Running out of money?

[RunningBum]

I don't understand why people stay in homes that they can't afford to maintain. I would sell and rent or buy a small condo. We have lots of discretionary spending that we could cut if we needed too.

Sentimental attachment? Prefer the familiarity to something strange and new? Don't want shared walls? Too much work to fix up a house to sell, and pack and move?

 

[Andre1969]

Sentimental attachment? Prefer the familiarity to something strange and new? Don't want shared walls? Too much work to fix up a house to sell, and pack and move?

Could be a fear of the unknown, and worry about making a wrong decision. My Mom and stepdad bought a second home in Florida back around 2002 or so. They had some neighbors down there they really liked. Well, neighbors ended up selling, at the worst of the market crash, to move back home to Pittsburgh so they could be closer to the kids and grandkids. Ended up regretting it, because they took a loss on the house in Florida, and now pay more for a condo in PA, hate the winter, and don't see the family as much as they'd like.

 

[Huston55]

Sentimental attachment? Prefer the familiarity to something strange and new? Don't want shared walls? Too much work to fix up a house to sell, and pack and move?

Could be a fear of the unknown, and worry about making a wrong decision. My Mom and stepdad bought a second home in Florida back around 2002 or so. They had some neighbors down there they really liked. Well, neighbors ended up selling, at the worst of the market crash, to move back home to Pittsburgh so they could be closer to the kids and grandkids. Ended up regretting it, because they took a loss on the house in Florida, and now pay more for a condo in PA, hate the winter, and don't see the family as much as they'd like.

Not to derail this thread too much but....

There are (among those above) lots of good reasons to rent---forever after FIRE.

 

[Walt34]

Sentimental attachment? Prefer the familiarity to something strange and new? Don't want shared walls? Too much work to fix up a house to sell, and pack and move?

Will FIL several years ago it was all of the above. That, and not wanting to face the reality until it came crashing down on him.

 

[Danmar]

I don't understand why people stay in homes that they can't afford to maintain. I would sell and rent or buy a small condo. We have lots of discretionary spending that we could cut if we needed too.

Agree but many older people want to stay in their homes as long as they possibly can. My in laws could certainly well afford their home, they just had bad taste and were cheap. They should have downsized years ago and are now being forced to.

 

[Meadbh]

I don't understand why people stay in homes that they can't afford to maintain.

Human beings do not always make rational decisions.

 

[LARS]

I've always been partial to a quote attributed to Ernest Hemingway on his experience with bankruptcy: "It happened slowly at first; then all of a sudden."

Seems to me this applies equally to running out of money in retirement. It happens slowly at first; then all of a sudden. Thankfully I have been in the "slowly stage" for the last 20 years or so...

 

[Teacher Terry]

I know people make stupid decisions all the time as I spent a career working in human services ( I don't mean all my clients but some). However, I come from a very practical, planning family where you always look ahead and have a Plan B.

 

[FreeBear]

On second thought, we had an early retiree neighbor who blew through a $2MM inheritance on Keno/Scratch tickets. Ended up selling her house (and two other income properties) and now living on the other side of town in subsidized housing.

So, is she still buying lottery tickets

 

[athena53]

I don't understand why people stay in homes that they can't afford to maintain. I would sell and rent or buy a small condo. We have lots of discretionary spending that we could cut if we needed too.

Not everyone likes the idea of a condo; I think I'd find it hard to live without a bit of front and back yard, having to take groceries up in the elevator, sharing walls with neighbors, etc.

I think that people get very gradually to the stage where they can't maintain the house. At first you stop doing the preventative things like cleaning leaves out of the gutters, then you stop replacing broken sprinkler heads and then you put off replacing the roof and it gets leaks, etc. By the time you think about selling, there's not a lot of equity to be had after you factor in a realtor's commission, repair costs (or concessions on the price), the cost of moving, etc. DH and I saw a house listed for $270K in a neighborhood with houses in the $800-$900K range. We did a drive-by out of curiosity. The windows were boarded up and the roof was overgrown with moss and had leaks in it. Really sad. The listing price was probably the land value.

 

[Jpg1717]

Running out of money? Good post- if you retire when the market tanks, then you start out on the wrong foot or in the hole. Jane Bryant Quinn's book Make Your Money Last on p 218 states "the newest idea calls for gradually reducing your stock allocation 5 years before retirement . On retirement day you should just be 30% in stocks.That protects you from risk of a crash in the first few Critical years of retirement.Then gradually increase stocks 2 or 3 % per year for 10 years until you get to 50 or 60% stocks then stop. This prevents you from starting out in the hole like people who retired in 2008 did. Very interesting strategy that people retiring now may want to consider. I would appreciate others thoughts concerning this unique strategy.

 

[marko]

So, is she still buying lottery tickets

Yep!

I've known her since we were kids. I always said that I've owned dogs that were smarter than she was.

