Rich, Broke or Dead: Visualizing probabilities of outcomes in early retirement

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willthrill81
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Re: Rich, Broke or Dead: Visualizing probabilities of outcomes in early retirement

Post by willthrill81 »

JackoC wrote: Sun Sep 30, 2018 8:27 pm
EnjoyIt wrote: Sun Sep 30, 2018 5:03 pm
My mistake on the 8.7%..It is 8.4% nominal or 5.4% real. Either way, we are not talking about returns over only 5-10 years. We are talking about returns over 20-30 years. I don't know about you, but to me it appears there is a lot of crystal ball utilization in what is being predicted. 3% real returns would mean that we should expect worse than 56% of our average over the last century for the next 20-30 years which seams like a pretty strong prediction.

And hey, maybe you are right. If that is the case I would rather fly to Europe every other year as opposed to once a year if it means not wasting another 10-20% of my healthy life saving for that extra vacation.
Again for bonds now the expected return is definitely lower than historical. Not for the next 5 or 10 yrs, but all the way out to the longest bonds, 30 yr TIPS yields 1%. It's hard to see a reasonable argument to assume more than the yield of bonds (more or less anyway) for expected return out to their maturity. And yields now *are* about 2% lower than the historical realized return of bonds. IOW the real yield on bonds now is more like 2/3's lower than the historical average realized return...yet that's clearly what it is. So that 'it's X% lower' argument is not very compelling IMO.

For stocks of course it's fuzzier, inherently. But I think the bond case illustrates the general idea that there's nothing that special about the historical return in estimating the expected return. Stock like bond valuations are higher now than they usually have been, implying a lower expected return than historical. How much lower is open to reasonable debate, but there just isn't a lot of logic in assuming the expected return of a given financial asset will be the historical return, as often as that assumption is employed. That would be true if assets didn't ever become steadily cheaper or more expensive relative to their payoffs, but both stocks and bonds have, become steadily more expensive relative to their payoffs in last few decades. Assuming 'the market knows what it's doing'* that means lower expected return now than historical return, and 2% lower is somewhere in the ballpark, though not as conservative as I assume for my own planning.

*assuming the market is mispricing and valuations will fall, the expected return should be lower still, a lot more than 2% below historical, anyway I don't assume that.
You're trying to cast doubt on a decades long retirement being successful when even the most staunch believers in predicting market returns won't go out beyond ten years. Sequence of returns risk is the bugaboo to be concerned about, not 3% returns.

Kitces found that even when the starting CAPE value for a 30 year retirement was in the highest quintile, the lowest safe withdrawal rate was 4.4%. He also found that starting CAPE values only shifted the subsequent 30 year return by about +/-1%, certainly not enough to cast doubt on the viability of something like the '4% rule of thumb'.

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Re: Rich, Broke or Dead: Visualizing probabilities of outcomes in early retirement

Post by MnD »

Kenkat wrote: Sun Sep 30, 2018 10:11 am
EnjoyIt wrote: Sat Sep 29, 2018 8:24 pmBut, fear of not having enough is a very strong feeling very difficult to break.
Yes this is exactly it. How much are you comfortable spending down because once you shut down the money making engine of your career, it is not always easy to restart it.
There's that but also a fear of switching at all from accumulation to distribution. After spending decades growing and attending to "money mountain" it can be hard for some to call in the front-end loaders and big trucks to start mining the resource and hauling some of it out to utilize.

I read here commonly retirees in their 70's who have been retired for quite a while who report never spending any of their considerable portfolio assets. A pension and social security is "enough", and some even report continuing to save from those income streams to build their portfolio well into retirement. Its also not a coincidence that those with a "low SWR" recommendation often seem to track around the blended dividend and interest yield for a balanced portfolio. The old call to "never spend principal!" is still alive and well.
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Re: Rich, Broke or Dead: Visualizing probabilities of outcomes in early retirement

Post by Kenkat »

MnD wrote: Mon Oct 01, 2018 6:21 pm
Kenkat wrote: Sun Sep 30, 2018 10:11 am
EnjoyIt wrote: Sat Sep 29, 2018 8:24 pmBut, fear of not having enough is a very strong feeling very difficult to break.
Yes this is exactly it. How much are you comfortable spending down because once you shut down the money making engine of your career, it is not always easy to restart it.
There's that but also a fear of switching at all from accumulation to distribution. After spending decades growing and attending to "money mountain" it can be hard for some to call in the front-end loaders and big trucks to start mining the resource and hauling some of it out to utilize.

I read here commonly retirees in their 70's who have been retired for quite a while who report never spending any of their considerable portfolio assets. A pension and social security is "enough", and some even report continuing to save from those income streams to build their portfolio well into retirement. Its also not a coincidence that those with a "low SWR" recommendation often seem to track around the blended dividend and interest yield for a balanced portfolio. The old call to "never spend principal!" is still alive and well.
I guess I just don’t want to retire at 55 or 56 and then hit 61 realizing I don’t have enough money and am going to be walking dogs until I am 70.
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Re: Rich, Broke or Dead: Visualizing probabilities of outcomes in early retirement

Post by HEDGEFUNDIE »

Kenkat wrote: Mon Oct 01, 2018 6:25 pm
MnD wrote: Mon Oct 01, 2018 6:21 pm
Kenkat wrote: Sun Sep 30, 2018 10:11 am
EnjoyIt wrote: Sat Sep 29, 2018 8:24 pmBut, fear of not having enough is a very strong feeling very difficult to break.
Yes this is exactly it. How much are you comfortable spending down because once you shut down the money making engine of your career, it is not always easy to restart it.
There's that but also a fear of switching at all from accumulation to distribution. After spending decades growing and attending to "money mountain" it can be hard for some to call in the front-end loaders and big trucks to start mining the resource and hauling some of it out to utilize.

I read here commonly retirees in their 70's who have been retired for quite a while who report never spending any of their considerable portfolio assets. A pension and social security is "enough", and some even report continuing to save from those income streams to build their portfolio well into retirement. Its also not a coincidence that those with a "low SWR" recommendation often seem to track around the blended dividend and interest yield for a balanced portfolio. The old call to "never spend principal!" is still alive and well.
I guess I just don’t want to retire at 55 or 56 and then hit 61 realizing I don’t have enough money and am going to be walking dogs until I am 70.
And what are the chances of that happening? 1%? Is it worth working a few extra years for reduce that to 0.5%? At a point in your life where each remaining year could be 5% of your remaining life?
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Re: Rich, Broke or Dead: Visualizing probabilities of outcomes in early retirement

Post by Kenkat »

HEDGEFUNDIE wrote: Mon Oct 01, 2018 6:30 pm
Kenkat wrote: Mon Oct 01, 2018 6:25 pm
MnD wrote: Mon Oct 01, 2018 6:21 pm
Kenkat wrote: Sun Sep 30, 2018 10:11 am
EnjoyIt wrote: Sat Sep 29, 2018 8:24 pmBut, fear of not having enough is a very strong feeling very difficult to break.
Yes this is exactly it. How much are you comfortable spending down because once you shut down the money making engine of your career, it is not always easy to restart it.
There's that but also a fear of switching at all from accumulation to distribution. After spending decades growing and attending to "money mountain" it can be hard for some to call in the front-end loaders and big trucks to start mining the resource and hauling some of it out to utilize.

I read here commonly retirees in their 70's who have been retired for quite a while who report never spending any of their considerable portfolio assets. A pension and social security is "enough", and some even report continuing to save from those income streams to build their portfolio well into retirement. Its also not a coincidence that those with a "low SWR" recommendation often seem to track around the blended dividend and interest yield for a balanced portfolio. The old call to "never spend principal!" is still alive and well.
I guess I just don’t want to retire at 55 or 56 and then hit 61 realizing I don’t have enough money and am going to be walking dogs until I am 70.
And what are the chances of that happening? 1%? Is it worth working a few extra years for reduce that to 0.5%? At a point in your life where each remaining year could be 5% of your remaining life?
Well, actually using this simulator, if I retire at 55, it’s about a 17% chance (83% chance of success). Another couple of years boosts that to a 97% chance of success.

I posted earlier that I actually like this simulator and it has made me seriously consider retiring a little earlier than maybe I had originally been planning, so I do get it.
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Re: Rich, Broke or Dead: Visualizing probabilities of outcomes in early retirement

Post by ResearchMed »

Kenkat wrote: Mon Oct 01, 2018 6:25 pm
MnD wrote: Mon Oct 01, 2018 6:21 pm
Kenkat wrote: Sun Sep 30, 2018 10:11 am
EnjoyIt wrote: Sat Sep 29, 2018 8:24 pmBut, fear of not having enough is a very strong feeling very difficult to break.
Yes this is exactly it. How much are you comfortable spending down because once you shut down the money making engine of your career, it is not always easy to restart it.
There's that but also a fear of switching at all from accumulation to distribution. After spending decades growing and attending to "money mountain" it can be hard for some to call in the front-end loaders and big trucks to start mining the resource and hauling some of it out to utilize.

