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Newbie here: would like to retire some day!
Old 02-25-2013, 07:58 AM   #1
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Newbie here: would like to retire some day!

Hello all, just found this board through links from other boards.

Quick intro: I am 44, DW is 41, 4 kids ages 11-15. I have never had a retirement "plan", but have been trying to contribute to 401ks and IRAs for the past 15 years or so. Between DW and I, we have about 180k in those accounts, and are maxing our IRAs each year and trying to add more to our employer plan, maybe 1500 extra a year.

I went to FIREcalc and put in the applicable numbers, and it says with a target retirement age of 58, with 182k in savings, adding and extra $10k in 2013, and contributing $13k a year for the next 14 years, I have a 100% chance of success. This is with 50,000 a year spending, and lasting until I am 94.

"Because you indicated a future retirement date (2027), the withdrawals won't start until that year. Your contributions will continue until then. The tested period is 14 years of preretirement plus 36 years of retirement, or 50 years.
FIRECalc looked at the 91 possible 50 year periods in the available data, starting with a portfolio of $182,000 and spending your specified amounts each year thereafter.
Here is how your portfolio would have fared in each of the 91 cycles. The lowest and highest portfolio balance throughout your retirement was $182,000 to $6,862,758, with an average of $2,693,660. (Note: values are in terms of the dollars as of the beginning of the retirement period for each cycle.)
For our purposes, failure means the portfolio was depleted before the end of the 50 years. FIRECalc found that 0 cycles failed, for a success rate of 100.0%.
"

This also includes my SS and DW pension, total of about 22k a year starting when I'm 62 and she is 62.

Still this was amazing, and I am not sure how accurate this is. I have always heard the 25 times your annual spending, which would mean I would need 700k in savings after assuming SS and pension. I guess doing the calcs myself now in spreadsheet, assuming 7% earnings, and those types of contributions, this may be a reality??!?

dozer
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Old 02-25-2013, 08:28 AM   #2
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The rule of thumb "save 25x annual spending" does not count the value of your SS + pension as savings.
SS and pension roughly amount to a value of 550K over 25 years.
Then add your 182K + some future savings and you come up with even more than the rule of thumb.
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Old 02-25-2013, 09:15 AM   #3
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Originally Posted by dozer183e View Post
I have always heard the 25 times your annual spending, which would mean I would need 700k in savings after assuming SS and pension.
That looks right $50K - $22K = $28K x 25...except the 25x rule (1/4%WR is meant for someone planning a 30 yr retirement (ie, age 65). For age 58 many people would use 33X, or 1/3%WR, to be safe. And remember you have to pay taxes for life and health care out until age 65 at least from that $50K/year...


Obviously I misinterpreted something in your entries, but I got:

"FIRECalc Results

Your spending in every year after the first year will be adjusted for inflation, so the spending power is preserved.

Because you indicated a future retirement date (2027), the withdrawals won't start until that year. Your contributions will continue until then. The tested period is 14 years of preretirement plus 36 years of retirement, or 50 years.

FIRECalc looked at the 91 possible 50 year periods in the available data, starting with a portfolio of $182,000 and spending your specified amounts each year thereafter.

Here is how your portfolio would have fared in each of the 91 cycles. The lowest and highest portfolio balance throughout your retirement was $-914,322 to $4,344,059, with an average of $976,460. (Note: values are in terms of the dollars as of the beginning of the retirement period for each cycle.)

For our purposes, failure means the portfolio was depleted before the end of the 50 years. FIRECalc found that 24 cycles failed, for a success rate of 73.6%."

I entered:
Spending $50,000
Portfolio $182,000
Years 50
Soc Sec $11,000 starting 2027, another $11,000 starting 2030 (wife) - just split in half since you didn't specify, I suspect this is where our entries differed.
Pension?
Year to retire 2027
Additions until then $13,000/year

I left everything else on default
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Old 02-25-2013, 11:20 AM   #4
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Yes, sorry, some details not included. I think the main one would be tha ti used the Bernicke spending model. Also, SS would be 16,000 for me at 62, 0 for DW, but 6,000 for DW for Pension at 62 (i think).

Anyways, as I said in the original post, I had never have had a retirement "plan", so I am not necessarily planning on retiring at 58. We have just been contributing what we could in hopes that when the day comes that we can't work anymore, we'd have some source of income.

Now that I have a bit of a nest egg developing, I am curious how to "make a plan" so to speak.

Looking forward to getting up to speed and figuring more out.

dozer
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Old 02-25-2013, 12:24 PM   #5
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I think the main one would be tha ti used the Bernicke spending model.
I run Firecalc scenarios periodically, and I'm frankly uncomfortable relying on the Bernicke spending model for a real-world retirement plan. IMO, it's much safer to have planned for static spending (at least through age 70 or so), and have more cash than expected, than to assume that spending will drop 2-3% *every year* from 56-76. The annual spend calculated from 76 on always looks way too low for comfort to me. YMMV.

