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Discussion Starter #1 (Edited)
Last year I hired a financial planner to do overall planning and retirement planning, after having found myself in a position to potentially retire early. I'm coming up to the end of the first year using this planner's services and so far I'm happy. However, there's one issue I want to discuss with the planner, and that's the outer age limit used for my financial plan, which is one factor that will affect how much monthly income I draw. The age the planner uses for all clients is 110. Yep, 110! At the risk of sounding negative, I don't think I'll live beyond 90 (based on family history) and neither of my parents made it to 85. I had one grandmother who lived to 105. When I tell my friends the planner is basing my financial plan on potentially living to age 110, they say that's ridiculous. I know he's chosen that age to ensure the financial plan outlives any eventuality in life expectancy.

So the question is: what AGE do people think financial planning should go to? What is reasonable? What is the norm to plan to? I thought maybe 100 ... one friend said 90. I think 110 is far, far beyond what I'll live to.

Given that most of my retirement income will come from investments (I don't have a pension plan), I certainly have to ensure that my money outlives me, and I want to leave something for my children. I have enough money to retire on comfortably but not so much to live lavishly (not my style anyways, but I do want to travel more than I have in the past and travel isn't cheap). However, my feeling is that the age to which the planner is planning will have a bearing on my sustainable monthly income, and thus how much travelling I can afford. It's important to balance living life to the fullest possible while ensuring I don't run out of money. But age 110 ... my feeling is this is likely 25 years beyond what I'll live, and at a minimum 20 years beyond. Of course, no one has a crystal ball. But the average life expectancy for women in Canada is about 85.
 

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Lots has been written on this subject with no real consensus. At one time, I believe 90 was the norm because actuarily, few people lived beyond 90. In more recent time, I believe 95 has become the norm, with some stretching it to 100. 110, to me, is not something I would remotely fathom and wouldn't let a FP use.

The quirk in actuarial tables is that the 50% chance of someone living past age X increases as one gets older, e.g 70, simply because the statistics drop out anyone who has died before age 70. Example: So at age 50, there might be a 50/50 chance of living to age 80, but if you get to 70, there might be a 50/50 chance of living to age 90, and at age 85, there might be a 50/50 chance of living to age 95. By age 93 or so, there is a 50/50 chance of living one more year...and that doesn't change thereafter....always remaining at one more year. Anyways... you get the drift.

One perhaps more important point is that our rate of spend starts to drop significantly after age 75 (or 80) because we have less desire/interest to spend money on travel, expensive recreation, etc. How many 85 year olds do you know that are still traveling and doing expensive things? A round of golf now and then and an evening out to the theatre might be it. FPs don't account for spending reductions in later ages. I'd suggest that if an FP doesn't do that, the FP is overstating needs.

That all said, health is the big factor and slow but increasing disabilities will also require more spend. Maybe it is conservative to say spending goes 'flat' after a certain age. Only you can decide how to fine tune those 80+ factors.

Added: Spouse and I have passed the 70 marker and our rate of spend is quite significant because we are still motivated enough to spend fairly lavishly on travel, recreation and home renos. I am guessing that rate of spend will drop to 75% of what we spend now and perhaps as low as 50% of current spend once in our '80s. Interest and health will be the driving factors, but already we are starting to have less enthusiasm today for the adventurous stuff than we did at age 65.
 

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Discussion Starter #3 (Edited)
Thanks for your reply AltaRed ... good to hear you think my reticence to plan to age 110 isn't off. All of the scenarios he's given me are "after tax and inflation." I'm hoping he'll run some scenarios for me with different outer age limits (95 and/or 100). I know he won't be comfortable only planning to age 90, and might even tell me to get a different planner if that's only how far I want to plan. Your second paragraph about 50/50 is well noted.

