Return more than planned

[unclemick]

Old Bill Bernstein has been known to mention Angus Maddison - The USA is not Argentina or Egypt - stock markets that had their day in the sun.

Even the Norwegian widow with her dividend checks may not have a fully adequate defense against political, economic or military boo boo's.

A valid passport and broad international diversification 'may' help in less extreme cases - a little Bear Bryant 'agile,mobile, and hostile.

Party on!

heh heh heh - I have no plans to haul sacks of gold and silver coins across borders or on airplanes.

 

[CCdaCE]

This analysis is not correct, as the replacement is only for eight years, not for the 30-35 years that the 25x multiplier accounts for. To replace the 15.6K you would need only the 124.8K invested at zero percent real return, drawn down over eight years.

Thanks. I realize this, I just didn't go to the trouble that kcowan did. To figure out what 15.6K is worth at present value at an unknown rate.

To purchase an 8 year annuity earning 4.5% would cost $103,000 at age 62 so this is exactly what you are foregoing to get the higher payments starting at age 70

Anyway, three money streams here. Start at 62 SS, start at 70 SS, maybe a start at 66 SS. C-T was only talking about the difference between SS at 62 and SS at 70. What about the initial SS at 62... that's the only point I was trying to make.

Back to mediocrity.

-CC

 

[donheff]

don, I kinda get what you are saying here: but on the other hand, as Firecalc totes up more "good" years in its database, then don't its assumptions get incrementally more rosy for all concerned? Add more years of double-digit returns and the 'canonical' return of 7% could creep up to 8%, tempting us with a higher SWR, which in turn might make a bad patch seem that much worse.

I don't think a few good years now will make much difference in Firecalc's projections. The reason the projection will remain rosy when you start fresh with the original+3% portfolio is that the historical chance of failing is no worse now than before. If as of last year you could survive the worst historical period with a $1M portfolio and $40K SWR (adjusted for inflation) you can survive this year with a $1.03M portfolio and a $40.03K SWR. Edit: $40.012K or something like that.

---
People's advice about the projects and "mad money" are sound. Unfortunately the projects have some overlapping electrical and plumbing issues that might be easier and more cost-effective if dealt with in one fell (and scary) swoop.

...details...

Wow - quite a dilemma. Better you than me

 

[ladelfina]

lazyday, "right around 100%" means w/o spending this year's "excess" we are at 100. If I spend it we are at 98.8% or something like that.

(what's tempting me to spend it is the fact that we will get some inheritance, but I have not figured this into Firecalc, nor have I put in any SS.. not wanting to count chickens before they hatch, etc.)

Some conflicting opinions here, though..

- lazyday doesn't think 4% is safe.. (I know it is always "prudent" to err on the side of caution)
- Bernstein says over a long period even an 80% of success is probably good enough..
- and don, your reasoning is perfectly sound, but you seem trusting that the future will not hold anything worse than what we have already seen.

I know it all boils down to having a crystal ball.. but when I see everyone crunching their numbers and the reasonable level of faith they have in Firecalc (a v. good app!).. it's hard not to get sucked into a level of detail (100% vs 99%... vs. 101%?) that may be unneccesarily distracting.

--
Greg wrote me about using copper sulfate to mitigate the root/drain issue, so maybe the kitchen will be project #1. Everything is more complicated because the house is entirely stone/brick/concrete/tile so even that will be a challenge. Just putting in a new outlet takes 1/2 a day (chip chip chip with a little hammer and chisel). Re-routing drain pipes means chopping up the slab floor.. what fun!

The funny thing is that this house could go on for another 50 or 100 years without changing anything; it's just that it's not really built for modern life. Everything is minimalist, from the wiring (think naked wire running underground to the garden lights -- who needs conduit?-- and "one outlet is all you need in the kitchen, right?") to the insulation (zero). I won't even go into the other electrical wierdnesses.. it would turn into a book.

However, at the time it was built (1969-70) it was the height of luxury for a "country" house!
Some people even today live in apt. buildings in Rome with no central heating, so I should just be thankful we have radiators.

 

[lazyday]

I think Firecalc or Trinity are only part of the story, especially for someone who could potentially be around for another 50 years.

Perhaps wage inflation will vastly outstrip monetary inflation in the future, putting retirees way behind. Or, accelerating technological innovations drive down the cost of living so far, that even the poor live quite well. A major country goes bankrupt. We run out of oil, cook the planet, or unleash nanobot or biological destruction on one another. We "cure" aging so people can live for hundreds of years. The cure may be very cheap, or so expensive few can afford it.

I don't worry too much about these things, but would like to be able to afford optional health care services and products, should worthwhile ones be invented.

The funny thing is that this house could go on for another 50 or 100 years without changing anything; it's just that it's not really built for modern life.

Would it make sense to sell the house to someone who is ok with how it is, and buy a more modern one? (Sorry if you discussed already and I didn't catch it.)

 

[rmark]

The past 4% withdrawal is based on a the u.s history of a fairly specific asset mix. Stepping outside that mix, or increasing the past return sample size to include other market history gives different results. In short, something like this-

u.s. history only, no investing cost, retiree 60/40 stock bond = 4%, 40/60 stock bond = 3%
u.s. history only w/ investing costs, retiree 60/40 stock bond = 2%, 40/60 stock bond = 2%
u.s. int’l history w/ investing costs, retiree 60/40 stock bond = 0%, 40/60 stock bond = 0%

Resulting in something like -
late life 0% after tax net real returns from badly timed ever more conservative portfolios

Low cost index funds don't exist before about 1975, and aren't popular before about 1985. Most investors historically had either high fund costs from actively traded funds or small portfolios from individual securities resulting in non-average returns.

