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Author: IndecisiveFool Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 5068  
Subject: Life Expectancy Date: 8/7/2003 3:27 PM
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Anyone struggling with projected life expectancy, trying to guess if it will keep increasing at a similar rate or throwing up their hands like me and guestimating 100?

This good question was asked in another thread. Will life expentancy affect your plans for early retirement?

I like to ignore project life expectancy that's written in the media. Yes, modern medicine and better nutrition may lengthen overall life expectancy, but I prefer to look at family history. In both sides of my family, it is not uncommon to live into your 90s. My great grandmother lived until 107. Therefore, I am planning on living a long time. If something were to happen to me, my kids will get a windfall.

Phantomdiver mentioned a fudge factor in her calculations. You can use SWR that has been calculated on REHP. But the longer you live, the more uncertainty that the assets you withdrawl based on SWR will support your living expenses. Medical costs can inflate faster than expected or changes in tax laws can affect your investments. Therefore, you may need a bigger fudge factor for increased life expectancy.

IF

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Author: Lammergeier40 Big red star, 1000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 173 of 5068
Subject: Re: Life Expectancy Date: 8/7/2003 6:06 PM
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This good question was asked in another thread. Will life expentancy affect your plans for early retirement?

While not an option for everybody, those who are embracing FIRE early enough in their lives (and have jobs that don't totally suck the marrow out of them) could shoot for a slightly higher nest-egg, one that ought to allow them to effectively endow their lives. In other words, save enough so that you can live entirely off investment income less inflation, so that your real capital is never depleted. One way to do this would be to live entirely off a dividend stream from a 100% equity portfolio (at a mere 1.6% dividend yield on the S&P 500, you probably wouldn't want to be an indexer though).

Potential reasons for taking this additional step (which would necessarily postpone your date of FIRE) would be to help set your kids up for the luxury of not working forever, or if you're childless, to support some charitable cause that you strongly believe in.

Todd

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Author: ImCalvin Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 181 of 5068
Subject: Re: Life Expectancy Date: 8/7/2003 8:02 PM
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live entirely off a dividend stream
I'd be fairly concerned about doing such a thing. Dividends are somewhat trendy and you can't really guarantee them as much as someone on a limited budget might need them to be. Right now because of recent tax changes they seem to be favorable, and there have been tons of articles about which dividend stocks to buy. I tend think the pendulum will swing back and dividend stocks will once again be taxed and people will start looking elsewhere. You can be safer with something like preferred stocks, but even then I think I'd prefer iBonds or the like.

help set your kids up for the luxury of not working forever
I'd rather have it the other way around. ;)

-Ben


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Author: brewer12345 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 191 of 5068
Subject: Re: Life Expectancy Date: 8/8/2003 9:25 AM
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I'd be fairly concerned about doing such a thing. Dividends are somewhat trendy and you can't really guarantee them as much as someone on a limited budget might need them to be.

******************

For many companies, this is clearly the case. However, it isn't hard to find companies that have long histories of maintaining and raising dividends, and kept doing so even through bull market BS. For example, PSC, a water company, has been duming out and raising dividends like clockwork. AF, a thrift, has raised its dividends more than 200% since 1996. All you would have to do is structure your portfolio accordingly.

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Author: workwayless Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 197 of 5068
Subject: Re: Life Expectancy Date: 8/8/2003 10:49 AM
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IF asks,

This good question was asked in another thread. Will life expentancy affect your plans for early retirement?

I like to ignore project life expectancy that's written in the media. Yes, modern medicine and better nutrition may lengthen overall life expectancy, but I prefer to look at family history. In both sides of my family, it is not uncommon to live into your 90s. My great grandmother lived until 107. Therefore, I am planning on living a long time. If something were to happen to me, my kids will get a windfall.

Phantomdiver mentioned a fudge factor in her calculations. You can use SWR that has been calculated on REHP. But the longer you live, the more uncertainty that the assets you withdrawl based on SWR will support your living expenses. Medical costs can inflate faster than expected or changes in tax laws can affect your investments. Therefore, you may need a bigger fudge factor for increased life expectancy.