My planner has definitely suggested that one option is to take a higher income up until age 75 (the age at which he says many people start travelling less) to provide more money for travel before then. It's up to me whether I want to do that or not. However, when I look at the potential scenarios, I don't like the income after 75 since it might not be enough if I ended up in a similar situation as one of my parents. However, if he was planning to 95 or 100 instead of 110, then the income after age 75 could well be enough. I want to ask him what the difference in my income would be before and after age 75 in the various scenarios if we were planning to age 95 or 100. One thing about planning people need to realize is no scenario is correct because there are unknowns, and any planner who tells you they know exactly how it will go is full of it. For one thing, one doesn't know what the returns will be from investments until the end of each year ... and one doesn't know what the returns for the next decade will be until the end of the decade. So from that you can take that I'm not just invested in GICs or term deposits, which would be hard-pressed to even keep up with inflation. It's a whole different ball of wax planning to retire with a pension, than planning to retire based on managing your own investments. And it's even more interesting when markets are mediocre or flat, or there's constant talk of an impending recession. But the latter issues are my worries, not my planner's since when there's a downturn markets rebound and he's planning long-term.

I own a house, which at some point down the road if I live long enough will be sold, which would provide more to invest to create income.

Should also add that, as my FP says, financial plans aren't a static thing ... it's an ongoing process that has to be revisted on a regular basis. I don't think he says that because it's how he makes his money. It's just reality that life is fluid.
 

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One perhaps more important point is that our rate of spend starts to drop significantly after age 75 (or 80) because we have less desire/interest to spend money on travel, expensive recreation, etc. How many 85 year olds do you know that are still traveling and doing expensive things? A round of golf now and then and an evening out to the theatre might be it. FPs don't account for spending reductions in later ages. I'd suggest that if an FP doesn't do that, the FP is overstating needs.
I have a separate line on my retirement spreadsheet for "spending money", what's left over after all regular expenses are taken out. I reduce my income in the latter years (75+) as my spending habits will likely go down.

It's a tough calculation to do, to many variables, you just make your best guess. My planning goes to 85 years old BUT my house is not included in my retirement funds, that's my safety net.
 

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My homemade plan is based on me dying in the next year (not likely, but financially the worst case scenario) and my wife living until 95 (likely, because she has good genes and really takes care of herself).

If I live longer than planned our assets continue to accumulate. I think I might make it to 85, but that's probably good enough for me. If my wife lives to 100 or even 105, the estate will be a bit smaller than planned.
 

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Thanks for your reply AltaRed ... good to hear you think my reticence to plan to age 110 isn't off. All of the scenarios he's given me are "after tax and inflation." I'm hoping he'll run some scenarios for me with different outer age limits (95 and/or 100). I know he won't be comfortable only planning to age 90, and might even tell me to get a different planner if that's only how far I want to plan. Your second paragraph about 50/50 is well noted.

My planner has definitely suggested that one option is to take a higher income up until age 75 (the age at which he says many people start travelling less) to provide more money for travel before then. It's up to me whether I want to do that or not. However, when I look at the potential scenarios, I don't like the income after 75 since it might not be enough if I ended up in a similar situation as one of my parents. However, if he was planning to 95 or 100 instead of 110, then the income after age 75 could well be enough. I want to ask him what the difference in my income would be before and after age 75 in the various scenarios if we were planning to age 95 or 100. One thing about planning people need to realize is no scenario is correct because there are unknowns, and any planner who tells you they know exactly how it will go is full of it. For one thing, one doesn't know what the returns will be from investments until the end of each year ... and one doesn't know what the returns for the next decade will be until the end of the decade. So from that you can take that I'm not just invested in GICs or term deposits, which would be hard-pressed to even keep up with inflation. It's a whole different ball of wax planning to retire with a pension, than planning to retire based on managing your own investments. And it's even more interesting when markets are mediocre or flat, or there's constant talk of an impending recession. But the latter issues are my worries, not my planner's since when there's a downturn markets rebound and he's planning long-term.
... sounds like splitting hairs there.

...

