Firecalc and One More Year Calculations

[Ready]

I thought it would be interesting to use Firecalc to calculate just how much extra spending I could theoretically incur while still achieving 100% success in Firecalc by delaying retirement by one year. I am using a 40 year time period and a 60/40 AA, and having Firecalc calculate the spending level I can achieve with 100% success, starting with an assumption that I am retired, and then running the numbers for the next ten years assuming I delay retirement and therefore don't begin to withdraw savings for between one to ten years. I'm also making the assumption that while I will not withdraw any savings, I will also not contribute anything further to savings beyond what I currently have.

The reason I ran this simulation for me is that I now have a part time job that covers my costs and prevents me from needing to withdraw my savings, but beyond that I do not anticipate saving any further beyond the normal dividends and capital gains that come from investments.

I have no desire to stop working part time. It's very enjoyable and stress free for me, and I do enjoy the income. It's my fun money. However, I have no idea how long it might last, so I like to understand what impact it may have on my eventual spending levels once I begin a draw down.

So by delaying the drawdown by one year, I effectively can spend an additional $3,248 for each of the remaining 39 years in the simulation. Delaying two years adds $3,248 + $3,701, for a total of $6,949 extra spending over the remaining 38 years. And finally, waiting a full ten years until 2024 provides for an extra $51,409 for the remaining thirty years. So it's quite significant as the years add up. I can see why there is so much OMY syndrome on this forum.

I found this to be a useful exercise for simply understanding the effect of delaying the need to begin withdrawing money. For me, I have no underlying decision I'm trying to make, but I do like to understand what happens if my part time work either continues for a long time, or goes away quickly.

Perhaps others have used a similar analysis to determine the benefit of working one more year?

Am I looking at this correctly, or have I missed something in my analysis?


2015 $3248
2016 $3701
2017 $3765
2018 $3985
2019 $4684
2020 $4930
2021 $5060
2022 $5344
2023 $7116
2024 $9576

Total $51,409

 

[Katsmeow]

I have done a similar thing. I've worked part time for the last 3 1/2 years (very part-time). It didn't eliminate our portfolio withdrawals but certainly reduced them. I have calculated how much difference that reduction in portfolio withdrawals has made to how much we can spend for the rest of our retirement. It has made a significant difference.

 

[ERD50]

...
I found this to be a useful exercise for simply understanding the effect of delaying the need to begin withdrawing money. For me, I have no underlying decision I'm trying to make, but I do like to understand what happens if my part time work either continues for a long time, or goes away quickly.

Perhaps others have used a similar analysis to determine the benefit of working one more year?

Am I looking at this correctly, or have I missed something in my analysis?

...

I didn't attempt to validate your numbers, but I think the concept makes perfect sense. I guess you can think of that extra spending as 'deferred compensation'?

-ERD50

 

[robnplunder]

For me, working two more years mean having a significant buffer for traveling. Iis also s safeguard against potential downmarket at start of RE. Retiring now means living as we do now - comfortable but not extravagant (no extensive traveling).

 

[MasterBlaster]

What you have discovered is that if you work one more year you get to annuitize the money you would have spent over your remaining lifetime. In addition your money may grow with the markets and you may continue to save. Caveats for markets and taxes.

If N represents your remaining number of years (ie. your lifespan), then by working one more year you can spend ((Nestegg+ 1 years growth and savings)/N) extra dollars for the rest of your life. If you work 2 more years then you can iterate the formula using the first years larger nestegg plus second year (growth plus savings) now divided by (N-1). And so on...

That's why your extra spending keeps growing.

From a money standpoint only, it never "pays" to retire.

But time keeps getting shorter, Eventually N gets very close to zero.

Time versus money ! How much is enough ?

 

[CaliforniaMan]

What you have discovered is that if you work one more year you get to annuitize the money you would have spent over your remaining lifetime. In addition your money may grow with the markets and you may continue to save. Caveats for markets and taxes.

If N represents your remaining number of years (ie. your lifespan), then by working one more year you can spend ((Nestegg+ 1 years growth and savings)/N) extra dollars for the rest of your life. If you work 2 more years then you can iterate the formula using the first years larger nestegg plus second year (growth plus savings) now divided by (N-1). And so on...

That's why your extra spending keeps growing.

From a money standpoint only, it never "pays" to retire.

But time keeps getting shorter, Eventually N gets very close to zero.

Time versus money ! How much is enough ?

Exactly! My reasoning to retire this year. We shouldn't think about delaying retirement a year as OMY, better to think of it as OLY.

 

[Birdie Num Nums]

We can 'nickel and dime' this and that trying to predict our financial future. But how to value each and every year of a healthy and enjoyable life by ERing earlier rather than later?

 

[donheff]

One more year makes sense if you are on the fence about whether you can really afford to retire now, not if you are simply questioning whether you could spend a little more by waiting.

 

[Ready]

What you have discovered is that if you work one more year you get to annuitize the money you would have spent over your remaining lifetime. In addition your money may grow with the markets and you may continue to save. Caveats for markets and taxes.

If N represents your remaining number of years (ie. your lifespan), then by working one more year you can spend ((Nestegg+ 1 years growth and savings)/N) extra dollars for the rest of your life. If you work 2 more years then you can iterate the formula using the first years larger nestegg plus second year (growth plus savings) now divided by (N-1). And so on...

I love the formula - thanks for sharing! I suppose it's no different than understanding the compounding effects of money over a period of time here. But for me it helps to understand the impact of OMY.

For me, OMY is no big deal since it's such a low effort part time position. But for those working full time, and not particularly enjoying what they do, I completely agree with the issue of money earned versus time spent enjoying life. Everyone must come to their own conclusion here about the tradeoffs.

 

[Major Tom]

I have a very minor part-time gig selecting tenants for my landlord, which is well-paid for the small amount of time and effort that goes into it. I'd quite like to have a more regular part-time job to add some extra fun money to the budget, but I don't quite have the motivation to go out and find it. The gig I have now came to me, and if another job came to me that I didn't think was too ghastly, I'd probably do it. However, a few years of not working has given me a certain "inertia" when it comes to work.

When I was working full-time, I was very, very driven. I was hungry for it, and I find I no longer have that drive. I may stumble into something at some point but the dialogue in my head goes something like this,

Me - "Go on - get out there and find a part-time gig. Think of all the fun you could have with the extra cash. On the other hand, you could just stay at home and watch a few more episodes of Doc Martin and fantasize about what it would be like to live in a sleepy Cornish village."

Me - "I think I'll make a cup of tea and watch some more Doc Martin."