Retirement Analysis - Status Of Plan

[chinaco]

I did a quick back of the envelop analysis of the state of our current portfolio with retirement income/expense projections and have determined that we can stay on track for ER.


Our plan is to spend a bit more in ER and less as we age. Of course, we do not know how it will actually play out.

Our plan includes:

• Small Fixed Pension at ER (about 15% of beginning ER Income... It is reduce for taking it early)
• DW takes SS at 62
• I take SS at normal Retirement 66.x (option to take it earlier depending on what occurs in those years)
• Overall Inflation assumptions using long-term norm
• Our initial planned income till 70 is about 2x our current spend (while I am working)
• We reduce our inflation adjusted income at 70, 80, and 90 by about 10% to 15% at each 10 year interval. Which bring the income down to about 1x or a little more than 1x at 90.
• Average growth of portfolio is 8% from now till age 90... But with the portfolio positioned to handle volatility. Not sure if 8% from here is realistic on 60/40. All we can do is watch and adjust accordingly. Less return will translate to lower income in ER.
• We currently have company Retirement Health Insurance (x2)... DW and I both have it. But we will pay the double premium in case one company stops (at least until we are eligible for medicare)
• We have fairly low cost LTC policies (Group plan through DW work) that would defray a fair amount of those costs if we needed it (hopefully not). Short of having an extended LTC need... we should be covered pretty well for a risk perspective there.
• House paid off.

What we have lost is cushion in our projections. This could mean more risk of money shortfalls or... more likely it less in the estate when the final survivor passes.

Another way I could work it is just reduce our spend to conform to the 4% model directly in the early years. That would mean our initial income is about 1.6x of current expenses.

I have always included high income projections in our plan (compared to our current expenses/spending). We don't like like paupers... but we have a LBYM lifestyle.

Right now... If things stabilize and turn around in the next year or so, I am about 90% confident that I am on track for ER.

Have you done any analysis to see where you stand?

 

[OAG]

Yes but ours is very simple:

1/3 Income from COLA'd Pension (Includes full medical (TFL)).
1/3 Income from SS (To restart in 09 at my age 68-spouse gets 50% of mine).
1/3 Income from 7 Year CD Ladder, not touching principal (current return 5.7%) which includes about 7% ROTH and 25% Traditional IRA (RMD begins 2008) and 68% is taxable interest income.

Small Life Insurance policy (full paid-up) for my disposition at death.

Home paid for; single 2005 vehicle, paid for.

Any one of the 1/3 sources of income will pay our expenses at this time and into the future since they ether are COLA'd or, in the case of savings, are increasing yearly at least to the CPI Inflation rate.

Only "sleeper" here is Long Term Care, could handle one person from income, two would present a potential problem.

Been ER (could say off and on) for 30 years (but now fully retired) this coming April 2009.

Chinaco: IMO your 8% return may be a tad high, but then you are younger - I have been using 5% (but I am fixed return) and 3% Inflation.

 

[chinaco]

...

Chinaco: IMO your 8% return may be a tad high, but then you are younger - I have been using 5% (but I am fixed return) and 3% Inflation.

Yes I am a bit concerned about the rate of return I am using. I need to do a more comprehensive analysis.

However, I suspect the market is really beaten up and from here... I might get that return. The other wild card is inflation.

Over the long haul... we are conforming to a 4% SWR. But our withdrawal rate might be a tad higher than that until SS kicks in... Those early funds will be in fixed securities to mitigate the risk of being forced to sell stock to cover income in a down market.

 

[Nords]

Have you done any analysis to see where you stand?

We did a budget projection for 2009 based on 2007/8, and we were surprised to see how much our spending has dropped in the last six years-- particularly for utilities, groceries, and vacations.

Part of the future savings was spent on a photovoltaic array, but another part of it was better home insulation & airflow. The sewer/water savings came right out of better landscaping & maintenance. Other savings include reduced broadband expenses and no more newspaper/magazine subscriptions. These weren't imposed by fiscal constraint but rather by the greater availability of free content.

Groceries-- our teen has "grown out" of the junk-food habit and has started eating healthier. We parents have been eating less, in my case a lot less. That's reduced our grocery bill by over 10% despite six years of inflation. And no, there have been no hedonic adjustments, except for eating less ice cream.

Vacation spending has probably been another side effect of an older teen. Instead of going to Disney-sponsored gimme grab-fests, we've been visiting college campuses. In between she'd rather hang out with friends than go to expensive vacation/resort destinations-- especially with Mom & Dad.

 

[FIREd]

Have you done any analysis to see where you stand?

I am using Quicken's retirement planning tool and, based on my current account values , lower spending trend and income increases larger than previously anticipated, it looks like my target retirement age has been pushed back from 48 to 49 based on conservative assumptions.


