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

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

Post by BigJohn »

Finridge wrote: Tue Oct 02, 2018 5:17 pm Thanks for posting this tool. I like how it shows the probability of death right up there as part of the possible portfolio outcomes. Seeing the "grey wedge" of death grow and grow exponentially to where it becomes the final (and only) outcome--that sure is sobering. It puts things in their proper perspective. It reminds me to stop focusing on lowering my SWR and growing my portfolio beyond what is necessary, and instead focusing on using the time that I have left.
I couldn’t agree more. There are more levers on money (side hustle, part time work, reduce spending, etc) than time. Time is an asset that is finite and unknowable. Decisions on how you use that time is orders of magnitude more important that the fine points of SWR, SooR risk. And yet.... most spend far less brian power worrying about how they spend their time than financial planning. Probably because doing the former requires an acknowledgment about the shape of that “grey wedge”.
"The greatest enemy of a good plan is the dream of a perfect plan" - Carl Von Clausewitz
spreadsheetguy
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Re: Rich, Broke or Dead: Visualizing probabilities of outcomes in early retirement

Post by spreadsheetguy »

BigJohn wrote: Tue Jun 30, 2020 5:47 pm
Finridge wrote: Tue Oct 02, 2018 5:17 pm Thanks for posting this tool. I like how it shows the probability of death right up there as part of the possible portfolio outcomes. Seeing the "grey wedge" of death grow and grow exponentially to where it becomes the final (and only) outcome--that sure is sobering. It puts things in their proper perspective. It reminds me to stop focusing on lowering my SWR and growing my portfolio beyond what is necessary, and instead focusing on using the time that I have left.
I couldn’t agree more. There are more levers on money (side hustle, part time work, reduce spending, etc) than time. Time is an asset that is finite and unknowable. Decisions on how you use that time is orders of magnitude more important that the fine points of SWR, SooR risk. And yet.... most spend far less brian power worrying about how they spend their time than financial planning. Probably because doing the former requires an acknowledgment about the shape of that “grey wedge”.
I agree as well. Financial planning for analytical folks like a lot of us on bogleheads Is fun and interesting and it’s something you can tweak a lot if you like thinking about the problem. Life expectancy and mortality is, as you say, very uncertain and not easily solved in a spreadsheet or calculator and thus not analyzed or even thought about.

It’s like the story of the drunk guy looking for his keys at night under the lamp post. His friend says, “Are you sure you lost them here?” And he says, “ I didn’t but there’s more light here than where I lost them!” You tend to only analyze and study aspects of your life that you can measure and things that you can’t really “see” are ignored.
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willthrill81
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Re: Rich, Broke or Dead: Visualizing probabilities of outcomes in early retirement

Post by willthrill81 »

spreadsheetguy wrote: Wed Jul 01, 2020 12:20 pm
BigJohn wrote: Tue Jun 30, 2020 5:47 pm
Finridge wrote: Tue Oct 02, 2018 5:17 pm Thanks for posting this tool. I like how it shows the probability of death right up there as part of the possible portfolio outcomes. Seeing the "grey wedge" of death grow and grow exponentially to where it becomes the final (and only) outcome--that sure is sobering. It puts things in their proper perspective. It reminds me to stop focusing on lowering my SWR and growing my portfolio beyond what is necessary, and instead focusing on using the time that I have left.
I couldn’t agree more. There are more levers on money (side hustle, part time work, reduce spending, etc) than time. Time is an asset that is finite and unknowable. Decisions on how you use that time is orders of magnitude more important that the fine points of SWR, SooR risk. And yet.... most spend far less brian power worrying about how they spend their time than financial planning. Probably because doing the former requires an acknowledgment about the shape of that “grey wedge”.
I agree as well. Financial planning for analytical folks like a lot of us on bogleheads Is fun and interesting and it’s something you can tweak a lot if you like thinking about the problem. Life expectancy and mortality is, as you say, very uncertain and not easily solved in a spreadsheet or calculator and thus not analyzed or even thought about.
It's not 'easily solved' because we don't know how long we'll live. If we did, financial planning would be a lot easier. But we don't.

So it's generally recommended to overestimate how long we'll live for planning purposes and make contingency plans that apply if we live even longer than that.

"Do what you can, with what you have, where you are."
- Theodore Roosevelt
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EnjoyIt
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Re: Rich, Broke or Dead: Visualizing probabilities of outcomes in early retirement

Post by EnjoyIt »

willthrill81 wrote: Wed Jul 01, 2020 12:27 pm
spreadsheetguy wrote: Wed Jul 01, 2020 12:20 pm
BigJohn wrote: Tue Jun 30, 2020 5:47 pm
Finridge wrote: Tue Oct 02, 2018 5:17 pm Thanks for posting this tool. I like how it shows the probability of death right up there as part of the possible portfolio outcomes. Seeing the "grey wedge" of death grow and grow exponentially to where it becomes the final (and only) outcome--that sure is sobering. It puts things in their proper perspective. It reminds me to stop focusing on lowering my SWR and growing my portfolio beyond what is necessary, and instead focusing on using the time that I have left.
I couldn’t agree more. There are more levers on money (side hustle, part time work, reduce spending, etc) than time. Time is an asset that is finite and unknowable. Decisions on how you use that time is orders of magnitude more important that the fine points of SWR, SooR risk. And yet.... most spend far less brian power worrying about how they spend their time than financial planning. Probably because doing the former requires an acknowledgment about the shape of that “grey wedge”.
I agree as well. Financial planning for analytical folks like a lot of us on bogleheads Is fun and interesting and it’s something you can tweak a lot if you like thinking about the problem. Life expectancy and mortality is, as you say, very uncertain and not easily solved in a spreadsheet or calculator and thus not analyzed or even thought about.
It's not 'easily solved' because we don't know how long we'll live. If we did, financial planning would be a lot easier. But we don't.

So it's generally recommended to overestimate how long we'll live for planning purposes and make contingency plans that apply if we live even longer than that.

"Do what you can, with what you have, where you are."
- Theodore Roosevelt
Ahhh, but if you overestimate too much, maybe you wasted too many precious years of life left. It gets worse when one's life is cut shorter than expected.

This is a tough line to ride and everyone will at some point need to evaluate their own risk tolerance, willingness to work and need to work. I guess if I had nothing better to do than work, then I might as well work. But that isn't my life.

On the other hand some people love work so much and it adds to life's enjoyment. In that case, why ever retire?
A time to EVALUATE your jitters: | viewtopic.php?p=1139732#p1139732
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willthrill81
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Re: Rich, Broke or Dead: Visualizing probabilities of outcomes in early retirement

Post by willthrill81 »

EnjoyIt wrote: Wed Jul 01, 2020 4:47 pm
willthrill81 wrote: Wed Jul 01, 2020 12:27 pm
spreadsheetguy wrote: Wed Jul 01, 2020 12:20 pm
BigJohn wrote: Tue Jun 30, 2020 5:47 pm
Finridge wrote: Tue Oct 02, 2018 5:17 pm Thanks for posting this tool. I like how it shows the probability of death right up there as part of the possible portfolio outcomes. Seeing the "grey wedge" of death grow and grow exponentially to where it becomes the final (and only) outcome--that sure is sobering. It puts things in their proper perspective. It reminds me to stop focusing on lowering my SWR and growing my portfolio beyond what is necessary, and instead focusing on using the time that I have left.
I couldn’t agree more. There are more levers on money (side hustle, part time work, reduce spending, etc) than time. Time is an asset that is finite and unknowable. Decisions on how you use that time is orders of magnitude more important that the fine points of SWR, SooR risk. And yet.... most spend far less brian power worrying about how they spend their time than financial planning. Probably because doing the former requires an acknowledgment about the shape of that “grey wedge”.
I agree as well. Financial planning for analytical folks like a lot of us on bogleheads Is fun and interesting and it’s something you can tweak a lot if you like thinking about the problem. Life expectancy and mortality is, as you say, very uncertain and not easily solved in a spreadsheet or calculator and thus not analyzed or even thought about.
It's not 'easily solved' because we don't know how long we'll live. If we did, financial planning would be a lot easier. But we don't.

