Planning if you don't care to leave an estate....

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nick evets
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Planning if you don't care to leave an estate....

Postby nick evets » Sat Mar 18, 2017 9:51 am

Now that we've left our advisor, I've been doing some retirement planning through various tools (Fidelity, and Financial Engines, through work -- FireCalc and my own spreadsheet, privately), and I'm more or less in the same range.

But one factor is, we don't have children, and except for some money to charity, once both of us die, I really don't care about an estate. Is this reasonable to take into account with planning? The spread is so large looking 25+ years in the future, I'm thinking it isn't, really, until we are well into retirement?

ie, I don't want to think I can retire a couple years early because my calculations show "0" at age 90, instead of 1mil, or whatever.... Thanks!

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Re: Planning if you don't care to leave an estate....

Postby letsgobobby » Sat Mar 18, 2017 9:57 am

nick evets wrote:Now that we've left our advisor, I've been doing some retirement planning through various tools (Fidelity, and Financial Engines, through work -- FireCalc and my own spreadsheet, privately), and I'm more or less in the same range.

But one factor is, we don't have children, and except for some money to charity, once both of us die, I really don't care about an estate. Is this reasonable to take into account with planning? The spread is so large looking 25+ years in the future, I'm thinking it isn't, really, until we are well into retirement?

ie, I don't want to think I can retire a couple years early because my calculations show "0" at age 90, instead of 1mil, or whatever.... Thanks!

look at single premium immedtiate annuities for some or all of your portfolio.

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Re: Planning if you don't care to leave an estate....

Postby ResearchMed » Sat Mar 18, 2017 9:58 am

nick evets wrote:Now that we've left our advisor, I've been doing some retirement planning through various tools (Fidelity, and Financial Engines, through work -- FireCalc and my own spreadsheet, privately), and I'm more or less in the same range.

But one factor is, we don't have children, and except for some money to charity, once both of us die, I really don't care about an estate. Is this reasonable to take into account with planning? The spread is so large looking 25+ years in the future, I'm thinking it isn't, really, until we are well into retirement?

ie, I don't want to think I can retire a couple years early because my calculations show "0" at age 90, instead of 1mil, or whatever.... Thanks!



Look at various threads here, and elsewhere, about "variable withdrawal rates", for starters.
It's useful when thinking about "spending down".

Also consider annuities, the "good kind", especially SPIA's (Single Premium Immediate Annuities) and a few variations.
(These are NOT the same as the "variable annuities" one often hears dismissed.)

SPIA's are a way to give yourself a pension, that is, "income for the rest of your life".
There are discussions on how to structure them with other income sources, and also how to incorporate inflation adjustments of sorts.

We are in the same situation.
We expect to leave "whatever is left" to a few dear souls who will help care for us, plus some favored non-profits.
But we are planning to try our best to enjoy what we have (starting recently with some special travel), while also taking into account the big unknown, long term care. There's the rub...

RM
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Re: Planning if you don't care to leave an estate....

Postby dm200 » Sat Mar 18, 2017 10:00 am

nick evets wrote:Now that we've left our advisor, I've been doing some retirement planning through various tools (Fidelity, and Financial Engines, through work -- FireCalc and my own spreadsheet, privately), and I'm more or less in the same range.

But one factor is, we don't have children, and except for some money to charity, once both of us die, I really don't care about an estate. Is this reasonable to take into account with planning? The spread is so large looking 25+ years in the future, I'm thinking it isn't, really, until we are well into retirement?

ie, I don't want to think I can retire a couple years early because my calculations show "0" at age 90, instead of 1mil, or whatever.... Thanks!


That can "simplify" your planning, in my opinion.

This might lean towards taking assets to purchase joint lifetime annuity payments - no need for anything left in estate. This may also lean towards liging arrangements (elder and care facilities) where you purchase "lifetime" care up front - nothing left at death.

As far as leaving funds for charities, I would consider making donations during your life instead of at death (if it can meet your situation). I was my late father's plan to leave a relatively significant sum to a religious entity in his will. When doing the last revision of his will, his attorney cautioned him that by leaving money to a (or this) religious entity, the religious/clergy running it would (or could) cause a delay and complication to settlement of the estate - making 100% sure thay got every nickel they were (or could be) entitled to. The attorney suggested that my father take that religious entity out of his will and just give them money while alive. He followed the advice and settlement of his estate was simple.

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Re: Planning if you don't care to leave an estate....

