FIRECalc v Fidelity RIP v Financial Mentor BRC

[Samz]

I thought some of the folks on the forum would be interested in my comparisons using FIRECalc, Fidelity RIP and Financial Mentor BRC retirement calculators. Also, if anyone has any input or can see any holes in my assumptions I’d appreciate the feedback.


I ran all 3 of the above and tried to stay consistent across all three with my input. Below are my input notes.


Here is the Portfolio Balance at End of Plan results for each:

• FIRECalc $2.36M (ave) low was $134K, high was $8.8M. 100% success rate

• Fidelity RIP $1.96M

• Financial Mentor BRC $1.78M with 3% Social Sec COL increases.

• Financial Mentor BRC $269K with 1.5% Social Sec COL increases.

Inputs:
· Current Age 59, planned retirement at 60. Life expectancy to 94. DW also 59
· Beginning Portfolio Bal $1.6M. For both FIRECalc & Fidelity RIP use 50% as % in stocks (fairly conservative). For Financial Mentor BRC I used a straight 5% for Annual Interest / Growth of investments. Right now I’m actually 57/31/12 in stocks / bonds / cash.
· Contribution into Portfolio of $20K more over into next year
· Inflation: For FIRECalc I used the CPI option. For Fidelity RIP & Financial Mentor BRC used 3% for expected inflation.
· DW Social Security starts at age 66 with file & suspend. Her pay into SS has been relatively low. Using $750 /mo from age 66 to 94
· DH (me) Social Security starts at age 70 with file & suspend. $3,500 more per mo from 70 thru age 94. For both DW & DH input for COL increases is 3% for both starting at age 60 with Financial Mentor BRC.
· I realize this is probably on the high side. So I also ran this with 1.5% COL increases and it pushed down the End of Plan balance substantially. I did not see this option for the other two.
· Inheritances: $35K age 61 then another $100K at age 70
· No other income or benefits from previous employers

· Desired Income during retirement $82K before taxes for all years. In reality this should drop once both 65 with Medicare kicking in. $25K of the $82K is for HI and possible maxed out deductibles. No plan to leave any estate. Home sale in today’s $ might get $340K, only owe $20K on mortgage right now). Equity in home and contents / autos are not included in any calculations.

· Taxes: For FIRECalc I added 17% for taxes on top of the $82K (rounded to $96K). For Fidelity RIP, I clicked on my State and taxes were added (Fed & State I presume). For Financial Mentor BRC I plugged in 17% for combined Fed & State tax rate during retirement.

Both FIRECalc & Fidelity RIP use Monte Carlo / Historical returns in their calculations

For Financial Mentor BRC, I have a straight 5% estimated return and 3 % inflation plugged in thinking that on average we will be able to earn 2% on top of any inflation.

In general, I was surprised and wary of the higher End of Plan amount / results. I guess I’m more comfortable with the lower Financial Mentor BRC results since beating inflation by 2% on average seems reasonable. Anyone see any holes in my assumptions? Thanks for looking.

 

[nwsteve]

Note with RIP, which I am most familiar, you want to recognize if you are seeing real vs inflated values. Not sure what you are getting from the other models. Obviously, this assumption needs to be consistent. This is a choice you can test in the what-if section as you can the inflation assumption which I think your 3% may be above RIP's default.
The fact that RIP and Firecalc are that close given the vagaries of Monte Carlo should be reassuring
Nwsteve

 

[LOL!]

Why did you make your taxes so high? With only $82K of income, you should be able to pay no federal income taxes for a married couple filing jointly.

In any event, I think you should investigate those taxes.

 

[pb4uski]

+1 Taxes should only be 3-10% depending on how much of your assets are taxable and the tax efficient placement of your investments. We had more income than that last year and our effective tax rate was only about 3.3%. It could have been 0% if we wanted it that way but we are doing roth conversions to the top of the 15% tax bracket.

I suggest that you do a proforma tax return as if you were retired to get a better sense of your taxes in retirement.

