Moneytalk Bob Brinker Summaries - Information ONLY

Top 37. Dec 17, 1998 7:24 AM

» BillR_5 - 2 Million

Thank you Gene!

Some thoughts on this scenario:

1) If you withdraw 5%-7% of principle, you will run out of money in 15-20 years. You'd better know your time horizon.

2) This is a pretty good income in today's dollars. In 20 years it won't look so good. So if you are under 60, I don't think 2M is enough.

3) Before you fix your income at such a level, I think you need to eliminate all variables. This of course is greatly simplified at retirement, with kids gone and home(s) paid off.

4) Remember when being a millionaire meant you were "rich" or "set for life"? Now the interest on 1M is only a middle class income. I wonder when we'll stop using the term this way. The funny thing is that it's young people who say it.

-- posted by BillR_5

Top 38. Dec 20, 1998 9:17 AM

» LR - Retirement

I think that 7-8% withdrawal from a 2MM portfolio is pretty high to take on a yearly basis! In addition, you have to pay 31+% in taxes (especially in CA) on the GNMA interest alone. I would think the S&P500 would also have some short-term capital gains, though not much.
Then there's also Social Security to consider as income coming in (even if just a little). It's scary to think that 2 Million isn't "enough" to retire on! I guess the real question would be how much income do you need in retirement? 142K is an awfully lot of money...especially if the house is paid off and there are no more college expenses. That may just be too high of a figure to shoot for.

-- posted by LR

Top 39. Dec 20, 1998 10:22 AM

» Oaktoad - Re: living off S&P investments

Taking 5-7% of your original investment would not necessarily mean that you would run out of money in 15 years. If the market goes up by 5-7% you would be just taking "profits". If you own a mutual fund only part of the money you take would be taxable.

Also, you don't really need $2M...esp. if you have your own home and it is paid for. If you are single the first $25K is taxed only at 15%, then over that at 28%. If you plan your withdrawals you may not have to include SS payments as partially taxable....i.e. take a lot one year and include SS payments...take nothing the next and perhaps include no SS payments. Planning can really help here to reduce your taxes.

I live in the Bay Area and figure that I can retire comfortably on about $50k per year as I own my home. I will get about $1300 per month SS and will no doubt work at least some each year after age 65 ... otherwise I will go nuts. This means that I only need about $30 from investments...allow a 5% return and I only need $600K and never have to touch the principal (until I end up in the nursing home...at which point I probably don't have that much longer to live anyway and can start spending the principal)...

Critical mass is not $2M :~O

-- posted by Oaktoad

Top 40. Dec 20, 1998 11:06 AM

» BillR_5 - Critical Mass

Paul,

I'm 43, so 50K today will not be 50K when I retire, although a low inflation rate helps here. Also you're assuming the same tax rates. Guess who they're going after for more money when they want it. Those of us who have "too much" of course.

-- posted by BillR_5

Top 41. Dec 20, 1998 1:00 PM

» DavidJ_6 - Where are the summaries?

I'm still looking for the Money Talk summaries, for the last two weekends.
David J.

-- posted by DavidJ_6

Top 42. Dec 20, 1998 1:44 PM

» RandeS - "Fully amortized," $2 million growing at a rate of 8% would prov

"Fully amortized," $2 million growing at a rate of 8% would provide an annual payout of $187,357.56 for 25 years, leaving zero at the end of that term. Conversely, you could take the annual total return of 8% as $160,000 and not touch principal. Of course, all this assumes you will continue to get 8% per year on average!

-- posted by RandeS

Top 43. Dec 20, 1998 7:53 PM

» Gene - Paul T and LR - $2 M?

You are both asking the right questions and are on the right track questioning if one needs that much $$. Paul - you are right on target with your observations on income, tax and debt issues since what you "intuited" has been my experience. Let me also come at it from another direction, not to tell you which investments will get you more but to maximize the options you have. I realize each situation is unique so this will come from my perspective.

I have always felt Bob's show was the best for the "Total investor environment advice" he gives on this retirement issue. Kind of the "teaching us how to catch a fish idea etc".

I first discovered Bob in 1988 when I was 45 and had been facing 7 more years out of 9 continuous years of college education. My attitude toward investing, saving and budgets was if income minus expense equalled zero, I wasn't losing ground! And of course my company pension would cover all. The recessions of 1989-1992 and subsequent downsizing of American industries quickly disuaded me of that belief (luckily I didn't lose my job).

Cutting to the key points: Bob pointed out the most important dollar saved was the tax deferred one, therefore we maxed out our 401k's and funded IRAs from any free cash or bonuses received first and foremost with no load mutual funds. I wanted to maximize my return without paying the large capital gains taxes in effect back then for taxable accounts. Also if I lost my job, the company match would cover any penalties and I wouldn't lose my house as several of my friends did back then. I had used Managing Your Money since 1987 to budget, obviously Quicken et all are the better current budgetting vehicles.

Bob constantly talked about psychic income from being debt free so we paid off the house by 1997 when I was 55 (regular scheduled time) along with any equity loans used for college, cars etc. I am pretty good with a spreadsheet and "learn to run the numbers" thereby knowing where we stood on a monthly, quarterly and annual basis.

Bob taught me so much about Equity investing and that allowed me to take the appropriate risks for my risk tolerances. Obviously the 90's Bull market was great so I'll claim no insight there. Today I subscribe to Barron's along with other investment vehicles and feel comfortable about making my own investment decisons.

When you had the kind of college bills and potential debt issues we faced, an interesting thing occurred. One learns to live below their means which I felt was a long range blessing in disguise for my subsequent retirement plans. We all worked on this issue as a team and my sons graduated in 1992 and 1995 respectively with "No college debt" and they are greatful for that.

From the "Millionaire Next Door", we never became the High Income / Hyper Consumption folks they have highlighted. That book is a must as far as I'm concerned about understanding the mirage of the awesome American marketing onslaught we all face each and every day. I mean no disrespect to anyone in that area but I wanted to achieve "Financial Freedom at 55" and was willing to pay that price of sacrifice. Kirk has the book for sale, so give him the business!!

Kirk - this may be worthy of a separate site to put up some other examples, since the $2M example has prompted so much interest and followup questions.

Good investing and invite any questions...Gene

-- posted by Gene