Do I have enough and how to handle 11 year bridge to SS

[Raspberry-503]

Trying to put into practice some advice from different threads here. This is not a portfolio review, but more trying to make sure that I know my "number", knowing that I rely on SS as part of my FI plan (we could agree that it's not true FI, but I'm not willing to work another 10 years or whatever so that I can ignore SS)

Since I'm a geek and enjoy doing this kind of thing with my Sunday morning coffee, I made a spreadsheet, and it was fun learning how to make it plot the different components even though I didn't really need the graphical representation, but I guess it's good to explain it on this forum.

The numbers have been modified, the exact numbers don't matter so much as the math and ideas behind it.



Explanation of the graphic and spreadsheet inputs:

This assumes my current salary is $150K gross, but I live on $75K actual expenses (post taxes and savings). That's what the baby blue and orange blocks depict. I wasn't sure how to deal with taxes so I added a tax multiplier to everything. I picked a number for pre-retirement effective taxes (not bracket) and post-retirement. The pre-retirement seems close enough (Fed+State+FICA...). So between now (54) and retirement (59) spend $92k with taxes and save $44K (brokerage and tax-deferred)

At the end of retirement (past 75), I want to be able to spend $75K (in today's dollars), with SS of $60K (blue), I need another $15K from my portfolio "forever" and I adjusted it for taxes so $17250 (green). It gets a little messy for taxes because SS may or may not have some taxed, but I think that should get us in the right ballpark. In the spreadsheet use a fixed SWR for that SS supplement since it needs to last for the entire retirement.

Now between retirement and age 75 (gogo years) I want to have more fun, so I'm planning on spending an extra $5K (in gray, again adjusted for taxes)

I want to wait till 70 for SS, it's my longevity insurance, or my income floor, so if I retire at 39, I need to make up the $60k/year that SS will eventually provide out of my own portfolio, that my SS "bridge" (yellow)

On to the real reason for my post:

The spreadsheet calculates the amount I need to accumulate for the "bridge" as number of years x yearly need. So if the portfolio keeps up with inflation between now and then, I'd be OK. the portfolio may grow faster than inflation, in which case I have more than I need, but of course we could see a crash right before I retire, or any time during the 11 year bridge.

So what are my options for funding those years?

Option 1: One idea is to build a TIPS ladder for $75K a year from ages 59 though 69 (11 years). I barely have enough in my tIRA to buy such as ladder, but my tIRA happens to be 40% of my investible assets, so I could buy a TIPS ladder, buy equities in all my other accounts to maintain an overall 60/40 AA, and overtime as those equities grow and as I start consuming the TIPS ladder, rebalance to maintain 60/40 or something close to it. I think that's the safest path. it commits me to pulling the trigger now/soon while TIPS yields are good, so it would definitely make it real rather than just talking about retiring at 59. Of course if I'm not ready to retire, TIPS maturing anyway are not a hug deal. If I need to retire earlier (I get laid off and can't find a similar job) then at least I know I'm safe till 59. TIPS could even be sold before maturity but then their price is anyone's guess

Option 2: Out of geekery I autogenerated links from the data in the spreadsheet that automatically enter the scenario in several online FI calculators (the blue buttons below the graph). Click here to see what the scenario looks like in FiCalc. It shows 64.9% of success with fixed withdrawal and even better with more flexible withdrawals. So that could be an argument to say that my portfolio "should" sustain me without the need to go for TIPs. Failure of a scenario in this case means that I may have to live on SS alone once the portfolio fails. It's still not 0 income. I haven't looked at all the scenarios but I'm pretty confident none of them fail before SS kicks in, in fact not sure any of them fail before age 75 and the end of the gogo years

I think in the end the decision of a sure thing vs a more risky but flexible and statistically having more later in life will need to be my decision (and my wife's), but I'm wondering if anyone sees a flaw in the logic above, or has other alternative solutions (MYGA?)


(some of the numbers in the spreadsheet like inflation or portfolio growth are not used in what you see, I simplified by hiding some calculations about future value, etc... that don't add to this discussion)

[Sandtrap]

I early retired at age 58 due to health issues.

Medical insurance:
The gap between age 58 and 65 and Medicare Original was tough. Look out for the "Subsidy Cliff"

Income stream:
Collecting full SS at age 70. It's a long gap if you need that income stream.

Sequence of Returns risk where you have depletion of principal can happen mot only in a market drop, but ither surprise expenses as well. Big ones.

