life expectancy

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Originally Posted by donheff Yes, I do the later. What I was suggesting is that it doesn't make sense to calculate your odds of a long life and then plan your withdrawals based on the assumption that you will die at the average (or shortly after) for your type. For example, my father-in-law's three brothers all died in their early 60s from heart attacks. My FIL suffers some of their problem and had by-pass surgery. He did not live frugally because he figured he would be dead before he was 70. He is now 75 and doing fine except for the fact that he is low on money. We had to help him set up a reverse mortgage to supplement SS so he can continue to live in his condo. He beat the odds but didn't plan on it.

It seems we have to be extreme one way or the other here! - What I have suggested before is you take a somewhat balanced approach! Spend half of your principle by age 90.

So if you retire at age 50 with $1 Million, plan to have half of it gone by the time you reach age 90. Since most of us will expire before we even reach age 90, this is a pretty conservative plan. Preserving the entire spending power of $1 Million by age 90 intact accomplishes very little in safety of assets.

Examples of folks running out of money at age 75 and other examples of people increasing their spending power out past age 100 are both at the extreme ends of financial planning. I am trying to achieve some balance.

[youbet]

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Originally Posted by Cut-Throat So if you retire at age 50 with $1 Million, plan to have half of it gone by the time you reach age 90.

CT, there are two ways to look at this and I'm not sure which point of view you're taking. Are you thinking that if your retirement time period is financially favorable and your portfolio is doing well, you'll step up spending to ensure 50% (real) is consumed by 90? Or, are you saying that you're plugging into Firecalc a 50% residual portfolio amount below which Firecalc will consider the year a "failure?" The first is a more financially liberal approach, the later more conservative.

Also, while you advocate spending and enjoying your money to avoid going to the grave while still having a stash, your plans seem quite conservative! Budget = 2X base needs, live to 100, etc.

[audreyh1]

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Originally Posted by youbet Also, while you advocate spending and enjoying your money to avoid going to the grave while still having a stash, your plans seem quite conservative! Budget = 2X base needs, live to 100, etc.

That Budget = 2X base needs is more about being able to enjoy your retirement - especially the early years - rather than having to sweat it out year after year because you have some unexpected expenses or you're just cutting it too close on the expenses.

Amass a generous portfolio to retire on, but then spend it!

Audrey

[youbet]

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Originally Posted by audreyh1 That Budget = 2X base needs is more about being able to enjoy your retirement - especially the early years - rather than having to sweat it out year after year because you have some unexpected expenses or you're just cutting it too close on the expenses. Amass a generous portfolio to retire on, but then spend it! Audrey

Actually I thought CT was advocating having a 2X base budget so that you could reduce spending during extended poor market conditions without impacting your access to life's essentials.

[youbet]

Makes sense to me CT.

You're espousing conservative planning (2X bare bones budget + 100 year longevity) but advocating responding to favorable market conditions by increasing spending over time if the numbers so indicate. Can't argue with that.

My plans are similar. Of course personal situations come into play and everyone must call their own shots and live with the consequences. For example, I didn't get to RE until 58, I have some issues that impact my ability to be physically active and I enjoy fishing, canoeing and that sort of thing. So, I'm being a little more aggressive about early spending on those types of activities since it's unlikely I'll be able to enjoy them too much longer. Everyone's situation is unique.

[Nords]

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Originally Posted by JJac But the idea of eating into the principal at any point was alien to me. The key point though is that I wanted to insure that I would live only off of the interest until age 100. This conservative investment approach allowed me about a 2.3% withdrawal rate at 35. With this 2.3%, I need to pay health insurance, taxes, and cost of living. (The swr grew to 3% at age 70 as medical insurance costs grew. At age 100, it reached 6% and thus my withdrawal the following year would start to eat principal.) I considered age 100 to be the end of the road. To be completely "safe" I want something more, and that entails keeping the principal sound. So even after hearing of FIREcalc, I stand by my original viewpoint.

The most important thing about withdrawal rates is being able to sleep at night.

You're golden if you can sleep well without feeling like you're having to be excessively frugal to conserve your principal. And your heirs will be extra solicitous... although technically you'll be worth more to them dead than alive.

