BS creep

[teekaymn]

In the field that DW and are in (and I'm sure others use the term, too) we have a term called "scope creep". It happens when a project's design/fabrication goes on WAY too long and things just keep getting added to it.
Regarding the design we have to reach retirement, we aren't at BS Full Bucket yet, but employers see to it that scope creep adds to our design. Just seems sometimes like it's going on WAY too long.....
Anyway, as far as I can tell, FIRECALC says we'd be OK with the idea below, but I'd like some human feedback:
We'd like to shoot for a retirement date of 2/1/2017, but it would mean removing $60k (~7.5% to start, assuming our portfolio balance will be about 800k at that point) annually from our portfolio to cover the 5 year period (2017-2022) until SS kicks in at age 66 (DW in 2021, me in 2022). I'm assuming SS at 75% of what is projected for us, just to be conservative. What I'm concerned about is that there really will be enough balance left to draw 4% annually and maintain a $60k budget (today's dollars) when combined with SS. We've still got time before we decide to leap, but as the scope creeps, we creep closer to the end of the diving board to take the plunge.
I'd love to hear from some of the FIRECALC pros with suggestions on how to enter numbers to get a solid readout. I'd rather have cautious protective eye-wear than rose-colored glasses.

 

[ziggy29]

This sounds iffy to me, at least on the surface. Assuming you believe in the 4% rule (a lot of folks have dialed that down to 3%) and needing a total of $60K a year (I'm going to assume 75% of projected SS is $20K a year), you'd need $1M to get the remaining $40K a year.

$800K would provide $32,000 a year using a 4% withdrawal rate. If you used a more conservative 3%, that becomes $24K.

But in reality my biggest concern is the potential for a bear market (especially in the early 2020s). That could turn your $800K estimate into as little as $500K depending on how aggressively you are invested. (And if you are not invested aggressively enough, inflation and withdrawals could hurt your chances, too.)

 

[teekaymn]

Thanks Ziggy29. Our combined SS (at 75%) in 2022 will be about 36k, so we'd only have to make up about 24k annually out of our portfolio. I think you verbalized what I didn't in my original post, though, and that's a bear market happening at an inopportune juncture.

 

[MikeWillRetire]

My wife and I are in a similar situation. You mentioned that you expect to have 800k by 2017. Let Firecalc figure out what your portfolio could be worth in 2017. On the first tab, enter your portfolio value today. Then there is a tab for entering your retirement date, and your annual contributions to your portfolio until then. Did you do that?

 

[Katsmeow]

This bears some similarity to our current situation. DH retired 3 years ago, took SS at 62 since we had adolescents at him and that way they could get SS benefits while under 18. I went from full-time work to very part time work that I might quit at any point. I'm 59 so older than you.

Anyway, right now, we are drawing out more than 4% of our portfolio which is a little bigger than yours but not a lot bigger. This is because we still have kids in college so have high expenses right now for really the next 3 years. Then our spending goes down to about $65k-$70k. Also, when I'm 66 my SS projects to $30k.

I have run all of this in Firecalc. Basically we will have a really high withdrawal rate for the next 3 years, then when the kids are gone we will have a slightly high WD rate if I don't take SS until 66 or we could have a lower WD rate if I take SS at 62 (I'll evaluate that at the time). Note, that over this time that we are taking high withdrawals, we expect our portfolio to decline over that period of time. However, I've worked out that it can decline to about 60% of what it is now and we will be OK given the SS that DH and I will draw. If I take SS at 66 our portfolio would only have to give us about $18k a year.

The risky part is as someone mentioned what if we have a sustained bear market while in the period of very high withdrawal percentages. Right now, we are already better off that I projected we would be 2 years ago. I mean at this point our portfolio has increased in value this year even though we have taken withdrawals above 4%. However, I know that could and probably will change sometime in the next 3 years.

From running various runs of Firecalc I've project certain portfolio values 3 years from now to see how our plan would fare with those values.

