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Possible bug with annual spending in delayed retirement
Old 09-13-2014, 09:48 AM   #1
Confused about dryer sheets
Join Date: Jul 2014
Location: Austin
Posts: 4
Possible bug with annual spending in delayed retirement

Starting with the default scenario, I asked to delay retirement until 2024 (10 years from now), test for 40 years, and also requested a spreadsheet using 1970 as the starting year.

Here is the scenario

The spreadsheet confirmed a suspicion - that the inflation-adjusted annual spending ($30K) starts in the first year of the scenario even with delayed retirement. I would have thought in my test the spending would be zero from 1970 through 1979 inclusive, then the $30K spending inflation-adjusted forward by ten years would begin in 1980. The portfolio is getting smaller in those initial ten years when it should still be growing.

I see the same problem with the Bernicke spending model. Spending starts in year zero regardless of retirement delay, so by the time someone retires 10 years later the spending ist much smaller than intended.

Apologies for this example & long-ish explanation if I've completely misunderstood how firecalc is supposed to work. But it seems like a bug to me and it does affect me as I try to work out scenarios where I personally might retire a few years from now.

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Old 09-14-2014, 08:21 PM   #2
Confused about dryer sheets
Join Date: Jul 2014
Location: Austin
Posts: 4
Sorry to bump my own thread on my first post here, but I've learned more about the way firecalc behaves and wanted to add some info.

It's true that the spreadsheet column labeled "Infl Adj Withdrawals" keeps track of the inflation-adjusted withdrawals starting in the first year even when retirement is several years off. That threw me at first. But when I looked further to the right, I see that this withdrawal value is NOT subtracted from the portfolio until retirement begins.

So it's a little confusing at first glance but in the constant spending model all is well.

When I switched to Bernicke spending, the withdrawal amounts are still not subtracted from the portfolio in any of the pre-retirement years, BUT... when I enter a value for spending I want that value to be used in the first year of retirement. But firecalc not only adjusts the amount for inflation, it also REDUCES the spending per the Bernicke model (2-3% each year between ages 56 and 76 I believe) starting the first year the person turns 56 even those are pre-retirement years.

So if a 52-year-old today (2014) is trying to get projections for retirement at age 62 (2024), the spending amount entered into firecalc has been reduced each pre-retirement year from 56 through 62. To me that seems incorrect.

The graph on the results page is also a little misleading because it shows withdrawals during pre-retirement years. It would be nice if the graph showed zero withdrawals during those pre-retirement years.

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Old 09-18-2014, 10:44 AM   #3
Confused about dryer sheets
Join Date: Jul 2014
Location: Austin
Posts: 4
Here's the specific firecalc example of a 52-year-old today (in 2014) who is trying to simulate retirement 10 years from now at age 62 (in 2024) using the Bernicke spending method. In my firecalc scenario I set inflation to 0% so I wouldn't have to add spreadsheet columns to revert the future values to present values.

Here is the spreadsheet that firecalc produces for this scenario. I hid some of the columns that have zero values or aren't relevant to my question (how the portfolio is split between equities & bonds), and placed a blue bar in column V to separate out some extra calculated columns I've added to help understand what's happening.

In the first 10 years, the calculated annual withdrawal is zero (difference between one year's ending portfolio and next year's starting portfolio). This is fine.

The first withdrawal happens at the start of the 11th year, when the retiree is 62 years old. Perfect. But... that first withdrawal is $233K even though I had set the Spending box on the main tab to $300K. Clearly the withdrawals have been getting scaled down for nine years, or at least the years after age 56, but that's not what I intended when I entered $300K as the starting spending (withdrawal) amount.

Widthdrawals taper off until the retiree is 76 years old, and that's again what I expected in the Bernicke spending model. The reduction early on is about 3.5% but as high as 5.7% at age 75. I haven't read the Bernicke paper myself but firecalc describes Bernicke's widthdrawal tapering this way: "If selected, this option will reduce your inflation-adjusted yearly spending by 2-3% per year starting at age 56, and then stabilizing at age 76 to keep up with inflation". So this is a question, maybe not a bug report - is 3.5% initially ramping up to 5.7% the correct amount to reduce the withdrawal annually? Hopefully someone will double-check my spreadsheet math to see that I'm not way off here. I certainly don't mind being corrected.
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