For an early retiree, I don't get how it's unnecessarily complex. I use immediateannuities.com to come up with a value, and I give that number a 25% reduction in case SS benefits get cut. Not sure this is any more flawed than any other estimate of future expenses, portfolio return rate, and inflation. They are all best estimations.^^^ Unless you include mortality to derive an expected present value, it seems to me that any valuation of SS is flawed and likely to be overstated... not to mentionunnecessarily complex... why not just use the conventional approach of using the gap (spending less SS) as the numerator?
Can you provide and example? I'm having trouble following your post.
immediateannuities.com has the option to ask for COLA adjustments too. I use opensocialsecurity.com as well, it comes out a little higher. I also use an NPV calculator, which comes out much higher. Perhaps I'm doing that wrong. In any case, I use the lowest value, to be conservative.
The issue in the gap method is that if you used NPV of SS, you would have a more representative WR, probably around 4%, so you wouldn't have the perceived notion of safety comparing your 1% WR to other higher WR you see people writing about. That's the only difference, the perception you might have. The reality is the same.
I still don't understand how I would figure out how to manage my WR for the 7+ years to my pension, and 4-12 years to social security without doing a NPV on them. I don't really need an answer, because I'm not going to switch anyway, but that's why I do as I do.
immediateannuities.com has the option to ask for COLA adjustments too. I use opensocialsecurity.com as well, it comes out a little higher. I also use an NPV calculator, which comes out much higher. Perhaps I'm doing that wrong. In any case, I use the lowest value, to be conservative.
The issue in the gap method is that if you used NPV of SS, you would have a more representative WR, probably around 4%, so you wouldn't have the perceived notion of safety comparing your 1% WR to other higher WR you see people writing about. That's the only difference, the perception you might have. The reality is the same.
I still don't understand how I would figure out how to manage my WR for the 7+ years to my pension, and 4-12 years to social security without doing a NPV on them. I don't really need an answer, because I'm not going to switch anyway, but that's why I do as I do.
You have to give a name and email address. Neither has to be valid to get to the next page with the quotes.Where is the COLA option in immediateannuities.com? I see one on the results page but you have to given them your name and email address and I don't care to do that so I have never tried it.
I’m confused by the need to think about a pension or SS in this way. We just look at estimated annual spend, with a chunk of that annual spend set aside for big purchases/maintenance. When SS comes online, our needed $ to support our spend goes down, so our withdrawal rate goes down with it. We are projecting a couple of years of higher spend, with a withdrawal rate of around 5%, then it comes down with SS to around 4%, and steps down again as kids are launched, mortgage is gone etc... with a terminal rate at 3.3-3.5%. When I look at average withdraw rate over our planning horizon it’s ~3.6% over 43 years. The biggest issue with modeling things this was is that so far, the only calculators I’ve seen that manage variable spend are firecalc and fidelity.
I agree one could have a false sense of security with a 1% w/d rate, but if you’re not taking inebriated offs into account, it’s not the fault of the w/d rate!
On my system, I add $2M+435K+65K= $1.5M equivalent net worth.
Oops! I made half a change. I've corrected the post.I do it the way you do in terms of an NPV on SS.
But when I do the math above, I get $2.5M.
The very first thing Firecalc asks for is my spending. I don't want to specify that. I have $50K in base expenses for a fairly comfortable lifestyle. I have expensive hobbies and love exotic travel and could easily spend another $100K. How much can I actually spend given my numbers? And how do I break down my withdrawals before and after SS/pension? Can Firecalc do that? Do I have to iteratively increase my spending and keep rerunning Firecalc to see if it still works? Ugh, that seems burdensome.I agree. I don't see any real value in putting a NPV on SS or a pension. Put everything into Firecalc ( or another calculator of your choosing), and let it tell you what would have worked in the past. Then you need to use your own judgement to assess your risk and decide what you want to do.
The very first thing Firecalc asks for is my spending. I don't want to specify that. I have $50K in base expenses for a fairly comfortable lifestyle. I have expensive hobbies and love exotic travel and could easily spend another $100K. How much can I actually spend given my numbers? And how do I break down my withdrawals before and after SS/pension? Can Firecalc do that? Do I have to iteratively increase my spending and keep rerunning Firecalc to see if it still works? Ugh, that seems burdensome.
Um, try the investigate tab ("Given a success rate, determine spending level for a set portfolio, or portfolio for a set spending level"), and input the success rate you want. Pretty simple.
RB,
After putting in all your info, including an estimate for exps, you can use the "Investigate" tab to search for how much you can spend under a XX% success rate scenario. That'll help you see a "max" spend, considering the income sources and portfolio assumptions you specified. As always, remember that the max spend it calculates is a gross total (meaning you have to pay your taxes out of that total, too).
NL
(Oops...CardsFan beat me to it.)
I agree. I don't see any real value in putting a NPV on SS or a pension. Put everything into Firecalc ( or another calculator of your choosing), and let it tell you what would have worked in the past. Then you need to use your own judgement to assess your risk and decide what you want to do.
In our case, a WR of 4.7% of current assets gives a 100% success rate. We actually pull less than 3%, so we feel safe.
Alright, yes, it sure does. I put in max spending, and 100% success, and it tells me I can spend $87K. Higher than my $75K but the 3% I used is very conservative.
I'm still sticking with my method, but thank you for showing that it is easy to do through Firecalc as well.
Alright, yes, it sure does. I put in max spending, and 100% success, and it tells me I can spend $87K. Higher than my $75K but the 3% I used is very conservative.
I'm still sticking with my method (for now, at least), but thank you for showing that it is easy to do through Firecalc as well. I'm not afraid to change when I've learned new things. I'd have to think about how to apply it to VPW though.
Bolded by me - I assume you are referring to a gross WR %, not a net WR%, unless that is your current WR% but it reduces in the future.
My current gross WR% is 6%, but the net WR% is 3% which is what counts in the end.
Very helpful. 3.58% of my 2.5M incl SS+pension is $89,500. Firecalc said $87,871. A much smaller difference, and could just be due to minor differences in mortality used in OpenSS where I gave my age, and Firecalc where I accepted the default of 30 years.At the default AA% ratios, Firecalc effectively provides a 100% success rate up to a 3.58% WR.