That is I've created a scenario in Firecalc, for example, where I pretend it is 3 years from now and give a starting portfolio value and then put it in what our spending is projected to be at that time and I've run the success rates. This is what tells me that if our portfolio then is only 60% of what it is now (either due to a bear market or do to withdrawals) we still have an acceptable chance of success (I am content with 95% but the actual numbers are about 100% for $65k spending then about 98% for $68k spending).

We have an overall asset allocation of 55/45, but I've put a lot of the 45% into the short term investment grade bond fund (a little over a year of projected withdrawals0 and then another several months of withdrawals in the money market found. The point being that in the event of a bear market that year and a half of funds would be available for withdrawal without having to sell equities.

 

[Bestwifeever]

....
We'd like to shoot for a retirement date of 2/1/2017, but it would mean removing $60k (~7.5% to start, assuming our portfolio balance will be about 800k at that point) annually from our portfolio to cover the 5 year period (2017-2022) until SS kicks in at age 66 (DW in 2021, me in 2022). I'm assuming SS at 75% of what is projected for us, just to be conservative. What I'm concerned about is that there really will be enough balance left to draw 4% annually and maintain a $60k budget (today's dollars) when combined with SS....

Do people calculate for what they will need to withdraw if only one SS payment is eventually available (in the most unfortunate instance that one spouse passes away)? Would most couples' expenses fall enough to offset the loss of one payment? Just curious.

 

[Katsmeow]

Do people calculate for what they will need to withdraw if only one SS payment is eventually available (in the most unfortunate instance that one spouse passes away)? Would most couples' expenses fall enough to offset the loss of one payment? Just curious.

I don't know about most people, but I've most certainly done it.

In our case, the answer is clearly yes that expenses would fall enough to offset. This is because DH and I have certain different preferences that affect us in certain major expenses. That is, to find something that is acceptable to both of us is more expensive that what would be acceptable to one of us. For example, when we looked for our retirement home we had some similar requirements, but also some differences. For example, it is important to DH that we have several large dogs. This meant buying a house on at least an acre of land in a subdivision without pet restrictions. So, the pool of houses we could buy was much smaller and part of what we had to spend money for is buying a house with that much land. I, OTOH, like the dogs but am a cat person. So, if I was alone, once the dogs had, well, passed on I would sell the house we have now and move quite happily to a house on a much smaller lot. So, from that standpoint, my pool of houses is much larger and cheaper than DH's. So I would buy a house that was probably 1/3 less cost than our current house.

On the other hand, DH doesn't really care that much about amenities in a house. He doesn't care if the kitchen has been updated in the last 20 years and doesn't care if the kitchen counters are granite, etc. Some of the houses we looked at that would have met his criteria were rejected by me because I could look at them and see $50k in future kitchen remodeling. But, if DH was without me, he could easily buy a cheaper house that met his preferences but was cheaper since it didn't have to satisfy mine.

Anyway, that's just an example. I went through our projected expenses and calculated how they would change if it was just me. I found that the expenses cut exceeded the amount of DH's SS.

Note: I do think that everyone should do this since it is highly likely in any couple that one member of the couple will predecease the other.

 

[Meadbh]

Since BS is a major cause of stress, here's a nice video that summarizes the science behind why BS should be avoided in favor of time with loved ones.

Can Stress Actually Kill You? - YouTube

 

[Revlefty]

You are assuming that the kids will be independent after college. In today's economy, that is not always the case! Even though they were out on their own, we've found that getting our kids through their 20's is more expensive than getting them through their teens. You just can't budget for some of the costs of their "independent" and career start-up life choices.

 

[Midpack]

Ultimately the decision comes down to what allows YOU to sleep at night, what safety factor/margin of error can you live with. Some people here have retired at 75% success rate (per FIRECALC) while others need 200% (2X income/portfolio) to be comfortable pulling the plug. Both are doing what's right for THEM. And your age, projected spending flexibility (how much essential, how much truly discretionary), and your plan B all factor in as well.

