FireCalc Spending Model

[SJhawkins]

Playing around with FireCalc's spending models,

At this point it tells me I good for $60k (constant spending model) or $77,250 if I use Bernickes spending model with a 96% percent rate for both models, 40 year retirement.

So the question to the group, what spending model do you all use?

I tend to agree with Bernickies model based on life experiences, 90 year mother can't spend her SS check it seems, thank god for good health!

50 is around the corner, kids in college, our little shack was paid off 10 years ago and I'm starting to think I may want to cut my hours, slow down a tad etc. Our burn rate is around $50k give or take so think we are good. I feel a little better using Bernickies numbers however!

 

[Beer-man]

The variable spending with a defined min and max within 20% seems to be my favorite as it allows me to retire the earliest.

 

[USGrant1962]

Most studies of senior spending confirm that Bernicke's model is realistic, with the proviso that a small portion of the population may need a reserve for long term care. Same with my mom at 80. She can't spend her SS, pension and DF's megacorp stock dividends. Her portfolio and home equity are there for LTC if necessary.

My approach in FIRECalc is to use the Constant Spending Power model, but then use the Off Chart Spending changes to decrement my spending when I reach 75 (the go slow years) and again at 85 (the no go years). I also have a decrement at 65 to reflect going from unsubsidized ACA to Medicare.

 

[W2R]

I have always used the constant spending power model.

Even that might be overkill. Here's a graph of my spending in retirement, from age 61-70 (2010-2018), in real dollars, normalized by dividing by my 2010 spending but not adjusted for inflation. (This does not include money spent on buying my dream home, closing, and cost of moving; these costs were pretty easy to identify and segregate.) Looks pretty stable to me. This year's spending is projected based on what I spent through August.

 

[NW-Bound]

... At this point it tells me I good for $60k (constant spending model) or $77,250 if I use Bernickes spending model with a 96% percent rate for both models, 40 year retirement.

So the question to the group, what spending model do you all use?

I tend to agree with Bernickies model based on life experiences, 90 year mother can't spend her SS check it seems, thank god for good health!

I used the flat spending model. It told me I could spend more than I did. Then, I turned on the Bernicke's model. It told me I would die filthy rich.

The short answer is I used both. And I liked what I saw.

 

[audreyh1]

I use the % remaining portfolio withdrawal method. That is not directly related to how much I actually spend. It just tells me how much I can withdraw each year and my income is dependent on how the portfolio performs each year.

Spending that income is another matter entirely.

 

[Huston55]

OP-

You highlight discussion of one factor (Bernicke spending model) which could potentially improve the survivability of your portfolio. What about the factors that would degrade it?

- Current market valuation
- Current low interest rates
- Health/Long Term Care catastrophe
- The length of your FIRE

I know that FIRECalc theoretically addresses 3 of the 4 items above but, hey...how lucky do you feel? Personally, I like having backup plans. It seems like you’re going to spend 17%/yr less than the more conservative ‘constant spending’ model ($50k vs $60k) so, that provides some cushion. If it was me, I’d have two more levels of backup for if/when TSHTF.

ETA: We are ‘theoretically’ using the Guyton-Klinger W/D method. But, 4 yrs into FIRE, we’re significantly underspending and NW has increased since FIRE. So, that additional NW is backup #1. Backup #2 is cutting spending (there’s actually a 2a & 2b). Backup #3 is annuitizing a portion of our NW.

 

[SecondCor521]

I use the constant spending model.

I am playing around with the following multi-step approach:

First I stick in my actual data and run the constant spending model and see that it has the historical success rate at or above my hurdle. (Usually I am at 100%.)

Second, I use the investigate tab to see what spending level would get me (thus far) down to 95% historical success rate. That's about the trade off level for me between fear and greed. This is usually 20-40% higher than my current spending level.

Third, I put that 95% historical success spending rate in on the first page of FIREcalc.

Fourth, I use the investigate tab to see what the success rate looks like at that spending level across various stock/bond allocations. Usually there is a rounded peak with a maximum somewhere around 80%-90% stock, because my current planning horizon is 40 years.

Fifth, I then try to set my actual real life portfolio AA to the highest stock allocation that has a success rate that meets my 95% hurdle rate in step 2.

Overall my goal via this method is to balance spending what I (IMHO) safely can (steps 1 and 2) and leaving the maximum amount I can to my kids (steps 3 through 5).

Currently I'm not doing very well at this. I need to spend more but really am having trouble finding stuff / things / experiences to spend on that actually move my happiness needle much. I'm learning a little bit at a time, though.

 

[NW-Bound]

... I need to spend more but really am having trouble finding stuff / things / experiences to spend on that actually move my happiness needle much. I'm learning a little bit at a time, though.

Peer pressure from the "Blow that dough" thread?

