Retirement Plan 2.0 Stress Test

[Exchme]

My calculations are for Guyton Klinger using a starting WR of $105,000.00 (so approx 4.6% of my starting balance) and then I have to calculate every year based on market performance. My WR can go up or down if things are good or bad. With this approach I am able to put in $90,000.00 as my minimum spending (if you don't do this GK always reaches 100% because it will just adjust your spending down to whatever is needed to make the plan succeed). So I have already figured in my minimum ($90,000.00 in 2027 dollars) so I should never have to adjust below that. If the market tanks enough to get me to $90,000.00 I keep that until it corrects, that is the lowest I have told the calculator I am willing to go. That all said I can realistically cut way down from that if I really needed to.

It looks like you are putting lots of effort into planning, but the tool you discussed was FICalc which is more of a high level tool. If you want to get more specific and include the effect of taxes, I suggest trying Pralana. It has great flexibility and power and supports Guyton-Klinger as well as other variable withdrawal strategies like Actuarial and Consumption Smoothing.

In Pralana's Guyton-Klinger implementation, it takes care of the spending floor issue by using all your listed expenses as essential and varying your discretionary spending. The program has historical and Monte Carlo analysis in addition to deterministic modeling. One feature I like in historical modeling is you can choose a particular historical start year and see what would have happened, year-by-year, account-by-account using your plan. It's a nice way to really stress test whether you are comfortable with your plan.

Pralana can help optimize Roth Conversions while taking into account ACA. It can't automatically find the exact mix of Roth and Taxable to spend each year, but allows you to test that manually and it has an optimizer that tests which account to use first, testing 625 combinations (total) across up to three time periods. Of course it also has a tool that projects your earliest safe retirement date.

 

[pjigar]

FWIW I like to plan retirement with a worst case scenario, and not the best case or even typical case scenarios. Healthcare is the biggest wild card. Current ACA may be modified in the future. Even if nothing changes, healthcare inflation is a lot higher than everything else so expect premiums to go up a lot faster.

At a macro level, anyone planning a longer than 30 year retirement should use a conservative withdrawal rate. FWIW we plan to use 3% withdrawal rate. A lot can and will happen in the next 40 years which can put your financial future at risk. I like this joke a lot when planning for retirement:
Q. What is worst than dying?
A. Dying broke.

PS: I just read this post on the healthcare premium:

Top 5 list of surprises from early retirement.

Questions pertain primarily to those around 60 before social security kicked in or before medicade/medicare kicked in. But also interested in those who retired at 65. What are the Top 5 items that caught you off guard and maybe seconded guess your retirement whether early or even at 65.

www.early-retirement.org

 

[Aerides]

I don't see why I would ever pay more than that?

You are planning for 13 years in retirement before medicare kicks in. The "why would I ever" scenarios" are more likely for you than someone with a 3-5 year horizon.

Just be aware your plan may need to adjust for significant increases in your healthcare expenses, and if you have contingency/wiggle room for them, great.

Every year there is saber rattling around the ACA. Every few years something changes in it around the margins that has wide rippling effects. Your plan is for a healthcare expense less than most anyone else I've seen here, and far less than my own using the best/cheap bronze plan. Granted we don't estimate/manage to 33k but we stay under the cliff every year, and even that gets more challenging as we get further into retirement.

 

[DEC-1982]

To be clear, I am not saying the plan is bad or wrong, just be prepared for the wildcard: healthcare

We had solid healthcare insurance. Then something came along which required surgery. The doctor within the insurance system just couldn't do it. I was grateful that he made it clear to us that he couldn't do it. I don't want somebody mucking around inside my body when they don't know what they are doing. Then we went outside the insurance system and had the surgery done. We paid for it OOP, an unplanned expense. These things happen.

I have heard that insurance companies don't pay for certain cancer issues or they don't pay beyond a certain amount. It's a worrisome thought for us even now.

 

[ncbill]

What a bunch of negative nellies.

Healthcare under the ACA can indeed be very inexpensive if you play the 'manage mAGI' game correctly.

If the OP literally needs to relocate for medical care, well, that's a qualifying event for a new ACA plan at that new location where the OP can pick a plan that covers whatever doctors/hospitals they require.

