When to do you start purposely spending down capital?

[LARS]

Quote:

Originally Posted by rescueme Ours is an uncommon situation since we plan for our, in addition to our (disabled) son's pre/post retirement. DW/me are age 62; I'm retired, she may be any day. Son is age 40; drawing SSD and will do so for the rest of his life (actually till turning age 62, when his SSD gets converted to normal SS). Due to his having to have "private council" on a weekly basis (he does live on his own and handles most of "life tasks", but must be directed/supported in a lot of “life skill” areas by us) our/his trust will require somebody to handle this task after we both are incapacitated or pass on. Rates will be around $100/200 hour (includes lawyer/trust, along with employment management, for “x” hours each week) and we are planning for his lifespan (disability will not impact that) for an additional 20+ years after we pass. BTW, we’ve had social services involved in our case for the last 5 years, but they are useless in our situation (it’s a long story). We know if we don’t plan for his future, he’ll probably be one of those old guys living under a bridge, someday. Additionally, his “relatives” want nothing to do with him/his situation. Families suck (I'm qualified to boldly make that statement). Our target for our liquidated assets, to be added to our existing trust, is $2M (current target, with annual increase for inflation), as a minimum for his care after we're gone. The advantage? We don't have to worry about spending anything down. Sometimes, life takes care of that decision for you. Please - no pity (hey, you asked for "experiences"). Luckily, we’re financially able to handle the situation, as we see it. The problem would be if we didn’t have the financial resources to back up our plan. Like the lines from the Stone’s song: “You can't always get what you want But if you try sometimes you might find You get what you need” BTW, if anything is left over after the three of us pass? It's going to my/DW's named charities.

Doesn't get any tougher than that and your situation brings a whole new level to the issue of capital preservation.

Good luck.

[FIREd]

DW and I have no kids. Spending down our capital (plus the substantial inheritance I will receive later on) is something I do think about but something that I would have a hard time implementing. Too many what ifs, no matter how old you are. So we will probably die with plenty of money in the bank and the big winner will probably be the government.

Of course, I may change my mind later on.

[rayvt]

Quote:

Originally Posted by Rustic23 those that say travel is curtailed after 70 might want to rethink that. As with just about everything on this board. "It depends!"

We dined with a delightful elderly couple on our last cruise in April. He turned 92 and she had her 84th birthday on the cruise.

[jIMOh]

IMO once you spend capital, its the point of no return (once you start, it would be tough to stop).

Unless 75% of spending is discretionary that is- but once I need to sell shares because mr market or mrs inflation reared their head, I could not see those same factors reversing to where I could go back to living off just interest and dividends.


I weigh this decision all the time... there is part of me which wants a legacy left behind- whether its a park named after me, leaving an inheritance to my kids, or something- I have a need to feel like this life and the efforts I have put in were not wasted or forgotten.

But for all I know this is the only life I have, so may as well live it up while I can.

[haha]

I think a "plan "to spend down capital makes little (no?) sense. Capital is power, it is like a rock at the top of a hill, or a loaded capacitor.

Capital spent no longer exists, it has become entropy.

Many here say that their level of expenditures make no difference to their happiness. If so, why not spend the minimum amount that lets you feel like you are living a satisfying life and leave the rest as stored energy to accomplish whatever you may need or strongly want to do as time goes by?

Ha

[MasterBlaster]

Quote:

Originally Posted by haha I think a "plan "to spend down capital makes little (no?) sense. Capital is power, it is like a rock at the top of a hill, or a loaded capacitor. Capital spent no longer exists, it has become entropy. Many here say that their level of expenditures make no difference to their happiness. If so, why not spend the minimum amount that lets you feel like you are living a satisfying life and leave the rest as stored energy to accomplish whatever you may need or strongly want to do as time goes by? Ha

ha:

What you say is true.

However wouldn't be a shame to pass on with all of that stored energy. Perhaps one should consider unleashing some of it while you are able to and while it could make a difference.

personally, I would spend half of it on fast women, booze, and wild times...

And the other half I would just blow !

[Rustic23]

At some point it becomes the choice of which makes you happier. The knowledge that you have $xxx,xxx in the bank, or a new sports car, big screen tv, computer, latest cell phone, trip to Bora Bora, _______________ fill in the blanks! Now the money in the bank brings me comfort. However, have you seen the new Miata?

