Bogleheads® Chapter Series - Flexible Retirement Planner
00:00:00.000 | (upbeat music)
00:00:02.580 | - Welcome to episode number four
00:00:07.980 | of the Bogleheads Life Stages Podcast.
00:00:10.720 | Bogleheads are investors who follow
00:00:12.280 | John Bogle's investing philosophy
00:00:14.080 | for attaining financial independence.
00:00:16.800 | Today's episode features Jim Richmond,
00:00:19.080 | designer of the Flexible Retirement Planner.
00:00:22.040 | This recording was made on March 24th, 2021.
00:00:25.920 | Nothing in this video should be construed
00:00:27.560 | as personalized investment advice.
00:00:30.800 | - Oh, well, you know, what about retirement?
00:00:32.640 | What about, you know, how much do I need to have saved?
00:00:35.440 | And I started looking around and I put the,
00:00:39.520 | I wanted something that had implemented variable withdrawal.
00:00:43.160 | I was looking for a calculator online
00:00:44.880 | that had just some sort of decision rule.
00:00:47.800 | I had read some recent paper, there's, I think, Goitin,
00:00:51.320 | Jonathan Goitin had written about how to kind of,
00:00:54.880 | you could get a slightly higher withdrawal rate
00:00:57.360 | with a good probability of success
00:00:59.040 | if you have some decision rule in the withdrawal process
00:01:02.560 | that adjusts the withdrawal
00:01:04.240 | based on how well the plan is going.
00:01:06.360 | So if you have a bad sequence of returns,
00:01:08.720 | you could maybe cut back spending a little bit.
00:01:11.680 | And if you allow that in the model,
00:01:14.080 | you end up with a higher withdrawal rate supported
00:01:18.960 | for a given probability of success
00:01:20.960 | or a given success rate for the retirement plan.
00:01:23.520 | So anyhow, I couldn't find that calculator.
00:01:25.720 | So I decided to put this one together
00:01:27.800 | and initially just did it on a whim,
00:01:30.920 | but I posted it to the web
00:01:33.480 | and did get some positive feedback about it.
00:01:37.120 | And after six months or a year,
00:01:40.600 | I decided to turn it into a business and have done it.
00:01:44.720 | Okay, so right now you should be seeing,
00:01:49.240 | or within a few minutes, seconds,
00:01:50.960 | you'll be seeing the main page
00:01:53.400 | for the Flexible Retirement Planner.
00:01:55.200 | And this is what you get if you hit New Plan
00:01:58.200 | up in the top left.
00:01:59.800 | It resets all the inputs to their defaults.
00:02:02.200 | Let me see if I can.
00:02:06.280 | And the inputs to the planner
00:02:14.000 | should be relatively straightforward.
00:02:15.960 | Current age, retirement age, life expectancy.
00:02:19.080 | For this demo, I'm gonna start out,
00:02:20.520 | we'll assume the retiree is 40 years old.
00:02:24.640 | The person using the planner.
00:02:27.600 | And the retirement age, 65,
00:02:30.440 | and the life expectancy, 95.
00:02:31.920 | We'll say 3% for inflation.
00:02:33.440 | We'll leave it at the default.
00:02:34.680 | These income tax and investment tax rates
00:02:37.840 | should include state tax and federal tax,
00:02:40.200 | any local income tax if it's paid.
00:02:43.240 | And then for portfolio value,
00:02:46.080 | we're gonna say that there's currently a $300,000,
00:02:49.280 | let me make sure I get that,
00:02:54.080 | $300,000 tax-deferred portfolio.
00:02:57.320 | By the way, this min IRA 401(k) withdrawal age
00:03:00.640 | trips people up sometimes.
00:03:01.800 | I'm actually, in the next release,
00:03:03.000 | gonna move that into settings
00:03:04.360 | just 'cause it gets in the way.
00:03:06.760 | Basically, that's the minimum penalty-free
00:03:09.320 | IRA 401(k) withdrawal age.
00:03:11.280 | So most people never need to touch that.
