why does FC show spending in my pre-retirement years?

[BlueberryPie]

I just discovered FireCalc and it's such a great tool! and free too! (I'll donate to support). I love the configurability!

What got me to FC in the first place was the ability to use the 95% rule rather than the inflation-adjusted 4% of starting portfolio that most others seem to use, when they simply don't use fixed income.
I have yet to play with the Bernicke model, although I would need to understand it better, I think healhtcare expenses might rise as you grow older, but maybe by then you just watch Jeopardy reruns all day, and while all your money goes to healthcare, it's also all you pend on?

Anyway, I digress. I plan to retire in 10 years, but the "Year-by-Year Spending" section shows spending in the next 10 years where I expected to be blank. The "spending" curve goes up until the retirement date though, so I assume it shows a fixed % of my portfolio but doesn't actually count it as withdrawn? so the curves at retirement age are correct, I can just mentally ignore the part leading up to it?

I also noticed that it didn't use a 4% rate, but a much higher one. It looks loke it assumes the desired withdrawal rate is the Spending amount on the first tab, divided by the portfolio value on the first tab.

Speaking of which, is the spending in the first tab pre or post-tax? For example if I want to actually have $96,000 to spend, I need to withdraw $124K to get that $72K after taxes (in today's dollars)

Which one should I enter in the "spending" entry in the first tab? that's a big difference

 

[HI Bill]

You need to include your entire needed income ($124K) on the first page. The 4% rule is really inherent in this calculator. The WR (withdrawal rate) shown can be higher initially, because FC includes the future fixed income (SS, pensions), and assumes that once you start taking the SS, your distributions from investments will be lowered by that amount, and provides some security against SORR (sequence of returns risk).

While the Bernake's spending model seems to be true, based on my parent's experience, it all depends on one's health and desire to spend on things like travel, charitable contributions, etc. But spending can really take a nose dive for those who were very active before their health goes south.

 

[USGrant1962]

Regarding the Bernicke model. It is based on real spending data of retirees, so while medical spending can increase in later years (google "retirement spending smile") for most people it doesn't increase more than other spending declines. Also, when I've run Bernicke I usually subtract 10 years from my age so the spending starts dropping at 66 instead of 56. That feels more realistic to me for today's early retiree.

FIRECalc considers taxes to be spending, as should you. It is a check you write to someone else - it is spending, the fact that it is involuntary doesn't matter. And no retirement calculator knows future tax rates. So include a guestimate for taxes on the first tab, with due consideration of the tax status of your portfolio, pension, SS on both the state and federal level.

Interesting observation on pre-retirement spending under the 95% rule. That is probably spurious data, but now I wonder how it impacts portfolio values - might be under estimating the range of "at retirement" values if spending is being subtracted.

Lastly, yes, if you have future income streams (pension and SS) FIRECalc will correctly show that you can safely exceed 4% WR in the early retirement period. My model runs about 4.5% between now and SS at age 70.

 

[BlueberryPie]

Yeah I was playing with Bernicke model and I am still not comfortable with predicting my income will go down this early. Kids are almost out of college and moved out (fingers crossed), but we intend to do more international travel before retirement and during. Based on my parent's example, I don't want to plan to slow down much before my mid-70s, so I am lying about my age.