Retirement planning for those already retired

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.

Retirement planning for those already retired

Postby BruceA » Mon May 06, 2013 11:27 am

I am retired and I use a retirement planning approach that works very well for me, and I'm certain it will work for other retirees as well. How much am I spending each year? How much will I be able to spend each year until I die? And what will happen under various worst case scenarios? That is what I need to know, and that is what my approach provides.

How much am I spending? I keep monthly records of the amounts I am spending, which are easily updated in just a few minutes. I don't keep detailed records of specific spending, but I do make a note of large expenditures or unusual expenses. From these it is easy to determine spending patterns and get a good feel for discretionary spending. Will spending change as I get older? Possibly, but by looking at actual expenditures over a few years, it is not difficult to make reasonable estimates of annual expenditures into the future.

How much will I have available to spend each year until I die. This of course depends on the nature of my income, which could involve deferred comp, pensions, annuities, social security, and equity/fixed split on investments. It is necessary to compute the inflation adjusted after-tax income for each of these items each year until I die. Two issues arise. First the complexity of the computations, but my model is workable and not that complex. Second is my crystal ball for future income. After-tax income from other than investments can be forecast with accuracy; income from investments cannot. I believe that it is foolhardy to rely on historical returns; historical return rates are generally considered unreliable by the Boglehead gurus. These gurus, e.g., Bogle, Bernstein and Swedroe, do however have a general consensus regarding likely future returns, and that is what I use. Now I have all future items of income, and from that I compute my base case annual available spend each year until my estimated date of death. My spreadsheet continually updates this amount.

What will happen under various worst case scenarios? One thing certain is that the base case will not occur neatly and uniformly over a period of time. Sequencing of returns can cause significant changes in retirement income as Bill Bernstein has demonstrated. Black Swans can turn the best laid plans on their head. Bernstein suggests you can expect at least a 20% hit at some time during retirement. For those with fixed pensions and annuities, increases in inflation beyond that included in the model can be disastrous. My model provides for easy input of any such worst case scenarios. From the output I can then evaluate how the various scenarios will affect me relative to my actual spending. At this stage there is no magic formula for determining the scenarios or evaluating the impact, but I believe that is the best available information for making such retirement planning investment decisions.
BruceA
 
Posts: 80
Joined: Thu Feb 23, 2012 4:34 pm

Re: Retirement planning for those already retired

Postby Garco » Mon May 06, 2013 11:43 am

@BruceA. I really admire people who can keep a detailed budget and spending record. It's not in my (or my spouse's) mental frame to do that kind of thing. So we're using some specific calculations of core expenses (housing, health care, transport, travel) but really using "rules" of thumb as a basic guideline. Can we generate income that allows us to maintain our basic lifestyle in retirement (scheduled to occur in a couple of years)? One way to do that is to look at whether we can generate post-tax income that's equivalent to our current "take home pay." Right now, that take home pay is reduced not only by taxes of my income but also a host of other deductions, including contributions to my DC pensions, parking, unemployment insurance, social security, etc.

I think we're in decent shape, so I'm not fretting the details at this time. But I am trying to protect our "wealth" by paying for long-term care insurance, and making sure I know what the heck I'm doing when investing in the "taxable" environment -- outside of my tax advantaged accounts. For this purpose, I really need expert investment advice and am seeking it.
User avatar
Garco
 
Posts: 391
Joined: Wed Jan 23, 2013 2:04 am

Re: Retirement planning for those already retired

Postby mpt follower » Mon May 06, 2013 11:52 am

To @BruceA
I read with interest your comments and I cannot disagree with anything you say. Since you refer to a model you use, I was expecting that your intention was to share the model with us, or you were just warning us to be more discipline with our money?
Erwin
mpt follower
 
Posts: 1186
Joined: Fri Apr 27, 2007 11:16 pm

Re: Retirement planning for those already retired

Postby Cut-Throat » Mon May 06, 2013 11:54 am

mpt follower wrote:To @BruceA
I read with interest your comments and I cannot disagree with anything you say. Since you refer to a model you use, I was expecting that your intention was to share the model with us, or you were just warning us to be more discipline with our money?


+1.....

I just take 3% of my Remaining portfolio Balance and go fishing.
User avatar
Cut-Throat
 
Posts: 2011
Joined: Sun Oct 17, 2010 9:46 am

Re: Retirement planning for those already retired

Postby OverTheHill » Mon May 06, 2013 12:01 pm

We've never done budgets. At the end of the year, I simply add up what we've spent on everything, including taxes, gifting, and charity. The is fairly easy for us. I then subtract our combined SS, then the rest is designated as coming from our portfolio via withdrawals. I know how much or little the portfolio made by looking at Vanguard's site. I know my defacto withdrawal by subtracting our combined SS from our total spending (including taxes). No big deal.
OverTheHill
 
Posts: 308
Joined: Wed Mar 27, 2013 4:58 pm
Location: North Carolina

Re: Retirement planning for those already retired

Postby wilpat » Mon May 06, 2013 12:09 pm

I am also retired and I keep a record similar to yours. I have a forecast of income and outgo kept daily for 4 years out. I keep an annual forecast of income and outgo for 30 years ahead.
For my daily estimated and actual expenses I record expenditures for Automobile, Restaurants, House (includes all utilities), Medical and "Stuff".
My long range annual budget includes 1% COLA for social security, 3.1% for inflation and 1% for house appreciation and 3.5% for investment growth. I think these numbers are reasonably conservative.
All expenditures are recorded daily. I rarely use cash, as credit and debit cards are easier to keep track of. My checkbook is also recorded and reconciled daily.
This is very easy for me, as I do it all on excel spreadsheets. FWIW I have been doing this for many years (started long before I retired).
Contrary to the belief of many, profit is not a four letter word!
User avatar
wilpat
 
