Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Question about spending from nestegg prior to retirement
Old 12-07-2021, 02:20 PM   #1
Dryer sheet wannabe
 
Join Date: Nov 2016
Posts: 24
Question about spending from nestegg prior to retirement

Hello,

Thank you for all your help with my previous questions.

I am looking at pulling out a small amount of money each year prior to retirement and making sure I'm using Firecalc correctly.

My question:

I am 13 years away from retirement with a retirement nest egg of $1.4M currently.

I would like to pull $35k each year for the next 13 years. When I run firecalc with these inputs - it shows $3.4M is the average amount I would have at the start of my retirement.

I understand that we could have more or less than this amount in 13 years. If we have less than this, that is a risk I understand I'm taking and I'm okay with it.

My question is - Am I using Firecalc correctly and the $3.4M is the avg. amount from $1.4M in 13 years spending $35k year up to that point?

Thank you for your time.
BaseballCoach is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 12-07-2021, 02:42 PM   #2
Recycles dryer sheets
Backpacker's Avatar
 
Join Date: Feb 2011
Location: On a dirt road
Posts: 302
Are you still contributing during the next 13 years? I used compound interest calculator and at 7% per year, no contributions and 35k w/d per year i get 2.7m at end of 13 years.
__________________
"Up sluggard and waste not the day, in the grave will be sleeping enough." Benjamin Franklin
Backpacker is offline   Reply With Quote
Old 12-07-2021, 03:10 PM   #3
Dryer sheet wannabe
 
Join Date: Nov 2016
Posts: 24
Thank you for checking and responding. I'm running it as I'm not contributing for the next 13 years. I have run it with calculator as well and assume the reason why Firecalc is getting a larger ending amount is due to the avg. returns over the 13 years are larger? That doesn't seem right to me, but that is what I keep seeing on the Firecalc results page. See Firecalc results page below.

FIRECalc looked at the 138 possible 13 year periods in the available data, starting with a portfolio of $1,400,000 and spending your specified amounts each year thereafter.

Here is how your portfolio would have fared in each of the 138 cycles. The lowest and highest portfolio balance at the end of your retirement was $725,946 to $8,078,376, with an average at the end of $3,411,387. (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.)
BaseballCoach is offline   Reply With Quote
Old 12-07-2021, 03:28 PM   #4
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Sunset's Avatar
 
Join Date: Jul 2014
Location: Spending the Kids Inheritance and living in Chicago
Posts: 12,779
Quote:
Originally Posted by BaseballCoach View Post
....

I am looking at pulling out a small amount of money each year prior to retirement and making sure I'm using Firecalc correctly.

My question:

I am 13 years away from retirement with a retirement nest egg of $1.4M currently.

I would like to pull $35k each year for the next 13 years. ..
I don't recall your previous questions, so I don't have any background info.

However, I hope you have a really good reason for doing this.

Because you will pay an extra 10% penalty plus regular tax on any money withdrawn from IRA/401K prior to age 59.5.

Does this $35K number mean you want to spend $30K and ~$5K is for taxes ? If you want to spend $35K , then you will probably need to take out $42K to pay $7K in taxes, and have $35K.
__________________
Fortune favors the prepared mind. ... Louis Pasteur
Sunset is offline   Reply With Quote
Old 12-07-2021, 03:40 PM   #5
Recycles dryer sheets
bltkmt's Avatar
 
Join Date: Aug 2008
Location: Fairfield County, CT
Posts: 357
I think he said nest egg, so that could mean after tax accounts.
bltkmt is offline   Reply With Quote
Old 12-07-2021, 03:50 PM   #6
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
SecondCor521's Avatar
 
Join Date: Jun 2006
Location: Boise
Posts: 6,147
Quote:
Originally Posted by BaseballCoach View Post
My question is - Am I using Firecalc correctly and the $3.4M is the avg. amount from $1.4M in 13 years spending $35k year up to that point?
Without seeing your FIREcalc inputs, it's impossible to tell.

If you recreate your FIREcalc results and then click on the "show input data" link in the upper right corner of the results page and then paste all those inputs here, or click on the other link that is something like "link with input data" and post that link here, someone might be willing to try to make sure that you are using FIREcalc in a way that is aligned with what you are trying to ask it.

