child support is another 7-8 years.  I don't know how to talk about my half-brother's mother, so Ill just say Im not sure how rational she is so I assume no progress can be made on this.  He is 10 (maybe 11, to give you context, I am 37, and my brother is 34).
Assuming the child support is a significant fraction of the 6k/month it's still important to work it into the model. He only needs 6k for a maximum of eight years and after that monthly spending will go down.

If he needs 6k/month for eight years and 4.5k/month for the following twelve (random guess for child support, his estimate for expected lifespan that you mentioned above), that's much more achievable than 6k/month for thirty years (the time frame over which the 4% rule was tested).

starguru

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Re: How to get 6k a month off $1MM portfolio?
« Reply #54 on: May 31, 2015, 10:34:13 AM »
Regarding the child support issue, I assume the children are not newborn quadruplets. So for how long does he have to pay child support, and for how many children? 5, 10, 15 years? Is there a legal way to make a lump sum payment to each of them? Talk to their morther(s): "look, I might run out of money, let's reduce the monthly payments a bit so I will be able to pay for longer, and I promise to split the rest evenly and fairly among my offspring once I die".

Child support is another 7-8 years.  I don't know how to talk about my half-brother's mother, so Ill just say Im not sure how rational she is so I assume no progress can be made on this.  He is 10 (maybe 11, to give you context, I am 37, and my brother is 34).
Assuming the child support is a significant fraction of the 6k/month it's still important to work it into the model. He only needs 6k for a maximum of eight years and after that monthly spending will go down.

If he needs 6k/month for eight years and 4.5k/month for the following twelve (random guess for child support, his estimate for expected lifespan that you mentioned above), that's much more achievable than 6k/month for thirty years (the time frame over which the 4% rule was tested).

Child support is about 1100, and yes we need to include that in the model.

KBecks2

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Re: How to get 6k a month off $1MM portfolio?
« Reply #55 on: May 31, 2015, 11:44:20 AM »
For the investing, I think you are getting some bad advice here.

I agree.  Quite poor.

However, when you are in a bad situation (as the given parameters, 6k/mo on 1MM portfolio, or 7.2% WR), there are no "good" answers.

For example, yours:
He needs a portfolio.  A sensible portfolio that includes stocks.  You need an advisory.

This is problematic.

cFIREsim shows a 50/50 portfolio (he's more conservative, so he might not like even that much volatility, but we'll assume it's okay) running out (failing) on a 30 year time frame 80% of the time (only a 20% success rate).  And that's not counting your "advisory" that will, no doubt, come with higher fees (and a corresponding increased failure rate).

Giving someone advice that has failed 80% of the time probably falls under "bad advice," like most of the rest that you mentioned, but, again, there is no good advice for a bad situation.  :)

Like telling a 60-something with cancer to get into real estate as a complete and total newbie is a practical idea?   Well, maybe, or maybe not.

People will choose different paths for investing and that is fine.  The services I suggested that the original poster *consider*, just *consider*, cost $99 for one and under $1,000 a year for the other.   That's nothing on a 1 million portfolio, particularly considering that good investments will earn back these minuscule fees very quickly.

This situation is not ideal, maybe, but I can think of many worse things than figuring out how to live on $1 million, particularly with a complicated life expectancy.  The OP and his dad can work this out, and hopefully they all can have some peace of mind.

A 50/50 portfolio is very conservative.  That is an area that the family should study and determine what is going to work best for their situation.

Considering risk, the main thing to be practical and protect oneself is to keep about 3 to 5 years of expenses in cash. As in, don't risk the money you are going to count on in the next several years.  I am not giving advice but this is what I have heard from professionals.  You keep some cash out for your upcoming, near-term years of expenses, and then invest the rest for the longer term, and take on a bit of risk to get the returns needed to keep it going.  These are concepts that the OP and his dad need to learn, look into and understand when managing their family's investments for the father's and family's well-being.

Starguru, I wish you the best!!
« Last Edit: May 31, 2015, 11:50:50 AM by KBecks2 »

Jags4186

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Re: How to get 6k a month off $1MM portfolio?
« Reply #56 on: May 31, 2015, 12:09:27 PM »
You can get a single premium immediate annuity 20 year certain of $5400/mo from MetLife for his $1mm.  If you look around you might do better--that was the ultra quick google result.

He could get a lifetime SPIA $4910/mo with a $1,000,000 investment assuming he's 60 now.

That's probably your best bet.

Cpa Cat

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Re: How to get 6k a month off $1MM portfolio?
« Reply #57 on: May 31, 2015, 12:15:07 PM »
The big question in my mind is should he pay off his mortgage.  I think he has $1.5MM (he asked me specifically about 1MM; I have no idea what he intends for that other 500k).   But I could probably convince him to pay off the mortgage if it makes sense.  I dont know how to figure which is better between

He may be wanting to leave the 500k as inheritance. As such, you may be able to convince him to use part of it to pay off his mortgage.

