Retirement Reality

[Big_Hitter]

I am sure this will stir up the debate about annuities but I remember reading an investment/retirement article some time ago about using annuities to establish a floor of income at some older age. This was written by a respected name in the business if my recall is correct. The idea is your money would not dwindle to zero, you would just hit a floor for annual income with only a COLA on your social security at an advanced age. If our plans were failing and we are too old to work it might be something to consider. Does anyone remember this article?

no, but many academics and retirement planning experts would agree with that approach

 

[Meadbh]

Has anybody ever thought, as a last line of defense after the other sensible ones, that if you got to the eating-cat-food stage that you could always commit suicide? That is, if you were still sentient enough to be able to do it. I am a usually happy person, but I find that thought oddly comforting.

That's definitely an option. Plan S.

As for the premise of this thread, it is impossible to know one's lifespan in advance. Therefore, retirement planning is financial decision making under uncertainty. To probabilities, add personal risk tolerance. Hence, some will leave large estates and others will die impoverished. Most forum members would prefer to err on the side of the former.

 

[MasterBlaster]

I am sure this will stir up the debate about annuities but I remember reading an investment/retirement article some time ago about using annuities to establish a floor of income at some older age. This was written by a respected name in the business if my recall is correct. The idea is your money would not dwindle to zero, you would just hit a floor for annual income with only a COLA on your social security at an advanced age. If our plans were failing and we are too old to work it might be something to consider. Does anyone remember this article?

Wade Pfau would be one of those respected names among others that discuss optimal nestegg utilization.

The concept - widely ignored on this forum - is to cover some baseline living standard with Social Security, pensions(if any) , and SPIA's or equivalent bought with your nest-egg to insure a catfood-free lifestyle.

Then have some sort of plan to more aggressively spend down and fully utilize the remaining nest-egg over a reasonable timeframe.

Many on this forum will go with large unspent (remaining) nest-eggs having foregone a better lifestyle.

 

[FI by 2024]

My closest relatives that have passed left at ages 33, 49, 53, 67, 68, 69, 73, 75, and 76 - all from cancer or heart disease. Of those still living, one recently turned 95. A few others are 80+. My parents are 65 and 78 with no signs of leaving soon. 80% of aunts and uncles had cancer of some form by age 55.

With a family history like this, how am I supposed to pick a date? That would be ridiculous. So I do my planning on the assumption that I will leave some behind. It's just a matter of how much. The Social Security Life Expectancy calculator says to expect at least age 85, but that is based on averages. No way would I plan as if I'm going to use it up by a certain point.


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[Big_Hitter]

With a family history like this, how am I supposed to pick a date?

have you thought about genetic testing?

 

[FI by 2024]

Many on this forum will go with large unspent (remaining) nest-eggs having foregone a better lifestyle.

I would argue I've only foregone a more expensive lifestyle, not a better one.


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[FI by 2024]

have you thought about genetic testing?

I've done it! Quite interesting! It didn't tell me when I'll die, though


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[Big_Hitter]

I've done it! Quite interesting! It didn't tell me when I'll die, though ��


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I should have been more specific - genetic testing for cancer or heart conditions

 

[FI by 2024]

I should have been more specific - genetic testing for cancer or heart conditions

Oh, I understood what you meant. Yes, I've been tested for mutations and genetic precursors. Nothing found, which actually surprised the person who ran the test. But she said that just means I have the same chances as anybody with a family history - higher than the general population, lower than those born with mutations. I've also had a number of scares that haven't resulted in cancer yet but do keep me under constant vigilance. My point is, I could live to 100 having fought cancer multiple times, or I could die on the way home from w*rk. So I exercise but also enjoy cupcakes...I save a lot but also see movies at the luxury theater with a $12 bucket of popcorn...and I've planned my retirement so I will easily cover desired expenses and also leave some behind. Since I'm working towards a pension I can't really retire any earlier...unless those Powerball numbers come through for me, haha.


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[haha]

Why does anyone pay any attention to moneygrubber? It is very easy to know what ones life expectancy is at any age, and with a tiny bit more time to find out the SD. So if you are conservative, add 2 SD to the expectancy for your age and sex, and you should have a pretty good guess at the limit.

Maybe distraction form the January blahs is needed? You likely need at least one SD merely to allow for the type of person who achieves early retirement

Ha

 

[Big_Hitter]

Why does anyone pay any attention to moneygrubber?

the work of science is to substitute facts for appearances and demonstrations for impressions

I guess I felt compelled

 

[bclover]

So everyone plans for a 30 40 or 50 year retirement, how many of your family members, friends, associates never made it to 50, 60, or 70, get real, life is short, we know how many years have past, we dont know how many lie ahead....


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Hey you don't have to convince me. My husband and I went to Vegas January of 2013 for his 50th birthday, he died September of that same year from an aggressive form of Leukemia.

In the last 3 years I've buried my husband, my baby brother and my nephew all before the age of 55.

