corn18
Thinks s/he gets paid by the post
- Joined
- Aug 30, 2015
- Messages
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I have been using a retirement model that I found on bogleheads.org called Total Portfolio Allocation and Withdrawal (TPAW). At first it cornfused me, but now that I understand it, the simplicity is very elegant.
Here's a link to the TPAW thread on bogleheads:
https://www.bogleheads.org/forum/viewtopic.php?f=10&t=331368
I tried out the spreadsheet and that was interesting. But where it really shined was when I adapted the simple concept to my spreadsheet. Here's what is important:
Total income - Total Expenses = Savings Required
All of the numbers must be in real dollars. If you have a non COLA pension, you have to convert it to real dollars. Social Security is already in real dollars. Most expenses are in real dollars (mortgage is not).
A simple example:
Retire @ 56
35 year retirement
Take SS @ 70
20,000 COLA pension starting at retirement age
20,000 SS starting @ 70
100,000 / year expenses
INCOME
20,000*35 = 700,000 pension income
20,000*25 = 500,000 SS income
So you have 1,200,000 of income
EXPENSES
100,000*35 = 3,500,000 of expenses
1.2M - 3.5M = 2.3M shortfall. This is how much you need to retire.
There are no assumptions to make unless you need to convert from nominal to real dollars. Then you need to pick an inflation rate (I picked 2%).
What this represents is a 0% average real return on your investments over the full length of retirement. You can pick other returns in the TPAW spreadsheet and it will run the numbers for you. But I just leave it in this simple form.
I use many models to decide if I have enough. Actually, I use all of them. This simple method matches 100% in firecalc and 97% in the Flexible Retirement Planner. I haven't done any validation outside my own personal data, but maybe I will and report back.
I mentioned this method on another forum, and they have started using it to help them decide how much they will need to retire. Thought I would share it here in its own post.
Corn
I just did a quick check in firecalc:
40,000 annual expenses
No income
1,200,000 required to retire per TPAW
If I plug that into firecalc, it spits out 100% Ps
If I plug that into the Flexible Retirement Planner, it says I need 1,200,000 for 95% Ps.
And to add, I have found that 100% Ps in firecalc is equivalent to 95% Ps in a Monte Carlo sim.
Here's a link to the TPAW thread on bogleheads:
https://www.bogleheads.org/forum/viewtopic.php?f=10&t=331368
I tried out the spreadsheet and that was interesting. But where it really shined was when I adapted the simple concept to my spreadsheet. Here's what is important:
Total income - Total Expenses = Savings Required
All of the numbers must be in real dollars. If you have a non COLA pension, you have to convert it to real dollars. Social Security is already in real dollars. Most expenses are in real dollars (mortgage is not).
A simple example:
Retire @ 56
35 year retirement
Take SS @ 70
20,000 COLA pension starting at retirement age
20,000 SS starting @ 70
100,000 / year expenses
INCOME
20,000*35 = 700,000 pension income
20,000*25 = 500,000 SS income
So you have 1,200,000 of income
EXPENSES
100,000*35 = 3,500,000 of expenses
1.2M - 3.5M = 2.3M shortfall. This is how much you need to retire.
There are no assumptions to make unless you need to convert from nominal to real dollars. Then you need to pick an inflation rate (I picked 2%).
What this represents is a 0% average real return on your investments over the full length of retirement. You can pick other returns in the TPAW spreadsheet and it will run the numbers for you. But I just leave it in this simple form.
I use many models to decide if I have enough. Actually, I use all of them. This simple method matches 100% in firecalc and 97% in the Flexible Retirement Planner. I haven't done any validation outside my own personal data, but maybe I will and report back.
I mentioned this method on another forum, and they have started using it to help them decide how much they will need to retire. Thought I would share it here in its own post.
Corn
I just did a quick check in firecalc:
40,000 annual expenses
No income
1,200,000 required to retire per TPAW
If I plug that into firecalc, it spits out 100% Ps
If I plug that into the Flexible Retirement Planner, it says I need 1,200,000 for 95% Ps.
And to add, I have found that 100% Ps in firecalc is equivalent to 95% Ps in a Monte Carlo sim.
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