If he pays off his mortgage and dumps the 1M into a 20 year annuity, he's pretty much where he wants to be.

arebelspy

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Re: How to get 6k a month off $1MM portfolio?
« Reply #58 on: May 31, 2015, 12:57:29 PM »
Like telling a 60-something with cancer to get into real estate as a complete and total newbie is a practical idea?   Well, maybe, or maybe not.

It is not.  I lump my advice in with the subpar ones--my point was not to criticize your idea, which is great advice and what I'd recommend for the vast majority of investors, but to point out that even that plan doesn't work (fails 80% of the time over a 30-year time horizon) due to the less than ideal constraints proposed in the problem itself.  :)
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ender

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Re: How to get 6k a month off $1MM portfolio?
« Reply #59 on: May 31, 2015, 01:36:31 PM »
You might consider finding a good financial advisor and talking to them with your dad.

He might not listen to you tell him, "you don't have enough money and need to spend less" but he might a person who is a "professional."

You don't know the full situation he has and frankly giving him advise on what to do knowing you don't have the full picture is impossible.

starguru

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Re: How to get 6k a month off $1MM portfolio?
« Reply #60 on: May 31, 2015, 02:34:07 PM »
You can get a single premium immediate annuity 20 year certain of $5400/mo from MetLife for his $1mm.  If you look around you might do better--that was the ultra quick google result.

He could get a lifetime SPIA $4910/mo with a $1,000,000 investment assuming he's 60 now.

That's probably your best bet.

Huh.  I never considered an annuity because I think my brain just automatically classifies them as a scam.  On Fidelity's Guaranteed Income Estimator, there are varying options, but the various 6k a month options are the following, where the second column is the minimum payout.

$1,083,564   $0   Life-only: No death benefit.
$1,114,699   $720,000   Life with guarantee period (10 years): Income payment guaranteed for 10 years from income start date.   Details
$1,219,960   $1,440,000   Life with guarantee period (20 years): Income payments guaranteed for 20 years from income start date.   Details
$1,191,468   $1,191,468   Life with cash refund: Lump-sum payment of original investment less income payments made to date.   

With a 2%/year inflation adjustment, the table looks like

$1,353,840   $0   Life-only: No death benefit.   Details
$1,389,120   $788,380   Life with guarantee period (10 years): Income payment guaranteed for 10 years from income start date.   Details
Not available *   -   Life with guarantee period (20 years): Income payments guaranteed for 20 years from income start date.   Details
$1,511,041   $1,511,041   Life with cash refund: Lump-sum payment of original investment less income payments made to date.

Am I crazy for even considering this an option?  I don't understand how this is even feasible for the banks?  I mean, for the last option, they basically promise to give all the initial investment back?  Granted, it loses value due to inflation, but it also seems like the institution has a good chance of not making $$ if we enter a turbulent market.
« Last Edit: May 31, 2015, 02:37:16 PM by starguru »

Free_at_50

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Re: How to get 6k a month off $1MM portfolio?
« Reply #61 on: May 31, 2015, 03:33:08 PM »
Pay off the the mortgage and then take out a reverse mortgage.   Annuitize half the remaining balance, invest the remainder in vanguard between total stock and bond funds. 

forummm

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Re: How to get 6k a month off $1MM portfolio?
« Reply #62 on: May 31, 2015, 04:42:01 PM »
You can get a single premium immediate annuity 20 year certain of $5400/mo from MetLife for his $1mm.  If you look around you might do better--that was the ultra quick google result.

He could get a lifetime SPIA $4910/mo with a $1,000,000 investment assuming he's 60 now.

That's probably your best bet.

Huh.  I never considered an annuity because I think my brain just automatically classifies them as a scam.  On Fidelity's Guaranteed Income Estimator, there are varying options, but the various 6k a month options are the following, where the second column is the minimum payout.

$1,083,564   $0   Life-only: No death benefit.
$1,114,699   $720,000   Life with guarantee period (10 years): Income payment guaranteed for 10 years from income start date.   Details
$1,219,960   $1,440,000   Life with guarantee period (20 years): Income payments guaranteed for 20 years from income start date.   Details
$1,191,468   $1,191,468   Life with cash refund: Lump-sum payment of original investment less income payments made to date.   

With a 2%/year inflation adjustment, the table looks like

$1,353,840   $0   Life-only: No death benefit.   Details
$1,389,120   $788,380   Life with guarantee period (10 years): Income payment guaranteed for 10 years from income start date.   Details
Not available *   -   Life with guarantee period (20 years): Income payments guaranteed for 20 years from income start date.   Details
$1,511,041   $1,511,041   Life with cash refund: Lump-sum payment of original investment less income payments made to date.

Am I crazy for even considering this an option?  I don't understand how this is even feasible for the banks?  I mean, for the last option, they basically promise to give all the initial investment back?  Granted, it loses value due to inflation, but it also seems like the institution has a good chance of not making $$ if we enter a turbulent market.

I read the last one as being original investment (not adjusted for inflation) minus all the money they paid out. So if he lives for 18 years, the refund is $0 since the total payout through 18 years is $1.54M. And 72k adjusted for inflation is in essence a 4.77% withdrawal rate.
« Last Edit: May 31, 2015, 04:44:09 PM by forummm »

starguru

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Re: How to get 6k a month off $1MM portfolio?
« Reply #63 on: May 31, 2015, 04:44:33 PM »

You can get a single premium immediate annuity 20 year certain of $5400/mo from MetLife for his $1mm.  If you look around you might do better--that was the ultra quick google result.

