Safe Withdrawal Rates For Elderly >95

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SpaceCowboy
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Safe Withdrawal Rates For Elderly >95

Post by SpaceCowboy »

I have an elderly parent and am using withdrawals from their portfolio to fund their expenses. What do people consider to be a "safe" withdrawal for someone who is quite elderly (95-100)? The expenses for 24x7 care are quite high.
Fortunately Mr. Market has been good. I've also been reluctant to sell equities due to embedded cap gains and a high state tax burden. What's a reasonable max equities percentage for someone at that stage of life.
Any other insights that people could offer on very late in life portfolio and withdrawal strategies would be appreciated.
Adfmacro
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Re: Safe Withdrawal Rates For Elderly >95

Post by Adfmacro »

SpaceCowboy wrote: Wed Jan 13, 2021 4:42 am I have an elderly parent and am using withdrawals from their portfolio to fund their expenses. What do people consider to be a "safe" withdrawal for someone who is quite elderly (95-100)? The expenses for 24x7 care are quite high.
Fortunately Mr. Market has been good. I've also been reluctant to sell equities due to embedded cap gains and a high state tax burden. What's a reasonable max equities percentage for someone at that stage of life.
Any other insights that people could offer on very late in life portfolio and withdrawal strategies would be appreciated.
If the 95 year old has no financial responsibility for anyone else, I would say that money lasting until age 110 would be the goal. That would mean about 7% withdraw without any growth before money would run out. If the growth is greater than 7%, then that amount plus another 4% would give a cushion in down years. If you have to withdraw 7%, then you have to weight the risks of market decline more carefully.

Ultimately, the right number will have to be something you are comfortable with. If people are standing in line for an inheritance, then they may feel cheated if you spend down the portfolio, but your obligation is first to what is reasonable for the 95 year old parent.
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Re: Safe Withdrawal Rates For Elderly >95

Post by BarbBrooklyn »

SpaceCowboy, also remember to carefully examine (perhaps with the help of a CPA experienced in this area) what portion of those high expenses can be characterized as medical expenses and deductible.

As we spent down my mom's portfolio, most of her NH bill was a deductble medical expense and balanced the other taxes due.
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JoeRetire
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Re: Safe Withdrawal Rates For Elderly >95

Post by JoeRetire »

SpaceCowboy wrote: Wed Jan 13, 2021 4:42 am I have an elderly parent and am using withdrawals from their portfolio to fund their expenses. What do people consider to be a "safe" withdrawal for someone who is quite elderly (95-100)? The expenses for 24x7 care are quite high.
Fortunately Mr. Market has been good. I've also been reluctant to sell equities due to embedded cap gains and a high state tax burden. What's a reasonable max equities percentage for someone at that stage of life.
Any other insights that people could offer on very late in life portfolio and withdrawal strategies would be appreciated.
Does this elderly parent really have a lot of discretionary choices here? If you don't sell equities, what is the alternative?

Withdraw whatever is necessary. At this point, it might not make sense to worry about a "safe" withdrawal rate, cap gains and tax burden.
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Uncorrelated
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Re: Safe Withdrawal Rates For Elderly >95

Post by Uncorrelated »

The concept of safe withdrawal rates is nonsensical if you are over age 70 because annuities significantly outperform stocks/bonds by that age. See aacalc.com/docs/when_to_annuitize for calculation details.
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Re: Safe Withdrawal Rates For Elderly >95

Post by tibbitts »

Uncorrelated wrote: Wed Jan 13, 2021 8:57 am The concept of safe withdrawal rates is nonsensical if you are over age 70 because annuities significantly outperform stocks/bonds by that age. See aacalc.com/docs/when_to_annuitize for calculation details.
I didn't think you could buy an annuity at anywhere near age 95+? Although I never understood why. At some point presumably you'd earn more in a year than your original investment.
billfromct
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Re: Safe Withdrawal Rates For Elderly >95

Post by billfromct »

If you look at the current IRS RMD table, with a new table effective in 2022 based on longer life expectancies, below are the 2021 RMD numbers based on age:

-95. 11.05%
-96. 12.34%
-97. 13.16%
-98. 14.08%
-99. 14.93%
-100 15.87%

Maybe this may give you a guideline of reasonable distributions based on life expectancies.

