Paranoia reigns

[aggie]

I'm semi-retiring in September 2007 at age 55. DW is 55 also. DW and I will have 20k total pensions at 55, approximately 730k investments, expect 180k profit from house sale. Social security extrapolates to about 34k (today's dollars) at 62. House is for sale now. We'll rollover house profit to safer investments to use for first 7 years, more or less. We plan to rent small house (less than $1k). Subsidized health insurance (retiree medical through his company) is 15k/year. We both have health issues that would put us in the state pool. State pool and company medical are close in price but company medical is significantly better. Based on our calculations we need 67k per year to live on (inflation adjusted, of course). We also plan to make 20k in earned income until SS kicks in at 62.

We will take money out of taxed accounts first, then Roths, then remainder. We may at some point in the future buy a house, but are not sure where or when at this point.

67k is half our current income, but we save 30% a year and our current house costs us about 2k/month (including mortgage, taxes and insurance, but not repairs, etc.). We expect to cut our expenses by about a third (excluding housing and health insurance).

Firecalc says we are okay, but we're looking for human confirmation anyone out there have a similar situation? Any comments about our chance for success?

 

[Mwsinron]

If you ran firecalc and its ok. Well then you are ok. You know what you can spend. Live within it!

 

[jdw_fire]

I'm semi-retiring in September 2007 at age 55. DW is 55 also. DW and I will have 20k total pensions at 55, approximately 730k investments, expect 180k profit from house sale. Social security extrapolates to about 34k (today's dollars) at 62.

Check out the threads on delaying the start of SS to increase your WD amounts prior to age 70. I haven't run your numbers except to see that if you wait till 70 your SS would be roughly $60K in todays dollars and when you add that to your pensions it is well over the $67K you said you needed. It appears that you have a large enough portfolio to cover your inflation adjusted $67K/yr prior to age 70 so between now and 70 your pensions would be gravy. And all this with out the earned income you mentioned.

 

[aggie]

http://firecalc.com/calc-

Thanks for your answers...

I ran firecalc and unless I did something wrong, I came up with ~66% success for the 15 year period(no pension/SS delayed until 70)

Any suggestions?( and we have already started the delaying SS threads.)




MODERATOR EDIT: Shortened URL

 

[jdw_fire]

I ran firecalc and unless I did something wrong, I came up with ~66% success for the 15 year period(no pension/SS delayed until 70)

The numbers in your initial post don't agree with the numbers in your FIRECalc run.

1st your FIRECalc run didn't include your pensions.

2nd as best as I can tell the numbers you put in for SS at age 70 are the numbers you said you would get at age 62. Age 70 numbers should be ~1.76 times the age 62 numbers

3rd I'm not sure what you did with your portfolio value.

Also since you are 55 yo you should probably use a plan end time of 30 or 40 years not 15.

Both 1 and 2 will make a big difference. 3 might make a difference but since I don't know what you did I'm not sure.

You said you reviewed the delaying SS threads but what did you think?

 

[jdw_fire]

OK I did a FIRECalc run for a 30 yr $67k WD plan with $60K in SS at age 70, $20K in non-COLAed pensions at 55 and $890K portfolio and I get a 94.3% success rate.

And getting back to my first post on this thread, if instead of putting your $890K into the market you put it into an interest bearing account that pays you a real rate of just 1.5% then you could take your inflation adjusted $67K out of said account for the 15 years between ages 55 & 70 (100% success) and you don't even need to touch your pensions.

 

[aggie]

Great, thanks! I can live with a 94-95% success rate. We appreciate your guidance and recommendations. Question...yesterday we got sidetracked on Benicke. What is your opinion of his methodology? Are there any out there implementing it?

 

[jdw_fire]

Question...yesterday we got sidetracked on Benicke. What is your opinion of his methodology?

Are you looking to spend more while you are younger than the COLAed $67k you mentioned earlier? If so, and you believe you will spend less as you grow older, Bernicke's "Reality Retirement Plan" will allow it with a smaller portfolio then you would need to provide a higher COLAed amount. But if you don't want to spend more than the COLAed $67K you don't really have to plan using Bernicke, you can just retire and start spending the $67K and when your real spending goes down as you age your retirement just becomes safer.

 

[txdakini]

OK I did a FIRECalc run for a 30 yr $67k WD plan with $60K in SS at age 70, $20K in non-COLAed pensions at 55 and $890K portfolio and I get a 94.3% success rate.

I ran same but came up with different answer. Here's why: I used all same info as you did (described in quote above). If I put 30 k and 30 k in SS slots in Firecalc starting in 2022, then I come up with your answer = 94.3%. but I thought the SS numbers were in today's dollars. When I put today's dollars of 18 and15k in the two SS slots in Firecalc, I get a 79.2% success rate. Am I missing something here? Or am I wrong about putting in today's dollars?

