I’ve learned a lot over the years on equity investments and done well. But the fixed income area Ive frankly never used.
So, now it’s catch up time. Fixed income and distribution of the wealth.
When I started seeing that I knew most of the concepts that planners focus on, I took the Series 65 practice test for Registered Investment Advisor and scored a 75, just passing. I’m thinking about taking some CFP classes, and credentialing the RIA to assist retirees when I get to Florida.
My take on fixed income and distribution of wealth:
1. Have a withdrawal plan that's carved in stone in yours and your wife's minds. I like the 4% annual withdrawal strategy, whether you do it annually so you don't look at your investments every month (and are tempted to freak out if they're down) or you do it quarterly (1% at a time) or monthly (0.33% at a time) so that that year's worth of withdrawals stay in longer to keep earning money. The point is, make sure you're not tempted to spend a chunk of it to buy an RV here and a vacation home there only to not have much left to live on.
2. Diversify, diversify, diversify. I use 48 mutual funds, 25% of them (12) I call "safe" funds because they're in corporate bonds (long term, short term), treasuries (long term, short term), money markets, and municipal bonds. A 4% withdrawal strategy can pull for 6 years from nothing but the "safe" funds if we have a yuuuugee stock market downturn (and I want to avoid pulling from the equities funds until they go back up so I'm not selling low). Plus, the fact that the 75% of equities funds (for this discussion I'm counting my high-yield bond fund as a growth fund even though it's not equites) are spread out among 36 mutual funds of many different asset classes gives me more diversification. Basically, it's extremely rare for all 36 of them to be down (great depression). Some of those are blue-chip and high dividend funds to get some of what a lot of folks want in retirement stocks. For my mother I simply spread her investments out equally 2.08% each (48 funds is 2.08% per fund spread out evenly).
3. When you do your withdrawal, simply withdraw from whichever funds are high at the time. For whatever reason (if you believe what you see on CNBC or read on marketwatch.com or fool.com or whatever) they're high. It doesn't matter why some are high and some aren't. When you withdraw from the fund(s) that have the highest balance you're selling high -- that's all that matters. There will almost never be a need to rebalance because you're always selling from the high funds, which keeps your funds from being too out of proportion. If your dividends fund is high (because of companies recently paying dividends) then withdraw from it. If not, withdraw from another fund and those dividends will be reinvested to buy more shares (more dividends in the future).
4. If you have a combination of pre-tax and post-tax investments, pay attention to current tax rates. Basically withdraw from taxable investments during low tax years (as long as the Trump tax cuts stay in place) and withdraw from the after-tax investments during the high tax years (either something in your life put you in a high tax bracket such as selling a house within a year for a huge gain, or the Democrats raise our tax rates on "just the rich" even though that always meant my taxes went up even back when I was making under $7/hour).