I read here commonly retirees in their 70's who have been retired for quite a while who report never spending any of their considerable portfolio assets. A pension and social security is "enough", and some even report continuing to save from those income streams to build their portfolio well into retirement. Its also not a coincidence that those with a "low SWR" recommendation often seem to track around the blended dividend and interest yield for a balanced portfolio. The old call to "never spend principal!" is still alive and well.
I guess I just don’t want to retire at 55 or 56 and then hit 61 realizing I don’t have enough money and am going to be walking dogs until I am 70.
Is that really the likely scenario if you are running short, or would you slowly reduce some of your discretionary spending?
We plan to spend a bit extra earlier, recognizing we might need to cut back later.

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Re: Rich, Broke or Dead: Visualizing probabilities of outcomes in early retirement

Post by willthrill81 »

ResearchMed wrote: Mon Oct 01, 2018 7:48 pm
Kenkat wrote: Mon Oct 01, 2018 6:25 pm
MnD wrote: Mon Oct 01, 2018 6:21 pm
Kenkat wrote: Sun Sep 30, 2018 10:11 am
EnjoyIt wrote: Sat Sep 29, 2018 8:24 pmBut, fear of not having enough is a very strong feeling very difficult to break.
Yes this is exactly it. How much are you comfortable spending down because once you shut down the money making engine of your career, it is not always easy to restart it.
There's that but also a fear of switching at all from accumulation to distribution. After spending decades growing and attending to "money mountain" it can be hard for some to call in the front-end loaders and big trucks to start mining the resource and hauling some of it out to utilize.

I read here commonly retirees in their 70's who have been retired for quite a while who report never spending any of their considerable portfolio assets. A pension and social security is "enough", and some even report continuing to save from those income streams to build their portfolio well into retirement. Its also not a coincidence that those with a "low SWR" recommendation often seem to track around the blended dividend and interest yield for a balanced portfolio. The old call to "never spend principal!" is still alive and well.
I guess I just don’t want to retire at 55 or 56 and then hit 61 realizing I don’t have enough money and am going to be walking dogs until I am 70.
Is that really the likely scenario if you are running short, or would you slowly reduce some of your discretionary spending?
I think that any prudent withdrawal strategy should include some 'wiggle room' for discretionary spending. We're planning on at least 50% of our withdrawals being used for discretionary spending. So even if we need to dramatically rein in our spending, the necessities will be covered. And whatever we get from SS will be in addition to all of that (i.e. icing on the cake).
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Re: Rich, Broke or Dead: Visualizing probabilities of outcomes in early retirement

Post by NoHeat »

Sandtrap wrote: Sat Sep 29, 2018 9:55 am It would be far easier to project these things if there was an expiration date stamped somewhere on our body.
That's very true.

I believe that's the reason some people buy longevity annuities, which can go a long way toward solving that problem.

The red-colored "broke" band could entirely vanish from the time-series graph produced by this simulator, if it allowed annuities.
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Re: Rich, Broke or Dead: Visualizing probabilities of outcomes in early retirement

Post by Kenkat »

NoHeat wrote: Mon Oct 01, 2018 8:06 pm
Sandtrap wrote: Sat Sep 29, 2018 9:55 am It would be far easier to project these things if there was an expiration date stamped somewhere on our body.
That's very true.

I believe that's the reason some people buy longevity annuities, which can go a long way toward solving that problem.

The red-colored "broke" band could entirely vanish from the time-series graph produced by this simulator, if it allowed annuities.
You should be able to simulate an annuity using the Extra Annual Income section.
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Re: Rich, Broke or Dead: Visualizing probabilities of outcomes in early retirement

Post by Kenkat »

willthrill81 wrote: Mon Oct 01, 2018 7:54 pm
ResearchMed wrote: Mon Oct 01, 2018 7:48 pm
Kenkat wrote: Mon Oct 01, 2018 6:25 pm
MnD wrote: Mon Oct 01, 2018 6:21 pm
Kenkat wrote: Sun Sep 30, 2018 10:11 am

Yes this is exactly it. How much are you comfortable spending down because once you shut down the money making engine of your career, it is not always easy to restart it.
There's that but also a fear of switching at all from accumulation to distribution. After spending decades growing and attending to "money mountain" it can be hard for some to call in the front-end loaders and big trucks to start mining the resource and hauling some of it out to utilize.

I read here commonly retirees in their 70's who have been retired for quite a while who report never spending any of their considerable portfolio assets. A pension and social security is "enough", and some even report continuing to save from those income streams to build their portfolio well into retirement. Its also not a coincidence that those with a "low SWR" recommendation often seem to track around the blended dividend and interest yield for a balanced portfolio. The old call to "never spend principal!" is still alive and well.
I guess I just don’t want to retire at 55 or 56 and then hit 61 realizing I don’t have enough money and am going to be walking dogs until I am 70.
Is that really the likely scenario if you are running short, or would you slowly reduce some of your discretionary spending?
I think that any prudent withdrawal strategy should include some 'wiggle room' for discretionary spending. We're planning on at least 50% of our withdrawals being used for discretionary spending. So even if we need to dramatically rein in our spending, the necessities will be covered. And whatever we get from SS will be in addition to all of that (i.e. icing on the cake).
Because I have a pension, that, plus my and my spouse’s social security, will cover a large portion of our expenses at 65. However, this also means that to retire early, I am withdrawing 7% of my portfolio before I hit age age 65 which is very counter the the prevailing 4% and maybe 3% is safer wisdom here. It is very sensitive to another year or two - i.e., 56 or 57 makes a big difference. Since I have been thinking 59-60 for a while, that’s going to take some time to sink in before I just march into the office tomorrow and say I am retiring in January 2019.
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Re: Rich, Broke or Dead: Visualizing probabilities of outcomes in early retirement

Post by NoHeat »

Kenkat wrote: Mon Oct 01, 2018 8:23 pm You should be able to simulate an annuity using the Extra Annual Income section.
Oh, good point, I had not noticed that option.

Still, it only makes the red "broke" band get smaller. Which seems a bit odd.

As an extreme case, if I bought an annuity for a billion dollars, leaving me an investment portfolio of just $1 that quickly went to zero, this simulator would say that I would be broke the rest of my life, but I sure wouldn't feel broke; I would feel rich because I would be enjoying the income from a billion-dollar annuity.
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Re: Rich, Broke or Dead: Visualizing probabilities of outcomes in early retirement

Post by EnjoyIt »

willthrill81 wrote: Mon Oct 01, 2018 7:54 pm
ResearchMed wrote: Mon Oct 01, 2018 7:48 pm
Kenkat wrote: Mon Oct 01, 2018 6:25 pm
MnD wrote: Mon Oct 01, 2018 6:21 pm
Kenkat wrote: Sun Sep 30, 2018 10:11 am

Yes this is exactly it. How much are you comfortable spending down because once you shut down the money making engine of your career, it is not always easy to restart it.
There's that but also a fear of switching at all from accumulation to distribution. After spending decades growing and attending to "money mountain" it can be hard for some to call in the front-end loaders and big trucks to start mining the resource and hauling some of it out to utilize.

I read here commonly retirees in their 70's who have been retired for quite a while who report never spending any of their considerable portfolio assets. A pension and social security is "enough", and some even report continuing to save from those income streams to build their portfolio well into retirement. Its also not a coincidence that those with a "low SWR" recommendation often seem to track around the blended dividend and interest yield for a balanced portfolio. The old call to "never spend principal!" is still alive and well.
I guess I just don’t want to retire at 55 or 56 and then hit 61 realizing I don’t have enough money and am going to be walking dogs until I am 70.
Is that really the likely scenario if you are running short, or would you slowly reduce some of your discretionary spending?
I think that any prudent withdrawal strategy should include some 'wiggle room' for discretionary spending. We're planning on at least 50% of our withdrawals being used for discretionary spending. So even if we need to dramatically rein in our spending, the necessities will be covered. And whatever we get from SS will be in addition to all of that (i.e. icing on the cake).
Here it is. The real answer. Make your fixed mandatory spending low by being debt free and have large discretionary spending that can be decreased for a few years if the need ever arises. ~50% of our spending is discretionary. That is a crap load of flexibility right there and will never get to eating dog food. SS alone cover all of our mandatory spending. Everything else is just fun money and eventually an assisted living fund.
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Re: Rich, Broke or Dead: Visualizing probabilities of outcomes in early retirement

Post by RadAudit »

Kenkat wrote: Mon Oct 01, 2018 6:25 pm I guess I just don’t want to retire at 55 or 56 and then hit 61 realizing I don’t have enough money and am going to be walking dogs until I am 70.