Postby nick evets » Sat Mar 18, 2017 11:17 am

Thanks all! I do like the idea of a SPIA -- our advisor dismissed them out of hand, arguing the poor return, but they seems as reasonable as anything, and would allow any balance to remain in equities: ie, the SPIA could work as the 'bond' portion?

Unknown of course is SS: I'm 51 and my wife is 55. In 5-7 years, I'd like to wind down both of needing to work a full time job. Whether or not we can count on SS, and when, and at what rate, is a large question. What to believe? I guess the correct answer is assume it won't exist, but "what if" a lot of things, and would one be willing to work another 5 years at a job you didn't really like 'just in case?' Dunno.

I'm also not entirely certain of our future income needs -- my wife has it quite high, but already I see attitudes changing, and things like material goodies are just less and less important, which is ironic.

That's a really interesting point on charitable giving while alive -- my stepfather recently went through this when his mother died, and it's quite cold how receiving charities examine their gift.

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Re: Planning if you don't care to leave an estate....

Postby NiceUnparticularMan » Sat Mar 18, 2017 11:25 am

Generally speaking, I think assessing whether or not you care about leaving a large estate is one of the most important questions you can ask yourself as you are thinking about how to structure your finances in retirement. As others have pointed out, there are certain possible instruments, like annuities, which basically allow you to "sell off" the possibility of leaving a large estate in return for a higher amount of income while you live. And I think your decision on this question logically factors into things like asset allocation as well--something like just 20-30% equities might well be enough to allow your portfolio to keep up with inflation, but if you are also investing for your heirs then higher allocations might make sense. And so on.

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Re: Planning if you don't care to leave an estate....

Postby dm200 » Sat Mar 18, 2017 11:31 am

That's a really interesting point on charitable giving while alive -- my stepfather recently went through this when his mother died, and it's quite cold how receiving charities examine their gift.


Yes - especially "disappointing" if/when the ordained clergy of your own religion/denomination! From many (reliable, in my opinion) such folks can be very "tenacious" when asserting potential "rights" to funds in an estate and can make final settlement more costly and time consuming.

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Re: Planning if you don't care to leave an estate....

Postby dbr » Sat Mar 18, 2017 12:05 pm

nick evets wrote:Thanks all! I do like the idea of a SPIA -- our advisor dismissed them out of hand, arguing the poor return, but they seems as reasonable as anything, and would allow any balance to remain in equities: ie, the SPIA could work as the 'bond' portion?



No, an SPIA is insurance, specifically against the risk living too long. This is because the risk is pooled with other annuitants. Basing the decision on return is bad math. Also, the advisor loses the assets under management and has little opportunity for commission with a "good" annuity. As such it is much more than bonds and a very powerful tool in retirement planning.

The decision against, or at least to be considered, is that inflation eats away the value of the fixed annuity income, while inflation indexed annuities are harder to find and may not pay out very well. The best inflation indexed annuity purchase most people can make is to delay SS to age 70. It may not be necessary or useful to annuitize too much if one already has enough wealth and/or existing annuity streams. Also, one must be sure to leave enough un-annuitized money for contingecies.

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Re: Planning if you don't care to leave an estate....

Postby dm200 » Sat Mar 18, 2017 1:50 pm

dbr wrote:
nick evets wrote:Thanks all! I do like the idea of a SPIA -- our advisor dismissed them out of hand, arguing the poor return, but they seems as reasonable as anything, and would allow any balance to remain in equities: ie, the SPIA could work as the 'bond' portion?

No, an SPIA is insurance, specifically against the risk living too long. This is because the risk is pooled with other annuitants. Basing the decision on return is bad math. Also, the advisor loses the assets under management and has little opportunity for commission with a "good" annuity. As such it is much more than bonds and a very powerful tool in retirement planning.
The decision against, or at least to be considered, is that inflation eats away the value of the fixed annuity income, while inflation indexed annuities are harder to find and may not pay out very well. The best inflation indexed annuity purchase most people can make is to delay SS to age 70. It may not be necessary or useful to annuitize too much if one already has enough wealth and/or existing annuity streams. Also, one must be sure to leave enough un-annuitized money for contingecies.


As one possible way of dealing with inflation and living expenses, what you might consider is a laddered SPIA by taking a chunk of assets to purchase a SPIA. Then, a few years later, purchase another.

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Re: Planning if you don't care to leave an estate....

