Join Early Retirement Today
View Poll Results: What age do you use to calculate retirement?
>60 2 2.13%
>70 3 3.19%
>80 17 18.09%
>90 48 51.06%
>100 24 25.53%
Voters: 94. You may not vote on this poll

Reply
 
Thread Tools Search this Thread Display Modes
Re: Life Expectancy
Old 01-28-2007, 12:26 PM   #21
Moderator Emeritus
Rich_by_the_Bay's Avatar
 
Join Date: Feb 2006
Location: San Francisco
Posts: 8,827
Re: Life Expectancy

Quote:
Originally Posted by Cut-Throat
I no longer focus on lifespan, but building income streams from Cola S.S. and Cola annuities that will support us for life. This will ensure that half of my principal is gone by the time I'm age 85. Won't have to be concerned with market movements or lifespans.
I, too, have not written off immediate annuities in that context: limited to a portion of your nest egg only, immediate, fixed only.

When I last ran these numbers, I found that a very cost effective alternative to a COLA annuity was to buy what you need to start with unadjusted/nonCOLA, then supplement every couple of years with additional smaller annuities to keep up with inflation. The benefits are:

1. you keep more of your money in the market and/or available to heirs when you die
2. as you supplement you are older and older and thus get more income for your dollar invested.
3. you have the ability to punt on more annuity if inflation is slow or your portfolio is roaring
4. you spread the applicable interest rate over time a bit
5. if you do become seriously ill and plan to die shortly, you will have kept a little more for you and less for the insurance company compared to buying it all and then expiring young.


Downside:
1. it's a little more maintenance
2. if investments go down during the intervals, you may have to sell more shares to buy more annuity, but this is mitigated by using conservatively invested funds for this purpose, as well as the premium advantage of buying older.

Can you think of any others?

So, you need $3k per month today and buy an SPIA to meet that. In 2 years you need $3.3 per month. Purchase another small annuity to generate the difference of $300 per month. Being two years older, it's a little cheaper than it would have been initially, and you kept your money a couple more years.

Bake for 2 more years, and repeat as needed.
__________________

__________________
Rich
San Francisco Area
ESR'd March 2010. FIRE'd January 2011.

As if you didn't know..If the above message contains medical content, it's NOT intended as advice, and may not be accurate, applicable or sufficient. Don't rely on it for any purpose. Consult your own doctor for all medical advice.
Rich_by_the_Bay is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Re: Life Expectancy
Old 01-28-2007, 12:55 PM   #22
 
Posts: n/a
Re: Life Expectancy

I just plugged in some numbers in Vanguards annuity quote and for a 70 year old with Spouse a few years younger could buy an annuity for $500K with no inflation adjust and get about $49K per year. With an inflation adjustment it would be about $38,400 per year. It would seem that buying without inflation might be a better deal, if you could invest the diff and cover your own inflation! - You'd have the advantage of higher interest rates if inflation did rise and like Rich said, you could always buy another annuity that would be cheape. I'd have to run the numbers some time.

But, Even with the inflation adjustment the $38K would be about a 7.7% SWR on the $500K. The question that everyone would have to ask themselves at age 70 is what Percent of $500K would you be willing to withdraw if you were not buying an annuity with it?
__________________
  Reply With Quote
Re: Life Expectancy
Old 01-28-2007, 01:33 PM   #23
Recycles dryer sheets
 
Join Date: Jun 2002
Posts: 374
Re: Life Expectancy

Quote:
Originally Posted by Cute Fuzzy Bunny
Really long firecalc runs sort of screw up your results because you end up with a lot of runs that "succeed" because they ran out of data.

For example...for a 40 year run, ever individual run that starts after 1965 will will use one year less data...in other words the run starting in 1967 will use the next 40 years of data, then the one starting in 68 will use 39 years, etc. There is no "wraparound" or "invention of data" to fill out shortened data sets.
Actually, Dory dropped the incomplete periods altogether in the updated version of FIREcalc. The "% success" is no longer inflated by the successful partial periods as in the case of the earlier version, but it does have the effect of completely eliminating the effects late 60's - early 70's era in longer runs.

