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Old 08-11-2010, 12:00 PM   #41
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Based upon the reponses it would seem no one has yet to confront the "problem" (albeit a high class one) of substantial excess capital.

And for the record, how to "spend" was never the issue: be it for donations or diamonds.
If you spend your substantial excess capital, or donate it, then isn't it gone and no longer a problem? Perhaps we are unclear as to other issues you are referring to.

As for spending, believe me, the "end of life expenses" that I referred to can eat up substantial excess capital and solve that problem for you nicely (if you wish to spend your last days in comfort with the best of care).
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Old 08-11-2010, 01:34 PM   #42
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Originally Posted by LARS View Post
Based upon the reponses it would seem no one has yet to confront the "problem" (albeit a high class one) of substantial excess capital.
I'm not surprised - most of us would have to be pretty far along in life before we decided we had 'substantial excess capital'. One can still be concerned about an extended period of needing nursing care, and not want to burden their children, or end up w/o the money to afford first class care. Even though it's the exception, we can't rule it out.

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I don't think she's saying what you are inferring here. I don't think she said FIRECalc assumes you WILL definitely consume principal.
Well, within the context of this thread, I really didn't see anything else to infer from it. She didn't say that maybe half of the people may have to consume principal. This thread is talking about the (looks like more than half on the chart) folks that end up with more buying power at the end of their retirement than they started with. That's even more true of those of us shooting for less than 4% WR.

Plus, she has said it directly a few times in previous threads - but did not reply when questioned (not just by me). Repetition reinforces things, and I wouldn't want someone to get the wrong idea (even if that wasn't the meaning that was intended).


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From the Trinity study, second sentence, "A portfolio is deemed a success if it completes the payout period with a terminal value that is greater than zero."

This is what I am referring to. One can conclude that with a 91% chance of success at an inflation-adjusted 4% SWR, there is a finite probability of dipping into principal.
Yes, some will need to dip into principal. But I still don't see how that is relevant to this thread? The OP is talking about those many folks that will end up with more than they started with. And how are they dealing with it? I think it's an interesting question. The 'eat dog food and take in a border' side of the coin has been discussed many, many times. This is refreshing. I think that old guy that married Anna-Nicole was too busy (or tired) to post at the time.

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Old 08-11-2010, 01:40 PM   #43
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Because I don't consider it a "problem" to have it and never feel a need (or even a strong desire) to spend it. So if that means I can't relate to angst regarding this topic, so be it.
Agreed. Wasn't there a thread recently where the economist referred to any surplus we die with as 'wasted'? Sure, from a purely economic viewpoint, if that happens we underutilized our resources. But given the unknowns in life and death, all we can really call it is necessary 'overhead', under the category of 'being prepared'. In the same way that insurance is 'wasted' if we never need it. So what? You pay your price you take your chances.

But, it's still an interesting question - what to do if we are one of the positive lines on the FIRECALC chart? V8 wheelchair?

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Old 08-11-2010, 01:46 PM   #44
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If you spend your substantial excess capital, or donate it, then isn't it gone and no longer a problem? Perhaps we are unclear as to other issues you are referring to.

As for spending, believe me, the "end of life expenses" that I referred to can eat up substantial excess capital and solve that problem for you nicely (if you wish to spend your last days in comfort with the best of care).
It doesn't sound to me like the problem is how to get rid of the money, but when it is safe to start splurging. Like, maybe they are traveling where they want but would like to start going first class, but not if it's going to make them run out. But there's no reason to deprive themselves of luxuries if they have no one to leave the money to. That's the "problem", as I see it. I could be wrong.

It seems to me that if you've been withdrawing considerably less than 4% (or 3 or 3.5% if you want to be conservative), you can start withdrawing that amount, and also the amount you had not been withdrawing over the years is also safe for splurging. I would probably start with 3%, and see if you earmark that extra amount for luxuries, if it still makes sense.

So for example, say you started off with $5M 10 years ago, which at a 3% SWR rate lets you withdraw $150K/yr. But, say you've only been pulling out $100K/yr, leaving $50K in the nest egg each year.

Now, you could withdraw $150K/yr, plus you could earmark 10 years of the $50K you hadn't been touching, or $500K, for your luxury fund to spend anytime. This actually ignores what the $500K has been earning over those 10 years, but the last 10 years haven't been great for most of us anyway.

Then you do a sanity check on what your net worth is now, and whether it makes sense to essentially take $500K out of it, and still withdraw $150K/yr.

Or maybe I missed the whole point.
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Old 08-11-2010, 01:53 PM   #45
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It doesn't sound to me like the problem is how to get rid of the money, but when it is safe to start splurging. Like, maybe they are traveling where they want but would like to start going first class, but not if it's going to make them run out. But there's no reason to deprive themselves of luxuries if they have no one to leave the money to. That's the "problem", as I see it. I could be wrong.
Keep in mind that the 4% rule is designed to allow you to "reset" at any time. (The same would be true for any withdrawal rate under 4%.)