 

[RunningBum]

Running out of money? Good post- if you retire when the market tanks, then you start out on the wrong foot or in the hole. Jane Bryant Quinn's book Make Your Money Last on p 218 states "the newest idea calls for gradually reducing your stock allocation 5 years before retirement . On retirement day you should just be 30% in stocks.That protects you from risk of a crash in the first few Critical years of retirement.Then gradually increase stocks 2 or 3 % per year for 10 years until you get to 50 or 60% stocks then stop. This prevents you from starting out in the hole like people who retired in 2008 did. Very interesting strategy that people retiring now may want to consider. I would appreciate others thoughts concerning this unique strategy.

Sequence of returns, yes, it's been talked about here.

I have some doubts about it. Let's say we're both 50, and I retire at 50 but you keep working until 60. I do as you say, and the market is pretty normal in those next 10 years. At 60 you also retire and follow the strategy that I did, only I am back up at 50-60% because I've edged back in over those 10 years. Now the market tanks. Even though we followed the same strategy, and are the same age, you're a whole lot better off than I am.

My point is, sequence of returns may make sense for the traditional 15-25 year retirement, but for an extended retirement it's not an answer. Unless you can predict the direction of the market, history tells us the market generally goes up, so you're better off staying fully invested, with respect to your AA and relying on being able to recover if there's an early drop.

 

[COcheesehead]

Sequence of returns, yes, it's been talked about here.

I have some doubts about it. Let's say we're both 50, and I retire at 50 but you keep working until 60. I do as you say, and the market is pretty normal in those next 10 years. At 60 you also retire and follow the strategy that I did, only I am back up at 50-60% because I've edged back in over those 10 years. Now the market tanks. Even though we followed the same strategy, and are the same age, you're a whole lot better off than I am.

My point is, sequence of returns may make sense for the traditional 15-25 year retirement, but for an extended retirement it's not an answer. Unless you can predict the direction of the market, history tells us the market generally goes up, so you're better off staying fully invested, with respect to your AA and relying on being able to recover if there's an early drop.

I am pretty sure this isn't sequence risk in action. It's not a comparable, it is unique to one's own situation.

 

[Jpg1717]

Running out of money ?

I agree- it is not comparable.Why compare a 50 year old who retires today, to someone who waits 10 years and retires at 60 ? Sequence of returns - have a smaller equity allocation at time of retirement so you do not get wiped out at the beginning if there is a major crash. You can then gradually add stocks up to a 60% allocation, and enjoy your first ten years of retirement without worrying about getting crushed early on .This seems to be a valid theory. I would appreciate some thoughts on this from other retirees. Thanks

 

[Hamlet]

My dad passed away recently at the age of 61, having had a stroke, colon cancer, and what we figure was a heart attack at the end.

I'm 44.

Outliving my money is not high on my list of worries anymore.

 

[Katsmeow]

Come to think of it, when one has a paid-for home and is on Medicare, has no car payments, just stays home to surf the Web and cooks own meals, what are the expenses? Food is darn cheap, and then old people do not eat that much. Wine bottles under $10 are plenty good. Heck, my favorite wine currently is a box wine.

This. My mother is 92 and lives in her paid for home. She doesn't surf the web -- she never really got the hang of computers. She doesn't spend money on things that many rely on. She doesn't have internet or cable TV. She has a cell phone that we provide her that she rarely uses, just when she needs to make long distance calls mostly. She still drives her long paid for car but mostly only to the grocery store. For doctor's visits (her main trips outside the house) she either uses a local transportation for elderly going to the doctor or a friend takes her. Sometimes a neighbor takes her to go some places and she gives him a few bucks.

She rarely eats out. She doesn't drink. She basically doesn't have hobbies that are expensive. She has no interest in travel. She visits us a couple of times a year (we go get her). She watches (free) TV and reads the paper. She is mentally fine (a little forgetful) but has chronic health problems.

The main thing she spends money on other than her part of prescriptions is mostly for services. She has someone who mows her yard. A few years ago she started hiring someone to come in periodically to clean her house (this is really low cost as it isn't regularly and she has a very small house). The house is old so the big expenses are periodic house repairs.

But, honestly, she doesn't need to spend much money at this point. Even the services she pays for aren't that expensive. I've encouraged her to actually take a cab as necessary since she could afford it, but she is reluctant to do it.

 

[brucethebroker]

+1
Well said.

Years ago a brilliant and very successful mentor told me money stays around people who respect it and take good care of it. It does the opposite to those who don't manage it well.

Love the mentor's advice. Thanks.

 

[garyt]

With all our discussion here about withdrawal strategies, returns, AA's and such, has anyone run out of money or known someone who has or nearly has? I am assuming people take action as they see the inevitable and ward off disaster. I wonder sometimes if we worry too much or if the threat is truly real.

Great question! I assume it's happened but I doubt the person would admit it, if they're still here.
It would be interesting to know their firecalc numbers, etc. I know many here have plenty of money, pensions, etc so there's no real chance of that happening barring completely irrational spending but it would be interesting to hear from people who chanced it with lower numbers and if not running out, got close.

