Poll: Do YOU have a floor income % built into your retirement income plans?

[Midpack]

I AM HOPING FOR ACTUAL POLL CHOICES, NOT HYPOTHETICAL ANSWERS.
[edit: Ideally I mean once Soc Sec-pension-other has kicked in, or average of all years. Presumably initial retirement situation would be least representative.]

A recent thread asked indirectly about the "income floor and upside" concept (defined below). This is a variation on the SIRE vs FIRE question, hopefully a poll is a viable way to explore it. The posts may be more illuminating than the poll though.

Many respected academics/FAs have quantitatively advocated the "floor and upside" approach, several links below (not new, just reference, they've been linked here before). Unfortunately earlier threads on this mostly seemed to degenerate into routine annuity bashing and loose steam. For the record I'm not an annuity fan especially in today's low rate environment - but this thread is meant to explore beyond the annuity pros and cons debate we've all had many times.

"Does sensible retirement planning call for funding basic needs with less volatile assets and investing more aggressively for aspirational goals?"

"Floor and upside" starts by identifying your essential annual retirement expenses and your discretionary, aspirational goals for retirement, including legacy wishes. Think of this as listing your needs/wants/wishes.

The strategy then uses a combination of pension, Social Security, and other relatively risk-free (periodic) lifetime income sources to cover essential expenses and possibly some level of discretionary expenses. This is your retirement “income floor,” the base you must have to sustain your lifestyle. Whatever you have above the floor goes into an “upside portfolio,” for wants, wishes, and legacy.

http://advisorperspectives.com/news...ations_for_Evenskys_Cash-Reserve_Strategy.php

Annuities Versus Safe Withdrawal Rates: Comparing Floor/Upside Approaches | Kitces.com

 

[NW-Bound]

SS is our only income floor. It is still a few years away, even if we want to claim early. And I have not found out exactly what it will be yet, though it will be way below what we consider "essential" at this point. "Essential" in this definition is the fixed expense that we have put on automatic monthly payment, such as utility, insurance, some basic expenses for pleasure, and other consistent spending like groceries and sundries.

Still, as my current plan is to delay my SS for the benefits of my wife who most likely survives me, I would like to think that SS would be nearly enough for her in the old age as she is more frugal than I am, and would not spend much by herself. Also, I do not foresee an economic calamity that would totally wipe out our stash. So, I have a tentative guess that my delayed SS, which is higher than hers, would provide at least 75% of her essentials at that point, which most likely will not include the current 2nd home and multiple vehicle costs.

Just a wild guess, as I believe that what one considers essential is extremely elastic. We have lived on little before, and can learn it again if necessary.

 

[unclemick]

Yes - since 1993 or a variation of the concept. Age 50 used rental income and dividend stocks as the floor with rigorous 'living cheap' moves to cut basic expenses . Used a cash stash periodically (severance pay, unemployment) for occasional rewards. Bracket creep wise - age 55 added small non-cola pension and age 62 SS.

On occasion still run the numbers to see expenses wise what it would take to live on SS + a non-cola pension.

However 2014 - means RMD and I can no longer be aggresively cheap and am 'forced' I say forced to live well.



heh heh heh - The little 2007 -2010 go round of Mr Market caused some intense budget studies but little change in my spending.

 

[Animorph]

Kind of forced to have a floor with SS and a small pension. I'm not sure I would replace them with an annuity if I didn't have them, but I said 25% anyway. Worst comes to worst we could survive on just that floor, which is Plan Z.

 

[Brett_Cameron]

our plan has varying floor levels ranging from 66% now to 87% 29 years from now.

 

[ABQ2015]

I'm not retired yet (15 months to go) so am not voting. But my federal pension and SS should fund 100% of essential retirement expenses including some travel to visit family. Will use the 401K and Roth IRA for extra travel and entertainment. I'm currently tracking my expenses to ensure that this is the case before I pull the plug.

 

[aja8888]

Retiring TOMORROW from full time LLC. Then just do part time work on a project by project basis. Maybe 25 - 50% of the year (really need to stay very busy is the way I am made up).

Our "floor" is 44,000 of current SS income on a $65-$70K annual expense experience factor. The floor will continue (COLA'd) until one of us passes. Additional $25K will come from RMD's starting in 2014 and an additional cushion from taxable savings for anything unexpected beyond RMD spending.