bill
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Watty
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Re: Safe Withdrawal Rates For Elderly >95

Post by Watty »

SpaceCowboy wrote: Wed Jan 13, 2021 4:42 am What do people consider to be a "safe" withdrawal for someone who is quite elderly (95-100)? The expenses for 24x7 care are quite high.
At this point their expenses pretty much "are what they are" if you do not have a lot of ways to reduce their expenses.
SpaceCowboy wrote: Wed Jan 13, 2021 4:42 am What's a reasonable max equities percentage for someone at that stage of life.
Any other insights that people could offer on very late in life portfolio and withdrawal strategies would be appreciated.
Set the dividends and capital gains distributions on any mutual funds to not be automatically reinvested.

Sell of equities when money is needed.

Do dummy tax returns to what taxes they are likely to pay in various scenarios. As someone else said the medical deductions may so large that they will owe little in taxes.
WealthConstructor
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Re: Safe Withdrawal Rates For Elderly >95

Post by WealthConstructor »

In a similar situation with two parents in the same age range, and with full-time live-in care.

Even with Long-Term Care Insurance, the difference to cover the 24/7 home health care aids is significant.

Their tax advisor has indicated that there are no tax deductions available for the cost of the aids.
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willthrill81
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Re: Safe Withdrawal Rates For Elderly >95

Post by willthrill81 »

I'd say that planning to deplete the individual's portfolio by age 105 is fine.

For those saying to plan to age 110, it's been reported that there are only about 150-600 people alive on the planet who have reached that age.
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vineviz
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Re: Safe Withdrawal Rates For Elderly >95

Post by vineviz »

tibbitts wrote: Wed Jan 13, 2021 9:27 am
Uncorrelated wrote: Wed Jan 13, 2021 8:57 am The concept of safe withdrawal rates is nonsensical if you are over age 70 because annuities significantly outperform stocks/bonds by that age. See aacalc.com/docs/when_to_annuitize for calculation details.
I didn't think you could buy an annuity at anywhere near age 95+? Although I never understood why. At some point presumably you'd earn more in a year than your original investment.
Blueprint Income displays quotes for age 95, but I don't know how easy it would be to actually lock in. Unfortunately, both issuers (New York Life and Principal) require the "refund at death" rider which severely reduces the payout.

So purchasing a lifetime annuity for $100,000 from New York Life according to the quote I see would generate $9,310 per year in income, with a guarantee of receiving at least $100,000 in payments.

My strategy would probably be to use part (maybe 40-50%) of the parent's wealth to purchase an annuity like this, if possible, and invest the remainder in a 50/50 or 60/40 portfolio. That would produce a combined "withdrawal rate" of a little over 10%, with a guarantee that they'd have the annuity income for the rest of their life.
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Re: Safe Withdrawal Rates For Elderly >95

Post by fyre4ce »

vineviz wrote: Wed Jan 13, 2021 12:24 pm
tibbitts wrote: Wed Jan 13, 2021 9:27 am
Uncorrelated wrote: Wed Jan 13, 2021 8:57 am The concept of safe withdrawal rates is nonsensical if you are over age 70 because annuities significantly outperform stocks/bonds by that age. See aacalc.com/docs/when_to_annuitize for calculation details.
I didn't think you could buy an annuity at anywhere near age 95+? Although I never understood why. At some point presumably you'd earn more in a year than your original investment.
Blueprint Income displays quotes for age 95, but I don't know how easy it would be to actually lock in. Unfortunately, both issuers (New York Life and Principal) require the "refund at death" rider which severely reduces the payout.

So purchasing a lifetime annuity for $100,000 from New York Life according to the quote I see would generate $9,310 per year in income, with a guarantee of receiving at least $100,000 in payments.

