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Learning, Sharing, and Teaching => Investor Alley => Topic started by: starguru on May 30, 2015, 01:24:11 PM

Title: How to get 6k a month off $1MM portfolio?
Post by: starguru on May 30, 2015, 01:24:11 PM
Hi all

I am seeking the collective wisdom of this especially intelligent group. I'm trying to help my father.  He has been on private disability insurance the past few years, but that runs out later this year. 

Basically cutting through all the jibber jabber, is there a way to get 6k a month out of $1MM in investments?  Stretching my brain, it doesn't seem possible, since the 4% rule would indicate you can get 40k a year, which is 3.5k a month. 

Any creative ways to stretch it?  Or what's the best way to stretch it and minimize risk, while understanding that there might not be ideal solutions.

Thanx in advance.
Title: Re: How to get 6k a month off $1MM portfolio?
Post by: kpd905 on May 30, 2015, 01:30:27 PM
How old is he, and will he be getting social security anytime soon?
Title: Re: How to get 6k a month off $1MM portfolio?
Post by: starguru on May 30, 2015, 01:37:02 PM
How old is he, and will he be getting social security anytime soon?

Yes, normal SS kicks in, but don't include that in the calculations.  The question is whats the best way to generate 6k a month with $1MM, understanding that the best way might still result in portfolio depletion.
Title: Re: How to get 6k a month off $1MM portfolio?
Post by: kpd905 on May 30, 2015, 01:41:50 PM
If SS kicks in within 5 years and will give him $2,000 a month, that makes things a lot easier.  That is why I asked.
Title: Re: How to get 6k a month off $1MM portfolio?
Post by: ender on May 30, 2015, 01:44:08 PM
How old is he, and will he be getting social security anytime soon?

Yes, normal SS kicks in, but don't include that in the calculations.  The question is whats the best way to generate 6k a month with $1MM, understanding that the best way might still result in portfolio depletion.

How old is he? Health?

Why does he need 6k + social security?

Timeframe? 20 years? 50+ years? etc.
Title: Re: How to get 6k a month off $1MM portfolio?
Post by: starguru on May 30, 2015, 01:45:43 PM
If SS kicks in within 5 years and will give him $2,000 a month, that makes things a lot easier.  That is why I asked.

Sure. SS kicks in this year.  Let me put it this.  He wants 8k a month, and will get 2k per month for SS.  So how to get 6k a month on $1MM? 

Its a complicated situation.  There are def expenses he can trim, but its delicate and Im working on it.  Ive explained to him what the 4% rule says he can afford, and, well, Im working on it :).

So Im keeping this purely academic, trying to find the best losing scenarios.
Title: Re: How to get 6k a month off $1MM portfolio?
Post by: starguru on May 30, 2015, 01:47:46 PM
How old is he, and will he be getting social security anytime soon?

Yes, normal SS kicks in, but don't include that in the calculations.  The question is whats the best way to generate 6k a month with $1MM, understanding that the best way might still result in portfolio depletion.

How old is he? Health?

Why does he need 6k + social security?

Timeframe? 20 years? 50+ years? etc.

He has cancer, which is currently stable, not improving, not getting worse.  It could tank, it might not, no way to know.  Seeking clarification on how long we want this to last, but lets assume 20 years.

I appreciate all the replies!!
Title: Re: How to get 6k a month off $1MM portfolio?
Post by: kpd905 on May 30, 2015, 01:49:53 PM
Firecalc shows a success rate of 38% over 30 years for a $1,000,000 portfolio and a 6% withdrawal rate.
Title: Re: How to get 6k a month off $1MM portfolio?
Post by: MDM on May 30, 2015, 01:51:15 PM
Basically cutting through all the jibber jabber, is there a way to get 6k a month out of $1MM in investments?
Yes - at least, for a while.  If you can get a guaranteed 2% return on that $1MM you can withdraw $6K/mo for ~16 years.
Title: Re: How to get 6k a month off $1MM portfolio?
Post by: beltim on May 30, 2015, 01:51:44 PM
Going higher than 4% means you're going to incur some sort of risk.  Of the top of my head, here are a couple strategies to get 6K/month and their associated risks:
1) Withdraw 7.2% per year without adjustments.  Risk: longevity risk (i.e. strong chance of running out of money before 30 years)
2) Withdraw 7.2% per year but drop inflation adjustments.  Risk: inflation, plus longevity risks
3) Invest in higher yielding bonds in the income portion of a portfolio.  Risk: the companies or governments whose debt you're buying default
4) Invest in high-yielding stocks.  Risk: with companies that yield this much, there's business risks, inflation risks, liquidity risks, probably more
There are some starting points for you.
Title: Re: How to get 6k a month off $1MM portfolio?
Post by: ender on May 30, 2015, 01:58:43 PM
He has cancer, which is currently stable, not improving, not getting worse.  It could tank, it might not, no way to know.  Seeking clarification on how long we want this to last, but lets assume 20 years.

Does he have adequate insurance to cover medical expenses?

Are you willing to "bail him out" if things go south financially?

