Umbrella Insurance Policy

No, I don't work for an insurance company, but I'm going to mention something to consider if you have

your home paid off and your taxable brokerage account is growing.  

One of the few advantages your 401k/IRA has over your taxable accounts (savings/checking/brokerage) is that it is protected against lawsuits.  That means someone could sue you for everything but can't touch those retirement accounts.  So what do you do if you have a decent amount put away and a home?  You could lose it tomorrow in this litigation-happy country.  Or, for a few hundred bucks a year, get an umbrella policy.  

I'm not a fan of insurance - I know all the insurance companies do is invest your money in dividend stocks, then pay you from the dividends they receive.  That's why I talked my wife out of a term life insurance policy and she put it into dividend stocks.  That's why I pay legal minimum liability insurance on used cars I pay cash for (and can replace if repairs cost too much).  That's why I get the lowest home insurance for my condo.  That's why my kids will keep their driver permits until they leave the house (then they can get a license and pay for their own insurance).

I'm not a cheapskate, really I'm not.  I just think that money can be used to buy my own "insurance" via dividends instead of lining someone else's pocket.  Heck, I invest in an insurance company for dividends, and they are the only ones who pay bonus dividends (Old Republic ORI).  This is why an umbrella insurance is perfect for someone who doesn't want to waste money on car/home/life insurance.  

Another option is to start a business/LLC and put everything under it, but then there's business insurance and other costs you would pay anyway.  So, not going that route, here's how this policy can protect your assets, for much less than what you would pay for full protection on your car/house/life:

• Someone gets hurt on your property (even people you invite over)
• You cause a fire that damages neighbor's homes (listen up condo people)
• You crash a boat or RV you rented on vacation
• Your teenage driver hits a pedestrian
• Your dog bites someone and you get sued
• You post a review on Yelp that is negative and you get sued for defamation

You might say "Hey, I have insurance that covers some of that stuff", but your insurance has limits.  This goes above and beyond those limits up to a million bucks.  Now, my net worth (minus retirement accounts) isn't near that much, but it will keep me from getting my wages garnished after I lose everything else.  And I get to SWAN (sleep well at night).

With inflation rising, evictions starting tomorrow, and crime pretty much all over the place these days, it is good to have SWAN insurance to go with my SWAN stocks.  I like to look at it as retirement insurance - protecting my income.

I have also been assembling my retirement budget, so I know the bare minimum I will need to survive.  The good news is, my dividend income is almost at that point.  Once I have the bills covered by my taxable account, I can then pursue other things with the money from my 72(t) disbursements (see last month's blog).  That should hold me for 10+ years, then social security will kick in at 62, and there will be a 3rd source of income.  I will attempt to share my budget next month.  "But what about inflation affecting your current budget."  Listen, folks, if inflation is going up by 6%, and I'm getting dividend increases greater than that, I think I can handle it.  Dividends make future budgeting so easy... see if you can pay for today, because then you sure as heck can pay for tomorrow.

The delta variant is on the rise, and it looks like the vax people are in danger as well (1% of those vaxed have caught it so far).  That coupled with misdiagnosed fall flus and colds will make this an interesting year.  Most businesses will refuse to close, and will prefer to have you sign a waiver and mask up.  I hope this blows over in 3 years when I retire....

Dividend Increases & Special Payouts

Essential Utilities (NYSE:WTRG) declares $0.2682/share quarterly dividend, 7% increase from prior dividend of $0.2507.  Drink more tap water, use more gas.  Please.

July Purchases:

• Verizon (VZ) - 10
• Main Street (MAIN) - 3
• Omega Healthcare (OHI) - 4
• Chevron (CVX) - 4
• ONEOK (OKE) - 7
• Wisconsin Energy (WEC) - 5

Retirement figured out! Target breaks my personal dividend increase record!

 Well, I was going to start a several part blog post about various retirement schemes for the FIRE set, and consider the pros and cons of all of them.  Instead, I found the perfect escape hatch for me in the process, so I will just post about that instead.  After all, it is my blog.  I cleared it with co-workers, discussion groups online, and of course my wife.  It is pretty simple, and although it isn't perfect, it is pretty darn close.  And it is very rare - because it involves 72(t) AND dividends, as opposed to one or the other.

And let the music commence:

This does not work for everyone, but it works for me, where my plan was to empty my 401k/Pension and buy dividend stocks in a taxable account.  Unfortunately, at 51, I can’t take out my money all at once without the mandatory 10% penalty and ending up in a higher tax bracket for a year (or 2 years if I bridge December/January withdrawals).

But what if I could buy all those dividend stocks after my rollover to a traditional IRA, then take out dividends every month (or weekly or annually, my choice) without penalty, and only paying income tax on those dividends, which will keep me in a specific tax bracket during the process?

What if I could keep my money in those stocks without having to sell them if the market is down, and let it grow with the market, while dividends grow as well?

Then what if I could change that amount of money during my trip to 59 ½ years old (alas, only one time allowed to change the amount disbursed from the IRA).

Let me introduce you to the SEPP 72(t).  The method the IRS allows you to remove from your 401k if you are 45, fired in the tech field, and are not economically viable to get another job, yet can’t claim disability.  You have to use it for 5 years, or until 59 ½, whichever is longer.  For me, it will be the longer.  Today, I will show you how I will use this method to my benefit.

 Please utilize it to fit your situation, or at least poke holes in it, because I haven’t found many at all (cons listed at the bottom).

Mad Fientist’s flowchart (https://www.madfientist.com/how-to-access-retirement-funds-early/), modified by me.  Click on it to expand size.

1.  I retire at 50 or 51.  Kids are out of the house, debt-free, big purchases paid for.

2.  I Roll over my 401k and pension into a traditional IRA with my broker.  My broker said they can help with initiating the rollover 2 months before retirement.

