Author Topic: How accurate are your numbers for retirement planning?  (Read 4710 times)

bob999

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How accurate are your numbers for retirement planning?
« on: December 12, 2017, 02:32:45 AM »
Hi Guys,

I see a lot of MMM forum posters indicating their FIRE date which is planned out to the minute. Eg. 8 years 4 months 3 weeks and 2 days. I have run my numbers a thousand times and there is no way I can get/plan that kind of accuracy. Which made me think how others were so sure of their numbers and what variables they had taken into account.

So my question is how do others get such accurate FIRE plans when the best of my plans vary by years let alone months or weeks.

Here are some of the difficult variables that I consider but struggle to plan with:
    * bare minimum lifestyle $1M @ 4% drawdown
    * comfortable lifestyle $1.5M @ 4% drawdown
    * I own a few investment properties and plan to sell them closer to FIREing and put that money in index funds. However, it is difficult to know how much the properties will sell for in future and taxes, selling cost, remaining mortgage amounts etc. Which makes it difficult to get reliable numbers for FIRE planning.
    * Some studies suggest a drawdown number of 3 to 3.5%
    * I don't know how I would feel about certain expenses in the future such as kids weddings, education, renovations, medical bills etc. I may want to do spend on these things and the above figures do not account for 'one of' large expenses.
    * Market return - the market could tank just before FIREing and would push my FIRE date out even further.

I am not suggesting that every eventuality needs to be accounted for in order to FIRE but given so many variables I am curious to know how others have managed to plan their FIRE date so accurately.

Thanks :)

marty998

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Re: How accurate are your numbers for retirement planning?
« Reply #1 on: December 12, 2017, 03:29:17 AM »
For may people it is a certain age or life event - e.g. someone will have planned that they and their spouse are leaving their job on x date and moving town/state/country shortly thereafter. Their FIRE status maybe already over the line, and the extra year is just padding.

I take your point with difficulty in estimating the date. I've got no idea when I'll have enough, as you say, there's just too many variables.

Villanelle

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Re: How accurate are your numbers for retirement planning?
« Reply #2 on: December 12, 2017, 04:04:46 AM »
I think for most people who have a specific date, it is because the math more or less works out, and then there is another factor at play--the date of an annual bonus, a kid graduating from high school, qualifying for one more year of Roth contributions, going up one tier on a pension, etc.

Linea_Norway

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Re: How accurate are your numbers for retirement planning?
« Reply #3 on: December 12, 2017, 04:20:35 AM »
<...>

Here are some of the difficult variables that I consider but struggle to plan with:
    * bare minimum lifestyle $1M @ 4% drawdown
    * comfortable lifestyle $1.5M @ 4% drawdown
    * I own a few investment properties and plan to sell them closer to FIREing and put that money in index funds. However, it is difficult to know how much the properties will sell for in future and taxes, selling cost, remaining mortgage amounts etc. Which makes it difficult to get reliable numbers for FIRE planning.
    * Some studies suggest a drawdown number of 3 to 3.5%
    * I don't know how I would feel about certain expenses in the future such as kids weddings, education, renovations, medical bills etc. I may want to do spend on these things and the above figures do not account for 'one of' large expenses.
    * Market return - the market could tank just before FIREing and would push my FIRE date out even further.


These are exactly my concerns. I have made a calculation based on how much we spend comfortably per year (the year before we started hard code saving for FIRE). That is our spending level. I have calculated how much stash we need to have to be able to take out 4%, or 3,6% which is safer. I have added the tax rules, which change slightly from year to year. Then there rolls out a number that we need to have in a certain year to FIRE. E.g. with a 3,6% SWR I need to have 7 mil Norwegian crowns in 2020 to be able to FIRE.
But as I don't have this stash in cash, we'll need to downsize our house. I have made a conservative guess of how much we might be left with after selling the house. Keep in mind that selling is not cheap either. I put the amount roughly 115.000 USD lower than what we paid for it. No idea whether that is realistic, but I rather have a conservative estimate than a too optimistic one. I also didn't put any inheritance in the calculation. DH and I both have living parent(s) and we can expect a nice windfall. But we never know what they have planned and how long they will live. 2 of the parents are at good health.