So it's generally recommended to overestimate how long we'll live for planning purposes and make contingency plans that apply if we live even longer than that.

"Do what you can, with what you have, where you are."
- Theodore Roosevelt
Ahhh, but if you overestimate too much, maybe you wasted too many precious years of life left. It gets worse when one's life is cut shorter than expected.

This is a tough line to ride and everyone will at some point need to evaluate their own risk tolerance, willingness to work and need to work. I guess if I had nothing better to do than work, then I might as well work. But that isn't my life.

On the other hand some people love work so much and it adds to life's enjoyment. In that case, why ever retire?
Indeed, it is a very personal assessment based on myriad factors. I'm one of those who will retire the minute that I believe that I safely can.

When I use the time value of money formula to analyze possibilities in our own situation, the amount that we could theoretically withdraw in 12 years is not all very different if we were to live to 'only' 95 instead of 100. While SS benefits from age 70 onward should cover all of our essential spending needs, I still want us to have at least some cushion into my 90s, assuming that I make it that far. But that's just me. And the beauty of this approach is that I can adjust my expectations at any given point in time with ease (e.g. expected returns, desired bequest, remaining life expectancy).
The Sensible Steward
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EnjoyIt
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Re: Rich, Broke or Dead: Visualizing probabilities of outcomes in early retirement

Post by EnjoyIt »

willthrill81 wrote: Wed Jul 01, 2020 4:53 pm
EnjoyIt wrote: Wed Jul 01, 2020 4:47 pm
willthrill81 wrote: Wed Jul 01, 2020 12:27 pm
spreadsheetguy wrote: Wed Jul 01, 2020 12:20 pm
BigJohn wrote: Tue Jun 30, 2020 5:47 pm
I couldn’t agree more. There are more levers on money (side hustle, part time work, reduce spending, etc) than time. Time is an asset that is finite and unknowable. Decisions on how you use that time is orders of magnitude more important that the fine points of SWR, SooR risk. And yet.... most spend far less brian power worrying about how they spend their time than financial planning. Probably because doing the former requires an acknowledgment about the shape of that “grey wedge”.
I agree as well. Financial planning for analytical folks like a lot of us on bogleheads Is fun and interesting and it’s something you can tweak a lot if you like thinking about the problem. Life expectancy and mortality is, as you say, very uncertain and not easily solved in a spreadsheet or calculator and thus not analyzed or even thought about.
It's not 'easily solved' because we don't know how long we'll live. If we did, financial planning would be a lot easier. But we don't.

So it's generally recommended to overestimate how long we'll live for planning purposes and make contingency plans that apply if we live even longer than that.

"Do what you can, with what you have, where you are."
- Theodore Roosevelt
Ahhh, but if you overestimate too much, maybe you wasted too many precious years of life left. It gets worse when one's life is cut shorter than expected.

This is a tough line to ride and everyone will at some point need to evaluate their own risk tolerance, willingness to work and need to work. I guess if I had nothing better to do than work, then I might as well work. But that isn't my life.

On the other hand some people love work so much and it adds to life's enjoyment. In that case, why ever retire?
Indeed, it is a very personal assessment based on myriad factors. I'm one of those who will retire the minute that I believe that I safely can.

When I use the time value of money formula to analyze possibilities in our own situation, the amount that we could theoretically withdraw in 12 years is not all very different if we were to live to 'only' 95 instead of 100. While SS benefits from age 70 onward should cover all of our essential spending needs, I still want us to have at least some cushion into my 90s, assuming that I make it that far. But that's just me. And the beauty of this approach is that I can adjust my expectations at any given point in time with ease (e.g. expected returns, desired bequest, remaining life expectancy).
I think most retirees who aren't bogleheads who analyze the crap out of this stuff use a sort of gut feeling time value of money withdrawal strategy. When times are good they spend more and when times are bad they spend less. That's what retirees did before Bengen wrote his 4% paper and that is exactly what retirees will do in the future.

Doing the math helps us not leave money on the table (spend more in retirement) and helps us not waste time working for money we may not need. I have several future retirees who plan to only spend the dividends on their investments who just don't understand total return and other withdrawal strategies.

Doing the math may also help the less than frugal not spend everything too quickly. I prefer doing the math :)
A time to EVALUATE your jitters: | viewtopic.php?p=1139732#p1139732
Willmunny
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Re: Rich, Broke or Dead: Visualizing probabilities of outcomes in early retirement

Post by Willmunny »

I am enjoying this calculator and bumping the thread with a question. I want to make sure I understand a couple inputs.

1) I assume the first input field of "spending/yr" is spending before taxes and not spending net of tax. I based my assumption on the existence of the "Avg Tax Rate" input field

2) For the "Avg. Tax Rate" input field, I am having trouble as I expect a period of relatively low taxes earlier in retirement due to sales from taxable investments (portion return of principal and gain portion taxed as long term capital gains rates) supplemented with IRA withdrawals and/or Roth conversions. But when social security kicks in, I expect the average tax rate to rise. Then later when both social security and RMDs kick in, I expect a the average tax rate even further. So, just to use a hypothetical with round numbers, if I am planning for a 40 year retirement and view my average tax rate as low as 10% for the first 1/3 of retirement, maybe 20% for the next 1/3, and then 30% for the last 1/3, would I put 20% in that input field since it is the average expected rate over all 40 years? It seems like, if 20% is the average rate over all years of retirement, but the average rate is lower in the earlier years, putting 20% in could skew the numbers somewhat (perhaps towards a lower success probability - which I guess is better than skewing them in the other direction).

I thought I would check to see how others who use this calculator address this item.

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

Post by LilyFleur »

dknightd wrote: Thu Oct 04, 2018 10:14 pm
EnjoyIt wrote: Thu Oct 04, 2018 9:46 pm
CyclingDuo wrote: Thu Oct 04, 2018 5:46 pm
One certainly wants to find a balance of enjoying the one journey we get in life, while also saving for goals in retirement and or passing on to heirs.
I love what you wrote above regarding all the fun things you have done so far in your life. Thanks for sharing.

May I ask you, why do we want to pass on wealth to our heirs? Sure I get the idea of passing on some of our money to make their lives a little easier. But why pass on millions like I see so many on this forum looking to do? I personally think it is a mistake that statistically is more likely to harm the heirs as opposed to improving their lives.
Not who you were talking with, but I'll give my 2 cents. I don't want my kids to pay for my later years. Almost by definition that will mean there is something leftover when I die. I hope when my parents die, they will have a little leftover. For us it is not about leaving a legacy. It it more about not having to ask our kids to take care of us. Which means in the end, if we are lucky, there will be something left over.
I am planning on helping my children now when they need it, and not outliving my money as well, which of course means leaving them some sort of a legacy, by definition. I have significant amounts set aside for down payments for each of my two children and modest amounts for weddings, scheduled for two years from now. I manage my money carefully and live frugally in some areas so I can splurge in others. I go see my Schwab guy once a year for the complementary financial planning session which contains the plan for me not to run out of money, and to help my children with houses, and gives me a spend amount for each year (it's an after-tax spend amount). While I'm pretty good at strategizing, I don't have the wherewithal to analyze my financial plan with the same depth as the Schwab proprietary software. Schwab guy is planning for me to live to be 91. I'm thinking if I make it to 80 I'll be exceeding my own analysis (my parents died at 78 and 80 and did not have a chronic health condition that I have had for my entire adult life).
spreadsheetguy
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Re: Rich, Broke or Dead: Visualizing probabilities of outcomes in early retirement

Post by spreadsheetguy »

LilyFleur wrote: Sun Jun 13, 2021 9:03 pm
dknightd wrote: Thu Oct 04, 2018 10:14 pm
EnjoyIt wrote: Thu Oct 04, 2018 9:46 pm
CyclingDuo wrote: Thu Oct 04, 2018 5:46 pm
One certainly wants to find a balance of enjoying the one journey we get in life, while also saving for goals in retirement and or passing on to heirs.
I love what you wrote above regarding all the fun things you have done so far in your life. Thanks for sharing.

