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Am I being too conservative ?
Old 04-21-2012, 10:38 AM   #1
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Am I being too conservative ?

Had a meeting with a portfolio manager the other day. I wanted him to "run the numbers" to see when I could ER. I gave him the details of all my holdings.

I instructed him to hold aside $350k out of the portfolio before running the numbers. The 350k will cover a new roof on my current house (probably will be needed before I ER and downsize), a new roof on my downsized house (plan on being there 40+ years !), $100k to self insure for LTC, a $60k in "bucket list vacations" and a placeholder for large home improvements (think Kitchen and Bath remodels) and replacing large appliances (including the central air units).

The porfolio manager came back with my numbers telling me I can spend 20k more per year than I had budgeted. Turns out he didn't hold the 350k aside saying I was "thinking about it wrong" as his analysis leaves a bit of "cushion" at EOL (ie: does not spend down to 0).

Am I thinking about this wrong ? Frankly I'm lazy and dont want to enter a bunch of one time expenses into a retirement planning tool. I figure I will put the 350k in a separate account and invest it and if I end up better off than planned I can add a few more mega-vacations into the picture.

I haven't gotten the new analysis with the 350k out but I suspect it will say I can "eek by" on the budget I've put together for the next 35 years (which gets me to age 85 with an 90% porfolio sucess with FIDO and 100% with Firecalc). Chances of funds lasting to 95 yo are 74% with FIDO and 82% with FireCalc.
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Old 04-21-2012, 11:56 AM   #2
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Originally Posted by Live And Learn View Post
Had a meeting with a portfolio manager the other day. I wanted him to "run the numbers" to see when I could ER. I gave him the details of all my holdings.

I instructed him to hold aside $350k out of the portfolio before running the numbers. The 350k will cover a new roof on my current house (probably will be needed before I ER and downsize), a new roof on my downsized house (plan on being there 40+ years !), $100k to self insure for LTC, a $60k in "bucket list vacations" and a placeholder for large home improvements (think Kitchen and Bath remodels) and replacing large appliances (including the central air units).

The porfolio manager came back with my numbers telling me I can spend 20k more per year than I had budgeted. Turns out he didn't hold the 350k aside saying I was "thinking about it wrong" as his analysis leaves a bit of "cushion" at EOL (ie: does not spend down to 0).

Am I thinking about this wrong ? Frankly I'm lazy and dont want to enter a bunch of one time expenses into a retirement planning tool. I figure I will put the 350k in a separate account and invest it and if I end up better off than planned I can add a few more mega-vacations into the picture.

I haven't gotten the new analysis with the 350k out but I suspect it will say I can "eek by" on the budget I've put together for the next 35 years (which gets me to age 85 with an 90% porfolio sucess with FIDO and 100% with Firecalc). Chances of funds lasting to 95 yo are 74% with FIDO and 82% with FireCalc.
Go with your gut. If you are like most people on this forum I am sure you will find a way. Go with your credo, Live and Learn.
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Old 04-21-2012, 12:09 PM   #3
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Am I thinking about this wrong ? Frankly I'm lazy and dont want to enter a bunch of one time expenses into a retirement planning tool. I figure I will put the 350k in a separate account and invest it and if I end up better off than planned I can add a few more mega-vacations into the picture.

I haven't gotten the new analysis with the 350k out but I suspect it will say I can "eek by" on the budget I've put together for the next 35 years (which gets me to age 85 with an 90% porfolio sucess with FIDO and 100% with Firecalc). Chances of funds lasting to 95 yo are 74% with FIDO and 82% with FireCalc.
The way you're approaching this is fine. A financial advisor doing an analysis different that what you requested is not.

FIRECalc results of 90% and 82% may be a tad low but if they are acceptable to you, that's what matters most. Setting aside the $350k is smart as long as you use it for the stated purposes and keep it segregated. Investing it may lead to an undesirable outcome - I would suggest that if it is to cover large expenses and such, a good part of it needs to be very liquid and risk free.
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Old 04-21-2012, 12:15 PM   #4
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The way you're approaching this is fine. A financial advisor doing an analysis different that what you requested is not.
Agree. If you ask someone to do an analysis for you in a certain way, and s/he thinks it should be done differently, s/he should have discussed that with you first. Then you would have the choice of which approach you paid the analyst to do. In your place, I would go back and ask for the analysis to be repeated in the way that I had specified, and I would not expect to be charged for it, either. (I know, "easy for me to say," maybe harder to do, so just my $.02).

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Old 04-21-2012, 12:34 PM   #5
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The way you're approaching this is fine. A financial advisor doing an analysis different that what you requested is not.
+2. I built a very simple worksheet for the major infrequent expenses like cars, home maintenance, furniture/electronics replacement etc and it works out to about $9500/yr (deliberately higher than I expect/hope). As long as you account for the expenses, as you clearly have, the FA should comply with your request - unless I hadn't made it clear, I'd expect him/her to rework in the format requested.
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Old 04-21-2012, 04:05 PM   #6
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+2. I built a very simple worksheet for the major infrequent expenses like cars, home maintenance, furniture/electronics replacement etc and it works out to about $9500/yr (deliberately higher than I expect/hope). As long as you account for the expenses, as you clearly have, the FA should comply with your request - unless I hadn't made it clear, I'd expect him/her to rework in the format requested.
Interesting about the 9500/yr. average for major expenses. My budget has 2400 for home maintenance and 3k for other "one time type" expenses. I think my lower amount is in the ballpark since I have that one time expense bucket set aside for the "oober big" expenses

BTW - the analysis was free and he is going to redo it the way I had asked. He's trying to get me to buy into a porfolio from his company at a rate of 1.6%
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Old 04-21-2012, 04:12 PM   #7
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The way you're approaching this is fine. A financial advisor doing an analysis different that what you requested is not.

