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Subject:  Re: Puzzled Date:  4/11/2000  7:03 PM
Author:  JAFO31 Number:  21126 of 95772

<<<long post alert>>>

hharri: "I am considering retiring at my present age of 59, and like so many others I am considering the problem of what I can withdraw from my portfolio to finance my retirement. As I read the discussions on what percentage of one's portfolio can be "safely" withdrawn, I am struck by how many people seem to be planning their retirement strategies based on the assumption (or fear) that they may live to be 85, 90 or more. And having assumed that, they then crunch inflation rates, market returns and a host of other things, all aimed at insuring that they will not, under any circumstances, run out of money before they die at the ripe old age which has been assumed."

It sounds like you have some familiarity with the Trinity study that one of the posters referenced. If you have not already done so, you may wish to check out The Retire Early board here on TMF (in Speakers' Corner) and should check out the Retire Early Home Page (which is maintained by "intercst") at":


"Now I will grant you that if you are in reasonably good health and retire at a relatively young age, you may have to live off of your assets for 30 or even 40 years. And you may be as physically and mentally fit at 85 as you were at 65. However, that is only one scenario, and as I read the discussions I am equally struck by how little consideration seems to be given to the other scenario, which is that you die in your sixties or seventies. Or, ten years down the road you cannot do the things you can do now, for whatever reason."

This is a very personal decision. I suspect that it is driven as much by fear, as anything else. While dying just as the last dollar is spent sounds appealing, we generally do not know when we will die, and outliving one's money is the least appealling alternative. Thus, it is a form of "worst" case planning.

In addition, the idea of re-entering the work force at 85 after 20 or 25 years retirement is not at all appealing to most people, and is probably not very feasible (at least with respect to the very well paying professions or executive jobs).

"I am, as I said, 59, and I have a portfolio of $1,000,000, a nice house on the Chesapeake Bay, some toys and no debt. That makes it feasible that I could retire, but my portfolio is not so great that it becomes a shoo-in. I am, as far as I know, in reasonably good health; however, I need only look at the obituaries and consider friends of mine who are already gone to realize that I may have only 10-15 years to live (or less). Or, I may have only 10-15 "good" years, meaning years in which I can do what I do now."

Or you could be in a car accident tomorrow; or maybe 30+ really good years. I have a great uncle who is 92+, still lives in his own home and takes care of his daily needs (but does hire out most maintenance work), still drives himself wherever he needs to go, and carries on pretty much as he has for the last 20 years.

What you did not mention at all is your budget or expected retirement budget. Alot of people would be long gone at your age and with your portfolio, but that is not feasible if you are accustomed to, and plan on continuing, a 200k budget. Actually there was an extended thread on The Retire Early board, quite some time ago, about how to measure and adjust a full-time work budget to a retired and not working budget; you can search for the thread, if you are interested (or maybe intercst will post the link).

Depending upon your numbers, you might divide your portfolio into to portions - one that would sustain minimally acceptable budget indefintitely and one that would support and could be consumed over the next 15 years to support the early extras while still young and healthy.

For example, 750k invested long-term (28k annual income at 4%, which could probably be inflation adjusted each year) and 250k in an immediate annuity with a 15 year payout (I do not know how much income this would generate - but am guessing 28-30k) to increase current income for next 15 years. (Yes, I am aware that TMF generally is down on annuities, and you would be signing away the upside, too). Thus, current income would be in the 56k starting range year 1, with some inflation adjustment - or 5.6%, substantially larger than the 4% safe rate. Just a theoretical idea.

Income would bump up some when SS kicked in, and then would bump down in 15 years, but with the inflation adjustment on the long term money, might be in the 40-48k range (I am too lazy to inflate 28k at 3%, and than at 4%, for a check on my estimate).

"Some would say that I should hang in there for a few more years to increase my nest egg, to insure that I shall have enough to make it comfortably to 90. Others would say under no circumstances withdraw more than 5%, or you might run out of money before you die. However, I have to wonder what sense it makes to put such emphasis on the possibility of living to 85 or 90 when it is also quite possible that I shall die or be disabled before 75. Put slightly differently, it makes more sense to me [emphasis added by JAFO] to focus on my life for the next 10-15 years than it does to orient everything around the years after that, even if I do wind up eating cat food."

It is your decision to make, as long as you are willing to live with the consequences of your decision. But the same issue was true, to a certain extent when you were 25, you could have died in a car accident (or Vietnam) or anywhere else. The only thing that has changed is the probability.

If you check the mortality tables and conclude that your "expected" span is 15 more years, remember that for every current 60 year old who dies at 61 there will need to be a corresponding 60 year old who lives to 90. IOW, the deaths of current 60 years olds will be distributed over some kind of bell curve with the mean death at 75 (per hypothetical). You might also factor in family history and your personal health and medical history to adjust the so-called norm.

"So I am puzzled. I do not propose to simply blow it all on the assumption that I may die in 5 years, but I am puzzled by the apparent tendency to assume the other extreme and subordinate everything to the possibility that one will live to be 90. Maybe you will, maybe you won't. Notwithstanding the mortality tables which say you might live to 90, when it comes to discussions on when and how to retire I am puzzled by the lack of comment on the fact that you may only have a few years, with something to be said for concentrating on them, not on the other end."

Are you arguing for Carpe Diem, Seize the Day --- Live Well, Party HArd, Die Young, Leave a pretty corpse? <grin>

A maxim we have all heard is expect the best, but plan for the worst. In terms of budget (and budget only), the worst is a long life.

Just my $0.02. Regards, JAFO

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