So my calculations just keep showing the sum I need to have invested in index funds in a given year. Then circumstances will lead to when we will achieve that amount. If our house will fall terribly in value, we will have to work longer. If we manage to sell it for a big sum, we might earn an extra year of pension.

Based on what we currently save per year, I do have a rough idea of when we will have enough cash, given that we can sell the house for the conservative amount of more. And given that we can find another place to live for half the cost of our current house.

Edit: The Norwegian healthcare system is one of the most expensive in the world, together with the USA's. I fear that we one day in the future also will have to pay for private health insurance. That might become an unpleasant surprise.
« Last Edit: December 12, 2017, 04:49:31 AM by Linda_Norway »

SnackDog

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Re: How accurate are your numbers for retirement planning?
« Reply #4 on: December 12, 2017, 04:36:56 AM »
Everyone should be using ranges since there is always uncertainty.  If there is no uncertainty, you have waited too long! 

I have an earliest date which is when I get company medical for life (2018), a most likely which is when I hit the peak annual additions to the pension lump sum (2020), and a maximum (assuming I like the job long enough to stay) of when all stock grants vest immediately (2026).  The savings difference is a factor of 2-3.  For us, we have enough now but there are trade-offs involved since we enjoy an interesting overseas life at the moment.  I also know enough about my job to be able to make some fun and interesting contributions at work.  My 20s were happy and carefree and job-free traveling so I'm ok to work a little longer.

MrMoneySaver

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Re: How accurate are your numbers for retirement planning?
« Reply #5 on: December 12, 2017, 05:55:53 AM »
Quote
I don't know how I would feel about certain expenses in the future such as kids weddings, education, renovations, medical bills etc. I may want to do spend on these things and the above figures do not account for 'one of' large expenses.

People talk endlessly about what a safe withdrawal rate should be and what the markets might do, but to me the above is the greatest risk to FIRE. So you made a great plan based on what you think your spending will be -- how do you know you're right about your future spending? You simply don't. The MMM response is typically that flexibility is our friend, and we'll be open to going back to work or cutting our budgets. But we don't know that these will be possibilities, depending on what happens. Particularly if health problems arise. And no, a healthy diet and exercise won't stave them all off.

I don't mean to be too negative -- just pointing out that your concerns are very valid and, in my opinion, not always properly accounted for in our community.

boarder42

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Re: How accurate are your numbers for retirement planning?
« Reply #6 on: December 12, 2017, 05:58:45 AM »
i dont have a set plan - we will likely be able to FIRE in 6 years but with current market gains we're ahead of plan.  With the variablility of the market i assume we will retire in a minimum of 6 years and a maximum of 10 years.  likely retiring around 7 years from now.  I have an interesting job scenario where i have to retire on jan 2 due to some income streams i'll receive so we'll likely hit our number mid year 5 or 6 from now and then FIRE on that date.  As the date approaches it gets easier to predict more set days.  But thats how i could predict down to the minute - but i may be off by a year. or 2 either way.

boarder42

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Re: How accurate are your numbers for retirement planning?
« Reply #7 on: December 12, 2017, 06:04:58 AM »
Quote
I don't know how I would feel about certain expenses in the future such as kids weddings, education, renovations, medical bills etc. I may want to do spend on these things and the above figures do not account for 'one of' large expenses.

People talk endlessly about what a safe withdrawal rate should be and what the markets might do, but to me the above is the greatest risk to FIRE. So you made a great plan based on what you think your spending will be -- how do you know you're right about your future spending? You simply don't. The MMM response is typically that flexibility is our friend, and we'll be open to going back to work or cutting our budgets. But we don't know that these will be possibilities, depending on what happens. Particularly if health problems arise. And no, a healthy diet and exercise won't stave them all off.