The biggest risk I see is that you're not dealing with the "future retirement date" input (which IIRC has a small issue of its own), or you're putting the $35K in as income instead of spending - which can happen if you're putting the $35K in the wrong field or are maybe putting a negative value or negative sign in the wrong place.
__________________
"At times the world can seem an unfriendly and sinister place, but believe us when we say there is much more good in it than bad. All you have to do is look hard enough, and what might seem to be a series of unfortunate events, may in fact be the first steps of a journey." Violet Baudelaire.
SecondCor521 is offline   Reply With Quote
Old 12-07-2021, 03:59 PM   #7
Dryer sheet wannabe
 
Join Date: Nov 2016
Posts: 24
Input Data for this model

Withdrawals 35,000
Plan End 13
95% Rule from WorkLess, Live More*
Percentage used for 95% Rule* 0
Bernicke Spending Reductions*
Current Age (for scheduling Bernicke spending reductions)* 48
Starting Portfolio 1,400,000
Percent in Stocks 85%
Expense Ratio 0.18%
Retirement Year* 2021
Contributions until then* 0
Social Security* 0
Starting in* 2034
Spouse Social Security* 0
Starting in* 2036
Other withdrawal change* +0
Starting in* 2024
Inflation adjusted* yes
Other withdrawal change* +0
Starting in* 2026
Inflation adjusted* yes
Other withdrawal change* +0
Starting in* 2030
Inflation adjusted* yes
Lump sum change to portfolio* +0
In year 2024
Lump sum change to portfolio* +0
In year * 2034
Lump sum change to portfolio* +0
In year * 2039
Inflation Rate selected* 0%
Fixed income model * LongInterest
Override start year* 1871
Terminal Value* 0
US Micro Cap** 10
US Small** 10
US Small Value** 10
S&P 500** 40
US Large Value** 40
US LT Treasury** 10
LT Corporate Bond** 15
1 Month Treasury** 5
* - Used in Advanced FIRECalc


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

FIRECalc looked at the 138 possible 13 year periods in the available data, starting with a portfolio of $1,400,000 and spending your specified amounts each year thereafter.

Here is how your portfolio would have fared in each of the 138 cycles. The lowest and highest portfolio balance at the end of your retirement was $725,946 to $8,078,376, with an average at the end of $3,411,387. (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 13 years. FIRECalc found that 0 cycles failed, for a success rate of 100.0%.

Understanding the charts below: Don't try to follow any individual line -- with most scenarios, there are just too many of them. But if you look at the mass of lines, and the zero axis, you can get a clear visual representation of how frequently your strategy would have failed (dropped below zero) or succeeded. The objective of presenting the information this way is to allow you to get a "big picture" sense of the way your strategy would have performed historically.
BaseballCoach is offline   Reply With Quote
Old 12-07-2021, 04:00 PM   #8
Dryer sheet wannabe
 
Join Date: Nov 2016
Posts: 24
It is after tax - Vanguard account - where I would pull the yearly $35k from.
BaseballCoach is offline   Reply With Quote
Old 12-07-2021, 04:25 PM   #9
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
SecondCor521's Avatar
 
Join Date: Jun 2006
Location: Boise
Posts: 6,147
So I was able to recreate your scenario with the inputs you posted.

I think the one choice you've made that I have not done and would not do is to assume 0% inflation. Personally I leave it as the default choice of "CPI", and when I make that one change and leave everything else the same, I get an average ending value of about $2.4M. Which is, notably, about $1M less than your result.

The wording in FIREcalc says that it adjusts pretty much everything for inflation. I know that it applies those to withdrawals (so that $35K would be adjusted for CPI). If you set it to 0%, then your spending would remain at $35K exactly annually. But the historical returns you're testing it against (those 138 cycles) would not be adjusted for inflation. In the past, there have been periods of high inflation and high returns, and you're making those periods look better in your results because you're basically telling FIREcalc that even if inflation is going up at 10% a year, you'll manage to still only spend $35K each year for the next 13 years.

What I am also not certain about, and this is sort of a general caution to you, is how that $2.4M or $3.4M should be interpreted. When inflation is set to "CPI", then I believe that it is adjusted to present value (so $2.4M or $3.4M in today's dollars). When inflation is set to 0% as you have done, I'm not sure what FIREcalc does.

Other than that, yeah, I think your inputs match the scenario you described in your original post.
__________________
"At times the world can seem an unfriendly and sinister place, but believe us when we say there is much more good in it than bad. All you have to do is look hard enough, and what might seem to be a series of unfortunate events, may in fact be the first steps of a journey." Violet Baudelaire.
SecondCor521 is offline   Reply With Quote
Old 12-07-2021, 04:52 PM   #10
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
youbet's Avatar
 
Join Date: Mar 2005
Location: Chicago
Posts: 11,919
Quote:
Originally Posted by SecondCor521 View Post
I think the one choice you've made that I have not done and would not do is to assume 0% inflation. Personally I leave it as the default choice of "CPI", and when I make that one change and leave everything else the same, I get an average ending value of about $2.4M. Which is, notably, about $1M less than your result.
Very much agree.