Postby dodecahedron » Sat Mar 18, 2017 2:06 pm

dm200 wrote:
nick evets wrote:Now that we've left our advisor, I've been doing some retirement planning through various tools (Fidelity, and Financial Engines, through work -- FireCalc and my own spreadsheet, privately), and I'm more or less in the same range.

But one factor is, we don't have children, and except for some money to charity, once both of us die, I really don't care about an estate. Is this reasonable to take into account with planning? The spread is so large looking 25+ years in the future, I'm thinking it isn't, really, until we are well into retirement?

ie, I don't want to think I can retire a couple years early because my calculations show "0" at age 90, instead of 1mil, or whatever.... Thanks!


That can "simplify" your planning, in my opinion.

This might lean towards taking assets to purchase joint lifetime annuity payments - no need for anything left in estate. This may also lean towards liging arrangements (elder and care facilities) where you purchase "lifetime" care up front - nothing left at death.

As far as leaving funds for charities, I would consider making donations during your life instead of at death (if it can meet your situation). I was my late father's plan to leave a relatively significant sum to a religious entity in his will. When doing the last revision of his will, his attorney cautioned him that by leaving money to a (or this) religious entity, the religious/clergy running it would (or could) cause a delay and complication to settlement of the estate - making 100% sure thay got every nickel they were (or could be) entitled to. The attorney suggested that my father take that religious entity out of his will and just give them money while alive. He followed the advice and settlement of his estate was simple.


Excellent point raised by dm200. In our state, it would not just be the charity creating potential issues for settling the estate, but my understanding is that any time there is a charitable beneficiary in a will, the NYS Attorney General office is involved in making sure that the charity got its fair share.

One way to accomplish multiple objectives (annuity for cash flow while alive and simplification of settling estate after death) is to arrange a charitable annuity that pays you income during your life time AND the remainder goes to the charity at your death.

Note that with a charitable annuity, you will get an upfront income tax deduction for the actuarial expected value of your future donation in the year you set the annuity up. (If that turns out to be more than the allowed amount of deduction, either 30% or 50% of AGI, the excess deductions can be carried forward over multiple years.)

And you can donate appreciated assets to your charitable annuity without paying capital gains tax in the year in which you donate. (However, as you collect future cash flows they will be taxed as some mixture of capital gains and ordinary income.)

Another efficient way to leave a charitable bequest is to designate a charity as the beneficiary of your traditional IRA or 401k or your HSA. That allows those assets to avoid taxation and, if set up simply, there is no legal squabbling or attorney fees involved for your estate in making sure the charity gets its fair share. Whoever is handling your affairs simply notifies the charity that they are the beneficiary of an account for someone who has died and the charity will take it up directly with the custodian.

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Re: Planning if you don't care to leave an estate....

Postby Mel Lindauer » Sat Mar 18, 2017 2:16 pm

dm200 wrote:
dbr wrote:
nick evets wrote:Thanks all! I do like the idea of a SPIA -- our advisor dismissed them out of hand, arguing the poor return, but they seems as reasonable as anything, and would allow any balance to remain in equities: ie, the SPIA could work as the 'bond' portion?

No, an SPIA is insurance, specifically against the risk living too long. This is because the risk is pooled with other annuitants. Basing the decision on return is bad math. Also, the advisor loses the assets under management and has little opportunity for commission with a "good" annuity. As such it is much more than bonds and a very powerful tool in retirement planning.
The decision against, or at least to be considered, is that inflation eats away the value of the fixed annuity income, while inflation indexed annuities are harder to find and may not pay out very well. The best inflation indexed annuity purchase most people can make is to delay SS to age 70. It may not be necessary or useful to annuitize too much if one already has enough wealth and/or existing annuity streams. Also, one must be sure to leave enough un-annuitized money for contingecies.


As one possible way of dealing with inflation and living expenses, what you might consider is a laddered SPIA by taking a chunk of assets to purchase a SPIA. Then, a few years later, purchase another.


That's the way I would recommend handling the inflation concern; ladder your SPIA purchases.
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Re: Planning if you don't care to leave an estate....

Postby dm200 » Sat Mar 18, 2017 2:16 pm

Excellent point raised by dm200. In our state, it would not just be the charity creating potential issues for settling the estate, but my understanding is that any time there is a charitable beneficiary in a will, the NYS Attorney General office is involved in making sure that the charity got its fair share.


My late father's state of residence at the time of death was New York State. I believe he received, and followed, excellent advice about NOT naming a religious charity in his will.

