Did I screw up FireCalc?

[PandaBear]

I first posted here in March 2014. I can’t believe it was 2 ½ years ago. My husband is getting closer to his retirement date of June 2019. I won’t retire until June 2022. We have been anxious (off and on) as to whether my husband would be laid off, but he has made it this far.

I feel we have a good handle on our retirement income and are well prepared (in no small part thanks to the info I have learned from here). However, I ran the Fire Calculator and was pretty stunned to only have a 62% success rate. This has me pretty freaked out.

We currently have 14k in take home income. Of that, we have a mortgage of 2k and spend about $2400 per month on college tuition.

In retirement, we expect to have 2 pensions (one of 75k per year and one at least 67k per year-based on my current salary, which will likely go up), social security ($2100 per month for dh starting at age 62) and hope to have 1.2 million in a 401k (currently at about 1.35 and putting in 28k per year until dh retires). We will also have about 285k from my 403b and cash.

I have planned to have 196k per year in income (pensions, social security and withdrawing 3% of 1 million or $30,000 from 410k….being conservative on purpose). With taxes, I envisioned having about $142K per year take home. Currently we spend 168k, but if you take away the tuition money and mortgage, it’s only $115,200 per year. Plus, we will have the cash I mentioned above and I estimated our 401K at 1 million instead of 1.2 million (just to be cautious). Also, while none of our kids live at home, we are still paying for car insurance, cell phones and so on, which we expect to not be doing when we retire.

So, a couple of questions…

Did I screw up Fire Calc? I estimated at needing 140K per year and am surprised by the failure rate.
Is there any easy calculator to figure out the required 401K and 403b distributions?

Thanks.

 

[gauss]

Do the pensions and SS start immediately at your retirement or is there a delay from which you will be drawing more from your nest egg?

EDIT
Did you enter the pensions as inflation adjusted or not. If they are not in reality inflation adjusted then that could be the problem in your planning since they comprise such a large portion of your retirement spending

-gauss

 

[Gumby]

Did you put the Social Security and pension income in as annual (not monthly) amounts?

 

[gauss]

Here is an example I mocked up based on your data. It shows the pension not inflation adjusted and a large failure rate (ie success rate of only 40.5%.)

If the scenario is rerun with inflation adjusted pension then the success rate goes to 100%.

So depending on whether your pensions are actually inflation adjusted or not, you may have either screwed up on:
- your data entry to FireCalc (a clerical error)
- your original retirement planning (a more significant planning error)

-gauss

p.s. This scenario assumes that your pension and SS starts immediately.

 

[Aiming_4_55]

Hmmm... this is a word problem ;-) I'm on Pacific Standard Time and up for the day, 4:15am, so errors happen. This is what I read/comprehend... I can be totally off.

Spending $140k (Taxes included?)
Social Security $25k beginning in 2021 (DH @ age 62)
Pension 1: $75k beginning in 2019, no inflation adj (DH @ 60)
Pension 2: $67k beginning in 2022, no inflation adj (DW @ 60)

Not Retired: retiring in 2019
Adding $28k per year until DH retires
Used default for Spending Model and Port. Invested.

FIRECalc Results
Looking for a spending level that will result in 95% success rate . . . . . . . . . . . . . . . [done]
A spending level of $129,365 provided a success rate of 95.7% (116 total cycles, of which 5 failed). This spending level is 12.94% of your starting portfolio. (Your spending is assumed to come from any Social Security and pensions you entered, as well as from the portfolio.)

Note: If DW is working for from 2019 - 2022, the income may increase success rate or spending amount can go up.

 

[MichaelB]

Moved the thread into FIRECalc support.

 

[PandaBear]

Thank you for all of your comments. I guess I'm going to have to figure out a couple of things!

 

[rodi]

Will your kids be out of the house/out of college/off the payroll when you retire? If so - adjust your spending input accordingly.

It sounds like you have some really nice income streams - but it also sounds like you have some pretty nice spending habits. One or the other has to change for it to work.

Some factors to consider...
- How much will your spending drop when your kids are fully launched?
- Did you account for changes in taxes in retirement - you won't be paying FICA (SS and Medicare) taxes anymore. That's 7% (or less) savings you'll get. (I say less because it sounds like you guys are high earners so probably don't pay SS tax on your full income.)
- Do you have a mortgage? How close is it to paid off... once it is paid off that payment (spending) is no longer needed.

 

[gauss]

PandaBear,

Do you know if the pensions are inflation adjusted or not?

It seems like that is the biggest thing to understand here.

The logic in your original post about taking $30,000/year as 3% of 1,000,000 will only make sense if all of your other income streams increase with time (ie inflation adjustment). If your pensions are not increased each year and remain fixed then you will need to withdrawal a larger and larger portion from your 1,000,000 to make up the difference as inflation erodes your buying power over time. This would cause your WR to quickly grow above 3% and will thus cause failure scenarios.

-gauss

 

[PandaBear]

Again, thanks to everyone. Good comments (as always) to help me continue to plan for our retirement.

 

[pb4uski]

You can use the Investigate tab in Firecalc to see how much you can spend (including taxes) at different levels of success.

One thing to keep in mind is that the spending level in Firecalc includes taxes.

 

[PandaBear]

Thank you. I will play with it. Also realized I missed some income revenue. Not a lot but about 9K a year. So that will help a little.

I will keep playing. For me this continues to be an educational process. We have about 2.5 years until dh plans to retire and for me it's not until June 2022. So we have some time to figure things out. But the more I investigate the better prepared we will be.

 

[LakeRat1]

What about minimum distribution at 70, from the 401k??