And I don't know why people still mention FIXED withdrawal strategies when Guyton-Klinger and the other variable strategies allow higher WRs.

 

[lazydays]

Honestly, your plan looks super solid - just maybe keep a tiny extra cushion beyond the Roth/401k math for any curveballs, life loves throwing them.

 

[Koolau]

What a bunch of negative nellies.

Healthcare under the ACA can indeed be very inexpensive if you play the 'manage mAGI' game correctly.

If the OP literally needs to relocate for medical care, well, that's a qualifying event for a new ACA plan at that new location where the OP can pick a plan that covers whatever doctors/hospitals they require.

And I don't know why people still mention FIXED withdrawal strategies when Guyton-Klinger and the other variable strategies allow higher WRs.

Given sufficient years to plan your withdrawal strategy, I think you're correct that one can plan ACA by managing for AGI. But it's not always easy to manage when things change (subsidies, for instance) or moved-up retirement date, etc.

I was fortunate never to have to play the ACA game. Of course that means I'm much older. Even managing for IRMAA has been slightly challenging (in theory, it's my own fault). I DID plan for it but it's easy to make a slight mistake which (as they say) is over a cliff. Over the cliff for IRMAA is unfortunate. Over the cliff for ACA could be problematic. It's complicated.

 

[djsander]

Insurance doesn't cover cancer?

Edit I found this. Seems like the out of network nonsense doesn't apply any longer.

View attachment 62572

Somewhat true. If its non-emergency and out of network they tell you what the cost is and thats what you pay. If its in network any out of network providers only get paid the in network rate. Here is another little excerpt from the government

• Exceptions: This protection does not apply if you knowingly and voluntarily choose an out-of-network provider (e.g., electing to have an out-of-network surgeon perform a scheduled, non-emergency surgery).

So, you could possibly be on the hook for a large sum. Its not as cut and dry as its made out to be.

 

[Al18]

Your plan looks good. In a typical year when stocks are up, I would sell some stocks and CD’s to fund your retirement. If stocks are down, sell mostly CD’s. I would not sell from your Roth in early retirement unless it’s an emergency.

 

[Dalton]

Somewhat true. If its non-emergency and out of network they tell you what the cost is and thats what you pay. If its in network any out of network providers only get paid the in network rate. Here is another little excerpt from the government

• Exceptions: This protection does not apply if you knowingly and voluntarily choose an out-of-network provider (e.g., electing to have an out-of-network surgeon perform a scheduled, non-emergency surgery).

So, you could possibly be on the hook for a large sum. Its not as cut and dry as its made out to be.

Yeah, I wasn't trying to suggest Max's plan won't work, or be a Debbie Downer. I just thought it pertinent to point out that his "my premiums are free and max OOP is $2000 so I won't ever have to pay more than that in a year" (paraphrased, for the gist) could end up being very wrong in some circumstances that sometimes happen to people in their 50s.

Going into last year, I passed on the CSR95 policy, because I'm not a fan of the ins co that had it that year, and instead picked a silver plan with an insurance co I really like, but knew I was potentially sacrificing some coverage, and it didn't have a super low deductible and OOP. I bike, and have had my share of wrecks and injuries that resulted in needing PT, but I guess I had recency bias, because I decided the policy I picked not paying for any phys therapy until the $5200 deductible was met was a gamble I could take. Turns out I had a back issue right before the Jan 1st effective date of that policy, and ended up going past that $5200 deductible before even March was over with, due to the PT. It was fine, my withdrawal rate isn't on a razor thin margin, so I had the money...lessons learned.

Also, I'm single, so I have built a base amount to be maintained into my FireCalc model, in case I need a few years of LTC so as to not be a burden on my sister's kids someday. Didn't change the analysis much, I dropped my max withdrawal a little (that I'm not spending anyway), and the success went from 100+% to around 95%. Sounds good enough to me, for the forseeable future.

 

[djsander]

Yeah, I wasn't trying to suggest Max's plan won't work, or be a Debbie Downer. I just thought it pertinent to point out that his "my premiums are free and max OOP is $2000 so I won't ever have to pay more than that in a year" (paraphrased, for the gist) could end up being very wrong in some circumstances that sometimes happen to people in their 50s.