I don't mean to be too negative -- just pointing out that your concerns are very valid and, in my opinion, not always properly accounted for in our community.

the flip side of this is in all likelihood based on historic market returns at a 4% SWR you're money is likely to grow infinitely in FIRE.  So these "costs" to which i only think medical is worthy of being in this conversation will likely be covered - but medical is by far the largest concern for an early retiree in the USA currently - i'm just hoping its fixed by the time i get to FIRE or we may work an extra year or two solely for cushion. 

Kids weddings - consumeristic sucka statement - IMO
Kids education - not sure your kids age but my opinion is education costs will drop dramatically and go more digital - that and all kids dont need to go to college there is plenty of work you can do with out a degree- oh and you can teach yourself to code - and a more realistic concern for the future would likely be will i need to support my kid b/c the jobs are mostly gone to the machines and luckily i own all the companies that own the machines.
Renovations - something completely in your control.  if you're 100% barebones food water and shelter at 40k then you should rethink some things - at 40k you should be able to adjust spending to account for something like this.

Dragonswan

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Re: How accurate are your numbers for retirement planning?
« Reply #8 on: December 12, 2017, 06:45:22 AM »
I also think the closer you are to retirement the more certain your date. You have a better idea of what your routine expenses will be which translates into how much you need to save to that amount at 4% withdrawal. Then figure out how long you have to work to get there.  You'll also save a set amount for one off expenses (home renovation)and non routine ongoing expenses (medical) and decide to make do with what you have reasonably set aside and hope investment returns do the heavy lifting to account for differing inflation rates among your variables (health care rises quicker than refrigerator prices).

For example: if the average home renovation runs 60K today and you think you'll need to do one in 20 years at 3%/yr inflation, you should put ~100K in your your budget for it and determine how much longer you need to work to handle that. Even with health care you can take a stab at it.  I believe it was Fidelity or Forbes who did the research and math and said the average person will spend 220K in retirement on health care, and they're assuming a normal retirement age.  So you could start there and see how long it will be before you have enough to cover that nut.  Add all those years together and a reasonable retirement date.  Maybe it works out, maybe you work a few more years, but you've set a date and are working towards it.

Also, a lot of folks are also "certain" because they're waiting for their pension date (those of us who got a late start).  So I'll retire in August 2025 but I am trying to be in a position of accepting an early out pension should it be offered in 2023. And if they don't mess with it, I'll have have coverage included in the deal.


matchewed

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Re: How accurate are your numbers for retirement planning?
« Reply #9 on: December 12, 2017, 07:44:42 AM »
My numbers aren't necessarily inaccurate because I use a range personally. I'm 4-8 years away depending on "insert list of factors here". There are frankly too many to just go about listing. As that time gets closer the window will narrow. I'd like to add that the range above is my 75% probability. If I were to expand that to a higher number the range would widen. That range is 2-10 with the wider possibilities. But I'm chalking the 2/3/9/10 year points as unlikely to occur so I mostly just ignore them.

Caoineag

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Re: How accurate are your numbers for retirement planning?
« Reply #10 on: December 12, 2017, 08:10:36 AM »
1. What makes you think the numbers are accurate?
2. A lot of us have changed our projections over time as things changed. A lot of people in the planning stages leave out market gains so that it is all about savings, not earnings.
3. Once you have OMY you don't need the numbers anymore, you just need the date.
4. Why should I need more income in retirement that I ever needed during all of my working years (this is for all the people worried about what ifs)? For those who say the perks from jobs cost money, you had more job perks than me.

A few people have chosen to go back to work after retiring because they did need more money, others spent so much less than planned that they should have retired 5 years ago. Sometimes, you just have to plan the best you can and go for it.