Thanks! This is really helpful.

Also, when putting 890k in interest bearing account etc., can you point me to an online calculator that will run this kind of simulation? Thanks.

Apparently I don't know how to do the quotes yet on this forum. Will figure it out!

 

[jdw_fire]

I ran same but came up with different answer. Here's why: I used all same info as you did (described in quote above). If I put 30 k and 30 k in SS slots in Firecalc starting in 2022, then I come up with your answer = 94.3%. but I thought the SS numbers were in today's dollars. When I put today's dollars of 18 and15k in the two SS slots in Firecalc, I get a 79.2% success rate. Am I missing something here? Or am I wrong about putting in today's dollars?

You are correct to put in SS in todays dollars but what you didn't do that I did is increase the amount of SS to be paid at age 70 (in todays dollars), as I said in this post

2nd as best as I can tell the numbers you put in for SS at age 70 are the numbers you said you would get at age 62. Age 70 numbers should be ~1.76 times the age 62 numbers

The 1.76x increase in SS is not due to inflation but is a premium for delaying the start of SS. The actual number received at age 70 will be even larger due to all the COLA paid between ages 62 and 70.

Also, when putting 890k in interest bearing account etc., can you point me to an online calculator that will run this kind of simulation? Thanks.

Actually I did this with a spread sheat.

 

[aggie]

Got it! Eventually I'll get all this right. Thanks for answering. We are still playing with all the various options.

I did find a calculator that does the second calc (if i have x$ earning at y rate, how long will it last if I take out z$ yearly) at http://www.financialcalculators.com/ It is called "how long will my money last?" I've been playing with it today.

Thanks!

 

[FinallyRetired]

One thing I did is run a number of retirement calculators. Firecalc is fine, and maybe it's my background as a scientific analyst, but I didn't want to bet my future on a single calculator with whatever fixed assumptions it contains. Plus, there's a good chance that I would have made an error in the inputs or assumptions and not found out until too late.

When I began running different calculators I did, indeed, find substantial differences, many times due to my own errors or incorrect assumptions. Some calculators said I was better off, some that I was worse off. I finally sat down and did my own excel monte carlo spreadsheet with all of my own individual numbers for everything and, wouldn't you know it, I got an even different answer. Then came the hard part. Figuring out why there were differences, and trying to reconcile them.

It took me a very long time, but I finally achieved fairly consistent results across all the calculators, and found that firecalc was correct to begin with, but what I learned from the comparison exercise was more valuable than the answers I obtained from the calculators themselves. There are lots of nuances into the income needed figure, and this was a big reason for the differences. Part of the income needed increases with inflation, but part does not (eg, mortgage payments). Some income needs decrease with age (eg surfboards) while others increase (eg, health care). SS and pensions also make for large differences in income needed, and some are inflation protected, some are not. Then there are adjustements due to changes in homes, in where one lives, in taxes, on and on. It's hard to squeeze all this down to one number, but if you run the calculations separately and squeeze it down to an equivalent single number, then firecalc is fine, and works as well as much more sophisticated calculators.

This exercise also made me aware of how easy it is to make a mistake, and I wonder how many mistakes are made even by professional counselors. In the end, though, I agree with what Nord said, that the fourth decimal point is really not that important. What's more important in going through these exercises is to really understand your financial picture, how it will ebb and flow due to your own individual situation, and how robust it is to surprise expenses or market downturns.

 

[aggie]

We are finding the same thing. We love FireCalc and find it very useful. But just running it without understanding what you are doing and what each of the numbers really means doesn't help much. Primarily because it is very easy to make a mistake or to make the wrong assumption about the numbers. And of course, Firecalc serves one purpose but there are other questions regarding taxes, social security, pensions and other things that other calculators deal with. We're slowly making our way through various calculators and scenarios. The forum has been really helpful in aiding our understanding where our logic or assumptions weren't holding up. Ultimately though, even after preparation and analysis, we'll be rolling the dice and hoping for the best with several backup contingency plans.

 

[chinaco]

Ultimately though, even after preparation and analysis, we'll be rolling the dice and hoping for the best with several backup contingency plans.

You are correct. After you analysis... You make a decision. Projections help with planning... but they are only projections. Your ace in the hole is the abilty to throttle back certain non-discretionary and all discretionary expenditures. A portion of your expenses is all you can really control at a point in time. The market is the market and it will fluctuate. If you use a conservative WD rate, you are less likely to stress the portfolio. Obviously, the WD rate is driven by your expenses.