Author Topic: "Dare to be Old and Broke"  (Read 7506 times)

Thinkum

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"Dare to be Old and Broke"
« on: March 19, 2016, 06:27:40 PM »
Oh lawdy lawdy.

http://www.dallasnews.com/business/columnists/scott-burns/20160318-scott-burns-what-can-happen-if-you-dare-to-be-old-and-broke.ece

While there may be some merit to the mortality numbers, I just cannot get past the idea of "YAY! We get to spend more money!". The thing I love about the core idea of MMM, is that you do not need to spend more to be happy.

maizeman

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Re: "Dare to be Old and Broke"
« Reply #1 on: March 19, 2016, 06:49:24 PM »
Quote
Theodore and Louise could withdraw at a starting rate of $53,000. At the end of 30 years, they would have run out of money 26 percent of the time. But there is an 81 percent probability both will be dead. Or a 19 percent chance either will be alive.

Presto! About a 5 percent chance (0.19 x 0.26) that either will experience being broke.

That's not how statistics work! You could actually ask this question, but you'd need to model death rates and portfolio depletion timing over the whole 30 year period.

In a significant number of cases the hypothetical couple would run out of money, spend years eating cat food, and STILL die before 30 years were up. The math he's using counts all of those cases as "not running out of money while you are alive."

slugline

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Re: "Dare to be Old and Broke"
« Reply #2 on: March 19, 2016, 08:03:35 PM »
Oh lawdy lawdy.

http://www.dallasnews.com/business/columnists/scott-burns/20160318-scott-burns-what-can-happen-if-you-dare-to-be-old-and-broke.ece

While there may be some merit to the mortality numbers, I just cannot get past the idea of "YAY! We get to spend more money!". The thing I love about the core idea of MMM, is that you do not need to spend more to be happy.

Another way to look at this is that maybe you don't need to accumulate as large a stash as you previously thought, and perhaps retire even earlier?

TheGrimSqueaker

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Re: "Dare to be Old and Broke"
« Reply #3 on: March 19, 2016, 10:13:47 PM »
Quote
Theodore and Louise could withdraw at a starting rate of $53,000. At the end of 30 years, they would have run out of money 26 percent of the time. But there is an 81 percent probability both will be dead. Or a 19 percent chance either will be alive.

Presto! About a 5 percent chance (0.19 x 0.26) that either will experience being broke.

That's not how statistics work! You could actually ask this question, but you'd need to model death rates and portfolio depletion timing over the whole 30 year period.

In a significant number of cases the hypothetical couple would run out of money, spend years eating cat food, and STILL die before 30 years were up. The math he's using counts all of those cases as "not running out of money while you are alive."

Has he also calculated the impact of worrying about money when you're old and near the end of your life, with no means to acquire more? That kind of fear has to be just as bad as the cat food, in its own way.

bobechs

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Re: "Dare to be Old and Broke"
« Reply #4 on: March 19, 2016, 11:04:22 PM »
The defense against cat food is simple-  a life annuity that reasonably assures basic living expenses will be met until meeting basic expenses is obviated, by not living.

Although life annuities seem to taste worse than catfood to most of the posters around here, and definitely nowhere near as sweet as the near-certainty of leaving a big pile of unspent money in favor of low, low withdrawal rates and cheese-paring for decades if necessary to meet that requirement.

Sure you are not going to earn profits as high as a stock portfolio, but if longevity risk is the problem you need to solve annuities solve it, at a cost.  But a cost to your heirs, or snatching catfood from the mouths of generations of  cats you might support with your unspent-during-life pile.

RetiredAt63

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Re: "Dare to be Old and Broke"
« Reply #5 on: March 23, 2016, 08:09:10 AM »
The defense against cat food is simple-  a life annuity that reasonably assures basic living expenses will be met until meeting basic expenses is obviated, by not living.

