How do you know you haven't made a math error?

[corn18]

This is the output from the Flexible Retirement Planner (I like it better than firecalc because it has much more flexible inputs and I can use it offline).

 

[ejman]

When I decided to ER 20 years ago I not only ran my numbers in a spreadsheet but I also used the very primitive retirement calculators available from Quicken and Vanguard at that time as well as two financial advisors. They all agreed I was good to go and 20 years latter I can attest that all the projections (including my own) were too conservative. I've done considerably better following a 50/50 asset allocation. ( My NW today is almost 3 times what it was at retirement time). Just imagine what it would have been like with a more aggressive approach! (Just kidding, no regrets I'm grateful things have worked out as they have so far).

 

[TheWizard]

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.

If you're going to be unreasonable then yes, there's nothing we can do about it.

 

[brett]

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.

 

[Midpack]

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[jollystomper]

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 the sun goes supernova tomorrow?
What if you get hit by the proverbial bus (note to self: never agree to go anywhere that is named Proverbial) tomorrow or in a year?


At a certain point in time, you have to evaluate the likelihood of these risks, and put a stake in the ground. Some of these are 100% certain - you and your wife will die, it is just a matter of when . If you are going into retirement worrying over the what ifs... that might be a sign that you are not ready for retirement.

 

[GravitySucks]

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.

 

[corn18]

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.

I am so blessed with my healthcare. When I retired in 2008 from the Navy, I got a job that offered health care. We decided to just use the free Tricare and it turned out to be very good. So we have been using Tricare for 12 years now and will continue to use it until 65. So we have a very good handle on medical expenses. If that were an unknown, I think I would work a few more years to build up more of a cushion.

 

[audreyh1]

I tend to do very rough big picture estimates to use a sanity check on more detailed calculations.

But like many here I’m sure I calculated things several different ways.

I think the toughest is really forecasting your expenses in retirement. But if you are already doing OK on $X annually, and can have that in retirement, your base level is probably covered.

For TurboTax I am usual doing annualized income estimated taxes so I have something to compare the TT 1040 against.

 

[Montecfo]

Do the napkin math

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.

 

[Rustic23]

When I retired I was 90% sure I had all basis covered except Hyper Inflation. I am 99.999% sure I have all basis covered except Hyper Inflation. As you can see Hyper Inflation is my cliff. We all seem have one. I take solace in that if mine comes true I will still be a lot better off than 90% of the country, and will find a way to survive.

It has been fun watching others in that have moved into our neighborhood go through similar phases. The neighbor across the street just bought a new $60,000 car. Ten years ago he was taking part time jobs after two years retirement as he was not sure he had enough.

 

[corn18]

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.

Hmmm.... I don't have a napkin, but I did take a look at some simple math:

Total income - total expenses = Total required

If we use all real dollars, this will spit out what I need. So I did this from age 55-90:

$2,962,737 - $4,593,267 = $1,630,530

I have $1,860,400 in retirement savings right now. Assume a 0% real rate of return for 35 years (very pessimistic) and I have some cushion.

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?

 

[Out-to-Lunch]

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"

 

[corn18]

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

 

[Andre1969]

I think the only two concerns I have are...
1) we have one of those big economic downturns where this time it really IS different.
2) health costs really start to spiral out of control.

And, when I do retire, I'm sure both will weigh somewhat heavily on my mind. But, as time goes by, that weight will recede.

 

[Out-to-Lunch]

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.

 

[corn18]

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.

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!

 

[youbet]

I assume a 2% real return on my 60/40 portfolio. As long as my SS calculation is correct, my income side is good.

Non-rational assumptions like this is why calculators based on historical data or Monte Carlo simulations should be used. A consistent 2% real return NEVER happens. Not even close. You might average 2% over many years, but that is not the same, by a long shot, as having a 2% return every year. Sequence of return risk is very real and needs to be included in your study.

IMHO, there is the possibility of a LOT more variability in both expenses and income than most of us are comfortable with. And many of the events are far beyond our control. We like to be "in control." If you think about the possibilities that could happen, you'll never retire or you'll spend so many years accumulating wealth to provide belts, suspenders, duck tape and all that you might as well not retire.

There is a bit of a leap of faith involved in this whole business.......

 

[Out-to-Lunch]

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!

 

[corn18]

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!

That makes sense. Annuitizing @ 55 when you have pensions would just be a peace of mind thing. Would make zero financial sense.

 

[GravitySucks]

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?

 

[NW-Bound]

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 I thought about was the possibility of me dying before even reaching the early SS age of 62. And it could have happened due to a severe disease at the age of 57.

I am now past the early SS age of 62, but still holding out for 70. However, I no longer think much about my future demise date, which is unknown. I take it one day at a time. I wake up in the morning, and no part of my body hurts. That's good enough.

PS. How do I handle the unknown financial aspects of the rest of my life? Simply by being LBYM and way underspending what I could. There's really no sacrifice there, because I value health more than "stuff", and desire no fancy toys.

 

[Out-to-Lunch]

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?

No, not troubling at all! It's just that I have never really been in a position before to want one, nor a place to put one. (Most of my money is in 401(k)-type plans, so no possibility there.)

My plan for a ladder would be a fixed length: just as a bridge to SS. It appeals to me because of the exact duration matching of the liabilities that a ladder provides. (I personally don't think it matters a great deal, and would be happy to just continue using funds, but it still appeals to me to carve out the bridge.)

 

[MarieIG]

The only concern I see is if you pass at age 80 or later; I can't tell what you have in effect to protect DW should she need to go into an expensive CCRC; or need round the clock care. Being warehoused in a Medicaid nursing home may not be the optimal solution.

 

[BADGERWIN]

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.

Yep, Thats the thing to do