Questioning the computations in FIREcalc

[mcdevin1970]

I just ran my numbers through FIREcalc and got a 100% success rate for my projected income/expenses during semi and early retirement.

So I'm feeling a little cautiously optimistic about FIREcalcs calculations. Here is what I plugged in: $43,000 for annual expenses / a portfolio of $40,000 which is actually my roth IRA (i think this is where it may be messing up) as it gives me a median value throughout retirement of $417,000. I am currently 43 and projected this for 35 years (dont have a history of longevity in my family). Continuing with the inputs: I have SS starting for me in 2032 at age 62 in the amount of $1100 and just $300 for my wife in 2028. I inputted my military retirement which is $36,000 inflation protected and with survivor benefits and taxes already taken out. I plan to work part time semi retire until age 59 and put that in as an additional money stream of $10,000 annually which is not inflation adjusted. I figured it couldn't be that hard to generate that type of income. I put that I will add $3600 anually to my portfolio. So basically I just filled out the first three tabs as that is what applied to me. I didn't see anywhere to add in savings as I anticipate having ~ 100K when I plan to semi retire in 2017.
Here are my expenses so you can let me know if it is far fetched. I have posted it in another thread but will put it in here again:
Mortgage = $1200
food = $500
vehicle gas = $200
Utilities = $250
cell phones = $100
Cable / internet = $80
Car insurance = 100
Medical insurance = 60
Dental insurance = $115
Life insurance = $50
invest / savings = $450
Entertainment/ discretionary = $500

This puts me right at $43,000 annually. Now I believe I can do better than $10,000 yearly with a part time job but wanted to figure on the low side.

Please let me know your thoughts on this. Did I do something wrong in firecalc or am I underestimating my expenses? Or do you believe I'm good to go.

Thanks in advance for any input that you can provide!
Devin

 

[ERD50]

Are you already receiving the Military retirement of $36,000?

If so, and you assume $10,000 from part time work to age 59, then you have $46,000 coming in against estimated $43,000 expenses. So you are adding to your portfolio in those years, but inflation will eat a bit into that $10,000 over 16 years.

So now consider age 59 to 62 when you plan to take SS. That's only 3 years where you take some more from the portfolio. Then at age 62, I assume the $1100 and $300 SS are monthly (kinda confusing to jump from annual to monthly in the same paragraph), so that's $13,200 for you, $3600 for spouse. If I decoded ages/years correctly, your wife will be taking in that $3600 when you stop part time work, and then your $13,200 kicks in 4 years later.

So at age 62, $36K + $13.2K + $3.6K = $52.8K against $43K expenses (these will all be inflation adjusted).

Your portfolio does not need to cover much, I would not be surprised that you get 100% success.

I didn't see anywhere to add in savings as I anticipate having ~ 100K when I plan to semi retire in 2017.

There is a tab for that - "Portfolio Changes" - but be careful not to double count. If that $100K is the result of the initial $40K, plus the excess from 16 years part time work, then FIRECalc will add that up for you. Or, you could just estimate where you will be in 2017, and start from there.

I can't comment on expenses, they are individual specific. But if those match your current spending, and you don't expect big changes after retirement (health care is covered at that rate I assume?), then that should be it. I don't micro-manage that myself, I just add up the monthly out-flows from the two accounts we pay bills from and withdraw cash, then I add in any 'transfers' (like 'savings'). That number should match your annual expenses - you might miss something if you try to add up the bits.

Taxes? Any debt other than mortgage?

And maintenance? Houses need new roofs, furnaces, etc. You will need to replace your car(s) at some point. For example, if you plan to spend $20,000 every ten years on a replacement, that is $2,000 a year that you need to budget (x2 if applicable). Same for roofs, etc.

'Invest/savings' isn't an 'expense' - that is your money you are moving from one place to another.

-ERD50

 

[mcdevin1970]

Thanks for the reply ERD! Sorry to confuse you changing from annual to monthly amounts. Yes I am currently receiving my $36,000 pension but no my expenses that I listed are what I anticipate once I semi-retire in 2017 (gotta get kids through college first).

