Spending vs Leaving a Large Estate

[marko]

This is a bit of a spin-off from the "My net worth has increased 74% since I retired" thread.

First world problem:

As I'm a stone's throw from hitting age 70, (i.e. the horizon is no longer 35 years away, more like 20-25) DW and I are in the box of figuring out whether to goose the spending or die with potentially $10MM going to heirs and charities.

You have a growth rate, but you also have an end date and they are going in opposite directions!

That evolving thought process has been an interesting transition for us.

What I don't want is to be 89 years old and wondering how we'll pay the bills; what we both don't want is to leave tons of money to nieces and nephews who could likely end up in the 'lottery winner syndrome' and charities (trusts aside)

We don't deprive ourselves and do live quite 'high', but we're trying to thread that elusive, ultra thin eye of the needle between spending more vs running out of money as very elderly people.

Our WD rate has been in the 5-6% range over the past 15 years (10% this past year--new house) but the portfolio keeps growing and we do see lower costs ahead (DW hitting Medicare, eventually dumping $10K a year of boat maintenance) which will only exacerbate the situation.

It's the old 'die, having bounced the check to the undertaker' problem but neither a withdrawal rate nor a growth rate are consistent or linear.

The crux of it is that a large withdrawal today could 1) eventually deteriorate the portfolio 15 years from now or 2) make no difference whatsoever.

Comments? I'm not necessarily looking for advice but more hoping to spark a conversation

 

[Backpacker]

I'm not there yet age or balance, but I look at and talk with my father who is 85 and worth 7M or so. I have suggested he gift 10k to 15k to every child and grandchild so he could be able to hear and see how they handle it. Some may blow it, but I think it could be enjoyable way to connect to the younger generation, and quite honestly they need it more than me or my siblings.

 

[DayDreaming]

I'm a single 60-year old, my net worth has more than doubled since I retired over 10 years ago. I just started getting monthly pension this year, so my NW should now increase even more quickly.

I have no desire to spend more money (other than a Tesla Model Y that I'm thinking about) - spending any more won't increase my happiness.

I'm giving more to charities, but not huge amounts by any means. I guess I don't want to give it all away now only to find myself broke from huge medical bills later in life.

I will probably continue to increase my charitable contributions every year, but still keep a lot for myself. And when I die, I'll will it all to charities. Maybe I'm selfish for hoarding my money before then, but I like the financial comfort that gives me - that's my one biggest indulgence.

 

[RunningBum]

I think a variable spending plan helps with this. I use VPW, which lets me spend a little more when the market does well, and a little less if it doesn't.

One key, IMO, is to splurge in a way that's easy to cut back. Taking a really nice vacation, for example, works well. You spend the money, and then it's done. You don't have to take another big vacation like that if you need to start cutting back.

Contrast that with buying a horse, or a boat. There's potentially a lot of continuing expenses that go with that. If you really want something like that, make sure you can keep it up if things get tighter.

 

[audreyh1]

We withdraw whatever our portfolio will support even if we don’t spend it all in a given year. The excess goes into short term funds for spending soon. We use that excess for upgraded travel, gifting, and major splurges. We’re about to blow a big wad of it on something DH has really wanted and we’re old enough to say if not now, when? We also made some very generous gifts last year.

Heirs are siblings, so we gift to them as opportunities arise. They aren’t getting any younger either!

Our withdrawal rate is still relatively low (3% of retirement assets each Dec 31) and probably should be higher now that we both are in our 60s, but given how much we have underspent for many years, we don’t feel any urgency. Note that if the portfolio shrinks, so does our annual withdrawal. We could get a pay cut any year, but we have been getting raises for many years.

But who knows, I can imagine at least one sibling needing help with long-term care expenses, for example. And we will probably be spending a large chunk to buy into a CCRC ourselves if we live long enough. So I don’t mind some excess built up in the portfolio either.

 

[Souschef]

I am 82, and have a NW north of $2M. Our pensions and SS cover our living expenses. The thing the drives my spending is my RMD, which is about $100K per year
I have a spending plan as follows:
Gifts to 4 sons
Taxes

Charities
At that rate, it will take over 20 years to diminish my estate.

 

[Ronstar]

I've thought about being in a similar situation. Leaving too much $ on the table when we die. And we have no kids. Thinking about charities to leave to.