This isn't looking too good if you want certainty, especially since expenses are non-negotiable...

Title: Re: How to get 6k a month off $1MM portfolio?
Post by: starguru on May 30, 2015, 02:02:41 PM
Basically cutting through all the jibber jabber, is there a way to get 6k a month out of $1MM in investments?
Yes - at least, for a while.  If you can get a guaranteed 2% return on that $1MM you can withdraw $6K/mo for ~16 years.

How do you do the math on that?  Are there any bond funds that return 3%?
Title: Re: How to get 6k a month off $1MM portfolio?
Post by: starguru on May 30, 2015, 02:04:33 PM
He has cancer, which is currently stable, not improving, not getting worse.  It could tank, it might not, no way to know.  Seeking clarification on how long we want this to last, but lets assume 20 years.

Does he have adequate insurance to cover medical expenses?

Are you willing to "bail him out" if things go south financially?

This isn't looking too good if you want certainty, especially since expenses are non-negotiable...

 
He has insurance and his medical costs are a significant % of his spending.  Child support is another significant expense. 

I am aware this situation is not good, and have been trying to work with him on the expenses that have leeway.
Title: Re: How to get 6k a month off $1MM portfolio?
Post by: SwordGuy on May 30, 2015, 02:07:17 PM

Sure. SS kicks in this year.  Let me put it this.  He wants 8k a month, and will get 2k per month for SS.  So how to get 6k a month on $1MM? 

Its a complicated situation.  There are def expenses he can trim, but its delicate and Im working on it.  Ive explained to him what the 4% rule says he can afford, and, well, Im working on it :).


Not that you want to tell him this, but if he's old enough to get on SS in 2 years, he's old enough to be an adult and learn the difference between "I WANT" and "I can have".

Sit down and help him with the math.  Lay out the scenarios and let him choose.   If he wants to spend too much and run out of money, that's his choice, but since he's got better options to choose from it's on him.

And, for God's sake, never put a really bad choice in front of people who think with their emotions instead of their logic.    Those really bad choices seem to act like magnets.

And yes, I've had to have a similar kind of discussion over health choices with my mom.  It wasn't fun but she was refusing to face facts and the consequences of doing that were going to be unpleasant for her.
Title: Re: How to get 6k a month off $1MM portfolio?
Post by: starguru on May 30, 2015, 02:25:40 PM

Sure. SS kicks in this year.  Let me put it this.  He wants 8k a month, and will get 2k per month for SS.  So how to get 6k a month on $1MM? 

Its a complicated situation.  There are def expenses he can trim, but its delicate and Im working on it.  Ive explained to him what the 4% rule says he can afford, and, well, Im working on it :).


Not that you want to tell him this, but if he's old enough to get on SS in 2 years, he's old enough to be an adult and learn the difference between "I WANT" and "I can have".

Sit down and help him with the math.  Lay out the scenarios and let him choose.   If he wants to spend too much and run out of money, that's his choice, but since he's got better options to choose from it's on him.

And, for God's sake, never put a really bad choice in front of people who think with their emotions instead of their logic.    Those really bad choices seem to act like magnets.

And yes, I've had to have a similar kind of discussion over health choices with my mom.  It wasn't fun but she was refusing to face facts and the consequences of doing that were going to be unpleasant for her.

You are preaching to the choir.  I have had 3 conversations about this.  I need to be delicate on what I mention here, but let's just say he is not the only factor on the spending.  And Im not afraid to suggest to him that he face that one head on. 

I have explained to him its either

1.  Reduce spending
2.  Increase income.
3.  Run of out money.

His health issues are not habit related, just back luck -- nothing he can do on those.   

Title: Re: How to get 6k a month off $1MM portfolio?
Post by: starguru on May 30, 2015, 02:29:03 PM
One interesting possibility -- he currently owes ~145k on a mortgage at 5.25%.  I asked him about refinancing that, but he says with no income he can't refinance.  So, does it make sense to pay off the mortgage?  It would reduce his monthly spending by $1400.
Title: Re: How to get 6k a month off $1MM portfolio?
Post by: MDM on May 30, 2015, 02:36:14 PM
Basically cutting through all the jibber jabber, is there a way to get 6k a month out of $1MM in investments?
Yes - at least, for a while.  If you can get a guaranteed 2% return on that $1MM you can withdraw $6K/mo for ~16 years.
How do you do the math on that?  Are there any bond funds that return 3%?

Think of it as a mortgage payment in reverse.  E.g., over how many years would you finance a $1MM mortgage at 2% to have the payment be $6K/mo?  I used Excel's PMT function and Excel's "What-If Analysis" tool to do the calculation.  Does that make sense?