Posts: 482
Joined: Sun Jan 20, 2008 7:30 pm

Re: Retirement planning for those already retired

Postby Grandpaboys » Mon May 06, 2013 1:22 pm

I don't do any of the above, never have. If things get tight I just hitch up the belt. At age 85 I have never had budgets. If the money is not there we just quit spending and live within our means and we have been there a few times. It's called cost cutting. I know what my income will be every year at least within a range. When I had two boys in college those were the tight times along with the company I worked for some 25 years going belly up.
Good Day | GP
User avatar
Grandpaboys
 
Posts: 852
Joined: Sun Mar 04, 2007 9:16 am
Location: Texas

Re: Retirement planning for those already retired

Postby BruceA » Mon May 06, 2013 1:54 pm

When I retired I focused on what I needed for retirement planning and that is described above. A couple of replies focused on the "budget", but as I said, I simply compute what I need for estimating annual expenditures, and not a detailed budget. I update it each month and that only takes a few minutes.

What I am trying to do in this thread is to generate a discussion of big picture retirement planning. My approach is: 1. Evaluate actual expenditures; 2. Compute a base case of cash available to me for each year until my estimated year of death; and 3. Compute various worst case scenarios so that I can determine what I need to do to plan for them.

MPT follower, you asked if my model is forthcoming. I discussed this model in some detail in earlier threads, and received an avalanche of criticism, typically regarding why my approach couldn't work and/or why it was inferior to their pet retirement income model (SWR, MCS, Firecalc, etc). So in this thread I decided to go back to basics and discuss what information is needed to plan for retirement, in the most simplistic terms. Accordingly MPT, at this stage (if anyone is interested) I would prefer to discuss the broader concepts around the model and not model specifics. I have used my model for a few years and it does in fact accomplish all my original objectives.
BruceA
 
Posts: 80
Joined: Thu Feb 23, 2012 4:34 pm

Re: Retirement planning for those already retired

Postby OverTheHill » Mon May 06, 2013 2:33 pm

BruceA wrote:3. Compute various worst case scenarios so that I can determine what I need to do to plan for them..

My worst case scenario is based on being reasonably certain that we would have enough to take us to the grave even if our total portfolio dropped by 50% and stayed there more or less for the duration (except for inflation), meaning that we would have to live off of the balance. That's about as bad as I think it make sense to plan for dealing with. Our asset allocation is close to 48% equities and 52% fixed (or cash). We also have SS. I think our portfolio could lose 50% and we still could at least come close to maintaining our current lifestyle, plus or minus a tad. We would probably have to give up significant gifting and charitable contributions, plus drink box wine and eat out less.
OverTheHill
 
Posts: 308
Joined: Wed Mar 27, 2013 4:58 pm
Location: North Carolina

Re: Retirement planning for those already retired

Postby BruceA » Tue May 07, 2013 8:38 am

OverTheHill wrote:
BruceA wrote:3. Compute various worst case scenarios so that I can determine what I need to do to plan for them..

My worst case scenario is based on being reasonably certain that we would have enough to take us to the grave even if our total portfolio dropped by 50% and stayed there more or less for the duration (except for inflation), meaning that we would have to live off of the balance. That's about as bad as I think it make sense to plan for dealing with. Our asset allocation is close to 48% equities and 52% fixed (or cash). We also have SS. I think our portfolio could lose 50% and we still could at least come close to maintaining our current lifestyle, plus or minus a tad. We would probably have to give up significant gifting and charitable contributions, plus drink box wine and eat out less.


I use a similar worst case. I also use a permanent 50% drop in value (equities only drop). In addition, I do a separate worst case for inflation because I have fixed pensions. The 50% drop reduces my annual available spend by about 25%. Using a hypothetical example, such a worst case might drop the computed annual available spend from 100 to 75. If my actual past annual spend was 85, I can then do as you did and decide what living on 75 rather than 85 would mean to me.

The model is continually updated, so it works great for testing the retirement impact of major purchases or gifting.
BruceA
 
Posts: 80
Joined: Thu Feb 23, 2012 4:34 pm

Re: Retirement planning for those already retired

Postby OverTheHill » Tue May 07, 2013 9:51 am

BruceA, let's all hope that we don't ever have to confront either situation. For many years, I used your method, but I decided recently to include the entire portfolio (rather than just our equity allocation), because I wanted to truly test the worst case situation. If things were to get even worse, then I think money likely would be the least of our problems.
OverTheHill
 
Posts: 308
Joined: Wed Mar 27, 2013 4:58 pm
Location: North Carolina

Re: Retirement planning for those already retired

Postby YDNAL » Tue May 07, 2013 10:43 am

BruceA wrote:I am retired and I use a retirement planning approach that works very well for me, and I'm certain it will work for other retirees as well. How much am I spending each year? How much will I be able to spend each year until I die? And what will happen under various worst case scenarios? That is what I need to know, and that is what my approach provides.

BruceA,

I admire your ability to deal with detail - I was a bean-counter by trade and the last thing I wanted to do when I got home was deal with budgets and numbers.