The 25x percentage bantered about is based on a 4% withdrawal rate. Consider 3% unless other influences like s great pension etc.

just some notes for "you"
j

[backpacker61]

At the end of retirement (past 75), I want to be able to spend $75K (in today's dollars), with SS of $60K (blue),

You haven't mentioned if you're married or single.

Right now, in 2023, the maximum theoretically possible Social Security benefit a single individual could receive is $54,660 per year ($4555 per month).

https://faq.ssa.gov/en-US/Topic/article/KA-01897

Receiving a benefit at that $54,660 level this year required that one had a complete 35 years of earnings at the payroll tax limit for that year (the limit is $160,200 this year) in their SSDI earnings history table in addition waiting to age 70 to file for the benefit. Leaving the workforce before accumulating 35 years of full-time work means that some of the entries in one's SSDI earnings history would be filled with years of part-time work or 0's, both of which will have the effect of lowering the received Social Security benefit below this level (which is sometimes referred to as SSMAX).

[chassis]

Trying to put into practice some advice from different threads here. This is not a portfolio review, but more trying to make sure that I know my "number", knowing that I rely on SS as part of my FI plan (we could agree that it's not true FI, but I'm not willing to work another 10 years or whatever so that I can ignore SS)

Since I'm a geek and enjoy doing this kind of thing with my Sunday morning coffee, I made a spreadsheet, and it was fun learning how to make it plot the different components even though I didn't really need the graphical representation, but I guess it's good to explain it on this forum.

The numbers have been modified, the exact numbers don't matter so much as the math and ideas behind it.



Explanation of the graphic and spreadsheet inputs:

This assumes my current salary is $150K gross, but I live on $75K actual expenses (post taxes and savings). That's what the baby blue and orange blocks depict. I wasn't sure how to deal with taxes so I added a tax multiplier to everything. I picked a number for pre-retirement effective taxes (not bracket) and post-retirement. The pre-retirement seems close enough (Fed+State+FICA...). So between now (54) and retirement (59) spend $92k with taxes and save $44K (brokerage and tax-deferred)

At the end of retirement (past 75), I want to be able to spend $75K (in today's dollars), with SS of $60K (blue), I need another $15K from my portfolio "forever" and I adjusted it for taxes so $17250 (green). It gets a little messy for taxes because SS may or may not have some taxed, but I think that should get us in the right ballpark. In the spreadsheet use a fixed SWR for that SS supplement since it needs to last for the entire retirement.

Now between retirement and age 75 (gogo years) I want to have more fun, so I'm planning on spending an extra $5K (in gray, again adjusted for taxes)

I want to wait till 70 for SS, it's my longevity insurance, or my income floor, so if I retire at 39, I need to make up the $60k/year that SS will eventually provide out of my own portfolio, that my SS "bridge" (yellow)

On to the real reason for my post:

The spreadsheet calculates the amount I need to accumulate for the "bridge" as number of years x yearly need. So if the portfolio keeps up with inflation between now and then, I'd be OK. the portfolio may grow faster than inflation, in which case I have more than I need, but of course we could see a crash right before I retire, or any time during the 11 year bridge.

So what are my options for funding those years?

Option 1: One idea is to build a TIPS ladder for $75K a year from ages 59 though 69 (11 years). I barely have enough in my tIRA to buy such as ladder, but my tIRA happens to be 40% of my investible assets, so I could buy a TIPS ladder, buy equities in all my other accounts to maintain an overall 60/40 AA, and overtime as those equities grow and as I start consuming the TIPS ladder, rebalance to maintain 60/40 or something close to it. I think that's the safest path. it commits me to pulling the trigger now/soon while TIPS yields are good, so it would definitely make it real rather than just talking about retiring at 59. Of course if I'm not ready to retire, TIPS maturing anyway are not a hug deal. If I need to retire earlier (I get laid off and can't find a similar job) then at least I know I'm safe till 59. TIPS could even be sold before maturity but then their price is anyone's guess

Option 2: Out of geekery I autogenerated links from the data in the spreadsheet that automatically enter the scenario in several online FI calculators (the blue buttons below the graph). Click here to see what the scenario looks like in FiCalc. It shows 64.9% of success with fixed withdrawal and even better with more flexible withdrawals. So that could be an argument to say that my portfolio "should" sustain me without the need to go for TIPs. Failure of a scenario in this case means that I may have to live on SS alone once the portfolio fails. It's still not 0 income. I haven't looked at all the scenarios but I'm pretty confident none of them fail before SS kicks in, in fact not sure any of them fail before age 75 and the end of the gogo years

I think in the end the decision of a sure thing vs a more risky but flexible and statistically having more later in life will need to be my decision (and my wife's), but I'm wondering if anyone sees a flaw in the logic above, or has other alternative solutions (MYGA?)