I'm considering boosting spending, but there really isn't anything that I want other than a new house. I don't want a big house- just something maintenance free. I don't want a lot of things - I want a simpler life. Maybe increase travel, but DW is an every other day care giver for her DM. And there is still a lot of frugal genes in me that are tough to shake off.

We just started taking SS. So income is up and spending is down. We are currently around a 2% WR. I never dreamed our net worth would ever get to $10m, but it could in 20 years at this rate.

The key is to use more $ to maximize our happiness. Just need to figure out what would do that.

 

[street]

The more we have the more decisions we have to make. If we had very little, then not so much to think about as far as estate. We all have a good problem to have thou, just more planning and decisions to be made.

I'm hoping to leave a portion to my son's family. The ranch will go to him and I hope to get that transferred to him way before I die. A local charity I have been part of my entire life, will get a sustainable scheduled amounts so I can be part of it being alive and well for years after I'm gone.

That is my plan but God has his plan, so not sure if my plan will endure my wishes. I may run out of money for some reason unknown to me. I beleive everything takes care of itself, one way or another in life. I don't fret over what will happen.

 

[flyingaway]

Reading these posts tells me that I have to start spending my money when I have some good time (I will be 57 this year).

 

[Jerry1]

I don’t image I’ll have this problem, but if somehow I have more than I’d want to give to my two daughters, one thing I’d do is set up an endowment as a legacy gift to be remembered. Personally, I’d want it to help fund people’s education. As for the OP, at your level, it would be hard to spend your way out of this “problem”. Face it, unless it’s consumable, some value is still going to be there for your heirs. So, yes, buy a beach front condo, but it will still be there when you’re gone.

I like the idea of increasing your spending by gift giving while you’re alive. Then you get to enjoy and connect with family members now. You can fund retirement accounts to help ensure that it will be a lasting gift.

 

[OldShooter]

... I'm giving more to charities, but not huge amounts by any means. I guess I don't want to give it all away now only to find myself broke from huge medical bills later in life. ...

For some, a Charitable Remainder Trust can help with this dilemma. (https://www.investopedia.com/terms/c/charitableremaindertrust.asp) This is no place for amateur lawyering, though. As they say "Seek competent advice." Not Nolo. Not SGOTI.

 

[garyt]

I'm a single 60-year old, my net worth has more than doubled since I retired over 10 years ago. I just started getting monthly pension this year, so my NW should now increase even more quickly.

I have no desire to spend more money (other than a Tesla Model Y that I'm thinking about) - spending any more won't increase my happiness.

I'm giving more to charities, but not huge amounts by any means. I guess I don't want to give it all away now only to find myself broke from huge medical bills later in life.

I will probably continue to increase my charitable contributions every year, but still keep a lot for myself. And when I die, I'll will it all to charities. Maybe I'm selfish for hoarding my money before then, but I like the financial comfort that gives me - that's my one biggest indulgence.

I don't think you're selfish at all. There's no telling how much money you could need in the way of long term care someday. Hopefully not but it be the difference from being in a decent place or a hellhole. The charities will be glad to have your money after you pass.

 

[pacergal]

Much can happen in the next 20-25 years.
We most likely will not have that much, but more than our kids probably ever imagined.
WE plan to continue spending as we wish, and as we feel comfortable, gifting to our kids, and charities as we go.
I don't care if our kids inherit more than they think, they have been raised well, I believe, and are pretty good budgeting. If it makes their lives more comfortable, great.
You never know what the future holds.

If you have concerns about beneficiaries and "lottery syndrome", then give them less percentage and more to charities. Charities can always put money to use, no matter how much or how little.

 

[Midpack]

We have the same (first world) problem at age 66/64, the money is piling up much faster than we’re spending it **, and we live a very comfortable life wanting for nothing really. We’d love to give more to charity, but with 30 odd years to go and no secure income other than Soc Sec, I can’t bring myself to spend more. DW is even less inclined to spend more. Historical odds are very good but geopolitics or other factors can screw up any plan and I don’t want us to depend on others. We had a $150K boat that cost me $15-20K/yr to race but I sold that and won’t buy another. I’ve looked at a couple six figure cars but I just can’t bring myself to buy, especially knowing how fast cars depreciate - I don’t really want one anyway, seems frivolous for me.

