ch4au2 wrote: ↑Tue Oct 29, 2024 9:04 am
I have recently decided to add a deferred income annuity to my portfolio. I don't have any pensions or other income outside of SS when I turn 70, it all comes from my portfolio. This will make it less stressful to use the VPW spreadsheet as my main withdrawal calculation for the rest of my portfolio.
As such, in the VPW spreadsheet, I have tried using it two different ways.
1 - Put in my SS and my annuity in the defined benefit section and the rest of my portfolio in the information section and let it run it's calcs. Essentially the way the spreadsheet was intended to be used as I understand it.
Ch4au2, effectively, pensions (including Social Security and annuities) should be entered into the
VPW worksheet. Social Security must be marked as having cost of living adjustments. A nominal deferred annuity should be marked as
not having cost of living adjustments.
ch4au2 wrote: ↑Tue Oct 29, 2024 9:04 am
It's not a huge issue for me as both numbers are ok. But it brings up my primary question, which is "how would you use the spreadsheet for doing this?" Is it better to put the SS and Annuity in the spreadsheet and back out those am]ounts to calculate how much to transfer from my portfolio? Or is it better to leave them out and just use the resulting calc to set up the transfers?
Pensions (and temporary retirement income, if any) should be entered into the worksheet for the proper calculations to happen. In particular:
- The worksheet provides for missing payments between retirement and the start pensions (delayed Social Security and deferred annuity) as part of the suggested withdrawal amount.
- The worksheet includes special adjustments to portfolio withdrawal amounts to account for the loss of purchase power of nominal annuity payments over time (including between retirement and the start of payments, and after the start of payments).
- The worksheet displays, among other things, both a suggested
portfolio withdrawal amount, and a projected total
retirement income available for taxes and expenses.
- The worksheet assumes that pension payments are spent along with the suggested withdrawal amount (on taxes and expenses).
To clarify the last point, we can look at the latest forward test
entry where the retiree has two already-started pensions, one with cost of living adjustments (Social Security) and the other without (work pension). Part of Social Security (21%) is assumed to stop in 8 years.
In the "
Detailed Annual Income for 2024, the entire Social Security pension (the two parts, 79% and 21%) as well as the entire work pension (12 X $1,000) are included in projected annual income available for taxes and expenses. The
$44,467 portfolio withdrawal is calibrated to account for the lack of cost of living adjustments of work pension payments and for 21% of Social Security stopping in 8 years.
This can easily be verified. The
VPW Table percentage at age 70 for a 60/40 stocks/bonds portfolio is 5.4% (rounded). Multiplying the portfolio balance ($968,048) by 5.4% gives $52,393 (when using a non-rounded 5.41...% percentage). The worksheet's calculated $44,467 portfolio withdrawal amount is smaller because:
- It reduces the withdrawal amount by $4,113 to dampen the loss of purchase power of the $12,000 pension.
- It reduces the withdrawal amount by another $3,813 to dampen the impact of 21% of Social Security ($6,168) stopping in 8 years.
- Verification: $52,393 - $4,113 - $3,813 = $44,467.
Note that detailed explanations, presenting calculations differently, are provided in
this post.
In the
forward test, the worksheet is configured for monthly withdrawals. Consequently, the suggested portfolio withdrawal amount at the end of September 2024 was
($44,467 / 12) = $3,706 in
green cells. Total monthly income, in
grey cells, includes pension payments ($2,446 Social Security and $1,000 work pension). It's
($2,446 + $1,000 + $3,706) = $7,152.
Variable Percentage Withdrawal (bogleheads.org/wiki/VPW) | One-Fund Portfolio (bogleheads.org/forum/viewtopic.php?t=287967)