00:03:13.520 | And that's part of why I'm gonna move it to settings.
00:03:15.480 | So just so you don't get tripped up on that.
00:03:18.040 | And then I'm gonna say that for this plan,
00:03:20.600 | this person, this 40-year-old,
00:03:22.400 | is gonna put $15,000 away every year
00:03:26.480 | in their tax-deferred annual savings.
00:03:30.960 | And then the other inputs, we have investing styles,
00:03:33.680 | and I'll just leave it at the default.
00:03:35.960 | These are sort of canned portfolios
00:03:38.000 | that have given this investment mix.
00:03:41.520 | I strongly suggest folks take a look
00:03:43.320 | at the Simba's back-testing spreadsheet.
00:03:46.600 | That's a great resource for figuring out
00:03:50.560 | for your own portfolio what's a good return
00:03:55.560 | and standard deviation to use.
00:03:58.880 | But you could use these canned ones at least to get started.
00:04:01.320 | By the way, I guess I should do the standard disclaimer.
00:04:03.480 | I'm not a financial planner,
00:04:04.760 | and I'm not an investment expert.
00:04:06.840 | So nothing I say should be interpreted as investing advice
00:04:10.720 | or financial planning advice.
00:04:13.160 | I do know about the tool,
00:04:14.800 | and I'm happy to answer questions about, of course,
00:04:16.720 | how to model things that you'd like to model
00:04:19.560 | in your financial plan.
00:04:20.920 | But I can't provide any kind of help
00:04:22.480 | or advice on the financial planning side.
00:04:25.240 | Next, we come down to retirement income.
00:04:28.360 | And in this case, we'll say that there's gonna be
00:04:30.840 | a $25,000 annual retirement income.
00:04:35.360 | Let's say it's a couple, and they're both the same age,
00:04:38.880 | and they're gonna start at age 67,
00:04:41.520 | withdrawing from that Social Security
00:04:46.280 | or taking that Social Security income.
00:04:48.720 | Retirement spending is 50,000.
00:04:50.720 | And this spending policy is, again,
00:04:52.440 | that decision rule that I talked about.
00:04:54.400 | And I'll get into the details of this later,
00:04:56.720 | but we'll leave it at the default for now.
00:04:58.760 | And then we'll hit run.
00:04:59.920 | And so what we see with this set of inputs,
00:05:04.440 | we have a fairly robust plan.
00:05:06.640 | On the left, you see the graph,
00:05:08.040 | which the purplish bars are the tax-deferred portfolio.
00:05:13.040 | The blue bars are the taxable portfolio.
00:05:17.240 | And the reason that we're seeing this changeover
00:05:19.240 | from tax-deferred to taxable
00:05:21.200 | is that RMDs are kicking in automatically at age 72.
00:05:25.720 | And so that's why we're seeing
00:05:27.640 | the tax-deferred portfolio decreasing.
00:05:30.560 | On the right-hand side,
00:05:34.280 | we can see the probability of success is 99%.
00:05:37.720 | We run 10,000 paths through the retirement.
00:05:41.160 | So basically, that's gonna draw 10,000 different,
00:05:45.520 | unique, random sequences of return.
00:05:48.240 | And based on those sequences of return that we draw,
00:05:51.000 | one for each year of the retirement plan,
00:05:53.720 | we're gonna have a varying result.
00:05:57.320 | And so in this case,
00:05:58.240 | we ran 10,000 paths through the plan,
00:06:01.480 | and we had probably between 50 and 100 failures
00:06:05.200 | to get a 99% probability of success.
00:06:08.200 | And the average spending shortfall is 16%.
00:06:15.320 | And that's really just a metric.
00:06:17.440 | I think it was Masha Malevsky had some research
00:06:22.440 | that was basically wanting to try to quantify
00:06:25.680 | when the plans fail in a Monte Carlo simulation,
00:06:29.200 | how bad is it?
00:06:30.280 | Is there a way to tell plans that fail earlier
00:06:35.040 | versus plans that fail later?
