Requesting review & comment on ER plan

[Theseus]

Attached is an Excel output chart showing current/projected NW including NPV of pensions and SS, and expenses with funding by source.
I've been planning for years now, and have recently brought DW up to speed on how I believe we are doing - which is that ER summer of 2014 is doable.
My assumptions are based on using past three years spending as a starting point, adding HI costs with HCA subsidy with AGI around 380% FPL with max HSA contribution to either defray OOP or become savings for future healthcare costs, adding in estimated taxes to calculate the required withdrawal, and using a generous lifespan putting us both into around 33% probability of actually reaching that age - an 8/1/14 ER returns a FireCalc Success Rate = 99.1%
My current age 56.5, DW 58.2 (on 8/1/14 I will be 57.0, DW 58.8).
My 401(k) tax deferred savings of $408k (monthly contribution $1,458 + $333 emp match) DW 403(b) tax deferred savings of $105k (monthly contribution $780), DW 457(b) tax deferred savings of $66k (monthly contribution $1,334). 457 plan allows withdrawal before age 59.5, we will use that to bridge from DW age 58.9 to 60.7. 403 withdrawals from DW 60.7 to 63.4, at which point I will be 61.7 and we begin drawing from my 401.
My Non-Cola pension @ 100% survivor $1,021 month, DW Non-Cola pension @ 100% survivor $810 month. We have both had health issues last few years, and realize the storybook ending scenario of each of us passing of natural causes within days of each other is not likely.
My SS @ age 62 $1,676 month, DW SS @ age 66 $1,836 month. I assume 3.0% inflation, and limit future SS increases at 50% of that as a hedge against future haircuts to SS benefits.
Residence valued at $285k free and clear. Plan calls for sale of home at my age 72, with a 2% annual appreciation rate. Depending how we feel about it then, may replace with warmer climate retiree community residence, condo, or maybe rents/snowbird – that is a future decision to be made. So I just say we keep that money invested in a home of some sort.
Investment returns until ER estimated at 8%, 6% after ER. Current mix 56% equities, 44% "safe" stuff.
Future inheritance in the mix also, being the named executor I am in a position to know more about that, but still prefer not to use it in the plan to keep it more conservative. Unless DM has some extraordinary needs coming up, we will probably see enough from the estate to make things more comfortable in terms of reducing money concerns to near nil.
Am I missing something?

 

[MichaelB]

My assumptions are based on using past three years spending as a starting point, adding HI costs with HCA subsidy with AGI around 380% FPL with max HSA contribution to either defray OOP or become savings for future healthcare costs,

./.

Am I missing something?

I think you are not eligible for an HSA if you are receiving premium assistance for a healthcare policy. See this thread for detail and kinks http://www.early-retirement.org/forums/f38/hsa-and-hdhp-with-aca-cost-sharing-69905.html

 

[Meadbh]

You are estimating investment returns at 8% pre, and 6% post retirement. That seems optimistic. Many market gurus are projecting lower average yields in the future, e.g. 5-6% nominal or 3-4% real. This has been a topic of discussion on the forum and you might want to search for rate of return or ROI.

 

[Midpack]

You are estimating investment returns at 8% pre, and 6% post retirement. That seems optimistic. Many market gurus are projecting lower average yields in the future, e.g. 5-6% nominal or 3-4% real. This has been a topic of discussion on the forum and you might want to search for rate of return or ROI.

Here's one example http://www.early-retirement.org/for...orecast-by-asset-class-70187.html#post1404759

 

[2B]

I would trust FireCalc over your spreadsheet mumbo jumbo. The spreadsheet uses all sorts of assumptions that can easily be manipulated to change the outcomes. I am assuming you didn't over-ride FireCalc historical returns. The other place to go is i-ORP but that usually gives a higher spending level than FireCalc.

The key to any plan is being able to react and adjust. Can your plan cope with a significant loss of income and you not found yourselves living on the street? Nobody can predict the future. Things can be better and worse than we expect. Based on where I was 30 years ago, I would have never expected to be in the financial condition I am now. My interests and overall life are also well outside anything I would have predicted 30 years ago. The only thing I know for sure is that I don't know anything else for sure.

 

[Theseus]

I think you are not eligible for an HSA if you are receiving premium assistance for a healthcare policy. See this thread for detail and kinks...

Thank you for the input, it is appreciated.

Well, yes that is a kink - hadn't seen that thread. Other avenues for HI available, my employer very quietly offers non-subsidized continuation of HI to certain class of retirees of which I am a member, how it differs from COBRA in terms of cost and coverage unknown as of yet. Like I say, they are very quiet about it; not feeling real warm & fuzzy about that one. Added in a few more kilobucks a year for the HI "kink" - no crystal ball here.

