Retiring father adding 1.1m to his 500k

[TheAnonOne]

Hey all,

I figured I would get some thoughts on this.

My dad at the young age of 56 is being retired by a "rule of 90" after being with the same company for 35 years!

He is getting a lump sum retirement payout of 1.1 million dollars. My parents already have 500k give or take in mostly stocks.

They have been picking my brain on this and I have been using a more or less 75/25 stock to bond ratio for them.

They spend (from what I can gather) 75 to 80k a year.

He plans on going back to work, getting debt free and ending with 1.9 invested before 60.


I think he would be fine in a 75/25 setup but I wanted to get the MMM thoughts.

[radram]

Hey all,

I figured I would get some thoughts on this.

My dad at the young age of 56 is being retired by a "rule of 90" after being with the same company for 35 years!

He is getting a lump sum retirement payout of 1.1 million dollars. My parents already have 500k give or take in mostly stocks.

They have been picking my brain on this and I have been using a more or less 75/25 stock to bond ratio for them.

They spend (from what I can gather) 75 to 80k a year.

He plans on going back to work, getting debt free and ending with 1.9 invested before 60.


I think he would be fine in a 75/25 setup but I wanted to get the MMM thoughts.

Firecalc simulation gives this plan a 93% success rate of lasting 30 years.

Assumes constant spending power, no other income (pension or SS).

Looks pretty good to me.

However, it doesn't matter AT ALL what they spent in the past. What do they want to spend once FIRE?

[TheAnonOne]

Hey all,

I figured I would get some thoughts on this.

My dad at the young age of 56 is being retired by a "rule of 90" after being with the same company for 35 years!

He is getting a lump sum retirement payout of 1.1 million dollars. My parents already have 500k give or take in mostly stocks.

They have been picking my brain on this and I have been using a more or less 75/25 stock to bond ratio for them.

They spend (from what I can gather) 75 to 80k a year.

He plans on going back to work, getting debt free and ending with 1.9 invested before 60.


I think he would be fine in a 75/25 setup but I wanted to get the MMM thoughts.

Firecalc simulation gives this plan a 93% success rate of lasting 30 years.

Assumes constant spending power, no other income (pension or SS).

Looks pretty good to me.

However, it doesn't matter AT ALL what they spent in the past. What do they want to spend once FIRE?

Indeed, im just trying to get some reinforced validation. These are my BELOVED parents and it can be a bit nerve racking.

They say that he will take ss at 62 and her at 65/67, so they DO have that income coming as well. They have both nearly maxed it for many years so it should be reasonably sized.

[nereo]

Agree that future spending and not current spending is what matters.  $80k/year is a lot post-retirement even by non-mustachian standards.  Does that include mortgage payments and retirement contributions?  If it includes a mortgage payment, how much longer until payoff?
Taxes will also certainly change.

If you want to help them with this decision you will need to delve a lot deeper into their finances, as well as get a firm sense of how much volatility they can stand. My gut feeling is that they could retire now and keep pretty much the same level of spending, especially given that they are within a decade of getting SS.

Have you/they considered the most tax-optimal way of dealing with a $1.1MM lump-sum payout?

[pbkmaine]

Also, even if they don't intend to take it, they should run annuity calcs if one is available.

Edited to add: I assume they can roll the pension lump sum into an IRA? If so, it's the way to go.

[TheAnonOne]

Also, even if they don't intend to take it, they should run annuity calcs if one is available.

Edited to add: I assume they can roll the pension lump sum into an IRA? If so, it's the way to go.

Yes the lump is going into an IRA tax free.

I definitely need to get into their spending more but they are adamant about working another 5ish years. They make around 200k but must have 200-300k worth of debt on their house and cabin. This is what they will pay off in the next few years

[financiallypossible]

They have been picking my brain on this and I have been using a more or less 75/25 stock to bond ratio for them.

They spend (from what I can gather) 75 to 80k a year.

He plans on going back to work, getting debt free and ending with 1.9 invested before 60.


I think he would be fine in a 75/25 setup but I wanted to get the MMM thoughts.

I'm sure you probably already know this, but most 2020 target date funds have about 60% in stocks and 40% in bonds AND they will increase that bond percentage every month as we get closer to 2020. They'd also split the stock portion between roughly 2/3 US stock and 1/3 international stock.