Going into last year, I passed on the CSR95 policy, because I'm not a fan of the ins co that had it that year, and instead picked a silver plan with an insurance co I really like, but knew I was potentially sacrificing some coverage, and it didn't have a super low deductible and OOP. I bike, and have had my share of wrecks and injuries that resulted in needing PT, but I guess I had recency bias, because I decided the policy I picked not paying for any phys therapy until the $5200 deductible was met was a gamble I could take. Turns out I had a back issue right before the Jan 1st effective date of that policy, and ended up going past that $5200 deductible before even March was over with, due to the PT. It was fine, my withdrawal rate isn't on a razor thin margin, so I had the money...lessons learned.

Also, I'm single, so I have built a base amount to be maintained into my FireCalc model, in case I need a few years of LTC so as to not be a burden on my sister's kids someday. Didn't change the analysis much, I dropped my max withdrawal a little (that I'm not spending anyway), and the success went from 100+% to around 95%. Sounds good enough to me, for the forseeable future.

My point to the OP was that out of network isnt always covered at the in network rates. It catches people as its not always clearly stated. I’m on medicare now and the part d can get problematic. You get a non covered drug in the middle of the year and it doesn't count for anything except lowering the bank account. It happened last year to me and the drug price started at $350 for a months supply. Not bad but still more than i wanted to pay Good Rx had it at about $225. Getting better, then the pharmacy gave it to me at the employee price $150. Fast forward to this year its on the formulary, but only the brand name. Can get it for just over 200/month and then the deductible kicks in and its around $35. Man, it takes a lot of planning and be ready for the unexpected.

 

[Aerides]

My point to the OP was that out of network isnt always covered at the in network rates. It catches people as its not always clearly stated.

And out of network is subject to a separate deductible, usually double your in-network one, if you have OON coverage at all (some plans don't). This includes anything out of state.

In our case, in an emergency situation, DH was taken to the nearest ER - a Grade 1 trauma center, excellent. 2 hours later, the hospital called me to explain that DH needed to be in-patient for 2 days for treatment, and while the ER was in network, the main hospital was not.... So it was admit him where he was or transfer him across town in the middle of the night to another hospital and medical team. Of course I said don't move him, we'll just handle whatever it is.

"It" was $50k. Granted, after OON network insurance, it was about $6k out of pocket. This was on top of our in-network deductible which was about $7500 (each), which he also met with the ER portion.

That kind of thing is rare, fortunately, but we all need to expect and plan for rare stuff, especially with a longer pre-medicare plan.

 

[FREE866]

And out of network is subject to a separate deductible, usually double your in-network one, if you have OON coverage at all (some plans don't). This includes anything out of state.

In our case, in an emergency situation, DH was taken to the nearest ER - a Grade 1 trauma center, excellent. 2 hours later, the hospital called me to explain that DH needed to be in-patient for 2 days for treatment, and while the ER was in network, the main hospital was not.... So it was admit him where he was or transfer him across town in the middle of the night to another hospital and medical team. Of course I said don't move him, we'll just handle whatever it is.

"It" was $50k. Granted, after OON network insurance, it was about $6k out of pocket. This was on top of our in-network deductible which was about $7500 (each), which he also met with the ER portion.

That kind of thing is rare, fortunately, but we all need to expect and plan for rare stuff, especially with a longer pre-medicare plan.

Sorry you went through all that. However, as you said a situation like that is very rare and after everything you ended up putting out 6 K. To the OPs original post if 6K is going to be some life changing event then they shouldn’t stop working. But based on their numbers it wouldn’t be.

 

[RetiredHappy]

I would say that OP is good to go because in a worst case scenario, OP can reduce travel expenses to cover additional medical costs.

 

[djsander]

And out of network is subject to a separate deductible, usually double your in-network one, if you have OON coverage at all (some plans don't). This includes anything out of state.

In our case, in an emergency situation, DH was taken to the nearest ER - a Grade 1 trauma center, excellent. 2 hours later, the hospital called me to explain that DH needed to be in-patient for 2 days for treatment, and while the ER was in network, the main hospital was not.... So it was admit him where he was or transfer him across town in the middle of the night to another hospital and medical team. Of course I said don't move him, we'll just handle whatever it is.