I will spend money when I see a need or have a desire. If it does not come to me, I don't see that I have to go out to look hard for it.

My wife is the same. She does not think that there's a Gucci bag out there with her name on it that she has to go search for it.

 

[Dtail]

Most studies of senior spending confirm that Bernicke's model is realistic, with the proviso that a small portion of the population may need a reserve for long term care. Same with my mom at 80. She can't spend her SS, pension and DF's megacorp stock dividends. Her portfolio and home equity are there for LTC if necessary.

My approach in FIRECalc is to use the Constant Spending Power model, but then use the Off Chart Spending changes to decrement my spending when I reach 75 (the go slow years) and again at 85 (the no go years). I also have a decrement at 65 to reflect going from unsubsidized ACA to Medicare.

I use the constant spending model too.
Curious in % terms, what decremental spending adjustments you are using for 75 and 85 years old?

 

[big-papa]

None of the above - when retired I'll use my own variation of VPW. VPW, in it's classic form, has a monotonically increasing % of remaining portfolio. Withdrawals will vary by how well the portfolio performs, but also by the percentage designated to withdraw for each year. There are several variants, mostly having to do with expected future returns. Classic VPW uses very long term worldwide stock and bond returns based on data from Credit Suisse as a constant expected future returns. Another uses current TIPs rates and updates each year, which can be pretty conservative. Another uses current stock valuations and interest rates and also updates each year which historically smooths long term variations in withdrawals. Main thing is that these methods trade off never running out of money before the designated end date (your best guess of how long you'll be around + some margin) vs. having each year's withdrawal vary. If built on top of a fixed income stream (like SS, a pension, etc), then it can work pretty well.


One caution, many people compare all of the various withdrawal methods by looking only at the differences in withdrawals for the first year. It's interesting data, but not nearly enough to get a complete picture. Better to look at historical trajectories of withdrawals, whether or not you want to leave a legacy, and odds of running out of money before you're 6ft under. Everybody is different and everybody has different considerations. Besides, if there was one perfect method, we would all be using it.


https://www.bogleheads.org/wiki/Variable_percentage_withdrawal

 

[COcheesehead]

I use the constant knowing that is probably overkill.

 

[Dtail]

I use the % remaining portfolio withdrawal method. That is not directly related to how much I actually spend. It just tells me how much I can withdraw each year and my income is dependent on how the portfolio performs each year.

Spending that income is another matter entirely.

Will probably move to this method next year with the 95% protection. Since the % remaining methodology provides a % success rate in maintaining the original portfolio in inflation adjusted terms (vs. % of success in not running out of monies with the constant method), what % success rate do you think is a "safer" number vs. let's say 95% for the standard Firecalc run?

 

[USGrant1962]

I use the constant spending model too.
Curious in % terms, what decremental spending adjustments you are using for 75 and 85 years old?

I never thought of it as a percent, but it turns out to be 12.5% of my starting spend rate each time. So at 85+ I'm forecasting my real spend to be 75% of what it is today.

That's more conservative then Bernicke, which leaves you spending about 1/2 at the end.

Another thought for OP - in the past, when I have played with Bernicke I have always entered my Age-10 because IMO the spending decline starts too soon at 56.

 

[pb4uski]

I use the constant spending model for planning but I agree that the Bernike model is more realistic given my observation of my Mom and her peers so using the constant spending model adds some conservatism to the plan.

While I hope to be active well into my 80s.... who knows what will happen.

 

[SJhawkins]

Better to look at historical trajectories of withdrawals, whether or not you want to leave a legacy, and odds of running out of money before you're 6ft under. Everybody is different and everybody has different considerations. Besides, if there was one perfect method, we would all be using it.

https://www.bogleheads.org/wiki/Variable_percentage_withdrawal

First off thanks everyone for the well thought out replies. The above is about where I stand now, or should say what I'm trying to figure out.

I could cut my hours in half and still not touch the egg and just let it ride until 52-60ish (current thinking). The struggle we are having is leaving a legacy. Leaving a legacy was never a thought that crossed our minds, never in my wildest dreams that we could even consider leaving each of our kids a Mil each in the end, I grew up on the poor side of the tracks!

 

[Independent]

I used a level spending model, but added an explicit travel budget for the first 10 years.

I think it makes sense to think about "basic" spending vs. "nice to have" spending. Can you identify the "nice to have" stuff that you will plan to do without later in retirement? If not, I'd say plan for level.

It's also good to think about services that could get more costly. What about dentures or implants? How about hearing aids? Hiring someone else to do outside home maintenance that I've been doing myself? Home modifications? Medicare supplement insurance premiums that go up with age?

And, of course, long term care. I may not need all my planned for level income in the later years when I'm able to care for myself. Maybe I'll just save it to build up the war chest for when I need to hire help.