(some of the numbers in the spreadsheet like inflation or portfolio growth are not used in what you see, I simplified by hiding some calculations about future value, etc... that don't add to this discussion)

Use the RPM spreadsheet. It does exactly what you want, including accounting for taxes, SS, inflation, the whole enchilada.

portfoliovisualizer “Financial Goals” tool also solves for your precise scenario. It takes some effort to build the inputs. The good thing about PV is the use of your actual security portfolio and the use of Monte Carlo simulation.

Go and run RPM and PV and report back.

[Watty]

I'm sorry but your post is way too complicated to try to dig through and understand.

I may have missed it but if you are waiting until you are 70 to start Social Security then often it makes sense for their spouse to start SS early, like at 62, but I did not see that in your calculations. See this web site to see what it suggests but when entering your expect SS be sure to use the right number as if you retire early.

https://opensocialsecurity.com/

When looking at retirement calculators keep in mind that they often express the results in terms of "Success" or "Failure". Failure sounds dire like you might end up broke and homeless but in the real world unless you were planning on a bare bones retirement then "failure" might really mean something like you would need to reduce your spending by 10% when you are 75 if your portfolio is doing poorly. It might also just mean that you might need to tap your home equity at some point if your investments are not doing well.

When I was doing my retirement spending I looked at several levels of spending.

1) Desired lifestyle
2) With a few cutbacks like less international travel or driving less expensive cars.
3) Modest but comfortable middle class lifestyle, still with some extras.
4) Frugal lifestyle but a roof over my head and food to eat.

When I was deciding to retire my wife and I were OK with a small risk of needing to cut back to level 2 or 3 of the time with virtually no risk of being worse off then level 4 since with our paid off house our two Social Security would easily cover our normal monthly expenses at level 3 and if one of survived the other and only had one SS check even level 4 would be mostly cover as long as we had a paid off house.

It can vary a lot but if you are looking at a retirement calculator like Firecalc then you may need to increase your failure rate to 5%(95% success) and if that only means going from level 1 to 2 that might be an acceptable risk for you.

There is a suggested format for asking portfolio question which people will be able to understand better even if you are not looking for help with how to actually invest your money.

viewtopic.php?t=6212

I could be mistaken but it sounds like you are married so you really need to look at your numbers three ways, a couple and as if either of you survives the other. If one of you dies then your Social Security will be different with just one SS check and your expenses may also change and in some cases even go up since the survivor may need to hire more help and they will be in the higher single tax bracket then.

[Raspberry-503]

yes married so the combined could be $60K.
My wife's early withdrawal is small and will be mostly immaterial (but still welcome), the spousal benefit is what matters and it so happens that maximizing her spousal benefit aligns with my turning 70.
As I explained though, the numbers are mostly made up, my question is more about the methodology an decisions (TIPS or ride the portfolio) than the exact numbers.

[Raspberry-503]

@watty, good thoughts although not quite what I'm asking. I already pointed out in the original post that I am aware that failure means "living on social security only" which in the hypothetical above is living on 80% of goal. And since no failures seem to happen until 15 years in, it literally means you had your gogo years, but need to really slow down later. Not the most horrible way to "fail"

We are already frugal but like to travel, etc... so the desired (again the hypothetical $75 +$15k for gogo) is what we want to plan for. I'd be willing to work a few more years if it means that it's unlikely we afford the $80k during the gogo years, even if there is a small risk that we might have to pull back). Do I have to have to hike Landmannalaugar in Iceland? No, but it's part of my "rich life/retirement" to be able to do that, so I want my plans to include being able to do so (markets or life or even death could happen, there is no certainty I will make it, the financial aspect is only one part of ).

this is NOT a portfolio question, I don;t think having a portfolio review is relevant to my question, I'm asking, assuming I have the portfolio, is this number sufficient given that I don't want to use 25x $75K as I would end up working more than I need to

[Kenkat]

I retired in 2022 at 58-1/2. I took a lump sum pension rollover, rolled it into my 401k and called that my bridge portfolio (the numbers worked out that it was about the right amount). It represents about 40% of my portfolio. I left it in the 401k to take advantage of penalty free withdraws after age 55 (Rule of 55).