"It" was $50k. Granted, after OON network insurance, it was about $6k out of pocket. This was on top of our in-network deductible which was about $7500 (each), which he also met with the ER portion.

That kind of thing is rare, fortunately, but we all need to expect and plan for rare stuff, especially with a longer pre-medicare plan.

When i was on an ACA policy all they had in our area were HMOs with no out of network coverage except for emergencies. Something else which you somewhat mentioned is the emergency is considered over once the ER work is complete. Something many people don't realize. We didn't travel much so the chance was minimal but still possible.

 

[TickTock]

I would be very uncomfortable with a starting WR of 4.7% at age 52 (and yes, I'm aware of G-K guardrails, although not with a minimum spending level - do you have any good websites on that?) . . . but that's me. I'm very conservative with the retirement spending.

What gives me more confidence in your plan is the $24k travel spending that you could cut if things go badly. If there are other spending cuts you'd be willing to make, that makes the plan even stronger.

A couple of articles on G-K (though not with a lower spending limit):

Why Guyton-Klinger Guardrails Are Too Risky For Retirees

Guyton-Klinger guardrails could leave clients surprised in a market downtown, and implementing risk-based guardrails can help mitigate the need for adjustments.

www.kitces.com

The Ultimate Guide to Safe Withdrawal Rates – Part 9: Are Guyton-Klinger Rules Overrated? - Early Retirement Now

The number one suggestion from readers for future projects in our Safe Withdrawal Rate Series: look into dynamic withdrawal rates, especially the Guyton-Klinger (GK) withdrawal rate rules. The interest in dynamic rate rules is understandable. Setting one initial withdrawal amount and then...

earlyretirementnow.com

The Ultimate Guide to Safe Withdrawal Rates – Part 10: Debunking Guyton-Klinger Some More - Early Retirement Now

Last week’s post about the Guyton-Klinger Dynamic Withdrawal Rule only scratched the surface and we ran out of time and space. So, today we like to present some additional and detailed simulation data to present at least four areas where Guyton and Klinger are quite confusing and misleading: The...

earlyretirementnow.com

 

[Max Valerion]

I would be very uncomfortable with a starting WR of 4.7% at age 52 (and yes, I'm aware of G-K guardrails, although not with a minimum spending level - do you have any good websites on that?) . . . but that's me. I'm very conservative with the retirement spending.

What gives me more confidence in your plan is the $24k travel spending that you could cut if things go badly. If there are other spending cuts you'd be willing to make, that makes the plan even stronger.

A couple of articles on G-K (though not with a lower spending limit):

Why Guyton-Klinger Guardrails Are Too Risky For Retirees

Guyton-Klinger guardrails could leave clients surprised in a market downtown, and implementing risk-based guardrails can help mitigate the need for adjustments.

www.kitces.com

The Ultimate Guide to Safe Withdrawal Rates – Part 9: Are Guyton-Klinger Rules Overrated? - Early Retirement Now

The number one suggestion from readers for future projects in our Safe Withdrawal Rate Series: look into dynamic withdrawal rates, especially the Guyton-Klinger (GK) withdrawal rate rules. The interest in dynamic rate rules is understandable. Setting one initial withdrawal amount and then...

earlyretirementnow.com

The Ultimate Guide to Safe Withdrawal Rates – Part 10: Debunking Guyton-Klinger Some More - Early Retirement Now

Last week’s post about the Guyton-Klinger Dynamic Withdrawal Rule only scratched the surface and we ran out of time and space. So, today we like to present some additional and detailed simulation data to present at least four areas where Guyton and Klinger are quite confusing and misleading: The...

earlyretirementnow.com

Thanks for the input and the things that help me sleep are -

1. I have room to play. The $24k could go away for a year or three if it had to. I could dig much deeper if things got really bad, probably another $25k off and I would still be fine just have to watch it. Per my G-K plan I don't plan to go below $90k spending but I could live on $60k for a few years (or more but obviously would prefer not to).

2. I have the first 4-5 years covered with cash / CD's without ever touching my 401k. That means I am not dipping into it until 57 or 58 and if after 2-3 years things aren't going well I can reverse course and just consider it a break and go back to work never having touched my 401k.

