Firecalc Question

[Pacinotti]

I am trying to simulate the following scenario. Retire in 2022 with a ~$2.5M portfolio value, for 34 years with $140K spend. I'm not including in the value of that portfolio a certain amount of stock that I will then sell for a period of say, 8 years, immediately after starting retirement. I would then sell each of those years to get $140K to use as my spending for those years.

Would I enter that in the "Pension Income" section as $140k per year starting in 2022. But then how do I stop it in 2030? Enter an offsetting $140k of "Off Chart Spending" in the same section?

 

[ERD50]

Seems that should work. Maybe simpler to just assume zero growth in your portfolio for those 8 years, and then just look forward from there, and ignore the previous 8 years?

Try both.

-ERD50

 

[pb4uski]

I am trying to simulate the following scenario. Retire in 2022 with a ~$2.5M portfolio value, for 34 years with $140K spend. I'm not including in the value of that portfolio a certain amount of stock that I will then sell for a period of say, 8 years, immediately after starting retirement. I would then sell each of those years to get $140K to use as my spending for those years.

Would I enter that in the "Pension Income" section as $140k per year starting in 2022. But then how do I stop it in 2030? Enter an offsetting $140k of "Off Chart Spending" in the same section?

The pension income/off-chart spending should work as would just not starting withdrawals until 2030. I would probably run it both ways, as well as including the stock in the retirement portfolio and starting withdrawals in 2022. And see if any of the runs are significantly different.

 

[pb4uski]

Seems that should work. Maybe simpler to just assume zero growth in your portfolio for those 8 years, and then just look forward from there, and ignore the previous 8 years?

Try both.

-ERD50

Why assume zero growth for the first 8 years? As I understand it the OP will be using a side fund for the first 8 years and leaving their retirement portfolio to grow.

 

[SecondCor521]

As long as you're starting the stock sales at the same time as you start retirement, you could just enter $0 as your base spending level, then have a single entry of $140K of Off Chart Spending in 2030.

A minor detail would be to decide whether inflation affects that $140K over that time frame at all. Over 8 years and at that spending level it's probably not noticeable.

 

[latexman]

There's more than one way to do this.


No, not in pension the way I have in mind.


Your stock will pay the $140k/year for years 2022-2029 (with 100% certainty). As far as FireCalc is concerned, you'll retire in 2030 for 26 years with a $2.5M portfolio (no growth/this is very conservative) and need $140k/year.


Spending: 140,000
Portfolio: 2,500,000
Years: 26
What year will you retire: 2030 (On the Not Retired tab)


"FIRECalc Results
Your spending in every year after the first year will be adjusted for inflation, so the spending power is preserved.

Because you indicated a future retirement date (2030), the withdrawals won't start until that year. The tested period is 11 years of preretirement plus 15 years of retirement, or 26 years.
FIRECalc looked at the 123 possible 26 year periods in the available data, starting with a portfolio of $2,500,000 and spending your specified amounts each year thereafter.
Here is how your portfolio would have fared in each of the 123 cycles. The lowest and highest portfolio balance at the end of your retirement was $1,228,106 to $15,274,416, with an average at the end of $7,100,174. (Note: this is looking at all the possible periods; values are in terms of the dollars as of the beginning of the retirement period for each cycle.)
For our purposes, failure means the portfolio was depleted before the end of the 26 years. FIRECalc found that 0 cycles failed, for a success rate of 100.0%."

 

[pb4uski]

Another way to solve it would be to become a supporter, log-in and use the Manual Entry of Spending Changes. Make your spending on the Start Here tab as -0-, then input 140000 in the year you will start withdrawals.

 

[Pacinotti]

See... there is more than one way to skin this cat, that's why I asked...

Great suggestions all, thanks!

 

[ERD50]

Why assume zero growth for the first 8 years? As I understand it the OP will be using a side fund for the first 8 years and leaving their retirement portfolio to grow.

It's just an alternative to the pension entries. Use any assumption you like, but we don't know it will grow in 8 years, so zero growth (actually inflation matching growth) is a reasonably conservative approach.

I've done something similar for a real simple 'reality check' on things. I break down my retirement in 5 year segments to match some changes (SS, pensions, harvesting 0% LTCG, ROTH conversions, etc), adjust my spending and income, and just assume my portfolio matches inflation. That doesn't get you the detail of the impact of sequence of returns, but it's also conservative enough that it kind of washes out. It just makes me feel a bit more comfortable that the numbers make some sense, that I didn't miss something big.

-ERD50

 

[Pacinotti]

Another way to solve it would be to become a supporter, log-in and use the Manual Entry of Spending Changes. Make your spending on the Start Here tab as -0-, then input 140000 in the year you will start withdrawals.

How would this be different than what Latexman suggested?

 

[pb4uski]

How would this be different than what Latexman suggested?

Not sure... might be the same.

 

[dtbach]

The OP doesn't say what stock(s) he is intending to sell each year for $140K. How can you know that this stock(s) will maintain that value? They could hit a Black Swan event and crater just as well as grow in value.

 

[HI Bill]

The OP doesn't say what stock(s) he is intending to sell each year for $140K. How can you know that this stock(s) will maintain that value? They could hit a Black Swan event and crater just as well as grow in value.

+1 If it's a stock, it has some level of volatility. Rather than excluding the stock as an asset, I'd include it, but input a custom AA. Then FIRECALC can appropriately model the success rate.

 

[Pacinotti]

Yes, the price for the stock in question could of course alter the amounts that I am able to extract. It is a large and variable holding (employer stock) in my current portfolio so somehow weaving it into an AA proportion would be not too meaningful. In this question I am wrapping up that uncertainty by conservatively estimating I could extract 140K for 8 years.

My question was primarily directed at understanding the mechanics of Firecalc not so much the question of how to best handle this stock. That would be a matter for another subject post entirely.

In my first post here I tried, rather poorly, to lay out my situation but understandably I received no replies because I didn't know which precise questions to ask. There are too many variables right now so I am going down the thought process of trying to narrow those down and decide how to best deal with that large holding of stock.

 

[HI Bill]

Pacinotti - for FIRECALC to model the risk associated with your employer stock, I'd include it in your total invested assets on the first tab, then go to the Your Portfolio tab and set up a custom AA. I would choose a Mixed Portfolio, and assign the employer stock % to to the fund type that most closely mirrors the risk/volatility of your company stock. I've done this with my employer's stock. My employer stock is in a medium-sized company, but it's highly diversified, and prior to becoming publicly traded last month, had little volatility. I therefore assigned the percentage of the portfolio associated with the employer stock to Mid-Cap.

If this doesn't answer your questions, you may want to check out the FIRECALC support forum: FIRECalc support - Early Retirement & Financial Independence Community

Cheers!