Mulling over Firecalc Numbers

[INTJ10]

Hi all, as you know, retirement planning is a big pain because there are so many moving parts. I have been putting together scenarios and it would be helpful to get some feedback. I know it is our decision but I want to make sure I am at least considering the correct issues.

I like to use Firecalc and try to make things simple enough that I can get my head around the issues. Here is where we are at this time.

Liquid Portfolio is a little over $3 Million. About $300K in taxable accounts. Total asset allocation is 7% Cash, 58% Stocks, 35% Bonds. Almost all in low fee Vanguard index funds.

We have been tracking expenses for 4 years or so. Decided we need $120K/year which includes $24K/year for healthcare. This would support out anticipated retirement lifestyle and is about what we live on now. Own primary residence/no debt.

SS estimates for me and spouse is $24K per year for each of us when we are 62. We are 59 and 58.

We have to buy healthcare and have minimal LTC insurance. Balancing no LTC is that we have about $200K in non primary resident real estate. Probably will get an inheritance of several hundred K.

I have been running Firecalc scenarios. 35 yr retirement, 100% success factor. The result number I have been focused on is the annual spending level supported (at 100% confidence).

Here are the scenarios with the Annual Spend Rate calculated by Firecalc:

Both Retire Now / No SS - $103K annual spend rate
Add husband SS - $125K
Add wife SS - $145K
Add delay retirement two years to 2019 - $157K

Wife is reluctant to retire now because enjoys her job but likely will want to in 2 years. I am more willing to retire now but not sure. I definitely have things I want to do but am nervous about this decision. I was a little surprised that delaying 2 years only added about $12K to our spend rate.

is there any other issues that I should be considering? Thanks in advance for your consideration.

 

[exnavynuke]

When you retire, have you considered what you want to do with all the free time? It's possible your expenses could stay the same, or they could go down, or they could go up. I know I'd like to spend more time traveling and play more golf when I retire so I expect my expenses will go up, despite spending less on work-related commuting and other costs of working.

 

[REWahoo]

is there any other issues that I should be considering?

If you've covered all the items on this list you should be good: http://www.early-retirement.org/for...-answer-before-asking-can-i-retire-69999.html

 

[Midpack]

If you've covered all the items on this list you should be good: http://www.early-retirement.org/for...-answer-before-asking-can-i-retire-69999.html

+1.

$12K/yr for 35 years is considerable no?

And it's fine to shoot for 100%, but it's a very high threshold, even though it's still no guarantee. BUT if you look at 95%, you might be surprised at how much more spending that allows. Just for perspective.

 

[Whisper66]

.....is there any other issues that I should be considering?

No other issues. You could both retire today and be perfectly fine with those assets and that expense level. About the worst that could happen is if we got absolutely horrible market returns for the 1st couple years of your retirement. Then you might have to pare back the expenses for a couple years. I tested this situation for my situation (retired in 2015 at 55) by estimating the impact of a bad market drop on our assets and then reran Firecalc using those numbers as our starting point...that provided what we might have to cut back to if the market dumped.

With your high asset level, much of it in tax deferred accounts, and reasonable amount of taxable cash available ..... your situation is one of those that should consider if you want to do Roth Conversions to optimize your taxes (and maximize assets you can spend) over the years. Many discussions on this board about the pro / cons of doing that. I happen to be one that has decided to take advantage of Roth conversions.

I-ORP is one tool that you can run to get a feel for how to use Roth Conversions to minimize lifetime taxes. Conversions may be especially worth considering if current talk of dropping marginal tax rates come to pass. Even more beneficial if rates increase again in later years.

BTW - I ran I-ORP with your numbers and got similar results to what you are seeing in Firecalc. Just another check to provide confidence to retire when/if you feel like it.

Lastly .. None of the considerations of Roth Conversions really impacts the end result - you could retire today if you really wanted to. Great position to be in, Congrats!

 

[USGrant1962]

My numbers and situation are amazingly close to yours. The only real difference is I'm 55, run FIRECalc for 40 years, and my portfolio is a little bigger. I think you are definitely FI at this point.

A few hacks I do in FIRECalc that you might want to consider:

• SS, I'm not planning on taking it until age 70, but I reduce it by 30% to account for the shortfall and possible (probable?) future means testing at the income level we are talking about. I know this is conservative, but I'm a 100% probability in FIRECalc guy.
• Medicare, you're budget of $24K for medical pre-Medicare is about the same as mine, but Medicare is much cheaper than private insurance, COBRA, or unsubsidized Obamacare. When we go on Medicare I reduce my spending by $8K/yr (pension or off chart spending reduction on the Other Income/Spending tab).
• Portfolio, for Vanguard Index funds make sure your expense ratio in FIRECalc is somewhere between 0.1 and 0.2.
• Consider late-life spending reductions. I reduce our spending at 75 and again at 85 years old - go slow years.

