Savings Input

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tpm316
Posts: 2
Joined: Sun Mar 28, 2021 6:34 pm

Savings Input

Post by tpm316 »

So i'm unsure how to add 2 types of taxable portfolio returns each with differing expected rates of return.

ON the one hand have a group of CDs with average rate of 2% which i wont add to , and i have a taxable brokerage account which will add to each year with an expected rate of 4%. I would expect to populate the taxable portfolio value with my brokerage account but how do incorporate the standalone CD group as an additional input??

thanks,

tom
jimr
Posts: 821
Joined: Thu Feb 28, 2008 6:48 pm

Re: Savings Input

Post by jimr »

The general idea is to combine all your taxable assets together and represent them with the taxable portfolio.

While it's not perfect, most people just use one return/std deviation value to cover their overall portfolio based on the high level mix of asset classes they have. It's possible in the upper table of the additional inputs window to specify separate returns for each of the three portfolio types (taxable, deferred, tax free), but most people just use one overall blended portfolio return to cover all three.

There's a tool on the site bogleheads.org called "Simba's backtesting spreadsheet" that lets you enter all the asset classes in your portfolio and it uses backtesting of historical asset class returns to generate an estimate for return/std deviation.
tpm316
Posts: 2
Joined: Sun Mar 28, 2021 6:34 pm

Re: Savings Input

Post by tpm316 »

thanks for your quick, detailed response.

tom
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jwendellp
Posts: 18
Joined: Thu Feb 25, 2021 12:01 pm

Re: Savings Input

Post by jwendellp »

Hi Jim,

I also have this concern and would love to see a simplified approach with a separate taxable account asset category for non-volatile savings (e.g. bank/cds or emergency fund.) It would also be super helpful to have this new category available in the withdrawal sequence list.

I realize this might be significant with respect to code changes, but like the recent changes to support Roth conversions it will greatly enhance the utility of FRP and even further differentiate it from other far-less capable tools.

Being post-retirement and pre-social security, I am living off of this category for a few more years. Trying to blend non-volatile and volatile assets into an estimated aggregate return/volatility seems unduly complicated and I'm not sure how to approach it in a way in which I can be confident about the result...

Best,
John
jimr
Posts: 821
Joined: Thu Feb 28, 2008 6:48 pm

Re: Savings Input

Post by jimr »

Hi John,

Thanks for the input on this.

One workaround you might try is to handle the cash part of the portfolio and associated withdrawals outside of the planner.

The idea is roughly similar to purchasing a fixed immediate annuity using a lump sum. With this approach, you pay a preset lump sum up front to generate a stream of fixed annual payments that last for a predetermined number of years. Of course, I'm not suggesting that you buy an annuity, just track the lump sum and income it generates as if it was an annuity. The trick is figuring out how much to subtract from your portfolio balance at the start to generate this guaranteed income stream. The best bet is probably to do the calculation using excel so you can control all the assumptions, but you also could check out some online fixed annuity quote services to get a rough estimate of how much it costs to generate a given stream of fixed payments for a set number of years.

The key is to reduce your portfolio balance by the up front cost of the fixed payment stream and then create an additional inputs "misc income" entry to bring in the income stream that will be generated by the lump sum you removed from the portfolio balance.
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