SecondCor521
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Hi all,
I've had my home-brewed Excel FIRE spreadsheet for a while and now that it looks like I'm about 4 years away from nominal FIRE, I am wanting to doublecheck a few things regarding NPV's.
At a high level view, what I do is adjust both my FIRE net worth and my expenses by certain NPVs and payments. For example, and using random made up round numbers, assume I had $1,000,000 in assets and monthly expenses of $4,000. Assume further that I had a $100,000 mortgage balance and $1,500 of my monthly expenses was mortgage interest. What I do is calculate my FIRE net worth as $1,000,000 - $100,000 = $900,000, and my monthly expenses as $4,000 - $1,500 = $2,500. I'd then calculate my withdrawal rate as $2,500 * 12 / $900,000 = 3.3%.
A couple of points here before I go any further:
1. I don't want to get into the payoff the mortgage debate, let's just assume that's what my plan calls for.
2. I know the above numbers aren't real or accurate, I just used them for demonstration purposes.
3. I also don't want to debate what a safe SWR is. Let's assume I think 4% will be safe.
Mainly I want to make sure my math and logic are sound with regards to the kinds of adjustments and calculations I am making. There are three:
1. On the asset side, I have a "Social Security NPV", which I calculate as follows:
a. I take my SS amount from my most recent PEBES.
b. I inflate that amount by my inflation rate to calculate payments in future dollar amounts.
c. I take those future amounts and only consider amounts after I reach full retirement age (per my PEBES) through age 80.
d. I multiply the amounts in (c) by my "de-rating factor" -- how much SS I actually think I might receive.
e. I take the NPV of the results of (d) discounted by the inflation rate.
I add the amount in (e) to my FIRE net worth.
2. On the liabilities side, I subtract my current mortgage balance from my FIRE net worth. I then also subtract the interest I paid this month from my monthly expenses.
3. I also adjust for a "child support NPV". I know what my child support payments will be from now until my youngest graduates from high school. I take that payment stream and calculate an NPV using my "short term savings rate" as a discount rate. I subtract that NPV from my FIRE net worth. I then also subtract my current child support payment that I paid this month from my monthly expenses.
Do these adjustments seem valid? If not, what is wrong with them? Again, I don't really want to debate what my inflation factor should be, or whether Social Security will actually be there or not, or anything like that. I just want to know if my adjustment calculation methods are reasonable.
I'm glad to provide more info if that'll help you give me feedback.
Thanks,
2Cor521
I've had my home-brewed Excel FIRE spreadsheet for a while and now that it looks like I'm about 4 years away from nominal FIRE, I am wanting to doublecheck a few things regarding NPV's.
At a high level view, what I do is adjust both my FIRE net worth and my expenses by certain NPVs and payments. For example, and using random made up round numbers, assume I had $1,000,000 in assets and monthly expenses of $4,000. Assume further that I had a $100,000 mortgage balance and $1,500 of my monthly expenses was mortgage interest. What I do is calculate my FIRE net worth as $1,000,000 - $100,000 = $900,000, and my monthly expenses as $4,000 - $1,500 = $2,500. I'd then calculate my withdrawal rate as $2,500 * 12 / $900,000 = 3.3%.
A couple of points here before I go any further:
1. I don't want to get into the payoff the mortgage debate, let's just assume that's what my plan calls for.
2. I know the above numbers aren't real or accurate, I just used them for demonstration purposes.
3. I also don't want to debate what a safe SWR is. Let's assume I think 4% will be safe.
Mainly I want to make sure my math and logic are sound with regards to the kinds of adjustments and calculations I am making. There are three:
1. On the asset side, I have a "Social Security NPV", which I calculate as follows:
a. I take my SS amount from my most recent PEBES.
b. I inflate that amount by my inflation rate to calculate payments in future dollar amounts.
c. I take those future amounts and only consider amounts after I reach full retirement age (per my PEBES) through age 80.
d. I multiply the amounts in (c) by my "de-rating factor" -- how much SS I actually think I might receive.
e. I take the NPV of the results of (d) discounted by the inflation rate.
I add the amount in (e) to my FIRE net worth.
2. On the liabilities side, I subtract my current mortgage balance from my FIRE net worth. I then also subtract the interest I paid this month from my monthly expenses.
3. I also adjust for a "child support NPV". I know what my child support payments will be from now until my youngest graduates from high school. I take that payment stream and calculate an NPV using my "short term savings rate" as a discount rate. I subtract that NPV from my FIRE net worth. I then also subtract my current child support payment that I paid this month from my monthly expenses.
Do these adjustments seem valid? If not, what is wrong with them? Again, I don't really want to debate what my inflation factor should be, or whether Social Security will actually be there or not, or anything like that. I just want to know if my adjustment calculation methods are reasonable.
I'm glad to provide more info if that'll help you give me feedback.
Thanks,
2Cor521