  1. Spending in retirement - when there is no paycheck coming - should be first and foremost FLEXIBLE. We all should know how much:
      a) We spent while working from a simple equation: Take-home Income - Savings = Expenditures. I'm not compelled to perform any further calculation or seek further complication.
      b) The amount we've been able to save, and what is reasonable (vs. unreasonable) consumption based on these savings.
  2. Simply because "expenditures' while working were $X, doesn't mean that while not working they shouldn't be $Y - or have to be anything that resembles $X.
My suggestion and approach, then, is to save 35-40 times or MORE of the amount you need (2.9%-2.5% withdrawal) after considering other sources of income (like Pension, SS, etc).

2¢
Landy | Be yourself, everyone else is already taken -- Oscar Wilde
YDNAL
 
Posts: 13713
Joined: Tue Apr 10, 2007 4:04 pm
Location: Biscayne Bay

Re: Retirement planning for those already retired

Postby KarlJ » Tue May 07, 2013 11:18 am

In retirement I first used a spreadsheet to track spending and income, model various withdrawal strategies from retirement accounts, and estimate the tax implications of the various scenarios, but I found it to be a lot of work to keep the data current. I have come to rely on the Quicken Lifetime Planner, which uses fixed return estimates, and Fidelity's Retirement Income Planner (RIP), which uses Monte Carlo simulation. It is a much simpler than building my own model in a spreadsheet and less prone to error.
User avatar
KarlJ
 
Posts: 342
Joined: Mon Nov 03, 2008 8:41 pm

Re: Retirement planning for those already retired

Postby BruceA » Tue May 07, 2013 11:24 am

Overthehill
Clearly, as you indicate, there is no such thing as an optimal worst case scenario. When dealing with a worst case scenario, I think it best to test a range. Japan's actual drop in equity value was a "permanent" 80%. We did have a larger than 50% drop in 2008, but that was not permanent and so much less severe. My preference is for a permanent 50% equity drop. Of course, anyone with fixed pensions or annuities must also test inflation worst case scenarios. The problem with most retirement planning models, as I see it, is that many attempt to use some sort of historical worst case, and maybe attach probabilities. Others simply ignore Black Swans and suggest preparing a Plan B.

Plugging a range of worst case scenarios into a model and seeing the impact on annual available spend is, IMO, the best way to proceed. That approach enables us to understand the relative seriousness of the different possible outcomes and plan accordingly. In some cases we might realize that the results are manageable, and that then might free us up to expand spending on family gifting, charitable, etc.

YDNAL, I probably hate detail and budgets as much as you do, and that is why my model does not involve budgets or delving into detail (unless you count a few minutes a month as too much detail work). Of course developing the model did take some work, but now that it is done it continually updates itself. Running test scenarios, such as how gifts might affect my annual available spend, also takes only a few minutes.
BruceA
 
Posts: 80
Joined: Thu Feb 23, 2012 4:34 pm

Re: Retirement planning for those already retired

Postby YDNAL » Tue May 07, 2013 11:55 am

BruceA wrote:YDNAL, I probably hate detail and budgets as much as you do, and that is why my model does not involve budgets or delving into detail (unless you count a few minutes a month as too much detail work). Of course developing the model did take some work, but now that it is done it continually updates itself. Running test scenarios, such as how gifts might affect my annual available spend, also takes only a few minutes.

Thanks, for the response.

As DW and I aged, we tried to remove as much predictability, routine, and other such behavior - as possible - from our lives and live more spontaneously. I think it is time to evaluate the reason why I've posted 11,873 times here. :)

OK, in my defense, sometimes one interesting thread requires multiple postings.
Landy | Be yourself, everyone else is already taken -- Oscar Wilde
YDNAL
 
Posts: 13713
Joined: Tue Apr 10, 2007 4:04 pm
Location: Biscayne Bay

Re: Retirement planning for those already retired

Postby BruceA » Tue May 07, 2013 1:42 pm

KarlJ
I am very familiar with Fidelity's RIP and MCS. The RIP is very good and very sophisticated; possibly the best off the shelf planning tool available. My approach is not nearly as sophisticated, but I can say that my model gives me personally much more realistic and meaningful results than does RIP.

1. The output from my model is easier to interpret and apply than that from RIP. What I find helpful is knowing how much I will have available to spend each year until death, at which time the investments decline to zero. I can then compare that to actual spending and run various worst case and planning alternatives with recomputed annual available spends. That to me is much more meaningful than having a model tell me succeed/fail or that I have a 85.46% of meeting my objectives.

2. RIP is based on historical, and my model is not. Some say that historical isn't perfect, but it's the best we've got. I disagree. I prefer to use the "gurus" estimates of expected returns and inflation.

3. My model is continually updated and RIP is not. Of course one can run RIP as often as he wishes, but who actually does continual runs. I can see my annual available spend each time I open my spreadsheet -- month after month and year after year. I can watch it during market declines and surges and get a much better feel for its impact on planning.

4. It is much easier to test alternative worst case scenarios, inflation increases and planning (e.g., gifting) using my model. I believe it is possible to make manual adjustments to RIP, which will then use those adjustments and apply the same historical modeling (together with appropriate warnings that you have veered from the norm). That is much more cumbersome and much less helpful IMO.