He could get a lifetime SPIA $4910/mo with a $1,000,000 investment assuming he's 60 now.

That's probably your best bet.

Huh.  I never considered an annuity because I think my brain just automatically classifies them as a scam.  On Fidelity's Guaranteed Income Estimator, there are varying options, but the various 6k a month options are the following, where the second column is the minimum payout.

$1,083,564$0Life-only: No death benefit.
$1,114,699$720,000Life with guarantee period (10 years): Income payment guaranteed for 10 years from income start date.Details
$1,219,960$1,440,000Life with guarantee period (20 years): Income payments guaranteed for 20 years from income start date.Details
$1,191,468$1,191,468Life with cash refund: Lump-sum payment of original investment less income payments made to date.

With a 2%/year inflation adjustment, the table looks like

$1,353,840$0Life-only: No death benefit.Details
$1,389,120$788,380Life with guarantee period (10 years): Income payment guaranteed for 10 years from income start date.Details
Not available *-Life with guarantee period (20 years): Income payments guaranteed for 20 years from income start date.Details
$1,511,041$1,511,041Life with cash refund: Lump-sum payment of original investment less income payments made to date.

Am I crazy for even considering this an option?  I don't understand how this is even feasible for the banks?  I mean, for the last option, they basically promise to give all the initial investment back?  Granted, it loses value due to inflation, but it also seems like the institution has a good chance of not making $$ if we enter a turbulent market.

I read the last one as being original investment (not adjusted for inflation) minus all the money they paid out. So if he lives for 18 years, the refund is $0 since the total payout through 18 years is $1.54M

Yes that's how I read it.  But that doesn't seem that bad to me,  given that it takes volatility out of the equation.  I must be missing something.  I need to click the details link and start looking for hidden costs.

Another Reader

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Re: How to get 6k a month off $1MM portfolio?
« Reply #64 on: May 31, 2015, 04:57:57 PM »
Fidelity and Vanguard both sell annuities.  You might want to look at both.

MDM

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Re: How to get 6k a month off $1MM portfolio?
« Reply #65 on: May 31, 2015, 05:27:22 PM »

$1,511,041$1,511,041Life with cash refund: Lump-sum payment of original investment less income payments made to date.
Am I crazy for even considering this an option?  I don't understand how this is even feasible for the banks?  I mean, for the last option, they basically promise to give all the initial investment back?  Granted, it loses value due to inflation, but it also seems like the institution has a good chance of not making $$ if we enter a turbulent market.
I read the last one as being original investment (not adjusted for inflation) minus all the money they paid out. So if he lives for 18 years, the refund is $0 since the total payout through 18 years is $1.54M
Yes that's how I read it.  But that doesn't seem that bad to me,  given that it takes volatility out of the equation.  I must be missing something.  I need to click the details link and start looking for hidden costs.

The insurance company is betting that, at best, the policy owner will not live more than 18 years so you are giving them an interest-free loan on the $1.54M.  You can take volatility out of your returns, and get better than 0%, by putting all the money in CDs.

starguru

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Re: How to get 6k a month off $1MM portfolio?
« Reply #66 on: May 31, 2015, 05:46:01 PM »

$1,511,041$1,511,041Life with cash refund: Lump-sum payment of original investment less income payments made to date.
Am I crazy for even considering this an option?  I don't understand how this is even feasible for the banks?  I mean, for the last option, they basically promise to give all the initial investment back?  Granted, it loses value due to inflation, but it also seems like the institution has a good chance of not making $$ if we enter a turbulent market.
I read the last one as being original investment (not adjusted for inflation) minus all the money they paid out. So if he lives for 18 years, the refund is $0 since the total payout through 18 years is $1.54M
Yes that's how I read it.  But that doesn't seem that bad to me,  given that it takes volatility out of the equation.  I must be missing something.  I need to click the details link and start looking for hidden costs.

The insurance company is betting that, at best, the policy owner will not live more than 18 years so you are giving them an interest-free loan on the $1.54M.  You can take volatility out of your returns, and get better than 0%, by putting all the money in CDs.

Can you expand please?  how would you be able to get 6k a month with CDs?

arebelspy

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Re: How to get 6k a month off $1MM portfolio?
« Reply #67 on: May 31, 2015, 06:00:31 PM »

$1,511,041$1,511,041Life with cash refund: Lump-sum payment of original investment less income payments made to date.
Am I crazy for even considering this an option?  I don't understand how this is even feasible for the banks?  I mean, for the last option, they basically promise to give all the initial investment back?  Granted, it loses value due to inflation, but it also seems like the institution has a good chance of not making $$ if we enter a turbulent market.
I read the last one as being original investment (not adjusted for inflation) minus all the money they paid out. So if he lives for 18 years, the refund is $0 since the total payout through 18 years is $1.54M
Yes that's how I read it.  But that doesn't seem that bad to me,  given that it takes volatility out of the equation.  I must be missing something.  I need to click the details link and start looking for hidden costs.