VWINX or VASIX are a couple of conservative funds.  For strictly bond funds, go to https://investor.vanguard.com/mutual-funds/all-vanguard-funds and select the appropriate options.  E.g., "Bond" for Asset Class and "2nd box from the left" for Risk.
Title: Re: How to get 6k a month off $1MM portfolio?
Post by: Bearded Man on May 30, 2015, 02:41:30 PM
Put it all on an REIT like SNH, if you can stomach the risk...
Title: Re: How to get 6k a month off $1MM portfolio?
Post by: MDM on May 30, 2015, 02:42:34 PM
Think of it as a mortgage payment in reverse.  E.g., over how many years would you finance a $1MM mortgage at 2% to have the payment be $6K/mo?  I used Excel's PMT function and Excel's "What-If Analysis" tool to do the calculation.  Does that make sense?

Even simpler: =NPER(2%/12,-6000,1000000)/12 gives the answer in years.
Title: Re: How to get 6k a month off $1MM portfolio?
Post by: starguru on May 30, 2015, 02:43:53 PM
Put it all on an REIT like SNH, if you can stomach the risk...

How to asses risk on a REIT like that?  The chart shows some volatility over the last 20 years. 
Title: Re: How to get 6k a month off $1MM portfolio?
Post by: starguru on May 30, 2015, 02:46:04 PM
Think of it as a mortgage payment in reverse.  E.g., over how many years would you finance a $1MM mortgage at 2% to have the payment be $6K/mo?  I used Excel's PMT function and Excel's "What-If Analysis" tool to do the calculation.  Does that make sense?

Even simpler: =NPER(2%/12,-6000,1000000)/12 gives the answer in years.

Hrm? How can that work?  I don't understand how thinking about this as a loan figures it out.
Title: Re: How to get 6k a month off $1MM portfolio?
Post by: starguru on May 30, 2015, 02:52:33 PM
Think of it as a mortgage payment in reverse.  E.g., over how many years would you finance a $1MM mortgage at 2% to have the payment be $6K/mo?  I used Excel's PMT function and Excel's "What-If Analysis" tool to do the calculation.  Does that make sense?

Even simpler: =NPER(2%/12,-6000,1000000)/12 gives the answer in years.

Hrm? How can that work?  I don't understand how thinking about this as a loan figures it out.

Hmm, so if I use this formula (only partially understanding it), and assume he can pay off his mortgage and still have 1MM (which might be possible), he needs 4600 a month.  So if i assume 3% interest and put that in, i get that his money should last 26 years and change, is that right?
Title: Re: How to get 6k a month off $1MM portfolio?
Post by: MDM on May 30, 2015, 03:12:53 PM
Even simpler: =NPER(2%/12,-6000,1000000)/12 gives the answer in years.
Hrm? How can that work?  I don't understand how thinking about this as a loan figures it out.
In a real mortgage you owe the bank the principal amount, e.g. $1MM.  If you are paying 2%/yr interest on a monthly basis, after 1 month you owe the bank $1,001,666.67.  Then you make your first monthly payment (e.g., $6090.34) and you now owe the bank $995,576.33.  This continues for 16 years until you make your final payment and owe the bank $0.

In the OP's situation, if that $1MM returns 2%/yr on a monthly basis and he withdraws $6090.34 each month, that can continue for 16 years until he makes the final withdrawal and the investment is down to $0.

Quote
Hmm, so if I use this formula (only partially understanding it), and assume he can pay off his mortgage and still have 1MM (which might be possible), he needs 4600 a month.  So if i assume 3% interest and put that in, i get that his money should last 26 years and change, is that right?
Yes, exactly!
Title: Re: How to get 6k a month off $1MM portfolio?
Post by: starguru on May 30, 2015, 03:27:48 PM
Even simpler: =NPER(2%/12,-6000,1000000)/12 gives the answer in years.
Hrm? How can that work?  I don't understand how thinking about this as a loan figures it out.
In a real mortgage you owe the bank the principal amount, e.g. $1MM.  If you are paying 2%/yr interest on a monthly basis, after 1 month you owe the bank $1,001,666.67.  Then you make your first monthly payment (e.g., $6090.34) and you now owe the bank $995,576.33.  This continues for 16 years until you make your final payment and owe the bank $0.

In the OP's situation, if that $1MM returns 2%/yr on a monthly basis and he withdraws $6090.34 each month, that can continue for 16 years until he makes the final withdrawal and the investment is down to $0.

Quote
Hmm, so if I use this formula (only partially understanding it), and assume he can pay off his mortgage and still have 1MM (which might be possible), he needs 4600 a month.  So if i assume 3% interest and put that in, i get that his money should last 26 years and change, is that right?
Yes, exactly!

So that VWINX fund mentioned above seems pretty good, and offers 2.88% yield. 

So how accurate is this NPER analysis in the context of market fluctuations.  Noone knows the future, but its certainly possible that markets will experience some sort of 10-20-30% drop over the next decade or two.  How can that affect this analysis?
Title: Re: How to get 6k a month off $1MM portfolio?
Post by: MDM on May 30, 2015, 03:41:52 PM
So how accurate is this NPER analysis in the context of market fluctuations.  Noone knows the future, but its certainly possible that markets will experience some sort of 10-20-30% drop over the next decade or two.  How can that affect this analysis?