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Re: Planning if you don't care to leave an estate....

Postby cherijoh » Sat Mar 18, 2017 2:25 pm

nick evets wrote:Thanks all! I do like the idea of a SPIA -- our advisor dismissed them out of hand, arguing the poor return, but they seems as reasonable as anything, and would allow any balance to remain in equities: ie, the SPIA could work as the 'bond' portion?


You advisor probably dismissed them because he wouldn't get a piece of the pie in terms of commissions or AUM fees.

Rather than counting them as bonds, you could consider using a "floor and upside" approach. Buy enough annuities to cover basic living expenses (i.e., your floor) and select an AA for the rest that might otherwise be viewed as "too aggressive" for a retiree - e.g., 80/20 or 70/30.

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Re: Planning if you don't care to leave an estate....

Postby Gill » Sat Mar 18, 2017 3:06 pm

As for leaving part of an estate to charity, a charity is like anyone else. If you are left a certain percentage of an estate wouldn't you want to make sure the personal representative collected all the assets, paid only proper debts, paid only reasonable administrative expenses, invested the property wisely during estate administration and then disbursed the estate according to the will?

On the other hand, if you or the charity are left a fixed dollar amount, say $100,000, you don't really care about the estate administration as long as you receive that amount in a reasonable time

Charities are often accustomed to receive bequests and may have attorneys to guide them in assuring they receive all they are entitled to. In my experience administering estates I have seen where there is a bit of a tendency on the part of those involved with the estate, i.e., attorneys and personal representatives, to perhaps overreach a bit when a charity is involved, thinking they should be happy with whatever they receive. Obviously that thinking is completely wrong, but charities sometimes have learned to be on guard against such malfeasance.

Don't deprive charities of these bequests simply because they look out for their own interests. Don't you want them to be good custodians of the funds they receive?

Gill

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Re: Planning if you don't care to leave an estate....

Postby dm200 » Sat Mar 18, 2017 4:08 pm

Don't deprive charities of these bequests simply because they look out for their own interests. Don't you want them to be good custodians of the funds they receive?


I would not want them "looking out for their own interests" to the extent of unnecessarily tying up the estate for a lengthy period. I would pick ways of supporting them in ways that do not cause difficulty, delays or added costs. This is true of any named beneficiary as well.

As for leaving part of an estate to charity, a charity is like anyone else.


Not necessarily. Many charities including religious based, have considerably more expertise, experience and resources to "maximize" what they get from an estate. Your Aunt Maude or Uncle Charlie may not.

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Re: Planning if you don't care to leave an estate....

Postby Gill » Sat Mar 18, 2017 4:17 pm

dm200 wrote:
Don't deprive charities of these bequests simply because they look out for their own interests. Don't you want them to be good custodians of the funds they receive?


I would not want them "looking out for their own interests" to the extent of unnecessarily tying up the estate for a lengthy period. I would pick ways of supporting them in ways that do not cause difficulty, delays or added costs. This is true of any named beneficiary as well.

As for leaving part of an estate to charity, a charity is like anyone else.


Not necessarily. Many charities including religious based, have considerably more expertise, experience and resources to "maximize" what they get from an estate. Your Aunt Maude or Uncle Charlie may not.

Interesting response, dm200. Obviously you've had a bad experience along the line. I won't try to change your thinking. I administered large estates my entire career with numerous charitable beneficiaries, including 14 years in New York State where I am admitted to practice law, and my experience seems to differ from yours. Quite honestly, with countless people I advised, I never once heard this objection to leaving estates to charity. I'm sure the cats who inherit under my estate plan will be quite happy with what they receive.
Gill

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Re: Planning if you don't care to leave an estate....

Postby nick evets » Sun Mar 19, 2017 6:47 am

cherijoh wrote:You advisor probably dismissed them because he wouldn't get a piece of the pie in terms of commissions or AUM fees.


Probably. He's no longer our advisor.

cherijoh wrote:Rather than counting them as bonds, you could consider using a "floor and upside" approach. Buy enough annuities to cover basic living expenses (i.e., your floor) and select an AA for the rest that might otherwise be viewed as "too aggressive" for a retiree - e.g., 80/20 or 70/30.


