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Retirement income planning to spend down assets
Old 02-27-2017, 07:00 AM   #1
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Retirement income planning to spend down assets

I am within a couple of years of retirement with no spouse or kids. I have always planned for this (I have LTC, living will, and, most important, amicable relations with nieces and nephews.) But now I am nearing more decisions

One thing I cannot find any web information on is how to structure retirement income when one is NOT planning to leave an estate. My nieces and nephews are better off than I am, and, in any case, I think I will need most of my money myself. I have charities named as beneficiaries for most of my estate, but I really don't plan to leave much! Firecalc calculates me leaving more money than I want, but of course you can't take that as a given.

Anyone know of website information for this situation? I do searches for "retirement planning when not wanting to leave an estate," and similar searches, but I am always looped back into planning for leaving an estate.

Advice for the "spend it all" category?
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Old 02-27-2017, 07:10 AM   #2
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Have you considered a SPIA (Single Premium Immediate Annuity) for a portion of your $ that needs no beneficiary, and would 'guarantee' you a higher % of safe return than most other investments ? Keep in mind, this is insurance and not an investment, but it would most likely generate a larger 'guaranteed' income for you. Upon your demise, the money is owned by the insurance company. Just FYI

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Old 02-27-2017, 07:13 AM   #3
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VPW is one answer, where you increase your withdrawal % based on your assets and age at the beginning of the year, increasing the % each year.
https://www.bogleheads.org/wiki/Vari...age_withdrawal
You still have to guess how old you'll be when you die, or risk running low/out, or leaving lots behind.


An SPIA (annuity) is another way. Convert your assets to an annuity stream that runs for as long as you live. Make sure it's from a solid insurance company that will stick around for your lifetime. If interest rates go up and I can get a better return, I may buy an SPIA for part of my income needs, but I'm not going to cover too much as I would like to leave some behind. For someone in your situation I don't know how much is appropriate to put in an SPIA (or perhaps multiple SPIAs to spread any risk).
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Old 02-27-2017, 07:20 AM   #4
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Have you considered a SPIA (Single Premium Immediate Annuity) for a portion of your $ that needs no beneficiary, and would 'guarantee' you a higher % of safe return than most other investments ? Keep in mind, this is insurance and not an investment, but it would most likely generate a larger 'guaranteed' income for you. Upon your demise, the money is owned by the insurance company. Just FYI

Rich
I think my financial adviser is going to suggest something like this. Annuitizing a portion. There are deferred annuities, right? So you can spend down your non-annuitized assets and then switch. There's also longetivity insurance.

I haven't heard of SPIA, but will look it up.
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Old 02-27-2017, 07:35 AM   #5
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I think my financial adviser is going to suggest something like this.
Not if your financial adviser works on commissions. Do not confuse immediate annuities with variable annuities (which earn your adviser a nice fee). Once you purchase a SPIA, those funds are now 'out of play' and of no interest to your FA.

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Old 02-27-2017, 07:52 AM   #6
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If you buy an annuity make sure it has a fixed interest rate.....do not buy anything that has "variable" or "indexed" in the name.

I would only take advice from an FA that earns their money from client fees and is a fiduciary. Do not buy anything from them......do your own research.
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Old 02-27-2017, 07:57 AM   #7
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I think my financial adviser is going to suggest something like this. Annuitizing a portion. There are deferred annuities, right? So you can spend down your non-annuitized assets and then switch. There's also longetivity insurance.

I haven't heard of SPIA, but will look it up.
Deferred annuities are sometimes referred to as longevity insurance, particularly if there is a long deferral period. (On one level, SPIA is also longevity insurance, as you can't run out of money if the insurer stays afloat.)

As noted by Richard4444, be extremely careful if your financial advisor is not a fee-only fiduciary ("fee based" is not enough). Annuities have a bad rep in large part because the majority of "annuities" sold are high-cost Crud that is shoveled into "annuity" wrappers and sold to unsuspecting customers. The commissions/fees are high and the products are indecipherable to those who don't devote a great deal of intense study to them. (And those selling them typically have not devoted that time to anything other than noticing the great fees.)

