4% safe withdrawl alternative?

It would take a pretty actuarial mind to know if that approach makes sense, and I lack such talents. However, its development by a major insurance company pretty much assures that the conclusions would favor annuities as part of the solution.

Still, in fairness, there is something appealing and intuitive about increasing income early in retirement, isolating funds for use in the last phase of life, and leveraging the 4% tradition the way they suggest.

My sense is that much of this revenue shifting occurs naturally among the members here. 4% is the starting point, but lots of flexibility is commonplace.
 
Well so far, I see several possible holes.

Their presumptions are based on:

1) you probably wont live that long, so if you run out of money, big deal
2) the odds of a bad investing scenario happening during your retirement isnt that huge, so forget about it
3) you have $6M to invest

Gosh, if I had six million to invest, I dont think i'd sweat the 4% withdrawal rate either. And I suppose if you brush away all the risk, the whole retirement spending thing gets a lot simpler.

I have an easier method than twin pumping annuity channels, spending rocket ships and so forth. Run firecalc for the max possible withdrawal amount presuming 85% survival rate and that you'll die at 85.

Then presume you'll improvise if something bad happens.
 
Well, this time I happen to agree with CFB completely.

The author's attitude towards old age, end of life expenses really bothered me! So many of these articles appeal to our greed. Sure, we would LIKE to have more money to spend, but I don't think this article's method is one that I will follow. For my own personal planning purposes, I think he is skating too close to the edge.
 
What would really be helpful is if an insurance company sold an affordable "old age insurance" say if you live to 85 years it would pay you $xx dollars per month for the rest of your life starting at age 85.

That way you could plan and spend down your nest egg to be all gone at age 85 but knowing the insurance would kick in if you live past 85.

Burch64
 
burch64 said:
What would really be helpful is if an insurance company sold an affordable "old age insurance" say if you live to 85 years it would pay you $xx dollars per month for the rest of your life starting at age 85.

That way you could plan and spend down your nest egg to be all gone at age 85 but knowing the insurance would kick in if you live past 85.

Burch64
Click to expand...
Can't you do that with a deferred annuity? Just don't take payments at
65?
TJ
 
burch - MetLife offers this type of annuity. The new name (rather than "deferred annuity" which has become something different) is "longevity insurance". The Northwestern Mutual article mentions "longevity insurance" along the way, but doesn't seem to say whether NMWL has such a product.

Here's a news release from 2004. MetLife Introduces ''Longevity Insurance'' to Help Protect against Outliving Retirement Savings in Later Years - 9/15/2004 - insurancenewsnet.com

I don't know if it is "affordable". The key to keeping the cost down is to choose "no death benefit/no surrender benefit" so you are only paying for the insurance. (Current deferred annuities have "full" surrender values and death benefits.)

It's not clear from the news release whether Met offers an "inflation adjusted" version.
 
I'll agree with CFB on this one. If you really are an "affluent" retiree, there is no reason to stick to 4%. The thread labeled "Can your SWR be above 4%...?" has a concensus opinion of "yes, you can spend a lot more". If you want to plan for decreasing spending later in life, you can do the "two bucket" approach and boost your early spending by using up one bucket in the early years.

I'm also like CFB in that any recommendation from an insurance company that involves both a life insurance policy and an annuity (which are roughly mirror images) is pretty suspicious.

However, I'll say that when I was deciding to retire I used a "buy an annuity at age 85" option. That is, I figured I didn't really need to plan income all the way to age 100 or whatever. I simply planned income to age 85, with enough assets left to buy an annuity at that point. That approach gave me more spending early on. It's unlikely that I'll actually buy the annuity at 85 because I'll probably be dead or have plenty of assets from good investment performance. But, the annuity analysis is a good way to feel that you've covered the downside without being excessively conservative.
 
Want2retire said:
Well, this time I happen to agree with CFB completely.
Click to expand...


You mean there was another time when you didnt? :( ;)

Most of our ER planning involves portfolios in the sub $2M range. When you're flipping around more than that, I could think of all sorts of strategies to let you spend lots of money when you're young, yet secure a reasonable spending strategy in your later years. That didnt involve insurance and annuity plans that sap part of that money in exchange for some hard to measure "security"/"safety".

It seems to me that this sort of plan is exactly the thing a very high net worth person who doesnt understand or grasp investing very well would find very appealing. It has lots of whizbangy components, plays to all the right emotional tenets (Spend all your money now while you're young! You probably wont live that long! Dont leave a lot of money to your heirs! (although I'm still trying to figure out why thats bad) You wont want to spend a lot of money when you're old!). Fits perfectly with people who want to "live in the now" without leaving that bad conscience item of running out of money.

I havent done the exercise, but my bet is someone trying this strategy with a million or a million and a half wouldnt find the spending amounts very appealing, especially in later life.

And like others similar cockamamie strategies, I dont think this one well accounts for things like the effect to the spouses spending following your sudden death right after buying your...ummm..."longevity insurance", whether rates and terms will be favorable when you make these future "timed buys" of insurance products, etc. :p
 
It seems to me that this sort of plan is exactly the thing a very high net worth person who doesnt understand or grasp investing very well would find very appealing.
Click to expand...

I wonder how they become rich. It's amazing that a significant number of high net network individuals relies on financial advisers or private equity money managers to handle their investments or money. I guess doing so will give them more time to focus on running their business or spending more time at the golf course.
 
If someone understands something well, they're comfortable doing it. You an make a whole lot of money without understanding investments at all.