 

[Lsbcal]

In the field that DW and are in (and I'm sure others use the term, too) we have a term called "scope creep". It happens when a project's design/fabrication goes on WAY too long and things just keep getting added to it.
Regarding the design we have to reach retirement, we aren't at BS Full Bucket yet, but employers see to it that scope creep adds to our design. Just seems sometimes like it's going on WAY too long.....
Anyway, as far as I can tell, FIRECALC says we'd be OK with the idea below, but I'd like some human feedback:
We'd like to shoot for a retirement date of 2/1/2017, but it would mean removing $60k (~7.5% to start, assuming our portfolio balance will be about 800k at that point) annually from our portfolio to cover the 5 year period (2017-2022) until SS kicks in at age 66 (DW in 2021, me in 2022). I'm assuming SS at 75% of what is projected for us, just to be conservative. What I'm concerned about is that there really will be enough balance left to draw 4% annually and maintain a $60k budget (today's dollars) when combined with SS. We've still got time before we decide to leap, but as the scope creeps, we creep closer to the end of the diving board to take the plunge.
I'd love to hear from some of the FIRECALC pros with suggestions on how to enter numbers to get a solid readout. I'd rather have cautious protective eye-wear than rose-colored glasses.

You didn't say what kind of portfolio you have and it's exposure to equity risks. Retiring in 2017 means you will have plenty of time to see which way the equity markets are going.

You might want to consider your current risk profile and what you are targeting for in future years. If you really want to get picky, you could look at FIRECalc sequences that were 5 years from a market low (like now). Do this with the spreadsheet output.

My guess is that 75% of SS is too conservative. But this could be OK if you are not too conservative with every assumption.

 

[Chuckanut]

Scope Creep can be quite useful. I believe their is a Dilbert cartoon where Wally never has to actually produce any results because the scope of his project keeps getting advanced as do the deadlines. Wally seizes this opportunity with his usual lust for laziness.

 

[Chuckanut]

Do people calculate for what they will need to withdraw if only one SS payment is eventually available (in the most unfortunate instance that one spouse passes away)? Would most couples' expenses fall enough to offset the loss of one payment? Just curious.

I calculated for a 75% reduction in SS payments in about 2023 since that seems to be the worst case scenario for SS. I still make it, but my heirs lose a few hundred thousand.

 

[Lsbcal]

I calculated for a 75% reduction in SS payments in about 2023 since that seems to be the worst case scenario for SS. I still make it, but my heirs lose a few hundred thousand.

We are taking SS now. From what I've read the SS system is in decent shape (not like Medicare apparently) and needs only a bit of tweaking for the 25 years out sort of picture to work. There are politicians who have an agenda to make this stuff scary.

Reducing to 75% seems extreme to me. Maybe use 90% if you want to be pessimistic for 10 years out.

 

[Midpack]

We are taking SS now. From what I've read the SS system is in decent shape (not like Medicare apparently) and needs only a bit of tweaking for the 25 years out sort of picture to work. There are politicians who have an agenda to make this stuff scary.

Reducing to 75% seems extreme to me. Maybe use 90% if you want to be pessimistic for 10 years out.

Without taking a position, who hasn't seen this so many times they just plan for it (directly from SSA below)?

I'd rather be pleasantly surprised (SS comes thru higher than I plan) than unpleasantly...YMMV

 

[Independent]

Do people calculate for what they will need to withdraw if only one SS payment is eventually available (in the most unfortunate instance that one spouse passes away)? Would most couples' expenses fall enough to offset the loss of one payment? Just curious.

I do. Remember that the surviving spouse gets to use 100% of the portfolio withdrawals, plus something between 1/2 and 2/3 of their combined SS.

Given our spending pattern, my wife is better off if I die sooner. (and I'm better off in the less likely case that she dies sooner)

Assuming she stays in this house, she would have 100% of our housing expense. But, she would only have half the food, clothing, and medical care. She would sell one car. She could reduce gifts and charitable contributions as much as she wanted. Certain travel expenses wouldn't go down by half (lodging), but I'm pretty sure she wouldn't want to travel alone anyway. Taxes wouldn't go down by half.

 

[Independent]

, FIRECALC says we'd be OK with the idea below, but I'd like some human feedback:
.