Excellent question!  This is the heart of the "4% Safe Withdrawal Rate" calculation: see https://www.kitces.com/blog/what-returns-are-safe-withdrawal-rates-really-based-upon/. 

You're right, nobody knows the future and there are an infinite number of possible monthly market returns over the next 20 years.  One can do Monte Carlo analysis by specifying a mean and standard deviation for returns, or one can use the historical record of returns (and inflation).  The latter is what was done to determine the "4% SWR". 

I believe you can have www.cfiresim.com do either, although I haven't used its Monte-Carlo option.

Title: Re: How to get 6k a month off $1MM portfolio?
Post by: brainfart on May 30, 2015, 04:13:54 PM
What's daddy's current asset allocation? This is a desperate situation and it calls for desperate measures. Like increasing risk by moving to 80/20 or 90/10. Sell the house and invest the money.  Move to another country where medical treatment is cheaper, but it's probably impossible to get insurance coverage for someone with preexisting conditions at that age.
Maybe even take some money and have your own business, do some risky but potentially rewarding leveraged trades, or other unconventional investments.

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".

And the most important question... sorry to be so mean and heartless... what's his life expectancy? Does he really have another 25 years? What do the survival statistics say?
Title: Re: How to get 6k a month off $1MM portfolio?
Post by: forummm on May 30, 2015, 04:42:46 PM
The math gets a lot better if he can cut his spending by $1k/mo.

Let's say he pays off the mortgage, cutting $1400/mo. Let's say he cuts his spending down to $8k-$1.4k (mortgage)-$1k = $5.6k per mo, of which $3.6k would come from the portfolio of $855k. For a 75/25 AA, cFIREsim gives a 70% success rate for 30 years and 90% for 20.
Title: Re: How to get 6k a month off $1MM portfolio?
Post by: starguru on May 30, 2015, 04:45:51 PM
What's daddy's current asset allocation? This is a desperate situation and it calls for desperate measures. Like increasing risk by moving to 80/20 or 90/10. Sell the house and invest the money.  Move to another country where medical treatment is cheaper, but it's probably impossible to get insurance coverage for someone with preexisting conditions at that age.
Maybe even take some money and have your own business, do some risky but potentially rewarding leveraged trades, or other unconventional investments.

I don't know his AA.  I think its not very intelligently invested.  He is old school, its probably too conservative.  My mother had the foresight to get good disability policies many years ago, so since the cancer he had a very generous tax free yearly income.  That is ending hence the questions.  I think he values my input on this problem though, which is why I am here.  My job is to get the best outcome I can for him, realizing it could involve running out of money. 

Quote
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). 

Quote
And the most important question... sorry to be so mean and heartless... what's his life expectancy? Does he really have another 25 years? What do the survival statistics say?

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. 

And then I just facepalm, since what the fuck are we doing with this entire exercise?    His assets will last 10 years at his current spending. 
Title: Re: How to get 6k a month off $1MM portfolio?
Post by: starguru on May 30, 2015, 04:49:58 PM
The math gets a lot better if he can cut his spending by $1k/mo.

Let's say he pays off the mortgage, cutting $1400/mo. Let's say he cuts his spending down to $8k-$1.4k (mortgage)-$1k = $5.6k per mo, of which $3.6k would come from the portfolio of $855k. For a 75/25 AA, cFIREsim gives a 70% success rate for 30 years and 90% for 20.

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

generate X monthly income on Y portfolio
vs
generate X-1400monthly income on Y-145k portfolio.

My intuition tells me its a wash.

Again, thanx for all the insights. This community is just awesome.
Title: Re: How to get 6k a month off $1MM portfolio?
Post by: forummm on May 30, 2015, 06:21:49 PM
It's kind of a tossup. The interest rate is so high that I think it's less risky to pay it off. Real returns on a balanced portfolio are unlikely to exceed the interest rate on the mortgage. And due to market volatility, in a withdrawal scenario you are losing due to being on the other side of the DCA equation. Volatility is great when you're accumulating but kills you while spending down.

But put it into cFIREsim. Using a 12 year period (I was guessing that's how long he has left on the loan given the figures you provided), and the 75/25 AA, the $145k portfolio with a 1400/mo drawdown (not inflation adjusted, since his payment isn't) fails about half the time.
Title: Re: How to get 6k a month off $1MM portfolio?
Post by: arebelspy on May 30, 2015, 06:30:04 PM
I'd pay off the 5.25% mortgage in this situation, especially since it sounds like his AA is more conservative.

As for how to get 6k out, which is 7.2% annual of 1MM (not sure why someone did 6% WR on cFIREsim earlier, that's only 5k/mo, not 6), I'd suggest real estate. Even unleveraged you should be able to get that above a 7% return if you do it right.

Heck, loan it out as private money and get 8-10% annually.  Biggest risk there is inflation.  You'll have to keep reloaning out some of the principal returned to keep up with inflation, but you should if your return is above the 7.2% you need.
Title: Re: How to get 6k a month off $1MM portfolio?
Post by: KingCoin on May 30, 2015, 06:47:01 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.
Title: Re: How to get 6k a month off $1MM portfolio?
Post by: forummm on May 30, 2015, 06:49:50 PM
I'd pay off the 5.25% mortgage in this situation, especially since it sounds like his AA is more conservative.