I'm spending my money and enjoying myself. If I'm broke at 90 so be it. I will be the anomaly, I've already told my kids not to expect anything w hen I die..

 

[jcretire77]

I think that you are right BCLOVER. I also think that the OP's question is rather simple. Do we try too hard to guarantee 100% when the odds of living to say 100 or 95 is very low. I know that there are many who will live into their 90's, but as I see my mother age, my grandparents all dead (and miserable for the one that did live into her 90's) I don't know that I want to live that long anyway. But I'm still a big chicken and doing OMY anyway.

 

[pullmyfinger]

Has anybody ever thought, as a last line of defense after the other sensible ones, that if you got to the eating-cat-food stage that you could always commit suicide?That is, if you were still sentient enough to be able to do it. I am a usually happy person, but I find that thought oddly comforting.

Yes, I believe in keeping all of my options open.

 

[Midpack]

Wade Pfau would be one of those respected names among others that discuss optimal nestegg utilization.

The concept - widely ignored on this forum - is to cover some baseline living standard with Social Security, pensions(if any) , and SPIA's or equivalent bought with your nest-egg to insure a catfood-free lifestyle.

Then have some sort of plan to more aggressively spend down and fully utilize the remaining nest-egg over a reasonable timeframe.

Many on this forum will go with large unspent (remaining) nest-eggs having foregone a better lifestyle.

If buying a SPIA to establish a floor was anywhere near a neutral expense, more people would do so. There's a high probability you will pay a substantial premium for the payout your SPIA will provide, especially at present interest rate/yields. That premium, and forever limiting your options after buying a SPIA (a big chunk of $ is gone), is the reason buying an annuity doesn't make sense to many, though it may for others.

Even those (self included) who never plan to buy an annuity, might if their nest egg falls too far too soon. I'd consider an annuity only when/if my nest egg starts to approach my annuitization hurdle at any given age. Linked here several times http://www.schulmerichandassoc.com/Modern_Portfolio_Decumulation.pdf

Most here didn't retire at that threshold...

People who retire at/near or below their annuitization hurdle may indeed be best served by a SPIA. Otar is another discipline like Pfau.

 

[Big_Hitter]

If buying a SPIA to establish a floor was anywhere near a neutral expense, more people would do so. There's a high probability you will pay a substantial premium for the payout your SPIA will provide, especially at present interest rate/yields. That premium, and forever limiting your options after buying a SPIA, is the reason buying an annuity doesn't make sense to many, though it may for others.

I'd consider an annuity only when/if my nest egg starts to approach my annuitization hurdle at any given age. Linked here several times http://www.schulmerichandassoc.com/Modern_Portfolio_Decumulation.pdf

I think (hope) what we see in DC-only land is that these plans start to offer more annuity-type payout options, including QLACs. That way, retirees can choose immediate and/or deferred annuities and a lump sum options to suit their needs and provide a hedge against cat food or suicide.

 

[Danmar]

You have a point. No matter what or how well we plan, we're always wrong.

Now, is it better to be wrong and die prematurely, with money left over, unspent? Or is it better to be wrong, run out of money, live your final years in poverty, then die? How should we choose?

I would rather live a long well-funded life and still leave a lot behind for my daughter. Not a plan that most can effect however.

 

[MasterBlaster]

If buying a SPIA to establish a floor was anywhere near a neutral expense, more people would do so. There's a high probability you will pay a substantial premium for the payout your SPIA will provide, especially at present interest rate/yields. That premium, and forever limiting your options after buying a SPIA (a big chunk of $ is gone), is the reason buying an annuity doesn't make sense to many, though it may for others.

Even those (self included) who never plan to buy an annuity, might if their nest egg falls too far too soon. I'd consider an annuity only when/if my nest egg starts to approach my annuitization hurdle at any given age. Linked here several times http://www.schulmerichandassoc.com/Modern_Portfolio_Decumulation.pdf

Most here didn't retire at that threshold...

People who retire at/near or below their annuitization hurdle may indeed be best served by a SPIA. Otar is another discipline like Pfau.

Yes SPIA income can be costly.

I have seen the annuity crossover approach you list. In my opinion it is a loose-variant of the approach I referred to.

The main point I wanted to get across though, is that the standard 3-4 percent of assets (i.e.. Trinity-type approach) while indeed safe is much less than optimum in terms of spending lifestyle. The SPIA-floor approach (or equivalent) just may be equally safe yet provide quite a bit more spendable income during the years that matter.

 

[Chuckanut]

YThe SPIA-floor approach (or equivalent) just may be equally safe yet provide quite a bit more spendable income during the years that matter.

+1
While I do not see an annuity in my future, I have to agree. There economic and psychological considerations to consider. If an annuity leaves a person feeling confident that she won't be eating cat food on the street at some future point in time, then it may be just the right thing. If it allows a person to take some of the cash they have invested in 1.47% two year CD's and invest it in the market for a better return, and not panic and sell when the market crumbles like last week, then an annuity can be a good thing.