My strategy would probably be to use part (maybe 40-50%) of the parent's wealth to purchase an annuity like this, if possible, and invest the remainder in a 50/50 or 60/40 portfolio. That would produce a combined "withdrawal rate" of a little over 10%, with a guarantee that they'd have the annuity income for the rest of their life.
That looks like a pretty good deal actually. 9.3% annual withdrawals with a guaranteed return of principal.
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SpaceCowboy
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Re: Safe Withdrawal Rates For Elderly >95

Post by SpaceCowboy »

billfromct wrote: Wed Jan 13, 2021 10:06 am If you look at the current IRS RMD table, with a new table effective in 2022 based on longer life expectancies, below are the 2021 RMD numbers based on age:

-95. 11.05%
-96. 12.34%
-97. 13.16%
-98. 14.08%
-99. 14.93%
-100 15.87%

Maybe this may give you a guideline of reasonable distributions based on life expectancies.

bill
Thanks Bill. That actually makes some sense to use as a guideline.
I do have to spend what’s necessary as indicated.
JoeRetire wrote: Withdraw whatever is necessary. At this point, it might not make sense to worry about a "safe" withdrawal rate, cap gains and tax burden.

I’m trying to avoid the tax issue because of the future step-up in basis.
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SpaceCowboy
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Re: Safe Withdrawal Rates For Elderly >95

Post by SpaceCowboy »

fyre4ce wrote: Wed Jan 13, 2021 12:34 pm
vineviz wrote: Wed Jan 13, 2021 12:24 pm
tibbitts wrote: Wed Jan 13, 2021 9:27 am
Uncorrelated wrote: Wed Jan 13, 2021 8:57 am The concept of safe withdrawal rates is nonsensical if you are over age 70 because annuities significantly outperform stocks/bonds by that age. See aacalc.com/docs/when_to_annuitize for calculation details.
I didn't think you could buy an annuity at anywhere near age 95+? Although I never understood why. At some point presumably you'd earn more in a year than your original investment.
Blueprint Income displays quotes for age 95, but I don't know how easy it would be to actually lock in. Unfortunately, both issuers (New York Life and Principal) require the "refund at death" rider which severely reduces the payout.

So purchasing a lifetime annuity for $100,000 from New York Life according to the quote I see would generate $9,310 per year in income, with a guarantee of receiving at least $100,000 in payments.

My strategy would probably be to use part (maybe 40-50%) of the parent's wealth to purchase an annuity like this, if possible, and invest the remainder in a 50/50 or 60/40 portfolio. That would produce a combined "withdrawal rate" of a little over 10%, with a guarantee that they'd have the annuity income for the rest of their life.
That looks like a pretty good deal actually. 9.3% annual withdrawals with a guaranteed return of principal.
Don’t think buying an annuity when you’re in your 90s makes sense. 25 years ago at 70, living beyond age 95 wasn’t the biggest concern.
The 9.3% rate looks like a poor deal to me. Someone would have to live 11 years to 106 to achieve a positive return on their investment, which is highly unlikely IMHO. Also, purchasing an annuity at this point would trigger the payment of the cap gains tax that I’m trying to avoid to the extent possible.
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Re: Safe Withdrawal Rates For Elderly >95

Post by JoeRetire »

SpaceCowboy wrote: Wed Jan 13, 2021 2:08 pm I’m trying to avoid the tax issue because of the future step-up in basis.
Okay. But that has absolutely nothing to do with a safe withdrawal rate.
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Re: Safe Withdrawal Rates For Elderly >95

Post by vineviz »

SpaceCowboy wrote: Wed Jan 13, 2021 2:12 pm Don’t think buying an annuity when you’re in your 90s makes sense. 25 years ago at 70, living beyond age 95 wasn’t the biggest concern.
The 9.3% rate looks like a poor deal to me. Someone would have to live 11 years to 106 to achieve a positive return on their investment, which is highly unlikely IMHO. Also, purchasing an annuity at this point would trigger the payment of the cap gains tax that I’m trying to avoid to the extent possible.
Whether it makes sense or not is primarily a function of how much risk you're willing to take with the income.