 

[audreyh1]

Personally I expect that money not spent during many of the later years will be spent during the last few years. Long term care, help, we’ll probably buy into a CCRC. I am expecting those last years to be expensive, even if I have cheap years in between.

 

[Chuckanut]

I use the constant spending model. So far I have never spent all of what I could have spent in any given year. However, travel expenses are starting to ramp up so that could change.

What matters is that financial issues don't keep me up at night. Nor do they overwhelm my every day enjoyment of life. That's worth a lot.

 

[COcheesehead]

Personally I expect that money not spent during many of the later years will be spent during the last few years. Long term care, help, we’ll probably buy into a CCRC. I am expecting those last years to be expensive, even if I have cheap years in between.

+1

That is what I experienced with my parents. After their go go and go slow years were done, my Dad spent a lot of time writing donation checks for the money he couldn't spend for himself. That all changed in the last year or two when the $$$ flowed out the window because of medical care.

 

[W2R]

Personally I expect that money not spent during many of the later years will be spent during the last few years. Long term care, help, we’ll probably buy into a CCRC. I am expecting those last years to be expensive, even if I have cheap years in between.

+1

That is what I experienced with my parents. After their go go and go slow years were done, my Dad spent a lot of time writing donation checks for the money he couldn't spend for himself. That all changed in the last year or two when the $$$ flowed out the window because of medical care.

+2

That is exactly what happened with both my father (38 years ago) and with my mother (11 years ago). End of life expenses were very high, and LTC insurance, while helping a little bit (once we threatened to sue if they did not pay up as promised) was insufficient and did not alter the fact that the remaining expenses were very high.

Some people do not have these large end of life expenses, but apparently many others do. I think that assuming that expenses will be low during one's last few years (so spend the money now while you can enjoy it!!! Whoopee!!! ) can be whistling in the dark and for many may not be very realistic.

 

[Dtail]

+2

That is exactly what happened with both my father (38 years ago) and with my mother (11 years ago). End of life expenses were very high, and LTC insurance, while helping a little bit (once we threatened to sue if they did not pay up as promised) was insufficient and did not alter the fact that the remaining expenses were very high.

Some people do not have these large end of life expenses, but apparently many others do. I think that assuming that expenses will be low during one's last few years (so spend the money now while you can enjoy it!!! Whoopee!!! ) can be whistling in the dark and for many may not be very realistic.

And thus the discussion on setting up medicaid protecting trusts.

 

[deserat]

....
Currently I'm not doing very well at this. I need to spend more but really am having trouble finding stuff / things / experiences to spend on that actually move my happiness needle much. I'm learning a little bit at a time, though.

Off topic/

Yes, totally understand. However, I believe we are happy as we want to be - it is a choice. For me, I look at what I wish to spend on and try to determine if it is useful for a long period of time. I'm amazed at how much detritus I have amassed....mostly for sentimental reasons. Now, I tend to be brutal on the usefulness of the purchase.

On-topic/

I'm much looser - I've looked at several 'modelers' and they've shown a gi-normous spend rate that is consistent based on my situation. I figure if I use the lowest number and still go under that, I'll be fine. But then, I'm fortunate in my situation with regard to pensions, portfolio and existing lifestyle costs being very low due to some prudent purchasing decisions. My problem is getting my head around spending that much without inducing anxiety about possible future inability to provide for myself......working on it, though - 'blow that dough' thread does help balance some of that anxiety

 

[HI Bill]

Personally I expect that money not spent during many of the later years will be spent during the last few years. Long term care, help, we’ll probably buy into a CCRC. I am expecting those last years to be expensive, even if I have cheap years in between.

That's the conservative approach. On average:

• Two-thirds of all men, and one-third of all women, age 65 and older will never spend a day in a nursing facility.
• 10% of men and 25% of women age 65 and older spend more than a year in a nursing facility.
• 10% of all nursing facility residents will stay longer than three years.
• More than half of all nursing facility stays last six months or less. The average stay is 18-20 months.

I was worried about my mom outliving her assets, but she passed just 6 weeks after entering a care facility at age 81.5 (after a broken pelvis).

 

[Huston55]

+2

That is exactly what happened with both my father (38 years ago) and with my mother (11 years ago). End of life expenses were very high, and LTC insurance, while helping a little bit (once we threatened to sue if they did not pay up as promised) was insufficient and did not alter the fact that the remaining expenses were very high.

Some people do not have these large end of life expenses, but apparently many others do. I think that assuming that expenses will be low during one's last few years (so spend the money now while you can enjoy it!!! Whoopee!!! ) can be whistling in the dark and for many may not be very realistic.

+3

W2R-

Insufficient in amount or duration, or both?

Our analysis is that LTCi is not a good approach for us since today’s policies have payout caps which make them just ‘prepayment’ of expenses.

Given your experience with your parents, what do you plan to do re LTCi?