Bob Brinker Free Discussion Site 59,820+

» Normxxx - Re: Re: Re: Critical Mass

You got a bad policy. You need to very carefully compare policies-- most cannot raise premiums based on age (or policy cohort)-- obviously, your grandmother's was of the latter type (probably some kind of ST policy, not for life). Also, you need a large insurer, so premiums are less likely to rise and so that the insurance company is less likely to go broke (GE, or one of the companies now used by the Federal Employees' Beneficiary System, is fine). But you are right; if you are at CM, you can easily afford to self-insure. And, it should be obtained only if there is some reasonable chance of using it.

-- posted by Normxxx

» Normxxx - Re: Re:Old Age Insurance

What you are advocating is much like some form of the "private medical accounts" which are coupled with catastrophic (big deductable) insurance. This is a good idea, because very few people tend to get catastrophic diseases before midlife at least and, if the worst occurs, have the catastrophe insurance, after they pay down the deductable.

I don't think it works as well with LT insurance. Although, you can "self insure" as you propose, but get a "minimal" LT insurance policy, so that you have something if worst comes to worst and you get hit young. You can always drop it if you build up enough of a "nest egg."

-- posted by Normxxx

» iamacamera - Re: Re: Re: Critical Mass

Hey bbaddict, I don't think life has to be too simple. We drink champagne every weekend, eat at excellent restaurants - limited in frequency by calories, not $. We always fly 1st class which makes a huge difference on overnight trips.

The last time I (truthfully) said this and attributed much of it to Brinker, I generated a lot of hostile mail from the BB haters. But you have to give credit where it is due. I have a clear view of BB - warts and all. Nevertheless I was wandering in the wilderness when I stumbled across him and he changed my life.

I lost a chunk on the Qs debacle but I sidestepped the bear market and got back in the "cyclical" bull. Overall I'm a mile ahead and I long ago forgave - if that's the right word - Bob for the Qs.

I strongly suggest that you record your spending for a couple of years before retirement so that you have a clear idea of your fixed costs. My biggest surprise was Fed Tax but that is way down now thanks to W.

I looked at my capital differently. I looked at a conservative rate of return and treated it as a mortgage (or really a sinking fund)with our lives as the term. E.g. at 60, if you believe you'll live to 95, enter 420 as the number of payments and your capital say 1.5 million as the PV, if you think 6% is reasonable return enter 0.5%/month as the interest rate. This will give you a payment of $8552 per month and you die broke. If you take less then of course it will last longer or you'll have a fund for extras if you need them. What do other people think of this sinking fund approach? Am I missing something. It seems much better than annuitising to me. Did you hear the guy yesterday who thought he was getting a 7.5% return on his money? Flanagan certainly didn't explain the situation to him very well.

If you already get $40k or $50k from other sources eg company retirement and SS, you probably need much less. I have found I can live fairly extravagently on between $90 and $100k p.a. We don't buy many tangibles any more. If you have a fairly small house you won't have room for a lot of stuff.

Also looking at my own parents, spending goes down after 75 and is very low after 80. As Bob once said "It is not how many years you have left, it is how many GOOD years."

-- posted by iamacamera

» iamacamera - Re: Re:Old Age Insurance

Kirk,
Avoiding paying for your own care is big business. You need a spouse, then get a big house and a fancy car. One big dodge is annuities, often single premium immediate anuities. It depends on what state you live in (and I don't know if CA allows it.) but the "community spouse" ie the one not in the nursing home converts most of the couples cash to an annuity in her name alone. This is income to her alone as far as medicaid is concerned. Some states have even allowed X payments followed by a lump sum, so if they know the spouse is so sick he's going to die within say 5 years they can keep most of their capital. It is a very complex law and I'm glad that many states are tightening up.

-- posted by iamacamera

» bbaddict - Re: Re: Re: Re: Critical Mass

Thanks for sharing, camera. There is a good calculator at www.PureJazz.com which runs the numbers for you at critical mass. It assumes you die broke at 100. But you can figure how much you need, and what you can draw out each month, given the returns you plug in.

