Melancholy Tale: Parents Had Pension, Social Security, SPIA & TIPS, but …

[McQ]

If you don’t like the outcome of this tale, please tell me how you will invest to obtain a better outcome for yourself.

Disclosure: Fiction/made up/rhetorical intent. This post is written as if it were a factual account of my family, but most of the details are made up, especially anything that tugs at your heartstrings, or seems to be a personal disclosure. These are characters that I created, but I call them Mom and Dad, and add color, the better to engage you.

Setting a fictional story in the past also allowed me to use specific numbers for inflation, stock returns, housing costs, etc.—realized past values, rather than the uncertain future we all face when looking forward from 2023.

Although fictional, this story could have happened exactly as told--it's based on a composite of threads here at BH, my uncles and aunts, families of my friends, and newspaper articles. That gives traction to the question: What could this synthesized couple have done differently to better cope with the longevity they experienced?

* readers may enjoy this other thread and the WSJ article which launched it: viewtopic.php?t=397420

Mom and Dad’s Retirement

1. Dad retires in 1982. After 35 years with Megacorp as a clerk, he receives a pension of $11,000. It’s that high ($33,000 in today’s dollars) because they chose a survivor benefit of only 50%. Mom and Dad thought they needed that higher initial payment.

2. A bit later they file early at age 62 for Social Security of $8,000, including my Mom’s share of 50% of his SS payment (she was a homemaker while the kids were in school, something that was possible on a single earner’s salary in the Northeast in the 1960s).

a. With a little help from family, they also came to own a home in a suburb with good schools

3. Dial forward to 1985. They sell their suburban house, purchased in the 1950s for $15,000, for the princely sum of $125,000 (for context, Zillow has it at $620,000 today). And proceed to buy a newly constructed doublewide in a park in Florida for $40,000 cash. As original purchasers, ground rent was fixed at $125/month.

4. With their other savings, they now have $100,000 in the bank. Literally. Stocks? For Depression babies? Fugedaboudit.

a. When Dad retired he sold the $1000 of Megacorp stock acquired through employee purchases. He was ticked—it was an involuntary retirement.
b. Nonetheless, their income was pretty balanced to start: $11,000 pension, $8,000 social security, $6,000 “investment” income (interest). About $70,000 in today’s dollars.
c. The key move at this point was downsizing to a smaller house in an area with lower living costs. Not that much more modest a dwelling, in square footage or appointments, but with no mortgage and much lower expenses.

5. They have a great retirement for the next fifteen years. I have pictures of my Dad from this period with the happiest smile you can imagine. It seems they didn’t even spend all the interest income in those years, despite the cruises and the cross-country travel.

6. About 2000, the stroke-induced dementia begins for Dad. Caring for him never quite overwhelms my Mom, but it was touch and go toward the end. Mercifully, he passes in a few years.

7. By this point, I had some financial savvy, and as Dad’s strokes continued I could see that upon his demise my Mom’s income would drop 50% on the pension, and 33% on the social security. Yikes. I started putting them in SPIAs before Dad passed. They still had the $100,000 principal from the house, plus a few $10,000s more from continuing their habit of thrift. They were 80, +/-. So in 2005, I had her annuitize a good enough chunk to produce a new income stream, call it $8,500 per year, to supplement her 50% shrunken pension, and her 33% shrunken social security payout.

a. After the estate wrapped up, Mom was actually running a surplus of about $300 per month beyond expenses, because of the annuity payouts. I wondered if I had over-compensated. But she let me invest the surplus for her in dividend paying stocks.

8. Widowed, Mom still had about $50,000 of non-emergency funds. By great good fortune, I was moved in 2007 to take that out of the bank and put it into a 20-year TIPS yielding somewhat over 2.0% real. It was a great relief to her to have those TIPS when CD rates collapsed after 2008. Most of her friends went from getting a healthy 5% on their CDs to earning 1% +/-

9. Another ten years pass. Mom has all the money she needs and more. I continue to invest her monthly surplus in dividend paying stocks.

10. Now it is 2017 and Mom is 90+. The Florida doublewide is incredibly cost-efficient. Her only monthly housing cost, other than utilities and the occasional appliance replacement, is that ground rent of $125, fixed at the 1985 value. By this point second owners pay $500 and more per month for ground rent.

a. Her annual savings from the fixed ground rent ($4500) were half as much as the SPIA payout, but unlike the SPIA, were growing with inflation

11. But every purchase and doctor’s appointment requires her to get in the car and take a drive. She’s still driving at 90+. But, ah … do you have any family members driving in their 90s? Yah.

12. Happy day: three years before the pandemic, she moves into an apartment in an over-55 community. No buy-in here, she doesn’t have that kind of money. Just rent of $2600 month, three meals a day provided in the commons, complete kitchen in her apartment. New friends to make. Good move!

13. She sells the car to a family member for $5000, and begins to save the $2000 per year auto insurance. Big win, even with the taxi cost to go to doctor’s appointments.

a. Sale of the 30-year-old doublewide, a depreciating good more like a car than a house, brought another $5,000.

14. But it is not enough. The day she moved into that independent living apartment she transitioned from surplus to deficit spending. It was only a drawdown of $500 per month at first…and she’d built up a few $10,000s in those dividend-paying stocks. I wasn’t too worried.

15. However, rent on the over-55 apartment climbs from $2,600 per month in 2017 to $3,500 in 2023. She begins to draw down her savings to the tune of $10,000 per year, then $15,000, soon to be $20,000.

16. The apartment rent is the killer. I forecast she will run out of money a few months after her 99th birthday. She’s quite healthy—you’ve met plenty of 70-somethings who don’t look as hale as she does at 97. I confidently expect that she will indeed live long enough to run out of money.

a. The dividend stocks were sold first, and now the TIPS are being sold to address the gap.

17. Fortunately, she has financially solvent children, who can top off her income when the time comes.

Moral of the story

Her fixed pension has shrunk to where it covers less than two months apartment rent.

Her age 80 SPIAs, which produced a monthly surplus when she lived in the doublewide, now cover less than three month’s rent.

Her inflation-adjusted social security, bless, at $16,000 covers all non-rental expenses and maybe three or four months of rent. But rent, going up at inflation, is more than twice the dollar amount of social security, also going up at inflation. So her dollar shortfall will grow and grow.

She has Medicare and Medigap, so health expenses have been minor.

And she reached her mid-90s with enough in savings to draw down first $10,000, then $15,000, now $20,000 a year. But the end of these savings is in sight.

The dividend paying stocks gave a nice return while they lasted, and the TIPS were a superior investment. But the former have been liquidated and spent and the latter is being rapidly drawn down.