Fidelity's RIP is very good and it does supply meaningful output. However, it was my dissatisfaction with its limitations described above that led me to search for a better approach.
BruceA
 
Posts: 80
Joined: Thu Feb 23, 2012 4:34 pm

Re: Retirement planning for those already retired

Postby Dandy » Tue May 07, 2013 3:13 pm

I like the idea of high level expense tracking each month. I've done it since I retired in 2008. I also footnote large expenses, keep an average ytd monthly expense to compare with prior years. I don't spend much energy trying to project the future income or asset growth.
Dandy
 
Posts: 2459
Joined: Sun Apr 25, 2010 7:42 pm

Re: Retirement planning for those already retired

Postby KarlJ » Tue May 07, 2013 3:25 pm

BruceA wrote:KarlJ
I am very familiar with Fidelity's RIP and MCS. The RIP is very good and very sophisticated; possibly the best off the shelf planning tool available. My approach is not nearly as sophisticated, but I can say that my model gives me personally much more realistic and meaningful results


Appreciate the thoughtful response. I agree that RIP has some limitations, which is why I use it in conjunction with Quicken, which provides more timely information related to exact cash flows. It sounds like a lot of thought and effort went into your spreadsheet which is better customized to your needs than the alternatives.
User avatar
KarlJ
 
Posts: 342
Joined: Mon Nov 03, 2008 8:41 pm

Re: Retirement planning for those already retired

Postby BruceA » Wed May 08, 2013 8:25 am

I was hoping that this thread might develop a discussion of some of the general concepts of my model. The issue that I was most interested in discussing involves the outputs generated by my model as compared to the other alternative models that many use. In my last post above I described that issue as:

1. The output from my model is easier to interpret and apply than that from RIP. What I find helpful is knowing how much I will have available to spend each year until death, at which time the investments decline to zero. I can then compare that to actual spending and run various worst case and planning alternatives with recomputed annual available spends. That to me is much more meaningful than having a model tell me succeed/fail or that I have a 85.46% chance of meeting my objectives.

I find that the output from my model is very much more helpful to me in my ongoing planning than output from RIP or any of the other planning models. Would anyone be willing to comment upon the matter of the relative usefulness of the outputs from my model and the various other models currently being used?
BruceA
 
Posts: 80
Joined: Thu Feb 23, 2012 4:34 pm

Re: Retirement planning for those already retired

Postby The Wizard » Wed May 08, 2013 9:06 am

My situation differs in that the majority of my retirement income comes from tax-sheltered investments, some of which I've arranged as a lifetime annuity with a decent chance of small income increases each month.
All of this income is taxable but slightly exceeds the net income I received my last year of employment.
Therefore, I expect to be continuing on financially similar to my working years and expect to be INCREASING my after-tax investments slightly each year with excess income beyond expenses. That's the expectation anyhow; check back in five years to see what the reality is.
Additionally, once I've completed accelerated payments on my remaining mortgage balance, there will be additional funds available each month either to invest or to fritter away on meaningless trivialities...

To address Bruce's question on financial models, I see zero utility for myself for any such tool at this point in time. Something like that MIGHT have been useful 20 yrs ago to predict the future, but way too much market uncertainty to make even that of much use...
Attempted new signature...
The Wizard
 
Posts: 6621
Joined: Tue Mar 23, 2010 1:45 pm
Location: Reading, MA

Re: Retirement planning for those already retired

Postby BruceA » Wed May 08, 2013 4:15 pm

The Wizard wrote:To address Bruce's question on financial models, I see zero utility for myself for any such tool at this point in time. Something like that MIGHT have been useful 20 yrs ago to predict the future, but way too much market uncertainty to make even that of much use...


Interesting comment Wizard because that is almost the opposite of the question I was posing. My retirement planning model, and all of the other popular legit models do not pretend to predict the future and all fully recognize the degree of market uncertainty. Anyone who selects a planning model because it purports to predict the future has been had.

IMO the only way to judge the value of a model is with respect to the amount and nature of information it provides to assist you with your retirement planning. The other models generally attempt to determine the likelihood of meeting goals based upon a certain investment mix and assuming historical patterns will repeat. Some use 1000's of iterations to determine probabilities of success. None of the models purport to predict the future. Most models do not specifically account for the effects of inflation on fixed pensions and annuities.

Likewise, my model in no way predicts the future. What it does is provide a base case of how much you can spend each year until death. The factors used to determine the base case are actual pensions, SS, annuities, etc. Investment returns are based on the views of the recognized gurus, and even here I make a bit more conservative. All comps are after-tax and inflation adjusted. Now if I were to claim that my base case annual available spend is what you will earn in your lifetime, of course that would be a rather stupid attempt at predicting the future. What my model does instead is provide a base case model with many variables that can be adjusted to develop other scenarios for retirement income planning.

The base case is the information provided by the model to assist in such planning. It is up to the individual to insert worst case or other planning scenarios and then evaluate the recomputed annual available spend in the context of his own actual retirement expenditures.

The question I actually asked was: Would anyone be willing to comment upon the matter of the relative usefulness of the outputs from my model and the various other models currently being used? So far, no takers.
BruceA
 
Posts: 80
Joined: Thu Feb 23, 2012 4:34 pm

Re: Retirement planning for those already retired

Postby Cut-Throat » Wed May 08, 2013 4:46 pm

BruceA wrote:The question I actually asked was: Would anyone be willing to comment upon the matter of the relative usefulness of the outputs from my model and the various other models currently being used? So far, no takers.