Curious is any currently retired folks could comment on whether their spending in retirement has followed the Bernicke pattern?
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Old 02-25-2013, 02:21 PM   #6
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I run Firecalc scenarios periodically, and I'm frankly uncomfortable relying on the Bernicke spending model for a real-world retirement plan. IMO, it's much safer to have planned for static spending (at least through age 70 or so), and have more cash than expected, than to assume that spending will drop 2-3% *every year* from 56-76. The annual spend calculated from 76 on always looks way too low for comfort to me. YMMV.

Curious is any currently retired folks could comment on whether their spending in retirement has followed the Bernicke pattern?
I am not retired but I agree that I would like my spending static for a longer time. I run the Bernicke pattern with 10 or 15 years subtracted from my age to delay the drop in spending.
This allows the spending decrease to happen when I think I will be slowing down.
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Old 02-25-2013, 04:07 PM   #7
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I am not retired but I agree that I would like my spending static for a longer time. I run the Bernicke pattern with 10 or 15 years subtracted from my age to delay the drop in spending.
This allows the spending decrease to happen when I think I will be slowing down.
I run pretty much all the scenarios... to compare.
I also subtract a decade or so from my age to force the drop in spending to later.

As far as whether Bernicke applies... Looking at my dad - not really... He upgraded his travel style when the market did better than he planned. (First class, baby!) Looking at my in-laws... probably true - at least in their 80's. They really didn't spend much at all until in-home nursing care and nursing home charges entered the picture. But for the last decade, they spent very little.
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Old 02-25-2013, 05:33 PM   #8
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Curious is any currently retired folks could comment on whether their spending in retirement has followed the Bernicke pattern?
Been retired for a little over five years (retired Jan 2008 at 58). My annual expenses have been remarkably constant. If anything, I suspect they will slowly rise (~3 to 5%/yr), the next few years.
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Old 02-25-2013, 05:34 PM   #9
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Welcome aboard, dozer.
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Old 02-25-2013, 06:47 PM   #10
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Originally Posted by dozer183e View Post
Yes, sorry, some details not included. I think the main one would be tha ti used the Bernicke spending model. Also, SS would be 16,000 for me at 62, 0 for DW, but 6,000 for DW for Pension at 62 (i think).

Anyways, as I said in the original post, I had never have had a retirement "plan", so I am not necessarily planning on retiring at 58. We have just been contributing what we could in hopes that when the day comes that we can't work anymore, we'd have some source of income.

Now that I have a bit of a nest egg developing, I am curious how to "make a plan" so to speak.

Looking forward to getting up to speed and figuring more out.

dozer

I do think you are underestimating your SSA. You just are kind of young and have not put all the years in yet and your income will rise between now and then. There is also one other aspect. You mention you max out your 401k but 13000 per year is not max. I believe and if I am wrong other's will shoot me, you can do 17,000. I can understand if that is all you can put in and that is max to you. It is more than I was able to so please do not take this as a rib or poke. You are doing great. Your savings right now is spot on for a good nest egg.
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Old 02-25-2013, 08:11 PM   #11
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I think OP IS maxing out two Roth IRAs, which at $5500 each, plus an extra $1500 to his 401k, would equal $12,500. Planning to increase that to $13,000 and so used that in his calculations.

If he's talking about 401ks, the max now is $17,500.
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Old 02-25-2013, 08:17 PM   #12
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There is also one other aspect. You mention you max out your 401k but 13000 per year is not max. I believe and if I am wrong other's will shoot me, you can do 17,000. I can understand if that is all you can put in and that is max to you. It is more than I was able to so please do not take this as a rib or poke. You are doing great. Your savings right now is spot on for a good nest egg.
I think OP said he's maxing out his and DW's IRAs, which obviously have lower contribution limits ($5500 this year?), so it sounds like he's contributing as much as he can. The 401k limits bumped up to $17,500 this year, which is nice. Every little bit helps!

Edit: psyprof beat me to the punch, and more succinctly at that.
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Old 02-25-2013, 08:38 PM   #13
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But I am right on the SSA. He is talking 16,000 per yr and I think he will be higher than that.
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Old 02-25-2013, 09:06 PM   #14
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But I am right on the SSA. He is talking 16,000 per yr and I think he will be higher than that.
Yes, probably so. It's difficult to say without knowing OP's earning history.
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Old 02-25-2013, 09:56 PM   #15
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But I am right on the SSA. He is talking 16,000 per yr and I think he will be higher than that.
I've only averaged around 50-60k a year, and while that fluctuates a bit, won't be increasing much over my next decade working. Just checked SSA and they estimate my monthly payments at 62-$1350, 67-$2000, 70- $2500. Still have some years to figure out when I'll start taking the benefit, but for now I'll assume 62.

Other posts:
Thanks for the Bernicke modification, will try that.
Yes, we max out IRAs 5500x2=11000, and try to put extra into employer 403(b) - I'm estimating $2000 annual.

Our spending (even with 4 kids!) is quite low because we live overseas in a much cheaper place to live. But we will retire in the States, so I am guessing our spending will be $40,000-$50,000, I am just estimating on the high side.
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Old 02-26-2013, 04:36 AM   #16
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I believe that the figures on SSA for your account are only to what is paid in now. More years paid in higher pay out later. Based on that you can assume over 2000 minus your pension offset.
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