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@davfor, Thanks for your income recipe. I remember @rono always mentioning - "invest in what you buy". Your healthcare comments make me think that a health fund would serve almost all retirees well. My thought...add VGHCX or PRHSX to this recipe.
Also, you mentioned that you are managing this portfolio for your sister. This is as important as the income recipe - who will manage this portfolio? Even Warren Buffet has toiled with this concern (portfolio management) for his wife's portfolio and he suggests 90% SPY and 10% ST Bond (cash).
I believe she would take her yearly withdrawals from the cash side, then re-balance the portfolio once yearly.
@davfor Thank you for your advice. As you manage your sister investment what is an average withdrawal rate to compensate expenses and to refill her emergency fund ? Does her portfolio balance gradually decrease and, if yes, how many years you plan to get income from the investment?
My previous comment mentioned the need to consider reasonably foreseeable increases in medical expenses. This item is meant to include any reasonably anticipated transition from independent in home living to assisted in home living. It also includes any reasonably foreseeable transition to an independent housing facility as well as to an assisted care group housing facility or to a nursing home....
I must have been writing my comment above when you were posting your questions. The cash is left in her brokerage account for use as needed -- mostly for monthly release via checks to pay for living facility expenses and supplemental in-room care expenses. Her SS income takes care of food not provided by the facility, medications, insurance payments, clothing, hobby supplies, other day to day expenditures, and some of her in-room care expenses. I just finished replenishing the cash portion of her account as part of the year-end portfolio rebalancing process. The current withdrawal rate is approximately 8% of the start-of-year account balance. The account balance increased slightly during 2017 due to investment returns. When (not if) the markets get upset, the account will trend downward -- at least for some period of time. The rate at which it will trend downward will be in part dependent on whether there are significant future increases in the level of her required living facility expenses. The level of stocks in her account will probably get ticked up slightly following any substantial stock market correction if the level of her living facility expenses does not dictate more conservative positioning for her account at that time. I hope this helps.....
@davfor- You are doing your best to provide forward-looking resource management for your sister, with an eye towards compensating for future market changes, and I think that this is essential.
Earlier DavidV remarked that "He will get help in portfolio management." Because of the importance of this, I had asked him to give us a little more detail. Will he have the benefit of a professional manager of some sort?
@Old_Joe@DavidV Good point to circle back to. Management of an account such as the one being discussed will probably be a multi-decade job. So, its important to focus on that topic. A quick check of the Fidelity website indicates that consultant services are provided for an account of this size. As I recall from a discussion with a consultant there a couple of decades ago, ongoing detailed account management services would be available for a fee. Talking to a Fidelity rep and/or to other brokerage reps is a good idea unless arrangements for long term portfolio management have already been made.
@Old_Joe@davfor Thank you for emphasizing importance of professional portfolio management in that case. Frankly speaking, I was thinking of doing that myself and to help him to save on fee. That was one of the reasons I posted the question. I see now how many important issues should be taken into account and I am less certain in that decision.
I think everyone is kind of agreeing that it is going to be a tough deal to get 4.8%.
My vote would be something really simple. Keep about 50K in cash (money market for half and 1 yr CD for the other half). The rest of it could be basically on auto-pilot. I'd use Vanguard or Schwab index funds and do a straight 60-40 stock/bond split with a rebalance once a year when taking out the next year's living expenses.
If you wanted to get a little more creative, read Paul Merriman's website. He has a more elaborate breakdown of the investments (introducing some foreign stocks and bonds and adding a small cap value tilt), but still using index funds.
Comments
Also, you mentioned that you are managing this portfolio for your sister. This is as important as the income recipe - who will manage this portfolio? Even Warren Buffet has toiled with this concern (portfolio management) for his wife's portfolio and he suggests 90% SPY and 10% ST Bond (cash).
I believe she would take her yearly withdrawals from the cash side, then re-balance the portfolio once yearly.
KISS
Couldn't resist.
https://interactive.researchaffiliates.com/asset-allocation#!/?currency=USD&model=ER&scale=LINEAR&terms=REAL&type=Equities
That's not to say these valuation models will be right, but it beats just looking at past performance.
I must have been writing my comment above when you were posting your questions. The cash is left in her brokerage account for use as needed -- mostly for monthly release via checks to pay for living facility expenses and supplemental in-room care expenses. Her SS income takes care of food not provided by the facility, medications, insurance payments, clothing, hobby supplies, other day to day expenditures, and some of her in-room care expenses. I just finished replenishing the cash portion of her account as part of the year-end portfolio rebalancing process. The current withdrawal rate is approximately 8% of the start-of-year account balance. The account balance increased slightly during 2017 due to investment returns. When (not if) the markets get upset, the account will trend downward -- at least for some period of time. The rate at which it will trend downward will be in part dependent on whether there are significant future increases in the level of her required living facility expenses. The level of stocks in her account will probably get ticked up slightly following any substantial stock market correction if the level of her living facility expenses does not dictate more conservative positioning for her account at that time. I hope this helps.....
Earlier DavidV remarked that "He will get help in portfolio management." Because of the importance of this, I had asked him to give us a little more detail. Will he have the benefit of a professional manager of some sort?
My vote would be something really simple. Keep about 50K in cash (money market for half and 1 yr CD for the other half). The rest of it could be basically on auto-pilot. I'd use Vanguard or Schwab index funds and do a straight 60-40 stock/bond split with a rebalance once a year when taking out the next year's living expenses.
If you wanted to get a little more creative, read Paul Merriman's website. He has a more elaborate breakdown of the investments (introducing some foreign stocks and bonds and adding a small cap value tilt), but still using index funds.