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New use for FIREcalc, Fidelity Retirement Income Planner
Old 01-22-2010, 12:40 PM   #1
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New use for FIREcalc, Fidelity Retirement Income Planner

Forgive me if this has been posted before, but I have learned so much over the last few weeks from this community that I want to share something I've just figured out.

I am planning to retire this year at 55. Ideally I would like to live off my DB pension and taxable assets until I am 70, and then (and only then) tap SS and my tIRA's.

So in Fidelity RIP I put in a planning horizon of 15 years, deleted all my 401(k), 403(b), tIRA and Roth accounts, put my and DW's SS starting at 70, pushed the button and voila! I got the likelihood of running through my taxable accounts before age 70. Obviously can do the same exercise in FIREcalc, although haven't tried it yet.

Turns out I only have a 34% chance of this working, but worst case (90% confidence) I would run out of taxable assets at 65 and this is assuming my company stock price goes nowhere for a decade as I put all my options in at the current in-the-money value.

Hope this tip is useful to someone.

Hmmm maybe I should be taking some tIRA withdrawals before RMD's required or at least doing some Roth conversion while I am in low bracket before SSx2 kicks in - but that is another topic. Maybe need to consult ORP tool to answer that one.
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Old 01-22-2010, 12:43 PM   #2
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And if you had told the program that you put your taxable assets in cash or TIPS, would they run out in 15 years? That is, do you have 15 years worth of expenses in your taxable assets?

Did you see that thread about Bob's research of TIPS, SS and SPIAs combined to give guaranteed stream of retirement income?
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Old 01-22-2010, 01:41 PM   #3
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Did you see that thread about Bob's research of TIPS, SS and SPIAs combined to give guaranteed stream of retirement income?
Do you mean here, or over at Bogleheads? I saw such a discussion over there not long ago.
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Old 01-22-2010, 03:00 PM   #4
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Both forums had discussions.
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Old 01-22-2010, 04:16 PM   #5
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Interesting - hadn't thought to use the tools that way. Thanks, chemist! I'll have to try it.
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Old 01-23-2010, 03:55 AM   #6
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I used FireCalc this way to see whether the money I plan to set aside from sale of my house will be enough to meet the shortfall between pension and expenses for the 11 years between my planned quit date and SS eligibility.
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Old 01-23-2010, 08:10 AM   #7
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Do you mean here, or over at Bogleheads? I saw such a discussion over there not long ago.
Here is the thread
Maximizing Predictable Income in Retirement by Bob
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Old 01-23-2010, 10:24 AM   #8
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A side note:

Bob and Otar use annuities in their analyses.

Always remember, the issuer of an annuity CAN default. See Baldwin United. Annuities are NOT guaranteed. Especially in times when financial institutions are collapsing due to high-risk shenanigans.
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Old 01-23-2010, 10:46 AM   #9
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Originally Posted by Ed_The_Gypsy View Post
A side note:

Bob and Otar use annuities in their analyses.

Always remember, the issuer of an annuity CAN default. See Baldwin United. Annuities are NOT guaranteed. Especially in times when financial institutions are collapsing due to high-risk shenanigans.
They are guaranteed by most States up to a certain amount. Nothing is really guaranteed in life. Personally, I have never heard of anyone losing money on an annunity due to company default. Overall, it's bad for the annuity business so usually someone comes in and picks up the pieces.
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Old 01-23-2010, 05:29 PM   #10
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Quote:
Originally Posted by chemist View Post
Forgive me if this has been posted before, but I have learned so much over the last few weeks from this community that I want to share something I've just figured out.

I am planning to retire this year at 55. Ideally I would like to live off my DB pension and taxable assets until I am 70, and then (and only then) tap SS and my tIRA's.

So in Fidelity RIP I put in a planning horizon of 15 years, deleted all my 401(k), 403(b), tIRA and Roth accounts, put my and DW's SS starting at 70, pushed the button and voila! I got the likelihood of running through my taxable accounts before age 70. Obviously can do the same exercise in FIREcalc, although haven't tried it yet.

Turns out I only have a 34% chance of this working, but worst case (90% confidence) I would run out of taxable assets at 65 and this is assuming my company stock price goes nowhere for a decade as I put all my options in at the current in-the-money value.

Hope this tip is useful to someone.

Hmmm maybe I should be taking some tIRA withdrawals before RMD's required or at least doing some Roth conversion while I am in low bracket before SSx2 kicks in - but that is another topic. Maybe need to consult ORP tool to answer that one.
It is interesting, but should you change your plans? You know that at 70 you suddenly have a huge increase in wealth - SSx2 plus all the money in your tIRA's suddenly appears. Sounds like it gives you a high chance it will last 'til 65 so you could re-evaluate closer to the time.

I'm assuming that when you run it for 30 years including SS and your tIRA's that you have a 90% success rate.
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Old 01-23-2010, 05:58 PM   #11
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Quote:
Originally Posted by Ed_The_Gypsy View Post
A side note:

Bob and Otar use annuities in their analyses.

Always remember, the issuer of an annuity CAN default. See Baldwin United. Annuities are NOT guaranteed. Especially in times when financial institutions are collapsing due to high-risk shenanigans.
If you read Bob's stuff, you saw that he covered that possibility rather nicely and in detail. I forget what Otar did, but he is rather careful as well, so I would not be surprised if he had a contingency for that as well. In any event, Bob's stuff can apply to Otar's stuff.
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Old 01-23-2010, 08:46 PM   #12
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I'm assuming that when you run it for 30 years including SS and your tIRA's that you have a 90% success rate.
Yes!
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Old 01-27-2010, 07:32 AM   #13
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They are guaranteed by most States up to a certain amount. Nothing is really guaranteed in life. Personally, I have never heard of anyone losing money on an annunity due to company default. Overall, it's bad for the annuity business so usually someone comes in and picks up the pieces.
I once worked for a company owned by Reading and Bates ("an inconsequential S&P 500 company"). R&B made national news by buying dirt cheap annuities for their retirees. The annuity company couldn't produce and the annuitants lost half of their income in retirement.

Maybe things have changed in the last 15 years or so, but once burned....
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Old 01-27-2010, 08:10 AM   #14
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Maybe things have changed in the last 15 years or so, but once burned....
The contracts through Baldwin were single premium deferred annuities, not single premium immediate annuities, which are a different product.

The SPDA is similar to a 401k in function and is designed for a long term (e.g. pension funding) goal, whereas the SPIA is primarily used for distribution of assets with a much higher funding amount, at a specified rate (e.g. monthly payment).

They are two different vehicles, and two of many in the family called "annuities".

I believe that you will find that most conversations these days (including Bob & Otar) are referring to the SPIA (inflation adjusted or not, fixed term or not).

BTW, I have a SPIA (non-inflation adjusted, fixed term), purchased at my retirement (before the age of 60). I'm pleased on how it has worked in my retirement income plan, to primarily gap the period from my retirement till age 70, when I'll file for SS.

Just a note from someone who is actually using the process ...
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Old 01-27-2010, 05:40 PM   #15
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Does not matter what the specifics of the product are. If you lend money to an insurer by buying a policy/annuity from the, you have just bought yourself some credit risk. This can be an acceptable risk, but be smart about it and manage the risk as best you can. Never put too much with one company and choose your insurer carefully. Personally, I will generally deal only with large, highly rated mutual companies for this sort of thing.
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