Has anyone used Fidelity's My Plan tool?

[firewhen]

This option is in the www.401k.com site. I think you need to have a retirement account with Fido to use it. They say they use 250 market simulations and it is better than using yearly averages. For me at the 90% level it only allowed about a 2% SWR and it still was not that generous at 50%, about 4% SWR. I used an aggressive portfolio of 85% equities. I copied this explanantion of their website:

While considerations of risk may be made at the 50% level, you should also have an understanding of how your plan supports your goals prior to and during retirement if markets do not go your way. For this, we also present your plan under the "Poor" market assumption at the 90% confidence level. Under this scenario, markets perform significantly lower than historical averages. This means that in 90% of the historical market scenarios run, an asset allocation similar to yours performed at least as well as the results shown. It is important to know if your plan can support the levels of income you indicated if an extended downturn in the markets occurs. If not, then you may still decide to make investment decisions based on averages, but maintain the option, if possible, to reduce your expenditure forecasts to have the necessary income for the duration of your retirement.

I have never seen scenarios so pessimistic. The annual results had my portfolio dropping almost every year for decades, with just a few years of gain. Anyone else have experience with this?

 

[DRiP Guy]

I have brokerage and an IRA with Fido, but not 401(k), so I could not get through to the tool either with being logged on or not. However, I was able to do the Asset Allocation Questionnaire, and that was pretty good, and I ended up about where I expected to be.

T Rowe Price has a quick and dirty calculator for Withdrawal Rates that only needs to know your nest egg, age, yrs in retirement, what confidence level you want, your AA, and what you hope to withdraw, and it gives you a go/no-go indication based on 500 screens, and various models that it actually gives pretty good background on. To me, that was the real value of the exercise, reading about the assumptions and limitations, and then me considering that uncertainty as applied to my own portfolio.

They have an AA analyzer (M* X-ray) and a bunch of other tools, too.

I tend to use all of these things, but then take them with a grain of salt.

From my limited knowledge, for withdrawal info, FireCalc seems to do as good or better a job at it as the flashier tools provided by your brokerage.

 

[Alan]

I agree with your comments. I've used it many times but think that it is far too conservative. I also use other calculators like FireCalc and Financial Engines (free through Vanguard) and they give much more optimistic results.

 

[rs0460a]

Anyone else have experience with this?

No, not in my forecast. This is one of the four main retirement income tools I use (Along with FireCalc, Quicken, and Financial Engines). I use the four primarily to cross-check each other (yes, they do present the same results) but more importantly, to use the "best features" of each.

For instance, Financial Engines does more of a "finite" breakdown of your holdings. Not only what a holding is "marketed" as, but its actual use within the market. As an example, when I run my retirement portfolio through Fidelity's planner, it shows 62% stocks (remainder as bonds/short term). With F.E. it shows a "true" breakdown of 56/44% portfolio.

I've used T Rowe Price's calculator, but it does not give you the ability to actually perform any planning based upon your retirement budget.

This is another area that Fidelity's planner does a good job in. You have an option to either "plug in" a gross retirement income number, or you can get down to the "nitty gritty" of filling out the expense budget input panels. For me, this is easier than it seems, since I/DW are a bit "anal" on tracking our expenses by category using the facility of Quicken. Additionally, you can change an expense year to year. For instance, our medical expense will be higher till we reach 65 (Medicare) for our premiums. Incidentally, the medical contribution has a 7% inflation rate while the rest of the expenses are at the tools "standard" (currently 2.7%, but can be overridden, if you wish).

Another area that we adjusted our forecast is in the area of travel. While we allocated 20% of our annual budget to travel in retirement (same as today, while working), we reduced the travel $$$ each decade, since it is assumed we will travel less. On the expense side, Fidelity's tool gives you a lot of flexibility, but also can only do a good forecast if you are willing to give it the detail it needs (most people don't, I assume).

Not only does Fidelity's tool give you an estimate based upon your holdings and forecast expenses, it also gives you the results (as does F.E.) to change your holdings and "improve your picture" (if need be), by changing your holdings. Additionally, they have just changed the software (2 weeks ago) to allow you to explore a scenario of using a fixed annuity to fund 10, 20, 25 (up to 50%) by annuitizing a part of your holdings. A limitation here is that it is based upon a fixed annuity (rather than a variable) so they need to do some work there - but you get too see how an annuity (even a small percentage) can "improve" your overall picture (at least it did for DW/me).

Sounds like I'm promoting the tool (guess I am, since I like it ). Again, I feel it's valuable, but should not be used as the primary tool for your retirement income decisions. However, I am greatly impressed by its flexibility in both input and output.

As far as being conservative in results, I do not find it as such (at least, in my/DW's case). If it is, I'm much better off than I thought .

- Ron

 

[rs0460a]

they give much more optimistic results.

Alan,

F.E. uses a "standard" mortality table which cannot be overridden. You will always "look better" if you are being conserative with the other tools by plugging in an "outside age".

For instance, the results of F.E. is about 35K per year more than the results of Fidelity's tool in my/DW;s retirement income forecast, but with Fidelity I'm plugging in a date (along with my DW) to my mid 90's, where the current tables are set to around 10 years less. This results in Fidelity showing a more "consertative" picture.

- Ron

 

[Corporateburnout]

I used My Plan as well as the detailed retirement income planner tools at Fido. I've also used FE basic and I find Fido tools to be more conservatives than FE. My theory on that is that Fido as is the case with all investment companies wants you to keep working and saving as much as you can ( hence the 80% income needed at retirement).

The question that I have is why do you need financial planning simulations? If the SWR is 4% of a portfolio mix of 60/40 isn't it simple enough to plan accordingly?

 

[Alan]

Ron,

Thanks for pointing out the age restriction in F.E. - I had forgotten about that. I use 92 when utilizing the Fidelity tool. I also very much like the Fidelity detailed planning tool for estimating your required income.

Incidentally I used the life expectancy calculator that someone posted a few days ago. It returned 96 so I told DW to also use it as I needed to know if she was going to be around to mop up my drool - it came out as 102 for her.

Given the output from Fidelity's tool it certainly does encourage me to hang on another 3 years to get my DB pension. If 4% of savings gave me all I needed now then I wouldn't need complex tools, but with 3 different pensions coming in over the next 13 years plus SS for DW and myself, I need something a little more complex.

Alan

 

[rs0460a]

If the SWR is 4% of a portfolio mix of 60/40 isn't it simple enough to plan accordingly?

In my/DW's retirement income plan, no....

My plan is for DW/me to retire in '07 at age 59, at 100% of our current NET income (disregarding the 80% "rule" since we have been living on much less for many years!)

Additionally, we will not be taking SS untill our full-benefit age of 66 (no - don't start the SS draw "discussion" again, here ).

With the report output of Fidelity's tool, showing year-by-year withdrawl rates (income and required taxes), our initial draw during ages 59 to 65 range from 5.3 to 11.7%. At age 66 it drops down to 2.6% (of the remaining balance at that time) and keeps below the 4% "goal" until after the age of 81. Our lifespan is set for the mid-90's (well beyond our respective family's lifespan) and we will have a "healthy" estate value.

While the 4% "rule" resides in "financial studies", life is a bit different. You must be able to at least "gussestmate" what you need to have (financially) based upon your "real life" expectations.

Just a sidenote. The Fidelity tool shows our forecast without the variable annunity (please, no discussion on that subject, either!) at 20% of our current portfolio value. Using the 20% annuity "position", our withdraw rate at 66 drops down to less than .5% (yes - less than one half of one percent) and does not get into the 4% draw till our early '90's.

Anyway, that's our story...

- Ron