I'm 71. I see folks everyday at the track walking dogs. Looks like a good form of low stress exercise - and you'd get paid, too! Think of it as a side hussle and you'd be on the cutting edge of a new trend. Might even make some money if you wanted to blog about it or write a book. :wink:
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Re: Rich, Broke or Dead: Visualizing probabilities of outcomes in early retirement

Post by JackoC »

willthrill81 wrote: Mon Oct 01, 2018 5:50 pm
JackoC wrote: Sun Sep 30, 2018 8:27 pm
EnjoyIt wrote: Sun Sep 30, 2018 5:03 pm
My mistake on the 8.7%..It is 8.4% nominal or 5.4% real. Either way, we are not talking about returns over only 5-10 years. We are talking about returns over 20-30 years. I don't know about you, but to me it appears there is a lot of crystal ball utilization in what is being predicted. 3% real returns would mean that we should expect worse than 56% of our average over the last century for the next 20-30 years which seams like a pretty strong prediction.

And hey, maybe you are right. If that is the case I would rather fly to Europe every other year as opposed to once a year if it means not wasting another 10-20% of my healthy life saving for that extra vacation.
Again for bonds now the expected return is definitely lower than historical. Not for the next 5 or 10 yrs, but all the way out to the longest bonds, 30 yr TIPS yields 1%.

For stocks of course it's fuzzier, inherently. ... 2% lower is somewhere in the ballpark, though not as conservative as I assume for my own planning.
You're trying to cast doubt on a decades long retirement being successful when even the most staunch believers in predicting market returns won't go out beyond ten years. Sequence of returns risk is the bugaboo to be concerned about, not 3% returns.
I'm not 'trying to cast doubt' on anything. Nor a 'staunch believer in predicting returns'. I'm simply pointing out the lack of any logic in assuming the expected return of assets is the historical return. And estimating the expected return is *not* 'predicting'. Or anyway it's not any more 'predicting' than assuming the expected return is the historical return. You can't have any tool for visualizing outcomes if you don't assume *something* for the expected return. So it's again logical confusion IMO to claim that projecting historical returns into the future isn't 'predicting' anything but estimating the expected return based on valuation is somehow 'predicting'.

One can either recognize the distinction in standard financial terminology between the expected return (centroid of a future distribution of unknown returns) and the future realized return (which particular return comes to pass), in that case only the second would be a prediction. Or one can reject that distinction, but if so the tool above, as-is, is also 'predicting'.

Like I said, there's room for argument about the expected return. But the graph you posted, which I snipped to save space, so above, gives an expected return when the CAPE is high as...ballpark of 2% lower than the long term historical. :D And again there's no reasonable argument that the expected return for bonds isn't around 2% lower than long term historical, and this exchange was based on a statement about a 60/40 mix so the low expected return for bonds is also significant, and not as debatable.

And the expected return for stocks based on valuation does not have implication of only a few years. When people include a *decline* in valuation that implies a non-indefinite period during which that decline occurs. Simply inverting the Price Earnings ratio, which should theoretically equate to the real expected return by manipulating the Dividend Discount Model under the assumption that all cashflows are reinvested at that return, does not imply a valuation change so has an indefinite term. So which PE? None is perfect but the CAPE is probably sounder than today's PE (any given 'today') at a particular part of the cycle (like, during a late cycle fiscal stimulus and recent significant tax change, now). CAPE =33, E[r]=3.3% real is not unassailable, because the measure is not, but a pretty standard way of estimating the expected return and would be a lot more than 2% below historical. Again Jeremy Siegel a major perma-bull inverts the spot PE, so gets 5.5%, not far from 2% below.

Assuming the expected return now is the historical return is optimistic. It can be debated whether to enter a 'spot' of -2% or more or less. If that upsets 4% withdrawal (or more like, upsets *people* who want to get high returns, only naturally), so what? The validity of the 4% AWR is a historical result, based on the historical return. Again there just isn't any solid basis in general to assume expected returns equal historical returns.
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Re: Rich, Broke or Dead: Visualizing probabilities of outcomes in early retirement

Post by Finridge »

Thanks for posting this tool. I like how it shows the probability of death right up there as part of the possible portfolio outcomes. Seeing the "grey wedge" of death grow and grow exponentially to where it becomes the final (and only) outcome--that sure is sobering. It puts things in their proper perspective. It reminds me to stop focusing on lowering my SWR and growing my portfolio beyond what is necessary, and instead focusing on using the time that I have left.
Last edited by Finridge on Wed Oct 03, 2018 12:19 am, edited 1 time in total.
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Re: Rich, Broke or Dead: Visualizing probabilities of outcomes in early retirement

Post by EnjoyIt »

Finridge wrote: Tue Oct 02, 2018 5:17 pm Thanks for posting this tool. I like how it shows the probability of death right up there as part of the possible portfolio outcomes. Seeing the "grey wedge" of death grow and grow exponentially to where it becomes the final (and only) outcome--that sure is sobering. It puts things in their proper perspective. It reminds me to stop focusing on lowering my SWR and growing my portfolio beyond what is necessary, and instead focusing on using the time time that I have left.
I feel the same way when I look at that chart. Sometimes earning more just doesn’t seam worth it.
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Re: Rich, Broke or Dead: Visualizing probabilities of outcomes in early retirement

Post by BanquetBeer »

Would rather expand on this graph (more options). I’m sure most of us at bogleheads have a better life expectancy probability (have access to healthcare, finances to get checked out, etc)

I’m am not aware of anyone related to me who died in their 70s but the probability I’m seeing would make me feel much more comfortable with 25% Rick of financial failure...
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Re: Rich, Broke or Dead: Visualizing probabilities of outcomes in early retirement

Post by EnjoyIt »

BanquetBeer wrote: Wed Oct 03, 2018 5:52 am Would rather expand on this graph (more options). I’m sure most of us at bogleheads have a better life expectancy probability (have access to healthcare, finances to get checked out, etc)

I’m am not aware of anyone related to me who died in their 70s but the probability I’m seeing would make me feel much more comfortable with 25% Rick of financial failure...
Although no one in my family died in their 70s as far as I know, I know plenty of people that have died in their 40s, 50s, 60s and 70s. Death is inevitable for everyone. Maybe it is worth it to enjoy life to its fullest while still alive? That shouldn't mean retiring as early as possible, but it may mean not working just to make more money for the sake of making more.
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Re: Rich, Broke or Dead: Visualizing probabilities of outcomes in early retirement

Post by willthrill81 »

EnjoyIt wrote: Wed Oct 03, 2018 11:10 pm
BanquetBeer wrote: Wed Oct 03, 2018 5:52 am Would rather expand on this graph (more options). I’m sure most of us at bogleheads have a better life expectancy probability (have access to healthcare, finances to get checked out, etc)

I’m am not aware of anyone related to me who died in their 70s but the probability I’m seeing would make me feel much more comfortable with 25% Rick of financial failure...
Although no one in my family died in their 70s as far as I know, I know plenty of people that have died in their 40s, 50s, 60s and 70s. Death is inevitable for everyone. Maybe it is worth it to enjoy life to its fullest while still alive? That shouldn't mean retiring as early as possible, but it may mean not working just to make more money for the sake of making more.
That, combined with pretty compelling data that most retirees reduce their annual spending by an average of 1-2% in real dollars, leads me to think that front-loading withdrawals to some extent (i.e. planning on larger withdrawals when younger) may better match reality and satisfy retirees' goals than only looking at it from an actuarial perspective (i.e. back-loading withdrawals in a similar fashion to RMDs). I wrote a post about a withdrawal strategy built on this idea a few months ago.
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Re: Rich, Broke or Dead: Visualizing probabilities of outcomes in early retirement

Post by CyclingDuo »

Interesting thread. Reminds me of a couple of things I have read in the past.

The first one I read recently...

Before reading the first link, ask yourself this question...

"Which is my biggest concern: fear of running out of money in retirement, or death?"


How to reduce financial anxiety in a single afternoon

https://www.marketwatch.com/story/how-t ... yptr=yahoo

"Like the economy and stocks, death is truly beyond our control."

:idea:

The second one I read a couple of years ago when Kitces wrote it...

Why Most Retirees Will Never Draw Down Their Retirement Portfolio

https://www.kitces.com/blog/consumption ... portfolio/

As the saying goes, “you can’t take it with you”, so you may as well spend it while you can. Arguably, the whole point of retirement is to enjoy the fruits of your labor.