BTW, I have only taken Bob's advice one time... on the Q's! Each other time, I missed the call, then waited for a modest correction to jump in, and it never came! I just started subscribing again, so I missed the latest calls. He has hinted he expects the S&P to get to 1250, 1300, 1350. I have been amazed at his picking the bottoms and tops.

Where the market is now, I think I'll probably just pay off my house. Since I can no longer write off the mortgage, it is like earning 7.62% before taxes (based on mortgage write-off calculator at http://www.PureJazz.com/Mortgage.asp )

-- posted by bbaddict

» bob90245 - Re: Withdrawal Strategies During Retirement

By my calculations, your withdrawal rate is 6%. That's aggressive. For a 30 year lifespan, 4% would be conservative. 5% would be at the upper "safe" limit. I consider researching Withdrawal Strategies During Retirement a hobby of mine. Here is my latest research:

Withdrawal Srategies: Articles and more

-- posted by bob90245

» bbaddict - Re: Re: Re: Re: Critical Mass

Flanagan certainly didn't explain the situation to him very well.

I heard Flanagan give several wrong answers on Saturday's show. I still haven't listened to Sunday's. Not to mention the fact that he is booooring. I actually liked Terry Savage. Yeah the plugs for the book were a little over the top, but no big deal. I even didn't mind the dating service, but I would have loved to hear the discussion she and Bob had about it.

I really wanted to hear Bob's take on the Chinese Yuan revaluation. I hope he puts it in his next monologue.

-- posted by bbaddict

» Kirk - Re: Re: Re: Re: Critical Mass

I looked at a conservative rate of return and treated it as a mortgage (or really a sinking fund)with our lives as the term. E.g. at 60, if you believe you'll live to 95, enter 420 as the number of payments and your capital say 1.5 million as the PV, if you think 6% is reasonable return enter 0.5%/month as the interest rate. This will give you a payment of $8552 per month and you die broke.

Be careful with this unless you think dog food is a gourmet item to serve for supper.

From "Table 3. Inflation-Adjusted Portfolio Succes Rates: 1926 to 1995 (Percentage of all past payout periods supported by the portfolio after adjusting withdrawals for inflation)" from the article "Retirement Savings: Choosing a Withdrawal Rate That Is Sustainable" you will see that a 50:50 equities:bonds portfolio with 6% annual takeout and 30 year life has a 49% probability of FAILURE using Monte Carlo analysis.

See our Critical Mass - Care and Feeding For forum for many articles posted about his. Sorry, but the AAII website has changed so I don't have a link to the article. (I read from my copy I emailed myself.) There are several articles out there but my conclusion from reading most is 4% is OK for 30 yrs and 3.5% should work for 35 years to 50 years.

What I've not seen discussed is the "Monte Hall - Always switch boxes when he shows one with a goat Question" and how it relates to this analysis. I believe the nice thing about being conservative is you can take profits after a big up year, lower your equity allocation by 1% (switch boxes) and effectively give yourself a raise. You could probably bank several good years like this then when the market eventually corrects, convert back to 50:50 on a rebalance and get even more appreciation... but that is very complicated.... so best discussed on our Critical Mass - Care and Feeding For forum.

Note: # Phillip L. Cooley, Carl M. Hubbard and Daniel T. Walz, "Retirement Savings: Choosing a Withdrawal Rate that Is Sustainable," AAII Journal, February 1998, pp. 16–21.

 
                                Total   Annual   2005   
                               Return   -ized    YTD
My newsletter portfolio is    up 163.1%  16.0%   1.3% 
While they S&P500 is only     up   5.9%   0.9%  (0.9%)
and the Nasdaq Composite is  down (6.2%) (1.0%) (5.4%)
QQQQ – NASDAQ100 ETF              NA       NA   (7.9%)
and Warren Buffett's BRKA is  up  19.3%   2.8%  (6.4%)