No, I am not telling anybody they should buy an annuity.

 

[LARS]

If buying a SPIA to establish a floor was anywhere near a neutral expense, more people would do so. There's a high probability you will pay a substantial premium for the payout your SPIA will provide, especially at present interest rate/yields. That premium, and forever limiting your options after buying a SPIA (a big chunk of $ is gone), is the reason buying an annuity doesn't make sense to many, though it may for others.

Even those (self included) who never plan to buy an annuity, might if their nest egg falls too far too soon. I'd consider an annuity only when/if my nest egg starts to approach my annuitization hurdle at any given age. Linked here several times http://www.schulmerichandassoc.com/Modern_Portfolio_Decumulation.pdf

Most here didn't retire at that threshold...

People who retire at/near or below their annuitization hurdle may indeed be best served by a SPIA. Otar is another discipline like Pfau.

Thanks for this thought/article on annuitization hurdle. It does provide a nice quick and dirty "how am I doing check".


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[Moneygrubber]

I think that you are right BCLOVER. I also think that the OP's question is rather simple. Do we try too hard to guarantee 100% when the odds of living to say 100 or 95 is very low. I know that there are many who will live into their 90's, but as I see my mother age, my grandparents all dead (and miserable for the one that did live into her 90's) I don't know that I want to live that long anyway. But I'm still a big chicken and doing OMY anyway.

Yes that is my thought, many interesting responses!


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[shotgunner]

Yes that is my thought, many interesting responses!


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Yes indeed I especially liked the annuity hurdle post. I did notice one response seemed angry, almost as if you touched a nerve of someone still working (and probably doesn't want to be). OMY syndrome is real.

Your point is valid. As I take it all in I am reminded of an old cliche, "man plans and God laughs". We all do the best we can and most of us will err with a tidy sum of money to pass along to our heirs or charities.

 

[Independent]

My dad said:

Plan like you'll live forever.
Live like every day is your last.

 

[jkern]

My financial planning is different than my life planning.

I'm realistic - and have made arrangements for all sorts of scenarios: I die first leaving DH to go on, He dies first, and I have to get by without him, we die together before the kids are of age. I looked at longevity (on his side of things) and earlier death due to cancer (my side of things)... not to mention cognitive decline or physical decline requiring support (memory unit, home health aide, nursing home.)

I tried to come up with a plan for all of this.

But I also tried to come up with a plan that maximizes happiness in the NOW. I retired at age 52... to maximize that happiness in the NOW. We're frontloading our budget a bit to travel NOW, vs when we're frail. I'm not spending out of my means - but I am spending on things that make me happy NOW.

Sure my kids might inherit some when I kick it - but if my financial plan works out (vs reality life expectations) I won't run out of money till after I'm 90 and DH is 100. And our back up is our home equity... which is significant. If I'm 90 I don't need/want a two story house - so selling won't be a problem.

Moneygrubber - you seem to be suggesting that accounting for longevity in the financial plan is a bad thing. I think there are plenty of people who find the balance between planning for longevity but still grabbing happiness now.

+1 My feelings exactly!

 

[bclover]

My financial planning is different than my life planning.

I'm realistic - and have made arrangements for all sorts of scenarios: I die first leaving DH to go on, He dies first, and I have to get by without him, we die together before the kids are of age. I looked at longevity (on his side of things) and earlier death due to cancer (my side of things)... not to mention cognitive decline or physical decline requiring support (memory unit, home health aide, nursing home.)

I tried to come up with a plan for all of this.

But I also tried to come up with a plan that maximizes happiness in the NOW. I retired at age 52... to maximize that happiness in the NOW. We're frontloading our budget a bit to travel NOW, vs when we're frail. I'm not spending out of my means - but I am spending on things that make me happy NOW.

Sure my kids might inherit some when I kick it - but if my financial plan works out (vs reality life expectations) I won't run out of money till after I'm 90 and DH is 100. And our back up is our home equity... which is significant. If I'm 90 I don't need/want a two story house - so selling won't be a problem.

Moneygrubber - you seem to be suggesting that accounting for longevity in the financial plan is a bad thing. I think there are plenty of people who find the balance between planning for longevity but still grabbing happiness now.

I didn't get that at all (the last part).

Let me just make an observation from a newbie standpoint. I found this site two years ago when after my husband died I wanted to get a better understanding of a number of investment things and I knew I would be leaving the workforce before traditional retirement age. hated the bogleheads site for a few reasons and someone told me about firecalc. anyhoo one thing I noticed is that 90% of the information about retirement is doomsday and fear.
One of the first questions I asked here was anyone actually "happy" retired lol

Rarely did I come across article (before) here where people said they saved money to actually enjoy life. It is/was always "save" because when you turn 90 you'll be destitute and eating cat food or healthcare is going to be so expensive you won't be able to afford it

Maybe we could get Americans to save more for their retirement if we made it more appealing.