The insurance company is betting that, at best, the policy owner will not live more than 18 years so you are giving them an interest-free loan on the $1.54M.  You can take volatility out of your returns, and get better than 0%, by putting all the money in CDs.

Can you expand please?  how would you be able to get 6k a month with CDs?

You'd draw down on principal and have longevity risk.
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starguru

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Re: How to get 6k a month off $1MM portfolio?
« Reply #68 on: May 31, 2015, 06:46:04 PM »

$1,511,041$1,511,041Life with cash refund: Lump-sum payment of original investment less income payments made to date.
Am I crazy for even considering this an option?  I don't understand how this is even feasible for the banks?  I mean, for the last option, they basically promise to give all the initial investment back?  Granted, it loses value due to inflation, but it also seems like the institution has a good chance of not making $$ if we enter a turbulent market.
I read the last one as being original investment (not adjusted for inflation) minus all the money they paid out. So if he lives for 18 years, the refund is $0 since the total payout through 18 years is $1.54M
Yes that's how I read it.  But that doesn't seem that bad to me,  given that it takes volatility out of the equation.  I must be missing something.  I need to click the details link and start looking for hidden costs.

The insurance company is betting that, at best, the policy owner will not live more than 18 years so you are giving them an interest-free loan on the $1.54M.  You can take volatility out of your returns, and get better than 0%, by putting all the money in CDs.

Can you expand please?  how would you be able to get 6k a month with CDs?

You'd draw down on principal and have longevity risk.

Hmm right, I remember now that the NPER excel function predicts at just 2% 1.25MM will last 21 years. 

So the annuity is basically " you give them money and they give that exact sum back to you over time".  So why give it to them in the first place.

Is it dumb to just go for a 1 fund solution?  Something like a 50% stock 50% bond should have reasonably low volatility but also capture at least some equity upside, right?  Remembering the goal is for the money to last 20 years, and anything above that is just gravy..
« Last Edit: May 31, 2015, 06:52:04 PM by starguru »

arebelspy

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Re: How to get 6k a month off $1MM portfolio?
« Reply #69 on: May 31, 2015, 07:04:46 PM »

So the annuity is basically " you give them money and they give that exact sum back to you over time".  So why give it to them in the first place.

Longevity insurance. It keeps paying out if you live longer. You are betting you will live longer than their actuarial tables say you will.
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MDM

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Re: How to get 6k a month off $1MM portfolio?
« Reply #70 on: May 31, 2015, 07:25:42 PM »

So the annuity is basically " you give them money and they give that exact sum back to you over time".  So why give it to them in the first place.

Longevity insurance. It keeps paying out if you live longer. You are betting you will live longer than their actuarial tables say you will.

^Exactly this. 

With life insurance, your financial bet is that you will die before the actuaries say you will.  The insurance company bets that you won't.  You hope you lose the bet (in other words, you hope you don't die prematurely).

With an annuity, the insurance company bets that you won't live (much) longer than the actuaries predict.  You fork over a bunch of money up front, just in case you do live (much) longer.  At least here you hope to win the bet.

The insurance companies have a "house edge" on both insurance and annuity policies because they can take the actuarial results and adjust pricing so they still make money if the "average" result happens.

arebelspy

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Re: How to get 6k a month off $1MM portfolio?
« Reply #71 on: May 31, 2015, 07:29:28 PM »
And I probably wouldn't bet against them given the health state of the person in question. 
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Roland of Gilead

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Re: How to get 6k a month off $1MM portfolio?
« Reply #72 on: May 31, 2015, 08:20:15 PM »
The annuity just isn't good right now.

Here is what would be better.   Put all the money in CD ladders, with the first ones maturing next year.   Make sure enough mature such that he can get his $7k a month next year.

Delay SS until 70.   This is his longevity insurance.  He will get a positive real return on the SS delay if he somehow beats this cancer and lives until 90 or 100.

I figure the CDs are going to give him about 14 years of $7,000 a month (not inflation adjusted) but SS will kick in and be pretty big at age 70, so he might get 16 to 18 years at $7k a month then have to drop back to just spending the 3k or what have you that SS gives.

To me this is better than annuity, at least until rates rise.   He is insulated from stock market crash and insulated from interest rates rising (CD can be broken for small penalty).

arebelspy

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Re: How to get 6k a month off $1MM portfolio?
« Reply #73 on: May 31, 2015, 08:36:00 PM »
The annuity just isn't good right now.

Here is what would be better.   Put all the money in CD ladders, with the first ones maturing next year.   Make sure enough mature such that he can get his $7k a month next year.

Delay SS until 70.   This is his longevity insurance.  He will get a positive real return on the SS delay if he somehow beats this cancer and lives until 90 or 100.

I figure the CDs are going to give him about 14 years of $7,000 a month (not inflation adjusted) but SS will kick in and be pretty big at age 70, so he might get 16 to 18 years at $7k a month then have to drop back to just spending the 3k or what have you that SS gives.