First conclusion: they did not retire with enough wealth to support a very long life. No investment or financial planning mistakes, just a failure to be wealthy enough. Nothing they could have done; Blanchett’s retirement smile turned out to be a grimace at the end.

Or were there investment mistakes? A later post will give my take; but first I’d like to hear from you.

What could they have done differently, and what did they get right?

[retired@50]

Off the top of my head, I'd say if they could have found a way to delay drawing Social Security, that would have helped.

Or, if they could have found the courage in 1985, to invest the $100,000 into a 2-fund portfolio, 30% S&P 500 Fund, and 70% into an intermediate bond fund they may likely have improved their outcome.

Regards,

[stan1]

Some Bogleheads might believe this is a rare or irresponsible situation, but there are millions of seniors whose lives are close to this.

They get financial assistance from family or live with family. They live in Medicaid nursing homes. They aren't necessarily unhappy or feel deprived.

It's not what Bogleheads want for themselves as we age, but many of our parents, grandparents, aunts and uncles have been down this path; many of our friends and siblings will do so; and even our kids will do so. It often isn't because of mistakes, bad choices, or reckless spending just circumstances of life.

[secondopinion]

A lot of the failure come from the fact that the pension and social security were ignored in the point of view for the spouse. You have the worst outcome for a joint pension and social security: holder dies early and the spouse dies late. Most of the bills would have been paid from these alone.

[rebellovw]

comment deleted - re-reading post.

[kd2008]

This is not fictional. My in-laws retired in early-2000s with no stock exposure. They had two whole life policies predicated on FIL passing first to provide modest life insurance benefit to MIL. They lived on SS and drawing down on modest cash savings most which went to whole policies. FIL passed away 2 years ago. MIL received insurance money that is in online savings account earning below inflation (300K). House is paid off. There is gold and silver bought in 1980 - it would be worth $5 million today if had been invested in S&P 500. It adds up to less than 75K today.

MIL lives really well on SS survivor benefit (32K). It covers all her expenses, and she has a bit leftover at the year end.

It is clear as daylight that when assisted living or nursing home is needed things will unwind rapidly. Thankfully she has a modest LTC insurance that will pay $325K over 5 years. Sale of home will net $100K. So numbers may work. Or they may not. A little stock exposure in 1980 would have solved many a uncertainties.

[Harmanic]

There is gold and silver bought in 1980 - it would be worth $5 million today if had been invested in S&P 500. It adds up to less than 75K today.

I bought some commemorative silver coins in the 1970s as my first "investment" with paper route earnings. I paid $60. Today, I can sell them for....$60. Had I bought Berkshire stock instead, I would be a millionaire from the $60 alone.

[livesoft]

I stopped reading after the doublewide in Florida. What's the point.

My grandfather lived in a doublewide manufactured home in Santa Barbara, California in a very nice retirement community into his late 90's. He was born in the 1800's. He did not run out of money.

[AnnetteLouisan]

The mom not working outside the home even part time was the mistake, unless I missed it. Also, taking SS at 62. Also dad remaining a clerk his entire career? Not choosing a field with more room to grow. Frugality is mentioned but so are cruises. Selling the home was a big mistake. So was selling the Megacorp stock and not investing in general. Failing to anticipate the ravages of inflation.

But overall they did ok! He worked and had a pension, she got a survivor’s benefit, they raised a child who was in a position to help them and she enjoyed wonderful longevity with Medicare, LTCI, and SS. They also made a profit on their home when they sold and neither was decimated by high medical costs.

This is a good cautionary tale. Makes me want to redouble my efforts and not be so complacent. Invest more, work longer, hold and rent out rather than sell real estate. I’d love to do a thread “how does this story end…” about my situation.

[rebellovw]

I stopped reading after the doublewide in Florida. What's the point.

My grandfather lived in a doublewide manufactured home in Santa Barbara, California in a very nice retirement community into his late 90's. He was born in the 1800's. He did not run out of money.

Seems like Santa Barbara might have milder weather for a doublewide. I just would be concerned with hurricanes.

[Candor]

I stopped reading after the doublewide in Florida. What's the point.

My grandfather lived in a doublewide manufactured home in Santa Barbara, California in a very nice retirement community into his late 90's. He was born in the 1800's. He did not run out of money.

I went through high school in southern Appalachia. A double-wide was a source of pride for many. People forget, lots of folks live in single-wides. Some of those double-wides were pretty nice on the inside but, of course, not exactly quality construction.

[rich126]

While this illustrates a variety of issues, this is one reason why I don't like rentals. With a paid off home you don't have the rent cost which can be high. And if taxes, etc. start getting too big the person could find a roommate. Of course there can come a time where the person cannot live alone any longer and would have to sell but at least there should be a decent sized equity in the home.

Thankfully my father was very conservative with finances and they sold their house in their early 60s and moved into a retirement center (up front money + rent). Even though my mother had to be moved into the assisted living care portion of the complex for her last year, my father had LTC insurance that covered most of it. Obviously not everyone is so lucky.

Like your story if I pass away first my wife would get a reduced pension and only about 2/3 of the social security but I think she still would be ok since the pension and social security is COLA and I'm trying to avoid using much of one account so that it can aid her if needed.

Now sometimes these things work out the other way. Apparently my grandmother who passed away at 101 about 15-20 years ago retired off a school teacher's pension from NJ and her husband from a utility company and my father was surprised at her pension payments and she left us a small bit of money despite mounting medical costs.

Inflation and bad housing choices can really mess up things. I see some homes in nice older areas where it seems obvious the current occupants obtained the house as an inheritance and can't afford proper maintenance on the home since all of their income goes towards taxes, insurance, utilities, cars, etc.

W/o knowing the future it is tough to decide the proper course.

[EnjoyIt]

Some Bogleheads might believe this is a rare or irresponsible situation, but there are millions of seniors whose lives are close to this.

They get financial assistance from family or live with family. They live in Medicaid nursing homes. They aren't necessarily unhappy or feel deprived.

It's not what Bogleheads want for themselves as we age, but many of our parents, grandparents, aunts and uncles have been down this path; many of our friends and siblings will do so; and even our kids will do so. It often isn't because of mistakes, bad choices, or reckless spending just circumstances of life.

This isn't circumstances of life. These are multiple poor decisions throughout life that led to this final outcome.

And yes, I have seen similar situations. We have family members who were convinced to take SS at 62 by a friend. Despite my parents telling them it was a mistake and why, they chose the money "now" as opposed to waiting. This was back when 1 spouse can collect half the other spouses SS and then eventually file themselves at 70. This will be a big problem when one of them passes. No pension and almost no savings.

[curmudgeon]

Much of this is pretty common ground, and many of us have seen this with relatives or acquaintances. To some degree it's an artifact of what I think of as financial optimism (thinking that if we can pay our bills now, we aren't overspending), and bad luck (the wide split in survivor ages plus longevity).