Also modified my post retirement rate of return to 5.3% based on Meadbh and Midpack caution (thank you) regarding being too optimistic on returns. That combination of changes takes me up to 4.3% WR, and a 90% Firecalc result (if using constant spend - Bernicke theory puts it back to 99.1%).

I understand the need to be flexible and able to adjust when needed. Given each of our family histories of longevity being somewhat indefinite, and that I'm two years into the wait and see period after a colectomy brought on by a 2011 diagnosis of a neuroendocrine tumor - I'm motivated towards early being better. Each of us going 100% survivor on pension payout and maintaining life insurance policies rather than cashing them in reduces the money concerns for the potential survivor.

Again, thanks for the input. I prefer to be rather pragmatic about planning, and seek to test my plan against others experience and knowledge. Odd thing for both DW and I, we've worked hard for years at our respective employers, and have found ourselves in good paying jobs we really like - but we'd have really have loved them back when our bodies were more resilient. It's just getting to the point where our remaining time is more valuable than the money.

 

[walkinwood]

....
My assumptions are based on using past three years spending as a starting point, adding HI costs with HCA subsidy with AGI around 380% FPL with max HSA contribution to either defray OOP or become savings for future healthcare costs, ...
View attachment 17959

I think you are not eligible for an HSA if you are receiving premium assistance for a healthcare policy. See this thread for detail and kinks http://www.early-retirement.org/forums/f38/hsa-and-hdhp-with-aca-cost-sharing-69905.html

My understanding is that you can contribute to an HSA if you get premium subsidies. However, as the referenced thread points out, you cannot contribute to and HSA if you get cost-sharing/deductible reduction.

At 380% of FPL, the OP will not qualify for cost-sharing, so can use an HSA.

Please correct me if my understanding is incorrect.

http://www.hsaforamerica.com/surviving-healthcare-reform-premium-subsidy.htm

 

[Z3Dreamer]

Not my post, but what are people comfortable with on a Firecalc %? Is 90% good or do you continue OMY until 95%? Lets say a 35 year retirement with 60/40 AA.

 

[Options]

Not my post, but what are people comfortable with on a Firecalc %? Is 90% good or do you continue OMY until 95%? Lets say a 35 year retirement with 60/40 AA.

Higher than 100% (as in worst case scenario leaves a 6 figure balance), but then I just have an extremely conservative personality. Most studies dealing with probabilities target a 5% margin of error, and even that makes me nervous.

 

[Midpack]

Not my post, but what are people comfortable with on a Firecalc %? Is 90% good or do you continue OMY until 95%? Lets say a 35 year retirement with 60/40 AA.

There is no universal answer, that's one of the fallacies in asking others POV on retirement planning here - of total strangers! No harm in asking, and you often get good ideas, but it's still up to you to sort out what info is good and what's garbage, and what you can be comfortable with.

Some have retired with much less than a 90% success rate, some would not pull the trigger until they reached 200% (twice the $ of the 100% threshold), and of course everything in between. Members give their opinions, usually without sharing what % success rate they consider acceptable, so you really have to take it with a grain of salt...

 

[fh2000]

Not my post, but what are people comfortable with on a Firecalc %? Is 90% good or do you continue OMY until 95%? Lets say a 35 year retirement with 60/40 AA.

I am still working. Hopefully this is my final year.

If I entered my numbers with 35 years, I get 92.6%, just like the default value from FireCalc. I don't plan to work on higher success rate since I still have SS later and 2 homes with equity.

My estimated expense has some room to downsize if market dips 20% from here. I just have to convince DW to cut down travel plan.

I am not sure if my case is unique or just normal.

 

[Options]

I am still working. Hopefully this is my final year.

If I entered my numbers with 35 years, I get 92.6%, just like the default value from FireCalc. I don't plan to work on higher success rate since I still have SS later and 2 homes with equity.

My estimated expense has some room to downsize if market dips 20% from here. I just have to convince DW to cut down travel plan.

I am not sure if my case is unique or just normal.

Does anyone really know? End of the day it comes down to your personal risk tolerance. I couldn't begin to say what is "acceptable", and wouldn't recommend anyone be as conservative as me, particularly since I'm torturing myself with one more year (55 Tuesdays!) til FIRE. It's probably not necessary, but just my risk tolerance (which isn't a whole lot).

 

[Independent]

Thank you for the input, it is appreciated.

Well, yes that is a kink - hadn't seen that thread. Other avenues for HI available, my employer very quietly offers non-subsidized continuation of HI to certain class of retirees of which I am a member, how it differs from COBRA in terms of cost and coverage unknown as of yet. Like I say, they are very quiet about it; not feeling real warm & fuzzy about that one. Added in a few more kilobucks a year for the HI "kink" - no crystal ball here.

