Newly retired- Do we have enough/ suggestions??

[Salty]

Hi everyone-
My spouse and I retired in 2013. We are trying to figure out if we are doing ok. Spending too much, too little, allocated ok? We tend to be cautious investors. I am hoping by sharing some numbers we can get some perspective and sound advice! I have used firecalc, but was hoping to get some imput from the group.
We are 63 and 54. Retired in 2013. No pensions
We will each have SS, one of us will take it at 66 FRA ( appx 2500 month)
the other at 62 ( appx 1400 month)
We have planned to live to 95.
Our expenses are 85K plus 10k in taxes, 95K in total per year.
Expenses increased by 3%/ year.( we buy our own health insurance thru the connector, premium included in expense number)
Our total assets are 3.2 million ( excluding primary residence of 400K)
Asset allocation is 850K in tax deferred and 2,350K in NON tax deferred
Asset Mix=
Indiv stocks 350K
ETF/ Mutual funds 1050K
CD's, Ibonds and small amt of cash- 1800K

How are we doing

 

[REWahoo]

Have you run your numbers through FIRECalc? See link near the bottom of the page.

 

[Salty]

REWahoo,


I have. The tab/ section I have most trouble with is " your portfolio"
When I use consistent market growth of 3%, fixed income returns of 3% and inflation 3%, I get a 95% success rate at 110K spending.


If I use the monte carlo scenario, Using a random mean return of 4%, 10% deviation and 3% inflation I come up short at only 82K annual spending to have a 95% success rate.


Never sure what numbers to use in this section.

 

[2017ish]

Salty,

From a quick eyeballing, you are in good shape--indeed, better shape than we'll be when we retire at 57/56 (although most of our planned spending will be discretionary).

In just three years, you are going to pull a COLA'd [-]50K[/-] 30K a year out of social security--which only leaves [-]60[/-] 80 a year from portfolio of 3.2 million--a [-]2%[/-] less than 3% withdrawal rate even if you spend down 200,000 before then. (Then a few years later, you'll have another bit of social...) [-]If you aren't safe, this forum needs to go out of business.[/-] You look good.

Edited to Add confession of failing grade school math.

 

[MrLoco]

Looks ok. A few things I might be concerned about.

1) You say neither you nor spouse has a pension waiting for you. Be careful with current SS estimates. I normally cut these estimates by 25%. In order to sustain future SS benefits, I am sure Uncle Sam will further means test SS and cut future benefits....even those payable in the next few years.

2) Your current AA is 44/56 equities/fixed income. Might bump this up to 50/50. Future taxes and inflation will be your biggest enemies in retirement. MAy also result in a 100% success scenario with fire-calc.

3) Your current stock allocation includes 25% invested in individual stocks. Do you have some favorites there or some which have appreciated substantially which would trigger huge capital gains? The reason I ask is imagine you own $50,000 of APPLE. Apple for whatever reason drops 10% over the course of a few weeks. You lose $5,000.
Instead you own an Index 500 fund where Apple makes up 1.0% of the fund and the same drop of 10% by Apple results in a much smaller dent to the entire fund. But you already know this and like I said there is a bigger upside with individual stocks. Just wouldn't be for me in retirement.

Anyway.....good luck with whatever you decide.

 

[eta2020]

I am sure Uncle Sam will further means test SS and cut future benefits....even those payable in the next few years.

Where do you get this from?

 

[tmm99]

Salty,


In just three years, you are going to pull a COLA'd 50K a year out of social security--

I think he is going to have COLA'd 30K a year from SS in 3 years; the other SS (16.8K) will not kick in for another 8 years or so. Just sayin'...

 

[Bestwifeever]

Salty,

From a quick eyeballing, you are in good shape--indeed, better shape than we'll be when we retire at 57/56 (although most of our planned spending will be discretionary).

In just three years, you are going to pull a COLA'd 50K a year out of social security--which only leaves 60 a year from portfolio of 3.2 million--a 2% withdrawal rate even if you spend down 200,000 before then. (Then a few years later, you'll have another bit of social...) If you aren't safe, this forum needs to go out of business.

Isn't $50k a little optimistic (unless there are some hefty COLAs coming in the next three years )?

 

[MrLoco]

Where do you get this from?

Based on these recent changes by the Social Security Administration:


1) 2016 will be only the third time since 1975 where there is no COLA for SS recipients. The other two years where recipients did not see an increase in benefits was 2010 and 2011. So in the past 40 years, where recipients came to expect an increase in benefits most years, the 3 years where there was no increase has occurred in the past 6 years. This will probably continue as the norm and not the exception.


2) " The maximum Social Security payment for a 66 year old worker who signs up for SS in 2016 will be $2639/ month down $24 from $2,663 in 2015."

Granted only $24....but still a decrease. Information is from SS related websites.

3) File and suspend and Restricted Application strategies will come to an end for many applicants.

This was anticipated by many.

Just my opinion.....but this is probably just the beginning if Social Security is the survive over the next 30 years. Then again maybe it's just the pessimism in me.

