Next round FIRECalc suggestions

[wzd]

Per Dory's request, this is a continuation of a request for new features in FIRECalc from the 'testing new FIRECalc' topic. The ideas here are partially from various peoples posts in that topic, including Moguls and Dory36.

• Make provision for both adjustments to financial need in retirement as well as alternate income streams of various lengths. The distinction of these should be as clear as possible. I suggest a what will you need section that allows for lifestyle changes at various points in retirement. Then a seperate section alternate sources of income that allows for both inflation adjusted and non-inflation adjusted streams of various start times and lengths. This section would include pension income, social security, temporary job, rental property (inflation adjusted, terminates in x years with a lump sum to be included in assets....), etc.
• Add a detail section for at least need and net withdrawal. (I know, this is a lot of data since it needs to be done for each of the 130 model starting years...) It may be mostly a 'comfort' thing, but it is the type of detail I always like to look at.
• Provide more detail on the fixed income rate used under the different options.
• Provide an 'ontrack' chart for 5 years. This would show the balance needed after each year, given inflation of x%, for survival for n-1 years at the same confidence level. I.e. if the calculation is for 95% survival for 40 years, then what are the parameters for 39 years after 1 year of growth and withdrawal. The gotcha here is how to pick the inflation percentage. Since this would be a 95% window, being outside of it would be a red flag - but 95% of the time one should be inside of it. An alternate way of doing something like this would be to provide the 95% (or other selected value) percentile value for these numbers and for portfolio value across the 130 samples.

That should be enough to start discussion

Wayne

 

[wzd]

Here is an example based on my situation:

financial need 45k.
fixed pension, fixed 30k
Rental income,inflation adjusted 5k
portfolio withdrawal 10k

Since the pension is fixed, I need 10k/yr from savings to start with but after 10% inflation (you pick the number of years to get there 1, 10, ??) I will need 14k/yr from savings:

financial need 49.5k

fixed pension, fixed 30k
Rental income,inflation adjusted 5.5k
portfolio withdrawal 14k


And after 100% inflation (~18 yrs at 4%/yr) I will need 50k/yr from the portfolio:

financial need 90k.
fixed pension, fixed 30k
Rental income,inflation adjusted 10k
portfolio withdrawal 50k

One can see that the withdrawal goes up sharply over time, as the fixed income stream becomes less and less of the needed dollars.

Also in 12 yrs, when my son gets out of high school, the rental property will probably be sold, and the proceeds rolled into my portfolio. Long distance rental management does not work for me. Also, it might make sense to make an adjustment to the financial need at that point in time.

One can observe that reducing financial need and adding inflation adjusted alternate income are equivalent, but non-inflation adjusted income is different. I think that the safest and clearest way of dealing with this would be to keep a distinction between financial need and alternate income. The current calculator treats things in a way that both can be entered but requires understanding what is actually being done! If someone could figure out how to explain it clearly, that would actually work instead of changing the code.

Wayne