May I ask you, why do we want to pass on wealth to our heirs? Sure I get the idea of passing on some of our money to make their lives a little easier. But why pass on millions like I see so many on this forum looking to do? I personally think it is a mistake that statistically is more likely to harm the heirs as opposed to improving their lives.
Not who you were talking with, but I'll give my 2 cents. I don't want my kids to pay for my later years. Almost by definition that will mean there is something leftover when I die. I hope when my parents die, they will have a little leftover. For us it is not about leaving a legacy. It it more about not having to ask our kids to take care of us. Which means in the end, if we are lucky, there will be something left over.
I am planning on helping my children now when they need it, and not outliving my money as well, which of course means leaving them some sort of a legacy, by definition. I have significant amounts set aside for down payments for each of my two children and modest amounts for weddings, scheduled for two years from now. I manage my money carefully and live frugally in some areas so I can splurge in others. I go see my Schwab guy once a year for the complementary financial planning session which contains the plan for me not to run out of money, and to help my children with houses, and gives me a spend amount for each year (it's an after-tax spend amount). While I'm pretty good at strategizing, I don't have the wherewithal to analyze my financial plan with the same depth as the Schwab proprietary software. Schwab guy is planning for me to live to be 91. I'm thinking if I make it to 80 I'll be exceeding my own analysis (my parents died at 78 and 80 and did not have a chronic health condition that I have had for my entire adult life).

I'm in the process of developing some guidelines for a living trust in the event of our deaths. Unfortunately right now my kids are young so there's a lot to plan for, but I am thinking that we have to plan for the next 10-15 years while they get to adulthood and provide enough money for education/housing/clothing etc. and to make sure our guardians are not burdened financially by taking our kids. But after that, it's unclear to me that we'd want to leave all of our left-over money to them as hopefully they won't need it. We'll obviously leave them something, but I'm thinking of donating a good portion to charity. Perhaps the idea is to give each kid the equivalent of $500k to $1M (inflation adjusted). I.e. enough to make a significant impact in their lives (buy a house, start a business, etc), but not enough to do nothing with the rest of their lives. And then spread the remaining amount across a number of different charities.
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LilyFleur
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Re: Rich, Broke or Dead: Visualizing probabilities of outcomes in early retirement

Post by LilyFleur »

spreadsheetguy wrote: Wed Jan 19, 2022 11:09 am
LilyFleur wrote: Sun Jun 13, 2021 9:03 pm
dknightd wrote: Thu Oct 04, 2018 10:14 pm
EnjoyIt wrote: Thu Oct 04, 2018 9:46 pm
CyclingDuo wrote: Thu Oct 04, 2018 5:46 pm
One certainly wants to find a balance of enjoying the one journey we get in life, while also saving for goals in retirement and or passing on to heirs.
I love what you wrote above regarding all the fun things you have done so far in your life. Thanks for sharing.

May I ask you, why do we want to pass on wealth to our heirs? Sure I get the idea of passing on some of our money to make their lives a little easier. But why pass on millions like I see so many on this forum looking to do? I personally think it is a mistake that statistically is more likely to harm the heirs as opposed to improving their lives.
Not who you were talking with, but I'll give my 2 cents. I don't want my kids to pay for my later years. Almost by definition that will mean there is something leftover when I die. I hope when my parents die, they will have a little leftover. For us it is not about leaving a legacy. It it more about not having to ask our kids to take care of us. Which means in the end, if we are lucky, there will be something left over.
I am planning on helping my children now when they need it, and not outliving my money as well, which of course means leaving them some sort of a legacy, by definition. I have significant amounts set aside for down payments for each of my two children and modest amounts for weddings, scheduled for two years from now. I manage my money carefully and live frugally in some areas so I can splurge in others. I go see my Schwab guy once a year for the complementary financial planning session which contains the plan for me not to run out of money, and to help my children with houses, and gives me a spend amount for each year (it's an after-tax spend amount). While I'm pretty good at strategizing, I don't have the wherewithal to analyze my financial plan with the same depth as the Schwab proprietary software. Schwab guy is planning for me to live to be 91. I'm thinking if I make it to 80 I'll be exceeding my own analysis (my parents died at 78 and 80 and did not have a chronic health condition that I have had for my entire adult life).

I'm in the process of developing some guidelines for a living trust in the event of our deaths. Unfortunately right now my kids are young so there's a lot to plan for, but I am thinking that we have to plan for the next 10-15 years while they get to adulthood and provide enough money for education/housing/clothing etc. and to make sure our guardians are not burdened financially by taking our kids. But after that, it's unclear to me that we'd want to leave all of our left-over money to them as hopefully they won't need it. We'll obviously leave them something, but I'm thinking of donating a good portion to charity. Perhaps the idea is to give each kid the equivalent of $500k to $1M (inflation adjusted). I.e. enough to make a significant impact in their lives (buy a house, start a business, etc), but not enough to do nothing with the rest of their lives. And then spread the remaining amount across a number of different charities.
That sounds like a good plan. More will be revealed as your children get older.
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EnjoyIt
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Re: Rich, Broke or Dead: Visualizing probabilities of outcomes in early retirement

Post by EnjoyIt »

spreadsheetguy wrote: Wed Jan 19, 2022 11:09 am
LilyFleur wrote: Sun Jun 13, 2021 9:03 pm
dknightd wrote: Thu Oct 04, 2018 10:14 pm
EnjoyIt wrote: Thu Oct 04, 2018 9:46 pm
CyclingDuo wrote: Thu Oct 04, 2018 5:46 pm
One certainly wants to find a balance of enjoying the one journey we get in life, while also saving for goals in retirement and or passing on to heirs.
I love what you wrote above regarding all the fun things you have done so far in your life. Thanks for sharing.

May I ask you, why do we want to pass on wealth to our heirs? Sure I get the idea of passing on some of our money to make their lives a little easier. But why pass on millions like I see so many on this forum looking to do? I personally think it is a mistake that statistically is more likely to harm the heirs as opposed to improving their lives.
Not who you were talking with, but I'll give my 2 cents. I don't want my kids to pay for my later years. Almost by definition that will mean there is something leftover when I die. I hope when my parents die, they will have a little leftover. For us it is not about leaving a legacy. It it more about not having to ask our kids to take care of us. Which means in the end, if we are lucky, there will be something left over.
I am planning on helping my children now when they need it, and not outliving my money as well, which of course means leaving them some sort of a legacy, by definition. I have significant amounts set aside for down payments for each of my two children and modest amounts for weddings, scheduled for two years from now. I manage my money carefully and live frugally in some areas so I can splurge in others. I go see my Schwab guy once a year for the complementary financial planning session which contains the plan for me not to run out of money, and to help my children with houses, and gives me a spend amount for each year (it's an after-tax spend amount). While I'm pretty good at strategizing, I don't have the wherewithal to analyze my financial plan with the same depth as the Schwab proprietary software. Schwab guy is planning for me to live to be 91. I'm thinking if I make it to 80 I'll be exceeding my own analysis (my parents died at 78 and 80 and did not have a chronic health condition that I have had for my entire adult life).