 

[eta2020]

Based on these recent changes by the Social Security Administration:


1) 2016 will be only the third time since 1975 where there is no COLA for SS recipients. The other two years where recipients did not see an increase in benefits was 2010 and 2011. So in the past 40 years, where recipients came to expect an increase in benefits most years, the 3 years where there was no increase has occurred in the past 6 years. This will probably continue as the norm and not the exception.


2) " The maximum Social Security payment for a 66 year old worker who signs up for SS in 2016 will be $2639/ month down $24 from $2,663 in 2015."

Granted only $24....but still a decrease. Information is from SS related websites.

3) File and suspend and Restricted Application strategies will come to an end for many applicants.

This was anticipated by many.

Just my opinion.....but this is probably just the beginning if Social Security is the survive over the next 30 years. Then again maybe it's just the pessimism in me.

But no means testing. Any politician that starts discussing "mean testing" guarantees not to be elected. ( We had seen that with that Dude from NJ )

 

[Whisper66]

But no means testing. Any politician that starts discussing "mean testing" guarantees not to be elected. ( We had seen that with that Dude from NJ )

Means testing is already being done and will be used again when / if necessary to keep SS solvent. See Scott Burns article ( Means-Testing Social Security - AssetBuilder Knowledge Center ), highlights below.....

(1) "What most people don’t know is that our employment tax dollars don’t all buy the same amount of future benefit. Some of our employment tax dollars buy six times as much in benefits as others. According to the most recent Trustees Report, for instance, the first $767 of “average indexed monthly earnings” (a complex formula that adjusts earnings over time) is credited at a 90 percent rate, assuring the lowest wage workers of a retirement benefit nearly equal to their earned wage. Wages of more than $767 a month but less than $4,624 a month are credited at a 32 percent rate. This means retirement benefits increase at a much lower rate."

(2) "While the original political promise of Social Security was that the benefits would never be subject to taxation, the tax reform of 1983 (during the Reagan administration) initiated taxation of benefits. A second change during the Clinton administration created another level of tax on benefits. This increased the percentage of benefits subject to taxation from a maximum of 50 percent to 85 percent"

 

[ERD50]

Have you run your numbers through FIRECalc? See link near the bottom of the page.

REWahoo,


I have. The tab/ section I have most trouble with is " your portfolio"
When I use consistent market growth of 3%, fixed income returns of 3% and inflation 3%, I get a 95% success rate at 110K spending.


If I use the monte carlo scenario, Using a random mean return of 4%, 10% deviation and 3% inflation I come up short at only 82K annual spending to have a 95% success rate.


Never sure what numbers to use in this section.

Simple answer - don't.

Don't use Monte Carlo. Don't enter anything for market growth. Just let FIRECalc use the default historical analysis. That's its real power.

But you should figure your equity/fixed asset allocation. Your listing of "mutual funds/ETFs" does not tell you if those are equity/fixed.

And set 'years' on the first page as 41 to model age 54 reaching age 95. Though be aware there is a chance one of you will exceed 95.

https://personal.vanguard.com/us/insights/retirement/plan-for-a-long-retirement-tool

If iBonds make up a big %, you might want to pull them out of your net worth, and take the $ amount of iBonds divided by 'years', and enter that as a 'pension' with inflation adjustment? I think that would be close - might overstate it though?

-ERD50

 

[ERD50]

Means testing is already being done and ...

That is not 'means testing'. The taxation does create some income testing effect. But that is different from 'means testing' - which would be net worth based.

And your #1 is merely the progressive nature of the benefits versus input during your employment. That is not 'means testing' either, and it's already done, not any future change.

-ERD50

 

[Whisper66]

....Don't use Monte Carlo. Don't enter anything for market growth. Just let FIRECalc use the default historical analysis.
-ERD50

+1 - fully agree.

(a) Your numbers look quite good to me for your expense levels. Would just advise to continue monitoring / controlling expenses.

(b) If still concerned, may run the numbers through another tool for confirmation. I-ORP is a free online tool. i've used it as backup to Firecalc. Others use the Fidelity tool (see another active onging thread on that tool). Or could even let your financial organization run a retirement analysis for you to see what they would say.....Vanguard does this if you have accounts there.

 

[LARS]

But that is different from 'means testing' - which would be net worth based.


-ERD50

Not to be be nitpicky but if there is means testing (which I continue to think will not happen in any major way) it will most likely not be "net worth" based. Instead, it will be income based: if your other sources of reportable income exceed $X your SS payments will get phased out.

To make it based upon net worth would be an administrative nightmare.

 

[Whisper66]

Looks ok. A few things I might be concerned about.

1) You say neither you nor spouse has a pension waiting for you. Be careful with current SS estimates. I normally cut these estimates by 25%. In order to sustain future SS benefits, I am sure Uncle Sam will further means test SS and cut future benefits....even those payable in the next few years.

I think MrLoco brings up a very good point here. When I ran my own numbers I ran sensitivity cases assuming changes to Social Security. I like his suggestion to have a case with about 25% less SS benefit than expected using today's rules. Seems reasonable. While I may respectfully disagree with ERD50's definition of what constitutes "means testing", it is clear that changes to SS can / will be done if needed to keep it solvent. The most recent changes (including eliminating the "file and suspend" strategy) seem pretty major to me personally but I'm guessing only address the solvency issue for a few years. Maybe that's enough to avoid future changes....who knows...but I prefer to be on the safe side when running my numbers and like MrLocos suggestion.

