Post New

Interesting Rational Walk post on using Berkshire for an income stream...something I'll need to do eventually.

https://rationalwalk.substack.com/p/berkshire-hath...

regarding Rational Walk's article, I see myself as I'm sure many here also do. (Not Jim, he's already super-rational! Same for Manlobbi, Tex (no more irish?) and I'd guess dealraker -- but his philosophy appears to be never sell anything, ha ha. Apologies to other smart folks not mentioned.)

I will say it's a LOT easier to begin selling a smaller percentage like 3% when you are over 50 and nearing 60 than to do so at 30 or 40. As someone without family genes suggesting the Buffett/Munger 90-100+ age range -- a lack of See's peanut brittle? -- over 30 years of managing my own funds seems enough time to insulate one from quitting retirement to rejoin the workforce. Seeing it laid out so logically should make us all feel somewhat better.

Does it?

SD

It reminds me of Jim's Berkshire annuitization posts from the old board...I saved his two posts knowing I'd need them later in life! I think in his example it involved selling a little bit of Berkshire with no time horizon....you could do it for a thousand years and not lose principal value.

Anyways, I wouldn't mind if the value of my Berkshire went down over the course of, say, 30 years. So what's safe? Maybe 1% of shares per quarter?

thanks for posting

Yes, Jim's annuitization of BRK posts were amongst my favorites. Would be great if you or Jim could share those posts you saved from the old MF boards. He had some superb data with year by year IV, Market price and comfortable draw down guidance which I believe it was as high as 8% on average without losing the initial $1M investment. I recall only a few years where you could only withdraw under 4% based on BRK business performance which seemed around the GFC. I am waiting on my initial draw down until we approach that P/peak BV of 1.55 or so like last Spring. 1% per quarter seems reasonable but I like the thought of timing the sell when closer to its IV. I quoted this from Jim from a previous post:

''So long as a share of Berkshire keeps rising in value at over (say) inflation+6%/year, then one can cash out that much on average without ever reducing the value of the portfolio.
The method proposed automatically cuts the payouts if/when business results falter, though with a
slight lag, so any slowdown in the business becomes a slowdown in withdrawals, not a risk of eating into the capital''

I have both of Jim's old posts and I'd be happy to post here...but maybe first we should get the nod from him.

Thinking out loud....what if I did something like selling 2% worth of IV per quarter (8% per year) PROVIDED THAT the price was above 1.x of BV. In other words establish some floor below which I could my income from other sources.

Tex (no more irish?)

I didn't pay attention that they would be using nicknames when I sighed up. I'm still Irish = O'Brien.

What surprised me is that I was able to get the texirish moniker when I first started using the internet back in the dial-up modem days. That's when I got started with the old AOL BRK board - mid 90's. Spent a year or so getting educated on BRK from people like Tode, Robsny, and many others. I believed WEB when he said BRK was overpriced at $35k in 1995 so I waited until it hit $30k in 1996 to dive in. Missed the first gathering of the Yellow BRK'ers in 1997 and attended my first annual meeting in 1998.

A lot of Irish moved to Texas when the area was still under Mexico - a Catholic country, so a natural choice back then. There's a long history.

https://www.depts.ttu.edu/international/intlopr/k-...

Actually I'm still working on my Texas citizenship. Moved into the state in 1960 so I'm still on probation. But daughter and grandkids are Texan.

Thanks for posting a link to my article. I tend toward extreme conservatism when it comes to spending and most of what I wrote about psychological impediments of doing so without an actual cash dividend stream applies to my own psychology. That being said, I do need a drawdown strategy and figure that Buffett's approach to his charitable giving is quite sound, although I probably will use 2.5% rather than 5%.

For "early retirees", there are several key milestones to be concerned with:

1) Age 59 1/2 when IRAs may first be tapped without penalty.
2) Age 62 when one has the option to take social security.
3) Age 65 when Medicare kicks in and one must be concerned with AGI thresholds triggering higher premiums.
4) Age 67 when "full" social security can be taken.
5) Age 70 when maximum social security benefits are reached and should definitely be taken.
6) Age 75 when required minimum distributions are triggered for traditional IRAs.

I am approaching 50 and keeping all of these milestones in mind as I plan drawdown strategies. I am also keeping in mind the 0% federal income tax rate for long term capital gains and the desirability of maximizing that benefit as long as I am able to, and keeping my AGI below thresholds where higher medicare premiums are triggered in fifteen short years.