As others have mentioned earlier in this thread, it is true we only get one shot at retirement (for most of us, that will equate to about 13% of our life*). It's also true we only get one shot at our life leading up to retirement (for most of us, that will equate to about 87% of our life*). The slope of the gray in the chart (death) from engaging-data.com certainly provides some realistic perspective in terms of the question: "Which is my biggest concern: fear of running out of money in retirement, or death?"

*Based on retiring at age 65 and data of lifespans in the US found here: http://fortune.com/2017/12/21/us-life-e ... cond-year/

Don't ignore the largest portion of your life - as in all those years before retirement. In other words, don't save all your living and enjoyment of life for that small percentage known as retirement when the body will most likely not be able to do what it could do in the years leading up to it. :beer

Don't forget to reflect and review on all of the things you enjoy doing, and what you have already done in the largest part of your life (the years before retirement). It helps put things in perspective of what you might still want to do, or perhaps not do during the shorter part of your life (retirement). Examples...

At age 57, I've already spent 18% of my life living, working, and traveling overseas.
At age 57, I've already spent 26% of my life walking our dogs on a daily basis.
At age 57, I've already spent 44% of my life parenting two wonderful children.
At age 57, I've already spent 47% of my life enjoying fine wine.
At age 57, I've already spent 56% of my life madly in love.
At age 57, I've already spent 75% of my life enjoying the thrill of driving a car.
At age 57, I've already spent 77% of my life with a job and producing income.
At age 57, I've already spent 79% of my life enjoying golf.
At age 57, I've already spent 80% of my life enjoying skiing.
At age 57, I've already spent 81% of my life singing loudly and enjoying it.
At age 57, I've already spent 89% of my life playing piano badly. :mrgreen:
At age 57, I've already spent 90% of my life reading books.
At age 57, I've already spent 91% of my life enjoying riding a bike.
At age 57, I've already spent 92% of my life enjoying live performances.
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Re: Rich, Broke or Dead: Visualizing probabilities of outcomes in early retirement

Post by CyclingDuo »

EnjoyIt wrote: Wed Oct 03, 2018 11:10 pmAlthough no one in my family died in their 70s as far as I know, I know plenty of people that have died in their 40s, 50s, 60s and 70s. Death is inevitable for everyone. Maybe it is worth it to enjoy life to its fullest while still alive? That shouldn't mean retiring as early as possible, but it may mean not working just to make more money for the sake of making more.
We've been more or less in that camp most of our lives - at least within reason for certain decisions such as travel, vacations with children, experiences, etc... . Now, at our ages (57 & 60) - we're glad we did. We can't golf, ski, run, bike, walk, hike, etc... now like we could when we were in our 20's/30's/40's when our bodies were younger, full of energy, bigger/faster/stronger, etc.... . Nice to know we've done all of that when we could.

Death comes when you least expect it. Had a freshman college student die last weekend. Had a former student pass away on Monday of this week from cancer at age 30'ish. Had a colleague pass away over the weekend unexpectedly at age 47.

One certainly wants to find a balance of enjoying the one journey we get in life, while also saving for goals in retirement and or passing on to heirs.
"Save like a pessimist, invest like an optimist." - Morgan Housel | "Pick a bushel, save a peck!" - Grandpa
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Re: Rich, Broke or Dead: Visualizing probabilities of outcomes in early retirement

Post by EnjoyIt »

CyclingDuo wrote: Thu Oct 04, 2018 5:46 pm
One certainly wants to find a balance of enjoying the one journey we get in life, while also saving for goals in retirement and or passing on to heirs.
I love what you wrote above regarding all the fun things you have done so far in your life. Thanks for sharing.

May I ask you, why do we want to pass on wealth to our heirs? Sure I get the idea of passing on some of our money to make their lives a little easier. But why pass on millions like I see so many on this forum looking to do? I personally think it is a mistake that statistically is more likely to harm the heirs as opposed to improving their lives.
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Re: Rich, Broke or Dead: Visualizing probabilities of outcomes in early retirement

Post by visualguy »

EnjoyIt wrote: Thu Oct 04, 2018 9:46 pm I love what you wrote above regarding all the fun things you have done so far in your life. Thanks for sharing.

May I ask you, why do we want to pass on wealth to our heirs? Sure I get the idea of passing on some of our money to make their lives a little easier. But why pass on millions like I see so many on this forum looking to do? I personally think it is a mistake that statistically is more likely to harm the heirs as opposed to improving their lives.
Homes cost millions in the financially strong areas in the country (where the best career opportunities exist). It's extremely hard to start a family at a reasonably young age in those areas without significant help with buying a home, and it's almost impossible if saddled with student debt on top of that. Most young adults need significant financial help to get their lives started, including starting a family. It's just the way it is these days.

Instead of incurring huge debt, having to postpone starting a family, and having an overly stressful life, it makes much more sense for families to transfer the needed wealth from generation to generation. I help my kids and grandchildren which enables them to help their kids and grandchildren, etc. This breaks the bad cycle of lack of resources across generations within the family.
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Re: Rich, Broke or Dead: Visualizing probabilities of outcomes in early retirement

Post by dknightd »

EnjoyIt wrote: Thu Oct 04, 2018 9:46 pm
CyclingDuo wrote: Thu Oct 04, 2018 5:46 pm
One certainly wants to find a balance of enjoying the one journey we get in life, while also saving for goals in retirement and or passing on to heirs.
I love what you wrote above regarding all the fun things you have done so far in your life. Thanks for sharing.

May I ask you, why do we want to pass on wealth to our heirs? Sure I get the idea of passing on some of our money to make their lives a little easier. But why pass on millions like I see so many on this forum looking to do? I personally think it is a mistake that statistically is more likely to harm the heirs as opposed to improving their lives.
Not who you were talking with, but I'll give my 2 cents. I don't want my kids to pay for my later years. Almost by definition that will mean there is something leftover when I die. I hope when my parents die, they will have a little leftover. For us it is not about leaving a legacy. It it more about not having to ask our kids to take care of us. Which means in the end, if we are lucky, there will be something left over.
Retired 2019. So far, so good. I want to wake up every morning. But I want to die in my sleep. Just another conundrum. I think the solution might be afternoon naps ;)
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Re: Rich, Broke or Dead: Visualizing probabilities of outcomes in early retirement

Post by CyclingDuo »

EnjoyIt wrote: Thu Oct 04, 2018 9:46 pm
CyclingDuo wrote: Thu Oct 04, 2018 5:46 pm
One certainly wants to find a balance of enjoying the one journey we get in life, while also saving for goals in retirement and or passing on to heirs.
I love what you wrote above regarding all the fun things you have done so far in your life. Thanks for sharing.

May I ask you, why do we want to pass on wealth to our heirs? Sure I get the idea of passing on some of our money to make their lives a little easier. But why pass on millions like I see so many on this forum looking to do? I personally think it is a mistake that statistically is more likely to harm the heirs as opposed to improving their lives.
Not sure we will ever be in the position of being able to pass on millions, although we're not saying we wouldn't welcome such an opportunity.
:sharebeer

Passing on some form of wealth is a very personal decision for every parent to make as they contemplate whether to spend it all, give to charity, be philanthropic, pass on to heirs, or a combination of any of those. For many, it may be predicated on their own family experience(s). For others, it might not be a part of their family history, experience or goals.

As a couple, we have to respect each other's goals and decisions. We made the decision as a couple when our children were born to finance their college educations, share experiences with them, and if things worked out with our saving and careers to help out with some of our money if we could to make their lives a little easier. Your concerns are noted and were concerns of ours as well. Hence, to alleviate those concerns, we have been involved with them for two and a half decades of financial education. We made them earn money and save from part-time jobs/internships and of course - now their careers. Teaching them to invest for themselves, as well as giving back to charity (mainly through volunteer time, mission trips, etc...) we hope will turn out to have been worthwhile.

That being said, we remain on track to stay balanced with our current enjoyment of life, saving for our own retirement goals, and passing on some of it to heirs (probably not millions though...).
"Save like a pessimist, invest like an optimist." - Morgan Housel | "Pick a bushel, save a peck!" - Grandpa
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Re: Rich, Broke or Dead: Visualizing probabilities of outcomes in early retirement

Post by JackoC »

EnjoyIt wrote: Thu Oct 04, 2018 9:46 pm
CyclingDuo wrote: Thu Oct 04, 2018 5:46 pm
One certainly wants to find a balance of enjoying the one journey we get in life, while also saving for goals in retirement and or passing on to heirs.
I love what you wrote above regarding all the fun things you have done so far in your life. Thanks for sharing.

