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Old 08-15-2010, 07:52 AM   #61
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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.
This is pretty much our approach. We are fortunate to have annuities in the form of employer pensions that cover all the basics at present and I think that as we get older I'd want that security even if it meant buying SPIA(s).

We have children and although we've told them not to expect anything in inheritance I would expect that we will leave a sizeable chunk of cash to them but who knows what will happen. (If we live into our 80's the kids will be in their late 50's).

A few weeks ago we met a 58 yr old woman from Australia who had come over end of May for a 4 month vacation with her 87 year old mother. Her mother still had her 2 siblings and other relatives living in England and wanted a good long visit with them all before they were too old to travel. She paid for herself and daughter to travel business class and that is the sort of 'luxury' I can see us buying as our health gets worse, or much earlier if the prinicipal grows robustly.
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Old 08-15-2010, 08:04 AM   #62
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I've been reading a lot of books on retirement planning lately and I was a little amazed by the emphasis on leaving an inheritance. Sure if there's extra, you can have it, but I would never make different lifestyle choices based on leaving an inheritance for family. Of course, the big variable is WHEN you are going to die, so an emergency reserve or annuity makes some sort of sense.
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Old 08-15-2010, 08:56 AM   #63
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I've been reading a lot of books on retirement planning lately and I was a little amazed by the emphasis on leaving an inheritance. Sure if there's extra, you can have it, but I would never make different lifestyle choices based on leaving an inheritance for family. Of course, the big variable is WHEN you are going to die, so an emergency reserve or annuity makes some sort of sense.
No relatives are getting anything

Anything left over is going to friends and non-profits.
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Old 08-15-2010, 09:06 AM   #64
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Another area that people should consider when planning for their life income: How should one ensure that they have an income if the primary household financial expert becomes unable to make good decisions?

At the very least, the household financial "genius" should write-down a some instructions for their spouse. Rather than leave decisions up to someone that may get taken to the cleaners.

Without such a plan... the less experienced spouse may be wracked with indecision and opt for overly conservative consumption. Or worse, make very bad decisions or get taken to the cleaners by some shyster.
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Old 08-15-2010, 10:18 AM   #65
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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.
That's what we just did in May as well with a condo in Cozumel. We bought a little earlier than we originally planned but there are many excellent deals out there now for those with cash. We need to rent it at full price for 13-14 weeks to cover annual expenses. Six down & 8 to go. The diving is great though so I don't mind if we come up short once in awhile!

As to the OP, we have three kids and do wish to leave them something but nothing outrageous. Our plan is tough in that we want to spend down to about a level where we can leave them $100-200k each. I'm looking forward to the challenge!
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Old 08-15-2010, 01:03 PM   #66
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No relatives are getting anything

Anything left over is going to friends and non-profits.
Khan, can I be your friend

re: annuties
There is no law that says you can only have 1, if you are worried about the solvency of your insurance companies, then get a couple to spread the risk.
TJ
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Old 08-15-2010, 01:37 PM   #67
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The Question: When do you start purposely spending down capital?
Answer: When the doctor tells you, sorry you have 90 days to live.
That's a good time to spend like there's no tomorrow.
Steve
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Old 08-15-2010, 01:39 PM   #68
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I would be too heart broken to think of anything to spend money on.
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Old 08-15-2010, 02:16 PM   #69
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Regarding the original question, this is something I think about fairly often. As a (not so great) example, my Dad died three years ago with the most money he ever had. He saved, invested and FIRE'd at 55, back when being "FIRE'd" wasn't fashionable. From that point to his death 22 years later, he continued to save and invest and live a frugal lifestyle. So he spent a lifetime living below his means and saving for

On the surface, my conclusion is to live the kind of life you want and enjoy. Don't hesitate to spend if you want to and if it makes you (or someone else) happy. If you can do that all without dipping into capital, then I guess the kids, friends or charities will get it in the end. I'm trying to adjust my thinking on this, though, to possibly spend more. Unfortunately, I'm way too much like my Dad. Of course, my kids like it that way!
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Old 08-15-2010, 03:36 PM   #70
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In reference to people that retire die and leave money on the table for family, kids what ever.
I'm OK with that, in fact I hope I do.
The main thing to me is I lived my life, I got out from under the control of the man and I beat the system so to speak.
I will Cruise along and travel, camp, eat, drink and be merry as long as I can. That's good enough for me. I'm just enjoying being back to the point where I was at about high school age where I didn't have a lot of worries or cares in the world. Just kind of chilling, if you know what I mean. It doesn't take a lot to make me happy.
That's all I ever really wanted in life.
I guess I truly am a long hair hippie freak at heart.
Good to be back to the beginning,
Steve
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Old 08-15-2010, 03:39 PM   #71
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I guess I truly am a long hair hippie freak at heart.
Need picture as proof that you've still got hair.
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Old 08-15-2010, 03:52 PM   #72
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Need picture as proof that you've still got hair.
I'll have to work on that.
I said at heart not root.
Does hair on the face count?
The color isn't what it was, the length is not what it was and if I don't show the top side I might be able to slide by.
I can dream can't I ?
Steve
PS. I've found its always good to drag a friend in to take the heat.
I don't think that picture of Alan with hair is up to date, what do you think?
Look up to post #61
Oh well, he was my friend !!
Come on Alan, I know you have a good heart and sense of humor in there somewhere.
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Old 08-15-2010, 04:08 PM   #73
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Sorry for the taunt. Head hair is overrated anyhow. One of my favorite actors was Yul Brynner, and he was so cool. Much cooler than Kojak.

PS. What picture of Alan do you refer to? He never claims to have much hair left and has posted recent pictures showing his baldness.