I like that thought. The problem I'm wrestling with is trying to figure out how to make it until any SS benefit kicks in, since neither my wife nor I have any defined pension. Pulling numbers out of the air:

Suppose someone has 1mil and needs 55k/yr to live. A SPIA of the entire amount could provide 57k/yr, but would take 100% of the assets, then when SS kicks in, 10 years later, it would be more than needed. Or, I could get an SPIA for 50% of the portfolio, providing say 30k/yr, then work part-time or as needed for the remainder for more years until qualified for SS or giving the remaining 500k time to grow?

As far as charities, I appreciate the feedback but -- perhaps a bit selfishly -- when we're dead I'm not going to care about the legal wrangling, and it's probably more simple to leave some clear instructions in our will to distribute any remaining assets per our wishes, to charity and perhaps select relatives. That would provide more flexibility the discovering we're short because we have an annuity we can't get out of that's reduced because it's going to charity later.

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Re: Planning if you don't care to leave an estate....

Postby bsteiner » Sun Mar 19, 2017 7:08 am

Gill wrote:As for leaving part of an estate to charity, a charity is like anyone else. If you are left a certain percentage of an estate wouldn't you want to make sure the personal representative collected all the assets, paid only proper debts, paid only reasonable administrative expenses, invested the property wisely during estate administration and then disbursed the estate according to the will?

On the other hand, if you or the charity are left a fixed dollar amount, say $100,000, you don't really care about the estate administration as long as you receive that amount in a reasonable time. ...


I think that on average charities are less fussy than individuals, since there aren't any family tensions with a charity.

Another lawyer who represents a major charity says that they'll often overlook minor things since they don't want to bit the hand that feeds them.

dodecahedron wrote:... In our state, it would not just be the charity creating potential issues for settling the estate, but my understanding is that any time there is a charitable beneficiary in a will, the NYS Attorney General office is involved in making sure that the charity got its fair share. ...


In New York, if a charity gets a percentage or fractional share of an estate, the estate has to prepare an accounting and send it to the Charities Bureau in the Attorney General's office, and get a letter from them saying that they have no objections. In other words, if there's anything the Attorney General's Charities Bureau doesn't like, the estate has to resolve it with them.

If you weren't otherwise going to prepare an accounting, then it will be some extra work to do the accounting.

The Charities Bureau is generally reasonable. I had an estate where half the estate went to three charities. Two of the charities were represented by major law firms. The Charities Bureau attorney said that if those two firms were satisfied, that would be sufficient for them. One of those law firms picked up a few minor items, and we made the changes they wanted.

I'm about to be on the other side in another estate, where the balance of the estate, after a cash bequest to a relative, goes to a charity, and I represent the charity. We'll see what happens.

I wouldn't avoid leaving an estate to charity, or a significant percentage of an estate to charity, because of this. However, if you were going to leave a small percentage of an estate to charity, it might make sense to estimate the value and leave a dollar amount to charity. In that case, as Gill pointed out, once the charity gets its bequest, it's no longer interested in the estate, and there's no need to account to the Attorney General.

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Re: Planning if you don't care to leave an estate....

Postby White Coat Investor » Sun Mar 19, 2017 11:38 am

nick evets wrote:Now that we've left our advisor, I've been doing some retirement planning through various tools (Fidelity, and Financial Engines, through work -- FireCalc and my own spreadsheet, privately), and I'm more or less in the same range.

But one factor is, we don't have children, and except for some money to charity, once both of us die, I really don't care about an estate. Is this reasonable to take into account with planning? The spread is so large looking 25+ years in the future, I'm thinking it isn't, really, until we are well into retirement?

ie, I don't want to think I can retire a couple years early because my calculations show "0" at age 90, instead of 1mil, or whatever.... Thanks!


It's actually pretty easy to plan this way. Decide exactly how much you want to leave to charity and buy a guaranteed universal life one time payment policy for that with some of your assets. Annuitize almost everything else and reverse mortgage your home with the tenure option. Maybe keep a little that isn't annuitized to either annuitize later or for large one time expenses.

Dying broke really isn't very hard to do thanks to SPIAs and Reverse Mortgages.
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Re: Planning if you don't care to leave an estate....

Postby avalpert » Sun Mar 19, 2017 11:46 am

nick evets wrote:Now that we've left our advisor, I've been doing some retirement planning through various tools (Fidelity, and Financial Engines, through work -- FireCalc and my own spreadsheet, privately), and I'm more or less in the same range.

But one factor is, we don't have children, and except for some money to charity, once both of us die, I really don't care about an estate. Is this reasonable to take into account with planning? The spread is so large looking 25+ years in the future, I'm thinking it isn't, really, until we are well into retirement?

ie, I don't want to think I can retire a couple years early because my calculations show "0" at age 90, instead of 1mil, or whatever.... Thanks!

