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Old 11-11-2009, 08:39 PM   #41
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Good point about the annuity, Bikerdude—at least with that he would never run completely out of money. But two questions...why an annuity only for +/-1/5 of his current assets? Wouldn't he be better off to buy an annuity (or annuities) for the whole amount instead of looking for some way to beat the market (a search which I doubt is likely to be successful) and boost his portfolio so it will support his $75K (approx 15%) withdrawal rate? The other question is, why would it better for him to take SS now rather than holding out for the maximum monthly amount, especially if he is not going to convert his entire portfolio to an annuity right away?

I'd like to understand your thinking on this.
I just did a quick, back of the napkin calculation. But the main point is, he's going blind so any income he has at the end will most likely be used for his care at a subsidized facility so how much SS he has that point is irrelevant.

Taking SS now slows his "burn rate" to allow him to enjoy life a little before the darkness comes.

I didn't do a lot of different annuity calculations but my thoughts were:

Reduce spending to about 60K per year by sharing/roommate.

Begin SS @ 23K max per yr. to slow capitol burn rate.

Buy SPIA with 100K to yield 7.5K per yr.

400K earning 5% could last 20 yrs. (without inflation adjustment) at 30K per yr. withdrawal.

I'm sure there are other combination's but the point is with a little thought, flexibility and creativity one can avoid returning to the coal mines. Unless of course, you want to.
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Old 11-12-2009, 01:24 AM   #42
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I could well understand how having someone else in the house could be a real help to a newly blind 65 year old. Just a few minutes a day of going through the mail, helping to find misplaced items, etc, plus a few trips to the store every week could significantly ease the stress of a very challenging situation. A roommate could be a win-win for both parties.
Having someone to assist with those and other tasks would be a help I'm sure, but I don't think it would take more than a few hours a week—maybe one afternoon—to deal with bills, shopping, and so on. It's having that person around the house for the other six and a half days that I would avoid if I could. If I were gradually going blind (not impossible due to a family history of glaucoma), I think I would seek this assistance from someone at my church, or a student doing a service project, or the local service organization for the blind, rather than a live-in roommate. But that's just me.
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Old 11-12-2009, 09:18 AM   #43
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O'Neil, who left Oxy on disability a few years ago.... He has some $500,000 left in his 401(k) and spends about $75,000 a year. At this rate, he worries he will tap out his retirement savings within the next decade.

Under Occidental's old pension plan, he would have gotten a monthly check of about $2,200. More important, he wouldn't have to spend much of his remaining eyesight squinting at CNBC, wondering how he will afford the rest of his life.
O'Neil's problem isn't "portfolio failure", it is "commonsense failure". He got divorced 8 years ago. When that happened, he should have dialed back his spending to something that was affordable over the long term. If he can't figure out how a single guy can live on less than $75,000 per year, he should contact one of the people who used to work in the lower-pay levels of his old employer.

P.S. TIME seems to think this shows a problem with the 401k system. Under the old pension plan, O'Neil would have gotten $26,400 per year, which he would have split with his ex-wife. I'd rather have the $500k instead.


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Old 11-12-2009, 09:46 AM   #44
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O'Neil's problem isn't "portfolio failure", it is "commonsense failure". He got divorced 8 years ago. When that happened, he should have dialed back his spending to something that was affordable over the long term. If he can't figure out how a single guy can live on less than $75,000 per year, he should contact one of the people who used to work in the lower-pay levels of his old employer.

P.S. TIME seems to think this shows a problem with the 401k system. Under the old pension plan, O'Neil would have gotten $26,400 per year, which he would have split with his ex-wife. I'd rather have the $500k instead.
I couldn't figure out why Mr. O'Neil's failure to live within his means was the 401k's fault either.
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Old 11-12-2009, 12:05 PM   #45
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I couldn't figure out why Mr. O'Neil's failure to live within his means was the 401k's fault either.
Probably because he had 1 mil. and lost half during the last two years. If he had a pension he would have been OK. A pension or annuity is probably the way to go for the average person, at least that's been my experience talking with many retiree's.
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Old 11-12-2009, 06:30 PM   #46
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Warning: total tongue in cheek response.

You guys are looking at it all wrong. There is one investment that is sure "fire" to ensure you will not run out of money. It's called a gun, which when pointed at one's own head and the trigger is pulled solves any further concern of burn rates. I like to think of it as the "Smith & Wesson" back-stop financial plan.
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Old 11-12-2009, 07:16 PM   #47
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Probably because he had 1 mil. and lost half during the last two years. If he had a pension he would have been OK. A pension or annuity is probably the way to go for the average person, at least that's been my experience talking with many retiree's.
Whatever the mechanism of loss, ISTM if your income goes down by half, the reasonable thing is to cut your expenses by half, or as close to half as you can possibly get. To me it makes no sense to continue to spend as if nothing had happened, which is what he appears to be doing. I don't think he would jave been OK on a pension. The amount he would have received is just over 35% of what he is spending now, and if he continued his current lifestyle he'd still be living way beyond his means. Any way you slice it, he is spending much more than he can afford.

I have nothing bad to say about pensions. In fact, I think they are wonderful, and hope to start drawing mine in not too many more years. I just don't think Mr. O'Neill has a pension-vs-401k problem. I think he has a spending-exceeds-income problem.
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Old 11-12-2009, 08:31 PM   #48
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Whatever the mechanism of loss, ISTM if your income goes down by half, the reasonable thing is to cut your expenses by half, or as close to half as you can possibly get. To me it makes no sense to continue to spend as if nothing had happened, which is what he appears to be doing. I don't think he would jave been OK on a pension. The amount he would have received is just over 35% of what he is spending now, and if he continued his current lifestyle he'd still be living way beyond his means. Any way you slice it, he is spending much more than he can afford.

I have nothing bad to say about pensions. In fact, I think they are wonderful, and hope to start drawing mine in not too many more years. I just don't think Mr. O'Neill has a pension-vs-401k problem. I think he has a spending-exceeds-income problem.
i agree with you but i feel i need to point out that the whole idea of a SWR (not saying that he had 1) is that you do continue to WD "as if nothing happened"; just adjusting your WD for inflation.
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Old 11-12-2009, 10:05 PM   #49
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i agree with you but i feel i need to point out that the whole idea of a SWR (not saying that he had 1) is that you do continue to WD "as if nothing happened"; just adjusting your WD for inflation.
Exactly, and the operative word is "safe", loosely defined as "the withdrawal level at which you can proceed as if nothing had happened, even after a 50% market drop, and still not run out of money". But he's withdrawing something like 15% a year. That wouldn't be safe, even without the bear market.
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Old 11-12-2009, 10:18 PM   #50
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Exactly, and the operative word is "safe", loosely defined as "the withdrawal level at which you can proceed as if nothing had happened, even after a 50% market drop, and still not run out of money". But he's withdrawing something like 15% a year. That wouldn't be safe, even without the bear market.
please note what i bolded

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i agree with you but i feel i need to point out that the whole idea of a SWR (not saying that he had 1) is that you do continue to WD "as if nothing happened"; just adjusting your WD for inflation.
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Old 11-12-2009, 11:40 PM   #51
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please note what i bolded
I did...I was trying to say "you're right and here's why" but it didn't come out quite right.
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