May I ask you, why do we want to pass on wealth to our heirs? Sure I get the idea of passing on some of our money to make their lives a little easier. But why pass on millions like I see so many on this forum looking to do? I personally think it is a mistake that statistically is more likely to harm the heirs as opposed to improving their lives.
Even if were many (or 10's or 100's) millions per kid, and 'studies showed' that was 'statistically more likely to harm' I'd be skeptical. Such 'studies' tend to be written by people with particular values and a particular take on how society should look and what other people should believe, IMO/IME. I'll just leave this strand of the argument at that.

However aside from that, realistically even once you start talking 'millions' as in more than one it would predominantly be few million. Large numbers of millions is a microscopic % of households. Even in the skewed audience here, where (few) 'millions' is much more likely than in the general population I'd venture, many millions is still unusual I'd guess.

And then you have to consider the specifics of each case. Starting with number of heirs, 1 is considerably different than say 3 or more. Then stage of life where this will occur. Getting a few million inheritance in your 50's or later is going to harm you? Or a little support here and there before that? A person marking time their whole life anticipating a few million inheritance in late middle age has other problems.

I also think by general common sense and traditional wisdom, and 'studies' might even agree, demotivation by wealth is more likely in the third generation than the second. Assuming self made millions, I don't see much point in worrying about how one's kids are going to prevent their kids or kids' kids from taking wealth for granted and being slackers. It falls under not trying to control from the grave I think.

A few million dollars, as hard as that is to accumulate and retain, is just not *that* much money anymore, even per heir. It's more in the category of sanding the sharp corners off life than creating an incentive to sit around. Also having money allows people to pursue lower paying service oriented careers without hardship.
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Re: Rich, Broke or Dead: Visualizing probabilities of outcomes in early retirement

Post by EnjoyIt »

There are a couple of good comments above regarding leaving wealth to heirs. As I mentioned before, creating some assistance like helping pay for college seams like a no brainer if one can afford it. But leaving behind even $1 million to an adult child can make or break them depending on who they are. Most people who inherit such a large sum tend to get hurt more than helped by that money. And yes, $1 million is a very large sum and we should not be fooled by boglehead averages. There are people who retire on $1 million and live a very comfortable life in the US. Outpatient financial care has been documented and has been shown to significantly harm adult children. Not everyone is like CyclingDuo who has been able to educate their children on proper finances. In my very small circle of people, I know 4 who have either inherited wealth or are expecting to inherit wealth and not one of them has any clue about personal finance and that money has harmed them. I realize my very small sample size is meaningless, I know. But it does show to me that the studies appear to be playing out as predicted.

@visualguy,
Although one can buy homes for millions in HCOL areas, one does not have to live in a HCOL to have a happy and successful life. I would beg to differ and say living in such areas is actually more likely to strain a family as opposed to improve their lives. As you said one needs to make a significantly large income to live there or they will be forced to struggle.
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Re: Rich, Broke or Dead: Visualizing probabilities of outcomes in early retirement

Post by BanquetBeer »

I haven’t seen studies about the negative impacts of inheritance but I haven’t really read or looked for them. I have seen results of broke people getting money - but that is very different.

I want to retire early enough that my SWR has to be closer to perpetual vs some set number of years. Then by the time I hit 65 - am I really going to want to bump up spending by 33% or more if I plan on 3% SWR?

Big difference between getting millions in your 20s vs 50s. I feel comfortable that if my kids can be successful in life and maintain that by the time they are 35-45 they likely won’t go crazy with money later on.

Another big thing is I want them to be able to take time off when they have kids. Maybe take more than the 12 weeks currently allowed by FMLA.

If I die early and leave it all to the kids, I won’t regret it (I’ll be dead). But I can’t really think of much I’m missing out on in life. Maybe take some more trips but I don’t know how much fun that would be with young kids.

*edit*

I really enjoyed traveling around random countries drinking beers in my youth. I don’t drink a lot of beer any more because sometimes I feel pretty bad the next day (sore muscles or dehydrated and 1 beer can do me in). I don’t work in tech so I can’t smoke pot until I retire (unless federal laws change; currently not worth the risk). Another incentive to front load Work is so I can go visit Colorado and hike in the mountains as I please without jeopardizing my career. But the way I’m wired it all about long term so another 10-15 years is what I have to do unless the laws change.
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Re: Rich, Broke or Dead: Visualizing probabilities of outcomes in early retirement

Post by JackoC »

BanquetBeer wrote: Fri Oct 05, 2018 12:00 pm I haven’t seen studies about the negative impacts of inheritance but I haven’t really read or looked for them. I have seen results of broke people getting money - but that is very different.
Nor have I and I have to believe broke people getting inheritances is a big component in the claim that either $1mil is a lot of money or that it 'breaks' people. Maybe even less than a million, from for example appreciated houses, in families that are otherwise basically broke, yes I'm sure that can lead to trouble. Poor people habits combined with windfalls often leads to trouble. I think everyone accepts that. People who grew up in families where it was always obvious they were well off, but hard work and education was always emphasized, off the races already in own lucrative careers or service careers, a few million statistically likely to come in late middle age to early old age is not going to be a negative. It's not going to make anyone decide not to try prove they can make even more, it's not going to change the values of somebody in a service career at low pay. It just means they don't have to worry about getting too sick to work, becoming unemployable after a middle age layoff, etc. the kind of worry which tortures a lot of people. So we're happy to not spend it all and pass a good deal to kids, and 20% of spending to charity while alive is enough for that IMO, no bequests planned. What 'studies' show to the contrary for other people, if there really are any such studies, is irrelevant. This is a *personal* finance website, generalizing about what other people should do, as often as it occurs, is often misplaced IMO.
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Re: Rich, Broke or Dead: Visualizing probabilities of outcomes in early retirement

Post by delamer »

What I’ve seen is couples who received financial help from their parents to maintain their lifestyle, but who will not be in a position to provide the same kind of help to their children.

In other words, the grandparents are affluent but not wealthy enough to pass on substantial help/inheritances to their grandchildren and later generations.
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Re: Rich, Broke or Dead: Visualizing probabilities of outcomes in early retirement

Post by RadAudit »

delamer wrote: Fri Oct 05, 2018 5:39 pm What I’ve seen is couples who received financial help from their parents to maintain their lifestyle, but who will not be in a position to provide the same kind of help to their children.

In other words, the grandparents are affluent but not wealthy enough to pass on substantial help/inheritances to their grandchildren and later generations.
Except for some fortunate few, it becomes difficult to leave enough money through two successive generations to the point the last folks in that chain have enough money to maintain an upper middle class life style. (I'm basically thinking if you have two kids and they each have two kids you've divided the estate by a factor of at least six before you figure in life style creep, etc. And, if you figure in spouses, you're up to 12 - although two may live as cheaply as one. Yeh, right.) Probably better to pass on values.
FI is the best revenge. LBYM. Invest the rest. Stay the course. Die anyway. - PS: The cavalry isn't coming, kids. You are on your own.
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Re: Rich, Broke or Dead: Visualizing probabilities of outcomes in early retirement

Post by JackoC »

RadAudit wrote: Sat Oct 06, 2018 7:00 am
delamer wrote: Fri Oct 05, 2018 5:39 pm What I’ve seen is couples who received financial help from their parents to maintain their lifestyle, but who will not be in a position to provide the same kind of help to their children.

In other words, the grandparents are affluent but not wealthy enough to pass on substantial help/inheritances to their grandchildren and later generations.
Except for some fortunate few, it becomes difficult to leave enough money through two successive generations to the point the last folks in that chain have enough money to maintain an upper middle class life style. (I'm basically thinking if you have two kids and they each have two kids you've divided the estate by a factor of at least six before you figure in life style creep, etc. And, if you figure in spouses, you're up to 12 - although two may live as cheaply as one. Yeh, right.) Probably better to pass on values.
Why limit it to two generations? But seriously, I think the first part of that argument reinforces how some millions isn't really that much. The previous argument against wanting to leave money behind was it was *too* much, now it seems argued it's not enough. Not that it's strictly contradictory to attack it from two sides (it's too much in this respect, not enough in another respect) but in general the two critiques together don't amount to a strong argument against leaving money behind IMO.

Nor do I see any practical tension between leaving values and leaving money. In fact I think in a way they reinforce one another as demonstrating by action commitment to family: 'mom and dad don't live as high on the hog as they could out of commitment to providing some protection to us and our kids from stuff money can protect you from, which with their values is basically what money is for, not gigantic consumption'.

