Author Topic: The Number is 4% People!  (Read 4040 times)

Telecaster

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The Number is 4% People!
« on: September 01, 2015, 01:07:19 PM »
Quote
Matthew and Elizabeth became clients of Beacon Pointe Advisors a few years back, looking to manage their portfolio and put a retirement game plan in place. At 66, Matthew was considering retiring. Elizabeth could finally travel now that she was no longer the primary caregiver of her mother, who had passed the year prior. Together, we looked at their joint financial picture and analyzed the situation.

Then came some bad news: They wouldn't be able to confidently cover living expenses if Matthew stopped working. They were shocked, because they'd done so much correctly—worked hard, lived within their means and consistently saved for retirement, putting away $2.3 million between retirement and non-qualified investments. Matthew even ran some preliminary retirement numbers online over the years to make sure they were on track.

Part of the problem was that Matthew's planning assumptions were too rosy. He didn't assume he'd have any variability on his portfolio returns, he didn't assume he'd have health-care costs once Medicare kicked in, and he didn't assume that retirement could last more than 20 years.


http://www.cnbc.com/2015/08/26/offering-alternatives-to-lofty-retirement-dreams.html

The solution was for Mathew to work four more years part time until age 70, which earns some extra income as well as delays taking Social Security, downsize the house, AND buy a LTC policy. 

Had they  simply followed the 4% rule, they'd have a cool $92,000/year income, which should be pretty close to sufficient, and it would also have taken care of a few of his bad assumptions.    The penalty was working for an additional four years of his life, when he doesn't have very many left which buys him a fairly small monthly income increase, probably less than 10%.   Buying an LTC policy is controversial, but if you do buy one, you should buy it in your 40s or 50s, not mid-60s.   




dandarc

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Re: The Number is 4% People!
« Reply #1 on: September 01, 2015, 01:15:01 PM »
$92K / year at 4% + social security.  I think they could figure out a way to make this work if they really wanted to.

Jellyfish

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Re: The Number is 4% People!
« Reply #2 on: September 01, 2015, 01:19:38 PM »
Yeah...here is the salient quote from that article, emphasis mine:

"It was projected that if Matthew retired at 66, the couple would only have about a 70 percent chance of being able to cover lifestyle expenses without having to make adjustments to spending over time."

EricP

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Re: The Number is 4% People!
« Reply #3 on: September 01, 2015, 01:24:36 PM »
Yeah...here is the salient quote from that article, emphasis mine:

"It was projected that if Matthew retired at 66, the couple would only have about a 70 percent chance of being able to cover lifestyle expenses without having to make adjustments to spending over time."

Yeah, ridiculous that they would choose to continue working instead of cutting back a few things or just watching the market and going lean when the market is rough.  Their spending must have been over $100k and they can't find anything to cut? Insanity.

Gone Fishing

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Re: The Number is 4% People!
« Reply #4 on: September 01, 2015, 01:47:50 PM »
Wonder what the advisor's haul was on that LTC policy?  More than peanuts I am sure!  Not planning on managing to $0 myself, but seriously, so what if they really do go "broke" at 86?  In reality, they would probably still have a house they can liquidate/mortgage, SS (maybe 3K+ a month?) and Medicare.  My grandmother effectively went "broke" at 80 when my grandfather passed and his pension ended (no survivor benefit).  She doesn't live a life of luxury, but she does get to take a vacation every year, treat the family to dinner from time to time, buy Christmas presents and generally gets along just fine. 

UnleashHell

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Re: The Number is 4% People!
« Reply #5 on: September 01, 2015, 02:16:18 PM »
Wonder what the advisor's haul was on that LTC policy?  More than peanuts I am sure!  Not planning on managing to $0 myself, but seriously, so what if they really do go "broke" at 86?  In reality, they would probably still have a house they can liquidate/mortgage, SS (maybe 3K+ a month?) and Medicare.  My grandmother effectively went "broke" at 80 when my grandfather passed and his pension ended (no survivor benefit).  She doesn't live a life of luxury, but she does get to take a vacation every year, treat the family to dinner from time to time, buy Christmas presents and generally gets along just fine.

According to the AARP in 2012 the amount for a years premium would be about 2,800 a year. If the policy was in effect for 15 years and the premiums went up by 5% a year then over the 15 years the premium would be about $60,000.

The agent would collect about 50% of year one and 5% of every other year.
On 15 years that about $4,300 with 1,400 being in year one.

Of course that was 2012 – the premium now is probably much higher plus the rate increases per yer would be too.
It wouldn’t be a shock to see that amount doubled. And there were 2 of them…

Of course the financial advisor sint; going to make much out of telling them what they need to here. Like stop acting like royalty and actually live in your very acceptable means.
Not enough details to judge but a big house, couple of cars and several expensive holidays a year do add up…

cloudsail

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Re: The Number is 4% People!
« Reply #6 on: September 01, 2015, 04:38:41 PM »
They were mid-60s, had over $2 million in investable assets, and couldn't retire??? Mind blown.

Homey The Clown

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Re: The Number is 4% People!
« Reply #7 on: September 01, 2015, 09:17:01 PM »
I noted that the article was written by the president of Beacon Pointe who were the firm that "helped" the couple in the story (who probably don't really exist). So really the "story" is just an advertisement and scare tactic.