Let's say you started with 3.5% to add a margin of safety. So if your portfolio performs well and, after a few years, your initial 3.5% is down to 2.5%, you could increase your withdrawals by 40% and "reboot" with a 3.5% withdrawal rate moving forward. Alternatively, you may take out a one-time lump sum that lowers the portfolio value but keeps future inflation-adjusted annual withdrawals below 3.5% of the new portfolio value.

And again, your point about "depriving themselves of luxuries" is well taken **if** those luxuries are something they'd find adds to their quality of life, and I don't think anyone has argued to the contrary. I think what some of us are saying that if that is *not* the case, spending simply for its own sake -- where it really doesn't add to your ability to enjoy the rest of your life -- makes little sense.
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Old 08-11-2010, 03:18 PM   #46
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The 4% rule is based on a worst-case 30 year retirement model.

If you just happen to retire into a better than horrible market or if you are older and only need say 10 or 20 years then your safe withdrawal rate can be considerably higher.

The chart below is from Bernstein. Notice that when you have 10 years left it is indeed safe to withdraw 7.5%
Attached Images
File Type: gif SWR2.gif (13.9 KB, 1 views)
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Old 08-11-2010, 04:14 PM   #47
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Because I don't consider it a "problem" to have it and never feel a need (or even a strong desire) to spend it.
My wife informs me that she can always manage to find something to spend excess money on.
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Old 08-11-2010, 04:31 PM   #48
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I'm going to start drawing money from my retirement accounts in January. I'll be 60 and I would be forced to withdraw by 70.

Don't have to spend it all. Will spend some and give away some.

"Money's like manure; it's no good unless you spread it around and help things grow."
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Old 08-11-2010, 06:45 PM   #49
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Many of the posters have brought up the possibility of needing to spend a lot of money in the final stage of life. Having seen my late father several times a week in his last 6 months of life, and now with my father-in-law in a nursing home, I can say that one can spend a lot more money and it would not make that much of a difference. I have discussed this with my wife, my siblings, and my brothers and sister-in-law, and that has been our consensus. There is of course a difference between a hobo lying in a gutter waiting to expire and a billionaire being pampered by a personal nurse like Anna Nicole, but for the rest of us, it hardly matters if one spends twice or three times more money.

A recent movie that I saw, "The Savages", portrays that very well.
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Old 08-11-2010, 06:49 PM   #50
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I can say that one can spend a lot more money and it would not make that much of a difference.
Just be sure to get a place that can at least keep you from getting bed sores. By the time many of us reach life-end, we will be "offered" euthanasia. Probably not a bad deal. It is made less attractive today because it has a stigma attached to it, for the sick person and for his family. And also because someone else is often paying for "care".

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Old 08-11-2010, 06:54 PM   #51
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Just be sure to get a place that can at least keep you from getting bed sores.
By frequently visiting our parents, actually on a daily basis, we have been able to prevent that.

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By the time many of us reach life-end, we will be "offered" euthanasia. Probably not a bad deal...
I personally hope for that, to spare me the burden of having to travel to Holland when my time comes.

If and when one becomes bedridden, the logistics and cost will be considerably more than a first-class one-way ticket.
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Old 08-11-2010, 07:02 PM   #52
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It doesn't sound to me like the problem is how to get rid of the money, but when it is safe to start splurging. Like, maybe they are traveling where they want but would like to start going first class, but not if it's going to make them run out. But there's no reason to deprive themselves of luxuries if they have no one to leave the money to. That's the "problem", as I see it. I could be wrong.
You understand the issue correctly. Luxuries are obviously a relative issue, but travel is a good example.

Historically, we would rarely pay for a first class airline ticket (not because we couldn't afford it, but because of a generally frugal nature on this kind of item). But there will be/is a time where the expense of first class, or even private aviation when we want to travel with our dog, is irrelevant.
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Old 08-11-2010, 07:09 PM   #53
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You understand the issue correctly. Luxuries are obviously a relative issue, but travel is a good example.

Historically, we would rarely pay for a first class airline ticket (not because we couldn't afford it, but because of a generally frugal nature on this kind of item). But there will be/is a time where the expense of first class, or even private aviation when we want to travel with our dog, is irrelevant.
You must be an extreme outlier on this board, or you are assuming very good returns going forward. Because I think that $10mln usually does not put one into the business jet category, even if you would be leasing.

Ha
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Old 08-11-2010, 07:51 PM   #54
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You must be an extreme outlier on this board, or you are assuming very good returns going forward. Because I think that $10mln usually does not put one into the business jet category, even if you would be leasing.