00:06:36.840 | And spending shortfall tries to do that
00:06:39.280 | so that if you had two different retirement plans
00:06:41.960 | with two different sets of inputs,
00:06:43.560 | and they were both showing a 90% probability of success,
00:06:46.640 | one still may be more robust than another
00:06:49.400 | if it turns out that the failures happen earlier
00:06:52.800 | in the plan for one compared to the other.
00:06:55.000 | And that's what's average spending shortfall.
00:06:56.800 | It says just looking only at the failures,
00:06:59.480 | how much of the spending that was intended to happen
00:07:02.400 | in that plan got a chance to happen
00:07:05.000 | before the portfolio ran out of money.
00:07:07.280 | And so with this 16%, that means 85 on average,
00:07:10.920 | even with the failed plans,
00:07:12.720 | they made it 85% of the way through the retirement
00:07:15.400 | before the portfolio ran out of money.
00:07:17.280 | And again, we're only talking about 50 or so failures here
00:07:20.120 | given the 99% probability of success.
00:07:22.800 | But for those 50 failures,
00:07:24.640 | even they made it about 85% of the way through retirement.
00:07:28.400 | That's what the spending shortfall is telling you.
00:07:31.080 | The other thing I wanna talk about here,
00:07:32.720 | the initial portfolio value.
00:07:34.920 | The other values are median values.
00:07:36.760 | So portfolio value at retirement is 1.5 million,
00:07:40.280 | median ending portfolio value, 2.5.
00:07:43.720 | And so the way those medians are pulled,
00:07:46.360 | we do 10,000 simulation paths and we sort the results.
00:07:51.360 | So we have basically 10,000 ending portfolio values
00:07:54.920 | to deal with.
00:07:55.760 | How do we display that?
00:07:56.920 | Most effective, sort of easily to understand approach
00:08:01.240 | is to show the median.
00:08:02.560 | And that would be sort all 10,000 results in a table
00:08:06.280 | and then choose the result at row 5,000.
00:08:09.400 | That's how we would pull a median out of that.
00:08:12.440 | So again, 10,000 results, sort them in ascending order
00:08:15.280 | and then pull the middle one, the 5,000th one.
00:08:17.840 | And that's what we see here.
00:08:19.360 | Just to give it a little further on that,
00:08:22.080 | if we click this checkbox
00:08:23.720 | that shows the portfolio value bands,
00:08:26.320 | notice that we see the lines here
00:08:29.280 | are showing the lower and upper band.
00:08:32.040 | And that's the 10% and 90% percentile bands.
00:08:37.960 | And we can see that seven looks like about 800,000
00:08:41.280 | is the bottom 10% value.
00:08:43.560 | And about 7 million is the top 10% value
00:08:48.560 | or the 90th percentile value.
00:08:50.920 | So that the bottom value is actually again,
00:08:53.080 | and if you think of that sorted table
00:08:54.800 | with 10,000 ending portfolio values,
00:08:57.480 | the median is the 5,000th.
00:08:59.480 | The bottom 10% is actually the 1,000th row.
00:09:03.000 | And then the top 10% is the 9,000th row in that table,
00:09:08.000 | again, sorted in ascending order.
00:09:10.320 | So that gives you an idea of the variation that we have.
00:09:15.320 | The simulation is not producing one result
00:09:18.440 | and says, "Hey, here's your answer, we're done."
00:09:20.640 | It's actually producing a large amount of output.
00:09:24.440 | And the job is to try to consolidate it
00:09:26.880 | into something that's understandable.
00:09:29.480 | (papers rustling)
00:09:32.320 | And the other thing I wanted to draw your attention to
00:09:36.040 | is this percent of expenses funded.
00:09:39.040 | We've got the flexible spending policy selected,
00:09:42.320 | that's the one with the decision rule.
00:09:44.120 | But because this is such a robust plan,
00:09:46.720 | we're actually funding between 97 and 113% of expenses.
00:09:50.840 | So we're not having to cut back our spending
00:09:54.120 | much more than just a few percent here on average
00:09:57.360 | in the retirement plan.