Living 10 more years is definitely unlikely, but it's not inconceivable: almost 10% of people who are alive at age 95 survive another 10 years.
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SpaceCowboy
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Re: Safe Withdrawal Rates For Elderly >95

Post by SpaceCowboy »

JoeRetire wrote: Wed Jan 13, 2021 2:54 pm
SpaceCowboy wrote: Wed Jan 13, 2021 2:08 pm I’m trying to avoid the tax issue because of the future step-up in basis.
Okay. But that has absolutely nothing to do with a safe withdrawal rate.
Agreed. It’s more my reluctance to sell equities with built-in gains and thus recognize an expense that may not be necessary. I’ve almost sold all the fixed income assets, except for a savings account, at this point. From a tax standpoint, selling the international portion next would minimize the gains recognized.
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SpaceCowboy
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Re: Safe Withdrawal Rates For Elderly >95

Post by SpaceCowboy »

vineviz wrote: Wed Jan 13, 2021 3:02 pm Living 10 more years is definitely unlikely, but it's not inconceivable: almost 10% of people who are alive at age 95 survive another 10 years.
I wonder what the stat is for people who have entered the phase where they require 24/7 care.
Personally, I just don’t know anyone with a family member who is 105 or older. I know very few with a relative who made it to 100.
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Re: Safe Withdrawal Rates For Elderly >95

Post by NotWhoYouThink »

The cost of medically necessary in-home care is tax deductible, so selling securities to fund such care shouldn't result in a big tax hit.
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Re: Safe Withdrawal Rates For Elderly >95

Post by BogleFan510 »

billfromct wrote: Wed Jan 13, 2021 10:06 am If you look at the current IRS RMD table, with a new table effective in 2022 based on longer life expectancies, below are the 2021 RMD numbers based on age:

-95. 11.05%
-96. 12.34%
-97. 13.16%
-98. 14.08%
-99. 14.93%
-100 15.87%

Maybe this may give you a guideline of reasonable distributions based on life expectancies.

bill
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TimeRunner
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Re: Safe Withdrawal Rates For Elderly >95

Post by TimeRunner »

WealthConstructor wrote: Wed Jan 13, 2021 10:31 am In a similar situation with two parents in the same age range, and with full-time live-in care.

Even with Long-Term Care Insurance, the difference to cover the 24/7 home health care aids is significant.

Their tax advisor has indicated that there are no tax deductions available for the cost of the aids.
That's very unlikely. See IRS Publication 502 page 11 and 12 here: https://www.irs.gov/pub/irs-pdf/p502.pdf
One cannot enlighten the unconscious.
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Re: Safe Withdrawal Rates For Elderly >95

Post by TN_Boy »

WealthConstructor wrote: Wed Jan 13, 2021 10:31 am In a similar situation with two parents in the same age range, and with full-time live-in care.

Even with Long-Term Care Insurance, the difference to cover the 24/7 home health care aids is significant.

Their tax advisor has indicated that there are no tax deductions available for the cost of the aids.
I'm puzzled by your post.

Are the aides helping with the activities of daily living? If so, and this has been documented by a medical professional, I don't understand why some or all of their cost (over anything covered by LTC insurance) is not deductible after exceeding 7.5% of their AGI. Could you give more details? In the situation you describe, if help is being given with the ADLs, I'd be deducting.

To perhaps belabor the example, suppose they are spending 200k on home health (and showing that amount of AGI just for simplicity). LTC insurance pays out 5k a month, or 60k a year. Thus they spend 140k out of pocket on home health. I think that 140k - 15k (7.5% of 200k) = 125k is deductible given those numbers.

Please correct my example or explain why their tax advisor is saying the home health costs are not deductible. (I can think of a few things here, but would be interested in details).
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SpaceCowboy
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Re: Safe Withdrawal Rates For Elderly >95

Post by SpaceCowboy »

In my particular case, I'm more concerned about the tax deductibility of the home health aides for the purposes of NYS and NYC taxes. Don't know if they differ, but it's something to consider.
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Re: Safe Withdrawal Rates For Elderly >95

Post by TN_Boy »

SpaceCowboy wrote: Wed Jan 13, 2021 5:10 pm In my particular case, I'm more concerned about the tax deductibility of the home health aides for the purposes of NYS and NYC taxes. Don't know if they differ, but it's something to consider.
I'm not a NY resident, a quick search comes up with this:

https://www.tax.ny.gov/pit/file/itemized-deductions.htm

Where I interpret the info on that page about medical deductions to be that NY follows the same rules for what can be deducted as the IRS. Obviously were it my money on the line I'd read the relevant NY tax documents.

I have found part of caretaking for elder relatives involves understanding their tax situation as well as I understand my own. Which is annoying if they live in different states!
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