"Why we should all aim to die broke"

Brendan Burgess

Brendan Burgess

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A great article by Merryn Somerset Webb in the Financial Times

Why we should all aim to die broke


At a meeting of fund managers and wealth managers a few weeks ago, I said that I thought the priority of wealth managers looking after pension savings — the ones who really care about their clients, anyway — should be to make sure that most of their clients die close to broke. It didn’t go down that well. There were sharp intakes of breath all around.


This is silly. Capital represents the ability to defer consumption for a while, not the obligation to defer it forever. For those living off pension savings there should be no differentiation between capital and income (there isn’t for tax purposes in any case). It is all just money to be used for living. Why live on cans of tuna, watching daytime telly in front of a one-bar electric fire only to die with half a million quid of capital in the bank?
 
This is very important for those who ask the question: How much do I need in my pension fund when I retire?

Most people want to have a comfortable retirement while maintaining their wealth and leaving the family home to their children.

That should not be their financial objective. Or put it another way, they should not be making serious financial sacrifices during their working life and retirement to achieve that objective.

Brendan
 
I don't disagree with that. However, the psyche among older people here seems to be deferring to a rainy day down the road, regardless of how wet it is today!
 
rob oyle said:
deferring to a rainy day down the road, regardless of how wet it is today!
Click to expand...


That is a brilliant analogy. I will use that. Is it plagiarism if it's first said by an anonymous person? :)

Seriously, I have been amazed by the number of people who want to build up a rainy day fund while in mortgage arrears. If they are in arrears, that should be wet enough for them.

Brendan
 
Brendan, I agree with you 100%. For the majority of ARF holders, maintaining the current value of it is very important. Why? After saving for decades to accumulate a decent pension fund, when it comes to the time to spend it, why are you holding back?

Inheritance is a huge physiological barrier in Ireland too. Parents always want to leave something for their kids. You know what? Kids don't want to see parents going without now so they can get something 20-30 years later. Besides, mosts of their "kids" are approaching retirement age themselves by the time they get to retirement and should have their own savings in place.

If you want to look after your kids financially, do it now when they need it most and when you can get some enjoyment out of helping them. You need to make sure that it's not too much though that will jeopardise your lifestyle. That is a core element of retiree financial planning, how much can I give away without effecting my own life.

Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)
 
I agree but the great unknown is when is the person going to die!!!

Bob retires at 60 and has a pension pot of €1m growing at 5%.

He has three choices
1.draw out €50k per year indefinitely. Pot still €1m.

2. Draw out €80k per year for 20 years. Pot nothing at age 80.

3. Draw out €58k per year for 40 years. Pot nothing at age 100.

Think I'll be burning through €80k a year and have nothing left!!
 
SBarrett said:
If you want to look after your kids financially, do it now when they need it most and when you can get some enjoyment out of helping them. You need to make sure that it's not too much though that will jeopardise your lifestyle. That is a core element of retiree financial planning, how much can I give away without effecting my own life.
Click to expand...

I think this is the most fundamental point that most people miss. €50k now to pay down a Mortgage and give a couple a start in life is much better than €100k when they have their house paid for and kids educated and have made all the sacrifices.

Or even giving €3k per year to support in the early years.
 
Interesting question. Potential for KEY KEY post!!

So let's say you had a couple - one 65, the other 63.

They have a combined pension fund of €1m and expect to receive the state pension.

What is being suggested here? Specifically, what is the assumed investment growth (please specify asset allocation consistent with this assumed growth) and what inflation adjusted withdrawals are being suggested? [I don't think Joe's net 5% is a sensible figure to use!]
 
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I don't agree with the prevailing sentiment. In aggregate, the current "older generation" are probably the first who will do better than their offspring. In my experience, they want their capital to endure so their kids have a backstop. Personally, I view my own pension fund as something for my kids rather than a simple retirement planning tool.
 
I'm also a big believer in the idea of not leaving money / assets behind ... why should we ... the key here is inheritance tax , the government should not allow parents to pass on wealth to their kids, this creates an uneven society ...everybody should start work on an even platform , no legs up from parents. I realize that obviously some kids will get a better start in life ( education etc ) from their parents than others buts that's where it should stop. I can see no reason why 100% inheritance tax should apply...!!!