Many in this community plan to be retired a very long time so they overweight equities (at least from a traditional financial planning perspective).

Your parents are following a more conventional path to retirement though.

Have you had a conversation with your parents what they would like to do during retirement? Do they want to leave something behind (for children and other descendants or their philanthropic causes) or spend down as much of their assets as possible during retirement?

[nereo]

Also, even if they don't intend to take it, they should run annuity calcs if one is available.

Edited to add: I assume they can roll the pension lump sum into an IRA? If so, it's the way to go.

Yes the lump is going into an IRA tax free.

I definitely need to get into their spending more but they are adamant about working another 5ish years. They make around 200k but must have 200-300k worth of debt on their house and cabin. This is what they will pay off in the next few years

If part of their current 'spending' is including these mortgages they should be sitting very pretty once those are paid down.
If they WANT to work, great!  My dad was the same way - could have retired much earlier but enjoyed what he did (physician). But, if they are tired of working you could show them how they could very easily be RE this year with those assets.  Up to them.

[TheAnonOne]

Thanks everyone.

I was thinking they could be more aggressive than the average bear because they want to work for at least another 5 years AND at that point or shortly after they will be taking some social security and won't be drawing the stash as much as the average person here.

Is this incorrect? They want to leave a bunch for us kids (4 total)

[nereo]

Thanks everyone.

I was thinking they could be more aggressive than the average bear because they want to work for at least another 5 years AND at that point or shortly after they will be taking some social security and won't be drawing the stash as much as the average person here.

Is this incorrect? They want to leave a bunch for us kids (4 total)

Sure, and that's what I'd advise my own parents, but people can look at this in two different ways
1) because they have such a large 'stash and SS within a decade they can afford to be aggressive with almost no chance of portfolio failure
OR
2) because they have so much they don't NEED to have large returns, and could afford to be more conservative, with almost no chance of portfolio failure.

For a nice hybrid approach they could set up a 5 or even 7 year bond ladder.  This will take some of the 'shock' out of a very scary market and allow them to draw only on bonds (i.e. not replenish them) if the market takes a serious dive.

[TheAnonOne]

Thanks everyone.

I was thinking they could be more aggressive than the average bear because they want to work for at least another 5 years AND at that point or shortly after they will be taking some social security and won't be drawing the stash as much as the average person here.

Is this incorrect? They want to leave a bunch for us kids (4 total)

Sure, and that's what I'd advise my own parents, but people can look at this in two different ways
1) because they have such a large 'stash and SS within a decade they can afford to be aggressive with almost no chance of portfolio failure
OR
2) because they have so much they don't NEED to have large returns, and could afford to be more conservative, with almost no chance of portfolio failure.

For a nice hybrid approach they could set up a 5 or even 7 year bond ladder.  This will take some of the 'shock' out of a very scary market and allow them to draw only on bonds (i.e. not replenish them) if the market takes a serious dive.

Right, though because it will eventually get passed on, id rather it grow a bit faster over the next 30 to 40 years. It's their money but the life of it is potentially 60 years (to my death) or beyond.  With the rule that it must AT LEAST make it through their lives.

The bond ladder is a neat idea but might be pretty large, if they choose to spend as much in the future.

[nereo]

The bond ladder is a neat idea but might be pretty large, if they choose to spend as much in the future.

It would be at first glance, until you consider their entire portfolio.  A 5 year bond ladder might require $375k, leaving $1.525MM to be invested according to their AA.  That would increase their bond exposure somewhat* but can bring piece of mind to people that worry about down markets. The bond ladder would serve as both a bridge until SS payments as well as a buffer for down markets. The basic premise is if the market tanks they live off the bonds until the market recovers.

*If the remainder of their portfolio were invested 75/25 as suggested their total split would be 60/40, which isn't far off what many use at the point of retirement.

note: this is primarily for ease of mind when you have already "won the game" as your parents have.  If your parents are the sort not to worry about a down market (and more importantly not panic and sell) then by all means plow ahead with a 75/25 AA or similar.  Either way I expect your parents will see their money only increase over their remaining and hopefully long lives.