The two financial factors that jumped out at me are:

1) retiring early - Deciding to pack in work at age 60 or 61 because Megacorp squeezed you out, and taking SS at age 62, is really something for people with more retirement savings. Even if comparable jobs aren't an option, doing something (school crossing guard, Walmart greeter, tax preparation, etc) for a few year at part time would help stretch things out and avoid having the reduced SS benefit.

2) swapping an appreciating (or at least inflation-resistant) asset (the house) for a depreciating one (mobile home). If they had gone for a condo in Florida instead of a mobile home, that would have made a much better backstop in the current situation.

[GAAP]

4. With their other savings, they now have $100,000 in the bank. Literally. Stocks? For Depression babies? Fugedaboudit.

Minor quibble here -- my parents were Depression babies, and my mom owned stocks back in the 70's that I know of.

Mistakes here? Certainly. Not thinking more about inflation when they had been living it, for one. Believing, like most people, that there house was a major store of value for their retirement, and that downsizing would fund them for as long as they need for another. downsizing to a depreciating asset, pretty big too. The classic unwillingness to use home equity via a reverse mortgage (to be fair, some of those products were really bad). Relying on dividends as a major source of income might be another.

The biggest one to me is living for decades without trying to learn about personal finance.

[Mike Scott]

Stereotypical people of that mindset would not do deficit spending. They would move or whatever to reduce costs. It's also not uncommon for family to help out. On the other hand, this sounds like a dream retirement for most Americans who often have even fewer resources and help and more health problems. Some of these decisions are really hard and financial literacy is rare.

Inflation and unpredictable expenses are some of the reasons I make plans for one or both of us living to 100 estimating inflation adjusted income forward about the same as our current real life budget. Will find out in a few decades if it worked or not.

[MrJedi]

Several blunders.

A big one IMO: dad packing it in too early. Even holding a lesser paying job for a few years would have probably helped immensely and then also would push back on the other major blunder: taking SS early.

[Jack FFR1846]

I think today, it's very common for those who retire or who are forced to retire by megacorp to get a part time, less stressful, "fun" job. It's a way to bring in some money and think about it....if the part time job brings in $10k a year over 10 years, that's another hundred grand. I used the expected job, hours and pay my wife is planning when I retire in May. If both of them got small, part time jobs, that would have extended the cash, allowed them both to delay SS until 70 and likely allowed a complete lifelong nest egg.

[arcticpineapplecorp.]

welcome to walmart?

seriously, go fund me:

A Maryland TikToker raised more than $140K for an 82-year-old Walmart worker

[jebmke]

Some Bogleheads might believe this is a rare or irresponsible situation, but there are millions of seniors whose lives are close to this.

They get financial assistance from family or live with family. They live in Medicaid nursing homes. They aren't necessarily unhappy or feel deprived.

It's not what Bogleheads want for themselves as we age, but many of our parents, grandparents, aunts and uncles have been down this path; many of our friends and siblings will do so; and even our kids will do so. It often isn't because of mistakes, bad choices, or reckless spending just circumstances of life.

Common around here. SS + Medicaid. Maybe a bit of part time income working in the chicken processing plants or picking crabs. I do their taxes. Quite a few don't even pay for Medicare Part B because they can't afford it. State covers them on Medicaid. As you say, often live with relatives.

[typical.investor]

3. Dial forward to 1985. They sell their suburban house, purchased in the 1950s for $15,000, for the princely sum of $125,000 (for context, Zillow has it at $620,000 today). And proceed to buy a newly constructed doublewide in a park in Florida for $40,000 cash. As original purchasers, ground rent was fixed at $125/month.

4. With their other savings, they now have $100,000 in the bank. Literally. Stocks? For Depression babies? Fugedaboudit.

11. But every purchase and doctor’s appointment requires her to get in the car and take a drive. She’s still driving at 90+. But, ah … do you have any family members driving in their 90s? Yah.

What could they have done differently, and what did they get right?

$125,000 seems low but anyway, if they walked away with $85k after being the doublewide, it means they only had $15k in savings.

My Grandma wasn't a baby in the depression but she certainly lived though it, yet held stocks. Grampa was a dividend investor (shame on him) but I think only had a high school diploma. They used an advisor that we could never get Granda to stop seeing because they were a friend.

Yeah, crashed her car without telling anyone in the family. We just happened to find out by chance.

It was getting tight near the end in her late '90s and the cost of dementia care the last few years, but she was ok without selling her house which she couldn't bear to let go.

Anyway, I don't think these people saved/invested enough but if that's all they could do, then perhaps the cruises were a bit too much of a luxury for them really. Dad wanted a higher payment from the pension so he could take a cruise and had no idea that women tend to live longer. Ok.

It seems like the financial planning didn't start until the stroke-induced dementia hit.

[frugalecon]

Unless one really can’t find a way to make ends meet, taking SS at 62 is foolish. My dad took this route, and now my mom has a much lower monthly benefit than she otherwise would have. Dad was a terrible investor, and so their IRAs performed poorly. He would have been better off taking distributions and banking a larger Social Security benefit.

[Random Musings]

Yes, you can always Monday morning quarterback stuff but the fact is Mom is going to run out of money 37 years after the husband retired at 99. They got to travel and have 15 years of fun before health turned for the worse for Dad. If he would have worked until 65, he would have lost 20% of those good years.

Saying that, the 50% survivor benefit on the pension was a mistake as well as the 100k in the bank. Never should go below 20/80, IMHO. That would have helped. OTOH, the 2% TIPs purchase was a good market timing move.

My overall take us that it sounds like they had a great time during retirement until Dad's health turned south, there are some things that are beyond our control. If they were happy and got to do the things they wanted to do, then they were far better than most. You can't buy true happiness to begin with; at a certain point the diminishing marginal utility of wealth comes into play as well.

RM

[Random Poster]

Nevermind.

[dodecahedron]

Some Bogleheads might believe this is a rare or irresponsible situation, but there are millions of seniors whose lives are close to this.

They get financial assistance from family or live with family. They live in Medicaid nursing homes. They aren't necessarily unhappy or feel deprived.

It's not what Bogleheads want for themselves as we age, but many of our parents, grandparents, aunts and uncles have been down this path; many of our friends and siblings will do so; and even our kids will do so. It often isn't because of mistakes, bad choices, or reckless spending just circumstances of life.

