When to do you start purposely spending down capital?

[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…

 

[haha]

One safe way would be to buy enough COLA annuity to live well; then spend all you want over and above that. I doubt that just trying to find a way to spend money would be very satisfying.

Ha

 

[MasterBlaster]

You don't have the information you really need. You don't know how long you'll live. And you don't know how the markets will perform going forward. Add to that tax and entitlement uncertainty.

The SPIA would solve the problem of not dying broke but give you the other problem of under-performance of your nestegg.

As I see it there is no perfect solution. Since you don't ever want to go broke you'll most certainly go leaving lots of money on the table.

Add to that that spending money when you are 80 is likely to be much less fun than spending money when you are 50. Hence the real value of spending most of your stash is likely to fall with time.

There are the (of course) the options of a reverse mortgage and re-doing Social security at 70 to maximize your late stage cash flow.

beyond that there are some spending models for retirees (level real spending, percent of assets, Bernicke's Reality Retirement Plan - which uses constant nominal dollar spending)

 

[NW Landlady]

Although we haven't FIRED yet, I feel we will be in a similar postion. We are DINKs & although we live a fairly low key lifestyle, it looks like we will have ample funds for retirement...provided nothing major horrible & unpredictable occurs.

We have been talking about retirement a lot lately since I have started to sell off my holdings this year & ESR (for me) is likely next year. DH is hoping to FIRE from Mega Jet Corp in May/June 2011.

We plan to spend our "wad" on treats of experience while we are still young enough to enjoy them. So travel, travel, travel & more travel is on the agenda. We have also toyed with the idea of a vacation condo in a warm sunny place (we live in Seattle area where it rains a bit...) with great Scuba diving like Hawaii, Bonaire, California, etc.

 

[ziggy29]

I'm not there yet but I don't think I'm too worried about that. As long as I'm living well enough and I don't have strong desire to spend more, if I die with a few hundred grand going to some relatives, our church and to our favored charities, so be it.

 

[MasterBlaster]

NW_Landlady:

Everyone will be in a similar position. The question is not so much what it gets spent on as to how to approach an intelligent spending plan. Or to put it another way... How do I optimize the utility of my nestegg given only scant information regarding my timeline, my nestegg performance, and my real expenses.

 

[dex]

When to do you start purposely spending down capital?

I think the usual mindset are spend what you need, within a budget or within a SWR. But limits can impose a mindset of limits. So, you could try spending like a rich person - go to Europe and imagine yourself without financial limits.

The problem I have with doing that is that I don't have expensive desires. I would like to go out to eat for breakfast, lunch and dinner in Europe for example but I know I would be a blimp in no time.

 

[NW Landlady]

NW_Landlady:

Everyone will be in a similar position. The question is not so much what it gets spent on as to how to approach an intelligent spending plan. Or to put it another way... How do I optimize the utility of my nestegg given only scant information regarding my timeline, my nestegg performance, and my real expenses.

I am really stupid!
I think DH & I are not ones to comment on this then. We don't need to worry about those things unless we live past 100 or get sick really bad beyond our health insurance/medicare coverage I guess. Sorry!

 

[LARS]

I'm not there yet but I don't think I'm too worried about that. As long as I'm living well enough and I don't have strong desire to spend more, if I die with a few hundred grand going to some relatives, our church and to our favored charities, so be it.

If I can "hit it" with a few hundred grand leftover I would consider that a victory. My concern is that it (residual) will be measured in the millions.

I suppose one way to try to skin the cat is to try to estimate worst case end of life scenerios (ie assisted living for say ten years or fifteen years) and then look at growing current expenses at inflation up to that point and then any excess funds not needed for those scenerios could be spent over time.

 

[LARS]

One safe way would be to buy enough COLA annuity to live well; then spend all you want over and above that.

Ha

The problem with annuities for me are two fold: i) am I prepared to take credit risk for 30 or 40 years (I'm not: I'd rather annuitize myself with long term govies and still retain the principle if I was to take that approach) and ii) given current interest rate enviroment it's not an attractive time to enter into an annuity.

 

[NW-Bound]

If one sticks with the 4%SWR, will that not guarantee that one will dip into his principal in tough years? Like the past 2 years?

And then, with the same 4% SWR, there will be years where one rebuilds his portfolio with the surplus from capital gain.


PS. Supposedly, that is from past history. Is it safe to assume that the same stock/bond market performance is the same going forward? Therein lies the rub!

 

[bbbamI]

I'm not there yet but I don't think I'm too worried about that. As long as I'm living well enough and I don't have strong desire to spend more, if I die with a few hundred grand going to some relatives, our church and to our favored charities, so be it.

I'm with Ziggy...

My portfolio enables me to live a very comfortable lifestyle that should last for decades.

When I draw my last breath, I don't think it will matter how much is in my bank account.

 

[ziggy29]

If I can "hit it" with a few hundred grand leftover I would consider that a victory. My concern is that it (residual) will be measured in the millions.

