Your 'go to' Spending Model in Firecalc?

[youbet]

(Aside from IRMAA).

Hee.... hee....

Setting aside taxes might be fun, but it's not realistic. While some might say that DW and I are fortunate in having enough income to trigger IRMAA, we look at it as something we spend in lieu of a significant trip annually.

For folks whose income is just enough to trigger taxes such as IRMAA (our situation) or losing the ACA subsidy, HI expenses in retirement can be surprisingly intrusive bumped against alternative uses of the money!

If you have an extremely high income, you don't care. But at the trigger margins, ouch!

Also, regarding healthcare costs as you age, there are many issues to consider beyond insurance premiums, deductibles, co-pays and all that. We've found that age related health expense scenarios are creeping into our budget due to loss of "robustness." We now use a lawn service, fishing guides, auto mechanics, handyman services, etc., with much more frequency than a decade ago due to health and aging issues. We're also getting estimates for "stay in place" modifications to the house in anticipation of possible future age-related health issues. Then there's the cost of estate planning and all that.

There's a lot more to it when the statement "health related costs increase as you age" is made than just HI premiums, deductible, co-pays, etc.

 

[Dtail]

You can't really look at it that way....... You're suggesting entering 30 years periods and then looking at the status in year 20. Rather than do that, I'd enter 20 year periods and look at the ending status. There is a difference, as NW-Bound points out.

Actually yes I am saying that the 75 yo would naturally enter a 20 yr remaining period, so then wouldn't Firecalc look at all the 20 year periods and come up with the 1966 scenario further separating on the downside from other bad starting years vs. when they are 65 yo and 1966 spits out a conservative result, but nearly as conservative as when it is used as a 20 yr scenario (which a 75 yo retiree first time or continuing retiree would use).

 

[CardsFan]

Hee.... hee....

Setting aside taxes might be fun, but it's not realistic. While some might say that DW and I are fortunate in having enough income to trigger IRMAA, we look at it as something we spend in lieu of a significant trip annually.

For folks whose income is just enough to trigger taxes such as IRMAA (our situation) or losing the ACA subsidy, HI expenses in retirement can be surprisingly intrusive bumped against alternative uses of the money!

If you have an extremely high income, you don't care. But at the trigger margins, ouch!

Fair point, but I guess was asking if the base rates have been increasing much faster than inflation.

FWIW, I have no doubt we will be hit by IIRMA at RMD time.

 

[youbet]

Actually yes I am saying that the 75 yo would naturally enter a 20 yr remaining period, so then wouldn't Firecalc look at all the 20 year periods and come up with the 1966 scenario further separating on the downside from other bad starting years vs. when they are 65 yo and 1966 spits out a conservative result, but nearly as conservative as when it is used as a 20 yr scenario (which a 75 yo retiree first time or continuing retiree would use).

Don't try to read so much into it.

The 1966 starting scenario would be based on spending, investment returns and inflation for the 20 year period beginning in 1966 and stands alone. The same for each of the other starting years. Then they are all displayed in the output graph. Much earlier versions of FireCalc had an additional bar chart which showed ending values labeled by year so you could pick out the best and worse starting years at a glance. Today, you have to drop the spread sheet to determine the outcome for a specific year.

It answers the question as to what would have happened historically if you retired in 1966 with the parameters you choose regarding spending, other income and portfolio size and make-up.

Have you tried dropping a spreadsheet from FireCalc and inspecting the formulas and outcomes? It helped me understand what's going on inside the "black box."

 

[youbet]

Fair point, but I guess was asking if the base rates have been increasing much faster than inflation.

No, the base rates have not increased significantly beyond inflation. But, and this is key, extras such as IRMAA, the deductibility of medical expenses, the size of deductibles and co-pays and non-health insurance related expenses are very real. The fact that the "base" rises similarly to inflation doesn't make me feel any better when I'm writing an end-of-year IRMAA check to Uncle for DW (who's SS is far less than IRMAA so she gets an invoice). Or when I'm paying to have geezer-friendly modifications done to the house.

The "base" just isn't a very useful number to me for planning purposes since it's so unrelated to what I must spend. It might trick me into thinking that my health related expenses won't be rising as I age.

 

[Dtail]

Don't try to read so much into it.