Here is the problem, if we had certainty as to when we would die it would be easy to plan to end with 0. Since we have nothing near that certainty, we have to decide how confident we need to be in not running out of money too early (which is particularly more painful when you don't have grown children at that time). In any plan that reduces that chance to a reasonable number (whether it is a 1%, 5% or 25% likelihood) you will have a fairly large chance of dying with a sizable (relative to starting point) estate.

You could push that risk onto someone else via annuities as suggested - but beyond that, I really don't think there is much you can do differently in planning.

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Re: Planning if you don't care to leave an estate....

Postby NiceUnparticularMan » Sun Mar 19, 2017 12:40 pm

On the bridging the gap to Social Security issue--you can also buy limited-term annuities that would last only until you plan to collect Social Security, scaled to provide about the same magnitude as your projected Social Security payments (maybe adjusting for inflation), which should give you a higher rate of return and therefore require a lower initial contribution. Then on top of those you could add lifetime annuities in any amount above those limited-term annuities/Social Security you think you might need. That should create a reasonably smooth path in the annuity/Social Security portion of your planning.

But you could also just structure your own limited-term portfolio designed to hit zero due to regular withdrawals at the age when you plan to take Social Security, using very conservative assets (people do this with things like bond ladders, the TSP's G Fund, very conservative balanced funds, and so on). You could then compare what you think you would get out of that self-designed portfolio versus the limited-term annuities available to you, and decide which approach makes more sense.

Or you could just keep it simple and have a single portfolio designed to survive higher withdrawals in the short term then lower withdrawals once Social Security hits.

I'm not there yet, but my current thinking is I will go through the exercise I described of designing my own limited-term annuity to match our anticipated Social Security payments, just to get a handle on what that would look like for the purpose of evaluating whether I think the available limited term annuities are reasonably good deals or not. If the annuities available look OK in that comparison, then I might purchase such "bridge the gap" annuities in addition to some lifetime annuities. If they look like they are not providing competitive rates of return, then I probably won't bother actually creating my own annuity-like portfolio but rather will go with the single portfolio concept (again plus some additional lifetime annuities), but having confirmed to myself that is the better approach to this specific issue.

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Re: Planning if you don't care to leave an estate....

Postby ByThePond » Sun Mar 19, 2017 5:52 pm

NiceUnparticularMan wrote:
Or you could just keep it simple and have a single portfolio designed to survive higher withdrawals in the short term then lower withdrawals once Social Security hits.

This is my current plan, a few years away from retirement. Other than a difference in risk, is there any advantage/disadvantage of this over "bridging the gap" with a limited term annuity? It seems to me that costs would be lower this way.

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Re: Planning if you don't care to leave an estate....

Postby ResearchMed » Sun Mar 19, 2017 6:57 pm

ByThePond wrote:
NiceUnparticularMan wrote:
Or you could just keep it simple and have a single portfolio designed to survive higher withdrawals in the short term then lower withdrawals once Social Security hits.

This is my current plan, a few years away from retirement. Other than a difference in risk, is there any advantage/disadvantage of this over "bridging the gap" with a limited term annuity? It seems to me that costs would be lower this way.


At least to me, the major benefit of an annuity is the SPIA, which is insurance in case one lives extra long (a nice insurance to collect).

For a period certain annuity, like 5 or 10 years, couldn't one just use a bond ladder? The timing is known.
I'm not sure what the advantage is in this type of case to pay someone else (the insurer) to pay you what is probably approximately the same as laddered bonds or CD's would pay.

The bond/CD ladder would eliminate the chance of near-term market "difficulties" forcing one to sell low for a couple of years or such.
And you'd retain control of the money (e.g., in case of emergency).

Am I missing something?

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Re: Planning if you don't care to leave an estate....

Postby Mel Lindauer » Sun Mar 19, 2017 7:06 pm

ResearchMed wrote:
ByThePond wrote:
NiceUnparticularMan wrote:
Or you could just keep it simple and have a single portfolio designed to survive higher withdrawals in the short term then lower withdrawals once Social Security hits.

This is my current plan, a few years away from retirement. Other than a difference in risk, is there any advantage/disadvantage of this over "bridging the gap" with a limited term annuity? It seems to me that costs would be lower this way.