To me this is better than annuity, at least until rates rise.   He is insulated from stock market crash and insulated from interest rates rising (CD can be broken for small penalty).

I like this plan better than an annuity right now as well, at least until rates improve. Otherwise I think inflation will be painful.
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electriceagle

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Re: How to get 6k a month off $1MM portfolio?
« Reply #74 on: June 01, 2015, 05:36:42 AM »
I would recommend against moving his money into any unusual investments in search of yield.

Asset allocation should be determined by how much risk he can stomach, not how much money he wants to make. Since it sounds like his ability to invest from labor income is nonexistent, you probably want an AA of ~50% stocks/50% bonds, potentially in a two-fund portfolio.

Your priority should probably be to ensure that he doesn't lose his money in whatever potentially questionable investments he has right now,

Arebelspy and others do well with real estate and hard money lending, but they are young, energetic and intellectually skilled. Part of their investment return is actually return on labor; they sort through lending club funding proposals, evict non-paying tenants and foreclose if a hard money loan goes south. Does a 65 year old who is dealing with cancer have the energy to do that?

You may want to do the math on delaying social security until 67 -- not for maximum asset value (you'll lose on that one) but for probability of portfolio failure. Do a cfiresim that includes the end of child support in 7 years and accepting a larger social security payment at 67. See what maximum withdrawal rate appears for a chance of success that is acceptable to you/him.

I would also strongly consider paying off the house. I assume that his tax bracket makes much of the mortgage interest deduction moot, so you're getting a 5.5% risk-free return. You'll also have an asset that can be run into a reverse mortgage in an emergency.

bdbrooks

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Re: How to get 6k a month off $1MM portfolio?
« Reply #75 on: June 01, 2015, 07:48:52 AM »
Due to his health I would start SS early (not late) and wouldn't consider an annuity (I used to work as an actuary and the math is crummy for any annuities and it is only exacerbated by his health issues).

I don't think you are in near as dire of a situation as some people state. $2500 a month is from mortgage and child support. As others said try to get him to pay off the mortgage. It makes 0 sense to buy ANY bonds that are paying interest below his mortgage rate. So pay it off and THEN consider buying some bonds. Another thing that could help improve his chances of success is not adjusting for inflation. Since his budget is admittedly high, let him start there and he will just have learn to gradually adjust his lifestyle as inflation eats away at purchasing power.

The real thing that really helps the math is his lower life expectancy. I'm sorry that he isn't healthier (I know you said it was just bad luck), and it's sad that his life expectancy is the good side of the equation. As another poster said, taking minimal risk 7.2% withdrawal rate should last 16 years. That is most of the way to what he said to plan on making it to (and it sounded like 10 years might be more accurate). If it were me, I would take a very balanced approach, and include stocks (best expected return), bonds (deflationary hedge), and real estate fund (inflationary hedge). Maybe 30/40/30 (so 60% equities and 40% bonds), and rebalance anytime there are significant deviations. I agree that you should probably not be buying real estate on your own. He doesn't have the time, energy, or emotional strength to do it, and it is probably a better use of your time and energy to be loving on your dad than taking care of his rentals.

starguru

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Re: How to get 6k a month off $1MM portfolio?
« Reply #76 on: June 01, 2015, 08:08:09 AM »
Due to his health I would start SS early (not late) and wouldn't consider an annuity (I used to work as an actuary and the math is crummy for any annuities and it is only exacerbated by his health issues).

I don't think you are in near as dire of a situation as some people state. $2500 a month is from mortgage and child support. As others said try to get him to pay off the mortgage. It makes 0 sense to buy ANY bonds that are paying interest below his mortgage rate. So pay it off and THEN consider buying some bonds. Another thing that could help improve his chances of success is not adjusting for inflation. Since his budget is admittedly high, let him start there and he will just have learn to gradually adjust his lifestyle as inflation eats away at purchasing power.

The real thing that really helps the math is his lower life expectancy. I'm sorry that he isn't healthier (I know you said it was just bad luck), and it's sad that his life expectancy is the good side of the equation. As another poster said, taking minimal risk 7.2% withdrawal rate should last 16 years. That is most of the way to what he said to plan on making it to (and it sounded like 10 years might be more accurate). If it were me, I would take a very balanced approach, and include stocks (best expected return), bonds (deflationary hedge), and real estate fund (inflationary hedge). Maybe 30/40/30 (so 60% equities and 40% bonds), and rebalance anytime there are significant deviations. I agree that you should probably not be buying real estate on your own. He doesn't have the time, energy, or emotional strength to do it, and it is probably a better use of your time and energy to be loving on your dad than taking care of his rentals.

Yeah I point out to him that if he can get his spending down 2k, he would really be in good shape.  I brought up paying off the mortgage, and he introduced a twist.  Currently his meds are supported by a fund and are means tested.  When he sells assets, it brings his income up and he might lose the subsidy.  Now, that will only cost him 7k a year, but still his finances are already fucked so that a big hit. 

The other part of this twist is the money is currently being managed (sigh, facepalm), so he will incur tax liabilities with selling to pay off the mortgage.