My human feedback is pretty simple. If I were in this situation, before I retired I'd move about $180,000 into "safe" short term assets - CDs, TIPs. That should provide $36,000 annually for the five years before SS starts. Exactly how much I need to move depends on interest and inflation rates at that point.

The remaining $620,000 is my long term portfolio. If I withdraw $24,000/yr from it, that's a 3.9% withdrawal rate. Probably successful in 96% of past scenarios, but the future may not be like the past.

I'd know that I had little conservatism in the SS assumption. Odds are, we'll collect that whole $48,000 for the early years at least.

The big question is any other optimism/conservatism in assumptions. Is the $60,000 the minimum you'd be willing to live on? So you have no room to flex your withdrawals down in a bad market? Or, do you have some "fun" spending in there that you'd be willing to skip for a few years if you need to? What are your plans for long term care expenses?

Note that only 40% of your total spending is coming from portfolio withdrawals, so even a 50% reduction in withdrawals is just a 20% reduction in spending.

As you get closer, you may want to look harder at your spending assumptions. pre-Medicare health insurance should be clearer in a couple years, and SS politics may clarify a little. And you can spend some time thinking about what you have to spend vs. what you want to spend.

 

[Lsbcal]

Without taking a position, who hasn't seen this so many times they just plan for it (directly from SSA below)?

I'd rather be pleasantly surprised (SS comes thru higher than I plan) than unpleasantly...YMMV

The OP was saying they would apply for SS around 8 or 9 years from now. It is just my opinion that the SS benefits will not be cut by 25% in that time frame. The quote you had Midpack is for the case that nothing is done and we are now 20 years out. My guess is that minor adjustments that extend over several years (maybe chained CPI which even the Democrats seem to be talking about) will be made and all will be well. We personally could take a 25% hit in SS but I don't think it will happen.

Churchill said, "We can always count on the Americans to do the right thing, after they have exhausted all the other possibilities." Might apply to SS and Medicare too.

 

[haha]

When things get tight, and it is no longer possible to sweep this under the rug, people and principles often get tossed overboard. I wouldn't feel certain of anything.

Ha

 

[teekaymn]

My wife and I are in a similar situation. You mentioned that you expect to have 800k by 2017. Let Firecalc figure out what your portfolio could be worth in 2017. On the first tab, enter your portfolio value today. Then there is a tab for entering your retirement date, and your annual contributions to your portfolio until then. Did you do that?

Yep, I've run it several different ways with today's existing portfolio balance and our projected contributions. We have lots of time yet, and many scenarios that could play out, including DW going to a part time job if her BS bucket fills more rapidly than mine.

 

[teekaymn]

This bears some similarity to our current situation. DH retired 3 years ago, took SS at 62 since we had adolescents at him and that way they could get SS benefits while under 18. I went from full-time work to very part time work that I might quit at any point. I'm 59 so older than you.

Anyway, right now, we are drawing out more than 4% of our portfolio which is a little bigger than yours but not a lot bigger. This is because we still have kids in college so have high expenses right now for really the next 3 years. Then our spending goes down to about $65k-$70k. Also, when I'm 66 my SS projects to $30k.

I have run all of this in Firecalc. Basically we will have a really high withdrawal rate for the next 3 years, then when the kids are gone we will have a slightly high WD rate if I don't take SS until 66 or we could have a lower WD rate if I take SS at 62 (I'll evaluate that at the time). Note, that over this time that we are taking high withdrawals, we expect our portfolio to decline over that period of time. However, I've worked out that it can decline to about 60% of what it is now and we will be OK given the SS that DH and I will draw. If I take SS at 66 our portfolio would only have to give us about $18k a year.

The risky part is as someone mentioned what if we have a sustained bear market while in the period of very high withdrawal percentages. Right now, we are already better off that I projected we would be 2 years ago. I mean at this point our portfolio has increased in value this year even though we have taken withdrawals above 4%. However, I know that could and probably will change sometime in the next 3 years.

From running various runs of Firecalc I've project certain portfolio values 3 years from now to see how our plan would fare with those values.

