Some
retirees use a safe withdrawal rate to determine how much they can withdrawal
from their portfolio each year. This is
done so that the retiree will not outlive his/her assets. A budget for the retiree can be done in
accordance with the safe withdrawal to give guidance to the client.
How does
budgeting differ for a retiree when health care costs are separately calculated
(as they are in PDRP Plus)?
Budgeting
for retirees has traditionally involved projecting the expenses for the retiree
for the upcoming period of time, usually one calendar year. Typical expenses would include food (at home
and at restaurants), utilities, car expenses, vacations, real estate
taxes,gifts to charities and many other items. This budgeting generally includes
health care costs. Of course, that is a
problem with budgets, since the healthcare costs can vary a lot (due to the
uncertain risks of long-term care, hospital and doctor visits and drug costs),
and the budget will not always predict the costs accurately.
BUT:
Because PDRP
Plus includes health care costs separately, there is no need to budget for
these unpredictable costs. By living
within the safe withdrawal rate computed by PDRP Plus, there is much more certainty
that the goal of not outliving assets will be met than by budgeting some fixed
amount of healthcare expenses and hoping for the best.
TO REALLY BE
TECHNICAL:
The
following expenses are “built in” to the safe withdrawal rate computed by PDRP
Plus. The retiree does not have to
budget the following items:
Health care
costs, other than dental and eye care
Federal and
state income taxes
Federal
estate tax
State estate
and/or inheritance tax
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