[NW-Bound]

Quote:

Originally Posted by Rustic23 Now the money in the bank brings me comfort. However, have you seen the new Miata?

Nah! Cars ceased to excite me some 20 years ago. Money in the bank, however, keeps me happy.

[LARS]

Quote:

Originally Posted by haha I think a "plan "to spend down capital makes little (no?) sense. Capital is power, it is like a rock at the top of a hill, or a loaded capacitor. Capital spent no longer exists, it has become entropy. Many here say that their level of expenditures make no difference to their happiness. If so, why not spend the minimum amount that lets you feel like you are living a satisfying life and leave the rest as stored energy to accomplish whatever you may need or strongly want to do as time goes by? Ha

I guess it depends how much capital you have .

Hoarding capital to maintain power makes no sense to me-- I'll never rival Bill Gates so what's the point. The only power money/capital has is to further your goals:whatever those may be. Assuming you have more than needed, it is a complete waste IMHO to grow it for the sake of growing it. That is what this discussion is about.

At some point, saving for a rainy day is crazy... or I should say over-saving for a rainy day is crazy...

[Gone4Good]

Quote:

Originally Posted by MasterBlaster However wouldn't be a shame to pass on with all of that stored energy.

Nope.

I'll be perfectly happy to see that my life's savings does some good in the world after I no longer need it. I'll spend it the way other rich people do; by making charitable donations. I guess if I were depriving myself of lots of things then there might be "pent up demand" to spend more. But if I felt that way, then I probably didn't work long enough or save enough.

Of all my concerns in life, "dying with millions unspent" ranks somewhere below "having too much fun."

[ERD50]

This seems like the stage of life where some form of annuity could be appropriate. If you are at the age that you are convinced you have plenty, the longevity of the insurer is also less of a risk for you.

And with a lifetime cash flow, I think it would be emotionally easier to spend that as you go, you aren't 'tapping into' anything - it's already 'gone'! And you don't need to worry about running out of that income stream.

I think this can also be set up as a (IIRC) a "Charitable Remainder Trust"? Your charity gets a big cash donation, and they provide the life annuity to you, and they take what is left. I don't think you don't get full tax benefits, as the annuity offsets your contribution. But it might work for some?

-ERD50

[ziggy29]

Quote:

Originally Posted by LARS At some point, saving for a rainy day is crazy... or I should say over-saving for a rainy day is crazy...

If by "oversaving" you mean depriving yourself of some things and experiences that would enhance your enjoyment of life, I agree. But I also wouldn't spend for spending's sake just because I reached a point where I had more than I needed. I'd do more gifting and donations and look at leaving a nice chunk to my favorite charities. Chances are if I were in this "way more than I can spend" situation I'd derive more satisfaction and enjoyment out of knowing that than on most ways I could convince myself to spend money on stuff that didn't really increase my happiness.

[W2R]

Quote:

Originally Posted by LARS Lately I’ve been thinking about the issue of spending capital. In our particular situation we are in our mid fifties and have no real desire to leave a significant estate. Of course, we also have no desire to run out of money before we die. Still, I’m convinced that we have way more money then we need. I’m curious how others have thought this issue through: I’ve jokingly said that you want to be around my wife and me as we near our deaths as we’re going to spend money like water! Of course, if you knew the timing of your own demise the issue would come down to simple math. But in all seriousness curious for others thoughts/experiences…

Most of the SWR studies are based on probabilities of running out of money in 25 years, 30 years, or whatever is specified. So, if you are thinking of living on 4% then spending of principal is built in.

My SWR is lower, in the hopes of preserving inflation adjusted principal. I would like to leave something to my daughter. But also, in my old age (80+? 85+?) I would like to be cared for in a continuous care facility instead of expecting my daughter to spend the money and time to care for me. I regard my self-reliance in old age as a gift to my daughter that I would like to provide. So, my expenditures could rise at that point and I hope I don't have to begin invading principal.