Actually this question has been Beat to Death in Many other threads that you started. Lots of takers and lots of comments.
Your 'Method' has shown nothing new and is quite elementary compared to the other retirement planners that are available.
If you can show us something truly new, that we haven't seen before, I'm sure you'll get some insightful comments.
But a simple spreadsheet showing income, expenses and a few Black Swans is not New. There are a lot of smart people here, that have seen this One Trick Pony Before.

http://www.bogleheads.org/forum/viewtopic.php?f=10&t=111621&p=1623709#p1622439

http://www.bogleheads.org/forum/viewtopic.php?f=10&t=108404&p=1588418#p1587495

http://www.bogleheads.org/forum/viewtopic.php?f=10&t=106892&p=1559132#p1552545

http://www.bogleheads.org/forum/viewtopic.php?f=1&t=106136&p=1550675#p1540997

http://www.bogleheads.org/forum/viewtopic.php?f=10&t=105622&p=1541514#p1533347
User avatar
Cut-Throat
 
Posts: 2011
Joined: Sun Oct 17, 2010 9:46 am

Re: Retirement planning for those already retired

Postby The Wizard » Wed May 08, 2013 5:08 pm

Trick Pony or not, I think most retired situations are one of a kind as regards the person or couple involved.
You are no longer speculating what your asset base might be 5-10 years down the road, your time is NOW, for better or worse.
Most folks have a MIX of income streams, some with high confidence such as SS or pensions, some with variability due to stock market exposure.
So I very much doubt any tool can tell me much of significance beyond what I'm already rather intimately aware of.
But it may well be that there are dumber folks out there who need help understanding the relation between an asset base and paying for expenses for a few decades to come...
Attempted new signature...
The Wizard
 
Posts: 6621
Joined: Tue Mar 23, 2010 1:45 pm
Location: Reading, MA

Re: Retirement planning for those already retired

Postby Peter Foley » Wed May 08, 2013 8:03 pm

A model that tries to predict how much you can spend each year until death? My goodness, how could one possible account for life's unknows as well as market scenarios?
My plan/model is much more modest. I'm 62, retired for 1 year, and anticipate taking SS at age 67. My model is intended to create a constant tax rate for now until I begin to take SS. Factors include my wife's consulting income, my pension, when to take long term capital gains, how much Roth conversion to do each year, and withdrawals from taxable or tax deferred accounts. It is a five year plan with the goals of staying near the top of the 15% tax bracket while doing Roth conversions. I also have to allow for taking some capital gains in taxable to supplement my pension, an action that will have an impact on the dollar amount I can convert.

This is a modest plan with a limited goal. The only effect that market fluctuations might have is the ability to convert some 403b/457 when the market is down. In a severe down market I would probably accelerate conversion well into the 25% tax bracket.
User avatar
Peter Foley
 
Posts: 2377
Joined: Fri Nov 23, 2007 10:34 am
Location: Lake Wobegon

Re: Retirement planning for those already retired

Postby BruceA » Thu May 09, 2013 9:36 am

Cut-Throat wrote:
BruceA wrote:The question I actually asked was: Would anyone be willing to comment upon the matter of the relative usefulness of the outputs from my model and the various other models currently being used? So far, no takers.


Actually this question has been Beat to Death in Many other threads that you started. Lots of takers and lots of comments.
Your 'Method' has shown nothing new and is quite elementary compared to the other retirement planners that are available.
If you can show us something truly new, that we haven't seen before, I'm sure you'll get some insightful comments.
But a simple spreadsheet showing income, expenses and a few Black Swans is not New. There are a lot of smart people here, that have seen this One Trick Pony Before.


C-T

Yes there has been much prior discussion, and there has been very much confusion regarding this model. What this thread attempted to do was explain it in the simplest possible terms, and limit the discussion to its application to those already retired. Still we have comments like those of Peter in the above post: A model that tries to predict how much you can spend each year until death? My goodness, how could one possible account for life's unknows as well as market scenarios? This comment was made, despite my explanation in my last post and earlier posts why that is not what the model purports to do.

Your comment: a simple spreadsheet showing income, expenses and a few Black Swans, also seems to demonstrate that you do not understand the model. If I recall correctly, I believe you are a fan of Firecalc. Instead of simply going into attack mode, why not answer the question that I posed in my last post? Please simply compare my methodology with Firecalc, summarizing how each works and the outputs of each, and commenting upon their relative usefulness. If you do understand my model such a reply should take you less time than it did to assemble your last post, and then I and others would be able to benefit from your insights.
BruceA
 
Posts: 80
Joined: Thu Feb 23, 2012 4:34 pm

Re: Retirement planning for those already retired

Postby YDNAL » Thu May 09, 2013 10:21 am

BruceA wrote:Interesting comment Wizard because that is almost the opposite of the question I was posing. My retirement planning model, and all of the other popular legit models do not pretend to predict the future and all fully recognize the degree of market uncertainty. Anyone who selects a planning model because it purports to predict the future has been had..... <snip>

Likewise, my model in no way predicts the future. What it does is provide a base case of how much you can spend each year until death. The factors used to determine the base case are actual pensions, SS, annuities, etc. Investment returns are based on the views of the recognized gurus, and even here I make a bit more conservative. (my emphasis)