 

[ERD50]

... Instead, it will be income based: if your other sources of reportable income exceed $X your SS payments will get phased out.

To make it based upon net worth would be an administrative nightmare.

Right - though I think that rather than phase out SS at some level of income, they will just increase your taxes on it. Same end effect, but it will be a smoke and mirrors attempt to avid 'cutting' SS.

... I like his suggestion to have a case with about 25% less SS benefit than expected using today's rules.
....who knows...but I prefer to be on the safe side when running my numbers and like MrLocos suggestion.

I think it's reasonable to model some reductions in SS (most likely due to increased taxes as I state above). I just thought some of the earlier wording and explanations were off.

-ERD50

 

[youbet]

1) 2016 will be only the third time since 1975 where there is no COLA for SS recipients. The other two years where recipients did not see an increase in benefits was 2010 and 2011. So in the past 40 years, where recipients came to expect an increase in benefits most years, the 3 years where there was no increase has occurred in the past 6 years. This will probably continue as the norm and not the exception.

So you're assuming zero CPI continuing as the norm? What is your thinking there? That's really a far-out assumption.

Personally, I'm more concerned about inflation going into the $4% - 5% range for a prolonged period. At our house, if prices, taxes and our income remain relatively stable going forward, we're fine. If prices and taxes increase slowly but steadily, we're begin to feel a pinch in a decade or so.

 

[youbet]

Salty.....

Generally, your numbers look just fine and my best wishes for a happy and healthy retirement!

The only caution I'd throw out is a warning against using any constant numbers (you mentioned increasing expenses by a constant 3% per year for example) in your modeling. In actuality, Sigma is always greater than zero, usually much greater. Averages are averages but it's the dispersion of the data around the mean that counts. Using a "constant" estimate of any parameter subjects your calculations to sequence of return risk which is very real.

Therefore, many here find testing with the historical data provided by FireCalc to be the best model. Just ask FireCalc "if I have these sources of income, this portfolio and these expenses, how would I have done historically? Then make the leap of faith that the future will be no worse than the past.

 

[youbet]

The most recent changes (including eliminating the "file and suspend" strategy) seem pretty major to me personally but I'm guessing only address the solvency issue for a few years.

Elimination of the short-lived "file and suspend" loophole is very minor event. Few people were doing it and the process was only available for a short time. The change is a mere administrative detail as opposed to a "change to save SS."

 

[Salty]

WOW, I can not thank you all enough! Great forum. I hope to be able to add value to others questions as well as I get familiar with the site, and further settle into retirement!
Mrloco- I like the suggestion to bump equities to 50%. While I am somewhat risk adverse, I know our equity position is a bit light. I think the 50% is a good balance. I will likely add to an ETF like SPY, to limit any further exposure to individual stocks. 350K ( or 11%) is fine for indiv stocks, but going forward I like the idea of buying the S&P better!
ERD50 - thanks for the advice regarding not using the monte carlo. I will further examine my equity/ fixed ratio , and use the default historical analysis as you suggest. I bonds should not be an issue as they represent less than 2% of the total.
Whisper66- I am not familiar with I-orp. I will google it and check it out. I like to use various " checks and balances"! I agree with both of you, probably wise to trim the SS estimates a bit, although I hope it does not get trimmed for the one of us who is 63...not long to go!!
Youbet, 2017ish,eta2020,lars and everyone else, thanks for the imput!!

 

[EastWest Gal]

Salty, your numbers are very close to mine in all respects except your ages (we're both 56).

All financial calculators put us at 100% success. I had too much in equities and am gradually rebalancing to a 60/40 ratio. The advantage you have is that you are closer to Medicare age, which will substantially cut you health insurance costs.

Good luck!


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[eytonxav]

Numbers look similar to my situation, although I'm 66 and DW is 61, and we have higher % in tax deferred. You look to be in great shape, although I agree with suggestion to increase your equity exposure, especially given one of you that is still a youngster

 

[Salty]

Thank you, Eastwest Gal, and DFW M5
With all of the positive feedback and suggestions , I am feeling more confident!
I think the only " uncontrollable " I can think of, is that we do not have long term care insurance.
Just never have been a fan of it, given the very high costs vs the coverage. Guess we will " self insure"
And keep our fingers crossed!!


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[RobLJ]

Numbers are similar to mine as well, although I'm 57 and DW is 53 and will continue working for at least 5 years.
Fire-Calc is a little tricky, since I'm semi-retired but still pulling income for at least a few years and DW won't retire for a while.
The portfolio is 65-25-10, though, in contrast and smaller by almost a 1/3 but still shows 100% success, although the lowest value shows about half of the present portfolio at end.

Salty, your numbers are very close to mine in all respects except your ages (we're both 56).

All financial calculators put us at 100% success. I had too much in equities and am gradually rebalancing to a 60/40 ratio. The advantage you have is that you are closer to Medicare age, which will substantially cut you health insurance costs.

Good luck!


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