__________________
Cb is online now   Reply With Quote
Re: Life Expectancy
Old 01-28-2007, 01:37 PM   #24
Thinks s/he gets paid by the post
 
Join Date: Feb 2003
Location: Mesa
Posts: 3,588
Re: Life Expectancy

Quote:
Originally Posted by Cute Fuzzy Bunny
Really long firecalc runs sort of screw up your results because you end up with a lot of runs that "succeed" because they ran out of data.

For example...for a 40 year run, ever individual run that starts after 1965 will will use one year less data...in other words the run starting in 1967 will use the next 40 years of data, then the one starting in 68 will use 39 years, etc. There is no "wraparound" or "invention of data" to fill out shortened data sets. . . .
I've run FIRECalc for retirement spans between 10 and 40 years, then plotted SWR vs. Time in Retirement. The data assymptotically approaches a value of about 3.0% to 3.6% (depending on allocation). (Figure 2.13 in Engineering Your Retirement). The data beyond ~40 years gets really suspect because of the short number of 40 year intervals available in the data.

Another way to look at longer time periods is to require FIRECalc to end a typical 30 year simulation with a specific amount of money. For example, if you assume the 4% rule is approximately true for a 30 year retirement, you can tell FIRECalc you are going to have a 1-time expense of 25X your annual spending in year 30. This is equivalent to requiring that you end the first 30 years with a minimum nest egg amount required to support another 30 years. Thus, you end up with an approximation for a 60 year retirement.
__________________
sgeeeee is offline   Reply With Quote
Re: Life Expectancy
Old 01-28-2007, 01:52 PM   #25
Recycles dryer sheets
 
Join Date: Jun 2002
Posts: 374
Re: Life Expectancy

SGeeee, you have some big brains.

I'm going to find the last gift certificate dealie from my old job and order your book.

Cb :P
__________________
Cb is online now   Reply With Quote
Re: Life Expectancy
Old 01-28-2007, 04:14 PM   #26
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
donheff's Avatar
 
Join Date: Feb 2006
Location: Washington, DC
Posts: 8,654
Re: Life Expectancy

Quote:
Originally Posted by sgeeeee
Another way to look at longer time periods is to require FIRECalc to end a typical 30 year simulation with a specific amount of money. For example, if you assume the 4% rule is approximately true for a 30 year retirement, you can tell FIRECalc you are going to have a 1-time expense of 25X your annual spending in year 30. This is equivalent to requiring that you end the first 30 years with a minimum nest egg amount required to support another 30 years. Thus, you end up with an approximation for a 60 year retirement.
Wouldn't you have to inflate the one time annual spending amount or would Firecalc treat that as an expectation in today's dollars and automagically inflate it?
__________________
Every man is, or hopes to be, an Idler. -- Samuel Johnson
donheff is online now   Reply With Quote
Re: Life Expectancy
Old 01-28-2007, 04:36 PM   #27
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
cute fuzzy bunny's Avatar
 
Join Date: Dec 2003
Location: Losing my whump
Posts: 22,697
Re: Life Expectancy

Quote:
Originally Posted by Bikerdude
And all those donuts.
I just saw on tv the very definition of a life expectancy adjustment device: a frosted donut covered with bacon.
Attached Images
File Type: jpg bacon donut.jpg (7.3 KB, 16 views)
Attached Files
File Type: jpg_thumb bacon donut.jpg_thumb (42.4 KB, 0 views)
__________________
Be fearful when others are greedy, and greedy when others are fearful. Just another form of "buy low, sell high" for those who have trouble with things. This rule is not universal. Do not buy a 1973 Pinto because everyone else is afraid of it.
cute fuzzy bunny is offline   Reply With Quote
Re: Life Expectancy
Old 01-28-2007, 04:45 PM   #28
Recycles dryer sheets
 
Join Date: Jun 2002
Posts: 374
Re: Life Expectancy

Quote:
Originally Posted by donheff
Wouldn't you have to inflate the one time annual spending amount or would Firecalc treat that as an expectation in today's dollars and automagically inflate it?
Per SG's original reply:

"...you can tell FIRECalc you are going to have a 1-time expense of 25X your annual spending in year 30."

