corn18
Thinks s/he gets paid by the post
- Joined
- Aug 30, 2015
- Messages
- 1,890
What if's are my nemesis. I can easily change a lot of inputs to do what if's.
What if we get no SS?
What if the stock market drops 50% on day 1?
What if real returns are different than the 2% I put in?
What if I die?
What if my wife dies?
What if inflation goes nuts?
I can handle no social security, but not with other what if's. 75% SS is no problem. A 50% drop in the market the day after I retire is ok as long as real rates don't go to 0% for 35 years and SS goes away. I have lots of cheap term life insurance out to age 78, but what happens if I die @ 79? What if I die at 79 and we didn't do Roth conversions early? What if? What if? What if? I can't cover them all unless I work until age 79.
What if's are my nemesis. I can easily change a lot of inputs to do what if's.
What if we get no SS?
What if the stock market drops 50% on day 1?
What if real returns are different than the 2% I put in?
What if I die?
What if my wife dies?
What if inflation goes nuts?
I can handle no social security, but not with other what if's. 75% SS is no problem. A 50% drop in the market the day after I retire is ok as long as real rates don't go to 0% for 35 years and SS goes away. I have lots of cheap term life insurance out to age 78, but what happens if I die @ 79? What if I die at 79 and we didn't do Roth conversions early? What if? What if? What if? I can't cover them all unless I work until age 79.
On the other side, the inputs could be erred in your favor.
After DW passed a call to SS informed me I was not and would not be eligible for survivor benefits. I am.
My first discussion with a Fidelity advisor I was told not contributing to SS after age 54 would cause a major cut in benefits. It turns out it should be much less a cut than I was led to believe.
However, health insurance cost is increasing at a faster rate than I expected due to my misreading of the SPD.
Numbers are my friend.
Our financial adviser laughed when we asked him that question. Our retirement package said we were good to go.
But really, my own math, a pen, and some paper told me in about five minutes that we were fine. That was real deciding moment. The other was simply to verify my back of the envelope calculations.
When I was doing an endless amount of forecasting for my early stage software firm, I did worry about errors since we were always developing new businesses and models for them.
But I always worked to have some more simple logic to sanity check my numbers. I call it "napkin math".
Here your risk is an error in your inputs. For me the napkin math of FIRE is the withdrawal rate implied by total net assets and forecast spending.
If you beat your spending numbers to death as most of us do, then tallying your assets and computing a withdrawal rate is a snap. If you want or need to consider pensions or SS, subtract those expected receipts from your spending forecast.
If this napkin math fails, time to recheck your inputs to retirement models.
I can't use the 4% rule because I want to spend more than 4% from 55-70. After age 70, my withdrawal rate drops below zero, so why plan on 4% after that?
One of my (many) spreadsheets is titled "Simple Income Leveling." It is not the way I plan to do my withdrawals, but it is one helpful way to look at it.
First, I consider my SS+pensions at age 70, and I figure out how much it would cost to buy TIPS to cover that level of income between now and then. Then I take that number, and subtract it from my stash to see how much is left over.
I take the leftover pot of money, and consider doing two things with it: (a) take 4% withdrawals from it, and (b) just divide it by 40 for reasonably conservative years left (ages 95-55). Add either of those numbers to the SS+pension figure for an estimate of available income. (The 4% number is obviously higher, dividing by 25 instead of 40.)
I feel like this gives a reasonable target for level of income. The lower number assumes absolutely no growth*, the higher still number assumes pretty limited risk. (As I say, I don't intend to actually do this plan, although sometimes I wonder why not? )
*Edit: here I mean "growth beyond risk-free TIPS rates"
I like this approach. I have done this by subtracting an amount equal to 15 years of SS from my retirement savings. What's left is available to blow on whatever. It's like buckets, but I don't plan to take the next step to annutiize the bridge. Interest rates are so low that annuities and TIPS suck. Since my pension is cola'd, I feel comfortable just keeping a single bucket of 60/40 and monitor progress each year. As long as I have enough for the bridge, I am doing ok. Any money left after the bridge amount can be spent.
Savings 1,860,520
SS Bridge 618,748
Mortgage 559,996
Left 681,776
Sounds about right to me!
I actually did look into annuitizing the bridge money. Part of the motivation is that I can get a really good annuity from my workplace (buying additional credits in their pension plan). Even a date-certain annuity was paying 5% (5% interest, not the payout amount). However, the thing about a date-certain annuity is that you get very little mortality credits if the annuity only goes to, say, age 70.
I am not set on this, but I am strongly considering purchasing a bond ladder for the bridge, despite the low prevailing interest rates. Well, not for the entire bridge amount, but for enough to meet my current standard of living.
I assume a 2% real return on my 60/40 portfolio. As long as my SS calculation is correct, my income side is good.
If I could get a 5% interest rate 15 year SPIA right now, I would seriously consider it. Talk about stress free living. Just have to make it to 70 so the insurance company doesn't win!
Yeah, I struggled with it. There are two main reasons I didn't go for it. First of all, our pensions will start right at retirement, and will cover ~80% of our current standard of living (and >100% of our minimum spend); thus, I don't really NEED an additional income floor. Next, I would need to come up with ~$250k cold, hard, post-tax cash to buy this. I could deplete my cash reserves (which are targeted for taxes on Roth conversions), or I could raid the Roth, and/or I could take a CARES act distribution from 403(b) for part of it. But an unexpected problem is that the earnings from the annuity would be taxable, so, no matter how you slice it, I would effectively be moving money out of a tax-preferenced vehicle into a non-tax-preferenced vehicle. In the end, I decided my margins were wide enough to sally forth with no additional annuity. As I say, I may establish an honest-to-God bond ladder in an IRA to provide additional bridging, kind of a Kitces "bond tent." Not quite bucketing, but you can see it from there!
As I say, I may establish an honest-to-God bond ladder in an IRA to provide additional bridging, kind of a Kitces "bond tent." Not quite bucketing, but you can see it from there!
Is there something you find troubling with a bond ladder? I built an 8 year ladder im whittling down to 5 years. Not sure what would be the issue of haveing a rolling bond ladder would be. Shouldn't we have bonds of different maturities anyway?
I can handle no social security, but not with other what if's. 75% SS is no problem. A 50% drop in the market the day after I retire is ok as long as real rates don't go to 0% for 35 years and SS goes away. I have lots of cheap term life insurance out to age 78, but what happens if I die @ 79? What if I die at 79 and we didn't do Roth conversions early? What if? What if? What if? I can't cover them all unless I work until age 79.
As I say, I may establish an honest-to-God bond ladder in an IRA to provide additional bridging, kind of a Kitces "bond tent." Not quite bucketing, but you can see it from there!
Is there something you find troubling with a bond ladder? I built an 8 year ladder im whittling down to 5 years. Not sure what would be the issue of haveing a rolling bond ladder would be. Shouldn't we have bonds of different maturities anyway?
I beat my numbers to death on a daily basis for years before I retired and it all worked out. I used every calculator and did a variety of my own independent calculations and projections as well. I did a lot of "what if" scenarios every time I heard a scary prediction about the future, and every time I read an OMG Ain't It Awful clickbait story on financial websites. And then I went beyond and beat those poor numbers some more.
You probably will do this too. You are mathematically literate and if you spend enough time poring over your calculations, the plan will become part of your being and you will eventually feel confident in it.