Common around here. SS + Medicaid. Maybe a bit of part time income working in the chicken processing plants or picking crabs. I do their taxes. Quite a few don't even pay for Medicare Part B because they can't afford it. State covers them on Medicaid. As you say, often live with relatives.

indeed, or many seniors I know live in nice, decent senior subsidized housing with sliding scale rent based on an affordable percentage of their incomes, in a building operated by a reputable nonprofit under HUD section 202. Market rate rental apartments are not the only option to seniors who no longer want to be homeowners. And such buildings often come with amenities like a free shuttle bus or van service that will take them to shop and medical appointments. An on-site social worker can also assist them in accessing any benefits they may be entitled to, whether medicaid, visiting nurse services, food stamps, veterans benefits, free tax prep, etc.

With all due respect to the OP, I know many resourceful seniors with modest incomes who avail themselves of options he seems to be unaware of. I suspect he has not spent a lot of time with many seniors living on very constrained incomes. Given mom’s age, she lived through tough times of shortages in WWII as well as the Depression. Folks in his “mom”’s age cohort have learned from hard experiences to make do and adjust priorities in ways many boomers like him (and me, for that matter!) never had to do.

https://www.hud.gov/program_offices/hou ... or%20older.

[Wannaretireearly]

Yes, you can always Monday morning quarterback stuff but the fact is Mom is going to run out of money 37 years after the husband retired at 99. They got to travel and have 15 years of fun before health turned for the worse for Dad. If he would have worked until 65, he would have lost 20% of those good years.

Saying that, the 50% survivor benefit on the pension was a mistake as well as the 100k in the bank. Never should go below 20/80, IMHO. That would have helped. OTOH, the 2% TIPs purchase was a good market timing move.

My overall take us that it sounds like they had a great time during retirement until Dad's health turned south, there are some things that are beyond our control. If they were happy and got to do the things they wanted to do, then they were far better than most. You can't buy true happiness to begin with; at a certain point the diminishing marginal utility of wealth comes into play as well.

RM

This. $ is not the only metric to quantify and measure.

[coachd50]

Yes, you can always Monday morning quarterback stuff but the fact is Mom is going to run out of money 37 years after the husband retired at 99. They got to travel and have 15 years of fun before health turned for the worse for Dad. If he would have worked until 65, he would have lost 20% of those good years.

Saying that, the 50% survivor benefit on the pension was a mistake as well as the 100k in the bank. Never should go below 20/80, IMHO. That would have helped. OTOH, the 2% TIPs purchase was a good market timing move.

My overall take us that it sounds like they had a great time during retirement until Dad's health turned south, there are some things that are beyond our control. If they were happy and got to do the things they wanted to do, then they were far better than most. You can't buy true happiness to begin with; at a certain point the diminishing marginal utility of wealth comes into play as well.

RM

This. $ is not the only metric to quantify and measure.

Agree. Also wanted to point out that there is probably some survivorship bias in our thinking, because the ones that delay social security, retirement etc. and pass away early aren't around to complain about it/discuss it.

[HomeStretch]

At age 99, retirement savings will have funded 43 years of retirement. Your parents did a lot of things right - downsizing their home, modest living. Fortunately mom has a financial safety net in her children.

With hindsight, your parents could have improved their portfolio longevity by:
1) saving more during the working years.
2) mom working a paid job after the children were grown,
3) not retiring at age 60-61.
4) considering taking the full pension payout option with whole life insurance if it resulted in more $.
5) investing a portion of their savings in equity from the start to help it keep up with inflation
6) delaying SS start date

Luckily, in addition to family support, mom has no need for expensive long-term care in assisted living+ facility. Which is a bit unusual for someone age 97.

Mom’s current monthly rent is way above her means. It’s too bad when mom moved from the double-wide that she didn’t put her name on the waiting list for senior housing with affordable rent based on a % of income. Meals on Wheels provides subsidized meals.

[nisiprius]

It's both melancholy and plausible, with uncomfortable resemblance to some aspects of our own situation, but I don't see how to draw any general conclusions from it. This is one made-up scenario, and even if we grant that it's not a black swan, that it's plausible, we don't have any statistics on how often it happens, nor how often alternatives would happen.

The essence of the situation involves sharply higher expenses in the last years of life, that were not provided for in planning. "Blanchard’s retirement smile turned out to be a grimace at the end."

For any story of this kind, you can concoct a counterstrategy to solve the problem in two ways: a) be more frugal for virtually all but the last few years, in order to have greater resources at the end, or b) tell a story in which a different investment plan, probably higher risk, would have made more money.

Plan B is a lot more pleasant to think about, but I am skeptical of its reliability. In 2021, I would bet that at least a few people would have said that they should have put 10% of their portfolio into cryptocurrency. Furthermore, even if you accept, which I don't, that you can create a perfect financial plan for the next fifty years, it is unrealistic to suppose that anybody is going to get through fifty years without making any bad decisions or mistakes.

The problem is that if you consider the life situation in which someone else takes care of transportation, meal preparation, and housekeeping, that is a wealthy person's situation and it is pretty expensive. As far as I know you cannot buy "frailty insurance" and if there were it would be expensive just another version of "being more frugal through retirement." Long-term-care insurance, yes, and we have it, but that is a much more severe situation than just being frail. The only way for it not to be expensive is for it to be done by... volunteers.

The lifetime tradeoff between immediate and deferred gratification is difficult. Grasshopper/ant, frugality/YOLO. It's hard to deal with objectively. This is particularly true when the "gratification" isn't delightful. It's not a river cruise. It's just being able to live in your own house instead of the guest room in your kids' house. If you have kids--with a house--with a guest room.

Just as with money itself, there's no escaping the dilemma. No matter how cleverly you invest, most of us don't achieve infinite resources. And no matter how cleverly you scrimp, most of us don't achieve zero expenses without some sacrifice of quality of life. There's a tradeoff.

There's a body of traditional wisdom that says your security depends on your network of family and as much as your financial plan. We'd like to escape that. When I was a young adult, before my folks died, I had this dual feeling--discomfort at not being completely independent, plus security at knowing if push came to shove (which it never did) there was someone around to bail me out. So now it is the same way. We are completely independent and probably good to go for decades, but if McQ's scenario came to pass, if push came to shove, we'd need to ask the kids for help. And of course that is not by any means a solution for everybody.

I have to add a tangentially relevant quotation:

Sophia passed to the bedroom, the eternal prison of John Baines. Although, on account of his nervous restlessness, Mr. Baines was never left alone.... The person who undertook the main portion of the vigils was a certain "Aunt Maria"—a poor second cousin of John Baines; one of those necessitous, pitiful relatives who so often make life difficult for a great family in a small town. The existence of Aunt Maria, after being rather a “trial” to the Baineses, had for twelve years past developed into something absolutely “providential” for them. (It is to be remembered that in those days Providence was still busying himself with everybody’s affairs, and foreseeing the future in the most extraordinary manner. Thus, having foreseen that John Baines would have a “stroke” and need a faithful, tireless nurse, he had begun fifty years in advance by creating Aunt Maria, and had kept her carefully in misfortune’s way, so that at the proper moment she would be ready to cope with the stroke.)