The 1966 starting scenario would be based on spending, investment returns and inflation for the 20 year period beginning in 1966 and stands alone. The same for each of the other starting years. Then they are all displayed in the output graph. Much earlier versions of FireCalc had an additional bar chart which showed ending values labeled by year so you could pick out the best and worse starting years at a glance. Today, you have to drop the spread sheet to determine the outcome for a specific year.

It answers the question as to what would have happened historically if you retired in 1966 with the parameters you choose regarding spending, other income and portfolio size and make-up.

Have you tried dropping a spreadsheet from FireCalc and inspecting the formulas and outcomes? It helped me understand what's going on inside the "black box."

Played around a bit last year, but not specifically now in reference to my theoretical scenario.

 

[Carpediem]

Thanks to all for the responses so far. Very eye opening because I wasn't expecting the vast majority to be using Constant Spending.

Follow up question - On the Your Portfolio tab under the section titled "FIRECalc's calculations should be based on a portfolio invested in...", I'm assuming most here use the Total Market option. If that's true, what year do you use for the 'Include performance since...' box? 1871?

And what year do you use on the Investigate tab in the section "Display the results of the retirement plan"?

 

[Dtail]

Thanks to all for the responses so far. Very eye opening because I wasn't expecting the vast majority to be using Constant Spending.

Follow up question - On the Your Portfolio tab under the section titled "FIRECalc's calculations should be based on a portfolio invested in...", I'm assuming most here use the Total Market option. If that's true, what year do you use for the 'Include performance since...' box? 1871?

Bolded - yes but keep in mind, we haven't really heard of any real examples on this site of one actually spending using the Constant Spending scenario. So thus just a guide for those not yet retired, am I in good shape, plus a continuing guide in retirement for some.

 

[Carpediem]

Bolded - yes but keep in mind, we haven't really heard of any real examples on this site of one actually spending using the Constant Spending scenario. So thus just a guide for those not yet retired, am I in good shape, plus a continuing guide in retirement for some.

Right. And that makes me wonder how folks are deciding on what to enter as their constant spending amount. A person could simply enter an amount equal to 4% of their portfolio but then, you don't really need Firecalc to know that will most likely be 100% success. I'm guessing that people are using their highest estimated spend and adding some percentage to it for cushion.

 

[Dtail]

Right. And that makes me wonder how folks are deciding on what to enter as their constant spending amount. A person could simply enter an amount equal to 4% of their portfolio but then, you don't really need Firecalc to know that will most likely be 100% success. I'm guessing that people are using their highest estimated spend and adding some percentage to it for cushion.

Actually 4% for 30 years gives you 95%, but I hear ya.
From many posts, it does appear that many pad their expenses for conservatism and to feel more comfortable with the results.
Personally, I enter a realistic budget, but am using a 3%WR rate for my version of conservatism. Perhaps all the same in the end.

I think Firecalc is very useful for "what if" scenarios, plus the effect of other inputs besides annual expenses.

 

[SecondCor521]

Follow up question - On the Your Portfolio tab under the section titled "FIRECalc's calculations should be based on a portfolio invested in...", I'm assuming most here use the Total Market option. If that's true, what year do you use for the 'Include performance since...' box? 1871?

And what year do you use on the Investigate tab in the section "Display the results of the retirement plan"?

Total Market, 1871, but I change the equity allocation percentage from the default value to my current actual allocation. On that tab I also change the expense ratio to my current actual expense ratio.

In general, I enter values consistent with current actual values and most likely future values. I run FIREcalc on a regular ongoing basis. I find taking the current actual values and most likely future values tends to create a rising glide slope of my financial situation; the reason for this is that while FIREcalc plans for the worst situation in history, the average situation is always better and often much better.

Right. And that makes me wonder how folks are deciding on what to enter as their constant spending amount. A person could simply enter an amount equal to 4% of their portfolio but then, you don't really need Firecalc to know that will most likely be 100% success. I'm guessing that people are using their highest estimated spend and adding some percentage to it for cushion.

I enter my last six months actual expenses from Quicken, annualized. I subtract out for college expenses, since those are paid for from a separate stash.

 

[RetireAge50]

I use the Investigate tab and let FireCalc determine the spending level.

 

[audreyh1]

Thanks to all for the responses so far. Very eye opening because I wasn't expecting the vast majority to be using Constant Spending.

Follow up question - On the Your Portfolio tab under the section titled "FIRECalc's calculations should be based on a portfolio invested in...", I'm assuming most here use the Total Market option. If that's true, what year do you use for the 'Include performance since...' box? 1871?

