how long will it last?

Preparing for life after work. RRSPs, RRIFs, TFSAs, annuities and meeting future financial and psychological needs.
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demann
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how long will it last?

Post by demann »

Is there a formula which can tell you how long your nest egg will last if the returns on your nest egg don't fully meet your living needs thus each year you have to spend some of the principle.
eg. You have 100k nest egg, you get 10% return every year but you need 20k per year to live, thus must spend some of the egg . Is there an easy way to determine when you'll run out of money?
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Shakespeare
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Re: how long will it last?

Post by Shakespeare »

You mean like Explain Year to Zero, by gummy

As well as several others by Gummy.

Or this: http://www.telusplanet.net/public/kbetty/ruin.xls
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ghariton
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Re: how long will it last?

Post by ghariton »

Also any life annuity table. (An annuity is sorta like a reverse mortgage.) Most business pocket calculators have an annuity function built in.

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Koogie
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Re: how long will it last?

Post by Koogie »

I use this one sometimes because it is simple. It also allows for deposits (like CPP/OAS/pension estimates) and your monthly withdrawals.
Not sophisticated but easy.

http://www.calculatorsoup.com/calculato ... ulator.php
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Re: how long will it last?

Post by Jaunty »

Part way down the page at the link below is a section called "Die Broke". An Excel spreadsheet is available in that section to allow you to do the calculation. It is simple and I like it. (Someone on this forum alerted me to this several years ago.)

http://www.retailinvestor.org/retire.html
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Re: how long will it last?

Post by SoninlawofGus »

I use a modified Excel spreadsheet that I downloaded years ago. The basic spreadsheet provides for assets, income tax, after-tax return, inflation, mortgage, life expectancy, etc. I modified it to include CPP and OAS for me and my spouse, as well as my spouse's expected DB pension. One key number is your after-inflation portfolio assumptions. Some assume real returns as high as 3-4%. I'm far more conservative, with expectations of only 0.35%, which is on the very low end. But that should serve us well, because I at least intend to retire early, and we have a long time horizon to plan for in retirement.
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Re: how long will it last?

Post by steves »

Remember, income tax is not simply a rate, it is a complex algorithm comprised of indexed tax brackets, tax credits and clawbacks.... The formulation changes yearly.

The fully tax-accurate, needs-based calculation, including loans, entitlements, future cash windfalls, variable salary profile, etc., is a major chunk of work. Spreadsheeters need not apply.
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Re: how long will it last?

Post by SoninlawofGus »

steves wrote:The fully tax-accurate, needs-based calculation, including loans, entitlements, future cash windfalls, variable salary profile, etc., is a major chunk of work. Spreadsheeters need not apply.
Well, that depends on your assumptions...and also on how complicated you want to make it. It's not that difficult to estimate after-tax income in retirement.
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Re: how long will it last?

Post by steves »

I disagree. In retirement, income tax varies all over the map as various forms of capital come in and out of play over time.
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Re: how long will it last?

Post by izzy »

At the risk of stating the obvious its not how long it WILL last but how long you need/want it to last that is paramount! Sadly realism and wishful thinking are in conflict in estimating THAT.
The rest is just math-you just need to know the factors to put in the calculation to be sure but just math!
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Re: how long will it last?

Post by steves »

Math can be either hard or easy. Trust me this is hard.... the calculation is a recursive clusterf**k.
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Re: how long will it last?

Post by izzy »

The problem is that you have to make too many assumptions,solving a problem with several unknowns requires too much guesswork. Even if we assume the relationship between the variables doesn't change (e.g.taxation policy) it' s just an "educated" guess-doesn't mean the exercise is not worth while doing since it's the only guidance available, but sadly one shouldn't put so much faith in the results!
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Re: how long will it last?

Post by steves »

Geez. That's why they call it FINANCIAL PLANNING!

What happens if I max/shelter my RRSP? or attack/deplete it? or
what if I die prematurely? or
what if I take early/late CPP or OAS? or
pay off my loan quickly/slowly? or
rates go thru the roof/collapse?

Sheesh.
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Re: how long will it last?

Post by izzy »

Call it FINANCIAL STRATEGY then ,not FINANCIAL PLANNING!
You can use a PLAN to build a house since most of the physical properties of the materials are fixed and you only need to choose which ones will meet your purpose.
But you use a STRATEGY to fight a battle since virtually all of the conditions (including those facing the opposition) are subject to change.There are just as many many variables in financial matters-too many what ifs.Governments change ,taxes change,income and cost of living changes,health changes (self and spouse) etc unpredictably .You may even decide to relocate.And all of these require a degree of flexibility more typical of STRATEGIC thinking than PLANNING.
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Re: how long will it last?