Although life annuities seem to taste worse than catfood to most of the posters around here, and definitely nowhere near as sweet as the near-certainty of leaving a big pile of unspent money in favor of low, low withdrawal rates and cheese-paring for decades if necessary to meet that requirement.

Sure you are not going to earn profits as high as a stock portfolio, but if longevity risk is the problem you need to solve annuities solve it, at a cost.  But a cost to your heirs, or snatching catfood from the mouths of generations of  cats you might support with your unspent-during-life pile.
This.  So true.  I think of my pension as equivalent to having purchased a life annuity with no survivor benefits.  It is there and will cover all my basic living costs as long as I am alive.  My investment income is for fun and "lap of luxury" living.  For those whose retirement income has no pension component, an annuity seems to be a solid part of retirement planning, especially if there is the possibility of living a long time. 

Guses

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Re: "Dare to be Old and Broke"
« Reply #6 on: March 24, 2016, 12:50:16 PM »
Besides, cat food is actually really expensive. It would be more like eating lots of in-season vegetables, rice and beans... Wait a minute, this is already what I am doing!!!!

 


Cassie

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Re: "Dare to be Old and Broke"
« Reply #7 on: March 24, 2016, 02:43:49 PM »
We each have a pension that will go to the other that would pay for our needs and we will get small SS.  So no worries about being broke in addition to the $ saved for our wants. Some people want to leave $ to heirs-I could care less about that.  At 95 if you have enough $ to cover your needs I think your wants would be pretty small.  Probably a happy medium between the 2 extremes of spending it all or saving it all. 

bobechs

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Re: "Dare to be Old and Broke"
« Reply #8 on: March 24, 2016, 03:12:56 PM »
We each have a pension that will go to the other that would pay for our needs and we will get small SS.  So no worries about being broke in addition to the $ saved for our wants. Some people want to leave $ to heirs-I could care less about that.  At 95 if you have enough $ to cover your needs I think your wants would be pretty small.  Probably a happy medium between the 2 extremes of spending it all or saving it all.

Well, the problem (from Scott Burn's -and my- viewpoint) is not that you die with no or only modest assets, having spent the overwhelming majority in life.  He seems to be in favor of that.  Me too.  The problem is that by following an ultra-conservative spending approach (I'd use as an example the folks around here who back themselves into four, three, two-and-a-half, two percent withdrawals --often on top of other guaranteed income, illiquid assets, etc.) said u/c spenders deprive themselves in life and leave a big chunk of their money piled up against a day of need that never occurs.  And was not likely ever to occur.

Not out of specific intention to benefit future generations of hungry cats, but simply in fear of the catfood scenario falling out of a blue sky on them, someday, someway.

That's is just  not quite sane, sez Burns.  Saying that is what got his article sent to detention on the Anti-Mustachian Wall of Shame and Comedy.

bacchi

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Re: "Dare to be Old and Broke"
« Reply #9 on: March 24, 2016, 04:23:03 PM »
The defense against cat food is simple-  a life annuity that reasonably assures basic living expenses will be met until meeting basic expenses is obviated, by not living.

Although life annuities seem to taste worse than catfood to most of the posters around here, and definitely nowhere near as sweet as the near-certainty of leaving a big pile of unspent money in favor of low, low withdrawal rates and cheese-paring for decades if necessary to meet that requirement.

Sure you are not going to earn profits as high as a stock portfolio, but if longevity risk is the problem you need to solve annuities solve it, at a cost.  But a cost to your heirs, or snatching catfood from the mouths of generations of  cats you might support with your unspent-during-life pile.

You could always roll your own annuity. With some CDs/treasuries and options, one can have their cake and eat it too.

bobechs

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Re: "Dare to be Old and Broke"
« Reply #10 on: March 24, 2016, 05:15:06 PM »
The defense against cat food is simple-  a life annuity that reasonably assures basic living expenses will be met until meeting basic expenses is obviated, by not living.

