<po.ning[at]gmail.com> wrote in message
news:1161359408.700456.267150[at]m73g2000cwd.googlegroups.com...

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Here's the rule of thumb I've been using: If you invest money sensibly, you
can afford to take out 4% of the principal each year and be reasonably
confident that over the long term, the principal (and therefore the amount
withdrawn) will keep up with inflation. If you have a fixed payment, such
as a pension, you can afford to spend half of it if you invest the rest;
doing so will increase your balance enough to let your spending grow with
inflation for the fixed payment too.

Your friend's pension is $3,500/month, or $42,000/year. Half of that is
$21,000/year. 4% of $2 million is $80,000.

So my rule of thumb is that if your friend spends no more than $100,000 per
year, and is sensible about investing the $2 million, he can expect that he
will be able to spend an amount of money that approximately grows with
inflation over the long term. The question for your friend, then, is

Can you live on $100K/year indefinitely, with the amount increasing
approximately with inflation?

If the answer is "Sure, no problem!", then your friend has it made.

Now of course it is possible that the markets will tank. So your friend has
to accept that possibility and decide, preferably in advance, what to do
about it. A well-diversified portfolio of 60% stocks and 40% bonds lost
about 15% from its peak during the 2000-2002 bear market, which would have
meant that your friend would have to have restricted his spending to $89,000
(85% of $80,000 plus half of $42,000). That's not what you call a major
problem.

Lots of other things could go wrong, too. Your friend could put all his
money in the next Lucent and lose 95% of it. We could have another Great
Depression. Terrorists could detonate a nuclear weapon in a major American
city. For that matter, your friend could be hit by a truck. But I gotta
say, if your friend stays up at night worrying, then either he's spending
money like there was no tomorrow (in which case, why worry?) or he's a
habitual worrier who will keep worrying no matter what happens.

Here's a pointer to one investment strategy that I think is reasonable:
http://www.fundadvice.com/articles/b...-strategy.html
I am not a customer of this guy, but I am following his advice. More or
less.

On Fri, 20 Oct 2006 11:35:51 -0500, po.ning[at]gmail.com wrote:

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company funding is for their pension obligations. Try to ascertain
any unfunded liabilities that the company might have to determine how
stable that income will be. In the future he might buck up against a
mean test for SS but with 2M I certainly wouldn't worry

Weathermanbill

<po.ning[at]gmail.com> wrote in message
news:1161359408.700456.267150[at]m73g2000cwd.googlegroups.com...
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We have much less and are retired (I am 60, husband is 51). We are enjoying
life. Why would you think this guy would have a problem?

Elizabeth Richardson

joe.spam.weinstein[at]gmail.com wrote:
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Thanks for your replies. This guy has a pretty frugal lifestyle.
World travels is his only high expense items. I think his highest
annual income is about $80,000/yr pre tax. And he puts the max into
his 401K. So I think he is living on about $30,000/yr. His take home
pay from his pension is going to be more than his take home pay
working. So why is he still working? I guess a lack of a life outside
work. I'll advise him not to die while still working so he and his
wife can enjoy their retirement.

po.ning[at]gmail.com wrote:
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Of course he can. That's more than the vast majority of Americans retire
on, and almost all of his costs will be for discretionary spending.

Keeping in mind that "discretionary spending" is unlimited so regardless
of how much money you have, it's always possible to blow through it.
Let's pick on famous entertainers for examples. Remember MC Hammer,
Can't Touch This?...he blew through his multimillion dollar fortune and
ended up something like $10M in the red. Big mansion, big entourage and
all those big pants I guess. Or Kim Basinger...buying her home town and
going bankrupt in the process.

Does he want to do that kind of silly stuff? Though an "entourage" would
be kind of a fun thing to have.

-Tad

po.ning[at]gmail.com wrote:

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If we follow the rule of 25X, 4% withdrawal, he can tap $80K from the
$2M each year. $42K of pension, totaling $112K/yr of income. You offer
no idea what his pre-retirement income was.
If I assume his wife was a doctor making $300K in her own practice, and
he was a truck driver with a good pension, then they have a lot to worry
about. SS will add some amount, we don't know how much, but the missing
piece to this puzzle isn't even that, it's what was their final income,
and were they living below or above their means.
(If nothing else, this board has shown that replacement income doesn't
work well by formula, i.e. at any income level some may need 100-110%
replacement, others as low as 30-50%, all depending on income, spending,
and lifestyle).
JOE

On Oct 20, 9:35 am, po.n...[at]gmail.com wrote:
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What does his current life style cost? If he likes gardening he's set
for life. If he likes racing cars and wants to start playing
high-stakes
poker he may need to worry forever.

$2 million will easily produce $80k/year forever, and if he and his
spouse
live to be 100 and don't need to leave anyone anything, they could get
lots more. Unless he is extremely unusual, he could quit today. The
pension, health coverage, soc sec and investment income and a
reverse mortgage just for the fun of it when they are 70...

Joe Weinstein

OK I have this friend who constantly worries about his retirement. So
I took a look at his finances. He is married and 60 yr old. Can
retire now but would more likely to retire in 2 years. His house is
paid for (worth about $700,000). He has a pension which will pay him
about $3,500 a month, and provide health insurance for life. He and
his wife both have social security, but I am not sure how much of that
is taxable. In addition, and here is the kicker, he has combined
taxable and tax deferred investments totally a little over 2 million.

So can this guy rest easy and enjoy life? Or should he stay up at
night worrying?