__________________
Cb is online now   Reply With Quote
Re: Life Expectancy
Old 01-28-2007, 04:46 PM   #29
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
donheff's Avatar
 
Join Date: Feb 2006
Location: Washington, DC
Posts: 8,654
Re: Life Expectancy

Quote:
Originally Posted by Cut-Throat

But, Even with the inflation adjustment the $38K would be about a 7.7% SWR on the $500K. The question that everyone would have to ask themselves at age 70 is what Percent of $500K would you be willing to withdraw if you were not buying an annuity with it?
Interesting way to put it. If you were 70 with a $1M portfolio and needed $40K income on top of your SS, you could roughly get your income needs covered with half your portfolio and leave the rest invested at aggressive growth rates. Or, alternatively, you could pull an additional ~$20K per year from the portfolio to blow on stuff and still expect to have your principal intact at age 100. Here we go with the SPIA discussion again.
__________________
Every man is, or hopes to be, an Idler. -- Samuel Johnson
donheff is online now   Reply With Quote
Re: Life Expectancy
Old 01-28-2007, 04:52 PM   #30
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
donheff's Avatar
 
Join Date: Feb 2006
Location: Washington, DC
Posts: 8,654
Re: Life Expectancy

Quote:
Originally Posted by Cb
Per SG's original reply:

"...you can tell FIRECalc you are going to have a 1-time expense of 25X your annual spending in year 30."

I read that, but it didn't answer my question of whether your needed to calculate your inflated annual spending 30 years out or if Firecalc would do it. Now that I looked I see that Firecalc answers the question - "Enter in today's dollars; the actual amount will be adjusted for inflation." So if you enter $1M as your lump sum Firecalc will treat it as $3M or whatever the particular run calculates would be the inflated equivalent.
__________________
Every man is, or hopes to be, an Idler. -- Samuel Johnson
donheff is online now   Reply With Quote
Re: Life Expectancy
Old 01-28-2007, 05:10 PM   #31
 
Posts: n/a
Re: Life Expectancy

Quote:
Originally Posted by donheff
Interesting way to put it. If you were 70 with a $1M portfolio and needed $40K income on top of your SS, you could roughly get your income needs covered with half your portfolio and leave the rest invested at aggressive growth rates. Or, alternatively, you could pull an additional ~$20K per year from the portfolio to blow on stuff and still expect to have your principal intact at age 100. Here we go with the SPIA discussion again.
Yes, that is the way I have been thinking the past couple of years. I don't wish to have a pile at the end, so maximizing spending while I'm alive is the goal.

Ideally the check to the undertaker would bounce, but that would take a bit of luck
__________________
  Reply With Quote
Re: Life Expectancy
Old 01-28-2007, 06:30 PM   #32
Thinks s/he gets paid by the post
 
Join Date: Feb 2003
Location: Mesa
Posts: 3,588
Re: Life Expectancy

Quote:
Originally Posted by donheff
Wouldn't you have to inflate the one time annual spending amount or would Firecalc treat that as an expectation in today's dollars and automagically inflate it?
We need to ask Dory to be sure, but this has been asked before and my understanding is that the terminal value you get from FIRECalc is in today's dollars. So, for example, if you are spending $40K per year you would expect to need about $1M nest egg for a 30 year retirement. Run Firecalc with an expenditure of $1M in year 30 and you get an estimate of what is needed for a 60 year retirement. If that's not correct, then you would have to assume an inflation rate for 30 years and work from there. It is only an approximation, but another way to fool the historical simulator.