As for how to get 6k out, which is 7.2% annual of 1MM (not sure why someone did 6% WR on cFIREsim earlier, that's only 5k/mo, not 6), I'd suggest real estate. Even unleveraged you should be able to get that above a 7% return if you do it right.

Heck, loan it out as private money and get 8-10% annually.  Biggest risk there is inflation.  You'll have to keep reloaning out some of the principal returned to keep up with inflation, but you should if your return is above the 7.2% you need.

A lot of us are using 4% SWRs based on a stock and bond portfolio. I've seen you say a couple times (in response to posts asking for much higher withdrawal rates) that you can achieve higher rates of return with real estate (and I assume that's what you did to get FI). Could you describe what that looks like, and  how the risks and hassles of that approach differ from a diversified stock portfolio? I personally hate the idea of being a landlord. But am interested in a higher yield on my capital.
Title: Re: How to get 6k a month off $1MM portfolio?
Post by: arebelspy on May 30, 2015, 06:59:13 PM
I'd pay off the 5.25% mortgage in this situation, especially since it sounds like his AA is more conservative.

As for how to get 6k out, which is 7.2% annual of 1MM (not sure why someone did 6% WR on cFIREsim earlier, that's only 5k/mo, not 6), I'd suggest real estate. Even unleveraged you should be able to get that above a 7% return if you do it right.

Heck, loan it out as private money and get 8-10% annually.  Biggest risk there is inflation.  You'll have to keep reloaning out some of the principal returned to keep up with inflation, but you should if your return is above the 7.2% you need.

A lot of us are using 4% SWRs based on a stock and bond portfolio. I've seen you say a couple times (in response to posts asking for much higher withdrawal rates) that you can achieve higher rates of return with real estate (and I assume that's what you did to get FI). Could you describe what that looks like, and  how the risks and hassles of that approach differ from a diversified stock portfolio? I personally hate the idea of being a landlord. But am interested in a higher yield on my capital.

Are you willing to listen to an hour long podcast?

I was interviewed here about the pros and cons of real estate versus index funds, and think I laid out a fairly balanced case: http://radicalpersonalfinance.com/78/

It's not for everyone.  But I do think it's one of the two components to the quickest FIRE time (the other being a spouse working towards the same goal).

You may want to listen at 2x speed in your podcast app, to absorb it quicker.

My journal in my sig has links to various RE threads I've started as well.

I'm happy to answer questions (I'm an open book), but that might give you a good base for a lot of what you're wondering.

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%.

It's different than I'd recommend someone who is in the beginning of their accumulation phase and wanting a fast path to FIRE--that will take more work (that I was assuming the older father referenced here wouldn't want to do).
Title: Re: How to get 6k a month off $1MM portfolio?
Post by: starguru on May 30, 2015, 07:16:20 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.

If he were good about dealing with spending, we wouldn't facing this question.  The irony of this, and the thought about which I am constantly banging my head, is there should be no problem here.  Between his 1.4-1.5MM portfolio and SS, he should be set, if he could just cut the fucking spending 1-2k a month. 

But he can't, so he says, and so I'm here seeking alternatives.  It really is quite dumb. 

Despite my frustration with my family, and my tone,  I do sincerely appreciate the advice.
Title: Re: How to get 6k a month off $1MM portfolio?
Post by: starguru on May 30, 2015, 07:19:40 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?
Title: Re: How to get 6k a month off $1MM portfolio?
Post by: forummm on May 30, 2015, 07:37:31 PM
Are you willing to listen to an hour long podcast?

Thanks, I definitely will listen to it. I listen to hour long podcasts on lots of nerdy topics all the time. After posting, I thought maybe I should start a new thread in the real estate section. I almost never go there because of my general anxiety about being a landlord. Perhaps my fears are higher than they should be. Maybe I'll start the thread after listening and browsing a bit.
Title: Re: How to get 6k a month off $1MM portfolio?
Post by: Bicycle_B on May 30, 2015, 08:43:46 PM
FWIW, I just finished the first half of dealing with a parent's finances (parent has Alzheimer's, I now manage the investments). The emotions of all this are tough on all sides, so I empathize with your attempts to fulfill his desires.

It sounds like his wants slightly exceed the reasonable expectation of his investment earnings.  I'm guessing that the best course is to explain this, and prepare two options where he can see the tradeoff:  "Dad, you can have $72k from the $1M, but after 16 years or so, it will run out (previous poster described how to achieve this).  Or you can get a smaller amount that lasts longer, such as $6k that will probably last 20-25 years (or whatever the next option is).  That's the most anyone can promise without lying to you."

I suggest avoiding time-intensive strategies such as real estate.  The transition into end of life is one that raises the stakes for everyone.  You should leave yourself time to deal with further changes, not lock yourself into time-consuming projects that are risky because they're not your existing expertise. 

