Got too much... do you employ a legacy strategy?

[DawgMan]

I caught this Kiplinger read and found the concept interesting. It basically suggests one solution for those who have "won the game" and are perhaps looking for a reason to have confidence to "keep playing" for legacy reasons. Perhaps more mental accounting, but the suggestion of taking determined "excess" after running the most conservative assumptions and putting it in it's own separate legacy account and structuring a longer term AA (relative to the legacy objectives) seemed like a reasonable strategy. As has been discussed here many times, when do you know/really have the confidence you have won the game? That said, I wrestle with the ying & yang of "playing/quit playing". My nature is to take reasonable/calculated risks and be the best steward of what I have been fortunate to accumulate, hence, the suggested strategy in this article caught my attention.

Any of you employ such a strategy? If so, what markers did you use to determine your "excess" (i.e. SWR less than 3% based on very conservative assumptions)?

https://www.kiplinger.com/retirement...-thats-too-big

[mystang52]

I've been a budgeter my entire adult life. Can't break the habit. So the budget is the marker we use. COVID changed our spending habits (= a lot less dining out), and we find we have a respectable amount of extra money at end of each month. We "spend" some of the excess on our vacation budget, and give the rest to our grandchildren's 529s.

[pb4uski]

I have considered that.... carving out what is conservatively needed for me and DW for the rest of our days and using a conservative AA for that money and then investing the rest in a manner appropriate for my kids who are ~30 years younger... perhaps even in a target date fund appropriate for their age.

[Exchme]

I don't think you have to set up separate accounts. If your WR is below, say, 3%, it's historically been very likely that you will end up with a big pile of money for your heirs. So you can be more aggressive and invest on your children's or grandchildren's timelines.

Anybody think the bigwig's family trusts invest super-conservatively? They are able to invest aggressively as the withdrawal rates are small enough that they are recession-proof. A lot of folks here are recession-proof too and just don't feel that could be true.

[Golden sunsets]

We don't use that approach. We withdraw only .5% of our portfolio on average per year, because our pensions/SS pretty much cover all of our expenses. We don't use the conservative 110-age for equities as we don't feel the need to be that conservative. We are currently at 52% equities. We feel that is sufficient to "grow" the portfolio nicely and should generate well into 8 figures as a legacy for our children/charities, assuming that there is enough time between now and our demise.

[Car-Guy]

I've posted here many times that I have a 2 bucket strategy... Bucket one (2m) is my reserve and is invested in fixed income. I doubt I'll ever need bucket one (my legacy?). Bucket two is for everything else... Living expenses, travel, fun stuff, and risk money.... I do swing trade a good bit (gamble) with money from bucket two...

[Whisper66]

Retired in 2015 with good (not 100%) chance of money outlasting us. Since then the portfolio has grown 24% despite spending 5.4% of funds each year on average and basically buy / do anything we like. That's the impact of a long bull market and a moderate lifestyle relative to our assets. I've mentioned before that we allow our asset allocation to range between 60/40 and 90/10 depending on how we feel about the market. Reinvesting much of our bond holding into equities during the March 2020 Covid dip "goosed" the portfolio up to a level we just can't see ever needing as judged by running reasonable Firecalc or I-ORP scenarios. I am not one to pack everything away into conservative holdings once we've "won the game". Just don't see the need as we are quite comfortable with investing so we will continue investing as we've always done. We keep enough in fixed assets to cover expenses during a downturn, the rest can go to equities when we feel it's reasonable to do so. Been debating changes to investment plan since we've reached levels we won't ever need. So far, I'm thinking the only change is that we are unlikely to drop below 70/30 anymore. Just don't feel the need to be that conservative.

[pb4uski]

Quote:

Originally Posted by Exchme I don't think you have to set up separate accounts. ....

Agree, no real need for separate accounts. Just make it part of your AA targe calculations.

For example, let's say with a 30/70 AA that 80% of your nestegg would safely provide for you with very conservative assumptions and that you would invest the remaining 20% in stocks for your heirs benefit.

Your target AA would be 44/56..... with the stock portion being [(80*30%)+20%]. Recalculate the target periodically when you rebalance.

[donheff]

Quote:

Originally Posted by Exchme I don't think you have to set up separate accounts. If your WR is below, say, 3%, it's historically been very likely that you will end up with a big pile of money for your heirs. So you can be more aggressive and invest on your children's or grandchildren's timelines. Anybody think the bigwig's family trusts invest super-conservatively? They are able to invest aggressively as the withdrawal rates are small enough that they are recession-proof. A lot of folks here are recession-proof too and just don't feel that could be true.

+1. With pensions and a small SWR we have “made it.” Our AA is 74/26 which, by traditional standards, would fit the kids’ horizons. I don’t see a need for separate AA’s.

[RetireBy90]

We retired in 2018 and with SS in 9 years we will have all our expenses covered with SS/Pension/Rental income. Currently we draw about 1.2% of our pile. Therefore we are still 65% equities and 35% Bonds and cash. Of course, some of this is IRS money we just manage but we deal with the issue by just keeping the AA at pre-retirement levels. I recently read "The Money Game" by Adam Smith and was moved by the conclusion.

[audreyh1]

Legacy for us is giving away quite a bit while we are alive. This is any easy way to pare down that “too big” nest egg.