At least to me, the major benefit of an annuity is the SPIA, which is insurance in case one lives extra long (a nice insurance to collect).

For a period certain annuity, like 5 or 10 years, couldn't one just use a bond ladder? The timing is known.
I'm not sure what the advantage is in this type of case to pay someone else (the insurer) to pay you what is probably approximately the same as laddered bonds or CD's would pay.

The bond/CD ladder would eliminate the chance of near-term market "difficulties" forcing one to sell low for a couple of years or such.
And you'd retain control of the money (e.g., in case of emergency).

Am I missing something?

RM


Term certain SPIAs normally guarantee that you'll not get payments for LESS than the guaranteed period. If you die before that period's up, your heirs would get the remaining payments. However, they usually also guarantee payments for your lifetime or joint lives. So they're not similar to CDs.

Term-certain annuities cost more than regular lifetime annuities since you could die a day or month after purchasing the annuity and that would be it. Your heirs would receive nothing unless you had a joint annuity.
Best Regards - Mel | | Semper Fi

ResearchMed
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Re: Planning if you don't care to leave an estate....

Postby ResearchMed » Sun Mar 19, 2017 7:11 pm

Mel Lindauer wrote:
ResearchMed wrote:
ByThePond wrote:
NiceUnparticularMan wrote:
Or you could just keep it simple and have a single portfolio designed to survive higher withdrawals in the short term then lower withdrawals once Social Security hits.

This is my current plan, a few years away from retirement. Other than a difference in risk, is there any advantage/disadvantage of this over "bridging the gap" with a limited term annuity? It seems to me that costs would be lower this way.


At least to me, the major benefit of an annuity is the SPIA, which is insurance in case one lives extra long (a nice insurance to collect).

For a period certain annuity, like 5 or 10 years, couldn't one just use a bond ladder? The timing is known.
I'm not sure what the advantage is in this type of case to pay someone else (the insurer) to pay you what is probably approximately the same as laddered bonds or CD's would pay.

The bond/CD ladder would eliminate the chance of near-term market "difficulties" forcing one to sell low for a couple of years or such.
And you'd retain control of the money (e.g., in case of emergency).

Am I missing something?

RM


Term certain SPIAs normally guarantee that you'll not get payments for LESS than the guaranteed period. If you die before that period's up, your heirs would get the remaining payments. However, they usually also guarantee payments for your lifetime or joint lives. So they're not similar to CDs.

Term-certain annuities cost more than regular lifetime annuities since you could die a day or month after purchasing the annuity and that would be it. Your heirs would receive nothing unless you had a joint annuity.


I'm pretty sure the reference [""bridging the gap" with a limited term annuity"] was to a period certain with guarantee, no?

RM
This signature is a placebo. You are in the control group.

NiceUnparticularMan
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Re: Planning if you don't care to leave an estate....

Postby NiceUnparticularMan » Sun Mar 19, 2017 7:20 pm

I apologize for being unclear. I meant an annuity which guarantees you or your beneficiary a certain income for a specified period of years but no more (which I gather may be called a period certain annuity). I did not mean a life annuity which then also adds a period certain component.

Off hand, I am also skeptical such annuities will offer better returns than an equivalent bond ladder, but I'd be curious to know for sure.

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Mel Lindauer
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Re: Planning if you don't care to leave an estate....

Postby Mel Lindauer » Sun Mar 19, 2017 7:22 pm

ResearchMed wrote:
Mel Lindauer wrote:
ResearchMed wrote:
ByThePond wrote:
NiceUnparticularMan wrote:
Or you could just keep it simple and have a single portfolio designed to survive higher withdrawals in the short term then lower withdrawals once Social Security hits.

This is my current plan, a few years away from retirement. Other than a difference in risk, is there any advantage/disadvantage of this over "bridging the gap" with a limited term annuity? It seems to me that costs would be lower this way.


At least to me, the major benefit of an annuity is the SPIA, which is insurance in case one lives extra long (a nice insurance to collect).

For a period certain annuity, like 5 or 10 years, couldn't one just use a bond ladder? The timing is known.
I'm not sure what the advantage is in this type of case to pay someone else (the insurer) to pay you what is probably approximately the same as laddered bonds or CD's would pay.

The bond/CD ladder would eliminate the chance of near-term market "difficulties" forcing one to sell low for a couple of years or such.
And you'd retain control of the money (e.g., in case of emergency).

Am I missing something?