Post by StuBee »

To plan is necessary. To fix a goal is the first thing required. (As Aristotle would say: The Final Cause is accomplished posterior in time, but the knowledge of it precedes the Efficient Cause and is first in time.) A balance between optimism and caution is a prerequisite to determine this goal. Yes there are numerous variables. Therefore assumptions are necessary and can be made though they must be modified according to the passage of time. I have mentioned before how important it is to be hopeful. It is as important, for the plan, as being rational. Odysseus made it to Ithaca inspite of all the mishaps along the way...
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Re: how long will it last?

Post by izzy »

With strategy you try to anticipate what your opponent will do.Think of it as a game of chess.
For one example ;-pension sharing means that it may make more sense to make all RRSP contributions in the name of the younger spouse to benefit from a longer deferral but just as the current government rolled back the TFSA limit pension sharing could also be reversed with the stroke of a pen.Therefore strategically it still makes sense to try and produce equal incomes in retirement in other ways and not depend on being able to pension split in the future and that may mean making equal contributions in the name of each spouse or using interspousal loans etc to even things up.I don't think one can just call that planning!
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Re: how long will it last?

Post by StuBee »

I agree that, from a government perspective, wealth splitting is far more powerful than income splitting... That is a part of why I am particularly fond of the spousal RRSP. Spousal loans will accomplish the same thing (as long as wealth is actually being created beyond the cost of the loan, and yes, I am aware how low prescribed rates are...)

But, what will stop the government, with a stroke of a pen, from imposing a wealth tax. It will always be difficult, even impossible, independent of strategy, to win a battle with the legislative arm of the sovereign... You have to role with the punches. That is why I prefer the voyage analogy of The Odyssey. There will always be obstacles to overcome...

But, we are probably saying the same thing. For myself, to act and think strategically is simply the application of my mind to the matter and is integral to "the plan".
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Re: how long will it last?

Post by izzy »

StuBee wrote:
But, what will stop the government, with a stroke of a pen, from imposing a wealth tax. It will always be difficult, even impossible, independent of strategy, to win a battle with the legislative arm of the sovereign... You have to role with the punches. That is why I prefer the voyage analogy of The Odyssey. There will always be obstacles to overcome...

But, we are probably saying the same thing. For myself, to act and think strategically is simply the application of my mind to the matter and is integral to "the plan".
Exactly,that in a nutshell is my objection to the use of the term "planning"
One tries to anticipate the strategy of the opposition-not always successfully.But "plan" seems to me to ignore fallibility whereas "strategy" tries to anticipate it.
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Re: how long will it last?

Post by kcowan »

I can have a strategy to gain wealth but it is useless without a plan to achieve it. That plan has to change whenever reality changes. That is the power of the plan. I can immediately see the effects and adapt accordingly.

While I agree it is a semantic argument, those are the definitions I grew up with.

The strategy is the what.
The plan is the how.
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Re: how long will it last?

Post by izzy »

kcowan wrote:
While I agree it is a semantic argument, those are the definitions I grew up with.

The strategy is the what.
The plan is the how.
I would have said the exact opposite Keith ,I can plan to live to 100 but my strategy for getting there will vary with the advice I get, It's 'not important as long as the advisor and the client use the same meanings .Otherwise it's just another way to confuse the issue to the detriment of the client!
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Re: how long will it last?

Post by deaddog »

kcowan wrote: I can have a strategy to gain wealth but it is useless without a plan to achieve it. That plan has to change whenever reality changes. That is the power of the plan. I can immediately see the effects and adapt accordingly.

While I agree it is a semantic argument, those are the definitions I grew up with.

The strategy is the what.
The plan is the how.
The Goal is the what.
The plan or the strategy is the interchangeable how.
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Re: how long will it last?

Post by izzy »

For me the plan is the overall framework or design e.g.RRSP,TFSA ,CCCP etc and is somewhat inflexible (the architecture?)-changing it can have complex ramifications and need professional advice.
The strategy however has to be flexible,its how you react to changing conditions.whether you borrow or pay off an investment loan or mortgage for one instance,stocks bonds or GICs etc (the furnishings?)
It doesn't really matter what terms you use of course as long as those you interact with use the same definitions so that your intentions are clear!
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Re: how long will it last?

Post by OnlyMyOpinion »

Wow Steves, How long to you plan to let this fish run? :)
Or have you already calculated "how long it will last". :wink:
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Re: how long will it last?

Post by steves »

OnlyMyOpinion wrote:Wow Steves, How long to you plan to let this fish run? :)
Or have you already calculated "how long it will last". :wink:
I was so busy with my OED that I wasn't watching my gear and the line got stripped. Bummer.
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