Note : Family Business / Farms etc could be transferred title to kids but if they ever sell or realize a gain from the sales of those assets then inheritance tax should kick in.
 
There was another good article in the FT which doesn't seem to be on line by Lindsay Cook reporting on questions asked at FT Readers Conference.

"Should you tell your children that you are planning to join the SKIN Club? Spending the Kids' Inheritance Now"
 
I had a client a number of years ago whose child was close to death. The treatment in Ireland would have been barbaric. At a cost of circa €250k, the child was successfully treated in the US.

I would like to have enough money to ensure that at least the next couple of generations have that kind of insulation.
 
Gordon's point re sickness is a good one . Another point might to fund fertility treatment / surrogacy etc.
 
Depends also on your religious beliefs.
It's better to die broke but not in debt in a lot of religions.
 
Brendan Burgess said:
This is very important for those who ask the question: How much do I need in my pension fund when I retire?

Most people want to have a comfortable retirement while maintaining their wealth and leaving the family home to their children.

That should not be their financial objective. Or put it another way, they should not be making serious financial sacrifices during their working life and retirement to achieve that objective.

Brendan
Click to expand...

I think it is also that people as they get older don't want to be a burden on their children.

It is rather like Maggie in Cat on a Hot Tin Roof "You can be young without money, but you can't be old without it".
 
Medical inflation is greater than general inflation.

The nursing home of one's choosing might cost €60,000 a year right now. Lord knows what it will cost in 50 years' time.

The resources that are required to be completely comfortable are far greater than most estimate.
 
Codogly said:
I'm also a big believer in the idea of not leaving money / assets behind ... why should we ... the key here is inheritance tax , the government should not allow parents to pass on wealth to their kids, this creates an uneven society ...everybody should start work on an even platform , no legs up from parents. I realize that obviously some kids will get a better start in life ( education etc ) from their parents than others buts that's where it should stop. I can see no reason why 100% inheritance tax should apply...!!!

Note : Family Business / Farms etc could be transferred title to kids but if they ever sell or realize a gain from the sales of those assets then inheritance tax should kick in.
Click to expand...

What effects do you think this might have on thinks like emigration / brain drain, international companies making a decision to come here, motivation for people to work hard / startups / entrepreneurs.

I think that idea is bananas. Speaking as a parent, why would I continue to work hard, make sacrifices, and in turn generate jobs and revenue for the country, when my motivation, amongst other things, is to leave money/assets for kids & grand kids to give them the best opportunities.

If I work hard it should be up to me who benefits from it, whether that be mu kids, chosen charities, whoever. It's ludicrous to suggest the government should stop my wealth passing onto whoever I choose.
 
SBarrett said:
Brendan, I agree with you 100%. For the majority of ARF holders, maintaining the current value of it is very important. Why? After saving for decades to accumulate a decent pension fund, when it comes to the time to spend it, why are you holding back?

Inheritance is a huge physiological barrier in Ireland too. Parents always want to leave something for their kids. You know what? Kids don't want to see parents going without now so they can get something 20-30 years later. Besides, mosts of their "kids" are approaching retirement age themselves by the time they get to retirement and should have their own savings in place.

If you want to look after your kids financially, do it now when they need it most and when you can get some enjoyment out of helping them. You need to make sure that it's not too much though that will jeopardise your lifestyle. That is a core element of retiree financial planning, how much can I give away without effecting my own life.

Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)
Click to expand...

I agree with you Steven, except for the point about kids not wanting to see their parentts going without.
I am constantly amazed by the number of people who see the Bank of Mam and Dad as their automatic right.
I know one very comfortable middle class family in their 40s - 50s most of whom have not bothered to do proper financial planning for their retirement, apart from checking house priced to know how much they will get when their parents die. Their parents worked really hard and sacrficied a lot to be comfortable in their retirement and the kids haved realised that they should be stading on their own two feet.
 
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