Do you plan to actually spend down your portfolio?

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afan
Posts: 5203
Joined: Sun Jul 25, 2010 4:01 pm

Re: Do you plan to actually spend down your portfolio?

Post by afan »

TN_Boy wrote: Sun Jan 26, 2020 1:31 pm
Hmm, well I think 30 years of both spouses in skilled nursing is a way out there kinda worse case if you are serious. (I think I owe wrongfunds a sort of apology ...)

From a financial planning standpoint, the good news is that you would be deducting all those expenses, and your taxes would probably be about zero.

Also from a planning standpoint, if you are going to worry about 30 years skilled nursing, you should buy the best LTCi policy you can, to cover some of those costs. I mean, why not? It reduces some of the tail risk of a long stay, and the potential pressure on a portfolio.

From a "what should you worry about financially" standpoint, I'd argue if you are going that far out on the LTC front, there are other more likely things to consider first.

For one thing, I'd buy the safest large vehicle I liked -- an auto accident being one way both spouses could wind up with long term care needs (starting at the same time even).

I'd also do things like pay for extra lightning protection, because I truly think it is much more likely your house takes a direct hit than you both need 30 years of skilled nursing.

My point, and it's a serious one, is that if you are going to put something as unlikely as needing to pay for 30 years of skilled nursing -- for both spouses! -- into a plan, it would make sense to look at more likely serious problems and try to mitigate those. I gave two examples of what I'd allocate money for as examples.
It is to ntended to be worst case, hence quite unlikely to occur.
LTC insurance at least might make sense if you could not afford to pay for the facility. The market has been troubled with huge price increases and companies leaving the market. :it is unclear just what the coverage is worth. Does not make sense to buy it if you can cover the cost without it.

We drive extremely safe cars. Slowly and carefully. Don't drink, so always cold sober. Avoid driving later in the evening when there are a lot of drunks in the road.

What does that or lightning protection have to with financial planning? They are not mutually exclusive. One can drive safely as well as plan for bad financial times.

I would have thought there would be more push back against the 1% real assumption. I hope things go better but plan for bad times. Although I plan for worst case for expenses, I don't include a worst case for markets and the economy. That is because don't know what figures to use. At 1% real there is still a positive return. Thirty years of negative real returns may be unusual in modern US history but it has happened to other countries. So how bad do I make the returns? How high do I make inflation? With no good guidelines for those questions, I make my bad outcomes on the expense side, for which I can develop some figures.

When we die our remaining assets, if any, will go to our heirs. No goal of spending all our money during life. Given the uncertainties of future market returns and expenses, having a median financial future that goes to zero at death means having a 50% chance of going broke in life. I cannot make the risk of ending up poor zero but I can certainly try to make it far less than 50%.
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama
smitcat
Posts: 6464
Joined: Mon Nov 07, 2016 10:51 am

Re: Do you plan to actually spend down your portfolio?

Post by smitcat »

Helo80 wrote: Sun Jan 26, 2020 11:07 am The way I see it is that the people who build massive portfolios through being frugal and saving pennies.... are going to continue to do so into retirement. You don't suddenly lose 20-40 years of psychological conditioning from your wealth building and income generating phase of your life.
We did not deny ourselves what we wanted to do before retirement and we will not deny ourselves what we want after retirement.
The ability to build up a reasonable portfolio does not specifically rely on saving pennies.
TN_Boy
Posts: 1872
Joined: Sat Jan 17, 2009 12:51 pm

Re: Do you plan to actually spend down your portfolio?

Post by TN_Boy »

afan wrote: Mon Jan 27, 2020 7:35 am
TN_Boy wrote: Sun Jan 26, 2020 1:31 pm
Hmm, well I think 30 years of both spouses in skilled nursing is a way out there kinda worse case if you are serious. (I think I owe wrongfunds a sort of apology ...)

From a financial planning standpoint, the good news is that you would be deducting all those expenses, and your taxes would probably be about zero.

Also from a planning standpoint, if you are going to worry about 30 years skilled nursing, you should buy the best LTCi policy you can, to cover some of those costs. I mean, why not? It reduces some of the tail risk of a long stay, and the potential pressure on a portfolio.

From a "what should you worry about financially" standpoint, I'd argue if you are going that far out on the LTC front, there are other more likely things to consider first.

For one thing, I'd buy the safest large vehicle I liked -- an auto accident being one way both spouses could wind up with long term care needs (starting at the same time even).

I'd also do things like pay for extra lightning protection, because I truly think it is much more likely your house takes a direct hit than you both need 30 years of skilled nursing.

My point, and it's a serious one, is that if you are going to put something as unlikely as needing to pay for 30 years of skilled nursing -- for both spouses! -- into a plan, it would make sense to look at more likely serious problems and try to mitigate those. I gave two examples of what I'd allocate money for as examples.
It is to ntended to be worst case, hence quite unlikely to occur.
LTC insurance at least might make sense if you could not afford to pay for the facility. The market has been troubled with huge price increases and companies leaving the market. :it is unclear just what the coverage is worth. Does not make sense to buy it if you can cover the cost without it.

We drive extremely safe cars. Slowly and carefully. Don't drink, so always cold sober. Avoid driving later in the evening when there are a lot of drunks in the road.

What does that or lightning protection have to with financial planning? They are not mutually exclusive. One can drive safely as well as plan for bad financial times.

I would have thought there would be more push back against the 1% real assumption. I hope things go better but plan for bad times. Although I plan for worst case for expenses, I don't include a worst case for markets and the economy. That is because don't know what figures to use. At 1% real there is still a positive return. Thirty years of negative real returns may be unusual in modern US history but it has happened to other countries. So how bad do I make the returns? How high do I make inflation? With no good guidelines for those questions, I make my bad outcomes on the expense side, for which I can develop some figures.

When we die our remaining assets, if any, will go to our heirs. No goal of spending all our money during life. Given the uncertainties of future market returns and expenses, having a median financial future that goes to zero at death means having a 50% chance of going broke in life. I cannot make the risk of ending up poor zero but I can certainly try to make it far less than 50%.
I gotta think you are yanking my chain on this one.

The point some are making is that your worst case is wildly unlikely. Not unlikely. Wildly, asteroid-strike on your house unlikely. I don't find worrying thinking about such things useful. I further noted that anybody planning scenarios like being able to pay for a combined total of 60 years of skilled nursing (starting with a base of a healthy married couple) should be putting the belt and suspenders in other places, i.e. problems more likely to happen.

So a larger safe car. Top of the line protection against lighting strikes*. LTC insurance policy. To which I'd add, a large umbrella policy. Food cache, survivalist training, move to a low crime area etc.

The 1% real return assumption is lower than I would use, but is nowhere near as out-there as the 30 years of skilled nursing for both spouses (which is what, 6M+ in today's dollars?)

So the actionable thing here is, what should a realistic worst case scenario be? For LTC or other financial disasters? Not sure what my answer would be, though I'll think on it .... it obviously depends upon your resources. Most retiree's can only handle a modest range of financial debacles.

* I used lighting strikes as a somewhat tongue-in-cheek example of an unlikely, but possible, bad thing happening. Though certainly more common than your worst case scenario.
wrongfunds
Posts: 2313
Joined: Tue Dec 21, 2010 3:55 pm

Re: Do you plan to actually spend down your portfolio?

Post by wrongfunds »

I don't want to get in to afan's particular case but I think now my point seems very obvious. Somebody who is saving for end of the world conditions etc *will* have real problem to open the checkbook when such a condition were to occur. I just don't see that person writing $1M check to his LTC provider. On the face it seems fully contradictory. The wine example or lightening strike example went over few people's head.
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