Oh, you meant his avatar! He said that was in his 20s. A long time ago.
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Old 08-15-2010, 04:16 PM   #74
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Sorry for the taunt. Head hair is overrated anyhow. One of my favorite actors was Yul Brynner, and he was so cool. Much cooler than Kojak.

PS. What picture of Alan do you refer to? He never claims to have much hair left.

Oh, you meant his avatar! He said that was in his 20s. A long time ago.
No problem
Vanity is not one of my big hang ups.
I have a friend that has spent thousands of dollars trying to promote hair growth, guess what? Years later I think he wasted his money.
What a dummy,
Steve
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Old 08-15-2010, 04:26 PM   #75
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No relatives are getting anything

Anything left over is going to friends and non-profits.

Ha! We told our kids that their inheritance would be whatever the BMW was worth after they un-wrapped it from around the tree.
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Old 08-16-2010, 10:35 PM   #76
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LARS, what I've done in the past is separate your anticipated budget into a couple different sections.
1) Necessities such as 'regular' food (no fancy restaurants, eat mostly at home, etc.), utilities, housing/rent, property taxes, gasoline, 'average' car payment, maybe 1 modest vacation/year, basic clothes, toiletries, house maintenance, auto insurance, 1 round of golf at a public course every two weeks, etc.

2) luxuries - this would include incremental, such as the difference between your "desired" car and an "average" one, eating at a fancy steakhouse twice a month, starting your gem collection, taking 2 MORE vacations each year, membership to the country club, diamond cufflinks and rolex watches, granite countertops in the kitchen, the new jacuzzi you've always wanted, etc.

Then, set up an annuity to pay for item 1 for eternity. With the remainder, put it in an account and divide the amount by the number of years you expect to live (make an adjustment for inflation, and spend that much per year on the luxuries.

Re-evaluate annually. So if you have a good year in the stock market, spend more on luxuries. If a bad year, skip one vacation and delay the Lexus SUV purchase.

Enjoy!
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Old 08-17-2010, 12:05 AM   #77
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LARS, what I've done in the past is separate your anticipated budget into a couple different sections.
1) Necessities such as 'regular' food (no fancy restaurants, eat mostly at home, etc.), utilities, housing/rent, property taxes, gasoline, 'average' car payment, maybe 1 modest vacation/year, basic clothes, toiletries, house maintenance, auto insurance, 1 round of golf at a public course every two weeks, etc.

2) luxuries - this would include incremental, such as the difference between your "desired" car and an "average" one, eating at a fancy steakhouse twice a month, starting your gem collection, taking 2 MORE vacations each year, membership to the country club, diamond cufflinks and rolex watches, granite countertops in the kitchen, the new jacuzzi you've always wanted, etc.

Then, set up an annuity to pay for item 1 for eternity. With the remainder, put it in an account and divide the amount by the number of years you expect to live (make an adjustment for inflation, and spend that much per year on the luxuries.

Re-evaluate annually. So if you have a good year in the stock market, spend more on luxuries. If a bad year, skip one vacation and delay the Lexus SUV purchase.

Enjoy!
I think in the end the approach of trying to quantify several tiers of expenses makes sense.

Extrapolate out basic expenses until age 80 to 85 and then a second set of expenses of 5 to 10 years of assisted living/nursing home. Once you've set aside sufficient for those categories, what ever remains can be designated as "excess capital" and "spent" if so desired.

Where I differ with you is that I think it makes sense to self-annuitize at least at this juncture given the current inflation/yield curve.
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Old 08-17-2010, 07:20 AM   #78
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I think in the end the approach of trying to quantify several tiers of expenses makes sense.

Extrapolate out basic expenses until age 80 to 85 and then a second set of expenses of 5 to 10 years of assisted living/nursing home. Once you've set aside sufficient for those categories, what ever remains can be designated as "excess capital" and "spent" if so desired.

Where I differ with you is that I think it makes sense to self-annuitize at least at this juncture given the current inflation/yield curve.
I don't think we differ in that regard....I think annuitizing makes perfect sense.
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Old 08-17-2010, 07:55 AM   #79
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Isn't "self-annuitize" just a fancy phrase for "put some money into the fixed-income asset class"?

Extrapolate out basic expenses until age 80 to 85 and then a second set of expenses of 5 to 10 years...

On the surface, this seems to make sense, but I think this idea incorporates the fallacy of false accuracy.
When I ran various scenarios through a number of different retirement calculators it became evident that the end results were like a teeter-totter. Very bang-bang one way or the other. There was virtually no area in the middle where you'd die with a medium or large and stable amount of money. Either you ran out of money, or you account value was growing to the sky, limited by your death.

There is no finely-tuned SWR value that will let you spend what you want during your lifetime and will also not leave oodles of money for your heirs.
Thinking about it gave me a "Well, DUH" moment. The growth of an investment/savings portfolio is an exponential curve, and exponential curves have the characteristics of rapidly falling to zero or growing to the sky, depending on the exact parameters. Exponential curves never stay flat.
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Old 08-17-2010, 08:22 AM   #80
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The way I deal with the vagaries of investment return is to try to keep my fixed expenses as low as possible (easier said than done!). I then splurge on discretionary spending during good years and cut back in lean years. I don't see that skipping fancy foreign trips for a couple of years or delaying a new car purchase would hurt anybody.

The above does not guarantee that I will consume all of my assets as I die, but that is never the goal. However, it will allow me to reasonably enjoy my savings, yet not to have to worry about running out. And that's good enough. There's nothing wrong with leaving something behind for your offsprings or for charities.
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