Be honest, stand your ground; be empathetic, but don't pretend he can get what he wants if that means deluding him.  He may be angry, but then he is likely to come around and respect you for standing up to him is my guess.  In any case, it's the last time you get to do these things together, so I suggest being honest.  Even if he is upset at first, most likely the emotions will bring you closer.  If you stand firm and bring real info, your role as reliable advisor will only grow.

No one can control events, of course.  And few parents want to give up control.  Be patient, do what you can, learn when to stop and wait (like after you have an answer, deliver it...and wait).  The moments of calm waiting may soon be a needed respite.

After a while, you may find things turning out better than you ever imagined.  But you will have to invest in the pain of telling the truth up front IMHO.

Forgive me if this is too personal, or my examples made false assumptions.  Good luck with whatever you do!

Title: Re: How to get 6k a month off $1MM portfolio?
Post by: cshaw on May 30, 2015, 09:50:58 PM
About 15 years ago my Dad was laid off and decided to retire early with much too little saved.  Neither he or I was happy with his financial adviser, so I took over managing his portfolio about 10 years ago to try and keep my parent from running out of money.  Back then CDís were paying 6-8% APR (depending on the term) and I had a rolling 5 yearsí worth of funds invested in CDs to counter stock market volatility.  The rest was (and still is) invested in a mixture of index funds, dividend paying funds, and a smaller pool of aggressive growth funds to keep building his account, or at least keep up with the amount of his RMD each year.  Obviously CDs stopped paying decent returns some time back.  I quite literally stumbled upon P2P Lending about that time and have moved out of CDs and into Lending Club notes. I have about 20% of his retirement funds in a Lending Club IRA and have been able to achieve a little over a 9% return for the past 3 years.  P2P Lending is certainly not for everyone, but Iím very hands on and have been happy with the results. 
Just thought Iíd throw that out there for consideration
Title: Re: How to get 6k a month off $1MM portfolio?
Post by: Roland of Gilead on May 30, 2015, 10:19:42 PM
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.
Title: Re: How to get 6k a month off $1MM portfolio?
Post by: arebelspy on May 30, 2015, 11:09:39 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.
Title: Re: How to get 6k a month off $1MM portfolio?
Post by: YoungInvestor on May 31, 2015, 04:32:07 AM
I wonder, with his condition and life expectancy, if there's a life insurance company that may be offering him a life annuity that might offer that much. Worth getting a quote or two, in my opinion.

It's also worth running the scenario where the house is paid off, to see if the annuity for 855k is sufficient.
Title: Re: How to get 6k a month off $1MM portfolio?
Post by: KBecks2 on May 31, 2015, 05:10:11 AM
Honestly,

1.  Do you think he will take the advice?

For the investing, I think you are getting some bad advice here.  Do you think he will let you manage his money?  Is that what his goal is here?

First find out what your scope is.  Is he just looking for some comfort and reassurance?  Who initiated the conversation?

I lean towards letting a parent manage their own affairs unless he is specifically asking for help.

I would not do a) real estate, b) reits, or c) any single investment.   He needs a portfolio.  A sensible portfolio that includes stocks.  You need an advisory.  I would recommend two sources at Motley Fool for you to explore -- 1) Motley Fool Pro (goal inflation + 7% over a rolling 3-year period, smart advisors and this will seem to deliver your withdrawal needs.)   2)  Saul's investing discussions at Motley Fool boards (great stock discussion).  You may also want to consult with Rule Your Retirement at Motley Fool.  These have some fees, but the info should be worthwhile.

Best wishes for your family.  Try not to stress over it.
Title: Re: How to get 6k a month off $1MM portfolio?
Post by: starguru on May 31, 2015, 05:59:34 AM
FWIW, I just finished the first half of dealing with a parent's finances (parent has Alzheimer's, I now manage the investments). The emotions of all this are tough on all sides, so I empathize with your attempts to fulfill his desires.

It sounds like his wants slightly exceed the reasonable expectation of his investment earnings.  I'm guessing that the best course is to explain this, and prepare two options where he can see the tradeoff:  "Dad, you can have $72k from the $1M, but after 16 years or so, it will run out (previous poster described how to achieve this).  Or you can get a smaller amount that lasts longer, such as $6k that will probably last 20-25 years (or whatever the next option is).  That's the most anyone can promise without lying to you."