Again though bears repeating it's personal. We spend a lot compared to frugalista's, though I see on the 'show me your budget' thread a couple of those budgets were about as high. But we'd have to spend much more to make it likely for there to be nothing left. And our marginal utility for more spending is low, IOW we might get a little but not much more enjoyment out of spending more money. For some people it might be a question of not spending money they'd really get enjoyment out of spending to leave more money behind. And again for charity v kids, 20% of yearly spending is for charity but in our will, 'charity begins at home'. There's no right answer there either except the one you arrive at for yourself.
Last edited by JackoC on Sat Oct 06, 2018 11:27 am, edited 1 time in total.
delamer
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Re: Rich, Broke or Dead: Visualizing probabilities of outcomes in early retirement

Post by delamer »

RadAudit wrote: Sat Oct 06, 2018 7:00 am
delamer wrote: Fri Oct 05, 2018 5:39 pm What I’ve seen is couples who received financial help from their parents to maintain their lifestyle, but who will not be in a position to provide the same kind of help to their children.

In other words, the grandparents are affluent but not wealthy enough to pass on substantial help/inheritances to their grandchildren and later generations.
Except for some fortunate few, it becomes difficult to leave enough money through two successive generations to the point the last folks in that chain have enough money to maintain an upper middle class life style. (I'm basically thinking if you have two kids and they each have two kids you've divided the estate by a factor of at least six before you figure in life style creep, etc. And, if you figure in spouses, you're up to 12 - although two may live as cheaply as one. Yeh, right.) Probably better to pass on values.
While this is true, I wasn’t really thinking about “maintain an upper middle class lifestyle.” Although I did use the phrase “maintain their lifestyle” so mea culpa.

In the circles that I run in, many people would be considered upper middle class. But they don’t have the assets to subsidize their adult kids to the degree that the kids could be, for example, school teachers in and live a upper middle class lifestyle (expensive house, cars, vacations, no student loans for their kids).

I was thinking of some friends for whom the husband’s parents paid for the friends’ kids’ summer camps and college. Our friends are unlikely to be in the position to do the same for their grandchildren. How much of a shock that will be to their kids, I don’t know.
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
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Re: Rich, Broke or Dead: Visualizing probabilities of outcomes in early retirement

Post by spreadsheetguy »

It seems like WHEN you give money to your children matters alot in the concerns that some people have about reducing their motivation. If as teenagers they know that they will receive money, that is very different from getting money later in life after they have become hopefully self-sufficient. Hopefully you'll live long enough that your children are at least middle aged before you pass away so you don't have to worry about the former option.
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Re: Rich, Broke or Dead: Visualizing probabilities of outcomes in early retirement

Post by visualguy »

spreadsheetguy wrote: Mon Oct 15, 2018 5:16 pm It seems like WHEN you give money to your children matters alot in the concerns that some people have about reducing their motivation. If as teenagers they know that they will receive money, that is very different from getting money later in life after they have become hopefully self-sufficient. Hopefully you'll live long enough that your children are at least middle aged before you pass away so you don't have to worry about the former option.
Money makes a lot more of a difference early on in life. Helping my kids with their college education and having the resources to start a family (home, etc.) is a lot more beneficial to them than giving them money when they're middle aged. In particular, if you look at HCOL areas, it's extremely hard for young people to get their lives started without help.
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Re: Rich, Broke or Dead: Visualizing probabilities of outcomes in early retirement

Post by spreadsheetguy »

visualguy wrote: Mon Oct 15, 2018 5:29 pm
spreadsheetguy wrote: Mon Oct 15, 2018 5:16 pm It seems like WHEN you give money to your children matters alot in the concerns that some people have about reducing their motivation. If as teenagers they know that they will receive money, that is very different from getting money later in life after they have become hopefully self-sufficient. Hopefully you'll live long enough that your children are at least middle aged before you pass away so you don't have to worry about the former option.
Money makes a lot more of a difference early on in life. Helping my kids with their college education and having the resources to start a family (home, etc.) is a lot more beneficial to them than giving them money when they're middle aged. In particular, if you look at HCOL areas, it's extremely hard for young people to get their lives started without help.
That makes a ton of sense. I definitely got help with both of those things (college and help with down payment).
I was thinking more about kids knowing there's a potentially large chunk of money waiting for them at some point in the future. It can definitely have an adverse impact on their self-sufficiency.
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Re: Rich, Broke or Dead: Visualizing probabilities of outcomes in early retirement

Post by EnjoyIt »

visualguy wrote: Mon Oct 15, 2018 5:29 pm
spreadsheetguy wrote: Mon Oct 15, 2018 5:16 pm It seems like WHEN you give money to your children matters alot in the concerns that some people have about reducing their motivation. If as teenagers they know that they will receive money, that is very different from getting money later in life after they have become hopefully self-sufficient. Hopefully you'll live long enough that your children are at least middle aged before you pass away so you don't have to worry about the former option.
Money makes a lot more of a difference early on in life. Helping my kids with their college education and having the resources to start a family (home, etc.) is a lot more beneficial to them than giving them money when they're middle aged. In particular, if you look at HCOL areas, it's extremely hard for young people to get their lives started without help.
Are you actually helping them by giving them a life in an area they can’t afford or are you harming them, forcing them to keep up even a little bit with their neighbors?
This topic was discussed very thoroughly in The Millionare Next Door.

Sometimes good intentions may not always have positive effects. I have a friend whose parents bought him an apartment in NYC. Although he did not have to pay rent or mortgage, he had expensive taxes and an expensive cost of living that kept him living almost paycheck to paycheck.
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Re: Rich, Broke or Dead: Visualizing probabilities of outcomes in early retirement

Post by visualguy »

EnjoyIt wrote: Mon Oct 15, 2018 7:53 pm Are you actually helping them by giving them a life in an area they can’t afford or are you harming them, forcing them to keep up even a little bit with their neighbors?
This topic was discussed very thoroughly in The Millionare Next Door.

Sometimes good intentions may not always have positive effects. I have a friend whose parents bought him an apartment in NYC. Although he did not have to pay rent or mortgage, he had expensive taxes and an expensive cost of living that kept him living almost paycheck to paycheck.
They started good careers - they'll do fine - probably better than I eventually, and then they can help their children.
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Re: Rich, Broke or Dead: Visualizing probabilities of outcomes in early retirement

Post by JackoC »

EnjoyIt wrote: Mon Oct 15, 2018 7:53 pm
visualguy wrote: Mon Oct 15, 2018 5:29 pm
spreadsheetguy wrote: Mon Oct 15, 2018 5:16 pm It seems like WHEN you give money to your children matters alot in the concerns that some people have about reducing their motivation. If as teenagers they know that they will receive money, that is very different from getting money later in life after they have become hopefully self-sufficient. Hopefully you'll live long enough that your children are at least middle aged before you pass away so you don't have to worry about the former option.
Money makes a lot more of a difference early on in life. Helping my kids with their college education and having the resources to start a family (home, etc.) is a lot more beneficial to them than giving them money when they're middle aged. In particular, if you look at HCOL areas, it's extremely hard for young people to get their lives started without help.
Are you actually helping them by giving them a life in an area they can’t afford or are you harming them, forcing them to keep up even a little bit with their neighbors?
This topic was discussed very thoroughly in The Millionare Next Door.

Sometimes good intentions may not always have positive effects. I have a friend whose parents bought him an apartment in NYC. Although he did not have to pay rent or mortgage, he had expensive taxes and an expensive cost of living that kept him living almost paycheck to paycheck.
Not projecting this onto you personally but this argument from 'The Millionaire Next Door' (never read it, don't intend to, I rely on your characterization) gives a whiff to me of rationalizing not giving away money. When your kids are relatively young (college, life starting), don't divert from your own retirement plan to give them any money, because it will hurt them anyway. When retired it's OK if your plan's results and your lifestyle mean you'll basically spend all your money, because giving it to your kids would hurt them anyway. It seems kind of convenient. It's a little less so if/when people fervently argue for giving to charity not kids (another case where one can roll out Buffett, as absolutely totally different as his and heirs' situation is from any normal person), but the theme on balance seems to be the benefit of keeping one's money not giving to anybody else, including kids.