That is I've created a scenario in Firecalc, for example, where I pretend it is 3 years from now and give a starting portfolio value and then put it in what our spending is projected to be at that time and I've run the success rates. This is what tells me that if our portfolio then is only 60% of what it is now (either due to a bear market or do to withdrawals) we still have an acceptable chance of success (I am content with 95% but the actual numbers are about 100% for $65k spending then about 98% for $68k spending).

We have an overall asset allocation of 55/45, but I've put a lot of the 45% into the short term investment grade bond fund (a little over a year of projected withdrawals0 and then another several months of withdrawals in the money market found. The point being that in the event of a bear market that year and a half of funds would be available for withdrawal without having to sell equities.

Thanks for this response, Katsmeow. It expresses pretty much my own philosophy (or pipe dreams, anyway, as I'm still w*rking) and what I've tried to do when I play with FIRECALC. I figure if I throw in variables that TEND toward more conservative expectations, the better chance I have at taking a shot at those pipe dreams.

 

[teekaymn]

That is I've created a scenario in Firecalc, for example, where I pretend it is 3 years from now and give a starting portfolio value and then put it in what our spending is projected to be at that time and I've run the success rates. This is what tells me that if our portfolio then is only 60% of what it is now (either due to a bear market or do to withdrawals) we still have an acceptable chance of success (I am content with 95% but the actual numbers are about 100% for $65k spending then about 98% for $68k spending).

Thanks Katsmeow -- I think your philosophy and approach is similar to how I'd like to look at our situation. I like to play with FIRECALC in such a way that I assume conservative input and see what the worst case scenario is with that input. Even if our BS buckets get filled sooner than we can bear, neither of us would have a problem with PT work or downsizing to help bridge gaps.

 

[teekaymn]

Since BS is a major cause of stress, here's a nice video that summarizes the science behind why BS should be avoided in favor of time with loved ones.

Can Stress Actually Kill You? - YouTube

Thanks Meadbh -- I liked this simple visual of what goes in the body under conditions of stress. Explained better than most long-winded technical articles could do.

 

[teekaymn]

You are assuming that the kids will be independent after college. In today's economy, that is not always the case! Even though they were out on their own, we've found that getting our kids through their 20's is more expensive than getting them through their teens. You just can't budget for some of the costs of their "independent" and career start-up life choices.

Revlefty -- We have one kid that is completely independent already and another that is on the verge of college graduation. Even if he has to depend on our help for a bit while he gets launched, I don't have too much fear that by 2017 he'll be out and on his own.

 

[teekaymn]

My human feedback is pretty simple. If I were in this situation, before I retired I'd move about $180,000 into "safe" short term assets - CDs, TIPs. That should provide $36,000 annually for the five years before SS starts. Exactly how much I need to move depends on interest and inflation rates at that point.

The remaining $620,000 is my long term portfolio. If I withdraw $24,000/yr from it, that's a 3.9% withdrawal rate. Probably successful in 96% of past scenarios, but the future may not be like the past.

I'd know that I had little conservatism in the SS assumption. Odds are, we'll collect that whole $48,000 for the early years at least.

The big question is any other optimism/conservatism in assumptions. Is the $60,000 the minimum you'd be willing to live on? So you have no room to flex your withdrawals down in a bad market? Or, do you have some "fun" spending in there that you'd be willing to skip for a few years if you need to? What are your plans for long term care expenses?

Note that only 40% of your total spending is coming from portfolio withdrawals, so even a 50% reduction in withdrawals is just a 20% reduction in spending.

As you get closer, you may want to look harder at your spending assumptions. pre-Medicare health insurance should be clearer in a couple years, and SS politics may clarify a little. And you can spend some time thinking about what you have to spend vs. what you want to spend.

Thanks, Independent -- I like your idea of converting assets to actual cash/short terms before retirement. Kind of the "bucket" approach.

Based on our current lifestyle, 60k is actually a pretty comfortable number for us to play with (at least the first few years). We're also researching expatriation and RV'ing as possibilities.

Something we haven't really done too much of, though, is looking more closely at LTC concerns. That will be next on my list of research topics.....