Cooley, Hubbard, Walz “Sustainable withdrawals from your retirement portfolio” paper
Dichev “What were stock investors actual historical returns?” paper
Dimson, Marsh, Staunton “Irrational optimism” paper
Jorion “Long term risks of global stock markets” paper
Jorion, Goetzmann “Global stock markets of the 20th century” paper

My opinion, which may well be worth what you're paying for it.

 

[rmark]

With late life 0% returns, you may well just be dividing your money over your life time -

Divide after tax fixed pensions and mixed portfolios annually over IRS life expectancies, withdrawing part and reinvesting the rest, thus adjusting fixed pensions for past inflation and matching conservative withdrawals to 401k plans required minimum distributions.

Spend the lesser of the new annual division or the previous year’s division plus inflation.

Withdrawal varies with portfolio value, but stable cash from bonds, pension & dividends.

 

[rmark]

oh yeah -

My opinion, which may well be worth what you're paying for it.

 

[unclemick]

Oh Yeah - I have friends at the IRS.

I have to croak precisely at 84.6 or some such nowadays plus there's this pesky RMD thing wherein they get their tax cut starting a 70 1/2. If I don't croak on time - at least they get their taxes.

A little tongue in cheek post.

heh heh heh heh heh - 5% variable plus small pension plus early SS. The first 13 years were less than elegant spreadsheet wise - but fun - perhaps now that I'm old I will settle down to a plan. 5% variable - unless I change.

 

[rmark]

I suspect your friends will want more $$$ from me now that my daughter is graduating college and probably off to law school. Its a painful day when your only deduction leaves home.

 

[FIRE'd@51]

I suspect your friends will want more $$$ from me now that my daughter is graduating college and probably off to law school. Its a painful day when your only deduction leaves home.

Not as painful as having the deduction and paying for law school for her.

 

[rmark]

My brother asked what she wanted for christmas. I suggested
1. scholarship to law school
or
2. wal-mart gift card.

For some reason he preferred choice number 2.

 

[Cut-Throat]

In regards to delaying SS, maybe you'll have to reference the original conversation... and I missed this part but...

What about the $125K you gave up based on NOT getting roughly $1300/month or $15.6K for the 8 years between 62 and 70. The $15.6K income times 25 would require a portfolio of $390K.

There must be a breakeven analysis in here somewhere...
-CC

I agree that I have an error in my calculation, but you have a larger one in yours. Let me explain and correct it.

Yes, there is the $125K plus some interest you forego by not taking SS at age 62. This would work out roughly to $150K at age 70. This would throw off an additional $6K of income with a SWR of 4% from age 70 on. So with an extra $14K of income at age 70 offset by $6K would still give you $8K more per year - Or the Equivalent of needing an extra $200K in your portfoilo, if you took SS at age 62 to match the income gained by delaying to age 70.

The extra 15.6K of income that you referred to would not require a portfoilo of $390K because it only lasts for 8 years. Rather than a 40 year span which the 4% is usually calculated from.

So, even ignoring some tax advantages, delaying SS to age 70 allows you to spend an extra $200K+ from age 62-70 and still be in the same portfoilo position as if you did not spend it and took SS at age 62!

The break-even point that you reference is irrelevant, if you are concerned with spending money instead of heaping it in a pile to leave to some heirs! I used to think about it this way, until I started thinking in terms of spending the money instead of piling it up!

 

[CCdaCE]

Fantastic.

Yeah, others corrected me, that it wouldn't take $390K for only 8 years. I agree.

Your new number sounds better.

-CC

 

[Duke of Sands]

Cut-Throat- sounds good:
So, even ignoring some tax advantages, delaying SS to age 70 allows you to spend an extra $200K+ from age 62-70 and still be in the same portfoilo position as if you did not spend it and took SS at age 62!

BUT I tried a few FireCalc runs and could not get it to give me that dough! I compared taking SS at 62 with the corresponding benefit from my annual report to starting SS at age 70 with the higher benefit, got the same WR and %! What could I be missing (ignoring the "Tax Torpedo" for now)?

Thanks
DoS

 

[Cut-Throat]

Cut-Throat- sounds good:
So, even ignoring some tax advantages, delaying SS to age 70 allows you to spend an extra $200K+ from age 62-70 and still be in the same portfoilo position as if you did not spend it and took SS at age 62!

BUT I tried a few FireCalc runs and could not get it to give me that dough! I compared taking SS at 62 with the corresponding benefit from my annual report to starting SS at age 70 with the higher benefit, got the same WR and %! What could I be missing (ignoring the "Tax Torpedo" for now)?

Thanks
DoS

OK, I played with FireCalc a bit, and I indeed got a higher SWR for delaying SS to age 70.

I took all the FireCalc defaults and plugged in my SS at age 62 (which I set for this year) and got a 6.10% SWR for the default 30 year plan. I then plugged in my age 70 SS numbers for 8 years from now. I indeed got a 6.29% withdrawal rate for Delaying SS to age 70.

This is not as dramatic as being able to spend an extra $200K between age 62-70, but remember this is for the entire life of the plan - 30 years.

Play around with the defaults of FireCalc first and once you are convinced you get different numbers, then you can start varying the other numbers for your personal plan.