I guess it does make sense that I got 100% success rate since my earnings are greater than my expenses, I guess I thought because I have so little saved it might be a source for concern in FIRECalc.

Thanks for the advice on where to put my savings in FIRECalc though it doesn't seem that its necessary with getting 100% success without it.

The roofs and Car that you speak of would be pretty infrequent expenses in my opinion and I could utilize the 100k nest egg to take care of those.

I love the way you broke everything down by age and income amounts. I really appreciate your opinion on this as I am a total newbie. Thanks for the validation on my plan to hopefully become semi-retired in the near future.

Devin

 

[ERD50]

...

The roofs and Car that you speak of would be pretty infrequent expenses in my opinion and I could utilize the 100k nest egg to take care of those. ...

Yes, infrequent, but that doesn't make them go away.

Two ways to account for them - make estimates of the $ and frequency and amortize them as an annual expense (like I did with the car example), or plug each one into FIRECalc as a spending or portfolio change, but you will run out of inputs pretty fast.

But if you just think you can pull from the nest egg, but don't enter that into FIRECalc, the outputs won't be meaningful. I think it's dangerous to underestimate these things, they add up. Painting (inside and out), new driveway, appliances, remodeling, well repair, water heater, sewer work, plumbing - your list may be different, but there are a lot of things that can jump up year to year.

With 30 years of home ownership, I've seen a lot. I've heard of some huge increases of HOA and/or special assessments for things like that. You never really know.

-ERD50

 

[mcdevin1970]

ERD, very valid points. I will re run the numbers and see what I get. Thanks again for the thorough replies!

 

[Nords]

I guess it does make sense that I got 100% success rate since my earnings are greater than my expenses, I guess I thought because I have so little saved it might be a source for concern in FIRECalc.

You might have "little savings", but you also have a pension from one of the world's few employers authorized to print their own money. Better yet, it's indexed to inflation and you have access to cheap healthcare. Those factors remove most of the uncertainty around FIRECalc projections.

Here's a couple of other posts on that topic:
Military retirement with low savings
Reader questions about retiring on a military enlisted pension

 

[Gumby]

I presume that you will not work part time forever, so in addition to putting in a $10,000 "pension income" item starting in 2017, you should put in an offsetting $10k "off chart spending" item commencing the year you plan to stop your part time work.

 

[mcdevin1970]

Thanks for the vote of confidence Nords! Gumby, that was a great point. I re ran the numbers and looks like I am still good probably because I plan to work part time until 59 and SS will shortly follow shortly after.

This really excites me and I'm thankful to everyone that contributed to this thread. Love this forum!!!

 

[dvalley]

I should've taken a pension job...dhammick!

So are there any rules about earning say a part-time income and taking your SS benefits or are the SS benefits simply age based?

 

[Gumby]

If you are taking social security, are less than full retirement age (65-67, depending on your year of birth) and earn more than $15,120 from your part-time job, you will lose $1 of social security for every $2 of work income over the limit (a very high marginal tax rate)

Retirement Planner: Getting Benefits While Working

If your income exceeds $25,000, your social security benefits likely will be taxable.

Benefits Planner: Income Taxes And Your Social Security Benefits

 

[dvalley]

Thanks for the links! I haven't really looked into the details as I still have quite a few years to go but knowing some of the details definitely helps to setup a strategy.

 

[jclarksnakes]

The problem that I see is that you may be seriously underestimating your expenses. If you are drawing a military pension with SBP and your after taxes amount is 36K then you must have had a very large basic pay. Like in the neighborhood of 80K. You did not post how long you were in but with that pension your total compensation of basic pay plus BAQ and BAS was likely in the 90K to 100K range. If you had that much income and you only have a 40K portfolio then you have been spending a whole lot more than 43K in recent years. IMO you need to track your expenses versus your total compensation for the last few years and then come up with an accurate expenses estimate. Many couples can live well on 43K but perhaps you are like us and not among them.