Yes life expectency absolutely affected my plans.

I too looked at my family history and also my medical history. In my case I am expected to live much shorter than average lifespan. This gives me the ability to have a much higher SWR if I choose.



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Author: tab8221 One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 199 of 5068
Subject: Re: Life Expectancy Date: 8/8/2003 11:05 AM
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I too looked at my family history and also my medical history. In my case I am expected to live much shorter than average lifespan. This gives me the ability to have a much higher SWR if I choose.


Hmmm..... I was wondering about that too--my family history is dismal, I have a huge family but know of only 1 relative who reached age 70 (and died at 72), many die in 40s or 50s. So then, to plan for age 100 seems ridiculous to me. My health is probably no better, though its hard to say. But how do you plan this--I mean if you predict wrong, you'll run out of money! Could you explain how you account for the possibility of living longer?

tab

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Author: workwayless Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 207 of 5068
Subject: Re: Life Expectancy Date: 8/8/2003 12:10 PM
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tab replies,

Hmmm..... I was wondering about that too--my family history is dismal, I have a huge family but know of only 1 relative who reached age 70 (and died at 72), many die in 40s or 50s. So then, to plan for age 100 seems ridiculous to me. My health is probably no better, though its hard to say. But how do you plan this--I mean if you predict wrong, you'll run out of money! Could you explain how you account for the possibility of living longer?



Well one thing I did was use statistical tools to predict my lifespan. Hopefully that allowed me to get a SWAG rather than a WAG :-)

Here's an example of a tool to predict your life expectancy;

http://www.lifeexpectancy.com

However, it is still possible that I might live longer than projected. So I have a couple of fudge factors in my budget such as not factoring Social Security payments into my SWR.

Another fudge factor I choose to keep my WR to 4% or less. Let me explain. For a person with an average lifespan, 4% is probably the top range of SWR. But in my personal situation, 5% is a SWR. So 4% is really safe for me. As I get older--I'm late 40's now--I might look at increasing my WR.

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Author: tab8221 One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 211 of 5068
Subject: Re: Life Expectancy Date: 8/8/2003 1:00 PM
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Wow, that's an interesting tool! There was one risk factor I wasn't sure about including, because its mild, but it gave me 10.9 more years to live! (age 38) Without including it, I should live to 81. Hmmm... somewhere in the middle, I'd guess... But it didn't account for my family's history of cancer which I expect to be getting in my early 40s. Makes it hard to pin down a number!

How do you figure that 5% is a SWR for you? I guess I see the number 4% thrown around, but don't really know how it's determined and what you consider "safe". I can make a spreadsheet showing withdrawl per year and balance and earnings rate and play with the numbers, but I'd be interested to know how you figured this.

tab



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Author: workwayless Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 261 of 5068
Subject: Re: Life Expectancy Date: 8/9/2003 2:00 PM
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tab wonders
How do you figure that 5% is a SWR for you? I guess I see the number 4% thrown around, but don't really know how it's determined and what you consider "safe". I can make a spreadsheet showing withdrawl per year and balance and earnings rate and play with the numbers, but I'd be interested to know how you figured this.


By safe, I mean the probability that I will not run out of money before I die. There have been various studies done to estimate what withdrawal rate would allow one a 100% chance to not run out of money if the future is like the past. Here's the REHP discussion board's take on it.

http://boards.fool.com/Message.asp?mid=18870026

As you can see, it mentions that 4% is 100% safe for a 40 year retirement. However, that figure is a general number and people have individual circumstances. So to calculate your personal SWR, you can use the FIREcalc.

http://capn-bill.com/fire/

This is how I calculated a 5% SWR for myself. This tool was developed by a former REHP board poster. I think it is one tool that should be in every FIRE Wannabee's toolbox, IMHO.


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