 

[marko]

Why did you make your taxes so high? With only $82K of income, you should be able to pay no federal income taxes for a married couple filing jointly.

In any event, I think you should investigate those taxes.

LOL, you caught my attention on this. Can you elaborate, please? I'm not sure how I'd make this work.

 

[MBSC]

According to TurboTax TaxCaster, MFJ both age 59 claiming the standard deduction can have $20,600 in taxable interest and $74,900 in qualified dividends ($95.5k total) from non-retirement accounts before paying federal income tax. Or they could have $95.5k in qualified dividends and no taxable interest, or some combination in between.

And for the OP, Georgia exempts $70K ($35K per person) from state taxes for those age 62-64. The state exemption increases to $130K for a couple age 65+. Social Security is exempt.

 

[Cut-Throat]

Why did you make your taxes so high? With only $82K of income, you should be able to pay no federal income taxes for a married couple filing jointly.

In any event, I think you should investigate those taxes.

Please show me how to get to Zero federal Taxes from my Tax Deferred portfolio.

 

[Samz]

Thanks for the feedback so far.

nwSteve – I overrode the RIP inflation default which I think was 2.5%

LOL! / pb4uski – I agree I’m high on the taxes. I had guessed at 15% Fed and 2% State. After your input, I did run a quick Turbotax “Mr & Mrs Test” tax return. For income, I showed $82K from a SEP IRA with no withdrawal penalties. I plugged in for property taxes and charities, but those were relatively small and we got the Std Deductions. It shows owing ~$12K in taxes or 14.6% of the $82K.

Once SS income starts, the overall % will come down. SCGamecock - over 75% of the $1.6M starting portfolio is in tax deferred SEP or regular IRAs.

Along with marko & Cut-Throat, I too am interested in any ways to reduce taxes on tax deferred portfolio withdrawals.

With the input so far, the good news seems that I’m being at least a little conservative on the taxes assumptions. With just a still conservative / assumed over estimate of 2.4%, over 34 – 35 years this could add up to quite a bit.

 

[Tadpole]

So, SS gives us money, pensions give us money, RMDs from deferred accounts give us money and dividends give us money. All this stuff is taxable income except 15% of SS and the total creeps across the line to six figures. The only way I see that cash flows defined as "income" can avoid taxes at this level is if one has extraordinary medical expenses.


Sometimes taxes are the most attractive alternative (unless someone answers the question of avoiding taxes on deferred accounts).

 

[LOL!]

We do something called "bunching deductions" because we typically do not have enough itemized deductions to itemize. This saves us a few thousand dollars in taxes.

 

[LOL!]

Please show me how to get to Zero federal Taxes from my Tax Deferred portfolio.

Sure, donate more of it to charity.

OK, you don't like that answer, but the $8300 figure you noted is less than 17% of $82K.

 

[mrfeh]

For Financial Mentor BRC, I have a straight 5% estimated return and 3 % inflation plugged in thinking that on average we will be able to earn 2% on top of any inflation.

I think software that uses constant annual growth is of marginal utility.

 

[Samz]

I think software that uses constant annual growth is of marginal utility.

I understand what you are saying. Having a constant inflation plugged % does not seem good either. Not sure if any current retirement calculators can run Monte Carlo on the inflation % on top of growth & give outcomes that way.

 

[pb4uski]

.... Along with marko & Cut-Throat, I too am interested in any ways to reduce taxes on tax deferred portfolio withdrawals....

If your income is tax-deferred withdrawals that you need to take to live on then you're stuck. Many of us are living off taxable accounts and invest taxable money in equities so our equity dividends and LTCGs are 0% if we keep within the 15% tax bracket. The OP was not specific on taxable savings vs tax-deferred.

If all $82k was qualified income then tax would be zero. If $41k qualified income and $41k tax-deferred withdrawals then tax would only be $2k. Is a little over 10% if all $82k is pension income.