 

[garyt]

I agree- it is not comparable.Why compare a 50 year old who retires today, to someone who waits 10 years and retires at 60 ? Sequence of returns - have a smaller equity allocation at time of retirement so you do not get wiped out at the beginning if there is a major crash. You can then gradually add stocks up to a 60% allocation, and enjoy your first ten years of retirement without worrying about getting crushed early on .This seems to be a valid theory. I would appreciate some thoughts on this from other retirees. Thanks

Yea it's not apples to apples. I too think this has merit. Look forward to more responses.

 

[imoldernu]

At age 80, concerns about money are way down on the worry list. With a five to eight year life expectancy, the hope is that income inequality won't move fast enough to affect the kinds of support that we've come to rely upon....

Social Security
Medicare and supplements
Pharmaceutical costs

The current change is most obvious in the exploding costs of medicine. In just two of the medications that I use, the price increases are out of control. Colchicine, which used to cost $.10/ tablet, is now $5.00/tablet. The infamous EpiPen which used to cost about $20.00 is now $600.00 (recently $300.00 for the generic).

Social Security is essentially an unfunded liability, with no solution in sight. Four DW and I, not a particular concern, as reason tells us this won't disappear overnight.

Medicare... not a major concern as we expect this will not disappear over our lifetime.
...........................................................................
The good:
Most of our limited assets are in IBonds, which we hope will partially keep up in the case of galloping inflation.
We do have limited long term care insurance for homecare or nursing home, but only at $100/day.
Our living expenses are very low.
We have no debt.

Our major worry is for the future of younger people, including our own children and grandchildren. As safety nets for catastrophic medical costs disappear, and student debt becomes unmanageable, the pay-as you-go way of life seems to be disappearing for the average citizen. There's a lingering fear of the lean years that we were growing out of as children in the 1930's and 1940's, and the much less serious economy dips in more recent years.

Uncertainty won't go away, but the majority of ER members have their heads on straight, and are realistic and prepared for changes as they occur. Hopefully the advances in knowledge and productivity will keep our nation strong, but optimism is not a substitute for reality checks.

 

[Bigdawg]

Sequence of returns, yes, it's been talked about here.

I have some doubts about it. Let's say we're both 50, and I retire at 50 but you keep working until 60. I do as you say, and the market is pretty normal in those next 10 years. At 60 you also retire and follow the strategy that I did, only I am back up at 50-60% because I've edged back in over those 10 years. Now the market tanks. Even though we followed the same strategy, and are the same age, you're a whole lot better off than I am.

My point is, sequence of returns may make sense for the traditional 15-25 year retirement, but for an extended retirement it's not an answer. Unless you can predict the direction of the market, history tells us the market generally goes up, so you're better off staying fully invested, with respect to your AA and relying on being able to recover if there's an early drop.

Since we are making assumptions let's assume the guy at 50 with 30/70 exposure has 100% in FIREcalc. Let's also assume that the 10 year run up to 60 (when guy #2 retires) are normal returns. Let's say 7%. Let's also assume guy #1 is using a 4% or lower SWR. If the stock market lost 50% in year one for the 60 yr old (year 11 for the first guy), the guy who retired at 50 will be fine. His now 50/50 portfolio will only lose 25%. 50% of his 50% in equities. Lot's of other potential options for guy #1. HELOC, cash, reverse mortgage, cut back, consulting/part time job, SS at 62, IRA-401K at 59.5, etc...

 

[RunningBum]

Why is it safe for me to be 60% in stocks when I'm 60 if I retired 10 years ago, but not if I retired yesterday? I have the same lifespan left. A downturn would hurt just as badly. I suspect this is one of those strategies that seems to work with back testing of data, but I don't see a solid reason to believe it will work better in the future.

 

[Jpg1717]

Yea it's not apples to apples. I too think this has merit. Look forward to more responses.

GaryT: I agree that the smaller equity allocation at retirement plan has merit.It is impossible to time the market, and the most Important decision is asset allocation which is possible to control. I want to avoid getting crushed by a crash early in retirement. So If I only make 5% instead of 12% for a couple years- that is better than losing 35% the first year of retirement and starting out in the hole.I also would appreciate others thoughts on this important topic. Thanks

 

[Jpg1717]

Why is it safe for me to be 60% in stocks when I'm 60 if I retired 10 years ago, but not if I retired yesterday? I have the same lifespan left. A downturn would hurt just as badly. I suspect this is one of those strategies that seems to work with back testing of data, but I don't see a solid reason to believe it will work better in the future.

RunningBum: because you do not want to get wiped out your first year of retirement and then only have a small amount left to take advantage of the good market years that follow. This is a difficult ? to answer, and I believe there is more than one answer. I just thought Ms. Quinn had some interesting analysis on this topic. I learn something from everyone on this forum. Thanks