How to model a buyout in firecalc

[TANSTAAFL]

First post - thank you for being here.

I've searched but cannot find any information on my situation.

In lieu of a pension I get a buyout under these terms: I get to choose a term of 10-15 years. I withdraw 25% of the balance in a lump sum every year. I get 8% return on the remainder for the duration. There is a lump-sum balance payout at the end of my chosen term. Thus, the first 2 years will be:

Year 1) $700,000 x 25% = $175,000 payout. $525,000 balance
Year 2) ($525,000 x 8%) x 25% = $141,750 payout. $425,250 balance

Is there any way to model this for a term of 10 or 15 years?

 

[Aerides]

If you're at all handy with excel you can throw up a quick spreadsheet. Simply subtracting 25% each year, then adding 8% on the balance, you'd have nearly no difference in those last 5 years, pulling in less than 25k per year, with the total balance under 100k for year 11.

of course, that's a rough way to do it, and doesn't account for compounding, so you'd come out a little better in reality. But it kinda looks like the reverse of paying a mortgage - the tail at the end in your pension case being kinda like the build of equity at the start of a mortgage - dribbles.

 

[MichaelB]

This is an interesting challenge. There’s no easy way to do this. One option is to calculate the net future value of the entire sum, discount that amount to a present value and add that to your portfolio today. Or, input the first three years payments in the “lump sum changes to portfolio” tab, then do the above for the remaining balance.

 

[COcheesehead]

This is an interesting challenge. There’s no easy way to do this. One option is to calculate the net future value of the entire sum, discount that amount to a present value and add that to your portfolio today. Or, input the first three years payments in the “lump sum changes to portfolio” tab, then do the above for the remaining balance.

Agree. This is the way I handled a multi year buyout.

If you have access to the Fidelity planner, it allows multi year custom additions to income and it would be easy to model.

 

[USGrant1962]

I would keep it real simple and just add the $700K to the fixed income side of the portfolio on your retirement date. In my view, it is just an account sitting there from which you have mandatory withdrawals. Kind of like RMDs where the "withdrawal" is just a tax transaction. If you spend the money or not should be covered by your input for annual spending.

It will not be a precise model, but with FIRECalc you are just looking for the comfort level that assures you are really FIRE.

 

[CardsFan]

I would keep it real simple and just add the $700K to the fixed income side of the portfolio on your retirement date. In my view, it is just an account sitting there from which you have mandatory withdrawals. Kind of like RMDs where the "withdrawal" is just a tax transaction. If you spend the money or not should be covered by your input for annual spending.

It will not be a precise model, but with FIRECalc you are just looking for the comfort level that assures you are really FIRE.

This makes sense to me. Yeah, you are getting an 8% return, which is probably more than Firecalc would calculate for fixed income in most years, but you will be withdrawing around 50% in just the first 3 years.

 

[TANSTAAFL]

It's like trying to depreciate an appreciating asset.

Of course the buyout value goes up yearly and the percentages range 22-30% depending on the term. I was hoping for a shortcut.

Manual input it is.