00:10:00.080 | The other thing that I wanna bring to your attention
00:10:04.120 | is the detailed view table.
00:10:05.960 | This is a year by year table
00:10:07.960 | that allows you to see the result.
00:10:10.560 | Oh, by the way, the results both in the summary view
00:10:13.920 | and in the detailed view table
00:10:15.600 | are all shown in present value dollars.
00:10:18.240 | So the planner takes inflation into account
00:10:23.040 | and all of these amounts are adjusted for inflation
00:10:25.600 | as we go through the plan,
00:10:27.040 | but they're shown in present value non-inflated dollars.
00:10:30.920 | So the ending portfolio value
00:10:33.560 | will be a much greater amount in nominal dollars,
00:10:35.760 | but it will have spending power of 2.5 million
00:10:40.640 | in today's dollars.
00:10:41.840 | And the detailed view is the same way.
00:10:45.640 | So all of the results in the table,
00:10:47.840 | and the simplest way to kind of grasp this,
00:10:50.000 | I think for many people,
00:10:51.320 | is that the new investments and the retirement spending
00:10:55.000 | are actually adjusting for inflation.
00:10:56.960 | So they will increase every year in nominal amount,
00:11:00.480 | but notice in the table, they show as being flat,
00:11:03.320 | and that's because they're exactly
00:11:04.600 | keeping up with inflation.
00:11:06.240 | And because we're showing this in present value dollars,
00:11:09.200 | those amounts stay stable, stay steady from year to year,
00:11:12.280 | because they're exactly keeping up with inflation.
00:11:14.720 | If an amount is growing greater
00:11:16.200 | than the rate of inflation,
00:11:17.280 | it will increase from year to year in this table.
00:11:20.120 | And if the amount is growing less
00:11:21.680 | than the value of inflation, it will decrease.
00:11:25.240 | So we can see here at the retirement year, at age 65,
00:11:30.120 | we see the cashflow situation starts to change.
00:11:33.360 | We go from putting 15,000 a year into our deferred account,
00:11:38.360 | to now at age 65, we start planning to take $50,000 out.
00:11:43.960 | We need 50,000 of spending.
00:11:46.480 | And so you'll notice here,
00:11:47.480 | the total withdrawal is actually 62,500,
00:11:49.880 | which is because the plan is grossing that up
00:11:53.160 | in order to account for income taxes
00:11:54.840 | that are gonna be due on that tax deferred withdrawal.
00:11:58.600 | The other thing I wanna bring your attention to
00:12:00.120 | is on the right hand, the rightmost column
00:12:03.120 | is the probability of success
00:12:04.800 | and the number of failures in parentheses.
00:12:07.240 | So the probability of success is a cumulative number
00:12:09.640 | as you go from row to row or year to year.
00:12:12.680 | And then the number of failures in parens
00:12:15.480 | are the number of times out of 10,000
00:12:18.680 | that the simulation ran out of money
00:12:20.840 | in that particular year.
00:12:22.640 | So you'll see, we start to pick up some failures
00:12:24.760 | starting at age 80, even we have one.
00:12:27.160 | And so it still shows 100% because out of 10,000,
00:12:31.040 | it's just a rounding error
00:12:32.160 | when you only have one failure out of 10,000.
00:12:34.160 | But you'll notice as we kind of go down the list,
00:12:38.240 | we get more and more failures until we finally get enough 50,
00:12:43.240 | we probably need to get from 100 down to 99.
00:12:46.680 | I assume it's rounding down there.
00:12:49.720 | And so we're seeing the failures here from year to year
00:12:54.120 | just as an indication of kind of how things are going,
00:12:56.440 | what's happening.
00:12:57.280 | And also I wanna show more details in this table.
00:13:04.800 | You can see even more,
00:13:06.120 | now this can get overwhelming pretty fast,
00:13:08.080 | but it's a lot of data.
