Quote:
Originally Posted by reneeh63
As long as your inputs are accurate - for example that you've estimated your needs/expenses accurately, put in your portfolio mix and not relied on some general "placeholder", etc. I'm sure some people lowball their expenses and then everything looks rosy or find out their returns are overly optimistic because they ended up not being able to stomach the percentage of equities to bonds, etc.
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the input numbers are really not crucial to stress test the max the portfolio can sustain .. in fact any income numbers you put in are subtracted out and the balance is what is stress tested . if you just keep upping the spending box with no actual expenses entered the portfolio is stress tested for maximum safe income . .
i never enter expenses in firecalc . i just stress test what i can pull as a max from the portfolio . i just keep upping the draw until the portfolio fails and then that is my portfolio side draw limit .
i add that amount to my other income ,social security ,etc and that sets the bar for spending .
whether your total income can support your lifestyle really is a separate issue from stress testing your maximum draw from the portfolio . you can project your expenses outside of firecalc and the results will be the same . in fact it may be a better idea to run your expense side elsewhere in something more sophisticated in the way it handles inflation adjusting expenses .
don't forget by default firecalc does not figure the fact healthcare or long term care costs run way way more then the general inflation figure .
fidelity's planner considers that fact and adjusts healthcare costs by 5.50% and long term care costs by the same . they recently brought the healthcare costs down to 5.50% from the 7% they were running . firecalc does none of that by default .
firecalc and the fidelity planner give you a place to add up expenses but those expenses have nothing to do with the actual portfolio stress testing . the max draw from your portfolio will stay the same regardless of what your expenses are.
so for those having a hard time following here is an example of how i would arrive at the total budget in a hypothetical situation . .
first i added up our non discretionary expenses , those we have little to no say in . .lets say it is 45k a year . we doubled that amount to include all discretionary spending as a rough budget . things like food ,cloths ,trips ,gifts , membership to non essential things , car , etc .
in retirement we found the discretionary side can be as big as we can go and even beyond budget since we can easily exceed what we have available with just travel
so the 50% discretionary budget gives us enough slack to cut back if markets crap the bed . if you find you have little discretionary spending be careful investing in stocks . you have little to cut back when the whole budget is pretty much needs and not wants .
so now we add up all our income like social security ,pension ,rentals ,annuity ,etc . lets us say it is 50k . so we take our 90k budget and subtract the 50k , that leaves 40k that has to come from the portfolio . if we take the 40k and multiply it by 25 we see we need a ballpark of 1 million to safely draw 4% in the laboratory with no human intervention .
that 40k is actually what the planners stress test . they check to see if your 40k and amount of years you are figuring would have survived the worst of the past using the investments and allocations you intend to ..
it is only that 40k draw that the planners are really interested in or whatever amount you enter as your income draw .
in fact you can just see the results of stress testing right on a chart like this . 90% success is the min .
whether you enter your expenses or not , just based on what the maximum your portfolio can spin off would be pretty close to these numbers . firecalc goes back to 1871 while most claculators start with the trinity data set in 1926 .
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Plan B -- I just made sure to budget financially for the full premiums until we reach Medicare age. Plan C -- We can work part time if something happens.
