Is there a rule of thumb for this? Compared to the total asset base, when do annual spending needs become substantial and when are they not substantial? 5%? 10%? 20%? 30%? At what point do we consider them substantial enough to affect risk tolerance/IPS
I would say anything beyond 10 makes client vulnerable no rule of thumb though
Also, along the same lines… In the 2007 AM Exam Q1 they talk about the option of “re-employment” because the retired couple are still young (i.e., 50 years old) How old do you have to be before this isn’t an option for you anymore? This seems really ambiguous?
pupdawg82 Wrote: ------------------------------------------------------- > I would say anything beyond 10 makes client > vulnerable > > no rule of thumb though Ok 10% works for me… thanks Pup!
Yeah, I was really shocked they listed reasons like “they could get another job” or “they could decide not to donate the house” for an above ability risk tolerance. I haven’t looked over the past IPS’s in a while but I’m guessing that as long as it doesn’t explicitly state that they can’t/won’t work anymore we can assume that they should be able to work if required. FWIW I think 10% is too high… one of the Schweser instructors said that anything between 5-7% depends on the situation of the client (ie if they really can’t work again and they don’t have a house they can sell, that would have changed things). Anything 7%+ is definitely going to start reducing tolerance. Makes sense to me because if I recall correctly with an endowment, they say that spending rules above 5% could put an endowment in danger… I know it isn’t exactly the same situation but if something like an endowment starts getting in trouble at 5% then I have to think that individuals can’t really go much higher than that either.
CF_AHHHHHHHHH Wrote: ------------------------------------------------------- > Also, along the same lines… > > In the 2007 AM Exam Q1 they talk about the option > of “re-employment” because the retired couple are > still young (i.e., 50 years old) > > How old do you have to be before this isn’t an > option for you anymore? This seems really > ambiguous? It’s subjective BS, but if they are 50’ish then it’s an option, over 65 (maybe even 60?) it wouldn’t be on.
remember, we’re looking at guideline answers. they are including the b.s. of thousands of candidates that they couldn’t reject as “wrong”. they aren’t looking for us to come up with that for full credit.
There are so many issues (terms) without tangible/clear definitions !
I use the following, for income need <5% higher ability to take risk 5-7% average >7% lower ability In the real world there aren’t many that would say anything over 5% is a safe withdrawl rate and that takes into account inflation/mgmt fee.
Agree w/Sponge Bob. The only exception I can think of (will have to check tonight - don’t have the answer key handy) is the '05 exam, #7. Anyone have this open now? Re: their ability to work again, agree with jut111… it’s a fluff answer that isn’t technically wrong, so they incorporate into the answer key.
another point to remember - we’re the ones that have looked more at old exams than the graders.
Agreed. I wouldn’t wholly rely on any rule-of-thumb
Those “fluff” things like “ability to work again” are actually used in the real world, at least we consider them. We have a client who retired early by traditional standards and pondered if he was too aggressive in this withdrawl rates…his ability to return to the workforce was even something he brought up; plus he has multiple homes which could also be liquidated to reduce expenses and raise funds. I know they can be harder to incorporate because they aren’t black & white, but it isn’t just something embedded in academia with no real world application.