Winning?

[Shanky]

For the hypothetical Early retiree who wants to "finish" with just enough for a funeral and a party, what approach provides the best chance of achieving this outcome? Short of taking your self "out" when the bank account is almost gone, it seems a FireCalc 50% success rate would give the best mathematical chance of balancing the odds of outliving your money with leaving money on the table.

I would ask those who have achieved this, but they are hard to track down.

 

[Big_Hitter]

I don't think so. I think that means you have a 50% chance of living on cat food for a number of years.

 

[stepford]

Are you equally troubled by the idea of running out of money before you die and of having something left over? I suspect most of us would much sooner avoid the former than the latter and hence most would regard the 50% likelihood strategy you propose to be suboptimal.

This is why one most frequently sees people around here talking about success likelihoods of 95-100% in Firecalc et al.

 

[W2R]

I don't know. I may be greedy, but I am just not THAT greedy. Honestly if I work at it, I think I can bear to live with the thought that I left $1.98 on the table for my heirs to squander.

(Or, a few hundred thousand).

I generally go with 95% or 100%, depending on my mood.

 

[RobbieB]

I could never plan something as close to the wire as that. I couldn't sleep at night.

It would have to happen by me somehow living way longer than the actuaries predict.

 

[2017ish]

For the hypothetical Early retiree who wants to "finish" with just enough for a funeral and a party, what approach provides the best chance of achieving this outcome? Short of taking your self "out" when the bank account is almost gone, it seems a FireCalc 50% success rate would give the best mathematical chance of balancing the odds of outliving your money with leaving money on the table.

I would ask those who have achieved this, but they are hard to track down.

Sounds like a textbook case for annuitization. (Just put enough aside for the party and burial)

 

[Meadbh]

Never mind winning: haven't you heard of loss aversion?

 

[YVRRocketSurgery]

Not sure if I fully understand the OP's question but apart from the current poor payouts, I think an annuity would fit their definition of "winning" if they live longer than average.

 

[Midpack]

I don't recommend annuities, but it's the only way to die broke short of depending on a pension or Soc Sec for your entire income. If your portfolio is part of your retirement income, there are too many variables to plan to die broke...

 

[Cobra9777]

I don't want to end up like my in-laws. They retired in the early 1990s at 60 with a little over $1M, which I'm sure seemed like a huge sum back then. They had a decent non-COLA pension and took SS at FRA. MIL's SS was insignificant since she only worked about 10 years after the kids moved out.

They are now 85/84 and health is not good, but not bad for their age. Their only assets are $150K home equity, an old car, and about $90K in an IRA. They live modestly on SS, RMDs from what's left of the IRA, and the non-COLA pension, which now seems minuscule compared to when it started. The savings are barely enough for one year of LTC for one of them, if needed. So DW and I worry about that constantly.

They traveled the world extensively in their 60s and 70s and lived in a very nice house on the Florida coast. FIL went back to work consulting for a few years after they realized the burn rate was too rich for their resources. They now live nearby so we can help them, and they are increasingly dependent on us for everything. If/when they run out of money, all the burden will fall on DW and myself. DW's only sibling is in no position to help and lives in another part of the country.

All my retirement planning is based on having a certain sum leftover at our actuarial life expectancy. That amount should be sufficient to cover any of the risks typically talked about here: runaway inflation, LTC, longevity. Hopefully, we won't encounter more than one of those. Above all, we don't want to be a burden to our kids. And if none of that bad stuff happens, they will enjoy a nice inheritance.

So yeah, I'm in the 95-100% success-rate club. And after 3 years of retirement, we're still only spending about 70% of what FIRECalc says we can at 100%. That's largely a result of all the uncertainty surrounding the in-laws, which is not something I specifically planned for.

 

[ivinsfan]

So Cobra, are your in-laws actually short of cash every month? On the long term care things it seems like everything they own would be exempt from spend down. If one of them went in the the other would be able to keep the house, the car and would get income to meet their bills. Even the IRA would probably still come out as RMD....

Now they might file a lien on the home for when the second ones dies, but that's it. Granted it's not ideal. Do they qualify for food stamp or any other kind of assistance? Do they get meal on wheels,is your FIL a veteran who can qualify for almost free meds and medical care and even nursing home? Of course if your family is out of pocket every month providing basics for them, that's a different story. But there should be some assistance out there for them.

 

[Cobra9777]

So Cobra, are your in-laws actually short of cash every month? On the long term care things it seems like everything they own would be exempt from spend down. If one of them went in the the other would be able to keep the house, the car and would get income to meet their bills. Even the IRA would probably still come out as RMD....

Now they might file a lien on the home for when the second ones dies, but that's it. Granted it's not ideal. Do they qualify for food stamp or any other kind of assistance? Do they get meal on wheels,is your FIL a veteran who can qualify for almost free meds and medical care and even nursing home? Of course if your family is out of pocket every month providing basics for them, that's a different story. But there should be some assistance out there for them.

No, they're not short of cash, but they have significantly downsized their lifestyle, partially just due to age (less travel, smaller house) and partially due to lack of available funds. As an example, I've seen them stress over whether to upgrade their hearing aids or delay needed dental work.

None of the benefits you mentioned are applicable. DW and I take care of most of their needs, like driving them to doctor appointments and helping with tax returns, paying bills, and other administrative stuff. But no financial assistance right now as they are living OK on SS, RMDs, and a very small pension. It's the LTC thing that's worrisome, combined with the continually-shrinking IRA. Also FIL had a stroke and is not able to function independently. So if MIL needs LTC, essentially they'll both need care.