00:13:09.960 | And basically one of the things that you can see here
00:13:13.160 | in this additional detailed table
00:13:15.440 | is that we start to look at age 72,
00:13:18.280 | we start pulling RMDs out
00:13:20.200 | and you can kind of track what's going on
00:13:21.960 | with required minimum distributions
00:13:24.280 | from the tax deferred account.
00:13:26.160 | So we start with, and we've got the amount and the taxes
00:13:30.560 | and then how much available for expenses.
00:13:33.080 | It looks like we don't need to take any withdrawal
00:13:36.320 | out of the portfolio because of the RMD
00:13:39.440 | is greater than what we need, I believe.
00:13:42.360 | Yeah, no additional withdrawal needed.
00:13:45.680 | Now this table can be a little overwhelming,
00:13:48.880 | but if that's not enough data for you,
00:13:50.560 | you could right click on any of the column headers
00:13:53.160 | and you can say, show all columns,
00:13:55.040 | which will give you even more data.
00:13:57.480 | And the idea is that I'm just basically dumping
00:13:59.400 | all of the information that I have in the simulation.
00:14:02.280 | And if you right click on any cell,
00:14:05.440 | you can copy it to the clipboard or export the table
00:14:08.520 | and it'll paste right into Excel.
00:14:10.640 | I'm sorry, yeah, right click on this
00:14:11.960 | and this will paste into Excel.
00:14:14.080 | So you can then manipulate it
00:14:15.360 | and manage it a little bit easier.
00:14:17.240 | Okay, I wanna go back to the summary view.
00:14:26.280 | And let's say, because this plan is so robust,
00:14:30.520 | let's see what happens if we lower the retirement age
00:14:33.600 | to see if maybe we could retire at 60.
00:14:35.840 | Then we run it again.
00:14:41.480 | And now we notice this is,
00:14:42.800 | we get a 93% probability of success, so that's not bad,
00:14:46.840 | but the stoplight is yellow, not green.
00:14:49.440 | And the reason for that is because it's just indicating
00:14:51.960 | that the percent of expenses funded varied
00:14:54.720 | because of the flexible spending policy down as low as 86%.
00:14:59.720 | So you might've had to take a 15% reduction in spending
00:15:04.760 | in some of the runs of this particular set of inputs
00:15:10.120 | in order to get that 93%.
00:15:12.440 | And we can configure that by going into settings
00:15:17.440 | to see if what the minimum amount
00:15:21.200 | or the maximum amount of spending cut we're willing to take.
00:15:24.240 | So the minimum default is 75%.
00:15:29.280 | So we're actually, by default, the minimum,
00:15:32.920 | the spending cut could be as big as 25%.
00:15:37.320 | And that's deployed gradually over the simulation
00:15:40.080 | as the portfolio is continuing to decline.
00:15:43.400 | Basically, a really unlucky bad sequence of returns happens.
00:15:47.280 | The planner will knock back a couple few percent
00:15:50.840 | off of spending every year
00:15:52.680 | until it gets down to 75% of the desired spending,
00:15:56.440 | and then it won't knock back anymore after that.
00:15:58.800 | But we can adjust this.
00:15:59.800 | And so let's set this to 90%
00:16:01.560 | so that we're willing to be flexible,
00:16:03.480 | but not that flexible is what we're saying here
00:16:05.960 | with this 90% minimum expenses to fund.
00:16:09.680 | So we're doing, again, we're using that decision rule,
00:16:12.080 | but we're only willing to cut back 10%.
00:16:15.160 | And let's see what that does.
00:16:16.160 | We had a 93% probability of success,
00:16:18.720 | and then we had the spending getting cut down below 90.
00:16:23.720 | We run it again.
00:16:25.600 | Now we've dropped the probability of success
00:16:28.600 | because we're not willing to be as flexible,
00:16:30.880 | but we see that we're maintaining that 90%.
00:16:34.280 | So let's see if maybe if we up the retirement age by a year,
00:16:37.640 | does that get us to a 90?
00:16:39.800 | And I'm picking a 90% just as a random amount.
