I thought I would highlight the situation of the doctor who posted because we occasionally receive requests for more posts about doctors who are in the cusp of retirement or have already retired. Bogleheads Forum I’m looking for advice. Related materials for the post were as follows:
“I’m a divorced doctor with a partner who lives separately in a similar amount of assets as my 74-year-old retired divorced two sons. I currently have $2 million in investments with an advisor who charges 0.7%. I have two homes. I’m worth about $1.8 million each. For now, I don’t have to wait until I do art for my kids.
I was hoping to follow the 4% rule, but I feel that 5.5% is needed to cover the costs. I was in a 60% stake before Covid. In mid-2022, 90% of the stock was sold. Because I couldn’t afford to quit. Now I’m back in stock at 20% of my portfolio (all big companies including LLY, NVDA, Google, Meta, V, MSFT, Cost, Adbe, AMZN, AAPL). I’m thinking of switching to Bogle Vanguard Index Funds —EG [a] 3 or 4 fund plans. But since I’m actually retired, does this give me a 5.5% return?
I know I save on administrative fees, but I think I need to get into my capital, so what does Bogleheads recommend? Are there any other recommendations not only for retirement, but for people who are actually retiring? I need to get a Vanguard Personal Advisor, will you send me cash every month? If I need to make changes, can they be reached? Sometimes I feel that Bogle plans are all-rounder. And in this world state, I feel it will help me financially adjust to a good economy that could get worse depending on the pandemic, war, and now the state of the world! I don’t want to run out of money! ”
I think there are nine things to learn from this example. For this doctor and others, for those who are not yet at this stage.
#1 doctor can retire with big wealth
The doctor doesn’t seem to have any particular knowledge of personal finances or investments, and doesn’t seem to be doing a particularly good job of managing her assets so far. But despite doing that and perhaps cutting her assets in half with the divorce, this document still has a net worth of around $5 million. Imagine how much it could have happened when combined with a dose of financial literacy managed early in her career.
#2 It’s very easy to become “poor house”
The poor in the house is when you have lots of wealth, but it’s all tied to your house. In this doctor’s case, her two homes are tied to $3.6 million, but her remaining assets totaled just $1.64 million ($2 million in investment minus a $360,000 mortgage). $2 million is a big portfolio, but not if your home is asked to support a lifestyle that includes twice that. If you sell any of these two homes, the property-to-home ratio changes from $1.64 million/$3.6 million to $3.4 million/$1.8 million. It’s dramatically different. Robert Kiyosaki may not have done everything right, but he was right about the house where you live in being a consumable item rather than an investment.
For more information, click here:
How to buy a house the right way
#3 You can do anything you want, but not everything
This document has many financial goals. She wants to withdraw 5.5% from her portfolio. She wants to give her son $100,000 and cover the childcare. She wants to maintain both homes. She married her current partner and does not want to combine assets with housing. She wants someone else to manage her investment. She doesn’t want to run out of money. She could do one of them. She was able to do most of them. But she probably can’t do all of them perfectly. She has to decide what her priorities are.
#4 Remove debt before retirement
Paying a mortgage in the 70s is a drug. It’s your cash flow resistance. I don’t know what the monthly payments for a 3.1% $360,000 mortgage are, but let’s say it was originally a 30-year mortgage of $700,000. The principal and interest payments for this amount to $36,177 per year. The return on mortgage repayments is 3.1% (or even less after tax), but the cash flow released would be like 10% ($36,177/$360,000 = 10%). It beats socks from 5.5% and 4% less.
#5 Lots of “financial advisors” suck
The “financial advisor” charges $14,000 a year, allowing the investor to sell low and now encourages him to buy high prices. That’s awful stock market behaviour. What are the points of an advisor that you can’t prevent clients from doing that? And if you are taking control of your investments yourself, why hire an advisor? How about picking individual stocks and tracking performance? There’s one thing to do with too much for good advice. Paying a lot for bad advice is completely different, not just low enough for advice or services like the ones that this document gets. If this document has been using index funds for the past 20 years and has been able to curb bad investors’ behavior with the help of a good advisor, her nest egg could easily be twice or three times bigger.
For more information, click here:
The perfect financial advisor
How do you know if you’re getting good advice at a fair price?
#6 Too many elderly people don’t understand the 4% rule
The 4% guidelines basically predict that they will withdraw 4% of their portfolio by 4% per year, adjusting upward for inflation each year, and expecting it to last at least 30 years. How do you apply it to the life of a 93-year-old client? You don’t. It does not apply. That 93-year-old has no intention of living another 30 years. They probably won’t live another five years. Let’s go back to that Trinity chart and see what it says about its short vision.
Note that this study did not even bother to look at the five and ten years periods. The shortest time on the chart is 15 years. There is nothing useful for a 93-year-old here. But I am willing to go out here on my limbs and say that the 10% withdrawal rate for 93 years old is completely reasonable. It will probably last another 8-15 years, and it will be enough.
How about 74 years old? What is the average life expectancy for a 74-year-old woman? It’s been 13 years. It’s not strange to use the 15-year line in Trinity Research. You can use a 20-year line, or you can use a 25-year line, or you can use a 25-year line. If she has a 50/50 portfolio, she can expect to withdraw 7% per year, which lasts 84% of the time for 15 years. Take that down to 6% and it’s certainly going to make it. So 5.5% is not an issue. Even if she has lived for 25 years, 6% will work 70% of the time (and 5% will work 87%).
#7 It’s okay to use your capital
I don’t know where the old saying came from “not using your capital,” but I think it was from many immortal vampires or something. The rest of us will die at some point, and we may be lucky enough to be heirs to someone who we all thought was not to spend our capital. If you have a $2 million portfolio and don’t use capital, you can leave at least $2 million left to spend yourself or give it to a charity with warm hands. It’s probably like $4 million. Plan to spend some of your capital in a reasonable way during your retirement. It’s okay; you will not live forever.
#8 one-size-fits-all is probably a great way to manage your money
The investor feels they need a separate portfolio (a portfolio that can be adjusted for a pandemic, war, or a good economy) and an advisor that can be reached when there is a need to make a change. That’s probably not true. The honest truth about asset management is that we all could possibly be thrown away. Vanguard Lifestrategy Moderate Growth Fund (VSMGX) (or maybe a conservative growth fund if you’re 74). Seriously. What is reasonable, what is reasonable, when combined with appropriate funds and a reasonable withdrawal rate. It probably only requires an advisory fee and hassle, as you think you need something special.
For more information, click here:
Retirement costs are incredibly tax-friendly
A framework for thinking about retirement income
#9 Spire is perfect for those worried about running out of money
The great fear of this document is running out of money. She never actually runs out of money for social security. But she doesn’t need to put the floor on her spending that low. She can raise it with a single Premium Instant Pension (SPIA). A 74-year-old woman purchases SPIA 9.2%. Let’s say she earns $40,000 a year in Social Security. She takes $500,000 of that nest egg, and then buys a Spire and can raise that floor from $40,000 to $86,000. No, that SPIA is not adjusted to inflation like Social Security (which is why delaying Social Security to 70 is the best SPIA you can buy), but she is also 74. If you use a portion of your nest egg to pay off your mortgage and use a portion of your nest egg to buy a SPIA, you will find that you can easily consume 6%-7% each year and use it without too much fear.
The extinction stage can certainly be more complicated than the accumulation stage, but this is not rocket science and is much less nephrology. You can understand that, and even if you need a little help, you can find someone who can provide that help at a fair price.
What do you think? What kind of takeaways can you take from this real life example? What advice would you give in this document?