I have asked him to send me the details of what his current financial advisor has set up, hopefully Ill get those soon.  But he mentioned that this manager bought individual bonds with at least part of the money, so I don't know how much actual cash he has on hand to do things like pay off the mortgage.

Finally, on the child support front, my father claims that if my half brother goes to college he still might be on the hook for support, as this is the law in MA (I don't know if thats true or not). 

These suggestions really resonate with me.  They seem to be simple enough that financially handicapped people could still follow them.  The only hard problem here is how do we reallocate to the goal from where he is currently and not incur costs, either taxes, losing medical funding, or incurring higher child support. 

arebelspy

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Re: How to get 6k a month off $1MM portfolio?
« Reply #77 on: June 01, 2015, 08:10:47 AM »
At this point you need a professional. Someone who charges by the hour, not commission based.
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starguru

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Re: How to get 6k a month off $1MM portfolio?
« Reply #78 on: June 01, 2015, 08:12:21 AM »
At this point you need a professional. Someone who charges by the hour, not commission based.

I am thinking the same thing.  I want to come up with a base plan that's not completely idiotic, then find someone to do better. 

Any recommendations for a professional in the MA area, please PM me.

foobar

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Re: How to get 6k a month off $1MM portfolio?
« Reply #79 on: June 02, 2015, 02:42:35 PM »
I'd put together a diversified portfolio of higher yielding fixed income vehicles. Perhaps something like this:

(40%) Unlevered Read Estate: Yield 6-8%
(20%) High Yield Closed-End Funds: Yield 6-9%
(20%) Business Development Corps: Yield 8-12%
(20%) CLO Equity/Mez Funds: Yield 11-20%

There's obviously no free lunch, and you'll face some risk of ruin, but if you can dial back spending a bit when the economy goes south, you can probably make it a long long way with a portfolio like this.

You have the same basic problems as just investing 100% in stocks and getting that average return of 10%.   At some point all of these assets will hit a crunch time and you may or may not be able to outlast it.

For kicks firecalc gives me a 74% chance of being able to take 72k out of a 1 million dollar portfolio for 30 years. How? 80% SV, 20% LT bonds.:) Frankly I think suggesting any of these type of investments to a sick person who isn't very financially assute is poor idea.

The OP's dad really doesn't need 6k/month for 30 years.  He needs it for 8 years until the child support ends. Then it drops. And it sounds like when he goes on medicare, expenses will also drop a bit.  Depending on how big those numbers are, that might solve most of the short fall.

Paying off the mortgage is one of those crap shoot things.   145k will pay the mortgage for like 9 years. Now 5.25% is a crazy high rate so I would look at refiancing (things like dividends and SS do count as income) but it is tempting to get that type of return. The downside of couse is tying the money up in a nonperforming asset.  You could do a reverse mortgage to get the money out, but they tend to only really work for a subset of the population.

Ricky

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Re: How to get 6k a month off $1MM portfolio?
« Reply #80 on: June 02, 2015, 06:09:51 PM »
In the case of this thread though, I was more recommending a passive note strategy, basically become a private investor to lend money to real estate investors (like being the bank, it's secured against property, it's a mortgage you hold as the "bank" and they pay you) at a rate of 8-10%.

Arebelspy, I'm not picking up what you're putting down.  How is this done, exactly?

At first I thought you were recommending getting into real estate, as in buying properties and renting them out, and was about to reply that as a 65 year old with cancer, my father has not the stamina for this, but after thinking about it I think you are recommending something else.  Like a Lending Club but focused on real estate?

Sorry, could you make this a bit more clear?

Yes, sort of like lending club, but with lending club the notes are completely unsecured.  With real estate, it's secured by the real estate (so if something went wrong you could foreclose, take the property, and sell it). 

Think of the bank: they loan someone money, and get paid every month by owning a mortgage on that house.  You'd do that same thing..loan someone money for a property, and collect that mortgage every month.

But there are no online tools like a LC but for this sort of lending? It's  a really good idea, but if it involves legwork Im not sure it will work for him.  Any more details or resources where I can read about the details?

Yes, realtymogul.com

And I agree with arebelspy - in general, the only way to get consistently higher returns than a truly passive portfolio would be real estate. RE is the fastest way to go from working to not working. I understand that this isn't really feasible for your dad even though he technically could do it from his house.


starguru

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Re: How to get 6k a month off $1MM portfolio?
« Reply #82 on: June 03, 2015, 01:47:10 PM »
In the case of this thread though, I was more recommending a passive note strategy, basically become a private investor to lend money to real estate investors (like being the bank, it's secured against property, it's a mortgage you hold as the "bank" and they pay you) at a rate of 8-10%.

Arebelspy, I'm not picking up what you're putting down.  How is this done, exactly?

At first I thought you were recommending getting into real estate, as in buying properties and renting them out, and was about to reply that as a 65 year old with cancer, my father has not the stamina for this, but after thinking about it I think you are recommending something else.  Like a Lending Club but focused on real estate?

Sorry, could you make this a bit more clear?

Yes, sort of like lending club, but with lending club the notes are completely unsecured.  With real estate, it's secured by the real estate (so if something went wrong you could foreclose, take the property, and sell it). 