It is investing in a mix of 30% stable value @3.5-4%, 40% Vanguard TIPS fund and 30% Vanguard stock index funds. Not quite as guaranteed as a TIPS ladder but good enough. This portfolio is funding monthly withdraws and will hopefully last until age 70. Health insurance is covered via the Retiree Health Plan from my previous employer. It is a HDHP with HSA; I pay the full premium of around $1200/mo. for me and my spouse.

The remaining 60% is invested at 70/30. It will continue to grow; I should only need to draw 1-2% or less after age 70.

[Raspberry-503]

so I guess it maks sense but somehow I had to see it to be become full aware of it: if I say that I only want to like on the social security amount ($60) rather than $80 in gogo years, the total amount needed is lower (no need for sustaining the difference at the SWR) but he odds of success in FiCal go down significantly. I guess it makes sense because the extra amount on top of the SS bridge acts as a buffer against portfolio variations. That roughly half a million that's other to provide the layer on top of SS also helps survive the early years in case of a downturn/ bad SOR

So the model doesn't properly account for SOR early in the retirement period, I'll play with firecalc and its resolve function to see what it says is safe based on historical markets. Of course going the TIPs route changes the equation as it can be modeled as a guaranteed 11 year stream of inflation-adjusted income rather than being part of the portfolio.

[N.Y.Cab]

11x in TIPs seem excessive for a typical 25x retirement portfolio with 60:40 allocation. I’m only a couple of years away from retirement but could not stomach more than 4x in TIPs. Would keep all fixed income in short-term nominal Treasuries if I can do it over again.

[Raspberry-503]

11x in TIPs seem excessive for a typical 25x retirement portfolio with 60:40 allocation. I’m only a couple of years away from retirement but could not stomach more than 4x in TIPs. Would keep all fixed income in short-term nominal Treasuries if I can do it over again.

can you explain why? this is to fund 11 years, since tips are inflation indexed, this is as close as guaranteed that I will have the money I need for the first 11 years before SS, and yes it will consume the 11 rung ladder, so that money is gone once you hit SS.

Today you can buy an 11 year TIPS ladder for $550K that will generate $66K for 11 years ($660 total payout)

Using firecalc it looks like you should use 13x if you want you portfolio to make it through 11 years with 95% success rate (instead of 25x for 30 years)
so to have a level of certainty approaching that of TIPS to get $66K for 11 years, you would need to have 13x60=$780K at the start of retirement. That's 41% more needed upfront for a slightly lower chance of having the money last 11 years. OF course there is a very good chance that at the end of the 11 years you'll have plenty of that money left, in fact running it through firecalc, historically you would have ended with a median $530K (but some times 0) vs $0 with TIPS.

So I think it all becomes a decision between less money upfront, guaranteed income for 10 years with no upside, vs more money upfront, great historical odds by no guarantee that you will sustain the income you need, but having a bunch leftover to play with when SS starts, even though you just said you were happy to live with what you modeled so you don't need the money

[N.Y.Cab]

11x in TIPs seem excessive for a typical 25x retirement portfolio with 60:40 allocation. I’m only a couple of years away from retirement but could not stomach more than 4x in TIPs. Would keep all fixed income in short-term nominal Treasuries if I can do it over again.

can you explain why? this is to fund 11 years, since tips are inflation indexed, this is as close as guaranteed that I will have the money I need for the first 11 years before SS, and yes it will consume the 11 rung ladder, so that money is gone once you hit SS.

Today you can buy an 11 year TIPS ladder for $550K that will generate $66K for 11 years ($660 total payout)

Using firecalc it looks like you should use 13x if you want you portfolio to make it through 11 years with 95% success rate (instead of 25x for 30 years)
so to have a level of certainty approaching that of TIPS to get $66K for 11 years, you would need to have 13x60=$780K at the start of retirement. That's 41% more needed upfront for a slightly lower chance of having the money last 11 years. OF course there is a very good chance that at the end of the 11 years you'll have plenty of that money left, in fact running it through firecalc, historically you would have ended with a median $530K (but some times 0) vs $0 with TIPS.

