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A married couple, both aged 82, have a portfolio of $10M, some in brokerage and some in tax deferred accounts (IRA). They have $70K a year in Social Security.
In addition to the Social Security, they want an additional $150K/year in pre-tax income for a total of $220K/year in pretax income.
What is the standard advice for how to get this additional income in a way that is “guaranteed”?
Their SS is $70 K. Their IRAs must be throwing off some RMDs at this point, but we don’t know how much that is. Let’s just say it is $50K. That’s 120K. That is also more than half of their highest figure ($220K) and is already 80% of their lowest figure. They might have some bond funds or income funds already that could easily make up that difference, but if they don’t, it is easy to choose one or two such funds, and have the income deposited each month in their checking account. In this way, their large nest egg might barely be touched.
They could annuities, either a SPIA or QLAC, or a TIPs ladder or a combination.
Thank you
I have to say some of the responses seem a bit unwelcoming. If I may humbly suggest, rather than criticize a poster’s question, one can just be quiet.
Thanks, Michael1. We need to be better.
Agree with the confusion about the question – without context it’s a strange one.
If the author is one of the 82 year olds, I have to wonder how you amassed $10MM in assets and probably are quite a few years into retirement, without knowing the answer to this question or knowing where to get the answer.
If they are posting on behalf of someone else (elderly parent or family member) – then why? Is there concern that they are no longer capable of managing their finances and are possibly being taken advantage of? Alot of questions.
Is it just a hypothetical question?
No matter the reason – without context and further information there really isn’t a standard answer, other than with $10MM there are many relatively easy ways to generate a safe $150k/year.
I can’t even wrap my head around the question being asked it why it’s even a question being asked
I am confused by this question. If they invested the entire $10M in a 60/40 diversified portfolio, they could easily earn $250-$300K/yr. in dividends alone. In addition, their portfolio should be growing at about a 4-5% rate each year. And, to make this really simple, they could achieve this using a single Vanguard balanced fund which would cost little in fees.
They could put it in a money market and have more than they want
it’s a pretty silly question isn’t it?
t bills would easily accomplish almost triple what they’re seeking.
I personally, around age 65 went with the Buffett advice, but modified from 90% S&P and 10% short term government bonds, to 85% S&P and 15% cash to tide me over to not sell anything during a downtrend. It was a tough go through 2000, 2001 and 2002 when I lost 45% of my brokerage account! The secret, I sold NOTHING, and have increased that account about 10 fold since then. You have to be disciplined. Best to all.
What do they perceive as “guaranteed income” and why do they want it?
The simplest guarantee to find is FDIC coverage, as long as they trust the US government guarantee of their CDs. The guarantee from Fast Freddy’s Friendly Annuity Company might be something else.
Unless they have a goal to leave a legacy equal to the assets they have today, I don’t understand the why.
That was my thought, Mark. Interest from CDs or fixed annuities would easily cover their distribution. They would have to spread $10 million far and wide to have it all insured.
Why buy the annuity? It adds no value, just cost.
A fixed annuity has no “cost”, other than surrender fees if you cash out early. It operates the same as a bank CD
I too prefer safety. Guided by Bill Bernstein’s writings on this topic, I would opt for 70/30, with $3M in an 18 year TIPS ladder and $7M in a mixture of domestic and international stock index funds. I could sleep very well at night, knowing I will receive guaranteed, inflation adjusted annual payouts until age 100, and not need to worry about stock market price fluctuations. Very few people are this well off where they need only 1.5% per year!
Thank you, your response is along the lines of what I’m thinking: TIPS ladder + VTWAX + cash.
A couple of questions:
Since portfolio horizon is a critical variable, and the couple are each 82 years old, 18 years would carry them to age 100 which should be sufficiently safe.
For a person or couple much younger, a longer ladder would be warranted.
I don’t strictly follow Bernstein’s advice but he has definitely influenced my behavior, for the better. He explains it better than I ever could, and backs it up with evidence contained within peer-reviewed publications. Read Bernstein as suggested below by Parkslope!
Bernstein’s revised edition of The Four Pillars of Investing has an excellent treatment of how to create a “guaranteed” flow of income. He prefers TIPS ladders but isn’t against annuities.
A nice problem to have!
Warren Buffets advice for his family’s wealth management after his passing is, “Put 10% in short-term government bonds and 90% in a very low-cost S&P 500 index fund”.
No offense, but they’re 82. Are they worried about running out of money? Spend what you want…and then spend some more
Divide 18 into their assets and they can have $500,000 plus each year to age 100. Or, just take the $150,000 anyway they like. How much more of a guarantee do they need?
RMDs + dividends/long term capital gains should be a pretty safe way to get there.
I don’t know about “standard” advice but with such a low withdrawal rate required (1.5%) and a substantial portfolio, if it was me, I’d use $3-4M in a combination of Treasury bonds, CDs, and a SPIA to generate the $150K with near-certainty. Then keep the rest invested for growth and inflation protection.