[ThankYouJack]

Yes, you can always Monday morning quarterback stuff but the fact is Mom is going to run out of money 37 years after the husband retired at 99. They got to travel and have 15 years of fun before health turned for the worse for Dad. If he would have worked until 65, he would have lost 20% of those good years.

Saying that, the 50% survivor benefit on the pension was a mistake as well as the 100k in the bank. Never should go below 20/80, IMHO. That would have helped. OTOH, the 2% TIPs purchase was a good market timing move.

My overall take us that it sounds like they had a great time during retirement until Dad's health turned south, there are some things that are beyond our control. If they were happy and got to do the things they wanted to do, then they were far better than most. You can't buy true happiness to begin with; at a certain point the diminishing marginal utility of wealth comes into play as well.

RM

This. $ is not the only metric to quantify and measure.

Agree. Also wanted to point out that there is probably some survivorship bias in our thinking, because the ones that delay social security, retirement etc. and pass away early aren't around to complain about it/discuss it.

Well said Random Poster.

I don't (at least not yet) get the point of the hypothetical hindsight is 20/20 post, especially on a forum where many seem overly concerned about outliving their money.

[sc9182]

At age 99, retirement savings will have funded 43 years of retirement. Your parents did a lot of things right - downsizing their home, modest living. Fortunately mom has a financial safety net in her children.

With hindsight, your parents could have improved their portfolio longevity by:
1) saving more during the working years.
2) mom working a paid job after the children were grown,
3) not retiring at age 60-61.
4) considering taking the full pension payout option with whole life insurance if it resulted in more $.
5) investing a portion of their savings in equity from the start to help it keep up with inflation
6) delaying SS start date

Luckily, in addition to family support, mom has no need for expensive long-term care in assisted living+ facility. Which is a bit unusual for someone age 97.

Mom’s current monthly rent is way above her means. It’s too bad when mom moved from the double-wide that she didn’t put her name on the waiting list for senior housing with affordable rent based on a % of income. Meals on Wheels provides subsidized meals.

Good points; a single income during earning years of about 35 years career; Supporting 43 some years of joint-life post-retirement.
This/such situation is always difficult to handle financially alone -- unless large amounts of investments/assets are held in their portfolio (as in point#5 above)
Even though scenario constructed rather clearly - Dad's SS (own) was only $5333 in 1985 (guessing based on $8,000 of joint SS); I see in historical tables average SS was approximately around $5000 annually.

But, for 35-years of full SS-career, hard to believe Dad achieved only "average" SS payout for that retirement year., unless Dad was likely on quite lower-rungs if AIME most of his career (retired as Clerk, we get it). But - my research/understanding goes only so far back .. (nor that accurate., merely reading on the net)..

A Pensioner's outcome slow-deteriorates during later part of their post-retirement age (ie., long you life, leads to less % of success financially). Inflation indeed is a witch eating away with increased expenses.
Where as: a "portfolio/IRA with decent equities%" retiree's financial success depends on market-conditions/sequence-of-returns during earlier part of their retirement ..

Which is of the two outcomes is good thing: living gangbusters longer/longevity -- to see/cherish Grand and Great-Grands kids -- but could possibly run-short financially; Or, live shorter retired life, and possibly leave lot of monies to Kids/Grand-kids (and possibly - charities/causes) !?

Alas, we can't fully control neither possibility!

[dknightd]

If you don’t like the outcome of this tale, please tell me how you will invest to obtain a better outcome for yourself.

I'll bite.
Try not to get forced out of the labor market before we have enough. Take crappy jobs if required.
Delay SS till the high earner is 70.
Take all pensions, or SPIA, as dual life 100% to survivor.
That is already our plan. I think my plan is better than your parents plan, but I could be wrong!

Honestly, I think your imaginary parents did OK. They raised kids who would, and could, take care of them if needed. They had a good life. I hope.

My plan is to be able to take care of us both. Forever. No matter which one dies first. But even the best laid plans can fail! I'm not sure how you even define fail. I suspect I'll die with money left over. Some people consider that failing - they did not spend all they could. But I do not mind the possibility of dying with money left over. I'd rather my kids not have to care of me financially, but I'm sure they would if need be.

One mistake to watch out for is assuming the man will die first. Statistically that is more likely. But in our families the man outlived the wife. You just never know!

I think your imaginary parents did OK

[dknightd]

A later post will give my take

I'm looking forward to your later post!

[AnnetteLouisan]

If you don’t like the outcome of this tale, please tell me how you will invest to obtain a better outcome for yourself.

I'll bite.
Try not to get forced out of the labor market before we have enough. Take crappy jobs if required.
Delay SS till the high earner is 70.
Take all pensions, or SPIA, as dual life 100% to survivor.
That is already our plan. I think my plan is better than your parents plan, but I could be wrong!

Honestly, I think your imaginary parents did OK. They raised kids who would, and could, take care of them if needed. They had a good life. I hope.

My plan is to be able to take care of us both. Forever. No matter which one dies first. But even the best laid plans can fail! I'm not sure how you even define fail. I suspect I'll die with money left over. Some people consider that failing - they did not spend all they could. But I do not mind the possibility of dying with money left over. I'd rather my kids not have to care of me financially, but I'm sure they would if need be.

One mistake to watch out for is assuming the man will die first. Statistically that is more likely. But in our families the man outlived the wife. You just never know!

I think your imaginary parents did OK

I learned a lot from this post - mostly about not to sell appreciating assets. My strategy:

-have LTCI
-work at least until pension eligibility and maybe to full retirement age
-keep investing
-live below my means
-proper tax location - equities in taxable
-keep a hold of appreciating assets
-defer SS to age 70
-don’t declare victory too early

[z3r0c00l]

Am I crazy or does this sound like a better than average American story? Retirement from 1982 (incidentally the year I was born, so I know how long those 40 years were) through the 2000s, and in the case of mom surviving a pandemic and getting to see perhaps grand-kids go through college or get married... living in a double-wide in a nice climate and having plenty of time for travel... I think it worked. This shows how the focus of most normal retirements should be on establishing life-long streams of guaranteed income calculated to cover projected expenses. This is why I value my pension and would consider an annuity if I didn't have one. And this is why social security is worth so much to ordinary people.

The melancholy tales I think of are being homeless at 45 due to drug addiction, working through your 70's at a miserable job just to afford medicine, or dying young with tons of money you never get to enjoy. Millions of Americans will do these three instead.

