FireCalc Spending Model

[T-Minus]

I’ve created a spreadsheet where I compile the results of four models (FIREcalc, Fidelity Retirement Planner, McClung’s “Living on your money” spreadsheet, and VPW) - all with the most pessimistic outlook possible. I take the minimum value of allowable spend for 100% success, and apply my personal safety factor (for 2018 it was a 5% reduction), then set that as my target WR. Since my acutal spend for 2018 has been significantly less than the aforementioned formula allowed and, since the market has been fairly good for my portfolio, my net worth has increased by a bit. For 2019, even though changing my safety factor from 5% to 7% (trying to account for high market valuation), my maximum allowable spend will increase significantly. My plan is to halve my safety factor reduction after the first five years - as a method of reducing potential early sequence of return risk. After the first seven years (when Medicare kicks in), I wil be able to eliminate said additional safety factor entirely. Yes, it’s more conservative than any of the models, but it gives me the ability to relax, gradually adjust our spending from our draconian pre-retirement levels, and plan on a few luxuries in a few short years.

The downside is I have to run four models and track things a lot more closely initially. However, it’s a lot less than I was doing in my run-up for retirement!

 

[Major Tom]

Like W2R, I have always used the constant spending model in Firecalc. However, with my withdrawal at ~2%, I don't really think too hard about what spending model or withdrawal strategy I use. The more money you are trying to squeeze out of your portfolio, the more complex the various methods, models, and strategies become, IMO.

 

[W2R]

+3

W2R-

Insufficient in amount or duration, or both?

Our analysis is that LTCi is not a good approach for us since today’s policies have payout caps which make them just ‘prepayment’ of expenses.

Given your experience with your parents, what do you plan to do re LTCi?

I'm going to self fund. And yes, my heirs may be grinning all the way to the bank.

Like Major Tom, I am spending 2% or less of my nestegg so I am pretty sure I'll be fine.

 

[Dtail]

Like W2R, I have always used the constant spending model in Firecalc. However, with my withdrawal at ~2%, I don't really think too hard about what spending model or withdrawal strategy I use. The more money you are trying to squeeze out of your portfolio, the more complex the various methods, models, and strategies become, IMO.

At 2% you have a perpetual withdrawal set up.

 

[Huston55]

I'm going to self fund. And yes, my heirs may be grinning all the way to the bank.

Like Major Tom, I am spending 2% or less of my nestegg so I am pretty sure I'll be fine.

Same for us; plan to self fund. But, we are also strongly considering a CCRC.

 

[flyingaway]

I'm going to self fund. And yes, my heirs may be grinning all the way to the bank.

Like Major Tom, I am spending 2% or less of my nestegg so I am pretty sure I'll be fine.

Are you worried about the money left unspent, if you only spend 2% or less of your nest egg?

 

[Katsmeow]

I do the spending by year option with it tapering down over time.

FWIW, I do think Bernicke's plan is overall correct. I have seen numerous family members in later years and every one of them drastically spent less.

My mom recently died at age 94. Over the last 10 years of her life, her income was about $23k to $25k a year. She ended up saving an average of about $5,000 a year because she couldn't spend all of her income. Her house was paid for. During those last 10 years she severely curtailed her driving (she did drive up until a few months before her death). Her 23 year old car had about 30k miles on it. She didn't travel much. She didn't have expensive hobbies.

Now -- she did spend more on some things. She paid for someone to do her yard and had someone come in to clean. Even so, she couldn't spend $20k most years.

Some will say well maybe she would have had needed long-term care. However, she didn't. Even so, when she became ill I figured she had enough money that she could have easily paid for 2 to 3 years of long term care which is an eternity at age 94.

All of that said -- that reduction in spending may not happen the same way for everyone. She had a paid for house. Not everyone does. Some houses require more maintenance than others. Also, I think things may be different for those of us who regularly use the internet. One reason she didn't spend much was because it was hard for her to get out and about and she got tired easily. So she didn't do much shopping. But -- she didn't have internet. Me? I will still have Amazon (or whatever) even if I was housebound. I am pretty sure I could still spend a lot of money even if I wasn't able to go out and about so long as I am in good enough health to read and do stuff at home....