Also modified my post retirement rate of return to 5.3% based on Meadbh and Midpack caution (thank you) regarding being too optimistic on returns. That combination of changes takes me up to 4.3% WR, and a 90% Firecalc result (if using constant spend - Bernicke theory puts it back to 99.1%).

I understand the need to be flexible and able to adjust when needed. Given each of our family histories of longevity being somewhat indefinite, and that I'm two years into the wait and see period after a colectomy brought on by a 2011 diagnosis of a neuroendocrine tumor - I'm motivated towards early being better. Each of us going 100% survivor on pension payout and maintaining life insurance policies rather than cashing them in reduces the money concerns for the potential survivor.

Again, thanks for the input. I prefer to be rather pragmatic about planning, and seek to test my plan against others experience and knowledge. Odd thing for both DW and I, we've worked hard for years at our respective employers, and have found ourselves in good paying jobs we really like - but we'd have really have loved them back when our bodies were more resilient. It's just getting to the point where our remaining time is more valuable than the money.

It appears that your FireCalc result depends on your assumed investment returns, but you also quote results as percentages. Are you using a Monte Carlo approach with FireCalc?

I can relate to the bold.

 

[Theseus]

It appears that your FireCalc result depends on your assumed investment returns, but you also quote results as percentages. Are you using a Monte Carlo approach with FireCalc?

Changes to investment returns are in my spreadsheet, only impact on FireCalc from that is slightly reduced kitty on ER date due to preretirement return assumption, and if modifying annual expense for HC - my spreadsheet updates the link for FireCalc to reflect those variables; always using Monte Carlo in FireCalc to backtest my plan.

 

[Theseus]

My understanding is that you can contribute to an HSA if you get premium subsidies. However, as the referenced thread points out, you cannot contribute to and HSA if you get cost-sharing/deductible reduction.

At 380% of FPL, the OP will not qualify for cost-sharing, so can use an HSA.

Thanks for posting that, I had not researched the other info enough to understand it completely yet, but what you have indicated is how I was understanding it - eligible for subsidy, and still able to use an HSA. Had not expected to be eligible for "assistance" in meeting the deductible beyond the AGI tax break resulting from HSA contribution - having the AGI adjustment also enable subsidy eligibility if taxable income should exceed 400% FPL is just icing on the cake.

 

[braumeister]

If you're not sure about how good your planning is, I suggest looking at a number of different sources. Here is a decent list:

Retirement calculators and spending - Bogleheads

 

[Theseus]

If you're not sure about how good your planning is, I suggest looking at a number of different sources. Here is a decent list:

Retirement calculators and spending - Bogleheads

Thanks for the link, I'm familiar with many of the ones listed there but I'd not seen that particular list yet. I'll take a look at some of them later. What I usually find is frustration with e-planners that don't account for the variables for a spouse's pension, SS, or even doing simple what-ifs related to longevity. For instance, MarketWatch has a sharp retirement planner too, but I end up having to fudge DW's current salary downward significantly to get her SS to come out right, and it doesn't recognize pre 59-1/2 withdrawals from her 457, so I have to call that cash, etc.

I realize it's not likely to find a do-all end-all planner out there, so that is what drives me to creating spreadsheets where I can build in the things that matter to our planning. For a quick reality test I find FireCalc to be pretty reliable, but it has its quirks too.

 

[Independent]

Changes to investment returns are in my spreadsheet, only impact on FireCalc from that is slightly reduced kitty on ER date due to preretirement return assumption, and if modifying annual expense for HC - my spreadsheet updates the link for FireCalc to reflect those variables; always using Monte Carlo in FireCalc to backtest my plan.

Okay, it looked like a pretty significant drop in FireCalc success rate if the only use of the investment return is before retirement. But, I haven't tried to duplicate this.

I like to do back-of-the-envelope checks just to see if the black box is giving me reasonable results. In your case, it appears that if you both defer SS to age 70, your SS+non-COLA pensions will cover your target expenses plus about $4,000 in the year that you start SS. (I'm using your 3% inflation and SS only increasing by 1.5%.) After that, your real pension and SS continue to shrink due to inflation.

So the key would be to use your at-retirement assets to cover your spending gap until that point, and have a little bit left over to offset inflation in the later years. It looks like the gap (target spending - pension) in current dollars is about $555,000 for those 13 years. That compares to at-retirement assets of about $580,000. So The plan just works at your assumed real investment return. It is sensitive to the three assumptions of inflation, real returns, and SS shaving.

You haven't said anything about potential long term care expenses.