I'm in the process of developing some guidelines for a living trust in the event of our deaths. Unfortunately right now my kids are young so there's a lot to plan for, but I am thinking that we have to plan for the next 10-15 years while they get to adulthood and provide enough money for education/housing/clothing etc. and to make sure our guardians are not burdened financially by taking our kids. But after that, it's unclear to me that we'd want to leave all of our left-over money to them as hopefully they won't need it. We'll obviously leave them something, but I'm thinking of donating a good portion to charity. Perhaps the idea is to give each kid the equivalent of $500k to $1M (inflation adjusted). I.e. enough to make a significant impact in their lives (buy a house, start a business, etc), but not enough to do nothing with the rest of their lives. And then spread the remaining amount across a number of different charities.
I am conflicted with helping my kids financially. It is not if, because we will definitely help, but how far do we go? I know we will pay for any college expenses and very likely grad school expenses if that occurs. There is paragraph in Thomas J. Stanley's and William D. Danko's book Millionaire Next Door which discusses such help. One example sticks with me is helping the kids buy their first house. Because of parent's help a child buys a house that otherwise they could not afford on their own income. Once living there, they don't realize the cost of upkeep as well as the cost of simply living in that neighborhood is outside their income range which puts the child in a financial disadvantage for years to come. There are other examples in the book all of which make me think...how much is too much and will I harm my kids with money?

I think it all starts with the right upbringing and a healthy relationship/understanding of money, work, and value. I think that needs to be the start of any financial outpatient care (as coined by Stanley/Danko.) Our kids are still too young for that, but as soon as they can understand more, training will begin so that any money they receive in the future is well utilized. In my life I have seen plenty of kids who grew up in money who are now struggling even if they make a healthy income. I have met several trust fund kids who coast though life doing drugs and drinking. [Reference to political person removed by Moderator Misenplace.]

Back to topic. I guess as my kids get older, I will do my best to educate them and then asses what may help and what may harm them. I hope I have some accuracy with my assessment. I wish you and me luck.
A time to EVALUATE your jitters: | viewtopic.php?p=1139732#p1139732
delamer
Posts: 17453
Joined: Tue Feb 08, 2011 5:13 pm

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

Post by delamer »

EnjoyIt wrote: Thu Jan 20, 2022 12:02 pm
spreadsheetguy wrote: Wed Jan 19, 2022 11:09 am
LilyFleur wrote: Sun Jun 13, 2021 9:03 pm
dknightd wrote: Thu Oct 04, 2018 10:14 pm
EnjoyIt wrote: Thu Oct 04, 2018 9:46 pm
I love what you wrote above regarding all the fun things you have done so far in your life. Thanks for sharing.

May I ask you, why do we want to pass on wealth to our heirs? Sure I get the idea of passing on some of our money to make their lives a little easier. But why pass on millions like I see so many on this forum looking to do? I personally think it is a mistake that statistically is more likely to harm the heirs as opposed to improving their lives.
Not who you were talking with, but I'll give my 2 cents. I don't want my kids to pay for my later years. Almost by definition that will mean there is something leftover when I die. I hope when my parents die, they will have a little leftover. For us it is not about leaving a legacy. It it more about not having to ask our kids to take care of us. Which means in the end, if we are lucky, there will be something left over.
I am planning on helping my children now when they need it, and not outliving my money as well, which of course means leaving them some sort of a legacy, by definition. I have significant amounts set aside for down payments for each of my two children and modest amounts for weddings, scheduled for two years from now. I manage my money carefully and live frugally in some areas so I can splurge in others. I go see my Schwab guy once a year for the complementary financial planning session which contains the plan for me not to run out of money, and to help my children with houses, and gives me a spend amount for each year (it's an after-tax spend amount). While I'm pretty good at strategizing, I don't have the wherewithal to analyze my financial plan with the same depth as the Schwab proprietary software. Schwab guy is planning for me to live to be 91. I'm thinking if I make it to 80 I'll be exceeding my own analysis (my parents died at 78 and 80 and did not have a chronic health condition that I have had for my entire adult life).

I'm in the process of developing some guidelines for a living trust in the event of our deaths. Unfortunately right now my kids are young so there's a lot to plan for, but I am thinking that we have to plan for the next 10-15 years while they get to adulthood and provide enough money for education/housing/clothing etc. and to make sure our guardians are not burdened financially by taking our kids. But after that, it's unclear to me that we'd want to leave all of our left-over money to them as hopefully they won't need it. We'll obviously leave them something, but I'm thinking of donating a good portion to charity. Perhaps the idea is to give each kid the equivalent of $500k to $1M (inflation adjusted). I.e. enough to make a significant impact in their lives (buy a house, start a business, etc), but not enough to do nothing with the rest of their lives. And then spread the remaining amount across a number of different charities.
I am conflicted with helping my kids financially. It is not if, because we will definitely help, but how far do we go? I know we will pay for any college expenses and very likely grad school expenses if that occurs. There is paragraph in Thomas J. Stanley's and William D. Danko's book Millionaire Next Door which discusses such help. One example sticks with me is helping the kids buy their first house. Because of parent's help a child buys a house that otherwise they could not afford on their own income. Once living there, they don't realize the cost of upkeep as well as the cost of simply living in that neighborhood is outside their income range which puts the child in a financial disadvantage for years to come. There are other examples in the book all of which make me think...how much is too much and will I harm my kids with money?

I think it all starts with the right upbringing and a healthy relationship/understanding of money, work, and value. I think that needs to be the start of any financial outpatient care (as coined by Stanley/Danko.) Our kids are still too young for that, but as soon as they can understand more, training will begin so that any money they receive in the future is well utilized. In my life I have seen plenty of kids who grew up in money who are now struggling even if they make a healthy income. I have met several trust fund kids who coast though life doing drugs and drinking. It is far rarer to see someone like Trump who received money and grew it to supposed billionaire status. I wonder how he educated his older kids because they too appear very hard working and successful as well. But I digress on a very controversial person.

Back to topic. I guess as my kids get older, I will do my best to educate them and then asses what may help and what may harm them. I hope I have some accuracy with my assessment. I wish you and me luck.
That downpayment on a first house is an obstacle to ownership for a lot of young people.

Even with an income that will comfortably support the PITI and other expenses associated with home ownership, saving for even a 10% downpayment plus closing costs can be difficult.

While parental help can certainly put an adult child in a too-expensive neighborhood, my guess is that more often it’s just the boost needed to buy an appropriate property.

Of course, my personal experience and those of friends/family color my perspective.
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
Topic Author
EnjoyIt
Posts: 8272
Joined: Sun Dec 29, 2013 7:06 pm

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

Post by EnjoyIt »

delamer wrote: Thu Jan 20, 2022 1:30 pm
EnjoyIt wrote: Thu Jan 20, 2022 12:02 pm
spreadsheetguy wrote: Wed Jan 19, 2022 11:09 am
LilyFleur wrote: Sun Jun 13, 2021 9:03 pm
dknightd wrote: Thu Oct 04, 2018 10:14 pm
Not who you were talking with, but I'll give my 2 cents. I don't want my kids to pay for my later years. Almost by definition that will mean there is something leftover when I die. I hope when my parents die, they will have a little leftover. For us it is not about leaving a legacy. It it more about not having to ask our kids to take care of us. Which means in the end, if we are lucky, there will be something left over.
I am planning on helping my children now when they need it, and not outliving my money as well, which of course means leaving them some sort of a legacy, by definition. I have significant amounts set aside for down payments for each of my two children and modest amounts for weddings, scheduled for two years from now. I manage my money carefully and live frugally in some areas so I can splurge in others. I go see my Schwab guy once a year for the complementary financial planning session which contains the plan for me not to run out of money, and to help my children with houses, and gives me a spend amount for each year (it's an after-tax spend amount). While I'm pretty good at strategizing, I don't have the wherewithal to analyze my financial plan with the same depth as the Schwab proprietary software. Schwab guy is planning for me to live to be 91. I'm thinking if I make it to 80 I'll be exceeding my own analysis (my parents died at 78 and 80 and did not have a chronic health condition that I have had for my entire adult life).

