Taxable Annual Savings

[mallen531]

Jim,

I would like to add a $50K max contribution during the my 62-63, 63-64, 64-65 and 65-66 years. If I add it in the Taxable Annual Savings, I am guessing that it would carry through my scenario period of 62 to 90 automatically? So, would it be better to add these contributions under Misc Income in the Additional Inputs column section taxed 100%? Would these amounts be subtracted automatically from my annual incomes for those years too or do I have to deduct these amounts from income amounts listed? Impressive what inflation does to ones savings!

Mike

[jimr]

Generally, the planner doesn't need to track income and expenses before retirement. Prior to retirement it only tracks contributions to your portfolio (savings). So you shouldn't need to make adjustments for income or expenses as long as these contributions are before retirement starts.

To enter savings contributions for specific years or ranges of years, you can use the Taxable Savings, Tax Deferred Savings, and Tax Free Savings cash flow types in Additional Inputs. With these, you enter an amount and a start and end year for the cash flow.

It's a good idea to check that the planner is doing what you expect it to by looking at the Detailed View tab after you run the planner. This view shows median year-by-year details from the last run of the simulation, including the cash flows used on a year-by-year basis. If you don't see what you're looking for, select the "show more detail" radio button at the top right of the window. If the data is too crowded, right click anywhere in the table to get a menu that lets you export or copy the data to paste into excel.

Jim

[mallen531]

Jim,

Thanks for your quick followup. The program seemed so powerful that it looked like it would be able to track incomes from 62-66 and then track retirement from 66-90. I understand. I will run a scenario from 66 to 90 with the retirement savings numbers (Taxable, Tax Deferred and Tax Free Savings) as they would have been at 66 without the salary inputs/expenses from 62-66 to see if there is a difference?

Good idea to track the details...I will follow up on that too.

Thanks again.

I appreciate your comments.

Mike

[jimr]

Thanks for your quick followup. The program seemed so powerful that it looked like it would be able to track incomes from 62-66 and then track retirement from 66-90.

If I understand correctly, the program should mostly do this, but maybe I'm confused. The idea is that there's no need to track income and expenses before retirement, only savings contributions.

If you're retired at 62, but are making portfolio contributions instead of withdrawals, it might be better to set the retirement age to the year that you'll need to start making withdrawals from the portfolio (maybe age 66?).

If the savings amounts are not the same in each year from 62-66, zero out the savings amounts on the main page and enter each year as a separate one-year cash flow in additional inputs.

It might help to know what you're using for current age and retirement age.

However you slice things up, you shouldn't need to break the plan into multiple parts with separate runs (eg before and after retirement).

[mallen531]

Jim,

I understand.

You are not confused!

I wanted to see what my cash flow in retirement would be if I retired at 62 versus 66. Retirement at 62 would mean just pulling monies out of the combined portfolios, with only my wife taking social security at 62 instead of 66 and me waiting until 66 (in one scenario).

The other scenario is to continue to work until 66 and then pull out monies from the portfolios with my wife and I taking social security at 66. Common sense would say that this is the BEST scenario and your program shows that very clearly.

I was using the program for probably what it was NOT supposed to be used for...using it to estimate cash flow in years prior to retirement (62-66) and then in the same scenario, estimating the length of retirement funds based upon a certain living expense, etc., "burn" rate. But, it is easier to just know what the portfolio numbers are at 66 and then do the 66 retirement scenario. It does look like the program calculated the portfolio numbers at 66 based upon what I had estimated.

Yes, I agree with entering the savings as a separate one-year cash flow in additional inputs.

Thanks again,

Mike

[jimr]

That makes sense. You might also want to try a scenario with taking SS at 70. I think there may be some (perfectly legal) tricks where spouses can claim on each others' records at first, then later claim on their own records and get the higher payout from claiming later.

There's an investment/personal finance website called bogleheads.org (named after John Bogle from Vanguard) that has lots of good retirement planning info. You can anonymously ask questions in the help forum. There seem to be many knowledgeable posters there and for a random Internet site the quality of the info provided is very good, IMO.

Jim

[mallen531]

Jim,

Yes...a scenario at 70 is a great idea...and with this program it should be an easy scenario to run. Yes, you're correct about the spouse claiming first on the other spouse's records...I was using that scenario with me starting retirement at 62, but not claiming until 66 and having my wife start at 62.

I will check out the Bogleheads.org site.

Thanks, MT

Mike

[mallen531]

Joined: Sat Sep 06, 2014 2:04 pm
Posts: 7

Jim,

Following up on my post above about looking at the "detail" data on page 3, "Yearly Simulation Results for scenario..." of print out on my retire at 62 scenario.

On the retirement plan information page I had listed $100K for Annual Retirement Income and a range of $95K to $100K on the Monte Carlo Sensitivity Analysis page.

The results page three showed:

1. Planned Expenses ranged from $184K-$209K

2. Medium Withdraw rates ranged between $111K and $164K

3. Withdraw Rates ranged between 9.7% and 66%

Of course, in these scenarios the "burn rate" for living expenses was exceeded and the Portfolio Value reduced at a greater rate than the estimated $100K/yr?

Do I eliminate the Monte Carlo affect by doing what was mentioned on your website for is there another method to keep the annual withdraw amounts the same?

Can I configure the retirement planner to work like conventional calculators for comparison purposes?
Yes. Just set the Investing Style to Custom, set the Investment Return manually, then set the Return– Std Dev to 0. Finally, set the Retirement Spending Policy to Stable.. This will cause the simulation to behave more like a traditional retirement calculator.

Mike

[jimr]

Do I eliminate the Monte Carlo affect by doing what was mentioned on your website for is there another method to keep the annual withdraw amounts the same?

With standard deviation set to 0, the sequence of returns that the portfolio earns through the course of the plan doesn't change from iteration to iteration of the simulation. Each of the 10,000 simulation iterations will behave in exactly the same way and produce exactly the same results. As you say, this eliminates the Monte Carlo effect.

However, using a non-zero standard deviation and setting the spending policy to stable should do what you want, if I understand correctly. This will turn off the "flexible spending policy" logic in the planner, which attempts to automatically adjust spending based on portfolio performance.

Jim

[mallen531]

Thanks Jim...I will run a scenario and let you know. Thanks

Mike