We are "there" so to say, but we missed the ER game because of way too many negative life experiences.

 

[W2R]

The strategy then uses a combination of pension, Social Security, and other relatively risk-free (periodic) lifetime income sources to cover essential expenses and possibly some level of discretionary expenses. This is your retirement “income floor,” the base you must have to sustain your lifestyle. Whatever you have above the floor goes into an “upside portfolio,” for wants, wishes, and legacy.

Some of us are waiting until 70 to claim SS, at which time our "relatively risk free income sources" will jump.

I assume you are referring to one's initial retirement situation for voting purposes, though. Right now, I don't have 25% of my income coming from "relatively risk free income sources" so despite my pension and future SS income, I'll vote that I would be comfortable relying on my portfolio only.

 

[karluk]

I voted 100% floor income, which I think is quite realistic for our situation. I am fortunate enough to have a pension that will last for my and DW's lifetime. We could most likely survive on it alone, although doing so would require some rather painful spending cuts.

In addition, I made some voluntary additional contributions to my pension fund before retiring. I could have converted that into a lifetime annuity, but instead I decided to convert it into what they call an "annuity certain" with a payment period of 15 years. That allowed me to lock in a guaranteed 5% per year return on my money, which of course is a great fixed rate right now, although it may not look as good in a few years.

DW is still working, but will be eligible for a small pension when she retires. Together, all of these sources of income should allow us to delay SS until age 70, which for us figures to be just icing on the cake rather than something we'll need to survive.

 

[Midpack]

Some of us are waiting until 70 to claim SS, at which time our "relatively risk free income sources" will jump.

I assume you are referring to one's initial retirement situation for voting purposes, though.

Good but tough question. Ideally I meant once Soc Sec-pension-other kicked in, or average of all years. Presumably initial retirement situation would be least representative.

To illustrate for others, Soc Sec will make up about 25% of our retirement income overall, but about 50% once we actually start receiving Soc Sec (before taxes )

Thanks, OP edited...

 

[Katsmeow]

I struggled with the poll. Partly because it talked about you would want rather than what you have. Also, I struggled with the fact that this is something that can change over time, particularly with spouses who may take SS at different times. Also, expenses can change over time.

So, for us, what we have in terms of "floor" varies wildly.

While DH only is receiving SS then we are much lower on the floor percentage. Once I receive SS (which could be when I'm 62 or could be at 66 or 70), then the percentage is much higher.

The other thing is that I'm not sure that it really does much to divide expenses out into basic/required expenses versus discretionary. Most people aren't going to be very happy with retirement if they have to live their basic expenses only for any sustained period. So, thinking you are OK if can cover those and thinking of the discretionary as froth may be a recipe for unhappiness.

 

[W2R]

Good but tough question. Ideally I meant once Soc Sec-pension-other kicked in, or average of all years. Presumably initial retirement situation would be least representative.

Well, let's see: If I based my vote on "once Soc Sec-pension-other kicked in", my vote would be 100%.

If I based my vote on "average of all years" (assuming that I die at around 85?), my vote would at least 75%.

But it doesn't matter, because I already voted based on my initial retirement conditions (less than 25%), given that there is never a guarantee that one will live past tomorrow.

 

[bradaz2488]

I'm 50 and just ER'd last May. I will not receive a pension and plan to take SS at age 67. My essential expenses are ~60% of my total annual expenses. I do get some dividends from my taxable accounts and $ from an inherited variable annuity. For 2013 my dividends and annuity covered ~80% of my essential expenses. Since these are not fixed and carry some risks I do not think I can always count on them every year. So I guess I have to answer that I'm comfortable relying on withdrawing all expenses from my investment accounts, right?

 

[FIREd]

No income floor yet for us (No SS yet, no pension, no SPIA, etc...). But stable sources of passive income should provide a 100% floor income for essentials.

 

[RunningBum]

I struggled with the poll. Partly because it talked about you would want rather than what you have.

Same here. I'll have some pension and SS. My investments also throw some income so that I don't have to do as much portfolio withdrawals, though based on another thread I've gone back to reinvesting dividends, even if sometimes I'll sell those shares pretty quickly. Basically I go for total return as my portfolio goal, so whether or not it generates a lot of income or not is not so important for me. Also, there doesn't seem to be a choice for between 0 and 25%. It's either "solely on portfolio withdrawals" or "at least 25%".