Bruce,

Your post (quote) is contradictory and, no offense, but your OP seems to me to claim that you have developed something truly phenomenal - and "certain" to work for other retirees.
Opening paragraph in the OP, BruceA wrote:I am retired and I use a retirement planning approach that works very well for me, and I'm certain it will work for other retirees as well. How much am I spending each year? How much will I be able to spend each year until I die? And what will happen under various worst case scenarios? That is what I need to know, and that is what my approach provides.
  • Retirement spending should be FLEXIBLE first and foremost.
  • Projections of future returns - regardless from which "guru" they come - are what they are.
  • Our future requirements (spending) and Income (from returns) in retirement - especially so over the long(er) term - are sketchy at best.
  • To claim much certainty or place much confidence in calculations for this long(er) term seems wasteful (for lack of better term) to me.
Landy | Be yourself, everyone else is already taken -- Oscar Wilde
YDNAL
 
Posts: 13713
Joined: Tue Apr 10, 2007 4:04 pm
Location: Biscayne Bay

Re: Retirement planning for those already retired

Postby EternalOptimist » Thu May 09, 2013 10:27 am

Grandpaboys wrote:I don't do any of the above, never have. If things get tight I just hitch up the belt. At age 85 I have never had budgets. If the money is not there we just quit spending and live within our means and we have been there a few times. It's called cost cutting. I know what my income will be every year at least within a range. When I had two boys in college those were the tight times along with the company I worked for some 25 years going belly up.



I'm with you. Been retired for 2 years and don't have any plans on developing/using heavy-duty budgets but admire his efforts!
"When nothing goes right....go left"
User avatar
EternalOptimist
 
Posts: 823
Joined: Wed Nov 07, 2012 12:21 pm
Location: New York

Re: Retirement planning for those already retired

Postby OverTheHill » Thu May 09, 2013 10:33 am

My model is to ignore anyone who claims to have discovered a new model to enhance retirement or investment returns. It's worked very well for me over the decades.
OverTheHill
 
Posts: 308
Joined: Wed Mar 27, 2013 4:58 pm
Location: North Carolina

Re: Retirement planning for those already retired

Postby The Wizard » Thu May 09, 2013 11:05 am

I agree with Landy's comments on flexibility in retirement spending.

I do a fair amount of recreational travel and my decisions on where to go and how long to stay have always been connected with the current reality of my finances. This will be increasingly true now that I'm retired since I don't have the additional constraint of "vacation time" from employment anymore.

Regarding Bruce's system for (apparently) computing (maximum) available money to spend, let me just say that there's no magic in this area. A system CANNOT work if a retiree has any assets in stocks or other assets with variable pricing. A system also CANNOT work if the goal is to spend (gratuitously?) everything down to zero as of your date of death, but not a month before.
I emphasized the word CANNOT twice just above; no amount of proficiency in using Excel is going to change fundamental limitations starting out. Once Bruce realizes this, perhaps he'll relax...
Attempted new signature...
The Wizard
 
Posts: 6621
Joined: Tue Mar 23, 2010 1:45 pm
Location: Reading, MA

Re: Retirement planning for those already retired

Postby The Wizard » Thu May 09, 2013 11:24 am

Let's give Bruce a SIMPLE case of a risk-averse retiree and see what his system comes up with for maximal available spending.
Our retiree is male, age 65, with a monthly SS check of $2000 presently and with $1,000,000 in laddered CD's at PenFed.
No stocks, bonds, or other investments.
He rents a 1 BR apartment and has just terminated from employment.

Goal for this retiree is to have approximately zero net worth on his date of death. Anything less than $1000 will be close enough to zero to be acceptable.

So Bruce, let us know how you will approach this...
Attempted new signature...
The Wizard
 
Posts: 6621
Joined: Tue Mar 23, 2010 1:45 pm
Location: Reading, MA

Re: Retirement planning for those already retired

Postby BruceA » Thu May 09, 2013 12:05 pm

YDNAL wrote:Your post (quote) is contradictory and, no offense, but your OP seems to me to claim that you have developed something truly phenomenal - and "certain" to work for other retirees.


Thanks Landy, your post illustrates the continual confusion over what my model does and does not do. I suppose that shows my inability to clearly express myself, so let me try again.

1. Despite what EO and others keep saying, I do not keep budgets; I simply keep a summary of total monthly actual expenditures that I input in a couple of minutes. It is up to the user to evaluate what is necessary, what is discretionary, and how the actual spending might change in the future.

2. It is possible to prepare a base case of annual available spend that is very accurate (or perhaps conservatively accurate). I discussed this above in detail, but the important thing to realize is that the model does NOT compute how much you will be able to spend each year in the future. Instead it computes the BASE CASE of what you can spend, and the base case is demonstrably reasonably accurate.

3. Simply having the base case in hand is not, by itself, a guide as to how much you can actually spend.
We all realize that sequencing of returns and black swans and inflation will significantly affect how much we can actually spend.

4. The model contains many variables. Those familiar with Excel will understand how simple it is to change variables in order to sample various changes in returns, inflation, etc. Mechanically (Excel: Data-What if Analysis-Goal Seek), the model simply recomputes the base case annual available spend to an AAS that reflects whatever worst case or other scenario that the user wishes to use. The user, not me or the model, decides the type, timing and amount of market declines or changes in inflation. No one can accurately predict which scenarios to use, but using our best estimates will be better than doing nothing.

5. Remember all outputs are in the form of annual available spend. This I find to be very much more useful than the type of outputs generated by other models. AAS, under whatever scenario(s) the user chooses, can be directly compared with actual expenditures. Is the worst case computed AAS more or less than expected expenses? If the worst case happens will I be able to deal with it or will I need to take other steps now? If I am in the fortunate position of being able to cover a worst case scenario, then should I be considering, e.g., a gift plan (the model will compute the effect of the gifting on AAS).