Although life annuities seem to taste worse than catfood to most of the posters around here, and definitely nowhere near as sweet as the near-certainty of leaving a big pile of unspent money in favor of low, low withdrawal rates and cheese-paring for decades if necessary to meet that requirement.

Sure you are not going to earn profits as high as a stock portfolio, but if longevity risk is the problem you need to solve annuities solve it, at a cost.  But a cost to your heirs, or snatching catfood from the mouths of generations of  cats you might support with your unspent-during-life pile.

You could always roll your own annuity. With some CDs/treasuries and options, one can have their cake and eat it too.

Not a life annuity you can't. 

Annuity for a term of  years, sure; that's an excellent way to lock in a low level of growth in return for a low level of risk.  In other words it's a pretty bad financial deal for almost everyone.

An annuity for life has the feature that you cannot outlive it.  If you can, let me know how, because that is something that will make everything that ever came before utterly uninteresting until I get some.

 Life annuities are explicit forms of insurance; the pool of purchasers each pass the risk of living longer than a finite stream of payments will last on to annuity provider.  Some will win the bet financially, others will lose and the house always takes a percentage.  But even the losers win on this bet, because they did not experience the catfood apocalypse they most wanted to avoid. At a financial cost, of course.

nobodyspecial

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Re: "Dare to be Old and Broke"
« Reply #11 on: March 24, 2016, 10:23:02 PM »
All insurance is a loser bet (somebody has to pay for Mr Buffet's yacht) but sometimes it's worth having - I can see reasons some people might want to buy an annuity.

Making Cookies

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Re: "Dare to be Old and Broke"
« Reply #12 on: March 25, 2016, 03:05:37 PM »
What does everyone plan to do when they can no longer "keep house"?

My grandmother went into a retirement village where she had an apt w/kitchen, access to meals prepped for her in a dining room, facilities, etc.

We were just starting to consider what to do when her money ran out when she got sick and died. Old age caught up with her.

Her likely fate would have been to downgrade and rent a room in a nursing home.

I have another family member quite a bit younger that will be facing the same questions sooner than later. Younger by several years, similar finances, similar expenses and denial of reality.

This figures into my budget planning. I want to know that my DW has a roof over her head after she can no longer keep house if I am gone and she is living alone.

Finances at 35 vs 45 vs 85 can be very different.

Cassie

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Re: "Dare to be Old and Broke"
« Reply #13 on: March 25, 2016, 03:26:45 PM »
My Mom moved into a 2 bedroom apartment and lived there until a week before she died of cancer at 89. With a few supports in place she was able to live independently until the end.  Her sister just turned 91 and still lives alone in an apartment.

Thinkum

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Re: "Dare to be Old and Broke"
« Reply #14 on: March 25, 2016, 06:22:32 PM »
Old age can and most likely will throw us all some curve balls. For us all on this forum, it is all about planning for the uncertainties. I for one, am starting to realize I need to put in a big buffer in the FI plans, not just a buffer. It is all about options really.

TheGrimSqueaker

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Re: "Dare to be Old and Broke"
« Reply #15 on: March 25, 2016, 09:56:16 PM »
What does everyone plan to do when they can no longer "keep house"?

Finally get around to hiring staff instead of being obsessive about DIY.

maizeman

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Re: "Dare to be Old and Broke"
« Reply #16 on: March 26, 2016, 07:43:33 AM »
Old age can and most likely will throw us all some curve balls. For us all on this forum, it is all about planning for the uncertainties. I for one, am starting to realize I need to put in a big buffer in the FI plans, not just a buffer. It is all about options really.

And for that reason, for me at least, the fact that there is a good chance a 4% rule guided retirement ends up with huge amounts of surplus money in old age is a feature, not a bug. The potential surplus money is a buffer again both the known unknowns of old age (things like protracted illness or partial disability of myself or a family member) and the unknown unknowns of traveling decades into the future (radical but expensive breakthroughs in anti-aging technology, a chance to die on Mars instead of Earth).