So I just didn't vote.

 

[NW-Bound]

A bit of clarification here. My current plan is to live off 3.5% WR of the stash indefinitely. It of course depends on future returns not setting new precedents for FIRECalc. Any SS will be icing on the cake, with which I hope I can buy additional and worthwhile pleasures that I will still care about.

I took the OP's poll as asking that if we lost everything, what's the guaranteed income relative to what we need, assuming that SS is "guaranteed". Hence, I was estimating 75% for my future widow, using what I guess my SS will be, and what I estimate she will be spending as an old woman, without me "helping". No more multiple vehicles, no 2nd home, no RV'ing, no travel, etc... The above are essentials to me now. Luxury German cars are not, and the same with business class airplane seats. I do not incur these now, and if these fit into my 3.5% WR, then gosh, they would quickly become essential.

In other words, I consider my current lifestyle "essential". Any major cutback, then I think I am hurting. Hedonic adaptation is a fact of life.

And the above is using what I can see right now. In reality, if SS is all that my wife will have, then it will have to cover 100% of essentials at that point. You simply cannot live beyond your means.

 

[Midpack]

Once again it appears I've created a well intended poll that's falling short...but we'll see how it goes.

Maybe I should have tried - We don't have anything but Soc Sec and a portfolio. Plan says Soc Sec will provide about 50% of our floor income once we start receiving benefits (even less after taxes), or about 25% overall (many years before we start taking it, so all portfolio until then). Would that be enough floor income for you?

But I am sure the answers would be 'depends on how big the portfolio is/what %WR rate do you have planned?'

Oh well...

 

[powerplay]

I have a pension with COLA and it covers all my expenses so far. My Roth IRA and TSP will provide additional income when I decide to withdraw from them or for the TSP have the RMD. I am very fortunate.

 

[NW-Bound]

No. The poll is fine as is, in my view.

It's that life is, well, so fluid that there is no absolute. In my work, I can deal with very exact measurements (like sensor drifts measured down to 0.001 deg/hr), but I tend to be very loose and cavalier in other aspects of life. There are so many variables and factors that we do not control.

However, it does not mean that I do not have a loose plan. As mentioned, I thought of my future delayed SS and asked myself if my wife could live on that, and the answer is yes. I know for a fact that my own mother has been living very well on less. So, that was it!

 

[Midpack]

I took the OP's poll as asking that if we lost everything, what's the guaranteed income relative to what we need, assuming that SS is "guaranteed".

Basically correct, understanding that losing everything is historically unheard of.

 

[audreyh1]

I have no idea what our SS income might be. We never counted it in any of our scenarios.

No pension either.

Always assumed we would live 100% off investments. Any extra will seem like a windfall.

 

[bradaz2488]

I agree.. The poll is fine as is.... My "current" ER plan does not required a pension or SS to be a 100% success rate for FIRECalc. So my vote that I'm comfortable with pulling all expenses from my investment accounts is the right answer. Of course, this is always subject to change with future events ....

 

[NW-Bound]

I still think of SS as a backstop, in case things get really bad.

If SS gets reduced to nothing, like what happened to pensions in the Soviet block after the fall of the Communism, then there will be a lot of people standing in soup lines, as our portfolio will also get decimated.

Misery loves company. We will be commiserating here in this forum, just like we did during the Great Recession (if we still get internet access that is). It will be fine!

 

[Independent]

I think the "basic vs. target" income concept is very valuable in retirement planning. I first got it from a co-worker 10 years ago and it has always made sense to me.

Our "floor" or "basic" income is Social Security. If my wife starts at 66 and I start at 70, our combined benefit will be $52,000. That covers more than 100% of our basic needs.

We cover(ed) the period from early retirement to social-security-start-date with a combination of a non-cola's pension and assets in CDs and I-bonds.

Any pension or assets we have left after SS starts can go toward "extras".

PS: My observation is that current age matters a lot for poll responses. I'm 66, so SS is pretty "real" to me. Posters who are 45 may ignore SS in their planning.

 

[robnplunder]

I'm not retired yet (15 months to go) so am not voting.

+1.

I had hard time understanding the question but here it goes.

My SS when it kicks in will only fund 35 - 50% of our yearly target spending, depending on when we start withdrawing from SS. If world economy collapses and SS doesn't, we can live on SS withdrawals.