Should also add that, as my FP says, financial plans aren't a static thing ... it's an ongoing process that has to be revisted on a regular basis. I don't think he says that because it's how he makes his money. It's just reality that life is fluid.
... sorry but how much did you pay for him/her to tell you this (or what you already know)?

Anyhow, my simple question to your FP - does he/she plan his/her own plan living to age 110 like that for every one of his client (as happy as they would like to hear living that long), using one of his cookie-cutting "planning" tool?
 

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Discussion Starter #7 (Edited)
... sounds like splitting hairs there.
... sorry but how much did you pay for him/her to tell you this (or what you already know)?
Your sarcastic question doesn't make sense, since obviously the financial planner provides a detailed financial plan not just a statement that "this is one option." There's a lot of information that goes into a financial plan, and a lot of information provided to me so I can make important decisions .... sustainable income figures for various scenarios. So when I wrote "My planner has definitely suggested that one option is to take a higher income up until age 75" obviously he provided me with variety of scenarios, each with sustainable income figures. One of the reasons I hired him was to determine when I could retire (now ... in #? years) since I found myself in a new situation financially. The other reasons I hired him was to discuss various investment options since I had a LOT of decisions to make. Before you make sarcastic comments about what someone wrote or whether hiring a financial planner is worth the money, consider that they're only posting what's directly relevant to the immediate issue they brought up (age to plan to), and not all the details, including the countless reasons I hired a financial planner, which is about the big, long-term picture. I don't have a pension plan, so I'm responsible for managing my assets so they last at least as long as I do, thus it's very important to get it right so 1) I can retire, and 2) I don't have to go back to work because I didn't plan adequately.

RE: Anyhow, my simple question to your FP - does he/she plan his/her own plan living to age 110 like that for every one of his client (as happy as they would like to hear living that long), using one of his cookie-cutting "planning" tool?

Yes, so this will be my point to him: that while planning to age 110 might be fine for his clients who have 5, 10 or 20 millions dollars, since I have much less than that it's likely better to plan for a shorter time period so I don't under spend when I don't have to. I want him to run the numbers for a variety of scenarios and to age 90, 95 and/or 100. Whatever your opinion is of financial planners (mine is a fiduciary RFP and CFP) ... I can't come up with these scenarios myself and nor could I make a decision to retire or not without financial planning. I know a lot of people have negative views of financial planners, however there are good ones out there and I chose mine carefully. He's independent and doesn't sell any investment products and so makes no commissions that way ... he is paid directly by his clients.
 

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When we did the financial plan in 2002, I fussed with longevity. At the time, my expiry date was forecast as 89. However that was with 50% accuracy (i.e. a median) so I analyzed the spread, namely that, while 89 was the 50% likely scenario, it meant that there was an 80% probability of living to 81 and a 20% probability of living to 97. (my Dad lived to 95) Add to that DW is three years longer with a higher probability of living longer and we chose age 100.

That was 17 years ago. The main thing that has changed is health. Like AR says, things change as we get older. For us, the main change has been higher costs of travel: business class air fares, luxury river cruises, high end hotel choices and more expensive travel medical insurance. This latter one has been brutal. It is what we call aging out. Nothing to do with health and claims. Just the insurance companies ensuring their profit margins.

However, the market has exceeded our expectations except in 2008-9, so it is easier to maintain the 100 year (20%) expectation. And that is without any specific consideration for end-of-life care. We have increased gifting.
 

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Projecting to 110 is ridiculous. If you want to retire early then you have to somewhat realistic....and also take into account that your spending beyond fixed expenses is not set in stone. I know several people in their 80's (my parents, aunts, uncles and some of their friends) and virtually all of them slowed down significantly by their mid-70s. They may live well beyond 90 but extensive travel is out along many other things that they used to do.
 