Immediateannuities.com and vanguard's annuity gateway are two good places to examine/buy these types of insurance.

On your larger question, in the absence of annuitizing, it is hard to spend everything down while retaining margin of safety. The VPW suggestion is a good one, as it comes closest to squaring the circle here.
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Old 02-27-2017, 08:05 AM   #8
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Since you mentioned leaving significant to charities, you might look into Charitable Remainder Trusts or similar. See https://en.wikipedia.org/wiki/Charit...inder_unitrust

I'd get a lot of education about such instruments before setting one up as YMMV.
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Old 02-27-2017, 08:23 AM   #9
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Thank you for the suggestions. I will read up on them. I know annuities have a bad name, but I can see why he is interested in one for me. I am on the cusp of being able to retire "comfortably," that is, with enough money to enjoy life a little, OR, I am also near being able to reach the retirement of my aspirations (which are not huge, but include lots of travel). But there's longevity in my family, and, really, I don't need to leave an estate. While I do want to manage my money carefully, I don't want to be doing it full time, and I have to acknowledge that a lot of the jargon seems opaque to me. We are entering times of completely new financial products (and global situations) - and no one seems to have a good handle on them.
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Old 02-27-2017, 09:18 AM   #10
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Old 02-27-2017, 09:44 AM   #11
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Firecalc and other retirement calculators also usually allow you to put in a "floor" of how much you want to leave at the end, so if you put "$0", your WR will be higher than if you put in some other number.
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Old 02-27-2017, 05:43 PM   #12
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<SNIP>

While I do want to manage my money carefully, I don't want to be doing it full time, and I have to acknowledge that a lot of the jargon seems opaque to me. We are entering times of completely new financial products (and global situations) - and no one seems to have a good handle on them.
I don't know your age, longevity estimate, "numbers", etc. Having said that, I think I'm a bit like you. I wanted to decide that I had enough (and I did that on the basis of FIRECalc and other calculators, etc. - you must decided for yourself when you have "enough.") Then I wanted to more-or-less "set and forget." That's not to say I don't occasionally look at my net worth and cash burn, etc., but I don't obsess or track daily, or even monthly. I take a snap shot about every year and assure myself that I'm still on track. In 12 years since ER, I haven't really changed much in my portfolio.

Others here can give you better and more complete suggestions on "set-and-forget" strategies - Scott Burns used to have a couple that used index funds only. Some others which come to mind are 1) "mine" (diversified stock indexes at about 30% and cash-like equivalents and bonds 65%, precious metals 5% - This approach has low volatility, but may not keep up with inflation.); 2) "Target Date" funds which rebalance themselves; 3) SPIAs, etc. to cover basic needs and then just diversify the rest; 4) etc. etc.

Since "This is your life!" you need to find what makes you comfortable because, as always, YMMV.
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Old 02-27-2017, 06:00 PM   #13
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I agree with what is said above about SPIAs, but if you're young ish you may want to wait to annuitize a large sum as the payouts get so much better with age, plus the funds left invested usually increase over time.
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Old 02-27-2017, 07:00 PM   #14
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Old 02-27-2017, 07:08 PM   #15
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As we do not know the date of our demise, spending the last dollar before we croak is simply not possible. Of course with an SPIA the spigot is turned off with our last exhale. Nothing else does that.

The way I think about this is the following. My spending level already gives me what I need to keep me happy in the materialistic sense. If the market god happens to give a wonderful return that my stash grows to the sky like the more optimistic FIRECalc trajectories, I will up my spending along with it. I would still leave money behind, but so what?

I am currently happy spending $1. If my stash grows 50%, I will be spending $1.50, and that is a lot more than my previous level. I should not complain, even though I will be leaving behind more money than I originally thought possible. But if my stash shrinks to 1/2, I will not be kicking myself for spending more than $1 and helping its depletion.