But I'll disclaim again. If you believe it harms your kids to help them financially in adulthood (early when you're alive or in your will) then don't, of course. I don't find that idea very plausible on the whole personally though. Not being saddled with college debt is just good for our kids IMO, we really don't see the downside. Nor the downside of buying our kid in a noble but low paying profession a modest new car with the all the safety features, and higher earning siblings then have to get something else, we don't play favorites. Nor the downside that they don't have to worry about bad breaks leading to penury later in life, nor think it plausible they'll waste their lives waiting for that, no evidence so far. But to each his own.
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Re: Rich, Broke or Dead: Visualizing probabilities of outcomes in early retirement

Post by delamer »

JackoC wrote: Tue Oct 16, 2018 9:55 am
EnjoyIt wrote: Mon Oct 15, 2018 7:53 pm
visualguy wrote: Mon Oct 15, 2018 5:29 pm
spreadsheetguy wrote: Mon Oct 15, 2018 5:16 pm It seems like WHEN you give money to your children matters alot in the concerns that some people have about reducing their motivation. If as teenagers they know that they will receive money, that is very different from getting money later in life after they have become hopefully self-sufficient. Hopefully you'll live long enough that your children are at least middle aged before you pass away so you don't have to worry about the former option.
Money makes a lot more of a difference early on in life. Helping my kids with their college education and having the resources to start a family (home, etc.) is a lot more beneficial to them than giving them money when they're middle aged. In particular, if you look at HCOL areas, it's extremely hard for young people to get their lives started without help.
Are you actually helping them by giving them a life in an area they can’t afford or are you harming them, forcing them to keep up even a little bit with their neighbors?
This topic was discussed very thoroughly in The Millionare Next Door.

Sometimes good intentions may not always have positive effects. I have a friend whose parents bought him an apartment in NYC. Although he did not have to pay rent or mortgage, he had expensive taxes and an expensive cost of living that kept him living almost paycheck to paycheck.
Not projecting this onto you personally but this argument from 'The Millionaire Next Door' (never read it, don't intend to, I rely on your characterization) gives a whiff to me of rationalizing not giving away money. When your kids are relatively young (college, life starting), don't divert from your own retirement plan to give them any money, because it will hurt them anyway. When retired it's OK if your plan's results and your lifestyle mean you'll basically spend all your money, because giving it to your kids would hurt them anyway. It seems kind of convenient. It's a little less so if/when people fervently argue for giving to charity not kids (another case where one can roll out Buffett, as absolutely totally different as his and heirs' situation is from any normal person), but the theme on balance seems to be the benefit of keeping one's money not giving to anybody else, including kids.

But I'll disclaim again. If you believe it harms your kids to help them financially in adulthood (early when you're alive or in your will) then don't, of course. I don't find that idea very plausible on the whole personally though. Not being saddled with college debt is just good for our kids IMO, we really don't see the downside. Nor the downside of buying our kid in a noble but low paying profession a modest new car with the all the safety features, and higher earning siblings then have to get something else, we don't play favorites. Nor the downside that they don't have to worry about bad breaks leading to penury later in life, nor think it plausible they'll waste their lives waiting for that, no evidence so far. But to each his own.
Many of the millionaires held out as good examples in The Millionaire Next Door are very supportive of their kids’ higher education and success in high prestige occupations (doctor, attorney, college professor). They were happy that their kids were able to do something socially useful and are happy to have paid for that education. The millionaires themselves are high net worth but low prestige. One man that I remember had a very successful business rebuilding diesel engines, for the example. (I think it stuck with me because it so outside my knowledge of career paths.)

The “teach a man to fish” outlook was lauded. It was the “give kids money to support a lifestyle that will implode if the gifts stop” philosophy that was frowned upon. Not to mention the corrosive effects, in the worst cases, of having to kowtow to your father-in-law in order to pay your mortgage. (There is an example of this in the book that still makes me cringe when I think about it.)
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
JackoC
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Re: Rich, Broke or Dead: Visualizing probabilities of outcomes in early retirement

Post by JackoC »

delamer wrote: Tue Oct 16, 2018 10:34 am
JackoC wrote: Tue Oct 16, 2018 9:55 am
EnjoyIt wrote: Mon Oct 15, 2018 7:53 pm
visualguy wrote: Mon Oct 15, 2018 5:29 pm
spreadsheetguy wrote: Mon Oct 15, 2018 5:16 pm It seems like WHEN you give money to your children matters alot in the concerns that some people have about reducing their motivation.
Money makes a lot more of a difference early on in life. Helping my kids with their college education and having the resources to start a family (home, etc.) is a lot more beneficial to them than giving them money when they're middle aged. In particular, if you look at HCOL areas, it's extremely hard for young people to get their lives started without help.
Are you actually helping them by giving them a life in an area they can’t afford or are you harming them, forcing them to keep up even a little bit with their neighbors?
This topic was discussed very thoroughly in The Millionare Next Door.
Not projecting this onto you personally but this argument from 'The Millionaire Next Door' (never read it, don't intend to, I rely on your characterization) gives a whiff to me of rationalizing not giving away money.
Many of the millionaires held out as good examples in The Millionaire Next Door are very supportive of their kids’ higher education and success in high prestige occupations (doctor, attorney, college professor). They were happy that their kids were able to do something socially useful and are happy to have paid for that education. The millionaires themselves are high net worth but low prestige. One man that I remember had a very successful business rebuilding diesel engines, for the example. (I think it stuck with me because it so outside my knowledge of career paths.)

The “teach a man to fish” outlook was lauded. It was the “give kids money to support a lifestyle that will implode if the gifts stop” philosophy that was frowned upon. Not to mention the corrosive effects, in the worst cases, of having to kowtow to your father-in-law in order to pay your mortgage. (There is an example of this in the book that still makes me cringe when I think about it.)
Thanks for further insight into the book, but my feeling remains that the argument "against give kids money to support a lifestyle that will implode if the gifts stop" is easy to use as a rationalization, by readers or people in general, for "it's better if I keep my money for myself". That fits with a certain tendency in human nature, which we all have to some degree. I noted several posts in this thread basically assuming that giving money to kids is harmful not, at least at first, distinguishing how, when why. I just think people might further explore their actual motives in how they define the 'bad' kind of giving. Or not, and just do as they please, which they will anyway of course and have a right to with their own money. Just some rationalizing going on with this, I get the feeling.
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EnjoyIt
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Re: Rich, Broke or Dead: Visualizing probabilities of outcomes in early retirement

Post by EnjoyIt »

JackoC wrote: Tue Oct 16, 2018 10:51 am
delamer wrote: Tue Oct 16, 2018 10:34 am
JackoC wrote: Tue Oct 16, 2018 9:55 am
EnjoyIt wrote: Mon Oct 15, 2018 7:53 pm
visualguy wrote: Mon Oct 15, 2018 5:29 pm

Money makes a lot more of a difference early on in life. Helping my kids with their college education and having the resources to start a family (home, etc.) is a lot more beneficial to them than giving them money when they're middle aged. In particular, if you look at HCOL areas, it's extremely hard for young people to get their lives started without help.
Are you actually helping them by giving them a life in an area they can’t afford or are you harming them, forcing them to keep up even a little bit with their neighbors?
This topic was discussed very thoroughly in The Millionare Next Door.
Not projecting this onto you personally but this argument from 'The Millionaire Next Door' (never read it, don't intend to, I rely on your characterization) gives a whiff to me of rationalizing not giving away money.
Many of the millionaires held out as good examples in The Millionaire Next Door are very supportive of their kids’ higher education and success in high prestige occupations (doctor, attorney, college professor). They were happy that their kids were able to do something socially useful and are happy to have paid for that education. The millionaires themselves are high net worth but low prestige. One man that I remember had a very successful business rebuilding diesel engines, for the example. (I think it stuck with me because it so outside my knowledge of career paths.)

The “teach a man to fish” outlook was lauded. It was the “give kids money to support a lifestyle that will implode if the gifts stop” philosophy that was frowned upon. Not to mention the corrosive effects, in the worst cases, of having to kowtow to your father-in-law in order to pay your mortgage. (There is an example of this in the book that still makes me cringe when I think about it.)
Thanks for further insight into the book, but my feeling remains that the argument "against give kids money to support a lifestyle that will implode if the gifts stop" is easy to use as a rationalization, by readers or people in general, for "it's better if I keep my money for myself". That fits with a certain tendency in human nature, which we all have to some degree. I noted several posts in this thread basically assuming that giving money to kids is harmful not, at least at first, distinguishing how, when why. I just think people might further explore their actual motives in how they define the 'bad' kind of giving. Or not, and just do as they please, which they will anyway of course and have a right to with their own money. Just some rationalizing going on with this, I get the feeling.
JackoC, I think you are misreading/misunderstanding the thinking or choosing to rationalize your own decisions. Sure help your kids get a good education and give them what they need to build their own lives. Giving them money to build up their lives outside of what they can normally afford has been shown to harm them in the long run. You don't have to believe me or read the described studies, but that is what Stanley learned from their research. This is not about keeping money for oneself or being the richest family in the graveyard but what is best for one's offspring. JackoC, you do what you feel is best for your family.

