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- Sep-01-2010
Modeling Early Death
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I am trying to model the impact on my partner’s living standard should I die before the age, 94, we’ve set for end of life. After reading the tutorial and help manual I’m still confused on how to do this. I only need to model my early death because my assets are adequate to support our current standard of living if she dies before me.
My partner & I are retired, in our late 60’s, and not married. We share all our living expenses but maintain separate financial accounts for our Pensions & assets. We also have separate special expenses and receipts which are not shared, i.e., If I die before I receive an inheritance from my family, my share of the inheritance would go to my siblings not my partner. Our home has no mortgage and the survivor would continue to live in it until he/she died then it would be sold & the proceeds split among our families. Here’s my problem.
I want to leave a portion of my IRA assets to my siblings with the rest going to my partner. I need to determine how much of my assets I need to leave my partner so that her standard of living remains unchanged if I die prior to age 94. However, when I run the survivor report and pick a date of death, the program assumes that my entire IRA goes to my partner so the results don’t provide me with the information I need. In addition, the program assumes all the special expenditures & receipts continue past my death. How do I use ESPlanner so that it does not incorporate my expenditures & receipts in the analysis if they occur past the early death date I’ve selected? Is this accomplished by turning “ON” Contingent Plans, copying all special expenditures & receipts then deleting all of mine after the early date of death I’m modeling? Is pension income automatically excluded beyond the date of death selected for the survivor report?
My approach is to select a date for my early demise, estimate what my IRA assets would be in that year, set a portion of those assets as a bequest at my death then run the analysis. If the main report showed my partner’s living standard was less than when we both live to be 94 then I would rerun that case but decrease the amount of the bequest. It may take several iterations to get an acceptable answer but I’d only do it for 2 or 3 early death scenarios.
ESPlanner is a great program. I just need some help to use it to its full potential in modeling our financial future.
Thanks,
James
RSS
From: Laurence Kotlikoff
HI JAMES,
I REPLY BELOW IN CAPS TO YOUR SPECIFIC QUESTIONS. REALLY GLAD YOU LIKE THE PROGRAM. BEST, LARRY
My partner & I are retired, in our late 60’s, and not married. We share all our living expenses but maintain separate financial accounts for our Pensions & assets. We also have separate special expenses and receipts which are not shared, i.e., If I die before I receive an inheritance from my family, my share of the inheritance would go to my siblings not my partner.
YOU SHOULD ENTER YOUR INHERITANCE AS A SPECIAL RECEIPT IN YEAR AND ALSO AS A CONTINGENT SPECIAL EXPENDITURE ALSO IN YEAR X SO THE PROGRAM KNOWS THAT IT WON'T BE AROUND FOR YOUR PARTNER IF YOU DIE.
Our home has no mortgage and the survivor would continue to live in it until he/she died then it would be sold & the proceeds split among our families. Here’s my problem.
I want to leave a portion of my IRA assets to my siblings with the rest going to my partner.
I WOULD SEGREGATE THE IRA ASSETS THAT YOU WANT TO LEAVE TO YOUR SIBS AND JUST NOT ENTER THEM INTO ESPLANNER.
I need to determine how much of my assets I need to leave my partner so that her standard of living remains unchanged if I die prior to age 94.
THE MORE OF THE IRA ASSETS YOU DON'T ENTER ESPLANNER THE LARGER WILL BE ITS RECOMMENDED LIFE INSURANCE HOLDINGS FOR YOU TO ENSURE YOUR PARTNER HAS THE SAME LIVING STANDARD. SO PLAY AROUND WITH DIFFERENT AMOUNTS HELD BACK AND SEE HOW MUCH LIFE INSURANCE THIS ENTAILS BUYING AND DETERMINE WHAT FEELS BEST.
However, when I run the survivor report and pick a date of death, the program assumes that my entire IRA goes to my partner so the results don’t provide me with the information I need.
RIGHT, BUT IF YOU DON'T ENTER ALL YOUR IRA ASSETS, JUST THE AMOUNT YOU ARE HAPPY FOR YOUR PARTNER TO INHERIT, ALL WILL BE RIGHT.
In addition, the program assumes all the special expenditures & receipts continue past my death. How do I use ESPlanner so that it does not incorporate my expenditures & receipts in the analysis if they occur past the early death date I’ve selected?
CLICK ON THE CONTINGENT BUTTON AND ENTER CONTINGENT SPECIAL RECEIPTS AND EXPENDITURES.
Is this accomplished by turning “ON†Contingent Plans, copying all special expenditures & receipts then deleting all of mine after the early date of death I’m modeling?
YES, CONTINGENT PLANNING CAN HELP YOU HERE.
Is pension income automatically excluded beyond the date of death selected for the survivor report?
PENSION INCOME WILL BE AVAILABLE TO YOUR PARTNER IF YOU SPECIFIED THAT THERE IS A SURVIVOR BENEFIT.
My approach is to select a date for my early demise, estimate what my IRA assets would be in that year, set a portion of those assets as a bequest at my death then run the analysis. If the main report showed my partner’s living standard was less than when we both live to be 94 then I would rerun that case but decrease the amount of the bequest. It may take several iterations to get an acceptable answer but I’d only do it for 2 or 3 early death scenarios.
ESPlanner is a great program. I just need some help to use it to its full potential in modeling our financial future.
From: donald.thompson...
Larry,
You said that
"THE MORE OF THE IRA ASSETS YOU DON'T ENTER ESPLANNER THE LARGER WILL BE ITS RECOMMENDED LIFE INSURANCE HOLDINGS FOR YOU TO ENSURE YOUR PARTNER HAS THE SAME LIVING STANDARD. SO PLAY AROUND WITH DIFFERENT AMOUNTS HELD BACK AND SEE HOW MUCH LIFE INSURANCE THIS ENTAILS BUYING AND DETERMINE WHAT FEELS BEST."
This doesn’t work because it reduces our standard of living and consumption to far less than we can sustain if I don’t die young. And as a result, it does not recommend any life insurance. I also found that I had to tell the program that only 25% of my non-annuitized investments would be spent. Otherwise it took out all of my IRA during my lifetime and put whatever wasn’t spent into saving. Trouble with this approach is that I ended up paying a fortune in taxes unnecessarily. What I’d love to be able to do is tell the program to take out the minimum required by law each year or some other amount. Don’t know if this is feasible.
What I think will work is to input all my IRA assets, select a small percentage of non-annuitized assets that will be spent, & use a bequest to define the amount of my IRA to be given to my siblings. For a given early date of death, I can vary the selected percentage and the amount of the bequest until I find an acceptable balance between all the variables. Does this sound correct?
James