Seems to me the best way to pull in a high net worth individual and 'take care of them' is to cobble up a program thats complex enough that even a seasoned investor would have trouble grasping it right away, but in the same stroke tell them all the things they want to hear...and dont worry, we'll take care of all these complicated details...now you go off fishing and whip out your credit cards just as often as you like!
 
We cant have disagreed about that! I think in every case I pointed out that the answer is going to be different for a lot of people, and I listed all the parameters that I thought would make a difference.

About the only disagreement seemed to stem from people who didnt want some of the parameters considered, because that caused them to get a different answer from what they wanted it to be.

Not that theres anything wrong with that ;)
 
So, let's assume you have $6mm

Take $1mm of it, put it in a 30% stock / 70% bond mix (Vanguard total stock, Vanguard total bond.. then you don't even have to think about it. And, unlike an annuity, you don't even have to sign any pesky paperwork or read anything!)

Title that account 'money to live off of when I'm 85'

Take the other $5mm and set aside $428.39 in a checking account.

Label the checking account 'contingency in case I screwed up my numbers'

Invest the remaining $4,999,571.61 in a 70/30 split with the 70 being half domestic total stock market and half foreign (FTSE global ex-us for instance).

Start off by spending 10% a year of the current value at that time. After you run out of things to spend money on, drop it down to 5% of the current value at that time.

If you run out of the $4,999,571.61 too quickly and you don't think you can carry with a reduced level of spending, then go to the bank and withdraw the $428.39. Then, go over and buy a nice handgun and ammo from the local gun shop. Since, at this point, you haven't touched the other $1mm that you saved, that will now be called what's known as a 'death benefit guarantee' for your heirs.

I am a genius
 
Webzter said:
Take the other $5mm and set aside $428.39 in a checking account.
Click to expand...
:2funny:

Wasnt there a thread recently about how much money people had in their checking account and it was about 400-500 bucks on average?

We're already part way set up for this plan.
 
Without even reading the article, I can tell it is BS -- the title contains the BS-bingo word "paradigm."
 
cute fuzzy bunny said:
We cant have disagreed about that! I think in every case I pointed out that the answer is going to be different for a lot of people, and I listed all the parameters that I thought would make a difference.

About the only disagreement seemed to stem from people who didnt want some of the parameters considered, because that caused them to get a different answer from what they wanted it to be.

Not that theres anything wrong with that ;)
Click to expand...

LOL!! Well, OK. I thought you REALLY were in the 62 camp. Not that there's anything wrong with that! LOL Maybe I got you mixed up with somebody else. I am tentatively in the 66 camp with my own particular set of parameters, though still reading.
 
Eh, nobody remembers the fight, just the fighters. I'm actually in the "I dont think its going to be there by the time i'm in my 60's, or at least not in a form useful to make a financial difference, but if it is I'll probably take it early before they DO pull it or change the payout. Because I've looked at all the data and thats what it tells me is the smart thing for me to do. And I'd like everyone else to have the same data and not a bunch of BS" camp.

In some of the discussions the so-called "take it later" folks stacked the deck or used a lot of funny math that didnt add up. If you want to have a personal can of worms that works for you, thats fine. But thats not fair to people who dont have all the information they need to make an informed decision. We also had some financial product salespeople trying to sell stuff and I made them work for their money.
 
cute fuzzy bunny said:
Eh, nobody remembers the fight, just the fighters. I'm actually in the "I dont think its going to be there by the time i'm in my 60's, or at least not in a form useful to make a financial difference, but if it is I'll probably take it early before they DO pull it or change the payout. Because I've looked at all the data and thats what it tells me is the smart thing for me to do. And I'd like everyone else to have the same data and not a bunch of BS" camp.

In some of the discussions the so-called "take it later" folks stacked the deck or used a lot of funny math that didnt add up. If you want to have a personal can of worms that works for you, thats fine. But thats not fair to people who dont have all the information they need to make an informed decision. We also had some financial product salespeople trying to sell stuff and I made them work for their money.
Click to expand...

If I was in my 40's, I would probably consider any discussion of SS to be academic as far as I was concerned. So, I see your point (though I am 59 so I think I have a lot better chance of getting ss). And hey, I remember (or think I remember?) CT's math and at the very least it seemed curious but fairly irrelevant to my case. When I work out my own, 66 looks pretty good because of frequent extreme longevity (95-105) in my family. I may not live to be that old, but I face the responsibility to plan based on that scenario.

If I die at 66, they can put "HA!! Fooled HER completely." on my tombstone.
 
Last edited:
bpp3 said:
Without even reading the article, I can tell it is BS -- the title contains the BS-bingo word "paradigm."
Click to expand...
But it leverages synergy of new paradigm providing a win-win industry leading solution.:)
 
Independent said:
when I was deciding to retire I used a "buy an annuity at age 85" option. That is, I figured I didn't really need to plan income all the way to age 100 or whatever. I simply planned income to age 85, with enough assets left to buy an annuity at that point.
Click to expand...

I think that's a pretty sound concept. Jonathan Clements recently wrote an article about a similar plan - I'll see if I can dig it up.

Challenges include the fact that at typical FIRE ages, it's a long way to age 85 so just how much to plan on sinking into that age-85 annuity is murky. I calculated it using the typical 3% inflation, 7% nest-egg return, and 70% of my starting expenses, corrected for inflation. At age 85 you get a high return on your annuity money, and it works.

If you die before, your heirs get all the left-overs but you've been able to spend a little more freely in the interim. If you make it to 85, you won't be a burden on them.
 
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