Given that a 2.5% rate on my Berkshire is more than adequate for the two decades before I am likely to tap social security, I have few concerns about the future and am not particularly bothered by the lack of "diversification" given Berkshire's internal diversification. I have healthy sized traditional and Roth IRAs as well that I can manage with the knowledge that I have a quarter century before any of those funds will be used and there I can be more venturesome if I desire.

The lack of a cash dividend at Berkshire does not bother me. However, I suspect that regular or special dividends will occur within my drawdown timeframe. If that happens, I plan to simply deduct the amount of the dividend from my annual drawdown. For example, if there is a 1.5% dividend starting in 2028, my drawdown will be 1% for 2028, etc...

Many in the "die with zero" camp would criticize my conservatism since, barring some catastrophe, I will certainly die with a positive net worth. This does not bother me for two reasons: First, I have seen what old age can do and it is cruel ... should I end up in a bad health situation, I wish to fund in-home health care and that is unbelievably expensive. Second, I happen to want the individuals who will inherit the residual of my estate to have financial security and it doesn't bother me in the least if they enjoy Berkshire shares with a step-up in basis at my death. I live very simply, need very little, and take to heart Jack Bogle's mantra of knowing what is "enough".

This thread interests me greatly.

Big thanks to RW for the article and to the original thread poster.

The strategy strikes me as intelligent.

I'd like to hopefully contribute to the conversation by pointing to this online calculator: https://www.omnicalculator.com/finance/retirement-...

Since I'm on the edge of locking the door behind me for the final time, I'm always looking for tools to help me understand how long hoarded shares/money will last. This one strikes me as one of the better i've found. But, not being a mathematics expert i'd appreciate knowing if others find it helpful as well...and if its accurate.

With a very concentrated portfolio where BRK is 57%, a 'rational' draw down strategy that favors tax minimization is my current laser focus.

Cheers.

m

This is also making me rethink how much cash and cash equivalents I want to have on hand at the beginning of retirement. I was thinking 3-4 years. But perhaps that's too much. In Jim's posts he talks about a 1-2 year buffer being adequate if BRK is going to be relied upon for income.

This one strikes me as one of the better i've found. But, not being a mathematics expert i'd appreciate knowing if others find it helpful as well...and if its accurate.

FWIW

My wife and I are in our early 60s (well, maybe closer to mid-60s) and I've been retired for five years. I was always the principal breadwinner.

Our core portfolio is around 50% BRK.

We sell 1% of our current Berkshore shares each quarter, which funds something over half of our living expenses. Last time I looked (Jan 1) the nominal and inflation-adjusted value of our BRK stock is higher than the day I retired.

So, for us it's not theoretical, but something we've executed, have bet the farm on, and is working well so far.

From a tax perspective, it's a question of selling the lots selected with the bases to maximize the tax advantages each year.

One point I'd like to reinforce re: seminal dates (65 = Medicare, 70 = maximal Social Security benefit, etc) is the positive impact on cash flow going from a high-deductible Obamacare plan to Medicare. We have a couple of expensive prescriptions. We're projecting our annual out-of-pocket health care costs will drop by ~60% in a couple of years, when we're both over 65. Right now...well, let's say it's not as expensive as having a kid in college, but is a little bit more than our grocery bill.

--sutton

Re how much cash to hold, it seems to me that how well one in insured against unexpected financial difficulties is a major factor to consider. Medical, liability, etc. Some of the medical miracles of today can be pretty expensive. And some jury judgments seem incredible to me.

Not trying to work the problem, just bringing it up as one of many factors that cold enter into deciding reserve cash one needs.

I view it all as having added protection against being forced to sell assets at the wrong time.

On Medicare it is important to note that the surcharges are calculated based on a two year loopback on reported income. So basically something to monitor in the year you are 63.



The Social Security Administration (SSA) determines if you owe an IRMAA based on the income you reported on your IRS tax return two years prior, meaning two years before the year when you pay the IRMAA. For example, Social Security would use tax returns from 2022 to determine your IRMAA in 2024.

Just following up on the reference to Jim's BRK annuitization posts on the old board:
If they are not posted on this board, would there there still a way to access them via the datarama archive?
Thanks.

Post New

Stanley Black & Decker FAQ

---

Contact Shrewd'm
Contact the developer of these message boards.