So Landy, to comment specifically on your bullet points: The model is totally flexible; the base case projection ARE reasonable and accurate; actual projections on worst case, etc. are up to the user to provide, IMO using AAS and comparing them to actual expenses is simply much more useful than outputs from other models. THE IMPORTANT THING TO REMEMBER ABOUT THE MODEL IS THAT IT DOES NOT PROVIDE ANSWERS ON WHAT THE FUTURE HOLDS; IT SIMPLY PROVIDES A VERY USEFUL MEANS OF EVALUATING ALTERNATIVE SCENARIOS PROVIDED BY THE USER.
BruceA
 
Posts: 80
Joined: Thu Feb 23, 2012 4:34 pm

Re: Retirement planning for those already retired

Postby Cut-Throat » Thu May 09, 2013 1:37 pm

BruceA wrote: Please simply compare my methodology with Firecalc, summarizing how each works and the outputs of each, and commenting upon their relative usefulness. If you do understand my model such a reply should take you less time than it did to assemble your last post, and then I and others would be able to benefit from your insights.


Since, you've never showed us an example of your spreadsheet, it is no wonder that people don't know what you are doing. It would be far easier to attach a sample spreadsheet or whatever you've got and let people see it. You could change the numbers. How can anyone make a comment on a 'mythical retirement planner'?

[Snarky comment removed by admin LadyGeek]
User avatar
Cut-Throat
 
Posts: 2011
Joined: Sun Oct 17, 2010 9:46 am

Re: Retirement planning for those already retired

Postby BruceA » Thu May 09, 2013 2:04 pm

Cut-Throat wrote:
BruceA wrote: Please simply compare my methodology with Firecalc, summarizing how each works and the outputs of each, and commenting upon their relative usefulness. If you do understand my model such a reply should take you less time than it did to assemble your last post, and then I and others would be able to benefit from your insights.


Since, you've never showed us an example of your spreadsheet, it is no wonder that people don't know what you are doing. It would be far easier to attach a sample spreadsheet or whatever you've got and let people see it. You could change the numbers. How can anyone make a comment on a 'mythical retirement planner'?

[Snarky comment removed by admin LadyGeek]

[Response to snarky comment removed by admin LadyGeek]
BruceA
 
Posts: 80
Joined: Thu Feb 23, 2012 4:34 pm

Re: Retirement planning for those already retired

Postby truenorth418 » Thu May 09, 2013 5:03 pm

BruceA,

I am a big advocate for understanding where my money goes. I have kept a monthly budget and tracker for 10 years. This has helped me identify opportunities for saving as part of an LBYM approach that allowed me to retire at age 47. I continue to keep a monthly budget, using Quicken to quickly reconcile my accounts and track my spending. This gives me confidence that my withdrawal rate is safe and my approach is on target.

I am also in the process of building lifetime income and spending plan for the rest of my life. At this point, I am projecting to live until 95. While there are a lot of unknowables 40 years out, this process is helping me better understand cash flows and potential tax consequences related to my IRA, iBonds, pension, and SS income. A lot of these sources are due to come online between the ages of 65-70, so the potential tax consequences are significant, and I am doing what I can to plan some "smoothing strategies" well ahead of time (Roth IRA, etc) in order to minimize these tax hits.

I run my numbers through every online retirement calculator I find.

I also keep a running projection of what impact a major stock market correction or bear market would have on my portfolio and spending model. I use 2%, 5%, 10%, 20%, 33%, and 50% correction standards. This is easy to do using an excel spreadsheet or google docs. Knowing I could easily weather a major correction vs. current market levels gives me greater peace of mind than I had when I was considering these things in the abstract.

Some people might think this attention to detail is "overkill", but I think a thorough understanding of cash flows and potential market outcomes is an important part of being one's own personal financial advisor.
truenorth418
 
Posts: 71
Joined: Wed Dec 19, 2012 7:38 am

Re: Retirement planning for those already retired

Postby mickeyd » Thu May 09, 2013 6:02 pm

When it became evident that I was indeed retired and not just unemployed I began to keep detailed records on expenses/income and then looked at the future, making predictions as to how much we needed to make it until 100. I was way too conservative and have not spent as much as I had planned for so we have more in the bank and a series of income streams that wont stop that are keeping us afloat quite well. We have yet to tap any of our Vanguard investments so they just keep growing.

My lack of detailed planning seems to have been a good plan.
Last edited by mickeyd on Thu May 09, 2013 7:18 pm, edited 2 times in total.
Part-Owner of Texas | | “The CMH-the Cost Matters Hypothesis -is all that is needed to explain why indexing must and will work… Yes, it is that simple.” John C. Bogle
User avatar
mickeyd
 
Posts: 3641
Joined: Fri Feb 23, 2007 3:19 pm
Location: Deep in the Heart of South Texas

Re: Retirement planning for those already retired

Postby Cut-Throat » Thu May 09, 2013 6:17 pm

BruceA wrote:[Response to snarky comment removed by admin LadyGeek]


Oh, I understand spreadsheets quite well....And again it seems you have come up with nothing new.

I have a lot of spreadsheets myself, but they are no replacement for Historical Market returns pitted against your withdrawal plans.
User avatar
Cut-Throat
 
Posts: 2011
Joined: Sun Oct 17, 2010 9:46 am

Re: Retirement planning for those already retired

Postby BruceA » Thu May 09, 2013 6:26 pm

Cut-Throat wrote:
BruceA wrote:[Response to snarky comment removed by admin LadyGeek]


Oh, I understand spreadsheets quite well....And again it seems you have come up with nothing new.