00:16:43.440 | Everyone has to sort of choose
00:16:44.600 | what amount of success is adequate for them.
00:16:47.440 | But notice now, so we can kind of model that,
00:16:52.880 | all right, now we've got the green light
00:16:54.560 | because we've got a probability of success of 90%,
00:16:57.640 | and we also are not having to cut back more than 10%
00:17:00.800 | in order to get that 90%.
00:17:02.560 | So that's just a general overview
00:17:04.680 | of the retirement's flexible spending model.
00:17:09.560 | Now, notice if we chose the stable spending
00:17:13.240 | and we were completely unwilling and unable to cut expenses,
00:17:16.520 | we wanted to exactly fund what we asked for
00:17:19.520 | until the portfolio runs out of money, what happens then?
00:17:23.120 | And notice we dropped back seven or so percent.
00:17:25.760 | So that flexibility got us a pretty decent boost
00:17:30.920 | in terms of the robustness of the plan.
00:17:34.640 | And that's what we're trying to model there.
00:17:36.760 | Okay, next I wanna move on
00:17:40.040 | to a feature called sensitivity analysis.
00:17:43.280 | And this is a feature that lets you
00:17:45.080 | take a look at varying the parameters of the plan
00:17:49.520 | in a way that saves you from having to make a change,
00:17:53.720 | hit run, make another change, hit run,
00:17:55.440 | and try to make sense of all the different data.
00:17:57.720 | For instance, by default, this is set up
00:17:59.640 | to look at the portfolio return standard deviation
00:18:02.640 | as parameter one and the annual retirement spending
00:18:05.800 | as parameter two.
00:18:07.560 | And so we're gonna vary the return.
00:18:09.000 | And this is a case where we're gonna have
00:18:12.680 | the portfolio return and standard deviation
00:18:14.840 | march in lockstep.
00:18:16.280 | So we're gonna have 3% return with 2% standard deviation
00:18:20.000 | all the way up to 12% return with 18% standard deviation.
00:18:24.440 | And then we're gonna have spending vary from 40 to 90,000.
00:18:27.200 | So then we'll see what this generates.
00:18:31.120 | So we're running the simulation
00:18:33.160 | actually about three or 400 times here.
00:18:35.880 | These are three or 400 times we run the simulation.
00:18:38.880 | Each of those times we use a different set
00:18:40.800 | of parameter one, parameter two inputs,
00:18:43.120 | and you can see those up here.
00:18:44.840 | The right-hand panel is showing you the results
00:18:47.800 | of one of those 300 simulation runs.
00:18:52.160 | And so we're at this top square,
00:18:54.880 | but we could also select another square by clicking on
00:18:58.360 | and we see what were the parameter one
00:19:00.840 | and parameter two values.
00:19:02.240 | We had a return of 10 and a standard deviation of 14.
00:19:06.160 | We had retirement spending of 50
00:19:07.640 | and a 93% probability of success.
00:19:10.040 | So we can get an idea here of what kind of return we need
00:19:15.040 | and what kind of spending we can support.
00:19:16.840 | And it looks like with this model,
00:19:18.560 | we can just about support 57,000 or so
00:19:23.280 | if we want a 90 something probability,
00:19:26.400 | maybe even up to 60 or 65 if the return,
00:19:29.320 | if we assume a really high return.
00:19:32.000 | But the idea here is just to let you kind of explore
00:19:35.280 | variations in the inputs.
00:19:37.280 | Let's do this again, only this time,
00:19:39.160 | let's say we're wondering about what we should put down
00:19:41.880 | for the inflation rate.
00:19:43.200 | And we're just, you know, how careful do we have to be
00:19:45.480 | about figuring out what inflation to use?
00:19:47.840 | And so we maybe we'll put 1% as the minimum
00:19:50.520 | and 4% of the max.
00:19:52.800 | And then for the second parameter,
00:19:55.600 | let's say we're wondering about income tax.
00:19:57.480 | You know, how much sensitivity do we have in our plan
00:20:01.400 | to changes in the income tax rate?