I'm in the process of developing some guidelines for a living trust in the event of our deaths. Unfortunately right now my kids are young so there's a lot to plan for, but I am thinking that we have to plan for the next 10-15 years while they get to adulthood and provide enough money for education/housing/clothing etc. and to make sure our guardians are not burdened financially by taking our kids. But after that, it's unclear to me that we'd want to leave all of our left-over money to them as hopefully they won't need it. We'll obviously leave them something, but I'm thinking of donating a good portion to charity. Perhaps the idea is to give each kid the equivalent of $500k to $1M (inflation adjusted). I.e. enough to make a significant impact in their lives (buy a house, start a business, etc), but not enough to do nothing with the rest of their lives. And then spread the remaining amount across a number of different charities.
I am conflicted with helping my kids financially. It is not if, because we will definitely help, but how far do we go? I know we will pay for any college expenses and very likely grad school expenses if that occurs. There is paragraph in Thomas J. Stanley's and William D. Danko's book Millionaire Next Door which discusses such help. One example sticks with me is helping the kids buy their first house. Because of parent's help a child buys a house that otherwise they could not afford on their own income. Once living there, they don't realize the cost of upkeep as well as the cost of simply living in that neighborhood is outside their income range which puts the child in a financial disadvantage for years to come. There are other examples in the book all of which make me think...how much is too much and will I harm my kids with money?

I think it all starts with the right upbringing and a healthy relationship/understanding of money, work, and value. I think that needs to be the start of any financial outpatient care (as coined by Stanley/Danko.) Our kids are still too young for that, but as soon as they can understand more, training will begin so that any money they receive in the future is well utilized. In my life I have seen plenty of kids who grew up in money who are now struggling even if they make a healthy income. I have met several trust fund kids who coast though life doing drugs and drinking. It is far rarer to see someone like Trump who received money and grew it to supposed billionaire status. I wonder how he educated his older kids because they too appear very hard working and successful as well. But I digress on a very controversial person.

Back to topic. I guess as my kids get older, I will do my best to educate them and then asses what may help and what may harm them. I hope I have some accuracy with my assessment. I wish you and me luck.
That downpayment on a first house is an obstacle to ownership for a lot of young people.

Even with an income that will comfortably support the PITI and other expenses associated with home ownership, saving for even a 10% downpayment plus closing costs can be difficult.

While parental help can certainly put an adult child in a too-expensive neighborhood, my guess is that more often it’s just the boost needed to buy an appropriate property.

Of course, my personal experience and those of friends/family color my perspective.
Now hold on a second. Are you saying that someone who can't afford to save 20% for a down payment on a house can afford their life in the house? That makes no sense. Maybe they are doing a good job saving, and current trajectory they would need another year or two to have enough and bank of mom and dad help out, ok sure, I can understand that.

But you said "downpayment on a first house is an obstacle to ownership for a lot of young people." Which means that those young people are spending outside their means or are looking to buy too much house. We see that all the time with posts of advice right here on this forum.
A time to EVALUATE your jitters: | viewtopic.php?p=1139732#p1139732
delamer
Posts: 17453
Joined: Tue Feb 08, 2011 5:13 pm

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

Post by delamer »

EnjoyIt wrote: Thu Jan 20, 2022 6:28 pm
delamer wrote: Thu Jan 20, 2022 1:30 pm
EnjoyIt wrote: Thu Jan 20, 2022 12:02 pm
spreadsheetguy wrote: Wed Jan 19, 2022 11:09 am
LilyFleur wrote: Sun Jun 13, 2021 9:03 pm
I am planning on helping my children now when they need it, and not outliving my money as well, which of course means leaving them some sort of a legacy, by definition. I have significant amounts set aside for down payments for each of my two children and modest amounts for weddings, scheduled for two years from now. I manage my money carefully and live frugally in some areas so I can splurge in others. I go see my Schwab guy once a year for the complementary financial planning session which contains the plan for me not to run out of money, and to help my children with houses, and gives me a spend amount for each year (it's an after-tax spend amount). While I'm pretty good at strategizing, I don't have the wherewithal to analyze my financial plan with the same depth as the Schwab proprietary software. Schwab guy is planning for me to live to be 91. I'm thinking if I make it to 80 I'll be exceeding my own analysis (my parents died at 78 and 80 and did not have a chronic health condition that I have had for my entire adult life).

I'm in the process of developing some guidelines for a living trust in the event of our deaths. Unfortunately right now my kids are young so there's a lot to plan for, but I am thinking that we have to plan for the next 10-15 years while they get to adulthood and provide enough money for education/housing/clothing etc. and to make sure our guardians are not burdened financially by taking our kids. But after that, it's unclear to me that we'd want to leave all of our left-over money to them as hopefully they won't need it. We'll obviously leave them something, but I'm thinking of donating a good portion to charity. Perhaps the idea is to give each kid the equivalent of $500k to $1M (inflation adjusted). I.e. enough to make a significant impact in their lives (buy a house, start a business, etc), but not enough to do nothing with the rest of their lives. And then spread the remaining amount across a number of different charities.
I am conflicted with helping my kids financially. It is not if, because we will definitely help, but how far do we go? I know we will pay for any college expenses and very likely grad school expenses if that occurs. There is paragraph in Thomas J. Stanley's and William D. Danko's book Millionaire Next Door which discusses such help. One example sticks with me is helping the kids buy their first house. Because of parent's help a child buys a house that otherwise they could not afford on their own income. Once living there, they don't realize the cost of upkeep as well as the cost of simply living in that neighborhood is outside their income range which puts the child in a financial disadvantage for years to come. There are other examples in the book all of which make me think...how much is too much and will I harm my kids with money?

I think it all starts with the right upbringing and a healthy relationship/understanding of money, work, and value. I think that needs to be the start of any financial outpatient care (as coined by Stanley/Danko.) Our kids are still too young for that, but as soon as they can understand more, training will begin so that any money they receive in the future is well utilized. In my life I have seen plenty of kids who grew up in money who are now struggling even if they make a healthy income. I have met several trust fund kids who coast though life doing drugs and drinking. It is far rarer to see someone like Trump who received money and grew it to supposed billionaire status. I wonder how he educated his older kids because they too appear very hard working and successful as well. But I digress on a very controversial person.

Back to topic. I guess as my kids get older, I will do my best to educate them and then asses what may help and what may harm them. I hope I have some accuracy with my assessment. I wish you and me luck.
That downpayment on a first house is an obstacle to ownership for a lot of young people.

Even with an income that will comfortably support the PITI and other expenses associated with home ownership, saving for even a 10% downpayment plus closing costs can be difficult.

While parental help can certainly put an adult child in a too-expensive neighborhood, my guess is that more often it’s just the boost needed to buy an appropriate property.

Of course, my personal experience and those of friends/family color my perspective.
Now hold on a second. Are you saying that someone who can't afford to save 20% for a down payment on a house can afford their life in the house? That makes no sense. Maybe they are doing a good job saving, and current trajectory they would need another year or two to have enough and bank of mom and dad help out, ok sure, I can understand that.

But you said "downpayment on a first house is an obstacle to ownership for a lot of young people." Which means that those young people are spending outside their means or are looking to buy too much house. We see that all the time with posts of advice right here on this forum.
Yes, I’m saying exactly that for many people, myself and several friends included.

And yes, the scenario you are talking about is common — just speeding up homeownership by a couple years. (And no subsidies from the parents post-purchase.)

Plus I’m talking about first homes, which are frequently condos or townhouses. Not $1.25 million mini-mansions.