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... Before you make sarcastic comments about what someone wrote, consider that they are only posting what's directly relevant to the immediate issue they brought up (age to plan to), and not the entire picture, including the countless reasons I hired a financial planner, which is about the big, long-term picture. I don't have a pension plan, and I'm responsible for managing my assets so they last at least as long as I do, thus it's very important to get it right.
... that's what I'm getting at with the hairs ... how much difference in fundings are there between age 75 and 80, then 80 to 85? when it's the big picture to be looked at. I didn't mean to be sarcastic there but if you see it that way, then I'm sorry.

Obviously, you're happy with this planner so no further need for me to comment.
 

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I think 110 + is reasonable though would use deferred annuities to get there plus hold some gold.

Stem cells & technology could make 110 the new norm for those with money to travel to Asia. North America has to many restrictions for extending life expectancy with the use of stem cells.
 

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I think 110 + is reasonable though would use deferred annuities to get there plus hold some gold.
... so when do you expect those deferred annuities be purchased?

Stem cells & technology could make 110 the new norm for those with money to travel to Asia. North America has to many restrictions for extending life expectancy with the use of stem cells.
... okay, you got longevity here but what about quality of life?
 

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Discussion Starter #13 (Edited)
... that's what I'm getting at with the hairs ... how much difference in fundings are there between age 75 and 80, then 80 to 85? when it's the big picture to be looked at. I didn't mean to be sarcastic there but if you see it that way, then I'm sorry.

Obviously, you're happy with this planner so no further need for me to comment.
That's exactly what I want to know ... how much difference there would be in sustainable income under various scenarios if planning for a 10 or 15 year shorter time period than to age 110, which I agree is "ridiculous." So I've asked him if he can provide the long-term scenario analyses to age 95 and age 100. Wait and see what he says. I know he's trying to be incredibly prudent for all his clients, but I also know he's covering his butt in the event one of his clients lives beyond 100. When I started this process he told me what age he plans to and I accepted it because I had so many other decisions to make. However, it's a year later and I've had a chance to process a lot of information so now I want to revisit that ... hopefully he'll provide me with those alternate scenarios. I have no idea how much difference it would make to sustainable income until I see the numbers.
 

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However, it's a year later and I've had a chance to process a lot of information so now I want to revisit that ... hopefully he'll provide me with those alternate scenarios. I have no idea how much difference it would make to sustainable income until I see the numbers.
Try not to get to bogged down in the senarios but make sure you're comfortable with your ball park figure. Even a sustained 1% rise (or fall) in expected returns over 20+ years can have a significant impact on your portfolio balance. Same goes for early over-spending, you have to adjust your budget for the latter years to compensate for that.
 

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Discussion Starter #15 (Edited)
Try not to get to bogged down in the senarios but make sure you're comfortable with your ball park figure. Even a sustained 1% rise (or fall) in expected returns over 20+ years can have a significant impact on your portfolio balance. Same goes for early over-spending, you have to adjust your budget for the latter years to compensate for that.
Yep I know that, we've talked about that, and he's shown me scenarios with a difference of 1% between them after tax and inflation. But we don't know what it will be until we get there. I realize it's better not to overspend early on. Still, I wonder what difference it would make to plan to age 95 or 100, versus age 110. Perhaps not much, but would still like to assess.
 

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Knocking 10-15 years off your end date will be a significant amount.

You can do a quick estimate by looking at your plan, just add up 10-15 years of your budgeted income for those years.
So if you're inflation adjusted income of ~$50k/yr that'll leave you an extra $500k (for 10 years) to spend before the new end date, again, as a quick estimate.
 

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It is a reasonable request to require your FP to run some representative scenarios based on 95 or 100. Don't need to run both because it is easy enough to interpolate/extrapolate as necessary. No need to get too many results because one gets lost in the trees AND the world changes beyond one's assumptions. Re-running the scenarios every 5 to 10 years is not a bad idea as a reality check. Too many people poo-poo use of a fee-for-service FP but these folks can at least validate what one is thinking or to have observations an individual could miss. It's not a bad second opinion for those who are not sure of themselves.