So I think it all becomes a decision between less money upfront, guaranteed income for 10 years with no upside, vs more money upfront, great historical odds by no guarantee that you will sustain the income you need, but having a bunch leftover to play with when SS starts, even though you just said you were happy to live with what you modeled so you don't need the money

TIPs volatility is too high to be locked-in for that many years until maturity. I bought some 2 yr at 3% fixed only to see losses as the fixed rate goes even higher.

[Learning2Fish]

I’m a DYI spreadsheet guy too also looking ahead at how to handle the gap between retirement years and collecting SS. This weekend I tried the free version of New Retirement and after entering data for about 30 or so minutes I was getting good graphical analysis back including Monte Carlo tested. Let’s you model changing expenses including carrying health insurance until Medicare eligibility. Also handles different retirement dates and SS ages for you and your spouse. Then I was able to do some scenario comparisons. For a 2nd opinion, it’s well worth trying.

[southernlucky]

hi op.
Just some quick thoughts:
1. be sure to adjust your SS income if less than the 35 yrs working history SS uses to calculate benefits. If using the SS website to determine benefits the default setting assumes your current income continues until full retirement age. If you are retiring early with less than 35 yrs history SS will fill in any missing years with 0s reducing your benefits. Somewhere on their webpage there is an option to turn off future income assumptions.
2. you may want to adjust your SS income assumptions based on projected trust fund being exhausted around 2033 unless congress changes things. Otherwise, benefits will be reduced around 22% or so. I personally assume only 70% of projected SS benefit to be safe.
3. for your "bridge" to SS, I believe it is one of longinvest's posts about VPW method that suggests totaling the SS income by the number of years until that starts and when calculating your annual withdrawal first subtract the bridge amount from your portfolio balance. For example, if SS income is $30K/yr to start in 10 yrs then when you calculate your initial withdrawal rate you subtract $300K ($30K x 10 yrs) from your portfolio and multiply that remaining balance by your withdrawal rate. Your total withdrawal is the initial % times the reduced portfolio total plus 1/10 of bridge amount. Repeat same steps the next year but your bridge amount and duration is now less by 1 year. This keeps your bridge amount invested the same as the rest of your portfolio without having to create separate funds or buckets. Just some mental math. Search the forum for SS bridge or VPW to learn more. But pick a method that works best for you. TIPS laddering is OK too but potentially more effort upfront.

Good luck!

[eugeneD]

11x in TIPs seem excessive for a typical 25x retirement portfolio with 60:40 allocation. I’m only a couple of years away from retirement but could not stomach more than 4x in TIPs. Would keep all fixed income in short-term nominal Treasuries if I can do it over again.

can you explain why? this is to fund 11 years, since tips are inflation indexed, this is as close as guaranteed that I will have the money I need for the first 11 years before SS, and yes it will consume the 11 rung ladder, so that money is gone once you hit SS.

Today you can buy an 11 year TIPS ladder for $550K that will generate $66K for 11 years ($660 total payout)

Using firecalc it looks like you should use 13x if you want you portfolio to make it through 11 years with 95% success rate (instead of 25x for 30 years)
so to have a level of certainty approaching that of TIPS to get $66K for 11 years, you would need to have 13x60=$780K at the start of retirement. That's 41% more needed upfront for a slightly lower chance of having the money last 11 years. OF course there is a very good chance that at the end of the 11 years you'll have plenty of that money left, in fact running it through firecalc, historically you would have ended with a median $530K (but some times 0) vs $0 with TIPS.

So I think it all becomes a decision between less money upfront, guaranteed income for 10 years with no upside, vs more money upfront, great historical odds by no guarantee that you will sustain the income you need, but having a bunch leftover to play with when SS starts, even though you just said you were happy to live with what you modeled so you don't need the money

I went with a TIPS route to build my bridge from 58 1/2 to 70. My ladder is covering my essential expenses and I am planning on withdrawing for the fun part about 3-4% from the remainder. TIPs ladder has more psychological effects than any other advantages. I want to sleep well at night even if the market tanks like in 2008. The total split at this point is 40% Tips/Bonds, 50% stocks, and 10% alternatives. A good source of this strategy is Wade Phau podcasts: https://risaprofile.com/retire-with-style/ Episode 101, 102 they called it time segmentation strategy or bucket strategy. Basically, we are making a short/intermediate terms bucket with this strategy. There is a slight risk if deflation happens in this strategy with TIPS, but any investment has risks.