But even FIRECalc is pretty conservative about 4%, even with fairly constant withdrawals. Early research is showing that 5% might work quite well overall with even higher withdrawal rates in the earlier years in exchange for lower rates during "no-go" years (when your travel budget is converted to healthcare spending). FIRECalc also allows a little bit of variable spending, but Cut-Throat's bare-bones budget system (have you trademarked that yet, C-T?) gives you even more flexibility to avoid pushing your portfolio over a cliff.

The issue isn't whether the SWR is 2.38769% or 4.01632%. The challenge is a SWR that doesn't feel like a life sentence without parole. In your case there might be more danger of that than of running out of money.

Another danger is making sure that principal conservation doesn't push you to low-return investments that allow your portfolio to be chewed up by inflation. But you don't seem to be heading that way.

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Originally Posted by Cut-Throat No one wakes up at age 90 and runs out of money. The signs are there 30 years in advance of that.

Well, my grandfather came pretty close after 14 years in a full-care facility. Of course senile dementia kept him from recognizing just about anything, let alone warning signs, but his portfolio barely outlived him.

I'd start giving large chunks to charity if I was convinced that we wouldn't be spending it on our own life-extending long-term care. It's probably another balance discussion-- give away a little now and save the rest (just in case you need it after all) to give away when you're dead.

[Gone4Good]

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Originally Posted by donheff I think it is a bad idea to plan withdrawal rates that allow depletion of the portfolio over an estimated likely lifetime. Improving the estimate with a bunch of health related data merely amplifies the illusion of safety. We really need to plan on the longest potential lifetime because we may be surprised by beating the odds. If we believe Ray Kursweill could be right, that potential lifetime needs to effectively be perpetuity.

I'm starting to worry a little bit less about this as I consider my retirement plans. The possibility of financing a ~60 year retirement originally seemed insurmountable. But in addition to all the other protections we built into the plan (low initial withdrawal rate, a big chunk of highly discretionary spending, some non-investment income, etc.) I realized some other options. We could cut our spending by 30-50% by moving away from the city and into bumpkinville, if need's be. We could probably cut another 30% or so by moving to Thailand. If none of that works we'll save the last $500 bucks of our portfolio for a bottle of champaign, some bullets and a Smith & Wesson – the ultimate longevity insurance.

[kcowan]

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Originally Posted by 3 Yrs to Go ...We could probably cut another 30% or so by moving to Thailand. If none of that works we'll save the last $500 bucks of our portfolio for a bottle of campaign, some bullets and a Smith & Wesson – the ultimate longevity insurance.

We have a friend who lived on the income from $250k in Puerto Vallarta for five years. Then he started buying property. Now he is rich enough to consider buying another property in the south of France.

[Corporateburnout]

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Originally Posted by kcowan I know that much retirement planning involves guessing how long we might live. Most actuarial tools tend to lump everyone together into a median age regardless of lifestyle difference. The best one that I have found so far is from Wharton, because it considers many of the same lifestyle factors that insurance companies include. I also like it because it gives the lower and upper quartiles for a range of projected lifetimes. I am interested in your reactions to this tool. And especially the spreads to lower and upper quartiles. It caused me to be more conservative regarding how long my money needs to last. (Now if I could just get the upper decile! Here is the long form of the hotlink above: http://gosset.wharton.upenn.edu/~fos.../CalcForm.html)

Pretty interesting calculator with a big spread from Lower to upper percentiles. It said that my median is 86.87 but I could improve it by .14 year if I have 0 sexual partners instead of one. What's that 2 more months? I 'll pass.

[Khan]

Crap, it says 91.

[bosco]

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Originally Posted by 3 Yrs to Go If none of that works we'll save the last $500 bucks of our portfolio for a bottle of campaign, some bullets and a Smith & Wesson – the ultimate longevity insurance.

why wait? buy the S&W now and stash it. You might not be able to affor it later. Plus they make a decent inflation hedge

[Gone4Good]

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Originally Posted by bosco why wait? buy the S&W now and stash it. You might not be able to affor it later. Plus they make a decent inflation hedge

I've given some more thoughts to "longevity insurance" since that last post. I've concluded I've got one more option before having my "going away" party . . . debt! Run up the credit cards and pop the champaign cork just as the creditors are closing in - could provide a few last years of living high on the hog.