Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Old 01-06-2014, 09:35 PM   #21
Thinks s/he gets paid by the post
 
Join Date: Oct 2012
Location: Colorado Mountains
Posts: 2,134
Quote:
Originally Posted by clifp View Post
One of us is confused or I am not understanding
I take the standard $1 million portfolio add $20K non cola pension in 2014.
Click on investigate tab, look for max spending level it tells me $49,976 with 95.6% success rate.
Reduce the pension to 10K $44,683
Reduce the pension to 0 $39, 751

So roughly speaking it looks like for every $2 in non COLA pension you can increase spending by $1.

This would be a bit lower than I would have guessed knowing historical inflation rates. But since FIRECalc tells with the worse case. Some one retiring in the late 60s or early 70s would have face a decade plus of high inflation significantly decreasing the value of their pension.
I was using 2013 as the year:
2013, 50,000 pension - 39,751
2013, 0 pension - 39,751
2014, 50,000 pension - 65,313
2014, 0 pension - 39,751

Maybe you need to use this year or later
__________________

__________________
Hermit is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 01-06-2014, 10:10 PM   #22
Thinks s/he gets paid by the post
Rustic23's Avatar
 
Join Date: Dec 2005
Location: Lake Livingston, Tx
Posts: 3,624
I was interested how inflation might affect my retirement. I have cola'd, non cola'd, ira, and SS income. I created a spreadsheet to give me some kind of idea what inflation would do to my retirement. For me, it starts with Expenses and not income. So I have several column of expenses, some go up with inflation, some don't, i.e. in Texas over 65 some property tax is frozen. I started with today's expenses and increased each year by 4% for 25 year. I also have a column for 'one time expense'. Like a new roof or car. I get this value by doing a simple FV calculation for x years at 4% of the cost today.

Income I handled in several columns also. Cola, non Cola, Ira withdrawal. As I am not that dependent on IRA/portfolio withdrawal, I used the RMD table to determine what this amount would be, however, it would be easy to use a set SWR. I also apply an inflation/income value to the IRA. I use the same inflation factor I use for general inflation. I know this is not right, but for me it is OK. I know my investment will not follow this straight line logic, but once more, I don't depend on this withdrawal so using the same 4% increase worked, and as FireCalc says I am OK, I did not want to a bunch of 25 year cases.

At the end of each row I sum expenses, income and subtract exp from inc. This number is added to my current 'Cash' account. The RMD is subtracted from the IRA account, a value is added for increase in value or the base, to get the starting value for the next year, and the cash bal plus the inc-exp number, is used for the next year start value. If the one time exp causes the inc-exp goes negative, cash on hand will go down. As long as this is positive, and my IRA is positive, I think I am OK.

Once you have the first row done, it is easy to duplicate it for x number of years, in my case it was 25. My core exp went from $52,000 to $132,000 in 25 years. It was easy to see that my $20,000 non-cola pension was greatly devalued.

I made the spreadsheet so I could 'what if' just about everything. I even included the ability to have a gap between inflation, and what the gov. might pay in Cola. i.e say 2% less. This allows you to inflate some income at what you think real inflation is, and inflate gov. pension, or SS at a lower rate.

This may sound complicated, but it is not. The trick is to think one column at a time.
__________________

__________________
If it is after 5:00 when I post I reserve the right to disavow anything I posted.
Rustic23 is offline   Reply With Quote
Old 01-07-2014, 10:56 AM   #23
Thinks s/he gets paid by the post
 
Join Date: Oct 2012
Location: Colorado Mountains
Posts: 2,134
Quote:
Originally Posted by Rustic23 View Post
I was interested how inflation might affect my retirement. I have cola'd, non cola'd, ira, and SS income. I created a spreadsheet to give me some kind of idea what inflation would do to my retirement. For me, it starts with Expenses and not income. So I have several column of expenses, some go up with inflation, some don't, i.e. in Texas over 65 some property tax is frozen. I started with today's expenses and increased each year by 4% for 25 year. I also have a column for 'one time expense'. Like a new roof or car. I get this value by doing a simple FV calculation for x years at 4% of the cost today.

Income I handled in several columns also. Cola, non Cola, Ira withdrawal. As I am not that dependent on IRA/portfolio withdrawal, I used the RMD table to determine what this amount would be, however, it would be easy to use a set SWR. I also apply an inflation/income value to the IRA. I use the same inflation factor I use for general inflation. I know this is not right, but for me it is OK. I know my investment will not follow this straight line logic, but once more, I don't depend on this withdrawal so using the same 4% increase worked, and as FireCalc says I am OK, I did not want to a bunch of 25 year cases.

At the end of each row I sum expenses, income and subtract exp from inc. This number is added to my current 'Cash' account. The RMD is subtracted from the IRA account, a value is added for increase in value or the base, to get the starting value for the next year, and the cash bal plus the inc-exp number, is used for the next year start value. If the one time exp causes the inc-exp goes negative, cash on hand will go down. As long as this is positive, and my IRA is positive, I think I am OK.

Once you have the first row done, it is easy to duplicate it for x number of years, in my case it was 25. My core exp went from $52,000 to $132,000 in 25 years. It was easy to see that my $20,000 non-cola pension was greatly devalued.

I made the spreadsheet so I could 'what if' just about everything. I even included the ability to have a gap between inflation, and what the gov. might pay in Cola. i.e say 2% less. This allows you to inflate some income at what you think real inflation is, and inflate gov. pension, or SS at a lower rate.

This may sound complicated, but it is not. The trick is to think one column at a time.
Hi Rustic23,

You have a good approach for getting a handle on spending vs income in RE. I use Quicken's Lifetime Planner to do the same type of exercise. I definitely need to go though those numbers with the additional spending.

The issue I have is an additional 3 year's worth of spending suddenly becoming a very real possibility shortly after I retired. At what point will this additional drain on my portfolio put me in a non-recoverable situation? In reality, I am not too worried about reaching that point, but I would like to know what it is just in case other things come up. For this type of exercise, I trust a stochastic model such as FireCalc vs a deterministic model such as QLP. The good news is that with clifp's hint, (use 2014 instead of 2013) I have been able to validate the withdrawal rate including the non-COLA pension using FireCalc. The numbers using FireCalc were very close to those in the original post. Again, using FireCalc I now have a number for withdrawals starting at retirement that include my Social Security which will start 6.5 years later. I don't know of a good way to validate that number, but at least I have one.

Thanks for the input.
__________________

__________________
Hermit is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


 

 
All times are GMT -6. The time now is 01:18 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.