Think of the bank: they loan someone money, and get paid every month by owning a mortgage on that house.  You'd do that same thing..loan someone money for a property, and collect that mortgage every month.

But there are no online tools like a LC but for this sort of lending? It's  a really good idea, but if it involves legwork Im not sure it will work for him.  Any more details or resources where I can read about the details?

Yes, realtymogul.com

And I agree with arebelspy - in general, the only way to get consistently higher returns than a truly passive portfolio would be real estate. RE is the fastest way to go from working to not working. I understand that this isn't really feasible for your dad even though he technically could do it from his house.

Hmm, do you (or anyone) actually use realtymogul?

starguru

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Re: How to get 6k a month off $1MM portfolio?
« Reply #83 on: June 03, 2015, 01:54:17 PM »
OP may get some food for thought on this link:

https://www.kitces.com/blog/the-ratcheting-safe-withdrawal-rate-a-more-dominant-version-of-the-4-rule/?utm_source=rss&utm_medium=rss&utm_campaign=the-ratcheting-safe-withdrawal-rate-a-more-dominant-version-of-the-4-rule&utm_source=Nerd%E2%80%99s+Eye+View+%7C+Kitces.com&utm_campaign=4dcaefec32-NEV_MAILCHIMP_LIST&utm_medium=email&utm_term=0_4c81298299-4dcaefec32-57040425

His dad just needs to hope he has a good 30 year window.

Very interesting.  And all the numbers in that assume 60/40 asset allocation.

At this point, as Arebelspy pointed out, I really need a by the hour financial consultant.  Google is yielding 1 or 2 firms in the area, but is there a better way to find such people?

Financial.Velociraptor

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Re: How to get 6k a month off $1MM portfolio?
« Reply #84 on: June 03, 2015, 04:05:28 PM »
Is 72,000 your before tax number?  You could invest in closed end municipal bond funds such as NIO and NEA (currently yielding ~6.2%).  Your taxes (on the sliver that is subject to AMT) will be trivial.

Assuming tax at 25%: 1,000,000*.062 = 62,000 available to spend

Assuming a 25% tax bracket: .062*1.25=.0775
1,000,000 * .0775 = 77,500 equivalent income

You'd have 5,500 tax free to invest in equity each year to begin building an inflation buffer.


tomsang

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Re: How to get 6k a month off $1MM portfolio?
« Reply #85 on: June 03, 2015, 05:00:51 PM »
Hire a fee based advisor. You have child support that ends in 6 years, mortgage that probably ends soon, expenses that appear to be a made up number, SS that may be off. Does he plan to take SS at 62? With his health it probably makes sense to take it early. This seems like a case where a financial advisor needs to fund buckets of expenses. I also get the sense that he is not giving you all of the facts on assets, expenses, etc.  He may be more open with a fee based financial advisor who is trained to pull all the relevant facts out of their clients.

I would bet that he will be fine, based on the tidbits of info that were provided. A reverse mortgage could be on the table as well.

Good luck!

starguru

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Re: How to get 6k a month off $1MM portfolio?
« Reply #86 on: June 03, 2015, 06:27:20 PM »
Hire a fee based advisor. You have child support that ends in 6 years, mortgage that probably ends soon, expenses that appear to be a made up number, SS that may be off. Does he plan to take SS at 62? With his health it probably makes sense to take it early. This seems like a case where a financial advisor needs to fund buckets of expenses. I also get the sense that he is not giving you all of the facts on assets, expenses, etc.  He may be more open with a fee based financial advisor who is trained to pull all the relevant facts out of their clients.

I would bet that he will be fine, based on the tidbits of info that were provided. A reverse mortgage could be on the table as well.

Good luck!

Yes, I asked before for advice on finding a financial advisor -- google is only yielding a few hits.

7 years for child support, and 25 on the mortgage.  The expenses are not made up or arbitrary, although there are definitely frivolous line items.  I believe he has been open with me. 

starguru

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Re: How to get 6k a month off $1MM portfolio?
« Reply #87 on: June 03, 2015, 06:27:42 PM »
Is 72,000 your before tax number?  You could invest in closed end municipal bond funds such as NIO and NEA (currently yielding ~6.2%).  Your taxes (on the sliver that is subject to AMT) will be trivial.

Assuming tax at 25%: 1,000,000*.062 = 62,000 available to spend

Assuming a 25% tax bracket: .062*1.25=.0775
1,000,000 * .0775 = 77,500 equivalent income

You'd have 5,500 tax free to invest in equity each year to begin building an inflation buffer.

That number is after taxes.

KingCoin

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Re: How to get 6k a month off $1MM portfolio?
« Reply #88 on: June 03, 2015, 08:54:50 PM »
I'd put together a diversified portfolio of higher yielding fixed income vehicles. Perhaps something like this:

(40%) Unlevered Read Estate: Yield 6-8%
(20%) High Yield Closed-End Funds: Yield 6-9%
(20%) Business Development Corps: Yield 8-12%
(20%) CLO Equity/Mez Funds: Yield 11-20%

There's obviously no free lunch, and you'll face some risk of ruin, but if you can dial back spending a bit when the economy goes south, you can probably make it a long long way with a portfolio like this.

