Am I Thinking about this Right?
I'm still trying to decide whether to take a lump sum + reduced benefit or the full benefit with no lump sum when I retire, so I ran some FIRECalc comparisons, but I'm not sure I'm drawing the right conclusion from my results. I ran a variety of scenarios using either the full benefit or the reduced pension plus an SPIA bought with the lump sum.
Either portfolio survives the original plan, loss of pension COLA, a 50% portfolio loss immediately after retirement, or a 25% SS cut, in 97 out of 97 43-year sequences. Then I wanted to look at really drastic scenarios—the "double whammy" of no pension COLA plus a 25% SS cut, or a complete failure of the pension fund. I used the "investigate" tab to see what spending level would survive all sequences under those conditions, and I'm not sure I am looking at the results correctly. Would I be right to conclude that, if the portfolio survives a calamity at the beginning of the sequence, that it would also survive the same thing occurring years, or even decades later? Can I draw conclusions about what kind of spending cuts would be required in the event of a real disaster? For example, the spending level that survives all runs with SS and portfolio alone is less than half of that for the basic "no lump sum" scenario. Does that mean, if I decide on the straight benefit and my pension blows up, I'd have to live on half my previous income? Does the fact that the spending level for reduced pension + SPIA +portfolio + half SS, and that for SPIA + portfolio + all of SS are essentially equal mean anything at all that's useful for decision-making purposes?