$1M-VG, 2017 = Only $25.5K Income & Div.s

Thurston_Howell_IV

Okay, I may be about to retire.
My main nest egg is Vanguard, with about $1,000,000 (I also have about $600K in 401K/Roth IRAs—which I don't plan on touching for several years—and $175K in cash/treasuries/savings bonds).
The Vanguard portfolio breaks down as so:

            Total US Stock- $350K
         Total Int'l Stock-  200
               Energy Fund-   75
                Total Bond-  125
                REIT Index-  150
   (State) Tax Exempt Muni-  100
                           =========
                          $1,000,000

For that $1M, the 2017 Income & Dividends works out to:

                    Taxable- $22.5K
                Non‐Taxable-   3.0
                             =======
                             $25,500

or just over 2.5%!
Even with the low interest rates, I would think that I should be able to get at least 3.5-5%, even while playing it reasonably safe.
Should this portfolio be radically revamped or just tweaked (maybe take 100K out of Total Stock and open a more income/dividend rich index/sector?)?
Or is 2.5% reasonable/acceptable, given current conditions?

sfnative

Given current 10-year Treasury yields I'd say it's right on target. The only way to double that yield (i.e., your 5% notion) is by taking on a lot more risk. You might be comfortable with that.

larryB

I guess that depends on what you call reasonably safe.

davidrmoran

Sorry, perhaps I missed, but have you worked out already how much you need and when and for how long? Are you thinking output stream only and never touching the holdings?

Thurston_Howell_IV

davidrmoran said:

Sorry, perhaps I missed, but have you worked out already how much you need and when and for how long? Are you thinking output stream only and never touching the holdings?

Right, the intent is mostly output stream only (pension from work should be about $1500mo/18,000yr and SS about 1200mo/14,400yr, which the SS I won't be touching for several years!).

davidrmoran

uh, k, so how much do you need now --- cashflow? how old? you can probably be more aggressive, tho it should be what suits. but what are the details here?

Thurston_Howell_IV

I'm early-mid 50s, considering an early out offer. At the moment I don't need that much, but that won't last forever and I want to plan on needing more—say, a total income of about $3-3500/mo before taxes—and just save/invest the excess (which my current status seems to support)—$325K of my 401K is parked in the federal gov. MM "TSP G Fund", waiting for the inevitable market crash (well, at least a 30-40% haircut...though given the runup in the last year, maybe more like 50-60%!
Plus, in 4-5 years I will be eligible for a pre-SS pension supplement of about 1200mo/14,400yr, which would last until I'm 62 and SS kicks in (again, which I don't plan on touching until I'm 67-70, unless life shortening/defining chronic/terminal health conditions become an issue).

davidrmoran

Well, you have to do what is comfortable for you, ... but why with this timeframe are you waiting for a crash???

(Overvaluation, they say, has never been the cause of a bear market.)

So yeah, I would just do it, and invest in equities, broadly and widely.

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MikeM

@Thurston_Howell_IV, if you are in your early 50's, aren't you going to have to pay a 10% penalty on top of taxes from the IRA/401K? Or am I misunderstanding where you are taking money from. Also, if you are working within the tax deferred accounts, why are you making dividend and income a priority and not just total return? Doesn't matter where the return comes from when you withdraw from tax deferred.

johnN

May need to look at private corporate bonds 5%-10% of portfolio. for instance Pick large companies like Verizon sprint macys bbb- or higher rate. Typically yield 5.5%ir higher. Vanguard got many Corp bonds

johnN

B

msf

If one separates from service in the year one turns 55 (even if before one's birthday), then one can tap employer-plan (government Thrift Savings Plan) without penalty.

Pretty much all tax sheltered plans (IRAs, 401(k)s, etc.) can be tapped without penalty so long as one takes "substantially equal periodic payments" until the later of age 59.5 or five years. Section 72(t) payments.

Here's the TSP description of both options and more (annuitization):
http://www.wifle.org/newsletters/december2007/accessingTSPwithnopenalty.pdf

MikeM

msf, I never heard of the annuity loophole before. Here is another article that explains I think a bit clearer.

https://www.personalcapital.com/blog/retirement-planning/can-withdraw-401k-ira-penalty-free/

Thurston_Howell_IV

@MikeM: What penalty? I said in the first post that I have no intention on touching the retirement accounts for several years!