Another angle to work out yourself is to apply VPW methodology https://www.finiki.org/wiki/Variable_percentage_withdrawal which has been backtested and is essentially comparable to RRIF methodology. It was originally developed for Americans via Bogleheads, but has been adapted to Canada. It is pretty certain your FP has never heard of it and therefore is not about to recommend it.

The joy of this method is that one's annual withdrawals are based on portfolio performance at the beginning of each year ensuring you do NOT run out of money until age 100. It will actually allow you to spend more money in the early years than conventional linear methods like SWR or SWR adjusted for inflation, or SWR reset each January based on portfolio value at the beginning of each year, but not run out of money until age 100.

The downside is the annual withdrawals will vary with portfolio performance so it is necessary to be flexible with annual spend.

Some will be uncomfortable heading for zero at age 100, but if one also has a home as an asset, then those funds will come into play when the house is sold and can be used to buy an annuity for longevity insurance, or a portion set aside outside the VPW calculation as a reserve (estate residual for heirs).

Added: I am 70 and use VPW methodology as a guidepost for what I can withdraw from my portfolio. I am fortunate that I never run into the annual caps that VPW cranks out, but at the same time has allowed me to increase my spend substantially in my best retirement years.

There is a long multi-year thread on FWF discussing VPW if there is any interest in your spare time. https://www.financialwisdomforum.org/forum/viewtopic.php?f=30&t=117200&sid=4231138af7283972eb06680a72813f65
 

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I've been planning to age 100, but I also use conservative sustainable withdrawal assumptions such as a 3% constant (inflation adjusted) withdrawal assumption.
 

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I've been planning to age 100, but I also use conservative sustainable withdrawal assumptions such as a 3% constant (inflation adjusted) withdrawal assumption.
That is fine if you wish to use that methodology, but you are most likely leaving some spending opportunity on the table depending on age of retirement and asset allocation https://www.finiki.org/wiki/Variable_percentage_withdrawal#VPW_Table With an age of 55 and a 50/50 allocation, you could be spending (including income tax) at 4.2% of the balance of your portfolio on Jan 1 of that year.

Added: I could be spending up to 5.6%. Not likely to do that, but instead, I have the luxury to also include my annual TFSA contribution as a spend item....thereby insuring I continue to fund my TFSA despite being in overall withdrawal. The TFSA will either be a reserve for end-of-life or a legacy.
 

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As always, this kind of planning makes the assumption that you are going to 'draw down' from capital. There is however another way and that is to not touch your capital at all but instead live off the income you generate. There is no age limit on how long that can be done for.

The problem for most people is that they cannot generate enough income with the capital they have or through pensions. Someone who has pension income of $100k for example has no need to draw down capital unless they want to live beyond $100k per year in spending. It's called living within your means.

What seems funny to me is that some people do live within their means all their lives and yet when they retire they suddenly switch to a 'live till when I guess I will die' mentality. Retirement is seen as a waiting for an end rather than simply a new time in life that should be treated in the same way as any other. Imagine someone 30 writing, 'what if I don't live to reach 40 and I die with money in my savings account, what a disaster.' Yet when someone writes, 'what if I plan for 110 and only live till age 90, I'll leave money in the bank, what a disaster', we don't see it as equally as stupid a thing to say. Or an even funnier way to put it, 'what if I live too long and run out of money?' I'm trying to imagine waking up one morning and saying, 'oh ****, I've lived too long.' There are people aged 110 who get up each morning and enjoy their day. Probably not in the same way as they did at age 30 or 40 but they enjoy it nevertheless. You're saying, 'I don't want a plan to do that'.

Interestingly, people who end up with nothing but government pension income don't have any problem. They have an income and they learn to live within in. When does it end, not until the day they die, WHENEVER that may be.

It seems to me there is something very fundamentally wrong with this 'I need to know when I will die, so I can plan' picture.
 
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