[Wannaretireearly]

Am I crazy or does this sound like a better than average American story? Retirement from 1982 (incidentally the year I was born, so I know how long those 40 years were) through the 2000s, and in the case of mom surviving a pandemic and getting to see perhaps grand-kids go through college or get married... living in a double-wide in a nice climate and having plenty of time for travel... I think it worked. This shows how the focus of most normal retirements should be on establishing life-long streams of guaranteed income calculated to cover projected expenses. This is why I value my pension and would consider an annuity if I didn't have one. And this is why social security is worth so much to ordinary people.

The melancholy tales I think of are being homeless at 45 due to drug addiction, working through your 70's at a miserable job just to afford medicine, or dying young with tons of money you never get to enjoy. Millions of Americans will do these three instead.

Working thru 70s to just afford medicine gives me shivers. Most scared of this one. I’m not afraid to bail to a country where this is not a problem. However, getting others in my family to move will be more of a challenge.

[Horton]

Melancholy? Seems like "mom & dad" lived a pretty good life to me.

Was everything perfect? Absolutely not, but it never is.

[z3r0c00l]

Am I crazy or does this sound like a better than average American story? Retirement from 1982 (incidentally the year I was born, so I know how long those 40 years were) through the 2000s, and in the case of mom surviving a pandemic and getting to see perhaps grand-kids go through college or get married... living in a double-wide in a nice climate and having plenty of time for travel... I think it worked. This shows how the focus of most normal retirements should be on establishing life-long streams of guaranteed income calculated to cover projected expenses. This is why I value my pension and would consider an annuity if I didn't have one. And this is why social security is worth so much to ordinary people.

The melancholy tales I think of are being homeless at 45 due to drug addiction, working through your 70's at a miserable job just to afford medicine, or dying young with tons of money you never get to enjoy. Millions of Americans will do these three instead.

Working thru 70s to just afford medicine gives me shivers. Most scared of this one. I’m not afraid to bail to a country where this is not a problem. However, getting others in my family to move will be more of a challenge.

Yes it is a curious situation where our backup plan is to retire in Spain or Thailand, but probably will result in a happier life if I am being honest.

[Wannaretireearly]

Am I crazy or does this sound like a better than average American story? Retirement from 1982 (incidentally the year I was born, so I know how long those 40 years were) through the 2000s, and in the case of mom surviving a pandemic and getting to see perhaps grand-kids go through college or get married... living in a double-wide in a nice climate and having plenty of time for travel... I think it worked. This shows how the focus of most normal retirements should be on establishing life-long streams of guaranteed income calculated to cover projected expenses. This is why I value my pension and would consider an annuity if I didn't have one. And this is why social security is worth so much to ordinary people.

The melancholy tales I think of are being homeless at 45 due to drug addiction, working through your 70's at a miserable job just to afford medicine, or dying young with tons of money you never get to enjoy. Millions of Americans will do these three instead.

Working thru 70s to just afford medicine gives me shivers. Most scared of this one. I’m not afraid to bail to a country where this is not a problem. However, getting others in my family to move will be more of a challenge.

Yes it is a curious situation where our backup plan is to retire in Spain or Thailand, but probably will result in a happier life if I am being honest.

I’m with you 1000%. I’m not worried about having the money to move either. It’s going to be the family/friends ties and perhaps just inertia that I’ll hopefully navigate with DW.

[Grt2bOutdoors]

The mom not working outside the home even part time was the mistake, unless I missed it. Also, taking SS at 62. Also dad remaining a clerk his entire career? Not choosing a field with more room to grow. Frugality is mentioned but so are cruises. Selling the home was a big mistake. So was selling the Megacorp stock and not investing in general. Failing to anticipate the ravages of inflation.

But overall they did ok! He worked and had a pension, she got a survivor’s benefit, they raised a child who was in a position to help them and she enjoyed wonderful longevity with Medicare, LTCI, and SS. They also made a profit on their home when they sold and neither was decimated by high medical costs.

This is a good cautionary tale. Makes me want to redouble my efforts and not be so complacent. Invest more, work longer, hold and rent out rather than sell real estate. I’d love to do a thread “how does this story end…” about my situation.

Ah but here is where most don’t understand - sometimes the “choice” is not yours to make. My grandfather immigrated to this country in his 40’s, he had a young family and a wife who raised the kids and took care of the household. He had little formal education and took what work was available for unskilled employment. The point being based on one’s circumstances in life, you make the best of what you have but remember there is an element of luck involved and many times you don’t have control over manufacturing it.

[Valuethinker]

Am I crazy or does this sound like a better than average American story? Retirement from 1982 (incidentally the year I was born, so I know how long those 40 years were) through the 2000s, and in the case of mom surviving a pandemic and getting to see perhaps grand-kids go through college or get married... living in a double-wide in a nice climate and having plenty of time for travel... I think it worked. This shows how the focus of most normal retirements should be on establishing life-long streams of guaranteed income calculated to cover projected expenses. This is why I value my pension and would consider an annuity if I didn't have one. And this is why social security is worth so much to ordinary people.

The melancholy tales I think of are being homeless at 45 due to drug addiction, working through your 70's at a miserable job just to afford medicine, or dying young with tons of money you never get to enjoy. Millions of Americans will do these three instead.

Working thru 70s to just afford medicine gives me shivers. Most scared of this one. I’m not afraid to bail to a country where this is not a problem. However, getting others in my family to move will be more of a challenge.

Yes it is a curious situation where our backup plan is to retire in Spain or Thailand, but probably will result in a happier life if I am being honest.

If you want to move, I suggest moving younger:

- adjustment to a new culture and language is easier
- many countries are quite restrictive about near retirees and retirees moving. We had a builder, immensely skilled man who had undertaken more qualifications to improve his immigration points with Australia, where builders are in short supply. The Australians sent him back because he was 45 and had aged out for their skilled migrant programme in that area

Spain has far worse demographic problems than USA. There is something of a safety valve if they are prepared to accept more Latin Americans - people who are linguistically and culturally similar, but who will move to Spain for a better life for their families. Latin America also has an aging population, but is several decades behind. The other alternative is more people from North Africa & Sub Saharan Africa, and that's politically unacceptable.

Spain, like Italy, is fast becoming a country with a lot of very old people, and a real shortage of people to look after them. Stronger family ties than in northern Europe or North America probably help.

Thailand? I am not sure. But they have gone through the demographic transition. Again the key will be immigration from poorer surrounding nations: Laos, Cambodia, Burma.

Other than Sub Saharan Africa, there is now almost nowhere in the world that is not confronting that post 2050 age cohort distribution problem. It will bite hard and soon, is biting, in places like Japan, Italy, Spain and Greece. But every country faces it. China is an outlier because it faces it *now* rather than, as would be more typical with fast-developing countries, 20 years hence.

