opinions on my simple planning model

[joesxm3]

While I realize that the more sophisticated models like FireCalc will probably do a much better job, I have made some simple spreadsheets to try to get a grip on things.

I FIRE'd nearly 5 years ago. I made a sheet that made some gross assumptions such as an expense inflation rate of 5%, an investment gain on my total portfolio of 3% a social security COLA of 2%.

I made a similar one where I subtracted the equivalent of a 50% loss on my equity exposure in the first year, and another where I took a 10% loss on my total portfolio in two of the first five years.

I took a wild guess at taxes and added 30% to my estimated expenses.

I figured that this was probably overly pessimistic, but it showed I would survive until 85 or so and I was about 60, so once my BS bucket was overflowing I stopped working.

The results of the past five years have been that my total portfolio has increased about 12%, even with my expenses being taken out. Right now I have what some might consider a stupidly conservative asset allocation of about 22% stocks and 50% cash.

I have not figured out my actual return but taking the info from the performance page on my largest account and guess at the others, I think my total return has been between 3% and 5%. I realize that the market has been much higher and in hind-sight I would have been much better off with a large equity exposure, but I went through three bubble pops where I lost close to 50% each time and figure I don't have the stomach for that now that I am living off my savings.

Well, anyway, I tried to make a better model and used VBA to put in the accurate calculations for my taxes using current rates and switching to the previous 2015 rates in 2025 and forward.

I put in a factor for expense inflation and a factor for total portfolio gain rate, but have not put in any factor for social security COLA or for possible increase in SS taxation.

I ran the model with 0% for inflation and investment gain and went to 100 years old fine.

I did 3% inflation and 0% investment gain and was surprised how much it lowered my portfolio value, running out around 93 years old.

When I put in 2.5% inflation with a 2% or 3% investment gain rate, I was back in the black pretty handily.

This gives me the feeling that from the view of my simple model, I am probably OK. I realize that there could be huge market swings in real life, but I am figuring that my conservative equity allocation will smooth that.

What did strike me is how pronounce the effect of a 1% or 2% change in my investment return rate had on the simple model.

When I have some more time I will probably try to do FireCalc again or use the retirement planner from my brokerage account, which I did try to do in the years leading up to FIRE.

Any thoughts on my simple model (hoping I have explained enough to get an idea) or on some of the assumptions I chose or should be trying to build into my model?

Thanks.

 

[MichaelB]

Needs more cowbell.

 

[HI Bill]

Sounds like your simple model is working, given your assumptions. But it shows that your risk of running low on $ is due to the overly conservative AA you have, and the risk of higher inflation.

 

[twaddle]

FIREcalc is a *lot* easier than what you're doing. Why the delay in trying it?

Also, just curious if you're updating some of your parameters based on actual past data now that you've been retired for a while. Like 30% of expenses in taxes?

 

[Jerry1]

I've run the more advanced models, but my main gut check is similar to yours. I do a simple cash flow sheet and assume that investment return will pay for inflation. That's a complicated way to say I ignore both. Though it does get to the heart of the matter. I'll be fine as long as I can keep up with inflation. So, at the moment, I have a similarly conservative portfolio and I keep an eye on inflation and how best to handle it's impact on my long term cash flow.

So far, so good, but inflation has remained a minor issue for many years. I feel it may be more of a challenge going forward and because of that I pay attention to articles and comments here about inflation and assets to own to deal with inflation.

 

[joesxm3]

FIREcalc is a *lot* easier than what you're doing. Why the delay in trying it?

Also, just curious if you're updating some of your parameters based on actual past data now that you've been retired for a while. Like 30% of expenses in taxes?

This spreadsheet is an attempt to update my original model which I have not looked at for three or four years. I just sort of closed my eyes and jumped out of the plane. I figured, well I finally did it, not much I can do short of going back to work which is not going to happen.

I just started this a few days ago, and the idea of using FireCalc just came into my mind this morning.

As far as my simple model being harder than FireCalc, I guess part of it is just sort of playing around and giving me something to do. I worked as a programmer for nearly 40 years and stopped cold turkey the minute I left the j*b. This VBA was the first line of code I wrote in five years

 

[joesxm3]

Thanks for the replies.

I guess that the risk of massive inflation hangs over our heads. I remember when I was a teen back in the 1970's, my cousin came out of the bank patting himself on the back for getting a CD paying 20% return.