I have a lot of spreadsheets myself, but they are no replacement for Historical Market returns pitted against your withdrawal plans.


[Additional response to snarky comment removed by admin LadyGeek]

Please simply compare my methodology with Firecalc, summarizing how each works and the outputs of each, and commenting upon their relative usefulness. If you do understand my model such a reply should take you less time than it did to assemble your last post, and then I and others would be able to benefit from your insights.
BruceA
 
Posts: 80
Joined: Thu Feb 23, 2012 4:34 pm

Re: Retirement planning for those already retired

Postby Cut-Throat » Thu May 09, 2013 7:09 pm

Here, I'll give you a boatload of spreadsheets to play with, since you won't show us yours.

If you have anything better than these please show us.....

http://www.financialwebring.org/gummy-stuff/Excel/
User avatar
Cut-Throat
 
Posts: 2011
Joined: Sun Oct 17, 2010 9:46 am

Re: Retirement planning for those already retired

Postby LadyGeek » Thu May 09, 2013 7:19 pm

As a reminder:

We expect this forum to be a place where people can feel comfortable asking questions and where debates and discussions are conducted in civil tones.
To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.
User avatar
LadyGeek
Site Admin
 
Posts: 20123
Joined: Sat Dec 20, 2008 5:34 pm
Location: Philadelphia

Re: Retirement planning for those already retired

Postby mickeyd » Thu May 09, 2013 7:23 pm

Come on folks ease off. Don't want to make LG unhappy...
Part-Owner of Texas | | “The CMH-the Cost Matters Hypothesis -is all that is needed to explain why indexing must and will work… Yes, it is that simple.” John C. Bogle
User avatar
mickeyd
 
Posts: 3641
Joined: Fri Feb 23, 2007 3:19 pm
Location: Deep in the Heart of South Texas

Re: Retirement planning for those already retired

Postby The Wizard » Thu May 09, 2013 7:30 pm

No need to make the mods cranky, I agree.
I presented a really simple example for Bruce to elaborate on earlier today:
viewtopic.php?f=10&t=115938#p1690882

Thus far, he seems to have ignored my request to enlighten us on his concept with a simple example.
So I guess we're wasting our time with this...
Attempted new signature...
The Wizard
 
Posts: 6621
Joined: Tue Mar 23, 2010 1:45 pm
Location: Reading, MA

Re: Retirement planning for those already retired

Postby LadyGeek » Thu May 09, 2013 7:33 pm

BruceA: I am unable to find where you describe the details of your model, which is consistent with the opinions expressed in this thread. We have a comprehensive description of retirement models in the wiki: Models of spending as retirement progresses

Select the category which is closest to your model and provide details. I'm thinking it's close to a "Constant (real) spending model."

Bear in mind that a number of forum members have considerable experience with retirement models and higher level math, so please describe the specific methodology and assumptions. Or, post your spreadsheet on a website, such as Google Drive, and share the link.

Further explanations in terms of a textual high-level summary would not be productive. Please do not start another thread, post the model here.
To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.
User avatar
LadyGeek
Site Admin
 
Posts: 20123
Joined: Sat Dec 20, 2008 5:34 pm
Location: Philadelphia

Re: Retirement planning for those already retired

Postby BruceA » Thu May 09, 2013 8:26 pm

Wow!

LG please remove me from this forum permanently so that I am never tempted to post here again. Thanks.
BruceA
 
Posts: 80
Joined: Thu Feb 23, 2012 4:34 pm

Re: Retirement planning for those already retired

Postby YDNAL » Fri May 10, 2013 5:41 am

BruceA wrote:Wow!

LG please remove me from this forum permanently so that I am never tempted to post here again. Thanks.

Bruce,

This is "mostly" an informational Forum where people exchange ideas, new posters ask for some direction & help; and sure, some discussions get distasteful and even require moderator action. I urge you to simply move on and not let any exchange, with any poster, impede you from making contributions here.
Landy | Be yourself, everyone else is already taken -- Oscar Wilde
YDNAL
 
Posts: 13713
Joined: Tue Apr 10, 2007 4:04 pm
Location: Biscayne Bay

Re: Retirement planning for those already retired

Postby bertilak » Fri May 10, 2013 7:58 am

YDNAL wrote:
BruceA wrote:Wow!

LG please remove me from this forum permanently so that I am never tempted to post here again. Thanks.

Bruce,

This is "mostly" an informational Forum where people exchange ideas, new posters ask for some direction & help; and sure, some discussions get distasteful and even require moderator action. I urge you to simply move on and not let any exchange, with any poster, impede you from making contributions here.

Too late!

He has apparently already moved on.

As a recent retiree thinking of the same issues I was following this thread carefully but never could figure out what BruceA was actually describing. Best I coukd tell he was saying to monitor expenses and (projected?) income and keep your eye on the target but that didn't seem to be actionable.
I have a strong moral sense - by my standards. | -- Rex Stout
User avatar
bertilak
 
Posts: 3431
Joined: Tue Aug 02, 2011 5:23 pm
Location: East of the Pecos, West of the Mississippi


Return to Investing - Theory, News & General

Who is online

Users browsing this forum: Bing [Bot], Pixafari and 23 guests