FIRECalc results of 90% 100% and 82% may be a tad low but if they are acceptable to you, that's what matters most. Setting aside the $350k is smart as long as you use it for the stated purposes and keep it segregated. Investing it may lead to an undesirable outcome - I would suggest that if it is to cover large expenses and such, a good part of it needs to be very liquid and risk free.

The %s are 100% for age 85 and 82% for 95. I believe I'd be about to live off my social security alone at age 90 if I need to.

Agree with the points on the investing of these dollars. Right now my assumption is it is all cash / cash equivalents but I thought that was too conservative since about 1/2 of the expenses are non mandatory.
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Old 04-21-2012, 06:02 PM   #8
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Interesting about the 9500/yr. average for major expenses. My budget has 2400 for home maintenance and 3k for other "one time type" expenses. I think my lower amount is in the ballpark since I have that one time expense bucket set aside for the "oober big" expenses.
2 cars at $20-30K after trade-in every five years is the biggest "unusual" expense for us. Highly unlikely in that my last 3 cars went 6 (hated the Volvo) and then 10 years...
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Old 04-21-2012, 06:07 PM   #9
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2 cars at $20-30K after trade-in every five years is the biggest "unusual" expense for us. Highly unlikely in that my last 3 cars went 6 (hated the Volvo) and then 10 years...
Hey, you could always lease a car, look at all the money you'd save on maintenance.
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Old 04-22-2012, 12:55 AM   #10
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BTW - the analysis was free and he is going to redo it the way I had asked. He's trying to get me to buy into a porfolio from his company at a rate of 1.6%
You are going to pay for that free analysis with hundreds of sales phone calls.
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Old 04-22-2012, 03:38 AM   #11
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Sounds like this FA was planning for that $350k to be part of the portfolio he is planning on managing for you based on the way he did the analysis.
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Old 04-22-2012, 10:16 AM   #12
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On the subject of large infrequent expenses. We deal with these things such as new cars, kitchen/bath remodels, roofs, etc by using a long (usually3-5 year) planning horizon. This gives me the opportunity to spread these items over the longer period but still plan for them. Still put another $10k or so per house for such things as art furniture,etc. This results in yearly planned expenses that vary somewhat over time but average out over the longer term. Seems to work ok.
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Old 04-22-2012, 01:02 PM   #13
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Sounds like this FA was planning for that $350k to be part of the portfolio he is planning on managing for you based on the way he did the analysis.
$350k * 1.6% = $5600/year for the FA. He'll fight for that.
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Old 04-22-2012, 01:27 PM   #14
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How does $100k insure you for LTC? I've heard that LTC can cost ~$70k per year.
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Old 04-22-2012, 03:25 PM   #15
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Am I thinking about this wrong ? Frankly I'm lazy and dont want to enter a bunch of one time expenses into a retirement planning tool.
While it is always good to get alternative opinions/analyses, I think you are crazy to leave this exercise to someone who doesn't have significant skin in the game (that leaves only you).
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Old 04-22-2012, 08:39 PM   #16
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How does $100k insure you for LTC? I've heard that LTC can cost ~$70k per year.
I'm sure that's $100k at the beginning of retirement. Hopefully it will be invested and not needed for a few decades.
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Old 04-23-2012, 12:12 PM   #17
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How does $100k insure you for LTC? I've heard that LTC can cost ~$70k per year.
Stats are that you are either in LTC for 5 months or less or 2 years or more. I've set aside enough for each of us to do a 5 month stint. If one of us ends up in the 2 yr or more camp then I'll be dying in the facility and they will own my house and whatever else I leave behind.
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Old 04-23-2012, 12:16 PM   #18
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While it is always good to get alternative opinions/analyses, I think you are crazy to leave this exercise to someone who doesn't have significant skin in the game (that leaves only you).
I've done the exercise numerous times using numerous calculators. The ony thing I haven't done is the detailed one time expense exercise where I try to predict which year the AC will give out, which year the roof will need to be replaced, which years I take the bucket list vacations .... I've done it as one big lump some in my "pretend the money doesn't exist" bucket.

The only reason I used the advisor was 1. it was free 2. he's been calling me for years and knows that I'm not interested but he feels he needs to give it his bi annual (every 2 years) college try 3. I wanted confirmation of my calcs by a "professional" (using the term losely apparently !)
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Old 04-23-2012, 02:21 PM   #19
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IMHO, it's okay for an advisor to perform an analysis another way as long as he explains how it will cover all of your needs for the set-aside and will improve your chances of success. He would of course need to perform the analysis your way in order to prove his alternative is better.
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Old 04-23-2012, 08:59 PM   #20
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I'm sure that's $100k at the beginning of retirement. Hopefully it will be invested and not needed for a few decades.
Correct.
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