Now that I seem to have the tax calculations more accurate, I think I may try to improve my investment gain function. Right now I just apply a factor to the total portfolio value. I may try to break it down to equities, cash, I-bonds and bonds.

The very low interest on the cash contrasts to the decent rates on my I-bonds. I should be able to be pretty accurate on the I-bond yields to maturity in the next 10 years and probably should factor in the rate on cash being close to zero for at least the next five years.

Of course, the equities will be quite a wild guess. I have been expecting a severe correction for the past five or more years and have been wrong. Back while working I was at a business dinner with a really rich guy and asked him his opinion - he said to be 100% in equities because "they" were not going to let them go down. I should have listened to him.

While on that topic, about 6 years ago I bought a "bit coin" - on EBAY - made out of plastic Although I do not understand BTC and feel it is either going to end up like the tulip bubble or is foreshadowing a complete disruption of the current monetary system that I cannot understand being a senior citizen instead of a 20 year old, I wish I had take a flyer and bought $500 or $1000 of BTC five or ten years ago.

 

[Dtail]

Appears to be overly conservative.
30% in taxes is not typical, but might be for you. A 5% inflation rate is truly overly conservative. I would drop it to 3%. Many retirement calculators use 2.5%.

 

[joesxm3]

One other topic I am curious about what people think is what will happen to social security.

If one is already at the point of 85% being taxed, do you think that the tax rate on social security will get worse than that - 100% taxable? Some sort of excise tax on social security for those over a certain income limit?

One thing that struck me just now in reaction to HI Bill's comment about the risk of a conservative asset allocation, is the noise I have heard lately about possible tax on net worth. I don't have nearly as much as those seeming to be targeted by such plans, but seeing the effect of a 1% change in my asset gain rate, it would seem a net worth tax could mess me up big time.

I guess what we are seeing is some sort of social engineering designed to move us down the scale to a more risky asset allocation.

Well, sorry for writing so much in this thread.

Thanks to those who are replying and putting up with reading all my rambling.

Snowy day - what can I say

 

[joesxm3]

Appears to be overly conservative.
30% in taxes is not typical, but might be for you. A 5% inflation rate is truly overly conservative. I would drop it to 3%. Many retirement calculators use 2.5%.

That was my 2017 model.

The model I am working on now does the actual tax calculations and my latest sponging around with the spreadsheet has been using 3% and then 2.5% for inflation.

The earlier spreadsheet was intended to be extremely pessimistic because I only had the fourth of July weekend to decide if I had had too much fun at w*rk and if I could come back that Tuesday and give my notice. Sudden move, but I think they were trying to make me miserable to get ride of me and I had reached my limit of putting up with it.

 

[twaddle]

FWIW, I still maintain my pre-ER spreadsheet. (That's why I asked about stock quote API's in another thread).

I share your risk aversion. But if there's anything nearly 20 years of ER has taught me, it's that the only sequence that matters is the one we're in. There's just not enough historical data to tell how this one will play out.

As you mention, a lot could be thrown at you. But playing it too safe is just as dangerous as playing it too loose.

Minimize regret.

 

[bobandsherry]

But if there's anything nearly 20 years of ER has taught me, it's that the only sequence that matters is the one we're in. There's just not enough historical data to tell how this one will play out.

Well said. Show me a time in history where we had a year long pandemic, with the tools that the Federal Reserve has available and bought oodles of debt, and where the government has written huge checks, and where, well you can see where this is going. This is unique time as has almost every other time in history where things have gone really well, or really bad.

Firecalc just tries to not guess what this is like but just throws in the various worst to best case scenarios. But can, given the current regulations and such ever see the worst case ever again? I'd guess case could be made to argue yes and no. The worst still may not be the worst, and the best may not be the best.

 

[Dtail]

That was my 2017 model.

The model I am working on now does the actual tax calculations and my latest sponging around with the spreadsheet has been using 3% and then 2.5% for inflation.

The earlier spreadsheet was intended to be extremely pessimistic because I only had the fourth of July weekend to decide if I had had too much fun at w*rk and if I could come back that Tuesday and give my notice. Sudden move, but I think they were trying to make me miserable to get ride of me and I had reached my limit of putting up with it.

Yes, I should have read deeper. The inflation rate multiplier can make for a noticeable result difference with each 50 to 100 basis point move.