You can do that as time goes on.

If you reach a point where you can safely take out 6, 7, 8 percent based on realistic projections and living to age 95-100, do it ***if*** it adds enjoyment to your life! There's no reason to feel like you have to die with your savings running on fumes. I would think a retiree relying heavily on personal savings needs to look at where they are on an annual basis and, if it looks like you'll have a LOT of money left, decide whether you want it that way or if you would derive more happiness spending it.

There's a woman in our congregation who, for many years, initially wanted to will our church a new multipurpose building for church functions and community events. She never married but saved a lot over the many years she worked. Well, about four years ago and shortly after we moved here, she decided she had enough and wanted to see this building completed in her lifetime. So she changed her will to get the building started *now*, donated $300,000 to the church and the rest of us raised another $100,000 or so to keep us from needing a loan to finish the building. (It helps that we have a general contractor in the congregation. The congregation authorized borrowing up to $150,000 to finish it but our fundraising and the contractor's good work prevented us from needing to borrow a dime.) And so just as the building was being completed -- the kitchen wasn't finished yet but the inspectors gave us permission to use the building as long as we didn't use the kitchen -- we held a party to dedicate the building on this woman's 90th birthday in 2008.

I know she got a lot more satisfaction seeing it go up in her lifetime than waiting for it to happen after her passing. But the point is that she waited until a point where she knew she didn't need the money, and *then* the good works could begin. And you could see the grin on her face at that celebration that told you she knew she made the right decision to release the money while she was here to *see* the results.

 

[meierlde]

One needs to consider that as one gets past 73-75 travel gets more difficult, and less interesting. Many surveys show that spending slows down past that point, until medical issues kick in. Note that the retire early summary suggest that with 20 years you can go to 4.78 withdrawal, so say 70-75 (partly depending upon how long ones parents lived), and 10 years goes to 8.7 so early to mid 80s for that. Of course if you spend it down to nothing and need nursing home care then Medicaid will take care of you. (Conditions may not be great but...)

 

[BigNick]

There are only 14 posts so far in this thread, but I'm still slightly surprised that nobody has mentioned children. Are there a lot of childless people here, or is there a strong "they should make it on their own" ethic?

My parents inherited a modest amount of money from their parents at a critical stage in their financial lives, which made it possible for them to give me everything that they wanted to (we're talking "help with expenses in college", not "new convertible for my 17th birthday") and retire with no worries. We would love to be able to give our kids a little leg up in turn, and preferably before we die (cf ziggy29's church story).

In fact, one of the main reasons for me to put off my FIRE from 2012 to 2014 will/would be that we would have an extra 200K or so in the portfolio, which would be 100K per child to "get them started" (business, home down payment(*), etc). I would hate to be enjoying a comfortable retirement and see my kids struggling financially. If I'm really honest, I would especially hate to be enjoying a comfortable retirement and have my kids move back in!



(*) On the other hand, I read somewhere that quite a few middle-class people in the UK are remortgaging their homes in their 50s to be able to throw some more gasoline on the house price fire for their kids. I think that's beyond what we're prepared to do - and anyway, we already sold our home.

 

[rescueme]

But in all seriousness curious for others thoughts/experiences…

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.

 

[Moscyn]

There's an elderly man (in his seventies) who frequents the same restaurant DH and I go regularly for dinners. He eats alone about twice a week in the same restaurant ordering gourmet wine and expensive dishes like abalone. I think he is trying to spend down his capital. He seems happy enough though dining alone everytime. Not mobile enough to travel far but he certainly has found a way to deplete his capital.

 

[NW-Bound]

There are only 14 posts so far in this thread, but I'm still slightly surprised that nobody has mentioned children. Are there a lot of childless people here, or is there a strong "they should make it on their own" ethic? ...

We have talked about this in the past. A recent thread was the following: http://www.early-retirement.org/forums/f28/intergenerational-wealth-transfer-50054.html. There have been many other threads that discussed estate planning.

 

[Rustic23]

I have several role models to go by when it comes to people over 75. Both of DW's parents lived to the mid 90's. The were traveling i.e. trips to Russia, Europe, etc. well into their 80's. So those that say travel is curtailed after 70 might want to rethink that. As with just about everything on this board. "It depends!"

I feel like what I think the OP is expressing. I have looked at our income and expenses and I think we could be spending more. However, it is a big step from think to sure.

 

[LARS]

I have looked at our income and expenses and I think we could be spending more. However, it is a big step from think to sure.

Exactly. I know there is an inflection point where the "prudent" thing is to spend more (assuming a large estate is of no interest). The issue is how to get comfortable when that is...

Given our net worth I'm pretty confident we're near that point, if not past it already.

What's interesting about this discussion is that the very nature of a conservative financial approach which allowed for early retirement is undoubtedly making the decision to spend capital more difficult!

 

[LARS]

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]

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