I’d love to know how to thread that needle now versus nearer the end. We don’t have kids, so charities and nieces/nephews are our beneficiaries.

** Not that I believe it but FIRECALC says our residual will be between $5-40M, average $20M at 100% success rate.

 

[finnski1]

I need to be more like my dog than worrying about these things.

 

[calmloki]

finnski1 has it just right. wish I could be more in the present - now that is a good goal.

 

[finnski1]

finnski1 has it just right. wish I could be more in the present - now that is a good goal.

Not saying I am any better at it either. I think most of us on here are just wired that way. It is both a blessing and a curse at times. To analyze, plan , obsess at times about finances was a blessing to get us where we are but can also be a burden at times when I wish I was just a little more care free.

 

[RunningBum]

For some, a Charitable Remainder Trust can help with this dilemma. (https://www.investopedia.com/terms/c/charitableremaindertrust.asp) This is no place for amateur lawyering, though. As they say "Seek competent advice." Not Nolo. Not SGOTI.

I don't see how a CRT helps with this. It's irrevocable. You get an income stream out of it, but if you have a major medical expense and find out you need all of your money after all, you can't get whole thing back.

 

[MarieIG]

10 M - taxes - estate administration fees - charities / multiple heirs = maybe not much to worry about.

I would not leave a large sum to an 18 - 30 year old; but by the time they are in their thirties, their fiscal propensities are basically formed; and a few hundred thousand - million shouldn't result in "lottery winner syndrome," unless that is already the way they are wired.

With my own kiddos, I know one would blow through anything I leave him with the speed of light (if his wife doesn't stop him); the others are more disciplined and budget, save, calculate, and look for bargains.

So, the advise you don't want is, take care of yourself and your spouse first; and consult a good T&E attorney for a reasonable - and flexible - estate plan.

 

[OldShooter]

I don't see how a CRT helps with this. It's irrevocable. You get an income stream out of it, but if you have a major medical expense and find out you need all of your money after all, you can't get whole thing back.

You're a trusts & estates specialist attorney? I'm not. All I know is that there can be some flexibility in CRTs. It is not for me to say that a CRT is suitable or not suitable to a particular situation. That's the "seek competent advice" piece.

 

[street]

Not saying I am any better at it either. I think most of us on here are just wired that way. It is both a blessing and a curse at times. To analyze, plan , obsess at times about finances was a blessing to get us where we are but can also be a burden at times when I wish I was just a little more care free.

You said, that exactly how I feel.

 

[Amethyst]

Consider the high cost of long-term care, especially dementia care. That should scare anybody into hanging onto their money.

 

[Mr. Tightwad]

We have the same (first world) problem at age 66/64, the money is piling up much faster than we’re spending it **, and we live a very comfortable life wanting for nothing really. We’d love to give more to charity, but with 30 odd years to go and no secure income other than Soc Sec, I can’t bring myself to spend more. DW is even less inclined to spend more. Historical odds are very good but geopolitics or other factors can screw up any plan and I don’t want us to depend on others. We had a $150K boat that cost me $15-20K/yr to race but I sold that and won’t buy another. I’ve looked at a couple six figure cars but I just can’t bring myself to buy, especially knowing how fast cars depreciate - I don’t really want one anyway, seems frivolous for me.

I’d love to know how to thread that needle now versus nearer the end. We don’t have kids, so charities and nieces/nephews are our beneficiaries.

** Not that I believe it but FIRECALC says our residual will be between $5-40M, average $20M at 100% success rate.

Mid 60's and 30 odd years to go. I love your confidence. Make it happen.

 

[Mr. Tightwad]

To the OP, in considering all possible outcomes, the market could dip 30-50% in a matter of days, and you could be at 5-7M. That would certainly lower inheritances and giving, as opposed to having 10M to consider.

Just something to ponder.

 

[MarieIG]

You're a trusts & estates specialist attorney? I'm not. All I know is that there can be some flexibility in CRTs. It is not for me to say that a CRT is suitable or not suitable to a particular situation. That's the "seek competent advice" piece.

I can certainly see a place for a CRT in some estate plans - donate a certain amount of appreciated assets and obtain an income stream for life. Seems to be similar to a SPIA. Probably (from my standpoint) it would be wise not to contribute too much; so as to not deplete the asset pool overly much, but IMHO, it is worthy of more research. I would also need to look at the "risk" of failure of the income stream.