Setting inflation to zero is a pretty extreme scenario to model for a 13 year period. I agree with you SC521, set it to CPI.

OP should also note that the "average" ending portfolio value is not necessarily the "most likely" ending portfolio value. The distribution of outcomes is significantly skewed to the right. Most folks here seem to focus on the lowest ending portfolio value.
__________________
"I wasn't born blue blood. I was born blue-collar." John Wort Hannam
youbet is offline   Reply With Quote
Old 12-07-2021, 05:39 PM   #11
Dryer sheet wannabe
 
Join Date: Nov 2016
Posts: 24
Quote:
Originally Posted by SecondCor521 View Post
So I was able to recreate your scenario with the inputs you posted.

I think the one choice you've made that I have not done and would not do is to assume 0% inflation. Personally I leave it as the default choice of "CPI", and when I make that one change and leave everything else the same, I get an average ending value of about $2.4M. Which is, notably, about $1M less than your result.

The wording in FIREcalc says that it adjusts pretty much everything for inflation. I know that it applies those to withdrawals (so that $35K would be adjusted for CPI). If you set it to 0%, then your spending would remain at $35K exactly annually. But the historical returns you're testing it against (those 138 cycles) would not be adjusted for inflation. In the past, there have been periods of high inflation and high returns, and you're making those periods look better in your results because you're basically telling FIREcalc that even if inflation is going up at 10% a year, you'll manage to still only spend $35K each year for the next 13 years.

What I am also not certain about, and this is sort of a general caution to you, is how that $2.4M or $3.4M should be interpreted. When inflation is set to "CPI", then I believe that it is adjusted to present value (so $2.4M or $3.4M in today's dollars). When inflation is set to 0% as you have done, I'm not sure what FIREcalc does.

Other than that, yeah, I think your inputs match the scenario you described in your original post.
Thank you very much for this answer. This makes total sense and was what I was looking for. I see my mistake. Thank you for spending the time to send this over.
BaseballCoach is offline   Reply With Quote
Old 12-07-2021, 06:08 PM   #12
Dryer sheet wannabe
 
Join Date: Nov 2016
Posts: 24
Quote:
Originally Posted by youbet View Post
Very much agree.

Setting inflation to zero is a pretty extreme scenario to model for a 13 year period. I agree with you SC521, set it to CPI.

OP should also note that the "average" ending portfolio value is not necessarily the "most likely" ending portfolio value. The distribution of outcomes is significantly skewed to the right. Most folks here seem to focus on the lowest ending portfolio value.
Thank you for the response. I agree, most people on here are very conservative - which is a good thing. But I also view having 1.5x or 2x what I need at retirement as a mistake. That is wasted time working or building the business that I didn't need to do. I could have stopped. I understand hindsight is 20/20 and you can't be that accurate with future return amounts - but I want to be wise and when there is good chance we will have enough - I want to stop and enjoy it.

Having too much at retirement will bother me just as much as not having enough.

Thank you again to all that have answered.
BaseballCoach is offline   Reply With Quote
Old 12-07-2021, 07:22 PM   #13
Recycles dryer sheets
SnowballCamper's Avatar
 
Join Date: Aug 2019
Posts: 431
Quote:
Originally Posted by BaseballCoach View Post
But I also view having 1.5x or 2x what I need at retirement as a mistake. That is wasted time working or building the business that I didn't need to do. I could have stopped. I understand hindsight is 20/20 and you can't be that accurate with future return amounts - but I want to be wise and when there is good chance we will have enough - I want to stop and enjoy it.
The beautiful thing about retiring is that you can do it when you have enough. No one forces you to make the mistake of having too much. OTOH you'll never know if you have too much until the day you die, and then it doesn't matter. But if you run out before you die, that is a mistake that will matter to you. So the prudent thing to do is be certain that you have enough. This is why we all focus on getting 100% (or nearly 100%) with firecalc.
__________________
--At what age does spending less now in order to have more later stop making sense?
SnowballCamper is offline   Reply With Quote
Old 12-07-2021, 08:10 PM   #14
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
RobbieB's Avatar
 
Join Date: Mar 2016
Location: Central CA
Posts: 7,547
Yeah, it doesn't matter in the least what we think. It matters what you think.

Do what you want to do.

