Key Post Retirement planning - My experience

[Gordon Gekko]

I was asked to share my own experiences/thoughts which I’m happy enough to do. For the avoidance of doubt, none of it is rocket science so please don’t expect anything revolutionary.

I started by creating a spreadsheet which details our current income and expenditure (including discretionary spending). I then identified the items that will fall away over time and the years in which they’ll fall away. I inflated each expenditure item by 2% a year when assessing the amount of income we’d need in retirement.

I added a decent sum to the projected expenditure to cover holidays and changing cars etc.

I took the cost of good nursing home or home care and also inflated it at 2% but at that point added in additional rental income and took out the fun spend.

I provided for the amount of money we’d like to have available to help our kids out.

I assumed that markets would deliver, on average, 5% per year net of costs in pension structures and 3% net of costs and taxes in personal accounts. Our investments are 100% in equities and we monitor the fees.

I inflated salaries by 1% per year but didn’t include more meaningful increases.

My findings were that we could switch to 4 day weeks at age 50 and 3 day weeks at age 55 with a view to then retiring at 60.

The money to help the kids and the ‘jam’ for the holidays and capital expenditure like changing cars etc do add quite a few years to our working lives.

All in all though, I found the exercise very useful.

 

[mtk]

Thanks Gordon for insights .I have done this too.
I see you assume you always beat inflation with inv return which could be optimistic.
I assumed inv return=cost inflation= pension increases and I dont do any inflation factoring which is conservative( except for medical expenses ( insurance etc.) . i know its a big simplification too but it makes calcs easier.
I am intrigued by nusring home fees -when do you assume it kicks in ?

 

[Gordon Gekko]

Thanks Gordon for insights .I have done this too.
I see you assume you always beat inflation with inv return which could be optimistic.
I assumed inv return=cost inflation= pension increases and I dont do any inflation factoring which is conservative( except for medical expenses ( insurance etc.) . i know its a big simplification too but it makes calcs easier.
I am intrigued by nusring home fees -when do you assume it kicks in ?

Hi mtk,

I don’t think it’s optimistic at all to expect an all equity portfolio to beat inflation over a decent time horizon.

I assumed that some sort of care fees kick in at age 85 which I think is conservative but who knows. We’re both pretty healthy, touch wood, and we keep fit and don’t carry any weight.

But like every plan, it might be of little use if life punches you in the face!l

The thing with nursing home fees is that they’re tax deductible and likely to stay that way. And, whilst they’re expensive, once you’re there you don’t spend a whole lot much on anything else. And there might also be Fair Deal if you’re stuck.

 

[Brendan Burgess]

Hi Gordon

An interesting exercise.

How have you factored in your home?

If you reach 90 and run out of money but still have a home worth €500k in today's money, it will probably keep you going for 10 more years.

Have you factored in inheritances? It would probably be bad luck to do so, but sometimes I am surprised by people who really fear the future but they know that at some stage they will inherit their a good lump from their parents.

Brendan

 

[Gordon Gekko]

Hi Gordon

An interesting exercise.

How have you factored in your home?

If you reach 90 and run out of money but still have a home worth €500k in today's money, it will probably keep you going for 10 more years.

Have you factored in inheritances? It would probably be bad luck to do so, but sometimes I am surprised by people who really fear the future but they know that at some stage they will inherit their a good lump from their parents.

Brendan

Hi Brendan,

No, we haven’t factored in either.

We view the house as a backstop but don’t include it.

We also don’t factor in inheritance; some has been received already so there might very well be generational skipping.

 

[mtk]

The thing with nursing home fees is that they’re tax deductible and likely to stay that way. And, whilst they’re expensive, once you’re there you don’t spend a whole lot much on anything else. And there might also be Fair Deal if you’re stuck.

yes and also currently average stay is under 2 years if memory serves me correctly ( is that good or bad?!) so relatively immaterial (except to your heirs) as its the long term items that matter.

I ignored house too and other last resort items eg rent room. inheritance is n/a - we were poor!

 

[Brendan Burgess]

We view the house as a backstop but don’t include it.

You must include the house in any long-term financial planning.

It's very likely that by the time you retire we will have a functioning life-loan system so you can borrow against it.

If you have enough to live a very comfortable life anyway, then it's surplus to requirements.

But let's say at age 60, you would like to help your children to buy a house, but decide not to because "the spreadsheet says no!" , then you should adjust the spreadsheet to include the house.

Give your kids the money. And then if you need money when you are 110, borrow on the security of the house.

Brendan

 

[Gordon Gekko]

You must include the house in any long-term financial planning.

It's very likely that by the time you retire we will have a functioning life-loan system so you can borrow against it.

If you have enough to live a very comfortable life anyway, then it's surplus to requirements.

But let's say at age 60, you would like to help your children to buy a house, but decide not to because "the spreadsheet says no!" , then you should adjust the spreadsheet to include the house.

Give your kids the money. And then if you need money when you are 110, borrow on the security of the house.

Brendan

Hi Brendan,

We exclude it to be prudent but it’s obviously more than helpful to know it’s there.

We want to stay there, we don’t want lodgers, and we don’t want to depend on some sort of life loan product that isn’t there now, so that’s the basis for excluding it.

We want the plan to enable us to exclude it I guess.

Gordon

 

[Gordon Gekko]

Okay, these aren’t the figures, but the nub of what I’m saying is that at age 90 our income will be €11,000 a year and our expenditure will be €10,000 a year. So if we grab the harp and jump up onto the cloud at age 90, 91, or 95, it won’t really matter.

 

[Brendan Burgess]

I would have thought that the ideal plan should be to run out of money just as you die.