3.  I invest my IRA in the quality dividend stocks I know and love to earn 4% yield on average (I may adjust up to 5-6% depending on the environment and my annual needs).

4.  I leave some cash in the IRA for the next 3 months of equal disbursements (most dividend stocks are quarterly, so the ball really needs to start rolling after 3 months).  There is room to play with this part, but I don't want to exceed expected dividends on my disbursements expected.

5.  I file for a 72(t) (file early to get equal disbursements each month) using this amortization table to determine how much I *must* take out each year: https://www.bankrate.com/retirement/calculators/72-t-distribution-calculator/  I suggest a tax advisor setting this up, as if you take out too much or too little, you will get the early penalty.  Keep in mind the “Reasonable Interest Rate” is 120% of the Fed’s mid-term rate.  Right now the rate is low, so in 3-4 years, it will hopefully bounce up for more money per year.  Fed’s midterm rates can be kept track of here:  https://www.pbgc.gov/prac/interest/historical-applicable-mid-term-rates  You get to choose from the previous 2 months which rate you want to use (optimally the higher of the two – and even better if you wait for a good one).

6.  The amount I withdraw each month, is equal to or less than the amount of dividends I receive that month.  That way I don’t need to sell my holdings in a down market, like most people need to do.  Since some months may pay more than others, you will need to have that cash on hand in your IRA I talked about in step 4.  As long as dividends exceed your disbursements, and they eventually
will, this shouldn't be a problem.

7.  Keep an eye on midterm rates once starting the SEPP cycle.  As your IRA weight and dividends increase over time, you get one opportunity to change the amount, so you can upgrade once during your 72(t) “lockdown”.  Adjust accordingly to stay in the tax bracket you want (https://taxfoundation.org/publications/federal-tax-rates-and-tax-brackets/).  You can always use HSA until 65 to hide money, and of course, charitable contributions, which can be tricky with the standard deduction already eliminating your taxable income.  Please consult a tax expert for your specific situation.

8.  I continue to live off these SEPP disbursements and my taxable dividend account with my brokerage combined income until 59 ½.  At that point I have other options.  At 72 I have to start taking money out… even if I don’t need to.  

Pros:

• I avoid the 10% withdrawal penalty.  You can do this plan without the SEPP so you have no limitations, and just pay the penalty when you need money, it’s not a big deal sometimes, and I may consider it, so that way I can take out more as my dividends increase, it will depend how much money I need and how much is in my IRA at age 51.

• I never deplete my IRA holdings as long as I receive more dividends than I need to pay out per the IRS.  My IRA is untouched until 65, it grows, and dividends increase, which makes it grow more as I reinvest.

• My money is safe from lawsuits in an IRA.  This means I don’t have to run a business with ROBS, start an LLC, etc.  I might want to get an umbrella insurance policy for my non-IRA holdings and house.  Best rule is not to flaunt your wealth, as you become a target.  ROBS or an LLC are good if you want to write off your house and expenses (like Musk does).

• I avoid market volatility (as dividends do).  Since most people sell their securities to fund a 72(t), I am living off the dividends of my securities, and not at the whim of the value of my securities.

Cons:    

• The amount is FIXED, and except in the case of hardship, that is ALL I can take out.  However I think I figured out a way to work the system with my health share to get money out for medical purposes from my IRA/HSA.
• Excess dividends (due to inevitable increases) I can’t pull out, but I can reinvest them in my IRA, which gives me more when I hit 59 1/2.
• Jumping to the next tax bracket (in case the brackets change), a nice problem to have if you have a lot in your 401k/SERP to allow for a large SEPP disbursement, but depending on your situation, you might be able to use your one time change to actually *lower* your disbursements.  Externally I could just liquidate a few underperforming dividend generating shares, or donate a lot to charity.

This works anytime you leave your company: retirement, fired, quit, etc.  While I am not yet ready to live with a lower income (kids need to leave the nest first), it is nice to know this is available to help pay the bills between jobs as layoffs can happen.  You might be able to do it right now... there's a lot of people out there with larger 401ks than me.

 The step my wife and I are working on now is being mentally ready for retirement.  This means strengthening relationships (family and friends), planning for lifestyle changes, possible health scenarios, not tying personal worth to a job, etc.  I suggest anyone retiring to prepare for the psychology as well!  There’s books, read ‘em!

Please comment if you see a hole in my plan.

And now back to my regularly scheduled blog :)

Inflation is increasing.  My personal portfolio is on a Bull streak, smashing the previous record of 7 months of increases.  That isn't good.  That means stock prices keep going up, and yields are going down.  So I am taking a breather this month, and for the foreseeable future, from buying too much.  I will continue to increase my Verizon holdings to match the others for diversity, then bring up some of the laggards.  Meanwhile, I will work on the condo for the last remodel and some outdoor furniture, and pay down debts incurred from this.  With my 72(t) plan, I'm feeling a lot better about my retirement income, and surprisingly, my 401k (which I still dislike, and the company that manages it).

The Great Reopening is in full swing, and the market has it already built in.  Target, now a major player in the consumer discretionary sector, increased their dividend by 32.4%!!  That beats Abbott from before.  Truly a beautiful sight!  Imagine getting a raise like that from work without a promo or job change.  No, I can't imagine it either.

My annual dividend income is officially in the lowest U.S. income tax bracket.

Dividend Increases & Special Payouts

Uh, yeah..

• Target (NYSE:TGT) declares $0.90/share quarterly dividend, 32.4% increase from prior dividend of $0.68. A new record!

June Purchases:

FAST     3

VZ         15

ABT        9

That's all folks