Fixed pensions

[wzd]

Ok, I know firecalc can handle fixed pensions, and I have run a number of full scenerios with pension, savings, changes in amount needed, and SS. However today, obviously with too much time on my hands (actually doing my annual review and getting distracted....), I decided to decompose the run into a couple of parts. First I was curious about how much of my portfolio was needed to allow me to withdraw the amount of my fixed pension, adjusted for inflation. i.e. how much does it take to convert my fixed pension to an inflation adjusted pension. I did this by entering my pension as the withdrawal amount, and picking a value for the portfolio and adjusting it till I reached 95%. Of course, my non-inflation adjusted pension was in the adjustments field. The answer is a surprising $409,000 to make my $38,600 pension inflation adjusted for 30 years. Longer time frames did not change it much. Here is the data for the first run, where the first year expenses box is checked:

You have proposed a withdrawal of 9.44% of your starting portfolio.

We looked at the 101 possible 30 year periods from 1871 until 2002, and the 30 partial periods from 1972 until 2002, starting with a portfolio of $409,000 and taking out $38,600 the first year, and the same amount after adjustments for inflation (CPI) each year except as follows:

* Starting in year 0, the withdrawal was decreased by $38,600 (without adjustment for inflation).

Your Success Rate is 95.5%
In 4.5% of those 131 periods, the portfolio would have been fully depleted at or before the withdrawal in year 30. In 95.5% of the years, the portfolio would have maintained a positive balance through the withdrawal in year 30.

The average (mean) portfolio balance following the withdrawal in year 30 was $2,667,854.

(This assumes your portfolio consists of 15% in Commercial Paper and 85% in equities that behave like the market as a whole, with an overall expense ratio of 0.02%.)
FIRECalc's Research Suggests...

Checking for a higher withdrawal that will still get a 95% safe rate. . . . . . . . . . . . . . . .

A withdrawal of about $38,650.50 is the highest withdrawal that would have survived 95% of the periods tested, using the equity split and other criteria you entered. This would be a withdrawal starting at about 9.45% of your starting portfolio, with adjustments for inflation.

 

[wzd]

Now, since the amount from the portfolio for the first year will equal the pension, it should not matter if the first year expenses box is checked or not...or so I thought. Here is the same run as above, with the first year expenses box not checked:

You have proposed a withdrawal of 10.46% of your starting portfolio.

We looked at the 101 possible 30 year periods from 1871 until 2002, and the 30 partial periods from 1972 until 2002, starting with a portfolio of $369,000 and taking out $38,600 the first year, and the same amount after adjustments for inflation (CPI) each year except as follows:

* Starting in year 0, the withdrawal was decreased by $38,600 (without adjustment for inflation).

Your Success Rate is 95.5%

In 4.5% of those 131 periods, the portfolio would have been fully depleted at or before the withdrawal in year 30. In 95.5% of the years, the portfolio would have maintained a positive balance through the withdrawal in year 30.

The average (mean) portfolio balance following the withdrawal in year 30 was $2,654,833.

(This assumes your portfolio consists of 15% in Commercial Paper and 85% in equities that behave like the market as a whole, with an overall expense ratio of 0.02%.)
FIRECalc's Research Suggests...

Checking for a higher withdrawal that will still get a 95% safe rate. . . . . . . . . . . . . . . .

A withdrawal of about $38,597.40 is the highest withdrawal that would have survived 95% of the periods tested, using the equity split and other criteria you entered. This would be a withdrawal starting at about 10.46% of your starting portfolio, with adjustments for inflation.

 

[wzd]

Dory - I suggest that the above indicates that the first year expenses are withdrawn without regard to the pension data. It looks like the adjustments are not taken into account until the second year (end of first year)!?

Wayne

 

[dory36]

I'll look at the code. Year zero is always the place something will mess up...

 

[sgeeeee]

Dory,

I just noticed your (new) icon. I hope it's not some kind of message about retirement.

 

[dory36]

A commentary on moving ashore...