Reserve Fund and Contingent Planning
Our primarily use of a reserve fund is to tide us over in the case of unexpected unemployment. We therefore calculate the size of the fund based on expected expenses over the period of unemployment we want to provide for.
But in the case of contingent planning ESPlanner appears to only allow us to to treat the reserve money as a bucket to go to the survivor instead of allowing us to specify an alternate amount to be used in the case one of us dies.
Is there anyway to specify alternate reserve fund amounts for contingent planning? We can do that for special expenses and receipts, why not the reserve fund as well?
Thanks,
Yaron
P.S. Of course what I really want is a way to calculate an 'unemployment self insurance' fund that would hook directly into our consumption smoothing path but I also want a pony. :)
RSS
Well, you can reduce the amount of the reserve fund in future years, which frees the money to go back into your active economy. The transfer to a survivor is the behavior if you never spend it. Contingent planning is contingent upon the death of one of the spouses, so the transfer of the reserve fund makes sense. If what you're saying is that there isn't a contingent reserve fund, then you're right, there isn't and what you're really asking for is a new feature that allows you to activate a reserve fund plan in the event of the death of a spouse.
Interesting notion; I have to admit we've never thought about it (or seen the need for it). We can toss it on the requested features list for further discussion.
Best,
Dick Munroe
Yes, I am asking for that feature. The reason being that we use the reserve fund to 'self insure' against temporary (up to a year or two) unemployment (since unemployment insurance itself pays so little compared to our incomes). When we are both alive we put enough money into the reserve fund to keep the family going for the period we are covering. We reduce the reserve fund as our expenses go down and when we retire the reserve fund rolls into general savings.
We can model all of this with the existing reserve fund mechanism.
Where we run into trouble is with contingent planning. In that case we still need a reserve fund and it still plays exactly the same role as its non-contingent counter part but the amount to be put in is smaller because the expenses to be covered are smaller since one of us is, well, dead.
You can probably play clever tricks with the special expenditures/receipts mechanism for now.
Define a bunch of special expenditures in the event of death that would go into a reserve fund. Keep track of this on the side (sorry, but I'm doing the best I can here and Microsoft Office or Star Office or NeoOffice all have excellent spreadsheets), including growth, and draw on it as a special receipt (non-taxable for the principal, taxable for the interest unless you've been paying taxes on the interest/growth as you go) as necessary. You may have to add in special receipts year to year to account for taxable asset growth in the reserve fund, depending on how you intend to invest it.
In principle you could fake the same thing with a Roth account if you weren't using one already, just make contingent deposits into the Roth and draw on it as needed (the upcoming release will have finer control over retirement account withdrawals). Unfortunately that gets folded into things like the overall retirement account withdrawal strategy, etc. and probably isn't worth dealing with unless we get around to implementing finer control over the ages of withdrawals from retirement accounts (legally they need not be the same and in particular, you need never withdraw assets from a Roth).
I will toss the contingent reserve fund onto the list for discussion.
Best,
Dick Munroe