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Old 06-17-2010, 02:11 PM   #21
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Originally Posted by Bestwifeever View Post
Not to mention why worry about leaving an estate, especially since in many cases more people will enjoy it than the decedent--for example, if you have two children or other heirs, your estate is halved between them (whether it's a trust that has its income divided by two or an outright handing over of 1/2 of your estate to each). So your heirs will then take only 1 percent of their own share so they can leave the bulk to their (multiple) heirs.
Close, my dear, but no cigar. The heirs are supposed to marry descendants from equally wealthy families. Thus, two halved estates, make a whole together.

If there are too many heirs, there's always the possibility of sending some off to monasteries where they'll take a vow of poverty. Or get them to enlist in the military, so they can be gloriously blown to tiny bits in a foreign country. Another way to avoid excessive heirs is to mostly have illegimate offspring. After all, a sufficient supply of peasants is needed to work the fields.

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so just go buy that yacht and island today and enjoy them.
Oh, that would be SO nouveau riche.
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Old 06-17-2010, 03:00 PM   #22
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That is indeed an eye-opener, especially for very early retirees who might expect to live for 50+ years on a 3% SWR.
Well, yes, for someone taking out 900,000 annually off a 30 million dollar pot. I suspect that the taxable returns on that pot may be in a higher marginal rate than what someone taking out 50,000 a year from a 1.5 million dollar pot might reach.

There's also the matter of appropriate investments. With those very high tax and inflation rates, a bit of tax planning might be wise.

Personally, I managed to harvest so much in short and long term losses last year that I don't think I'll see a taxable capital gain during my lifetime.
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Old 06-17-2010, 06:22 PM   #23
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Personally, I managed to harvest so much in short and long term losses last year that I don't think I'll see a taxable capital gain during my lifetime.
Congratulations!!!
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Old 06-17-2010, 11:47 PM   #24
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Don't the usual SWR values assume that the remaining portion of the portfolio at death will be zero?
No - where did this idea come from? How could that even be possible - it would imply certainty of the future?

If you look at the output from the default FIRECALC run (95% success, $750K starting portfolio 4% WR)), you will see a wide range of outputs at the end of the selected time-frame. There will be one for each time-frame with sufficient data (currently 109 cycles tested).

From the output:

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Here is how your portfolio would have fared in each of the 109 cycles. The lowest and highest portfolio balance throughout your retirement was $-300,739 to $4,259,606, with an average of $1,304,195. (Note: values are in terms of the dollars as of the beginning of the retirement period for each cycle.)
A whole bunch (I'd eyeball it at > half) where the ending portfolio exceeds the start point. And of course, 5% that go < zero.

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Old 06-18-2010, 11:51 AM   #25
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I'm at a loss as to how they are calculating this.

They must be using some pretty high level of portfolio turnover and unrealized capital gains.

Starting in the first year, their numbers say that the portfolio generates $3 million in gross returns. If half of that is capital gains and half is regular income, I figure that the portfolio nets a little over $2 million, minus the 900k living, leaving over $1.1 million to add to the portfolio.

In year two they will earn $3.1 million gross, net $2.1 million, minus the 945k living due to inflation, leaving a little bit more to the portfolio than the year before.

What am I missing?



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Yeah, but it looks like they're talking about drawing 3% before taxes. That's not how we'd define our withdrawal rate here. And if they're assuming that you're paying taxes on the full 10% portfolio income that could easily double the withdrawal rate. In that case, you'd be withdrawing 6% real from a portfolio earning 5% real, which obviously will run out of money at some point.
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Old 06-18-2010, 12:55 PM   #26
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Congratulations!!!
Heh. Nothing like putting a positive spin on pain, eh?

At least I still have a green light on retirement, according to FireCalc.
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Old 06-19-2010, 12:41 AM   #27
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The real world implications/impact of this article are limited for most. The reality of dramatically increasing taxes are not likely for mere mortals (i.e. those with incomes below $250,000).

Still, what is a worry for mere mortals is the potential enviroment of high inflation and low real returns.
I have to agree with the second part of your statement - that inflation/low returns are a real problem to us mere mortals. Unfortunately, if you run the numbers, penalizing (with excessive taxation) those who make over $250K doesn't get the gummint to where it needs to be, revenue wise. My assumption has always been that "We have met the rich and he is us!" i.e., if you have assets, the gummint needs 'em. If you have income, the gummint is gonna want a disproportionate share. The only folks who won't be hurt (any more than they already have been) is the "poor" since they will soon be the majority of voters if things continue in the way they appear to be heading. I have no crystal ball on this of course. Just my stupid opinion. YMMV as always.
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Old 06-19-2010, 11:49 PM   #28
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I'm at a loss as to how they are calculating this.

They must be using some pretty high level of portfolio turnover and unrealized capital gains.

Starting in the first year, their numbers say that the portfolio generates $3 million in gross returns. If half of that is capital gains and half is regular income, I figure that the portfolio nets a little over $2 million, minus the 900k living, leaving over $1.1 million to add to the portfolio.

In year two they will earn $3.1 million gross, net $2.1 million, minus the 945k living due to inflation, leaving a little bit more to the portfolio than the year before.

What am I missing?
Inflation at 5% will require $1.5M to be left with the initial $30M to keep the original buying power. If 100% of the $3M were taxed at 20% that would account for another $0.6M. With $2.1M used for inflation and taxes, the residual would be $0.9M. In your example where half the income is taxed at 20% and half at 45% ($0.3M + $0.75M) the total taxes would be $0.975M. This would leave "only" $0.525M for spending each year. Maybe the Ultra Rich do have it tough after all.

What I would really like to know is where I can safely receive a net of 5% after inflation on my entire portfolio. Secondly, where can I acquire $30M to start that venture.
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