{"id":22942,"date":"2015-04-23T03:22:00","date_gmt":"2015-04-23T03:22:00","guid":{"rendered":"https:\/\/www.annuityfyi.com\/?page_id=22942"},"modified":"2022-12-16T17:24:08","modified_gmt":"2022-12-16T17:24:08","slug":"do-it-yourself-retirement-plan","status":"publish","type":"page","link":"https:\/\/www.annuityfyi.com\/longevity-annuities\/do-it-yourself-retirement-plan\/","title":{"rendered":"One Man\u2019s Do-It-Yourself Retirement Plan"},"content":{"rendered":"
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Baltimore radiologist Dimitri Merine hopes to retire in seven years, at age 63. So he created a do-it-yourself retirement income plan, using systematic withdrawals, dividends, a bond ladder and a deferred income annuity.<\/p>\n\n\n\n

During the 2008-2009 financial crisis, he had the sobering experience of watching older colleagues wring their hands over their investment losses and their crumbling retirement dreams.<\/p>\n\n\n\n

\u201cA couple of my co-workers had to keep working because of the market meltdown. They didn\u2019t feel that they\u2019d saved enough, and they felt too old to implement the strategies that I\u2019m using now. Some of these strategies need a long lead time,\u201d he told us recently. \u201cThat forced me to get moving so that I wouldn\u2019t find myself in the same situation.\u201d<\/p>\n\n\n\n

At a time when most financial advisers are still learning how to combine insurance and investment products to maximize both income and safety in retirement, a few ambitious near-retirees like Dr. Merine aren\u2019t waiting for the advice profession to discover the merits of guaranteed retirement income.<\/p>\n\n\n\n

They\u2019re taking matters into their own hands. Indeed, risk-averse do-it-yourselfers like Dr. Merine are proof that at least some high net worth investors want to get more creative about retirement income. Those who can\u2019t find advisers to help them are helping themselves.<\/p>\n\n\n\n

Goal: $200,000 a year<\/h3>\n\n\n\n

Dr. Merine is a member in good standing of the Sandwich Generation. His father and mother are 77 and 80 years old, respectively. His children are only seven and 10.
\u201cLegacy is a big issue,\u201d he said, though he has not set up a trust or created a formal estate plan. He and his wife have a modest Genworth joint long-term care insurance policy (five-years total coverage at $200 a day, with a simple 5% inflation adjustment and a 90-day waiting period) as a buffer against out-of-pocket nursing home expenses. He contributes to the Maryland College Savings Program at T. Rowe Price.<\/p>\n\n\n\n

He\u2019d like to retire when he reaches age 63, in about seven years. \u201cWhen I began to think seriously about retirement several months ago, I wanted to learn about alternative income methods. My goal was to have a retirement income of about $200,000 a year after taxes, and I wanted more than half of it to come from sources other than systematic withdrawal,\u201d Dr. Merine said.<\/p>\n\n\n\n

While still holding an investment portfolio with his brokerage firm, he looked at three potential sources of retirement floor income, including income annuities, bond ladders, and Social Security. He started to learn about income annuities. He read Annuities for Dummies. Then he made a decision that few people make but which academics almost universally recommend. He bought longevity insurance.<\/p>\n\n\n\n

\u2018Fill in the back end\u2019<\/h3>\n\n\n\n

\u201cThe first step was to fill in the back end, and deal with the late-life issues, assuming I live that long,\u201d he told us. \u201cSo, after learning about annuities, I decided to sign up for a deferred income annuity with payments starting at age 80. I had divided my retirement into three periods\u201465 to 70, 70 to 80, and over\u2014and I wanted to have a specific strategy for each time. From 63 to 65, I\u2019d do systematic withdrawal and dividends, but from 65 to 70 I wanted an additional means of income beyond SWP.<\/p>\n\n\n\n

\u201cThe DIA appealed to me intellectually. It required a relatively small payment upfront. It allows you to plan for a long life, should that happen, and to spend appropriately before you get to the age of 80. As a first step, I sent my information to my financial adviser. He seemed OK with my decision.\u201d<\/p>\n\n\n\n