As I said, my situation is remarkably like yours, and I FIRE'd last Friday . YMMV.

 

[jabbahop]

For the young, conservative planners, someone once suggested instead of running a 40 year firecalc that has a more limited number of cycles in the data set, run a 20 year firecalc, then take the lowest remaining result and run a second one so you get 2x the sequence of returns - OUCH!

 

[ERD50]

For the young, conservative planners, someone once suggested instead of running a 40 year firecalc that has a more limited number of cycles in the data set, run a 20 year firecalc, then take the lowest remaining result and run a second one so you get 2x the sequence of returns - OUCH!

OUCH indeed! That's quite a torture track.

But I got curious, ran a few iterations and got close enough:

Start with a 2.5% WR for 20 years. For easy math, I used $25,000 spend on $1,000,000 portfolio. Lowest ending balance was $593,573.

Repeat with the same $25,000 spend on $593,573 portfolio, another 20 years. No failures, lowest balance is $39,489.

Two of the worst 20 year periods in history, back to back, is a pretty awful thought. But 2.5% isn't crazy low, I bet there are a few (maybe quite a few) on this forum that manage that. Either through relatively low expenses, and/or supplements of SS/pension.

-ERD50

 

[jabbahop]

ERD - wow - good to know the percent - very nice. thanks

 

[pb4uski]

The issue that you should be considering is that with 100% success rate you are essentialy adopting the absolute worst case scenario in the last 125 years (or however many years it is)... and it is extremely likely that you will die rich and an excessively remote chance that you will die poor.

My view would be that two extra years of freedom to do as you wish in the prime of your remaining life is well worth the infinitesimal risk that you might run out of money... besides if for some reason things do go sideways you'll have plenty of time to make some mid-course corrections and with $120k a year in spending you have plenty of room for belt tightening should the need arise.

 

[ready53]

When people say spending, is that spending after taxes?

 

[jollystomper]

TO the OP - I think you are doing things right. We can never guarantee the future but you have extremely high odds of being successful. Perhaps you want to look closely at your planned savings to see if there are any tweaks where you might spend less.

For example, I am around the same age as you, with about $1 million less saved than you. I am fortunate however to have a pension, and my retirement estimate spending is exactly the same as yours.

When estimating my retirement expenses I looked at my spending over the last 10 years (thanks to Quicken) and subtracted out taxes (will be much lower), charity/gifts (which we can control), college costs (which are gone, yippeee!) and medical. Then (based on some modeling using pension and dividend/interest/capital gains income) estimated I'd be paying about 12K in taxes, 25K for medical, and a a reduced amount for charity/gifts. My estimated expenses came out to 110K, which I fudged to 120K for grins.

I modeled 4 scenarios in FireCalc for 35 years, at the 95% confidence level and leaving some money in the estate:
- portfolio only: 77K
- portfolio plus pension: 114K
- portfolio, pension, SS for both of us at age 63: 148K
- portfolio, pension, SS for both of us at full retirement age: 150K

Based on this my mental argument is less "can I retire" and more "why don't I retire" (for the latter that is a longer story but I'm still targeting mid-year to pull the plug). Yeah could work another year and save more... but as was said above, both DW and I are in very good condition for our ages, and maybe freedom now is better, even if we have to make any (and probably slight) mid-course corrections down the road.

 

[jimbee]

When people say spending, is that spending after taxes?

My spending estimate includes taxes. I consider taxes as another expense category. You can figure spending as before or after tax, but either way, you have to estimate your tax.

 

[INTJ10]

Thanks for all the responses. It is very helpful to get perspectives from bright people on this issue. Congrats to USGrant and Jollystomper on your upcoming retirements! It is very reassuring to see people in similar situations take the leap. I checked the "important considerations list" and I think I am covered. The spend rate for 95% confidence versus 100% confidence adds about the same as delaying retirement two years, about $12K per year. At a 2.5% withdrawal rate and SS we could still make the plan work. USGrant's firecalc tweaks look like they would be appropriate for us except the declining spend rate at 75. I have friends at that age that haven't slowed much. 85 is a different story though.

I hadn't really thought much about Roth conversions. We do max out the Roth every year ($6,500xtwo) which seems like a no brainer. I will look into that more.

The budget is one of the "moving parts" of planning. We categorized all of our historical expenses (including taxes) and made an educated guess about future expenses. Part of the "excitement" of retiring is figuring out what I will do to fill the free time. We have a lot of ideas. Our fixed costs are modest so most of the "budget" decisions will be choosing between different discretionary items.