As that is not possible to plan, you should plan to run out of money about 5 years after you die.

Of course, if you have a surplus, that is great.

But if you have to make spending decisions or lifestyle decisions at age 50 or 60, you need to factor in living longer than 90 and also having a mortgage-free asset.

Brendan

 

[Gordon Gekko]

I suppose I view capital and income separately, with the purpose of capital being to generate investment returns. The net result being that the capital endures.

 

[Brendan Burgess]

The net result being that the capital endures.

The capital might endure, but you won't.

Brendan

 

[Leper]

Five years from retirement I was concerned even worried about life after retirement. I hadn't made the best of investing losing a good few bob on Eircom shares and of course our leaking money holiday home in Spain. In a nutshell, I wasn't too happy and I knew we'd have to make some money related decisions. The cars were the obvious area where we could make cuts, i.e. downsize on both cars with view to reducing to one car in time. Our Spanish apartment had lost value and was a noose around our necks but selling at such a large loss was out of the question. It was just making some of it back when Covid-19 struck. Therefore, we're holding onto it for the next two years at least.

The most important sentence on this thread is (from non other than Brendan Burgess) "I would have thought that the ideal plan should be to run out of money just as you die." Save me from the guys who on retirement invest nearly everything they have to bequeath same or more to their offspring. You've lived this far and you deserve to spend what you've earned on yourselves.

The house will be there after us and our offspring can do with it whatever they please.

Anyway, I digress - you don't train to climb Mt Everest by climbing Mt Everest; you get yourself fit, train, focus, learn etc and then you can attempt Mt Everest. It's the same with retirement. You don't approach retirement at full speed and then suddenly press the brakes where you could find yourself fired through the windscreen. You may have many trying to run your life when you retire. "Why pay for childcare when mom and dad are there?" "Hey dad, if you gave us a few bob now you'd be relieved of the worry later."

Fortunately, when most retire they have already prepared the way somehow. You can live on less. You can enjoy yourself more. You have time for you. Nearing 68 I took my first swimming lessons which ceased because of the virus. But, asap I'll restart the swimming lessons. Do I look stupid in the pool? Probably, but I did much more stupid things in the past especially in my investing.

 

[Gordon Gekko]

I do think we’re planning along those lines by aiming to transition to 4 day weeks and then 3 day weeks.

And by trying to build a capital base to then generate income/gains, it reduces the longevity risk. i.e. I’m less concerned at the check-out date

 

[Sarenco]

There are so many uncertainties when it comes to retirement planning, there's a real danger of adopting a false level of precision in any projections.

For those of us that won't have the benefit of a DB pension, I think the simplest thing to do is to multiply your anticipated annual expenses by the number of years you expect to be retired.

So if your anticipated annual expenses are €25k, you need a pot of €750k to fund a 30 year retirement.

I think it's reasonable to assume that investment returns on a balanced portfolio, net of expenses, will keep up with inflation over that timeframe.

Hopefully some form of State (Contributory) pension will still exist in the future but I wouldn't count on it for planning purposes.

 

[Gordon Gekko]

That makes sense, Sarenco. And simplicity is often best.

I think assumptions are okay though once they’re prudent.

e.g. assuming income stays the same when it’s highly likely to go up, assuming you won’t realise cash from downsizing, assuming you won’t inherit anything, assuming inflation will be 2% when it hasn’t been the smell of it, assuming equities will deliver close to half of their historic returns, etc

 

[TheBig40]

e.g. assuming income stays the same when it’s highly likely to go up, assuming you won’t realise cash from downsizing, assuming you won’t inherit anything, assuming inflation will be 2% when it hasn’t been the smell of it, assuming equities will deliver close to half of their historic returns, etc

This is pretty much the method I’ve been using to work out my numbers, if nice to see I’m not totally off the wall with my logic.

 

[SPC100]

I was asked to share my own experiences/thoughts which I’m happy enough to do. For the avoidance of doubt, none of it is rocket science so please don’t expect anything revolutionary.

Thanks for responding to my (and others?) request by sharing this - I appreciate it! And it helps refine my own thoughts and planning.

My findings were that we could switch to 4 day weeks at age 50 and 3 day weeks at age 55 with a view to then retiring at 60.

I suppose I view capital and income separately, with the purpose of capital being to generate investment returns. The net result being that the capital endures.

By trying to build a capital base to then generate income/gains, it reduces the longevity risk. i.e. I’m less concerned at the check-out date

AFAIK most of the software (and FIRE folks) doing this type of analysis, plan on drawing down 3-4% a year from their equity capital. 3-4% being the magic SWR (safe withdrawal rate) that is based on past analysis & simultaions, which predicts you can withdraw at this rate, and that if you do, you are unlikely to run out of capital before you die.

Are you saying you are not planning on touching your capital at all?

If you were willing to endure some risk, you can likley retire a lot earlier.

 

[Gordon Gekko]

I guess my aim is to have the income sustained from the asset base.

But the biggest takeaway for me was how much less I need post debt and kids.

You’d think that’d be obvious but it was so stark I thought I’d made a mistake.

 

[SPC100]

It sounds like you want to become financial independence (annual non wage income > annual expenditure)

But imagine for a moment if all your capital was invested in companies that don't pay dividends. Then you never make your goal. As you have no income.

Or vice versa, if you chase dividend paying investments you get there sooner.

I think you should model a percentage withdrawal from your capital. Which may or may not be greater than the income it produced in any year. And May or may not be greater than the capital appreciation.

Relying on income, is more than likely more prudent, bbutgiven all other things you mentioned it almost sounds like you are being too conservative.

That's not necessarily bad, but if your aim is early retirement id guess you are leaving 5-10 years on the table