Re: Hi, I am the Brit and need help

There are such wide swings in the stock market that at the end of your plan, you can have negative numbers in some years and 15 Million in others.

If you plan for 100% success rate, you will end up with positive numbers for all years back to 1871.


Since you don't know when you are going to die, or how the stock market will perform - you cannot plan to die broke. Unless you spend everything you have now and live on a meager pension the rest of your life.

So, the firecalc is a planning program and you can base plan on any success rate you want. 50%, 60%, or 98% the choice is yours.

[JWR1945]

Hi Brit. Welcome aboard.

Because of your limited (or non-existent) investment background, I recommend that you first look into buying long-term TIPS (Treasury Inflation Protected Securities). I am talking about those that have close to 30 years to go. They are available only on the secondary market. The Government no longer issues TIPS with maturities greater than ten years.

With TIPS the principal matches inflation. It can go down as well as up except that the face value is guaranteed at maturity. The coupon rate applies to the current principal amount. Hence, the interest that TIPS throw off matches inflation.

There are many other details including important ones about taxes that I will not go into right now. What I want to point out is that owning TIPS is very much like owning a mortgage with everything matched to inflation. If you were able to buy TIPS at 2.8% interest that lasted 45 years, you could withdraw 3.936% of your initial amount (plus inflation) over the entire period. If the TIPS had a 2.9% interest rate, you could withdraw 4.007% over the entire period. All of this with zero risk!

I do not know today's rates, but TIPS have come very close to 2.8% (yield to maturity) within the last week or two.

You end up with a balance of zero at the end of those 45 years.

This is on the secondary market. That means buying through a broker and paying commissions. In addition, the mathematics assumes that you draw down a little bit of principal along the way (similar to a home mortgage, operating in reverse) and it assumes that you have no gains or losses when you do that (i.e., when you sell a small fraction of your portfolio). It also assumes that you will be able to replace your TIPS to extend your portfolio's maturity within the next 30 years.

Again, there are lots of details. But I think that TIPS would be a great place to start. Give yourself some time to learn more about investing in general. Ease yourself into your final portfolio allocation to match your own comfort level.

Have fun.

John R.

[haha]

Quote:

The only reason I am working at present is that in 2.5 years I can take my full union pension plus paid medical insurance for life ( or so they promise.)

I would say your main goal now should be to definitely qualify for those pension and medical benefits. They will be a big help.

Mikey

[JWR1945]

Brit: You can download a good spell checker for free non-commercial use from http://www.iespell.com.

Have fun.

John R.

[Telly]

Brit,

Welcome, and you can't use FireCalc or any other calculator that uses historical data or Monte Carlo analysis to do what you want to do. Because of the many many different possible paths from the present, to when you are 95.

If you set the FireCalc goal to 100% and have it solve for maximum present withdrawal, you will at least not be broke at 95 years old using the historical data runs. You can see that the "average" nest egg remaining at 95 could be quite large. However, for 100% certainty there had to be at least one path of the historical data that just missed being broke at 95 with your input data. See the graph in the FAQ's on the FireCalc page. A picture of that with all of the paths is worth a thousand words!

The only calculators that could do exactly what you want are the kind (I have made one for me) that YOU have to "assume" the rates of return and inflation, etc. All though they can be fun to play with, the devil is in the assumptions!

Another approach is to run FireCalc at 100%, and as the years go by and the payout time frame decreases, re-run FireCalc and spend more if it shows that you can still get 100% for the shorter term remaining.

Quote:

So my concept is to try and exponentialy spend the money. In other words spend more at the beginning and taper off as I age.

Brit,

That makes a lot of sense to me. I do the same thing. What may help you is the Quicken Retirement Planner. I use this and you can schedule any withdrawal you want, at any time. Prints out nifty graphs also.

I have mine set to spend an extra $20 grand on traveling till age 75. And you're right, I just don't see a lot of folks at age 80 having that good a time. Most are waiting to die. There are exceptions of course. And the majority do not even live to 80 anyway.

[MRGALT2U]

Re. "waiting to die", I recall describing my parents in this'
way years ago. But, thankfully they are both still alive
and in pretty good shape for their ages (85 and 83).
The problem is that we are no spring chickens any more
either. It's a balancing act between your obligation to your parents and your need to maximize the time you
have left. Very tough decision!

[BigMoneyJim]

Quote:

Is Firecalc based on preseving capital for your heir's. In other words can I die broke using it.

I didn't see that question answered. To the best of my knowledge, Firecalc and the other "safe withdrawal rate" methods focus on preserving enough savings to provide for living expenses without depleting savings. In other words, the point is certainly not to focus on your heir's capital. Obviously, however, planning on really dying broke is very difficult short of buying all annuities, so there is a fair chance there will be a large portion of your nest egg left for your heirs.

I can't speak for anyone here, but I get the feeling this group expects their kids to fend for themselves after college.

[MRGALT2U]

Re. kids and college. I always expected my kids to pay
a big share of this, even in my peak earning years.
Oldest 2 have their degrees now and youngest is
a sophomore. I paid 100% of my own college expenses.
As far as fending for themselves AFTER college, that
was never in question.

[MRGALT2U]

HI Brit! Obviously you've given a lot of thought to this.
I would caution you against counting too much on living to any particular age. I too come from good genes
(parents still living - paternal grandfather and great
grandfather both surpassed 100 years). I am 59
and hope to be around a long time, but I also assume there
is a good chance I will not see Christmas. Anyway,
I always keep this in mind when planning my (hoped
for) future.

This is kind of like - Be careful what you wish for! It's like everyone wants to go to heaven, but no one wants to die.

Everyone wants a long life, but things go very south after age 80! - Life can get very complicated!

I have got some older friends and every week I learn of a new malady that can affect one! The best one can hope for is live to 85 or 90 in pretty good health, and then go in your sleep of old age - quickly! - Not be in a Hospital for the last 18 months of your life.

[JWR1945]

Brit

Quote:

Let me expand on what I meant. Although...I have spent the last 10 [years] learning to invest, that is what I meant about analysis paralysis....I have just a problem pulling the trigger. No knowing where to start. That is why I finally joined this group to help other with my knowledge which in turn will help me get started.

I recommend that you take a relatively small amount of money and invest it in stocks and/or bonds. Perhaps, you would prefer index funds (a good choice unless you buy one with high expenses). Perhaps, you would like to buy stock in one or two companies. Perhaps, you would like to buy some TIPS on the secondary market.

Then force yourself to invest it. Learn how it makes you feel. Learn how you react. There is a whole lot of difference between analyzing hypothetical numbers written down on paper and living through the ups and downs of the market.

A good starting amount might be between $5K and $20K. You want something that will keep your attention. You want something that will reward you if you do well. At this stage, you want something that you can live with if you to screw up.

It is a well known law of financial theory that, as soon as you make an investment, its price will fall. Keep that in mind. Also, buy something that is closer to the lower third of its 52-week price range than the upper third. That helps protect you on the downside.

Again, go ahead and invest some money. Just do it. Theory and practice are different.

BTW, I recently found out that there is an S&P 500 index fund that charges 1.5% or more annually in expenses. Somebody found it in his 401k plan!

Have fun.

John R.