Yeah. . . I just checked. Here is what Dory said:

http://early-retirement.org/forums/i...9340#msg159340
__________________
sgeeeee is offline   Reply With Quote
Re: Life Expectancy
Old 01-28-2007, 08:31 PM   #33
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
cute fuzzy bunny's Avatar
 
Join Date: Dec 2003
Location: Losing my whump
Posts: 22,697
Re: Life Expectancy

The terminal portfolio value is in todays dollars; if you look at the spreadsheet output of input values (XLS file) and see what the annual withdrawal is at the end of the final year of the run, thats the cpi adjusted "future dollars" annual withdrawal...for sg's example you'd go back and re-run with that figure x 25 stuck in there as he described.
__________________
Be fearful when others are greedy, and greedy when others are fearful. Just another form of "buy low, sell high" for those who have trouble with things. This rule is not universal. Do not buy a 1973 Pinto because everyone else is afraid of it.
cute fuzzy bunny is offline   Reply With Quote
Re: Life Expectancy
Old 01-28-2007, 10:38 PM   #34
Thinks s/he gets paid by the post
 
Join Date: Jan 2006
Posts: 1,012
Re: Life Expectancy

Quote:
Originally Posted by Rich_in_Tampa
I, too, have not written off immediate annuities in that context: limited to a portion of your nest egg only, immediate, fixed only.

When I last ran these numbers, I found that a very cost effective alternative to a COLA annuity was to buy what you need to start with unadjusted/nonCOLA, then supplement every couple of years with additional smaller annuities to keep up with inflation.

So, you need $3k per month today and buy an SPIA to meet that. In 2 years you need $3.3 per month. Purchase another small annuity to generate the difference of $300 per month. Being two years older, it's a little cheaper than it would have been initially, and you kept your money a couple more years.

Bake for 2 more years, and repeat as needed.
Rich, have you read the book Die Broke? I haven't looked recently but this payout scheme reminds me of Die Broke's payout scheme. In fact IIRC the books goal is that...

Quote:
Originally Posted by Cut-Throat
Ideally the check to the undertaker would bounce
Now when it comes to

Quote:
Originally Posted by donheff
Interesting way to put it. If you were 70 with a $1M portfolio and needed $40K income on top of your SS, you could roughly get your income needs covered with half your portfolio and leave the rest invested at aggressive growth rates. Or, alternatively, you could pull an additional ~$20K per year from the portfolio to blow on stuff and still expect to have your principal intact at age 100. Here we go with the SPIA discussion again.
Some while ago I tried to point out the potential advantage for someone to use IM to enhance their portfolio's SWR with the added benefit of providing a "guaranteed" income floor, thus preventing the eating of cat food in old age. Remember these posts?
http://early-retirement.org/forums/i...5939#msg135939
http://early-retirement.org/forums/i...6091#msg136091
and the associated thread? The idea didn't seem to be well received at the time.

__________________
jdw_fire is offline   Reply With Quote
Re: Life Expectancy
Old 01-28-2007, 11:18 PM   #35
Full time employment: Posting here.
 
Join Date: Sep 2006
Posts: 608
Re: Life Expectancy

Quote:
Originally Posted by Rich_in_Tampa
When I last ran these numbers, I found that a very cost effective alternative to a COLA annuity was to buy what you need to start with unadjusted/nonCOLA, then supplement every couple of years with additional smaller annuities to keep up with inflation. The benefits are:

1. you keep more of your money in the market and/or available to heirs when you die
2. as you supplement you are older and older and thus get more income for your dollar invested.
3. you have the ability to punt on more annuity if inflation is slow or your portfolio is roaring
4. you spread the applicable interest rate over time a bit
5. if you do become seriously ill and plan to die shortly, you will have kept a little more for you and less for the insurance company compared to buying it all and then expiring young.
Interesting. Did you look at the option of a "graded payment" (i.e. 3% per year) instead
of CPI-linked ? The Vanguard/AIG quoter pays considerably more at 3% than for the
CPI-linked "inflation adjutsments" one.

It has many of the advantages of your plan, but if inflation is 3% or less you're keeping
pace with inflation and don't need to annuitize ANY more money.

Just a thought.

__________________
JohnEyles is offline   Reply With Quote
Re: Life Expectancy
Old 01-29-2007, 06:52 AM   #36
 
Posts: n/a
Re: Life Expectancy

Quote:
Originally Posted by jdw_fire
Some while ago I tried to point out the potential advantage for someone to use IM to enhance their portfolio's SWR with the added benefit of providing a "guaranteed" income floor, thus preventing the eating of cat food in old age. Remember these posts?