No, not investing long term for a much younger generation. Our heirs are siblings and can use the money NOW.

We also anticipate that we might need to help someone with long term care or medical expenses, so we’re OK with a bit extra that can be drawn down if needed.

Plus we spend on ourselves.

[Flyfish1]

Quote:

Originally Posted by audreyh1 Legacy for us is giving away quite a bit while we are alive. This is any easy way to pare down that “too big” nest egg. No, not investing long term for a much younger generation. Our heirs are siblings and can use the money NOW. We also anticipate that we might need to help someone with long term care or medical expenses, so we’re OK with a bit extra that can be drawn down if needed. Plus we spend on ourselves.

totally agree

[Car-Guy]

Quote:

Originally Posted by audreyh1 Legacy for us is giving away quite a bit while we are alive. This is any easy way to pare down that “too big” nest egg.

I'm getting confused between some of these threads... (e.g. Blow that Dough, Die with Zero, Got too Much, How much is Enough, Have you Won the Game, Fat Fire 1 & 2, etc)

I too give away now (to DD)... We were just giving the amounts allowable w/o tax reporting, under the gift tax rules until this year when we paid for her house... Now I've got to file 709. But, I agree, it's an easy way to pare down the nest egg while living and actually see some of the benefit.

[target2019]

Quote:

Originally Posted by DawgMan Any of you employ such a strategy? If so, what markers did you use to determine your "excess" (i.e. SWR less than 3% based on very conservative assumptions)? https://www.kiplinger.com/retirement...-thats-too-big

We do have a joint brokerage set up for similar purpose. I began talking about it here:
https://www.early-retirement.org/for...nce-81226.html

The idea started with a gift of stock from one child and the concept has grown from there. We added excess cash, then inheritance, and so on. Right now it is 15% of all invested.

[SecondCor521]

Yes, and I've talked about it several times here.

I don't have a separate account.

I figure what I need now, which is essentially taking my current spending and multiplying it by 25. Let's say I spend $40K and so I need $1M

I then figure out the safest AA for that $1M based on my time horizon. I'm 52 and I think I'm currently using 40 years. FIREcalc tells me that's 90/10 (ish). That means $100K in bonds.

I then look at what I have. Let's say I have $2M.

So the $1M excess I have is going to end up in the kids' hands in a couple of decades. So I allocate that $1M to stock.

So I have $1M in kids' stock plus $900K in my stock and $100K in my bonds. Which puts me overall at 95/5.

I recalculate this every so often, so if my spending goes up or my planning horizon shortens, the target AA will change accordingly. For example, if my spending went to $60K, I'd need $1.5M and I'd increase my bonds to $150K. If I still had $2M, then that'd be 92.5/7.5.

...

How I have things invested is one thing. Whether and how much I give away is a separate issue for which I have other thoughts and metrics and plans.

[jollystomper]

I am probably doing some of that, but very informally. I have not "carved out" a separate amount. I have individual stocks and some more "aggressive" mutual funds in taxable accounts that I have had for a long time with big capital gains. I look at them and realize I will never have a need to sell them. I will just let them continue as they will likely pass on to our heirs.

We have a lot in tax deferred retirement counts that, as RMD hits, we will not need to spend the entire RMD amount. Any we do not need it probably makes sense to invest in back into the market for our heirs.

[aja8888]

We are in our late 70's. Over the last 10 years, we have been giving the children significant monies when they needed the funds. Also, we have contributed a good chunk of our granddaughter's college costs so that she could graduate loan free.

Giving along the way has been very much appreciated by the children and grandchildren and makes us feel good about doing just that. We will leave a significant amount of dollars at our demise but that not something we have a priority to do since we are helping them as needed.

What we found out by living so long (and longer we hope) is that the majority of our offspring's financial needs are developing while we are still here. We have helped with housing, medical costs, college, autos, and general stuff during this pandemic. We are glad we can do that.

[CardsFan]

Quote:

Originally Posted by jollystomper I am probably doing some of that, but very informally. I have not "carved out" a separate amount. I have individual stocks and some more "aggressive" mutual funds in taxable accounts that I have had for a long time with big capital gains. I look at them and realize I will never have a need to sell them. I will just let them continue as they will likely pass on to our heirs. We have a lot in tax deferred retirement counts that, as RMD hits, we will not need to spend the entire RMD amount. Any we do not need it probably makes sense to invest in back into the market for our heirs.

We are following a similar strategy.

Current spending comes from after tax bonds, plus after tax distributions (int/div/cap gains). Leaving after tax equities for DS, hopefully still at stepped up basis. When we hit RMD time we will likely switch back to re-investing distributions.

Roth conversions are invested in equities, with all distributions re-invested. We do not expect to ever need the Roth money.

RMD's plus SS will provide way more than we need, so some of that will be re-invested in the after tax account.

If the stars align properly, DS will inherit a sizeable amount, with at least 1/2 of it tax free (under current laws) as stepped-up and Roth.

[Closet_Gamer]

We're not there yet, but I could easily us doing this in the future.

We do the reverse today for money that has a shorter term than our general retirement/long-term accounts.

Separate accounts, separate AAs for different purposes.

It would probably be smarter to smash it all together and adjust the AA appropriately, but I just find this a lot easier to keep track of.

[Dtail]

Not at that point yet after almost 4 years of retirement to have this first world issue.