And, also, in my case, I was single so didn’t have the advantage of two incomes making it easier to save.

Since you are generalizing about young people overbuying “all the time” on the forum, I’ll also generalize that many people on here think anything more than $25 gift on an adult child’s birthday is going to leave to the child’s financial/moral ruination.
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
Topic Author
EnjoyIt
Posts: 8272
Joined: Sun Dec 29, 2013 7:06 pm

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

Post by EnjoyIt »

delamer wrote: Thu Jan 20, 2022 9:29 pm
EnjoyIt wrote: Thu Jan 20, 2022 6:28 pm
delamer wrote: Thu Jan 20, 2022 1:30 pm
EnjoyIt wrote: Thu Jan 20, 2022 12:02 pm
spreadsheetguy wrote: Wed Jan 19, 2022 11:09 am


I'm in the process of developing some guidelines for a living trust in the event of our deaths. Unfortunately right now my kids are young so there's a lot to plan for, but I am thinking that we have to plan for the next 10-15 years while they get to adulthood and provide enough money for education/housing/clothing etc. and to make sure our guardians are not burdened financially by taking our kids. But after that, it's unclear to me that we'd want to leave all of our left-over money to them as hopefully they won't need it. We'll obviously leave them something, but I'm thinking of donating a good portion to charity. Perhaps the idea is to give each kid the equivalent of $500k to $1M (inflation adjusted). I.e. enough to make a significant impact in their lives (buy a house, start a business, etc), but not enough to do nothing with the rest of their lives. And then spread the remaining amount across a number of different charities.
I am conflicted with helping my kids financially. It is not if, because we will definitely help, but how far do we go? I know we will pay for any college expenses and very likely grad school expenses if that occurs. There is paragraph in Thomas J. Stanley's and William D. Danko's book Millionaire Next Door which discusses such help. One example sticks with me is helping the kids buy their first house. Because of parent's help a child buys a house that otherwise they could not afford on their own income. Once living there, they don't realize the cost of upkeep as well as the cost of simply living in that neighborhood is outside their income range which puts the child in a financial disadvantage for years to come. There are other examples in the book all of which make me think...how much is too much and will I harm my kids with money?

I think it all starts with the right upbringing and a healthy relationship/understanding of money, work, and value. I think that needs to be the start of any financial outpatient care (as coined by Stanley/Danko.) Our kids are still too young for that, but as soon as they can understand more, training will begin so that any money they receive in the future is well utilized. In my life I have seen plenty of kids who grew up in money who are now struggling even if they make a healthy income. I have met several trust fund kids who coast though life doing drugs and drinking. It is far rarer to see someone like Trump who received money and grew it to supposed billionaire status. I wonder how he educated his older kids because they too appear very hard working and successful as well. But I digress on a very controversial person.

Back to topic. I guess as my kids get older, I will do my best to educate them and then asses what may help and what may harm them. I hope I have some accuracy with my assessment. I wish you and me luck.
That downpayment on a first house is an obstacle to ownership for a lot of young people.

Even with an income that will comfortably support the PITI and other expenses associated with home ownership, saving for even a 10% downpayment plus closing costs can be difficult.

While parental help can certainly put an adult child in a too-expensive neighborhood, my guess is that more often it’s just the boost needed to buy an appropriate property.

Of course, my personal experience and those of friends/family color my perspective.
Now hold on a second. Are you saying that someone who can't afford to save 20% for a down payment on a house can afford their life in the house? That makes no sense. Maybe they are doing a good job saving, and current trajectory they would need another year or two to have enough and bank of mom and dad help out, ok sure, I can understand that.

But you said "downpayment on a first house is an obstacle to ownership for a lot of young people." Which means that those young people are spending outside their means or are looking to buy too much house. We see that all the time with posts of advice right here on this forum.
Yes, I’m saying exactly that for many people, myself and several friends included.

And yes, the scenario you are talking about is common — just speeding up homeownership by a couple years. (And no subsidies from the parents post-purchase.)

Plus I’m talking about first homes, which are frequently condos or townhouses. Not $1.25 million mini-mansions.

And, also, in my case, I was single so didn’t have the advantage of two incomes making it easier to save.

Since you are generalizing about young people overbuying “all the time” on the forum, I’ll also generalize that many people on here think anything more than $25 gift on an adult child’s birthday is going to leave to the child’s financial/moral ruination.
I would never recommend a single person who one day wants to have a family to buy a house.
To tether oneself to one location can stifle career growth and then when they do get married and have kids, they will want to upgrade anyways.
Sounds like it worked out for you, but again, I have seen it harm far more people than it helped.

That is a whole other discussion.

I think your example of $25 is extreme and not once have I seen that. but look for all these "can I afford this house" threads on this forum. Many of them are people buying too much house. Don't make me ask Klangfool to contribute his view on the subject :D
A time to EVALUATE your jitters: | viewtopic.php?p=1139732#p1139732
User avatar
corn18
Posts: 2867
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Re: Rich, Broke or Dead: Visualizing probabilities of outcomes in early retirement

Post by corn18 »

Cool thread. I decided to implement Rich, Broke or Dead into my model. Then I deleted it. Too depressing. I am a rainbows and unicorns kindof guy. Although I did leave a shaded area in my main output just to remind me to get off my butt and do something today.

Image
Consistently sets low goals and fails to achieve them.
delamer
Posts: 17453
Joined: Tue Feb 08, 2011 5:13 pm

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

Post by delamer »

EnjoyIt wrote: Fri Jan 21, 2022 9:53 am
delamer wrote: Thu Jan 20, 2022 9:29 pm
EnjoyIt wrote: Thu Jan 20, 2022 6:28 pm
delamer wrote: Thu Jan 20, 2022 1:30 pm
EnjoyIt wrote: Thu Jan 20, 2022 12:02 pm

I am conflicted with helping my kids financially. It is not if, because we will definitely help, but how far do we go? I know we will pay for any college expenses and very likely grad school expenses if that occurs. There is paragraph in Thomas J. Stanley's and William D. Danko's book Millionaire Next Door which discusses such help. One example sticks with me is helping the kids buy their first house. Because of parent's help a child buys a house that otherwise they could not afford on their own income. Once living there, they don't realize the cost of upkeep as well as the cost of simply living in that neighborhood is outside their income range which puts the child in a financial disadvantage for years to come. There are other examples in the book all of which make me think...how much is too much and will I harm my kids with money?

I think it all starts with the right upbringing and a healthy relationship/understanding of money, work, and value. I think that needs to be the start of any financial outpatient care (as coined by Stanley/Danko.) Our kids are still too young for that, but as soon as they can understand more, training will begin so that any money they receive in the future is well utilized. In my life I have seen plenty of kids who grew up in money who are now struggling even if they make a healthy income. I have met several trust fund kids who coast though life doing drugs and drinking. It is far rarer to see someone like Trump who received money and grew it to supposed billionaire status. I wonder how he educated his older kids because they too appear very hard working and successful as well. But I digress on a very controversial person.

Back to topic. I guess as my kids get older, I will do my best to educate them and then asses what may help and what may harm them. I hope I have some accuracy with my assessment. I wish you and me luck.
That downpayment on a first house is an obstacle to ownership for a lot of young people.

Even with an income that will comfortably support the PITI and other expenses associated with home ownership, saving for even a 10% downpayment plus closing costs can be difficult.

While parental help can certainly put an adult child in a too-expensive neighborhood, my guess is that more often it’s just the boost needed to buy an appropriate property.

Of course, my personal experience and those of friends/family color my perspective.
Now hold on a second. Are you saying that someone who can't afford to save 20% for a down payment on a house can afford their life in the house? That makes no sense. Maybe they are doing a good job saving, and current trajectory they would need another year or two to have enough and bank of mom and dad help out, ok sure, I can understand that.