00:20:03.880 | And because we have so much in tax deferred,
00:20:07.440 | this is gonna matter a lot
00:20:08.600 | because those tax deferred withdrawals
00:20:10.520 | are taxed at the income tax rate.
00:20:13.040 | Let's run this.
00:20:14.120 | And now we're seeing again, those three or so 100 runs
00:20:18.240 | and getting an idea of if we vary these two parameters,
00:20:23.240 | what does it look like?
00:20:25.000 | And you can see on the X axis,
00:20:26.600 | we've got the inflation rate increasing from 1% to 4%.
00:20:30.320 | On the Y axis, we've got the income tax rate increasing
00:20:33.800 | from 10% to 50%.
00:20:35.800 | And so we can just get an idea now with one view
00:20:39.320 | and we can see what the results are
00:20:43.160 | with these varying inputs to get an idea
00:20:45.560 | of how that is gonna work out.
00:20:50.400 | Great, and the last thing I wanna cover on the planner
00:20:55.400 | is another feature that helps with the flexibility
00:21:00.400 | is the additional inputs.
00:21:03.840 | And so we get to additional inputs
00:21:05.840 | by clicking on the additional inputs button here.
00:21:08.600 | And in this case, what I'm gonna do
00:21:11.240 | is let's just say that this plan is actually
00:21:13.120 | for a married couple and they're not the same age.
00:21:15.320 | So I'm gonna zero out this annual retirement income
00:21:18.040 | on the main input page.
00:21:19.800 | And instead, I'm gonna put it in
00:21:21.560 | on the additional inputs page here in the bottom.
00:21:24.200 | And I'm gonna say, starting at age 67,
00:21:27.280 | the older spouse is gonna start collecting
00:21:30.920 | their social security and they're gonna get 12,500
00:21:35.680 | for their annual social security.
00:21:37.240 | And we're gonna say it's 100% taxable.
00:21:39.320 | And we'll say, this is John's.
00:21:42.920 | John's social security, we add row.
00:21:49.440 | And now we have John's spouse is Mary.
00:21:54.040 | And Mary is two years younger than John.
00:21:57.960 | And she also wants to have her social security
00:22:00.560 | start at age 67, but because we're gonna key
00:22:03.960 | all of the ages in this plan off of the older spouse.
00:22:07.320 | So when John turns 69, Mary's gonna start collecting
00:22:11.400 | her social security.
00:22:12.760 | And so now we have social security for two.
00:22:18.600 | Notice that we've got it set up
00:22:20.160 | that it's automatically gonna track inflation
00:22:22.560 | and we have it at 100% taxable.
00:22:25.840 | And so now we go into the, back to the main planner window.
00:22:31.240 | And if we run this again, we notice there's a slight drop
00:22:36.520 | in the probability of success because we had
00:22:40.560 | one of the spouses taking that social security
00:22:44.760 | two years later.
00:22:47.160 | If we bump the retirement age up,
00:22:49.240 | we can get it back up to over 90%.
00:22:53.880 | And again, I'm just using that.
00:22:55.240 | That's kind of, for me, I like to see over 90,
00:22:57.960 | but everybody's gotta make their own rules
00:23:01.000 | about what works for them.
00:23:02.640 | The other thing you can model with this is in,
00:23:06.120 | if you wanna do one-time spending,
00:23:09.760 | maybe like you might have a MISC income.
00:23:15.080 | And let's say that we wanna downsize our house
00:23:17.880 | and we're gonna plan to do that at age 80.
00:23:22.040 | And so we'll say, we'll have a one-year cashflow.
00:23:25.360 | The start age and the end age will be the same at age 80.
00:23:28.640 | And then we'll say that we're gonna net,
00:23:35.040 | maybe this will be sell the house that's out in the country
00:23:38.000 | and move into an in-town apartment or condo.
00:23:40.560 | And doing that, we're gonna net $350,000.
00:23:44.680 | So that will be the amount of the cashflow.