You have the same basic problems as just investing 100% in stocks and getting that average return of 10%.   At some point all of these assets will hit a crunch time and you may or may not be able to outlast it.

For kicks firecalc gives me a 74% chance of being able to take 72k out of a 1 million dollar portfolio for 30 years. How? 80% SV, 20% LT bonds.:) Frankly I think suggesting any of these type of investments to a sick person who isn't very financially assute is poor idea.

The OP's dad really doesn't need 6k/month for 30 years.  He needs it for 8 years until the child support ends. Then it drops. And it sounds like when he goes on medicare, expenses will also drop a bit.  Depending on how big those numbers are, that might solve most of the short fall.

Paying off the mortgage is one of those crap shoot things.   145k will pay the mortgage for like 9 years. Now 5.25% is a crazy high rate so I would look at refiancing (things like dividends and SS do count as income) but it is tempting to get that type of return. The downside of couse is tying the money up in a nonperforming asset.  You could do a reverse mortgage to get the money out, but they tend to only really work for a subset of the population.

Yes and no. In a protracted equity slide (think Japan), the above portfolio will serve you far better, even if you wouldn't be wrong to call these instruments somewhat "equity like".  Through the financial crisis, these instruments still by and large paid their coupons. Even CLO equity bought in 2007 delivered ~20% IRR.

Certainly, it's not exactly a bread and butter portfolio, and probably not for an unsophisticated investor, but it can be constructed out of exchange traded funds and more or less just bought and held. It's certainly better than trying to pick high dividend stocks (a horrible idea in my opinion), or lending through various peer lending platforms (zero liquidity).

Again, not ideal, but it meets the OP's requirements. In the event this portfolio fails, drawing down home equity is a logical next step.

Financial.Velociraptor

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Re: How to get 6k a month off $1MM portfolio?
« Reply #89 on: June 04, 2015, 01:29:03 PM »


That number is after taxes.

If you are looking for a passive set and forget option with a roughly 9% yield, you are hosed.  I manage better than 9% with options but it has taken 3 years to learn and requires about 5 hours a week of my time.  You can check my blog if you want to explore becoming an options warrior.

Capsu78

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Re: How to get 6k a month off $1MM portfolio?
« Reply #90 on: June 05, 2015, 09:54:53 AM »
Fee only financial planners association.  May want to try here:

https://www.napfa.org/

starguru

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Re: How to get 6k a month off $1MM portfolio?
« Reply #91 on: June 05, 2015, 10:03:12 AM »
Fee only financial planners association.  May want to try here:

https://www.napfa.org/

Awesome, thanx!

3okirb

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Re: How to get 6k a month off $1MM portfolio?
« Reply #92 on: June 05, 2015, 10:17:24 AM »
Annuity rates kind of suck right now, but maybe they will improve soon if we get an interest rate hike this year.

Right now for $1 mil and 62 year old male you could get a $5,000 a month single payer immediate annuity with a 10 year certain period (if person dies, heirs continue getting paid for the first 10 year period...this would guarantee coverage of child support).

This is about a 6% SWR but realize there is no adjustment for inflation.

With your dad's health problems, I think a better choice would just be a 50% stock/ 50% bond regular portfolio because it probably will produce the same non inflation adjusted return as the above annuity.

Damn annuities suck right now.  No wonder people have pension envy.

If you take the period certain off, there are annuities available that will pay out $6,000 per year on a million.  You'll have no liquidity, no COI adjustments, etc., but it would give you what you want.  Not an ideal solution, but it's not an ideal situation either.

Edited to add:  Some companies will "underwrite" annuities if there is a health issue, so you could get a lot more than published rates if he's in poor health.  YMMV.
« Last Edit: June 05, 2015, 10:23:42 AM by 3okirb »

DavidAnnArbor

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Re: How to get 6k a month off $1MM portfolio?
« Reply #93 on: June 05, 2015, 09:54:31 PM »

Well, the average life expectancy for his form of cancer (multiple myeloma) is 10 years, and he was diagnosed 6 years ago.  Its a weird cancer; some are cured via stem cell transplant, some go quicker, etc.  Right now he is on chemo as long as it keeps working.  He said to assume 20 years, and then i just got  a text that he expects not to make it 10 years. 


The problem with a multiple myeloma is that the chemotherapy cure won't last, as the cancer cells will eventually find a way to get around the chemotherapy and then the cancer becomes untreatable. The ten year lifespan is more realistic with a multiple myeloma.

Dexterous

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Re: How to get 6k a month off $1MM portfolio?
« Reply #94 on: June 05, 2015, 11:48:42 PM »
If I were in his shoes... I'd pay off the mortgage first.  Next, realizing the medical condition is worse than originally thought resulting in a shorter life expectancy, and knowing that child support will stop in 5-10 years...I'd invest based upon that info.  A ~70/30 stocks/bonds portfolio would be my choice, increasing the bonds slightly after interest rates change in the next few years.  I'd also get rid of all the other funds currently held, especially the managed one.