But you said "downpayment on a first house is an obstacle to ownership for a lot of young people." Which means that those young people are spending outside their means or are looking to buy too much house. We see that all the time with posts of advice right here on this forum.
Yes, I’m saying exactly that for many people, myself and several friends included.

And yes, the scenario you are talking about is common — just speeding up homeownership by a couple years. (And no subsidies from the parents post-purchase.)

Plus I’m talking about first homes, which are frequently condos or townhouses. Not $1.25 million mini-mansions.

And, also, in my case, I was single so didn’t have the advantage of two incomes making it easier to save.

Since you are generalizing about young people overbuying “all the time” on the forum, I’ll also generalize that many people on here think anything more than $25 gift on an adult child’s birthday is going to leave to the child’s financial/moral ruination.
I would never recommend a single person who one day wants to have a family to buy a house.
To tether oneself to one location can stifle career growth and then when they do get married and have kids, they will want to upgrade anyways.
Sounds like it worked out for you, but again, I have seen it harm far more people than it helped.

That is a whole other discussion.

I think your example of $25 is extreme and not once have I seen that. but look for all these "can I afford this house" threads on this forum. Many of them are people buying too much house. Don't make me ask Klangfool to contribute his view on the subject :D
Lots of people spend too much for their house, no argument there.

But your position - as I understand it — was that, as a whole, people who get financial help for a downpayment (from their families) end up buying houses that are too expensive for their incomes.

That’s a different issue and in my experience is far from universally true. Getting financial help doesn’t need to translate into poor financial decisions.

Speaking as someone who bought a condo and didn’t get married until 8 years later, I find the argument that I should have put off homeownership until I found a spouse just silly.

Should someone with a job and family in Boston not buy a house because they might get a better job some day in Atlanta? Life is uncertain.
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
Topic Author
EnjoyIt
Posts: 8272
Joined: Sun Dec 29, 2013 7:06 pm

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

Post by EnjoyIt »

delamer wrote: Fri Jan 21, 2022 10:08 am
EnjoyIt wrote: Fri Jan 21, 2022 9:53 am
delamer wrote: Thu Jan 20, 2022 9:29 pm
EnjoyIt wrote: Thu Jan 20, 2022 6:28 pm
delamer wrote: Thu Jan 20, 2022 1:30 pm

That downpayment on a first house is an obstacle to ownership for a lot of young people.

Even with an income that will comfortably support the PITI and other expenses associated with home ownership, saving for even a 10% downpayment plus closing costs can be difficult.

While parental help can certainly put an adult child in a too-expensive neighborhood, my guess is that more often it’s just the boost needed to buy an appropriate property.

Of course, my personal experience and those of friends/family color my perspective.
Now hold on a second. Are you saying that someone who can't afford to save 20% for a down payment on a house can afford their life in the house? That makes no sense. Maybe they are doing a good job saving, and current trajectory they would need another year or two to have enough and bank of mom and dad help out, ok sure, I can understand that.

But you said "downpayment on a first house is an obstacle to ownership for a lot of young people." Which means that those young people are spending outside their means or are looking to buy too much house. We see that all the time with posts of advice right here on this forum.
Yes, I’m saying exactly that for many people, myself and several friends included.

And yes, the scenario you are talking about is common — just speeding up homeownership by a couple years. (And no subsidies from the parents post-purchase.)

Plus I’m talking about first homes, which are frequently condos or townhouses. Not $1.25 million mini-mansions.

And, also, in my case, I was single so didn’t have the advantage of two incomes making it easier to save.

Since you are generalizing about young people overbuying “all the time” on the forum, I’ll also generalize that many people on here think anything more than $25 gift on an adult child’s birthday is going to leave to the child’s financial/moral ruination.
I would never recommend a single person who one day wants to have a family to buy a house.
To tether oneself to one location can stifle career growth and then when they do get married and have kids, they will want to upgrade anyways.
Sounds like it worked out for you, but again, I have seen it harm far more people than it helped.

That is a whole other discussion.

I think your example of $25 is extreme and not once have I seen that. but look for all these "can I afford this house" threads on this forum. Many of them are people buying too much house. Don't make me ask Klangfool to contribute his view on the subject :D
Lots of people spend too much for their house, no argument there.

But your position - as I understand it — was that, as a whole, people who get financial help for a downpayment (from their families) end up buying houses that are too expensive for their incomes.

That’s a different issue and in my experience is far from universally true.

Speaking as someone who bought a condo and didn’t get married until 8 years later, I find the argument that I should have put off homeownership until I found a spouse just silly.

Should someone with a job and family in Boston not buy a house because they might get a better job some day in Atlanta? Life is uncertain.
Two topics:
1) Yes, people buy too much house. If parents help them buy too much house, they are harming their kid's financial future. On the other hand, parents helping to speed up the purchase of a house they could normally afford then why not give them a hand if you can afford it.

2) Buying a house early in one's career although sounds like it works for you, but the reality is that it is a poor decision for the following reasons
a) You need to hold it for at least 5-7 years to make it worth it.
b) One's career can get stifled by being fixed to a location, or worse, a change in employment can lead to longer commute time.
c) When one owns, one has more home ownership responsibility which takes up valuable time.
d) When married the spouse will want something new and an upgrade is in the future forcing you to pay transaction costs.
e) Unless one gets lucky buying in an area that appreciates significantly, That cash is better served in the market as opposed to being tied down in a home you live in.

That decision process becomes skewed when parents get involved and offer the downpayment. Sure if mom and dad want to give you 20% for free, then hell yeah, take the free money and buy. That is a no brainer. But if that doesn't exist the choice is a poor one.
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User avatar
ResearchMed
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Re: Rich, Broke or Dead: Visualizing probabilities of outcomes in early retirement

Post by ResearchMed »

EnjoyIt wrote: Fri Jan 21, 2022 10:22 am Two topics:
1) Yes, people buy too much house. If parents help them buy too much house, they are harming their kid's financial future. On the other hand, parents helping to speed up the purchase of a house they could normally afford then why not give them a hand if you can afford it.

2) Buying a house early in one's career although sounds like it works for you, but the reality is that it is a poor decision for the following reasons
a) You need to hold it for at least 5-7 years to make it worth it.
b) One's career can get stifled by being fixed to a location, or worse, a change in employment can lead to longer commute time.
c) When one owns, one has more home ownership responsibility which takes up valuable time.
d) When married the spouse will want something new and an upgrade is in the future forcing you to pay transaction costs.
e) Unless one gets lucky buying in an area that appreciates significantly, That cash is better served in the market as opposed to being tied down in a home you live in.

That decision process becomes skewed when parents get involved and offer the downpayment. Sure if mom and dad want to give you 20% for free, then hell yeah, take the free money and buy. That is a no brainer. But if that doesn't exist the choice is a poor one.
Much of your argument above has nothing to do with whether a buyer gets help with a down payment.
Whether a house should be purchased at that particular time, in that particular location, is a separate issue.

Just because a parent (or other person) helps with a down payment, that does not at all mean that the buyer will have trouble keeping the house, etc. Why are you assuming that the buyer is therefore buying a house that they can't afford? There are places where renting can cost the same - or more - than buying something similar, once the down payment is dealt with.

One should find a house/condo that the buyer CAN afford to cover aside from down payment. One should also find a house/condo that the buyer CAN afford to cover after paying the down payment.

Sure, if someone is going to buy a home they can't afford, it really doesn't matter where the down payment comes from... they are very likely going to be in trouble.

There are certainly cases where if someone could get that down payment, the carrying costs are quite manageable. This could also be the situation for some who is not young and isn't likely to job hop in the near future. Some of your arguments, such as those about marriage or career trajectories, just don't relate to "help with a down payment from parents" at all.

