Using FIRECalc and Need Advice
I am trying to work through FIRECalc and I have come up with some questions. I was wondering if you could provide me with some advice in regard to those questions.
1. What do you think is a good estimate for a percentage amount to allocate for federal and state taxes in my retirement budget? For example, if I will need $54,000 a year to meet my annual expenses, what percentage amount should I add to the $54,000 to get to my total annual spending? I know a lot a variables play a role in the percentage, I am just looking for a rough estimate. Having read Work Less, Live More, the author seems to suggest a pretty low percentage amount.
2. I will have a small defined benefit pension. I wont be able to collect on it for 20 years from now. I know the monthly amount that I will receive from it (the amount will not increase based on a COLA between now and the 20 years from now when I will be able to collect). The amount will have a cost of living adjustment, but the cost of living adjustment will not start on the pension until I am eligible (based on age) to start collecting from it. So, do I select the check box in FIRECalc that would identify this pension as having an inflation adjustment?
3. If I estimate that I will need $54,000 a year today (including mortgage payment and high property tax) does that mean that if I am 40 today, when I am 60, I will need $97,530 to cover these same costs, assuming three percent average inflation? (That seems like a lot of money!)
4. In the FIRECalc area titled- How Is Your Portfolio Invested?, it asks for the % of portfolio that is in equities, versus fixed income and says research seems to suggest about 50% for a 10 year term, almost 70% for a 20 year term, and around 85% for a 60 year term. What research suggests these amounts?
5. Is there somewhere that I can see an example of “real life” withdrawals using “95 % Rule” from Work Less, Live More? I did take the book out of the library , but I did not find a year-to-year example of how the 95% Rule works. Also, do you use (or plan to use) the 95 % Rule?
6. Do you use Bernicke’s Reality Retirement Plan when using FIRECalc? I understand the theory behind it, but it seems a little too optimistic for me. For me, costs always seem to rise!
7. Do you use PPI CPI or a set 3 percent to address inflation adjustments? I understand that PPI is a little more conservative, correct?
I know there are a lot of questions here, I just want to make sure that I am doing my planning correctly. Please comment on any, or all, of these questions. Thanks!