One cannot have financial security and also manages to spend the last dollar before death. I guess if one is diagnosed with a terminal disease, he can rush out and burns much money in a hurry so as to leave nothing behind. I think I would be feeling sad and spending money would be the last thing I care about. I know because I was almost there!
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Old 02-27-2017, 07:23 PM   #16
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Originally Posted by Pellice View Post
I am within a couple of years of retirement with no spouse or kids. I have always planned for this (I have LTC, living will, and, most important, amicable relations with nieces and nephews.) But now I am nearing more decisions

One thing I cannot find any web information on is how to structure retirement income when one is NOT planning to leave an estate. My nieces and nephews are better off than I am, and, in any case, I think I will need most of my money myself. I have charities named as beneficiaries for most of my estate, but I really don't plan to leave much! Firecalc calculates me leaving more money than I want, but of course you can't take that as a given.

Anyone know of website information for this situation? I do searches for "retirement planning when not wanting to leave an estate," and similar searches, but I am always looped back into planning for leaving an estate.

Advice for the "spend it all" category?
There are probably a couple strategies that you might consider. Since you haven't mentioned a pension, I assume that you will be living off of your assets and social security. As you probably know, a "safe" withdrawal rate is somewhat of a worst-case scenario... with many more outcomes likely to die rich than to die poor or run out of money.

One strategy is to calculate a safe withdrawal rate and then ratchet your withdrawals if investment experience is favorable, otherwise limit increases to inflation. What you are effectively doing is "retiring again" each time you ratchet.

Another approach would be to follow a SWR until a certain age and then shift to a RMD approach where each year's withdrawal is the balance of your retirement assets divided by your estimated remaining life (similar to what the IRS requires for tax-deferred accounts).

Another thing to consider, particularly if you are in good health and have good family longevity, is to defer social security. By deferring SS you are in effect buying a COLAed annuity from the US government. For example, say your FRA is 66 and your FRA benefit is $2,000/month. Your age 70 benefit would be $2,640/month... $640 higher. But in order to get that extra $640 you need to not take $96,000 ($2,000/month for 4 years, from 66 to 70). So in effect, you are buying a lifetime COLAed annuity that pays $640/month (or $7,680/year) for $96,000 (or so interest per annum). That is a "payout" rate of 7.2% ($7,680/$106,000) which is very attractive for a COLAed annuity.
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Old 02-27-2017, 07:56 PM   #17
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Another approach would be to follow a SWR until a certain age and then shift to a RMD approach where each year's withdrawal is the balance of your retirement assets divided by your estimated remaining life (similar to what the IRS requires for tax-deferred accounts)...
The above works. The problem is that it tends to increase one's spending near the end of life. In contrast, many posters want to "front-load" the spending so that they can enjoy the money more when they are younger. However, that means they compromise the financial security when they get older.

It's hard to have your cake and eat it too.
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Old 02-27-2017, 08:16 PM   #18
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Old 02-28-2017, 09:27 AM   #19
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If you put, say, 50% of your port into a SPIA does that mean that the entire amount has to be sold in the conversion, thereby incurring a rather large tax hit?
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Old 02-28-2017, 10:15 AM   #20
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Firecalc and other retirement calculators also usually allow you to put in a "floor" of how much you want to leave at the end, so if you put "$0", your WR will be higher than if you put in some other number.
+1

I think this is the best answer to your question.

I plan to avoid SPIA's until I am at least in my mid 80's because most are not inflation adjusted and I believe payments are taxed as ordinary income. There is also institutional risk to assess. But when I am in my 80's it might be nice to have one, to provide regular income as I decline, at a much cheaper rate than what I would pay when younger. I am only 68 and personally I would not touch an SPIA right now with a ten foot pole (unless I was starving and trying to keep body and soul together).

BTW, my daughter is doing much better financially than I ever did, but I plan to leave her a substantial amount just in case she makes some dumb decisions and needs it in her old age. Just a thought.
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