Yes, this might be the way this shakes out.
Title: Re: How to get 6k a month off $1MM portfolio?
Post by: starguru on May 31, 2015, 06:01:21 AM
About 15 years ago my Dad was laid off and decided to retire early with much too little saved.  Neither he or I was happy with his financial adviser, so I took over managing his portfolio about 10 years ago to try and keep my parent from running out of money.  Back then CDís were paying 6-8% APR (depending on the term) and I had a rolling 5 yearsí worth of funds invested in CDs to counter stock market volatility.  The rest was (and still is) invested in a mixture of index funds, dividend paying funds, and a smaller pool of aggressive growth funds to keep building his account, or at least keep up with the amount of his RMD each year.  Obviously CDs stopped paying decent returns some time back.  I quite literally stumbled upon P2P Lending about that time and have moved out of CDs and into Lending Club notes. I have about 20% of his retirement funds in a Lending Club IRA and have been able to achieve a little over a 9% return for the past 3 years.  P2P Lending is certainly not for everyone, but Iím very hands on and have been happy with the results. 
Just thought Iíd throw that out there for consideration

Interesting idea.  I jumped into the P2P thing when I learned about it, but this forum convinced me it might not be that great of a deal, so I've been pulling $$ out as it comes back to me.  Might be interesing to consider for my father's situation, though.
Title: Re: How to get 6k a month off $1MM portfolio?
Post by: starguru on May 31, 2015, 06:02:29 AM
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?
Title: Re: How to get 6k a month off $1MM portfolio?
Post by: starguru on May 31, 2015, 06:08:45 AM
Honestly,

1.  Do you think he will take the advice?

For the investing, I think you are getting some bad advice here.  Do you think he will let you manage his money?  Is that what his goal is here?

First find out what your scope is.  Is he just looking for some comfort and reassurance?  Who initiated the conversation?


The situation is he thinks he needs to spend this amount of money, and he realizes his assets are short of this goal, and he is trying to work a solution.  He is utterly convinced that he can't cut his spending.  He knows that I am into financial boards and so he thinks I might be able to help him, or get reasonable advice. 

I think he will follow my advice, and even if he doesn't I want to try to at least get reasonable advice to him.

Quote
I lean towards letting a parent manage their own affairs unless he is specifically asking for help.

I would not do a) real estate, b) reits, or c) any single investment.   He needs a portfolio.  A sensible portfolio that includes stocks.  You need an advisory.  I would recommend two sources at Motley Fool for you to explore -- 1) Motley Fool Pro (goal inflation + 7% over a rolling 3-year period, smart advisors and this will seem to deliver your withdrawal needs.)   2)  Saul's investing discussions at Motley Fool boards (great stock discussion).  You may also want to consult with Rule Your Retirement at Motley Fool.  These have some fees, but the info should be worthwhile.

Best wishes for your family.  Try not to stress over it.

Thanks for this.  You say any single investment is bad, but what about the VWINX fund someone mentioned above, or something like it, perhaps a bit more aggressive?  It seems to reduce volatility and have reasonable growth. 

I never signed up for MF since everything I read from them looks like its a sales pitch. Should I reconsider?
Title: Re: How to get 6k a month off $1MM portfolio?
Post by: KBecks2 on May 31, 2015, 06:46:24 AM
A fund might be fine.  I am not personally familiar with a lot of funds, so I hesitate to recommend anything in particular.  With 1MM, you will want to take some time to research and look at several funds and probably select more than one to spread risk.
I am a big Dave Ramsey listener (although I invest primarily in individual stocks, and he recommends funds).  He will recommend stock funds with low turnover rates (meaning they don't churn their holdings).  If you want to learn about funds, read, read, read.  It is a good way to be lower-maintenance with the money, but of course, someone needs to keep an eye on the investments.

Dave Ramsey will say to find an advisor who has the heart of a teacher (not a salesperson).  If you choose to take advice, then make sure you are not feeling sold in any way.

Motley Fool has a strong sales pitch and I understand completely why that is a turn-off.  However, the places I suggested -- Rule Your Retiement (paid, includes advice on funds, I am not a subscriber but I have heard good things about it from subscribers), Motley Fool Pro  (paid, not inexpensive but a very tiny % of $1M and the guys there are smart and conservative), and Saul's Investing Discussions (a free forum with very smart people, the style there is maximal return and very active portfolio management, they are very successful investors).

Pro only opens for new members 1x a year, it usually comes up in the Fall.  RYR is like $99 and free 30 day trial, so why not check it out and ask your questions to that team? 

Good luck with everything!  Aside from the heath concerns, your dad is not in dire shape financially, he has a large nest egg and that is so much better than so many people.  Hang in there!
Title: Re: How to get 6k a month off $1MM portfolio?
Post by: KBecks2 on May 31, 2015, 06:47:15 AM
Also, if your dad goes online, see if he will do Mint so he can actually observe his own spending / family spending.  Knowledge is power!  :)
Title: Re: How to get 6k a month off $1MM portfolio?
Post by: KBecks2 on May 31, 2015, 06:55:00 AM
Just to encourage you, there are many ways to invest, but it is so important for you and your dad to understand the investments and feel confident in your plan.

For example, I own a Canadian stock called Seaspan (SSW).  This stock currently yields a 7.5% dividend.  Is it a good stock?  I think so, but I could not responsibly recommend it to someone else, and definitely not as a single investment. That's ridiculous.  Would it be good for you? I have no freaking idea, and I am not qualified to do that.  I feel comfortable having some of it in my port but I would not have my entire port made of that stock.  And I have to do the work of following it and making sure I'm satisfied with it over time.  I did not find this stock on my own, I had help, and I am only willing to invest in individual stocks with the help of smart people I trust (some of the Fool services, and from those ideas, I narrow it down more to fit my preferences.)