It will be felt in a host of ways. Rising healthcare burdens and costs (roughly speaking, we spend 80% of our lifetime healthcare budget in the last 20 years of our lives?). Healthcare also relies on a young labour force and so that will inflate wages. Difficulties and cost of nursing home car and in-home residential care. Possibly in falling housing prices. Bitter struggles over taxes.

[Valuethinker]

The mom not working outside the home even part time was the mistake, unless I missed it. Also, taking SS at 62. Also dad remaining a clerk his entire career? Not choosing a field with more room to grow. Frugality is mentioned but so are cruises. Selling the home was a big mistake. So was selling the Megacorp stock and not investing in general. Failing to anticipate the ravages of inflation.

But overall they did ok! He worked and had a pension, she got a survivor’s benefit, they raised a child who was in a position to help them and she enjoyed wonderful longevity with Medicare, LTCI, and SS. They also made a profit on their home when they sold and neither was decimated by high medical costs.

This is a good cautionary tale. Makes me want to redouble my efforts and not be so complacent. Invest more, work longer, hold and rent out rather than sell real estate. I’d love to do a thread “how does this story end…” about my situation.

Ah but here is where most don’t understand - sometimes the “choice” is not yours to make. My grandfather immigrated to this country in his 40’s, he had a young family and a wife who raised the kids and took care of the household. He had little formal education and took what work was available for unskilled employment. The point being based on one’s circumstances in life, you make the best of what you have but remember there is an element of luck involved and many times you don’t have control over manufacturing it.

We've grown up in an environment of self-actualisation and self realisation.

Having completely forgotten that the choices our parents and grandparents made were often of economic or political necessity.

Your grandfather must have struggled - at that age, it's very hard to pick up a new language and culture. I met a Greek man on a plane who had lived in Canada for nearly 45 years, but barely spoke English - he had worked night shifts looking after offices, and spoke Greek to his family.

You see these modest homes come up for sale on the Realtor sites - and it's obvious from the location, the dated decor & furnishings, that these immaculate little homes were bought by houseproud Greek or Italian immigrants, who lived out their lives so far from the warm sunshine of Calabria or rural Greece, and have now either died or had to move to nursing homes... when I was growing up we used to sniff at such homes. Yet those people made a coffee 100x better than the dreck that is the North American brewed ...

Proud old ladies living in apartment buildings I would shudder to enter for fear of being mugged-- I used to drop off Meals on Wheels for some of them. Their grandparents? Sharecroppers. Or tenants in Jamaica. Come to live in our Arctic winter winds, to clean our houses or scrub our hospital floors... when I had my head injury, the team which looked after me was: New Zealand doctor, nurses from Zimbabwe and Ireland and Kenya, catering by Poles, floor cleaning by Bulgarians, the bed porter was Somali but was translating Arabic for the police talking to a man who had collapsed on the street ... the United Nations of healthcare.

I lived in a Council Block (public housing) for a few months once, renting from a friend. My neighbours were all West Indians. They used to sit out on the plaza on Sundays, after church, in their finest clothes, talking in their soft accents. These were hall porters, cleaners, kitchen staff.. come from so far in search of what was, for them, a better life. I wouldn't go into the pubs on the estate - very scary people. We had shootings, drugs, domestic violence, the works. But these people? Salt of the earth.

A lot of life is about luck, and making the best of the cards you were dealt.

Thank you for reminding us of this.

[Harry Livermore]

Doctor McQ, you are a rock star. I really enjoy your writing. I bet many of your students did as well!
I skimmed the comments.
I'll just say this- life is life. People operate with the information in front of them, the biases they carry, and the emotions that drive them.
Your fictional parents did pretty great for not having a crystal ball, and were seemingly happy for many years. Nobody was eating cat food. That puts them in the top 0.1% for all of humanity across the years of civilization. They zigged and zagged as history and circumstances were unveiled. Well done.
It's easy for us to stand on the pyramid of history and knowledge and cluck our tongues at others' mistakes. But what if another group, in 2060, looking back at us, are clucking their tongues at our obvious willful ignorance of the hyperinflation that was about to begin, or some other "obvious" calamity about to begin in 2023?
So, sure, it's entertaining to read the responses and try to optimize our strategies. But just remember that we are no different than people at any point in human history. We might be wrong about much...
Cheers

[MishkaWorries]

A later post will give my take; but first I’d like to hear from you.

I'd rather hear Mama's take than yours. I'd guess she is very pleased with her late husband and very happy they were able to spend 15 years enjoying life together before he passed. All financed by a modest salary where she was never forced to work.

She is probably very satisfied she and her husband were able to raise happy and successful children. Isn't that the whole point of life?

[pennywiser]

While I personally don't think we can put too much blame on somebody who runs out of money in their late 90's, I think we can all agree that there were plenty of mistakes mades by the parents. It all came down to lack of understanding of money. Whether we want it or not, our lives are underpinned by money, and those who do not understand money are not going to do well in life.

[pennywiser]

While this illustrates a variety of issues, this is one reason why I don't like rentals. With a paid off home you don't have the rent cost which can be high. And if taxes, etc. start getting too big the person could find a roommate. Of course there can come a time where the person cannot live alone any longer and would have to sell but at least there should be a decent sized equity in the home.

I agree with this 100%. Owning a house is like owning an asset that always yields enough to cover my rent. No matter what financial markets are doing, no matter how high the inflation is. I don't ever want to worry about not having enough income to cover my rent, or about getting a letter telling me I have one month to move out.

[MishkaWorries]

The mom not working outside the home even part time was the mistake, unless I missed it. Also, taking SS at 62. Also dad remaining a clerk his entire career? Not choosing a field with more room to grow. Frugality is mentioned but so are cruises. Selling the home was a big mistake. So was selling the Megacorp stock and not investing in general. Failing to anticipate the ravages of inflation.

But overall they did ok! He worked and had a pension, she got a survivor’s benefit, they raised a child who was in a position to help them and she enjoyed wonderful longevity with Medicare, LTCI, and SS. They also made a profit on their home when they sold and neither was decimated by high medical costs.

This is a good cautionary tale. Makes me want to redouble my efforts and not be so complacent. Invest more, work longer, hold and rent out rather than sell real estate. I’d love to do a thread “how does this story end…” about my situation.

Ah but here is where most don’t understand - sometimes the “choice” is not yours to make. My grandfather immigrated to this country in his 40’s, he had a young family and a wife who raised the kids and took care of the household. He had little formal education and took what work was available for unskilled employment. The point being based on one’s circumstances in life, you make the best of what you have but remember there is an element of luck involved and many times you don’t have control over manufacturing it.

We've grown up in an environment of self-actualisation and self realisation.

Having completely forgotten that the choices our parents and grandparents made were often of economic or political necessity.