Gross income has jumped 10% from last year (we were planning on 3% annual raises).
Spending is down about 15% from last year and I believe that this will be our new baseline as neither my wife nor I seem to particularly miss the extra spending.
Current account values down about 25% from last year (losses partly offset by new contributions).

 

[SecondCor521]

Have you done any analysis to see where you stand?

I haven't changed my assumptions nor my spreadsheet. The data point I watch is the age at which I project to be at a 4% withdrawal rate; that is the extent of my "retirement analysis" at this time.

Interestingly, my retirement age has held relatively constant at between 45.5 and 46.0. It seems that my declining portfolio value and my declining spending have just about matched each other.

2Cor521

 

[Alan]

Having the made to decision a couple of years ago to hang on 3 years 'til age 55 and get the health bennies and pension at 55 instead of 62 I'm fortunately in good shape.

nonCOLA pension will start out as 67% of planned income with a 3% withdrawal rate filling the gap. (It was going to be 2% ).

DW will collect SS at 62, myself at 66.x

Also have a COLA pension of $10k starting at 65.

 

[W2R]

I have a lot of cushion built into my plan. Some of that will be gone, but not all of it. I can always cut back on my planned spending/expenses if need be. Probably I will be able to live nicely just on dividends.

 

[dex]

This is how I prepare my projections.
http://www.early-retirement.org/for...budget-and-forecast-what-about-you-39779.html

Your 8% growth rate can be high - depending upon the income from the bond portfolio.

You should be able to prepare a rate of return for stocks and bonds. Then you should be able to prepare a weighted return.

My gut tells me that over the long term; spending remains rather constant. As time goes on travel etc costs are reduced but medical and other expenses increase - offsetting each other.

 

[chinaco]

This is how I prepare my projections.
http://www.early-retirement.org/for...budget-and-forecast-what-about-you-39779.html

Your 8% growth rate can be high - depending upon the income from the bond portfolio.

You should be able to prepare a rate of return for stocks and bonds. Then you should be able to prepare a weighted return.

My gut tells me that over the long term; spending remains rather constant. As time goes on travel etc costs are reduced but medical and other expenses increase - offsetting each other.

I try to minimize the number variables that I use to keep the calculations simple. This enables fairly easy sensitivity testing of certain market and economic conditions. Plus, the plan is only a rough projection.... it is not likely to be extremely accurate... insted, it is a sketch of what might occur.

My plan contains 3 scenarios. Pessimistic, Optimistic, and Likely. The question I have is should 8% be Likely or Optimistic. What I am hearing from some is that it should be the Optimistic plan.

Actually during the distribution phase... I am planning on using a quasi-bucket/autopilot approach to manage the assets. Longer term investments I am planning 8% on auto-pilot.... More near term assets (consumed in the 5-10 year time frame) I will actively manage. The near term return I was using was 7% rate and a slice and dice method.


This is a pre-retirement planning exercise (sanity check). My goal with all of this is to plot a worst case/best case income/expense scenarios. If I can live with the worst case scenario (income/expense)... I will pull the plug on w*rk.

During ER I expect I will do that same as others in ER... make common sense adjustments as reality unfolds.

 

[dex]

I try to minimize the number variables that I use to keep the calculations simple.

I try to keep it simple also. Sometimes it is good to get your hands dirty and play with the details.
My early calculations were so simple that a small formula error made a large financial error.
So, when I broke things down and projected it by investment type, revenue stream and cash flow my estimating got better. I then became more confident about the results.
It is only a spread sheet and I have the time to play with it so I do.

One thing I also do is to store previous versions of my estimates in Gmail so I can look back to see how accurate I have been.

 

[Alan]

One thing I also do is to store previous versions of my estimates in Gmail so I can look back to see how accurate I have been.

In 1993 I made a spreadsheet for salary, 401(k) and pension, then projected it out 'til my target retirement date in 2010. I update it once a year.

This comment prompted me to look at it now. It was very simple but I enjoy looking at it each year.

My salary target was to increase it at 7%/year for the first 10 years then 5%/yr after that.

I planned to contribute 8%/yr to the 401(k) with a 3% match, and the 401(k) would increase in value by 10%/yr.

I also record my actual salary, actual value of the 401(k) and actual pension estimate.

15 years on and:
Salary is bang on target - pension is also bang on target
401(k), which was 4% ahead of target last year is now 34% below , plus I have been making a LOT more contributions than projected

These days I use more sophisticated calculators (FIRECALC, FE and Fido Income planner) with a lot more inputs and do an annual run of these to check how I'm doing, and fortunately all the other money we invest each year has done a lot better than my 401(k) which has managed a measley 1.5%/yr over the last 10 years (following this year's losses).

 

[Ronstar]

I did a spreadsheet a few years ago projecting what we'd have when we retire fully on July 5, 2011. I've also been tracking expenses for 2 years and have a good handle on what to expect to spend in full retirement. I also put together a retirement model - a flow chart of how investments gradually move to less risky ones over time. So far, so good.