And what year do you use on the Investigate tab in the section "Display the results of the retirement plan"?

The vast majority are not actually using the constant spending model after retirement.

They just looked at it when getting ready to retire.

Most people here seems to check their annual spending against their portfolio each year, calculate the % ratio, and decide it’s OK as long as it’s under some predetermined “safe enough” X%. Maybe they got that X% from their initial Firecalc models.

 

[sengsational]

IIRMA? Google was not my friend in this case.


Edit: It was a spelling issue.

Since 2007, the Medicare Modernization Act of 2003 has required high-income Medicare enrollees to pay an “Income-Related Monthly Adjustment Amount” (IRMAA) surcharge on their Medicare Part B premiums, which lifts the Medicare Part B premium from covering “just” 25% of costs up to as high as 80% of results, increasing Medicare Part B premiums by as much as 219% in 2017.

 

[RobLJ]

I use Constant Spending Power but suspect our behavior will be more like the Bernicke. (However DW is 4 years younger, so there is that.)

 

[RobLJ]

I should note that next year when my part-time gig from my old job runs out and before hitting SS age, I'm planning on 4.5-5.5% spending, before decreasing the spend rate, so the prior post was way over-simplified.

There, I was referring to a 30 year horizon.

 

[Carpediem]

Question for the Constant Spending Power folks.....do you set the spending amount to a high enough level to cover your lumpy expenses - cars, HVACs, roofs, etc?

 

[Rianne]

Question for the Constant Spending Power folks.....do you set the spending amount to a high enough level to cover your lumpy expenses - cars, HVACs, roofs, etc?

I usually tack on an extra $10K to be on the safe side. Hopefully, if we stay in the usual spending pattern, that will add up to a nice vacation.

 

[footenote]

Question for the Constant Spending Power folks.....do you set the spending amount to a high enough level to cover your lumpy expenses - cars, HVACs, roofs, etc?

Yep - using "Investigate" max 1st yr spend with 99% success
plus worst-case SS scenario leaves about $8k / yr extra.

Same simulation with best-case SS outcome = $22k / yr extra.

I expect household will fall some where in between in reality, but I still budget for worst-case.

 

[Lewis Clark]

Question for the Constant Spending Power folks.....do you set the spending amount to a high enough level to cover your lumpy expenses - cars, HVACs, roofs, etc?

Yes. When I calculate my annual spending budget, I include a line item for each of these lumpy expenses. The budget line item number equals the approximate annual amount I need to save to pay cash for that item when it is expected to be bought, plus a safety margin.

 

[Carpediem]

Thanks for the replies on the lumpy expenses so far. Follow up question - do you go ahead and withdraw that extra amount and put it in "savings" until you need to spend it?

 

[Dtail]

Question for the Constant Spending Power folks.....do you set the spending amount to a high enough level to cover your lumpy expenses - cars, HVACs, roofs, etc?

Do it slightly different than most, in that I am building an emergency fund outside the AA which is calculated for Firecalc. (Yes have heard all the arguments to include in the AA).

Edit - Effectively for me, it is already in emergency savings.

 

[footenote]

Thanks for the replies on the lumpy expenses so far. Follow up question - do you go ahead and withdraw that extra amount and put it in "savings" until you need to spend it?

This year I'm just putting it into the impending expenses / cash bucket, delaying the need to fund that bucket. That, plus EE bonds maturing in February and April, should take us well into spring 2019.

 

[Lewis Clark]

Thanks for the replies on the lumpy expenses so far. Follow up question - do you go ahead and withdraw that extra amount and put it in "savings" until you need to spend it?

I keep it invested until I need it. Because I don't know exactly when I will need it.

 

[SecondCor521]

I keep it invested until I need it. Because I don't know exactly when I will need it.

I don't budget for lumpy expenses except as they may have happened in the last six months, so I do as @Lewis Clark does and keep it invested until I need it. This way seems simpler to me and also more efficient, but I can understand the "set it aside" approach also.

I just put my actual 6 months expenses annualized in FIREcalc and actual current numbers and look at the result. Currently I spend about 2.5% gross WR and about 1.5% net WR. The gap between that and the ~5% WR which is 95% historically safe is what I count on for lumpy and end-of-life expenses. It is a pretty big SWAG, but I'm comfortable with it given my overall situation.