My larger point was... they didn't really plan this out too well. IMO, they lived beyond their means after retirement, probably at something similar to a low success-rate in FIRECalc, such as what OP is pondering. And now there's a reasonable chance they will become a financial burden on their kids. So I'm really just using them as an example as to why I'm planning differently. The risks go beyond your own exposure to longevity, LTC, and inflation, to include your parent's and in-law's exposure.

 

[meierlde]

Note that you could eliminate the issue of funeral costs by pre-paying for the funeral.
Or if you don't want to leave anything to heirs leave it to your favorite charity.

 

[ivinsfan]

I take your point about living beyond their means, it sounds like they had a good enjoyable life. On the long term care I think you'll find assistance will be forthcoming due to their limited assets. I'm sorry you guys feel stressed about it, we went thru this process with my MIL, she was the last to die. She just payed for the LTC until her money ran out. Since she was the last survivor the IRA's did have to spent down to nothing. I echo the advice to watch for an opportune time to prepay the funeral service.In our state you can do that anytime before you file for assistance and there is no look back.

A friends father went into a local nursing home at a robust charge of 8K a month, add monthly medicare, medicare advantage and medications and that's not a number that many pay can pay for a long time. It happened in our family and things worked out okay moneywise in the end.

When you say you are underspending because of your in-laws is that a worry about nursing home costs. Why don't you spend a few dollars for a consultation with a eldercare lawyer, we didn't do that and I wish we would have.

 

[braumeister]

I don't want to end up like my in-laws. They retired in the early 1990s at 60 with a little over $1M, which I'm sure seemed like a huge sum back then. They had a decent non-COLA pension and took SS at FRA.

This is my greatest (probably irrational) fear as well. I think of my grandfather, who retired in 1960 at 65. He didn't have much of a nest egg, but an excellent non-COLA pension and SS.

He then lived another 30 years during the worst period of inflation since WW I. Wiped out the real value of that pension in nothing flat.

 

[Mulligan]

I live on my pension and increase my nest egg monthly and reinvest all dividends. I doubt that ever changes since I have a COLA pension. I get a little satisfaction in knowing my DD will have to slow down the inheritance money burn when she figures out she has a few illiquid stocks that rarely trade and one that doesn't even offer a bid or ask price. She is going to have to do some investigatory work to get her hands on that money.


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[Cobra9777]

...When you say you are underspending because of your in-laws is that a worry about nursing home costs. Why don't you spend a few dollars for a consultation with a eldercare lawyer, we didn't do that and I wish we would have.

Thanks. That's excellent advice. I guess we've been deferring that until we actually get to that point. But perhaps it would ease our anxiety about spending if we actually understood the specifics about how this is going to work. I just assume the worst.

 

[NW-Bound]

...it seems a FireCalc 50% success rate would give the best mathematical chance of balancing the odds of outliving your money with leaving money on the table...

Even at that rate, it means there's a 50% chance you die before spending all your money. That can happen suddenly. A guy I know (a brother of the wife of one of my brothers-in-law) was diagnosed with liver cancer 2 or 3 months ago. He just died yesterday at the age of 50-something.

And then, on the other side of the coin, there's 50% chance you will outlive your money, and spend the remaining of your golden years under a bridge.

Either way it works out, do you consider yourself "winning"? It's lose or lose.

Call me pessimistic, but I maintain that one does not win in this life. All you can do is to mitigate risks, in order to minimize your loss. Instead of maximizing pleasure, I seek to minimize pain. 'Nuf said.

 

[traineeinvestor]

I could never plan something as close to the wire as that. I couldn't sleep at night.

It would have to happen by me somehow living way longer than the actuaries predict.

+1

And I have no qualms about leaving my wife and daughters whatever is left.

 

[pb4uski]

I would much rather plan for a long life and have a lower standard of living and risk an early death and the kids getting an inheritance than to become a burden on them or society. Thank you, but I can pay my own way.

 

[rayinpenn]

Hmmm winning eh?
My version of winning, leave the son & daughter a couple of million after a long well lived retirement together. As long as I get to do what I want to why wouldn't I want to leave the kids 'well heeled'? I am not adverse to the concept of a legacy.

Everything in moderation - seems all the relatives retiring ahead of us are buying $500k Florida houses with the pool in the cage. Not sure that is really necessary. My sisters $200 grand Florida ranch is really nice...

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[jabbahop]

Read about VPW - Variable Percentage Withdrawal method. It is designed to never run out of money but spend it all assuming you are good at predicting your end date.

https://www.bogleheads.org/wiki/Variable_percentage_withdrawal


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[Senator]

I once talked to a person who said he wanted his last check written, to the Funeral home, to bounce.

It reminded me of when I was a bartender. I met an American, working in Brazil (or somewhere in SA). He was a casket re-possessor. He would dig up caskets of people who did not pay for the funeral. Sell the body to the University, and salvage the casket. I think they re-lined them or something and resold them.

Either way, it provided incentive to pay the Funeral bill.

 

[kcowan]

My strategy is to be extra generous to my kids and grandkids while I can. If the time comes that I need help, I will expect them to return the favour. The odds are in my favour but you never know. A market meltdown combined with runaway inflation could wreck havoc on our plans. But we continue to live as if the future is similar to the present.

We have a 95% chance of our money holding out living to our life expectancy but if either of us end up in the top 10 percentile, it will be tight.

 

[Danmar]

Running out of money in retirement would be awful. So other than buying expensive annuities, the best solution for us is to leave a large legacy. Lucky daughter.

Both sets of in laws managed their retirement finances quite well. My in laws will likely leave a large multi million dollar legacy, while my mother has sufficient assets left to fund her nursing home costs for another 7 years. She is 91 so I think this will be sufficient, although she is in pretty good health.