It's kind of hard to visualize in the abstract without looking at the report which would make it much easier to explain, but I think I can here.

The $160K per year would be about the amount if the DO spend down the 1M through age 100.

I think you can just give them a 1M special expenditure due in their last year of life (this would be the payment out to their estate or children or whatever). Set it in today's dollars. This will cause them to not save anything and spend that 60K of regular asset income each year. It would reduce their discretionary spending from 160K to 144K or thereabouts.

I'd have to stare at such a model for a bit to think if their are downsides here, but I think this is what you are wanting to model. You are assuming, I assume, that the annuities are 100% inheritable and good in today's dollars through the end of life. This is what it would take to not create a life insurance need.

Perhaps the reserve fund would do the same thing, but I don't think so because there would be no way I don't think to get the proceeds from the reserve fund back into their economy without a lot of special receipts etc.

Right. I'm not spending the 1M in the model I suggested (well, not until the final year when it it "spent" by giving it away or whatever--that is, it's never used for discretionary spending).

But you have 100K in income plus the 60K in interest income from the 1M). So, yes, that's 160K. But you have $13,423 in taxes and $2,518 in Medicare Part B so that leaves--to be precise given the model I just created:

$159,992 total income
-13,243 taxes
-2,518 medicare B
144,231 (left over for discretionary spending)

Obviously this would be lower discretionary spending if you count for taxes and insurance on the home, or rent.

This way of looking at it above is very simple as far as the results go.

You are right that if you use the reserve fund, and you are right that if you set it to maintain that 1M balance in today's dollars all the way down at 6% return and no inflation, then it will spill back to you regular assets 60K per year. But using that method, the program will put you on a Saving pattern and it will eventually give the 1M back to the family in the last year to spend. So that will be a receipt. But in anticipation of this receipt which the family is going to now spend (that's the way the reserve fund works--it eventually hands it back to you. To model otherwise you have to create an expense as I did in my model). But now ESPlanner has a peculiar problem: namely a 1M receipt in the last year of life. So it's going to do it's best to smooth discretionary spending up to that point and it's going to go on a saving / dissaving pattern creating more taxes, including AMT and FICA for high income and in the end it becomes a discretionary spending 118,546 through age 99 and then 1,028,579 discretionary at age 100.

If you create an expense in the last year and use the reserve fund, the discretionary spending is 119,867 because it still has you saving and dissaving creating a different tax pattern. I'd have to study it some more to figure
that out. I think it's because the 60K is counted twice or not at all something being carried over from the year 2014 maybe. I'd have to look.

I guess an important question is what happens to the 1M. Is it eventually spent by the household? Or is it handed off as a bequest? Makes a big difference. If not spent, then you have to create an expense to give it away.

You can also remove the special expenditure at the end and use the Estate bequest for 500K for each. This will give nearly the same results.

We may need Brain to weigh in! :)

Right. I'm not spending the 1M in the model I suggested (well, not until the final year when it it "spent" by giving it away or whatever--that is, it's never used for discretionary spending).

But you have 100K in income plus the 60K in interest income from the 1M). So, yes, that's 160K. But you have $13,423 in taxes and $2,518 in Medicare Part B so that leaves--to be precise given the model I just created:

$159,992 total income
-13,243 taxes
-2,518 medicare B
144,231 (left over for discretionary spending)

Obviously this would be lower discretionary spending if you count for taxes and insurance on the home, or rent.

This way of looking at it above is very simple as far as the results go.

You are right that if you use the reserve fund, and you are right that if you set it to maintain that 1M balance in today's dollars all the way down at 6% return and no inflation, then it will spill back to you regular assets 60K per year. But using that method, the program will put you on a Saving pattern and it will eventually give the 1M back to the family in the last year to spend. So that will be a receipt. But in anticipation of this receipt which the family is going to now spend (that's the way the reserve fund works--it eventually hands it back to you. To model otherwise you have to create an expense as I did in my model). But now ESPlanner has a peculiar problem: namely a 1M receipt in the last year of life. So it's going to do it's best to smooth discretionary spending up to that point and it's going to go on a saving / dissaving pattern creating more taxes, including AMT and FICA for high income and in the end it becomes a discretionary spending 118,546 through age 99 and then 1,028,579 discretionary at age 100.

If you create an expense in the last year and use the reserve fund, the discretionary spending is 119,867 because it still has you saving and dissaving creating a different tax pattern. I'd have to study it some more to figure
that out. I think it's because the 60K is counted twice or not at all something being carried over from the year 2014 maybe. I'd have to look.

I guess an important question is what happens to the 1M. Is it eventually spent by the household? Or is it handed off as a bequest? Makes a big difference. If not spent, then you have to create an expense to give it away.

You can also remove the special expenditure at the end and use the Estate bequest for 500K for each. This will give nearly the same results.

We may need Brain to weigh in! :)

Here's a much more realistic option, that is simple to implement and very flexible. It's the standard of living approach that I've mentioned in other posts.

In this approach, (ignoring the housing info from my last post), go to Assumptions, Std of Living tab. Set your Living Standard Index value to a very high number in your last year of life. I started with 1000, then played around for a few minutes to settle at 868 (in my model, yours will be different). This leads to:

Consumption $130,317
Regular assets between $1,000,011 to $1,000,787
Total income between $160,000 to $160,047

Edit - Steve, I posted this before seeing your response immediately above.

Edit #2 - If you turn off taxes (set Federal/State taxes to decline 100% in 2015 per Dan's post below), then change the living standard to 735 in your last year of life (in my model), it's almost a perfect fit for keeping $1M in regular assets and $160,000 annual income with $157,482 for consumption.

Best,
Brian

I don't know. It doesn't seem much more complicated I guess. The reserve fund is used by people and I've seen questions about how to use that.

The limiting consumption question may be a bit of an outlier, but it's maybe not clear to me what is meant by that. Nobody in real life would ever want to limit consumption until age 100 and then live one's final year on the planet like a millionaire. I have seen people say they want to limit consumption in order to give away a large lump sum to their children and in that case it's a simple model I described where you create a special expense in the final year. That both lowers lifetime consumption and it provides the gift going outside the family economy in the last year. A bequest could be used there, but the problem with a bequest is that it designed to be available in the event of the death in ANY year. Many people say: No, I don't want to leave a million dollars if I die next year and I'm not willing to insure for that possibility. However, if I do make it to 100, then I would be willing to leave a million or whatever I have left. So that's how the future special expenditure would work.

I'm not sure which of those things you were wanting to model.

Yes, I didn't change the tax rate to zero in my model.