00:23:48.200 | And let's say that we're gonna have to pay tax
00:23:51.560 | on that whole amount at the tax rate.
00:23:53.240 | Again, we could adjust this and put a net amount in here
00:23:56.720 | and say the taxable rate is zero.
00:23:58.520 | If that's easier,
00:23:59.360 | depending on how complicated the taxes are gonna be,
00:24:02.080 | maybe it wouldn't wanna,
00:24:03.920 | maybe this mortgage, this house sale wouldn't be taxed
00:24:06.720 | at our normal income tax rate.
00:24:08.040 | So we might wanna adjust that
00:24:09.800 | and just do the calculation kind of offline sort of,
00:24:13.400 | and put the net amount in here.
00:24:14.680 | Either way could work.
00:24:15.760 | And we'll say sell downsize.
00:24:19.560 | And we add a row.
00:24:26.080 | And so now we go back to the main planner page
00:24:29.280 | and we run again.
00:24:32.160 | And now we can see that we've got
00:24:36.440 | a much higher probability of success.
00:24:38.080 | We probably can support that 60-year retirement again.
00:24:42.420 | And we can see that this bump in the portfolio
00:24:46.340 | right at age 80 when the house sale kicks in,
00:24:49.380 | when the downsizing kicks in.
00:24:50.660 | So that extra cashflow goes into the taxable portfolio
00:24:53.780 | and you can see it turned it into a much more robust plan.
00:24:58.780 | Another thing you might wanna try in here
00:25:01.180 | and we're getting down to the end.
00:25:04.140 | Let's say that starting at age 85,
00:25:10.460 | we wanna simulate higher expenses
00:25:15.460 | because of maybe some medical things.
00:25:17.180 | Now, maybe we just wanna try this out and see what happens.
00:25:19.380 | It might not necessarily be what we're gonna plan for,
00:25:22.860 | for real, but we could explore this
00:25:25.420 | with a say $20,000 expense.
00:25:29.420 | And let's say this is a medical expense
00:25:33.820 | and we don't even need to come in it.
00:25:40.100 | We put that in.
00:25:41.260 | We go back to the main plan and run it again.
00:25:45.060 | And notice we now are down a little bit
00:25:55.860 | on the probability of success.
00:25:59.540 | We're still increasing, but not as quick of a rate
00:26:04.540 | again after the house sale kicks in.
00:26:06.420 | One last thing we could try here.
00:26:10.020 | If we just wanna, again, we're kind of playing around
00:26:12.780 | and we maybe wanna explore what happens
00:26:14.700 | if we just have really bad luck
00:26:16.820 | and we have a stock market crash at age 75.
00:26:21.180 | So 10 years in the stock market does really badly.
00:26:24.700 | Now, of course, the simulation,
00:26:26.260 | because it's running this random return,
00:26:29.700 | random sequences of return 10,000 times,
00:26:31.780 | we are going to get stock market crashes
00:26:33.940 | randomly dispersed through the whole simulation,
00:26:38.340 | but we're gonna just force a crash at age 85
00:26:41.020 | and we're gonna force it to be minus 25%
00:26:44.460 | with a standard deviation of zero.
00:26:46.060 | So it's definitely gonna happen.
00:26:47.940 | And so basically we're overriding the portfolio return
00:26:51.340 | to make sure that we get this crash to happen at age 75.
00:26:54.300 | And let's see what that does to our plan.
00:26:56.340 | Now we see we have the stock market crash at age 75,
00:27:06.460 | drops the portfolio down quite a bit.
00:27:09.180 | We kind of chug along for a bit.
00:27:11.380 | Then we have the house downsizing, which brings us back up.
00:27:14.780 | And now we're kind of doing okay
00:27:17.380 | for the last part of the retirement.
00:27:18.740 | So we did manage to work through that,
00:27:22.660 | it appears, at least based on this model.
00:27:25.460 | And so that's just to give you an overview
00:27:27.220 | of the kind of things that you can do
00:27:28.700 | with the retirement planner.
00:27:31.500 | And again, there's a lot of.
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