RM


Term certain SPIAs normally guarantee that you'll not get payments for LESS than the guaranteed period. If you die before that period's up, your heirs would get the remaining payments. However, they usually also guarantee payments for your lifetime or joint lives. So they're not similar to CDs.

Term-certain annuities cost more than regular lifetime annuities since you could die a day or month after purchasing the annuity and that would be it. Your heirs would receive nothing unless you had a joint annuity.


I'm pretty sure the reference [""bridging the gap" with a limited term annuity"] was to a period certain with guarantee, no?

RM


I missed that; you're correct. My response was referring to a Life Annuity with Period Certain which Vanguard offers for 120, 180 or 240 months.
Best Regards - Mel | | Semper Fi

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patrick013
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Re: Planning if you don't care to leave an estate....

Postby patrick013 » Sun Mar 19, 2017 7:24 pm

I'm probably going into some SPIA especially in 2020 as
interest rec'd is expected to rise, and defer payment for
a few years also.

TOD (transfer on death) is pretty foolproof for most assets

I'd just divide my account by 25 and make a withdrawal, having
enough cash or short term assets to do so, or from cap gains
if that is happening. The second year divide by 24...third year by
23.....all the way until you are 90 then.
age in bonds, buy-and-hold, 10 year business cycle

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Re: Planning if you don't care to leave an estate....

Postby LarryAllen » Sun Mar 19, 2017 7:28 pm

I would put most of the money in life only annuities and enjoy life. It's the only way to max out what you get no matter how long you live.

Leave your house to charity.

Good luck!

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Re: Planning if you don't care to leave an estate....

Postby AlohaJoe » Sun Mar 19, 2017 9:26 pm

nick evets wrote:Whether or not we can count on SS, and when, and at what rate, is a large question. What to believe? I guess the correct answer is assume it won't exist


I don't think this is the correct answer; I think it is totally the wrong answer. I've said this repeatedly but: if you are assuming that Social Security won't exist but you are assuming that Medicare will exist and you won't have $20,000 a year insurance costs in retirement, then your plan makes no logical sense: they are both government programs that are underfunded (actually, Medicare is more underfunded, so if anything, you should be more worried about that going away).

Sure, you can assume Social Security and Medicare won't exist. That's "conservative" and "prudent". But it also adds $50,000 or more a year to your retirement bill. For most people, that means putting off retirement by decades and likely forever.

LeeMKE
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Re: Planning if you don't care to leave an estate....

Postby LeeMKE » Sun Mar 19, 2017 11:32 pm

I've set up a Charitable Trust at Fidelity and named it as beneficiary of the accounts I expect to draw from last. In the event that I'm unsuccessful in spending down to zero at the moment of death, the remainder will go to the trust, and a couple friends will decide which charities to send the money to. In the event that they have also met their demise, Fidelity disburses the funds after waiting a bit for someone to step forward, and chooses a pretty benign basket of the usual suspects.

Fidelity doesn't charge a fee for the trust until money is put in it, so for the time being, this seems a tidy solution to an early demise.
The mightiest Oak is just a nut who stayed the course.

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Re: Planning if you don't care to leave an estate....

Postby dm200 » Mon Mar 20, 2017 1:49 pm

While you may not want to leave an estate after death(s), you may want to leave a stream of funds for the benefit of certain charities or types of charities. One very low cost way to do this is to make contributions (perhaps appreciated securities) to a Donor Advised Fund (DAF) now and have ongoing grants to charities (including religious organizations) over a long period of time (even after your death). With a DAF you can designate successoors to manage the funds in the acciunt and request grants to specific organizations.

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Re: Planning if you don't care to leave an estate....

Postby nick evets » Mon Mar 20, 2017 3:47 pm

Thanks all -- I think I like these SPIA's, and hadn't thought about laddering. While I'm not here yet -- another 5-6 years -- I think what makes the most sense is to obtain a joint annuity that will cover an expense 'floor', then worry about how to cover the gap with the rest of the portfolio, and then, down the road, SS.

It appears I may be able to roll over my 401k (some/all) *now* to an annuity, w/out a tax penalty, even though I wouldn't want it to start until another 5 years. Is that smart? I'm thinking it will earn more invested in equities: I'd be better off buying one in 5 years, and letting the portfolio work for me during that time.

As far as tax in general....I guess the SPIA payments would be taxed at the regular income rate? But moving money (either before/after) retirement into the SPIA wouldn't incur a tax penalty, would it?


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