Well, I completely agree with you and don't understand the hostility either. I think it might have to do with a few posters that are still in their 40's that have not come to grips with their own demise.
__________________
  Reply With Quote
Re: Life Expectancy
Old 01-29-2007, 07:20 AM   #37
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
donheff's Avatar
 
Join Date: Feb 2006
Location: Washington, DC
Posts: 8,654
Re: Life Expectancy

Quote:
Originally Posted by Cut-Throat

Well, I completely agree with you and don't understand the hostility either. I think it might have to do with a few posters that are still in their 40's that have not come to grips with their own demise.
I was and am sympathetic to your view on this but for couples the case is tight so I can understand the concerns of the other side to the argument. A life annuity is a much better deal for a single person. Once you add a joint annuitant the life expectancy goes up beyond either individual's expectancy so the cost/benefit ration drops substantially. If I was single, I wouldn't think twice about putting part of my nest egg in an SPIA.
__________________
Every man is, or hopes to be, an Idler. -- Samuel Johnson
donheff is online now   Reply With Quote
Re: Life Expectancy
Old 01-29-2007, 07:38 AM   #38
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
donheff's Avatar
 
Join Date: Feb 2006
Location: Washington, DC
Posts: 8,654
Re: Life Expectancy

Quote:
Originally Posted by RustyShackleford
Interesting. Did you look at the option of a "graded payment" (i.e. 3% per year) instead
of CPI-linked ? The Vanguard/AIG quoter pays considerably more at 3% than for the
CPI-linked "inflation adjutsments" one.

It has many of the advantages of your plan, but if inflation is 3% or less you're keeping
pace with inflation and don't need to annuitize ANY more money.

Just a thought.

You got me interested so I ran Rich's plan against a 3% adjusted annuity for DW and I starting immediately on Vanguard's calculator. It would take 27-28 to break even on the 3% adjusted. It looks like a reasonable bet would be calculate what you would want as the annuity income if you were adjusting at 3% and put the equivalent principle on a fixed. Then start out investing the difference in a fixed income fund that you could tap to cover living increase costs if needed. Only increase the amount you spend if your real expenses go up.
__________________
Every man is, or hopes to be, an Idler. -- Samuel Johnson
donheff is online now   Reply With Quote
Re: Life Expectancy
Old 01-29-2007, 07:45 AM   #39
 
Posts: n/a
Re: Life Expectancy

Quote:
Originally Posted by donheff
I was and am sympathetic to your view on this but for couples the case is tight so I can understand the concerns of the other side to the argument. A life annuity is a much better deal for a single person. Once you add a joint annuitant the life expectancy goes up beyond either individual's expectancy so the cost/benefit ration drops substantially. If I was single, I wouldn't think twice about putting part of my nest egg in an SPIA.
Don the numbers that I ran a few posts back were for a couple. Did not look like a bad move to me as you pointed out.
__________________
  Reply With Quote
Re: Life Expectancy
Old 01-29-2007, 08:06 AM   #40
 
Posts: n/a
Re: Life Expectancy

Quote:
Originally Posted by jdw_fire
Rich, have you read the book Die Broke? I haven't looked recently but this payout scheme reminds me of Die Broke's payout scheme.
Who is the author and what is the title of this book?
__________________
  Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
What to do when you can't get life insurance? LRAO FIRE and Money 8 09-21-2006 11:10 AM
term life recommendations Rich_by_the_Bay FIRE and Money 9 08-24-2006 09:50 AM
Life insurance change ferco Other topics 6 02-14-2006 12:09 PM
What to do with Met Life Ins. Policy Adventuregirl FIRE and Money 6 02-04-2006 06:50 AM
U.S. Life Expectancy Hits All-Time High MJ FIRE and Money 1 12-08-2005 03:37 PM

 

 
All times are GMT -6. The time now is 10:52 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.