Today\u2019s low annuity payout rates didn\u2019t deter him. \u201cNew York Life allows multiple premiums on its deferred income annuity, so I\u2019m able to dollar-cost average into the annuity and spread out my interest rate exposure. For an income of $48,000 a year at age 80, the total cost was $125,000. To get there, I\u2019ll make four purchases of about $31,000 over four years. I didn\u2019t necessarily want the death benefit, but for compliance reasons my broker won\u2019t sell a life-only contract. So I was willing to go along.\u201d<\/p>\n\n\n\n

\u201cOnce I addressed that, the next question was what to do about the years between ages 65 and 80. For that period I wanted more than half of my income to come from somewhere other than systematic withdrawals.\u201d Part of the money would come from Social Security, from required minimum distributions from retirement accounts, and from dividends. He wants to keep his SWP rate lower than four percent, because a more conservative initial rate would allow room for increases later, if necessary.<\/p>\n\n\n\n

Building a bond ladder<\/h3>\n\n\n\n

For the rest of his annual income, \u201cI thought about period certain annuities. But I decided instead to do a 15-year bond ladder. I used after-tax money to buy eight zero-coupon municipal bonds, and I bought seven zero-coupon agency bonds in my Roth IRA. The plan is to hold them to maturity, so the only risk is credit risk, not interest rate risk.<\/p>\n\n\n\n

\u201cIt was hard to find non-cancelable bonds; they\u2019re not common. So it took awhile to find the appropriate issues, even with help from the financial adviser. Every day there would be 10 new issues, and one or two would be appropriate. It took a good month to five weeks.<\/p>\n\n\n\n

\u201cInitially, the plan was to use all muni bonds, but I switched to agency bonds, such as Tennessee Valley Authority issues. They were higher quality and easier to buy. I filled in the later years first. As you get closer, you have less compounding and you pay more. I never found out exactly what the commission was on each bond, and I didn\u2019t do a price comparison with discount brokerages. I don\u2019t do a lot of trading, so I pay per transaction.\u201d<\/p>\n\n\n\n

Without going into great detail, Dr. Merine described the rest of his portfolio as a combination of mutual funds (Vanguard municipal intermediate bond fund was one), ETFs (iShares Select Dividend) and individual stocks (Berkshire Hathaway).<\/p>\n\n\n\n

When the financial crisis struck in 2008, Dr. Merine kept his cool. He was still 10-plus years from retirement, so he kept dollar-cost-averaging into the heavily discounted markets. \u201cI held on for dear life. I didn\u2019t sell a single thing. Sequence-of-returns risk wasn\u2019t an issue. In retrospect, it was the right thing to do.\u201d<\/p>\n\n\n\n

Asked why he decided to become such an ambitious do-it-yourself retirement income planner, he told us, \u201cIt\u2019s just my outlook on life. I have a personality that likes to plan things and have a certain level of assurance. You have no idea what the future will bring, so you need to be prepared. As for buying the longevity insurance, it just spoke to me on an emotional basis. It\u2019s a huge psychological relief not to have to plan for those years after age 80. It just makes sense.\u201d<\/p>\n\n<\/div><\/div>\n\n

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<\/path><\/svg><\/span>Related Content<\/span><\/h2>\n\n\n\n
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What is a Longevity Annuity?<\/a><\/h3>\n<\/div>\n\n\n\n
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Top Longevity Annuities<\/a><\/h3>\n<\/div>\n\n\n\n
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<\/a>Invest in a Longevity Annuity<\/a><\/h3>\n<\/div>\n<\/div>\n\n<\/div><\/div>\n<\/div><\/div>","protected":false},"excerpt":{"rendered":"

Baltimore radiologist Dimitri Merine hopes to retire in seven years, at age 63. So he created a do-it-yourself retirement income plan, using systematic withdrawals, dividends, a bond ladder and a deferred income annuity. During the 2008-2009 financial crisis, he had the sobering experience of watching … <\/p>\n

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