It can take months for you to get comfortable, that is OK!  Maybe all funds is good for you, maybe you want mostly funds and a small amount of stocks.  What is important to you and your dad?  How much time to you and he have to be involved with managing the funds?
Title: Re: How to get 6k a month off $1MM portfolio?
Post by: Miss Prim 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
Title: Re: How to get 6k a month off $1MM portfolio?
Post by: SnackDog 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...
Title: Re: How to get 6k a month off $1MM portfolio?
Post by: arebelspy 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.  :)
Title: Re: How to get 6k a month off $1MM portfolio?
Post by: maizefolk 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).
Title: Re: How to get 6k a month off $1MM portfolio?
Post by: starguru 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.
Title: Re: How to get 6k a month off $1MM portfolio?
Post by: KBecks2 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!!
Title: Re: How to get 6k a month off $1MM portfolio?
Post by: Jags4186 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.
Title: Re: How to get 6k a month off $1MM portfolio?
Post by: Cpa Cat 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.
Title: Re: How to get 6k a month off $1MM portfolio?
Post by: arebelspy 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.  :)
Title: Re: How to get 6k a month off $1MM portfolio?
Post by: ender 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.
Title: Re: How to get 6k a month off $1MM portfolio?
Post by: starguru 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.
Title: Re: How to get 6k a month off $1MM portfolio?
Post by: Free_at_50 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. 
Title: Re: How to get 6k a month off $1MM portfolio?
Post by: forummm 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.
Title: Re: How to get 6k a month off $1MM portfolio?
Post by: starguru 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.
Title: Re: How to get 6k a month off $1MM portfolio?
Post by: Another Reader on May 31, 2015, 04:57:57 PM
Fidelity and Vanguard both sell annuities.  You might want to look at both.
Title: Re: How to get 6k a month off $1MM portfolio?
Post by: MDM 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.
Title: Re: How to get 6k a month off $1MM portfolio?
Post by: starguru 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?
Title: Re: How to get 6k a month off $1MM portfolio?
Post by: arebelspy 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.
Title: Re: How to get 6k a month off $1MM portfolio?
Post by: starguru 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..
Title: Re: How to get 6k a month off $1MM portfolio?
Post by: arebelspy 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.
Title: Re: How to get 6k a month off $1MM portfolio?
Post by: MDM 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.
Title: Re: How to get 6k a month off $1MM portfolio?
Post by: arebelspy 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. 
Title: Re: How to get 6k a month off $1MM portfolio?
Post by: Roland of Gilead 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).
Title: Re: How to get 6k a month off $1MM portfolio?
Post by: arebelspy 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.
Title: Re: How to get 6k a month off $1MM portfolio?
Post by: electriceagle 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.
Title: Re: How to get 6k a month off $1MM portfolio?
Post by: bdbrooks 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.
Title: Re: How to get 6k a month off $1MM portfolio?
Post by: starguru 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. 
Title: Re: How to get 6k a month off $1MM portfolio?
Post by: arebelspy on June 01, 2015, 08:10:47 AM
At this point you need a professional. Someone who charges by the hour, not commission based.
Title: Re: How to get 6k a month off $1MM portfolio?
Post by: starguru 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.
Title: Re: How to get 6k a month off $1MM portfolio?
Post by: foobar 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.
Title: Re: How to get 6k a month off $1MM portfolio?
Post by: Ricky 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.
Title: Re: How to get 6k a month off $1MM portfolio?
Post by: Capsu78 on June 03, 2015, 01:45:20 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.
Title: Re: How to get 6k a month off $1MM portfolio?
Post by: starguru 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?
Title: Re: How to get 6k a month off $1MM portfolio?
Post by: starguru 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?
Title: Re: How to get 6k a month off $1MM portfolio?
Post by: Financial.Velociraptor 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.

Title: Re: How to get 6k a month off $1MM portfolio?
Post by: tomsang 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!
Title: Re: How to get 6k a month off $1MM portfolio?
Post by: starguru 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. 
Title: Re: How to get 6k a month off $1MM portfolio?
Post by: starguru 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.
Title: Re: How to get 6k a month off $1MM portfolio?
Post by: KingCoin 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.
Title: Re: How to get 6k a month off $1MM portfolio?
Post by: Financial.Velociraptor 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.
Title: Re: How to get 6k a month off $1MM portfolio?
Post by: Capsu78 on June 05, 2015, 09:54:53 AM
Fee only financial planners association.  May want to try here:

https://www.napfa.org/
Title: Re: How to get 6k a month off $1MM portfolio?
Post by: starguru on June 05, 2015, 10:03:12 AM
Fee only financial planners association.  May want to try here:

https://www.napfa.org/

Awesome, thanx!
Title: Re: How to get 6k a month off $1MM portfolio?
Post by: 3okirb 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.
Title: Re: How to get 6k a month off $1MM portfolio?
Post by: DavidAnnArbor 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.
Title: Re: How to get 6k a month off $1MM portfolio?
Post by: Dexterous 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.