Join Early Retirement Today
Reply
 
Thread Tools Display Modes
How to model a buyout in firecalc
Old 02-11-2019, 09:27 AM   #1
Confused about dryer sheets
 
Join Date: Feb 2019
Location: La Pine
Posts: 9
How to model a buyout in firecalc

First post - thank you for being here.

I've searched but cannot find any information on my situation.

In lieu of a pension I get a buyout under these terms: I get to choose a term of 10-15 years. I withdraw 25% of the balance in a lump sum every year. I get 8% return on the remainder for the duration. There is a lump-sum balance payout at the end of my chosen term. Thus, the first 2 years will be:

Year 1) $700,000 x 25% = $175,000 payout. $525,000 balance
Year 2) ($525,000 x 8%) x 25% = $141,750 payout. $425,250 balance

Is there any way to model this for a term of 10 or 15 years?
TANSTAAFL 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 02-11-2019, 10:15 AM   #2
Moderator
Aerides's Avatar
 
Join Date: Nov 2015
Posts: 13,879
If you're at all handy with excel you can throw up a quick spreadsheet. Simply subtracting 25% each year, then adding 8% on the balance, you'd have nearly no difference in those last 5 years, pulling in less than 25k per year, with the total balance under 100k for year 11.

of course, that's a rough way to do it, and doesn't account for compounding, so you'd come out a little better in reality. But it kinda looks like the reverse of paying a mortgage - the tail at the end in your pension case being kinda like the build of equity at the start of a mortgage - dribbles.
Aerides is offline   Reply With Quote
Old 02-11-2019, 10:18 AM   #3
Administrator
MichaelB's Avatar
 
Join Date: Jan 2008
Location: Chicagoland
Posts: 40,586
This is an interesting challenge. There’s no easy way to do this. One option is to calculate the net future value of the entire sum, discount that amount to a present value and add that to your portfolio today. Or, input the first three years payments in the “lump sum changes to portfolio” tab, then do the above for the remaining balance.
MichaelB is offline   Reply With Quote
Old 02-11-2019, 10:31 AM   #4
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jun 2016
Location: Colorado
Posts: 8,971
Quote:
Originally Posted by MichaelB View Post
This is an interesting challenge. There’s no easy way to do this. One option is to calculate the net future value of the entire sum, discount that amount to a present value and add that to your portfolio today. Or, input the first three years payments in the “lump sum changes to portfolio” tab, then do the above for the remaining balance.
Agree. This is the way I handled a multi year buyout.

If you have access to the Fidelity planner, it allows multi year custom additions to income and it would be easy to model.
COcheesehead is offline   Reply With Quote
Old 02-11-2019, 11:06 AM   #5
Thinks s/he gets paid by the post
USGrant1962's Avatar
 
Join Date: Dec 2016
Location: DC area
Posts: 2,479
I would keep it real simple and just add the $700K to the fixed income side of the portfolio on your retirement date. In my view, it is just an account sitting there from which you have mandatory withdrawals. Kind of like RMDs where the "withdrawal" is just a tax transaction. If you spend the money or not should be covered by your input for annual spending.

It will not be a precise model, but with FIRECalc you are just looking for the comfort level that assures you are really FIRE.
__________________
FI and Semi-ER March 24, 2017
Consulting to stay engaged

"All models are wrong, some are useful." - George Box
There is always a well-known solution to every human problem: neat, plausible, and wrong.” - H.L. Mencken
USGrant1962 is offline   Reply With Quote
Old 02-11-2019, 11:21 AM   #6
Thinks s/he gets paid by the post
 
Join Date: Dec 2014
Location: St. Charles
Posts: 3,903
Quote:
Originally Posted by USGrant1962 View Post
I would keep it real simple and just add the $700K to the fixed income side of the portfolio on your retirement date. In my view, it is just an account sitting there from which you have mandatory withdrawals. Kind of like RMDs where the "withdrawal" is just a tax transaction. If you spend the money or not should be covered by your input for annual spending.

It will not be a precise model, but with FIRECalc you are just looking for the comfort level that assures you are really FIRE.
This makes sense to me. Yeah, you are getting an 8% return, which is probably more than Firecalc would calculate for fixed income in most years, but you will be withdrawing around 50% in just the first 3 years.
__________________
If your not living on the edge, you're taking up too much space.
Never slow down, never grow old!
CardsFan is online now   Reply With Quote
Old 02-11-2019, 11:29 AM   #7
Confused about dryer sheets
 
Join Date: Feb 2019
Location: La Pine
Posts: 9
It's like trying to depreciate an appreciating asset.

Of course the buyout value goes up yearly and the percentages range 22-30% depending on the term. I was hoping for a shortcut.

Manual input it is.
TANSTAAFL is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools
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
Your 'go to' Spending Model in Firecalc? Carpediem FIRE and Money 50 12-19-2018 12:30 PM
FireCalc Spending Model SJhawkins FIRE and Money 31 09-08-2018 12:19 PM
Firecalc - Spending model $ assumed inflation engr FIRE and Money 6 07-08-2013 05:05 PM
In FIRECalc, why does CSP provide better result than % of Remaining Portfolio Model? nico08 FIRE and Money 0 10-26-2011 11:35 AM
Tax treatment of stock buyout Gumby FIRE and Money 2 11-26-2006 01:51 PM

» Quick Links

 
All times are GMT -6. The time now is 05:49 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2024, vBulletin Solutions, Inc.