For us, we will definitely pay for college and probably grad school but after that the kids need to have a job and start paying their own way. They will have access to our extra car during high school and likely college/grad school as long as they prioritize education. After that, they need to make their own mistakes and hopefully learn from what we teach them. If later on in their lives while settled into where they are we find a good opportunity to help financially we may do that as well but ideally they just won't need it. But, 100% without a doubt we will not be buying them their first brand new car out of college or helping put a down payment on their first house. We feel those are hurdles they need to achieve on their own.

I remember my first used car out of school. I wasn't as financially literate as I am now and bought a used certified German car. It wasn't the smartest decision, but I paid the downpayment, I paid the insurance, and I paid for the monthly payments for 5 years. Actually I paid it down in 3.5 years because I realized from this car payment that debt is bad on a depreciating asset. That was a good lesson learned and the last time I took out a loan for a vehicle. Because my own labor paid for that car, I took much better care of it than the hand me down vehicle my parents let me drive when I was in school. The car ended up lasting me for 12 more years before I donated. I had pride in that car. The same goes for our house. We had to learn to save for a down payment, learn where to store the cash until I had 20% and also gave us more pause when buying that first home so that we don't make a wrong decision. After all this was our hard earned money and we weren't going to waste it.

For me and in my own opinion, at some point getting off the family teat should be a prideful accomplishment.
A time to EVALUATE your jitters: | viewtopic.php?p=1139732#p1139732
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Re: Rich, Broke or Dead: Visualizing probabilities of outcomes in early retirement

Post by JackoC »

EnjoyIt wrote: Tue Oct 16, 2018 11:49 am
JackoC wrote: Tue Oct 16, 2018 10:51 am
delamer wrote: Tue Oct 16, 2018 10:34 am
JackoC wrote: Tue Oct 16, 2018 9:55 am
EnjoyIt wrote: Mon Oct 15, 2018 7:53 pm

Are you actually helping them by giving them a life in an area they can’t afford or are you harming them, forcing them to keep up even a little bit with their neighbors?
This topic was discussed very thoroughly in The Millionare Next Door.
Not projecting this onto you personally but this argument from 'The Millionaire Next Door' (never read it, don't intend to, I rely on your characterization) gives a whiff to me of rationalizing not giving away money.
Many of the millionaires held out as good examples in The Millionaire Next Door are very supportive of their kids’ higher education and success in high prestige occupations (doctor, attorney, college professor). They were happy that their kids were able to do something socially useful and are happy to have paid for that education. The millionaires themselves are high net worth but low prestige. One man that I remember had a very successful business rebuilding diesel engines, for the example. (I think it stuck with me because it so outside my knowledge of career paths.)

The “teach a man to fish” outlook was lauded. It was the “give kids money to support a lifestyle that will implode if the gifts stop” philosophy that was frowned upon. Not to mention the corrosive effects, in the worst cases, of having to kowtow to your father-in-law in order to pay your mortgage. (There is an example of this in the book that still makes me cringe when I think about it.)
Thanks for further insight into the book, but my feeling remains that the argument "against give kids money to support a lifestyle that will implode if the gifts stop" is easy to use as a rationalization, by readers or people in general, for "it's better if I keep my money for myself".
JackoC, I think you are misreading/misunderstanding the thinking or choosing to rationalize your own decisions.
We disagree as to who is rationalizing, and would not reach agreement contesting it further.
yousha
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Re: Rich, Broke or Dead: Visualizing probabilities of outcomes in early retirement

Post by yousha »

For myself, it is very difficult to depart from the accumulation and consolidation phases into the spending phase. I am 79 years of age and live well on SS, RMD and a very small pension. Have not had to get into my portfolio which is well over a million. I suppose I am frugal but do not lack for anything.

I have reads the book Die Broke but I cannot apply the principles in the book.
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Re: Rich, Broke or Dead: Visualizing probabilities of outcomes in early retirement

Post by willthrill81 »

yousha wrote: Tue Oct 16, 2018 12:24 pm For myself, it is very difficult to depart from the accumulation and consolidation phases into the spending phase. I am 79 years of age and live well on SS, RMD and a very small pension. Have not had to get into my portfolio which is well over a million. I suppose I am frugal but do not lack for anything.

I have reads the book Die Broke but I cannot apply the principles in the book.
Is it because you are content with your current spending, you are afraid of insufficient money in the future, and/or you want to leave a bequest? Or something else entirely perhaps?
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Re: Rich, Broke or Dead: Visualizing probabilities of outcomes in early retirement

Post by yousha »

I am not quite sure. I believe I am content with my lifestyle and with my current spending.. Perhaps, it is psychological?
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Re: Rich, Broke or Dead: Visualizing probabilities of outcomes in early retirement

Post by HomerJ »

Ron Scott wrote: Fri Sep 28, 2018 11:04 pm
MnD wrote: Fri Sep 28, 2018 10:21 pm The "4% SWR is bleeding edge risky especially if you retire early" crowd isn't going to like this tool.
Well I’m a proud, card-carrying member of that crowd and I think the tool itself probably works well and is gorgeous. The problem is the dataset used by the tool to make important life decisions: garbage in, garbage out. I have yet to hear a logical argument for the validity of using historical data, much of it from 20th century America, to predict a specific 30-year retirement period in the future.

People like me believe “the 4% rule” might actually work out well...or it might not. (IF the future works out like the past THEN we’ll be OK!) The problem is we simply cannot predict the future, regardless of truly pretty tools like this one, Firecalc et al. I wish we could.
The future doesn't have to emulate the past for 4% to work. It can, in general, and on average, be much worse than the past. 4% represents the WORST 30-year periods from the past, not the average.

People say how exceptional U.S. returns were in the 20th century, but even if true, it is irrelevant. The Great Depression saw a 80% stock market drop, and 25% unemployment.

And still 4% worked.

The stock market went nowhere for 16 years (1966-1982), AND we had rising interest rates during that period, AND we had double-digit inflation for a few years at the end of that 16 year period.

And still 4% worked (okay 3.8%).

Sure, the next 30 years could be worse than the Great Depression or the 70s. But the odds seem fairly low.

The assumption that the odds are low doesn't seem unreasonable or illogical at all.

I would agree with you that an assumption that the AVERAGE future returns will be as good as the past 100 years in the U.S. would be a risky assumption.

But the Great Depression was world-wide, pretty terrible, and long-lasting. And still 4% worked. So I believe there is good logic behind using 4% as a withdrawal number.

Of course, none of us want to bet our lives on it. So we ALSO assume discretionary expenses in that 4%. I would never counsel anyone to retire with 4% if that represented bare-bones survival. Most of us here could cut back on travel and eating out, and survive warm, fed, and dry even if the next 30 years was worse than the Great Depression.
Last edited by HomerJ on Tue Oct 16, 2018 1:04 pm, edited 2 times in total.
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HomerJ
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Re: Rich, Broke or Dead: Visualizing probabilities of outcomes in early retirement

Post by HomerJ »

Watty wrote: Sat Sep 29, 2018 5:50 amWhen looking at the various models the results are often stated in the odds of success, failure or even broke like this model. For most people "failure" would mean something like having to reduce their spending by 20% when they are in their 70 which might not be fun but would usually be a long way from being broke, homeless and hungry.
This.
"The best tools available to us are shovels, not scalpels. Don't get carried away." - vanBogle59
delamer
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Re: Rich, Broke or Dead: Visualizing probabilities of outcomes in early retirement

Post by delamer »

yousha wrote: Tue Oct 16, 2018 12:49 pm I am not quite sure. I believe I am content with my lifestyle and with my current spending.. Perhaps, it is psychological?
The habits of savings and frugality become well ingrained over the course of a lifetime.

An example — we have been staying at Hampton Inns when we travel for years. There is absolutely no financial reason that we could not stay at Four Seasons instead. The difference in cost is trivial as a percentage of our income or net worth.

But we stick with the Hampton Inns.

Same thing with high end restaurants. My husband loves steaks, but we’ve always gone to Outback and we haven’t upgraded to Ruth’s Chris.

If I had to give a specific reason, I say it is because the perceived improvement in quality isn’t worth the higher price.

But mostly, it is habit.
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
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Re: Rich, Broke or Dead: Visualizing probabilities of outcomes in early retirement

Post by KJVanguard »

Sandtrap wrote: Sat Sep 29, 2018 9:55 am It would be far easier to project these things if there was an expiration date stamped somewhere on our body. :shock:
j
I too have often commented on this great uncertainty and how it may be the #1 problem in retirement planning. Financial planners can produce all these pretty graphs (based on assumptions that may or may not come to pass), but they are all worthless if you're dead by 50. Projections with so many unknowns may not be of much value even if you live to your life expectancy.
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