You have some risk of an early death, as income drops by about half but target spending probably doesn't drop that much. You've covered that with life insurance.

In all cases, you have the equity in your house as a cushion at the highest ages.

Lots of people think about flexibility in spending. You might look at exactly where you could cut your spending in those 10% scenarios that don't work.

There are many threads on SS claiming strategies. You appear to have a higher PIA than your wife. In those circumstances, a lot of people would say that you should defer and she should start @ 62. You're planning on the opposite. That might be a reflection on health or some other complicating factor.

You've probably thought of all this already. It appears that you've been very thorough in the things you've posted here.

 

[Theseus]

So the key would be to use your at-retirement assets to cover your spending gap until that point, and have a little bit left over to offset inflation in the later years. It looks like the gap (target spending - pension) in current dollars is about $555,000 for those 13 years. That compares to at-retirement assets of about $580,000. So The plan just works at your assumed real investment return. It is sensitive to the three assumptions of inflation, real returns, and SS shaving.

And a fourth - meteorites

interesting way to look at the problem as a spending gap - thanks for the thoughtful analysis. I'll admit to being somewhat baffled by the SS claiming variations, for now I'm just using either age 62 or FRA values, guess I'll need to wrap my head around the PIA (aptly named, if I must say say) formulas. Tried that more than once, and gave up in disgust. To me, the real risk is dismal market returns, and that is what the FireCalc success rate looks out for, what are the odds of the worst possible past scenarios occurring. Inflation - yes I recall the seventies, although at the time it seemed kind of neat to be getting raises so often, as I wasn't so much into buying staples other than beer back then. Runaway inflation in the future; well that is kind of like Armageddon, zombies, or meteorites in my book - everyone will be hurting, preparation for that is about more than the pocketbook.

 

[braumeister]

Inflation - yes I recall the seventies, although at the time it seemed kind of neat to be getting raises so often, as I wasn't so much into buying staples other than beer back then.

There are other things considered staples?

Runaway inflation in the future; well that is kind of like Armageddon, zombies, or meteorites in my book - everyone will be hurting, preparation for that is about more than the pocketbook.

Seriously, the (hopefully remote) possibility of that sort of thing is a constant worry to me, since I too remember the seventies very vividly. My response is that all my future projections include a real rate of return of only 1%. Sure, I may die with too much in my accounts, but who cares?

 

[Katsmeow]

Isn't the problem with homegrown charts the sequence of returns thing? That is, if you have a couple of really bad years particularly early on it may deplete the portfolio enough that you can't recover even if you have good returns after that and your "average" return is good. That is why Firecalc is helpful.

You might also try the Fidelity Retirement Income Planner which is pretty detailed.

Not my post, but what are people comfortable with on a Firecalc %? Is 90% good or do you continue OMY until 95%? Lets say a 35 year retirement with 60/40 AA.

As mentioned, lots of people vary on this. In our case, I'm about a 95-98% person providing I can actual see ways that are not to painful to adjust spending if we fall in the 2% or 5%. DH, on the other hand, is fine with about an 80% success rate. He thinks that it is hard to ever get more precise than that and he figures he can adjust and make anything work if he had to. As it turns, out we actually currently get 100% from Firecalc so it is sort of a moot point for us whether to do it my way or his way.

 

[Independent]

And a fourth - meteorites

Yes, my comment was kind of stating the obvious. I guess I was struck by the impact of your assumption that SS would lose 1.5% of its purchasing power every year. That seems like a plausible way to model the SS risk, but it's important to your bottom line.

My "meteorite" was expenses that we hadn't anticipated. Stuff happens.

interesting way to look at the problem as a spending gap - thanks for the thoughtful analysis. I'll admit to being somewhat baffled by the SS claiming variations, for now I'm just using either age 62 or FRA values, guess I'll need to wrap my head around the PIA (aptly named, if I must say say) formulas. Tried that more than once, and gave up in disgust. To me, the real risk is dismal market returns, and that is what the FireCalc success rate looks out for, what are the odds of the worst possible past scenarios occurring. Inflation - yes I recall the seventies, although at the time it seemed kind of neat to be getting raises so often, as I wasn't so much into buying staples other than beer back then. Runaway inflation in the future; well that is kind of like Armageddon, zombies, or meteorites in my book - everyone will be hurting, preparation for that is about more than the pocketbook.

I don't think you need to worry about PIA formulas. I was just using that as a shorthand for "benefit if you retire at your full retirement age". That number isn't going to move (other then some indexing adjustments) after you retire. The claiming strategies are based on what fraction of the PIA you get if you retire before or after your FRA, and the ability of a surviving spouse to "step into the shoes" of the person who died earlier. My impression is that there's not a lot of gold there, but maybe a little marginal gain.