At any rate, I think that age 80-85 will be the earliest at which I might have to touch the principal, if at all. I plan to reach my early 80's with my inflation-adjusted principal intact. Right now my financial plan goes to age 95, but if I live to age 80-85 I will need to extend that plan past age 95 to age 100-105 due to familial longevity.

So, in my 80's and older there will be a financial "crunch" from two directions: I will be adjusting my financial plan and withdrawal rate to last for 5-10 years longer, and yet I will have greater necessary expenditures. Hopefully the decrease in discretionary expenses will make up the difference but depending on how long I live and how bad my "end of life expenses" turn out to be, there may be a greater need to spend down principal.

[ERD50]

Quote:

Originally Posted by W2R Most of the SWR studies are based on probabilities of running out of money in 25 years, 30 years, or whatever is specified. So, if you are thinking of living on 4% then spending of principal is built in.

W2R, this is something you've said a number of times. It isn't true, and it misrepresents what FIRECALC tells us. People are confused enough by what FIRECALC can and cannot do, I hate to see any confusion added to the mix.

If a FIRECALC run gives you a 95% success rate for 30 years, that means that historically, you would have run out of money before year 30 in 5% of the trials. It does not tell us that we spent our principal in the other 95% of the cases. In fact, in roughly half the cases, we will end up with MORE principal than we started with (even after adjusting for inflation), and in some of the cases, much, much more. (edit/add) - and with many of us taking a more conservative WR, it is far more likely that we will have significant principal to spend down, as the OP is considering).

Here's the default scenario - 30 years, 4%, $750,000 portfolio:

Quote:

The lowest and highest portfolio balance throughout your retirement was $-300,739 to $4,259,606, with an average of $1,313,717.

go here:

FIRECalc: A different kind of retirement calculator

Hit the "SUBMIT" button and see for yourself in the results graph.


-ERD50

[ziggy29]

Quote:

Originally Posted by ERD50 W2R, this is something you've said a number of times. It isn't true, and it misrepresents what FIRECALC tells us. People are confused enough by what FIRECALC can and cannot do, I hate to see any confusion added to the mix. If a FIRECALC run gives you a 95% success rate for 30 years, that means that historically, you would have run out of money before year 30 in 5% of the trials. It does not tell us that we spent our principal in the other 95% of the cases. In fact, in roughly half the cases, we will end up with MORE principal than we started with (even after adjusting for inflation), and in somef the cases, much, much more.

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.

I think the point is this: The calculations in FIRECalc assume you ***may*** have to spend down principal to maintain a given withdrawal rate, but it's not a foregone conclusion. If growth in the portfolio fails to match your withdrawals, it will dip into the principal. If growth is sufficient, it won't eat principal. The more you withdraw, the more likely you'll be to eat into the principal.

It's not that FIRECalc assumes you will eat into the principal, but that its success rates include scenarios where you will have to. And thus to get the success rates the tool indicates, you have to be willing to spend down principal, all the way down to nearly zero if need be. If you are not willing to spend down principal, then FIRECalc's results will overstate your chances of success.

[W2R]

Quote:

Originally Posted by W2R Most of the SWR studies are based on probabilities of running out of money in 25 years, 30 years, or whatever is specified. So, if you are thinking of living on 4% then spending of principal is built in.

Quote:

Originally Posted by ERD50 W2R, this is something you've said a number of times. It isn't true

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.

[Pete]

Quote:

Originally Posted by LARS Lately I’ve been thinking about the issue of spending capital....... I’m curious how others have thought this issue through........ But in all seriousness curious for others thoughts/experiences…

I don't think my original goal was to retire early. All the money I saved happend because there just isn't anything I want. The good things in life are truly free(except for shelter,food and water). Since I don't want, I don't spend. Instead of doing something unnatural for me, I would give the money to charity.

[LARS]

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.

[rescueme]

Quote:

Originally Posted by LARS Based upon the reponses it would seem no one has yet to confront the "problem" (albeit a high class one) of substantial excess capital.

Heck, that's not a problem. I would rather die with money than live without it.

If you don't have the money to live your retirement in the manner you wish, due to not having the money - then you have a problem ...

[ziggy29]

Quote:

Originally Posted by LARS Based upon the reponses it would seem no one has yet to confront the "problem" (albeit a high class one) of substantial excess capital.

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.