Your grandfather must have struggled - at that age, it's very hard to pick up a new language and culture. I met a Greek man on a plane who had lived in Canada for nearly 45 years, but barely spoke English - he had worked night shifts looking after offices, and spoke Greek to his family.

You see these modest homes come up for sale on the Realtor sites - and it's obvious from the location, the dated decor & furnishings, that these immaculate little homes were bought by houseproud Greek or Italian immigrants, who lived out their lives so far from the warm sunshine of Calabria or rural Greece, and have now either died or had to move to nursing homes... when I was growing up we used to sniff at such homes. Yet those people made a coffee 100x better than the dreck that is the North American brewed ...

Proud old ladies living in apartment buildings I would shudder to enter for fear of being mugged-- I used to drop off Meals on Wheels for some of them. Their grandparents? Sharecroppers. Or tenants in Jamaica. Come to live in our Arctic winter winds, to clean our houses or scrub our hospital floors... when I had my head injury, the team which looked after me was: New Zealand doctor, nurses from Zimbabwe and Ireland and Kenya, catering by Poles, floor cleaning by Bulgarians, the bed porter was Somali but was translating Arabic for the police talking to a man who had collapsed on the street ... the United Nations of healthcare.

I lived in a Council Block (public housing) for a few months once, renting from a friend. My neighbours were all West Indians. They used to sit out on the plaza on Sundays, after church, in their finest clothes, talking in their soft accents. These were hall porters, cleaners, kitchen staff.. come from so far in search of what was, for them, a better life. I wouldn't go into the pubs on the estate - very scary people. We had shootings, drugs, domestic violence, the works. But these people? Salt of the earth.

A lot of life is about luck, and making the best of the cards you were dealt.

Thank you for reminding us of this.

Thanks to both of you for beautifully written posts. Westerners tend to forget how lucky they are. So many people live in terrible conditions. They suffer war, famine, economic collapse, concentration camps/gulags/prisons, riots political turmoil and yet they persevere and live their lives and take care of their families.

[dknightd]

A later post will give my take; but first I’d like to hear from you.

I'd rather hear Mama's take than yours. I'd guess she is very pleased with her late husband and very happy they were able to spend 15 years enjoying life together before he passed. All financed by a modest salary where she was never forced to work.

She is probably very satisfied she and her husband were able to raise happy and successful children. Isn't that the whole point of life?

I agree.

[longinvest]

1. Dad retires in 1982. After 35 years with Megacorp as a clerk, he receives a pension of $11,000. It’s that high ($33,000 in today’s dollars) because they chose a survivor benefit of only 50%. Mom and Dad thought they needed that higher initial payment.

2. A bit later they file early at age 62 for Social Security of $8,000, including my Mom’s share of 50% of his SS payment (she was a homemaker while the kids were in school, something that was possible on a single earner’s salary in the Northeast in the 1960s).

a. With a little help from family, they also came to own a home in a suburb with good schools

3. Dial forward to 1985. They sell their suburban house, purchased in the 1950s for $15,000, for the princely sum of $125,000 (for context, Zillow has it at $620,000 today). And proceed to buy a newly constructed doublewide in a park in Florida for $40,000 cash. As original purchasers, ground rent was fixed at $125/month.

4. With their other savings, they now have $100,000 in the bank. Literally. Stocks? For Depression babies? Fugedaboudit.

a. When Dad retired he sold the $1000 of Megacorp stock acquired through employee purchases. He was ticked—it was an involuntary retirement.
b. Nonetheless, their income was pretty balanced to start: $11,000 pension, $8,000 social security, $6,000 “investment” income (interest). About $70,000 in today’s dollars.
c. The key move at this point was downsizing to a smaller house in an area with lower living costs. Not that much more modest a dwelling, in square footage or appointments, but with no mortgage and much lower expenses.

McQ, your scenario is inconsistent. If Dad retired in 1982 (at the age of 60, I assume, as it's unclear), the couple's income didn't start with Social Security which was claimed 2 years later and with $6,000 interest income from the proceed of downsizing ($100,000) 3 years after retirement.

Anyway, for simplicity, I'll assume that Dad retired in 1985* at the age of 62 (when Mom was 62 too**), claimed Social Security ($8,000) and downsized, ending up with a $100,000 portfolio. I'll ignore the inconsequential $1,000 Megacorp stock. As most of the couple's income is from pensions, I'll invest the portfolio into a balanced portfolio (60/40 stocks/bonds). I'll enter this data into the Retirement sheet of the VPW Accumulation And Retirement Worksheet and consider its suggestion.

* You can change this to 1982, if you want. The VPW worksheet suggestion won't change as long as the age remains 62.
** The age of the younger spouse should be used in the worksheet.



The worksheet suggests to only withdraw $1,034 from the portfolio in the first year for a total retirement income of $20,042. That's approximately $56,118 in today's dollars, -20% less than the $70,000 of your scenario,

The worksheet also informs the couple that, because markets fluctuate, at least $1,442 (7%) of the $20,042 should be budgeted for optional discretionary expenses in 1985. This is based on a simple -50% stock loss calculation. It isn't a prediction. Portfolio losses could be caused by stocks or bonds and could happen in a short or longer term. It isn't a maximum loss, either. It's just a normal type of loss that shouldn't affect the couple's comfort. Bigger losses could require reducing comfort.

The detailed calculations are shown in the lower part of the Retirement sheet:





As the work pension doesn't have cost-of-living adjustments, the worksheet only plans on spending $7,232 out of the $11,000 pension, reinvesting the rest into the portfolio, effectively reducing the 1985 VPW portfolio withdrawal by -$3,772 from $4,806 to $1,034.

The couple also considers, in 1985, the financial impact of Dad eventually dying first for surviving Mom. Social Security would be reduced by a third and the work pension would be cut in half. This would reduce annual income by -(($8,004 / 3) + ($7,232 / 2)) = -$6,284 (-30%) down to $13,758 for surviving Mom. That's approximately $38,522 in today's dollars.

That's the financial picture that the VPW worksheet would have shown Mom and Dad in 1985. Knowing this, I doubt that they'd have planned their life around an income of $70,000 / year (in today's dollars). I think that they'd have started with a $52,000 plan (for taxes and comfortable expenses) and an additional $4,000 for optional discretionary expenses in 1985, expressed in today's dollars. They'd have planned to remain flexible, adapting expenses to their evolving financial situation (as shown by the VPW worksheet as its entries are updated each year). Mom would also have anticipated a significant drop of -$18,000 in annual income (in today's dollars) if Dad was to die before her.

[asap]

I know a guy lives very well in Southern California on less than $2,000 a month. No pension, no retirement accounts, only SS, and a paid off house. He is super active, healthy, muscles, tan at 78 year old. He lives less than a mile from the ocean.