I post stuff here that I did. No recc's, no advice, just history.
__________________
Retired at 59 in 2014. Should have done it sooner but I worried too much.
RobbieB is online now   Reply With Quote
Old 12-07-2021, 08:54 PM   #15
Dryer sheet wannabe
 
Join Date: Nov 2016
Posts: 24
Quote:
Originally Posted by SnowballCamper View Post
The beautiful thing about retiring is that you can do it when you have enough. No one forces you to make the mistake of having too much. OTOH you'll never know if you have too much until the day you die, and then it doesn't matter. But if you run out before you die, that is a mistake that will matter to you. So the prudent thing to do is be certain that you have enough. This is why we all focus on getting 100% (or nearly 100%) with firecalc.
You might want to google the professors involved in the Trinity Study (Firecalc based on) and read their thoughts on confidence levels. They discuss anything over 80% is overkill. I'm not going to argue, but I thought just like you and really dove into the study and what the professors believed. It changed my mind in many areas.
BaseballCoach is offline   Reply With Quote
Old 12-07-2021, 09:06 PM   #16
Recycles dryer sheets
 
Join Date: Oct 2020
Posts: 410
I suggest OP look at how many cases have significantly depleted values after these early withdrawals. It's hard to read all the squiggles but maybe 10% of the cases would be down 30% or more and many more didn't grow much with the early withdrawals.

I also recommend a comparison to a Firecalc run without any withdrawals. The difference looks pretty significant to me.

The historical perpetual withdrawal rate is around 3.3% for a high equity allocation like this, so say $46K on the current funds. If that funds retirement, then starting with draws less than that seems reasonable. But if the idea is that this nest egg will grow in the next 13 years to multiple millions, the best way to assure that is not to get your hand in the cookie jar too early.
Exchme is offline   Reply With Quote
Old 12-07-2021, 10:46 PM   #17
Recycles dryer sheets
SnowballCamper's Avatar
 
Join Date: Aug 2019
Posts: 431
Quote:
Originally Posted by BaseballCoach View Post
You might want to google the professors involved in the Trinity Study (Firecalc based on) and read their thoughts on confidence levels. They discuss anything over 80% is overkill. I'm not going to argue, but I thought just like you and really dove into the study and what the professors believed. It changed my mind in many areas.
Ahhh well, it's too late. Retired at about 43, four years ago. Good luck!
__________________
--At what age does spending less now in order to have more later stop making sense?
SnowballCamper is offline   Reply With Quote
Old 12-07-2021, 11:10 PM   #18
Full time employment: Posting here.
 
Join Date: Jun 2021
Posts: 941
If you need to withdraw only $35K each year, I don't see you running out of money. Personally I don't trust FireCalc numbers and use Fidelity retirement calculator as well as my own Excel spreadsheet to project future numbers.

The greater question is what if you need to withdraw more than $35K, as in medical emergencies and max'ing out deductibles, OOP costs, need for expensive drugs, home replacement items - HVAC, roof etc.

When I was your age, $4M was my number to retire, but we do like nice things. Different priorities.
RetiredHappy is offline   Reply With Quote
Old 12-08-2021, 08:25 PM   #19
Dryer sheet wannabe
 
Join Date: Nov 2016
Posts: 24
Quote:
Originally Posted by RetiredHappy View Post
If you need to withdraw only $35K each year, I don't see you running out of money. Personally I don't trust FireCalc numbers and use Fidelity retirement calculator as well as my own Excel spreadsheet to project future numbers.

The greater question is what if you need to withdraw more than $35K, as in medical emergencies and max'ing out deductibles, OOP costs, need for expensive drugs, home replacement items - HVAC, roof etc.

When I was your age, $4M was my number to retire, but we do like nice things. Different priorities.
Thanks, but that wasn't my question.
BaseballCoach is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
what is your nestegg's YTD return? pb4uski FIRE and Money 131 07-13-2012 05:48 PM
Are you rich? How much of a nestegg do you need to join the true elite. Disappointed FIRE and Money 91 03-13-2008 03:22 PM
Know Where Your Nestegg is Tonight? JPatrick Other topics 5 03-29-2006 08:08 AM
Pre-nuptial Agreement to Protect FIRE Nestegg Jay_Gatsby Young Dreamers 82 01-24-2006 04:00 PM
Protect your Nestegg with a 'Retirement Collar' intercst FIRE and Money 8 08-21-2005 10:19 PM

» Quick Links

 
All times are GMT -6. The time now is 10:15 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2022, vBulletin Solutions, Inc.