 

[Montecfo]

I would spend a lot of time focused on your spending. You need an annual budget for replacing things.You mentioned a vehicle but these are ongoing, things like a new roof, home updates, autos, replace furnace, HVAC.

The way I initially budgeted it for planning was by looking back 10 years and then using that average cost as a basis for the budget.

Given long horizon, you really want to scrub your numbers and make them conservative, in my view.

 

[kilgore]

"If you want to retire, at some point, you need to make a leap of faith."

Now there's a truth I can attest to after 25 years of retirement.

 

[masonmcd]

RN here. Regarding the out of network surprise billing, all that means is that an anesthesiologist - or whomever - can only charge you the same as what an in-network negotiated charge would be. It does not say it will be covered. So yay for that un-covered $15k charge from that guy (or gal).

 

[Max Valerion]

This is getting dangerously close to happening lol.

Couple of updates (thanks to everyone that has offered advice).

Looks like I will start out with slightly more than I originally anticipated - I should be somewhere between $2.4m and $2.5m to start out.

I will not be changing my planned withdrawal rate at all. I am going to end up 70/30 with my existing Roth and Traditional 401k money (which will end up IRA money) invested 100% in equities since I will not need to touch them until 2032. I will have CD ladder to cover the remainder of this year plus 2027 - 2031 so 5 1/2 years or so before I need to touch my actual retirement accounts (and sell any equities). I assume this is plenty conservative to cover SOR risk and 5 1/2 years should hopefully allow for some significant growth without worrying about drops.

With the "extra" money in my plan I am going to fund a $100,000.00 cash (SPAXX) account for unforeseen issues that might come up. It occured to me that with 5 1/2 years of money tied up in CD's I could have a liquidity issue if I need to suddenly replace HVAC or vehicle or whatever so I think this $100,000.00 will give me a good buffer for unforeseen expenses.

Fingers crossed here but looks like everything is falling into place.

 

[Al18]

I think you should sell some stocks and CD's to cover your first few years in retirement. It looks like you will be able to sell stocks up to $98,900 and still be in the 0% LTCG bracket.

 

[COcheesehead]

I think you should sell some stocks and CD's to cover your first few years in retirement. It looks like you will be able to sell stocks up to $98,900 and still be in the 0% LTCG bracket.

Maybe more. It’s the gains, not the value of the sale that is sustainable to taxation.

 

[wmc1000]

This is getting dangerously close to happening lol.

Couple of updates (thanks to everyone that has offered advice).

Looks like I will start out with slightly more than I originally anticipated - I should be somewhere between $2.4m and $2.5m to start out.

I will not be changing my planned withdrawal rate at all. I am going to end up 70/30 with my existing Roth and Traditional 401k money (which will end up IRA money) invested 100% in equities since I will not need to touch them until 2032. I will have CD ladder to cover the remainder of this year plus 2027 - 2031 so 5 1/2 years or so before I need to touch my actual retirement accounts (and sell any equities). I assume this is plenty conservative to cover SOR risk and 5 1/2 years should hopefully allow for some significant growth without worrying about drops.

With the "extra" money in my plan I am going to fund a $100,000.00 cash (SPAXX) account for unforeseen issues that might come up. It occured to me that with 5 1/2 years of money tied up in CD's I could have a liquidity issue if I need to suddenly replace HVAC or vehicle or whatever so I think this $100,000.00 will give me a good buffer for unforeseen expenses.

Fingers crossed here but looks like everything is falling into place.

Sounds better! FWIW - might want to check those hvac replacement costs as $12k doesn't buy what it used to.

 

[Max Valerion]

I think you should sell some stocks and CD's to cover your first few years in retirement. It looks like you will be able to sell stocks up to $98,900 and still be in the 0% LTCG bracket.

Not sure what you mean sell CD's?

My plan is this (left column is CD purchased and right column is maturity value to fund the year). These would be purchased in the next month or two.

I know I pay taxes on interest yearly but I should be under $30,000.00 of interest per year for tax and ACA purposes.

2027​	6 month	$103,100.00​	$105,040.00​
2028​	18 month	$100,900.00​	$106,705.00​
2029​	24 month	$103,000.00​	$108,171.00​
2030​	36 month	$99,000.00​	$110,880.00​
2031​	48 month	$95,000.00​	$111,564.00​