Ha
Netjets et al can make the use of private aviation "reasonable" assuming you aren't going somewhere every month! But once or twice a year could certainly fall into the category of using excess capital.

As to being outliers I don't know, but the original question is not based upon future expected returns but current capital. Quite frankly I'm expecting poor returns over the next decade relative to historical norms.

Edit: To put it into perspective, you can currently get 25 hrs. at $116,000 on Marquis Jets (which subleases NetJets).
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Old 08-11-2010, 08:00 PM   #55
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It doesn't sound to me like the problem is how to get rid of the money, but when it is safe to start splurging. Like, maybe they are traveling where they want but would like to start going first class, but not if it's going to make them run out. But there's no reason to deprive themselves of luxuries if they have no one to leave the money to. That's the "problem", as I see it. I could be wrong.

.
That's the way I see the "problem" too, and I think it's worth talking about.

Lots of us consider the principal our "end of life emergency fund". If we don't need it for end of life care, we'll be happy to leave it to the kids. Problem solved.

Others say they've got more than they can imagine using like that, but they are uncomfortable seeing the principal go down because it's a one-way street. Once it's gone, it's gone.

It's really more of a psychological issue than a financial issue. RunningBum's approach does a calculation to give yourself permission to spend. I think that makes some sense. (I'm working part time for my former employer this month. I'm planning to spend the money on stuff I could afford from my regular savings, but since it feels like "found money" I find it easier to splurge.)
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Old 08-11-2010, 08:07 PM   #56
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We plan to spend our "wad" on treats of experience while we are still young enough to enjoy them. So travel, travel, travel & more travel is on the agenda. We have also toyed with the idea of a vacation condo in a warm sunny place with great Scuba diving like Hawaii, Bonaire, California, etc.
Also DINKs. Also our plan. Bought the condo in Kona a couple of years ago. Now we get to scuba dive there any time we want and rent the place out teh rest of the time.

BTW, this is a great time to buy in those places you mentioned.
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Old 08-11-2010, 09:01 PM   #57
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There have been a lot of comments on the expense of 'end of life' care. My father spent less than 6 months in a home, covered by Medicare and supplemental insurance. Mother died in her sleep at home. Mother in law was in and out of hospital, and nursing home over a two year period. All covered by Medicare and supplemental. Father in law in and out over a year and a half, all paid for.

I am not saying that there could not be significant expenses, but I would like to see more statistics as to how often these are not covered. I believe Alzheimer would be a case in point. You hear a lot about this disease, but what is the percentage of occurrence in the population?

Edit: I did a quick Google search and came up with figure of 5% and 10% of the population over 65 have alzheimers.
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Old 08-12-2010, 11:38 PM   #58
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.

I am not saying that there could not be significant expenses, but I would like to see more statistics as to how often these are not covered. I believe Alzheimer would be a case in point. You hear a lot about this disease, but what is the percentage of occurrence in the population?
Medicare will pay for nursing home care only if the patient is recovering, and the stay is less than 90 days. Once either is found not be happening then its off to private pay or Medicaid if you have no assets.
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Old 08-13-2010, 09:11 AM   #59
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MIL spent time in the hospital, was moved to a rehabilitation wing for some time, to a nursing home, back to the hospital, back to the nursing home (the 90 day reset), I think back to the nursing home again and finally to the hospital where she died. There was also some at home time in there. All total about two years. FIL was hospital, home, hospital, nursing home, home, hospital, home. Interesting the last home care which lasted several months was under hospice. In talking with the hospice people they said it would be paid for until he died no matter how long that took. In his case about three months. When he was at home during all of this, he had health care providers in several times a week. Some to bathe him, some to do medical test, some for physical therapy. There was a time during MIL's illness that the nursing home benefit was going to run out, but that is when they put her back into the hospital.

I just did some googling, and this, while a little dated, seems to have some good information.

Nursing Home Statistics
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Old 08-15-2010, 05:07 AM   #60
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This is the mystery all of us would like to solve!!!


Because of the uncertainty of longevity and other variables with markets (if the assets are invested) it is complicated. It is a maze of personal considerations.

Many have stated some technical approaches. One of the big challenges is working through the personal issues and fears.

IMO - When one approaches the end, no amount of cash reserves will matter or lessen the final outcome... death! DW and I hope to spend it while we can enjoy it.


Our goal is to develop a fairly rock solid base income to cover lifelong non-discretionary spending and some base discretionary spending. Put back an emergency reserve and spend the rest (on things we want... not to just spend it).

How we would best approach this goal is where I struggle.

I have considered using a couple of SPIAs (for DW and I) to fill the gap for a base income... but vacillate on whether it is the best approach.



Anyone read any books on the subject?
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