RM
This signature is a placebo. You are in the control group.
Topic Author
EnjoyIt
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Re: Rich, Broke or Dead: Visualizing probabilities of outcomes in early retirement

Post by EnjoyIt »

ResearchMed wrote: Fri Jan 21, 2022 10:39 am
EnjoyIt wrote: Fri Jan 21, 2022 10:22 am Two topics:
1) Yes, people buy too much house. If parents help them buy too much house, they are harming their kid's financial future. On the other hand, parents helping to speed up the purchase of a house they could normally afford then why not give them a hand if you can afford it.

2) Buying a house early in one's career although sounds like it works for you, but the reality is that it is a poor decision for the following reasons
a) You need to hold it for at least 5-7 years to make it worth it.
b) One's career can get stifled by being fixed to a location, or worse, a change in employment can lead to longer commute time.
c) When one owns, one has more home ownership responsibility which takes up valuable time.
d) When married the spouse will want something new and an upgrade is in the future forcing you to pay transaction costs.
e) Unless one gets lucky buying in an area that appreciates significantly, That cash is better served in the market as opposed to being tied down in a home you live in.

That decision process becomes skewed when parents get involved and offer the downpayment. Sure if mom and dad want to give you 20% for free, then hell yeah, take the free money and buy. That is a no brainer. But if that doesn't exist the choice is a poor one.
Much of your argument above has nothing to do with whether a buyer gets help with a down payment.
Whether a house should be purchased at that particular time, in that particular location, is a separate issue.

Just because a parent (or other person) helps with a down payment, that does not at all mean that the buyer will have trouble keeping the house, etc. Why are you assuming that the buyer is therefore buying a house that they can't afford? There are places where renting can cost the same - or more - than buying something similar, once the down payment is dealt with.

One should find a house/condo that the buyer CAN afford to cover aside from down payment. One should also find a house/condo that the buyer CAN afford to cover after paying the down payment.

Sure, if someone is going to buy a home they can't afford, it really doesn't matter where the down payment comes from... they are very likely going to be in trouble.

There are certainly cases where if someone could get that down payment, the carrying costs are quite manageable. This could also be the situation for some who is not young and isn't likely to job hop in the near future. Some of your arguments, such as those about marriage or career trajectories, just don't relate to "help with a down payment from parents" at all.

RM
I think you bypassed some of the other comments before posting. Your comments were addressed by me there.
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Gnirk
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Re: Rich, Broke or Dead: Visualizing probabilities of outcomes in early retirement

Post by Gnirk »

While I’m sure there are those who may buy more house than they can afford when gifted the down payment, there are those who buy what they can afford when gifted the down payment.

Both of my single daughters bought their first homes with down payments that I gifted to them. First, they found a home they could afford, which meant a condo. Only after that did I gift them the down payment. One daughter has since sold that first condo for a profit after living there for 9 years, and bought another. She lived in the second one for another 9 years before selling it at a profit and relocating because of her job. She used the profit from her sale to make the down payment on her current condo. Because she moved from an HCOL to a VHCOL, she had to downsize from a 1300 sf 2 bed, 2 1/2 bath townhome with a garage to an 840 sf 1 bed, 1 1/2 bath flat with underground parking.

My other daughter still lives in the 1bed, 1 bath 640 square foot condo she originally bought 14 years ago. She lives in Seattle, and can’t afford to “trade up”, so makes improvements to it instead.

I believe in helping my children financially while I’m alive rather than leave it all to them when I die. I also surprise them once in awhile with financial gifts to make improvements to their homes.
Topic Author
EnjoyIt
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Joined: Sun Dec 29, 2013 7:06 pm

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

Post by EnjoyIt »

Gnirk wrote: Fri Jan 21, 2022 11:02 am While I’m sure there are those who may buy more house than they can afford when gifted the down payment, there are those who buy what they can afford when gifted the down payment.

Both of my single daughters bought their first homes with down payments that I gifted to them. First, they found a home they could afford, which meant a condo. Only after that did I gift them the down payment. One daughter has since sold that first condo for a profit after living there for 9 years, and bought another. She lived in the second one for another 9 years before selling it at a profit and relocating because of her job. She used the profit from her sale to make the down payment on her current condo. Because she moved from an HCOL to a VHCOL, she had to downsize from a 1300 sf 2 bed, 2 1/2 bath townhome with a garage to an 840 sf 1 bed, 1 1/2 bath flat with underground parking.

My other daughter still lives in the 1bed, 1 bath 640 square foot condo she originally bought 14 years ago. She lives in Seattle, and can’t afford to “trade up”, so makes improvements to it instead.

I believe in helping my children financially while I’m alive rather than leave it all to them when I die. I also surprise them once in awhile with financial gifts to make improvements to their homes.
AS we know nothing is 100% and I purposefully used words like "many" instead of "all."

I would be happy to help my kids financially in the future if need be and within our means. But, and this is a big but, I want to do it in such a way that doesn't harm them. I really believe it is easier said than done.

Just as an example about 5 years ago I became well aquanted with a guy whose parents gave him a trust with a monthly stipend. Not enough where he doesn't have to do anything, but enough so that he doesn't have to do much. Guess what? He doesn't do much. Just enough to cover his shortfall. Odd jobs here and there with plenty of libations. At least he is happy. This is a perfect example outside of Bogleheads of giving in the wrong way. The people that come to this forum are a different bread and think about these things. But that is because we talk about them.
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K72
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Re: Rich, Broke or Dead: Visualizing probabilities of outcomes in early retirement

Post by K72 »

EnjoyIt wrote: Fri Jan 21, 2022 1:52 pm
Gnirk wrote: Fri Jan 21, 2022 11:02 am While I’m sure there are those who may buy more house than they can afford when gifted the down payment, there are those who buy what they can afford when gifted the down payment.

Both of my single daughters bought their first homes with down payments that I gifted to them. First, they found a home they could afford, which meant a condo. Only after that did I gift them the down payment. One daughter has since sold that first condo for a profit after living there for 9 years, and bought another. She lived in the second one for another 9 years before selling it at a profit and relocating because of her job. She used the profit from her sale to make the down payment on her current condo. Because she moved from an HCOL to a VHCOL, she had to downsize from a 1300 sf 2 bed, 2 1/2 bath townhome with a garage to an 840 sf 1 bed, 1 1/2 bath flat with underground parking.

My other daughter still lives in the 1bed, 1 bath 640 square foot condo she originally bought 14 years ago. She lives in Seattle, and can’t afford to “trade up”, so makes improvements to it instead.

I believe in helping my children financially while I’m alive rather than leave it all to them when I die. I also surprise them once in awhile with financial gifts to make improvements to their homes.
AS we know nothing is 100% and I purposefully used words like "many" instead of "all."

I would be happy to help my kids financially in the future if need be and within our means. But, and this is a big but, I want to do it in such a way that doesn't harm them. I really believe it is easier said than done.

Just as an example about 5 years ago I became well aquanted with a guy whose parents gave him a trust with a monthly stipend. Not enough where he doesn't have to do anything, but enough so that he doesn't have to do much. Guess what? He doesn't do much. Just enough to cover his shortfall. Odd jobs here and there with plenty of libations. At least he is happy. This is a perfect example outside of Bogleheads of giving in the wrong way. The people that come to this forum are a different bread and think about these things. But that is because we talk about them.
I'm sure that people's experiences vary widely. Two years ago we helped our daughter with sufficient down payment so that her total house related expenses wouldn't be much more than the rent she was paying. Her commute is much better. In those two years her income has increased nearly 50%, so the expenses are well in the rear view mirror. She has also taken great pride in furnishing her place and has a list of improvements she is planning. She just bought a new fridge and will soon be getting a new washer/dryer combination. On top of that, there has been meaningful appreciation. We couldn't be happier.
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