I personally will not know the accuracy of my numbers until after I have been retired for about 2 years (going from homeowner to full time traveler will do that). I have planned for that. If we need something more, we will find some job to provide for that. I suspect that won't be necessary and instead will find that our expenses are lower. I also suspect that I am underestimating our earnings. But only time will tell.

surfhb

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Re: How accurate are your numbers for retirement planning?
« Reply #11 on: December 12, 2017, 09:21:23 AM »
Even the most meticulously well thought out plan is really just a guideline. Life happens, plans change. The main purpose of setting goals is for motivation.

Personally, I have no clue when I will FIRE and I don't really care. I live a post-FIRE life now as it is and I doubt that my lifestyle will change much once my personal net worth is a certain value.

I simply keep my spending low, while maintaining a high degree of life satisfaction and I save the majority of my income, and just trust that the numbers will work out in the end, because I know they will if I make good money and save most of it. No point in making it any more complicated than that.

I have no idea when I will "retire" because I have no idea what I will be doing in 5 years, much less in 20. Sure, I have a stable and well paying job, but I also have multiple other projects on the go and if one of them gets more interesting than my current "day job", then I'll move on to that project.
I'm not about to stay put for the sake of an arbitrary financial timeline.

So yeah, I'll probably reach FIRE somewhere in my late 40s, maybe, but there's no way I'll stop doing profitable and meaningful work at that point, so it's kind of irrelevant.

Best post of the month here on MMM!!   

Too many people here are all caught up on the details without ever considering how the world and your life might /will be completely different in 10-15 years.

MrMoneySaver

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Re: How accurate are your numbers for retirement planning?
« Reply #12 on: December 12, 2017, 09:31:50 AM »
Quote
Why should I need more income in retirement that I ever needed during all of my working years (this is for all the people worried about what ifs)? For those who say the perks from jobs cost money, you had more job perks than me.

Because you will be older, and more prone to health problems.

Laura33

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Re: How accurate are your numbers for retirement planning?
« Reply #13 on: December 12, 2017, 09:40:35 AM »
I think folks with clearly-identified dates fall into a couple of categories:

1.  People with triggering life events (this is us, a/k/a "DS goes off to college," because then we will be free to do the FIRE travel we want)
2.  People who are largely relying on definitive income streams (pension/SS) and so aren't as subject to the vagaries of the 4% rule
3.  People who really hate their jobs
4.  People who are "talking" with apparent certainty in the context of the forums but who are aware of a ton of unstated caveats (also us, btw)
5.  People who are very close to FIRE and so have a much clearer sense of their needs and the available assets.
6.  People who are blowing smoke and assuming a certainty that doesn't exist.

FWIW, one thing we have found helpful is making things feel more certain is the "buckets" approach that I first read here (I think from Goldilocks):  you look at your retirement as a series of time periods, each of which will have different sources of income and different levels of expenses.  You start with the farthest-out (for us, 85-100):  I estimate annual costs of X (e.g., high medical, low travel) and annual income of Y (e.g., one SS + half DH's pension), so that leaves an annual delta of $Z x 15 years.  So in 35 years, I need to have $A left to cover that.  Take $A, discount to present value using conservative growth assumptions, and that is how much I need to have invested right now to cover my 85-100 bucket.  Then repeat for other periods based on changes in needs and income streams, working backwards to the present.  When your "needed 'stache" for the current period matches your existing 'stache, presto, you a FIRE'd.

For us, this "feels" like a far more accurate estimate.  We assume our first decade post-jobs is going to be the most expensive, because we plan on a ton of travel, but we also assume that will drop off as we get older/more infirm/see the places we have been dying to and get tired of so much motion.  At the same time, that first decade is going to have the lowest alternate income streams, because it's pre-SS and pre-pension.  So if you looked at the 4% rule, it would tell us we need a stupidly massive pot of money as of our FIRE date, because it would assume we need to cover that first year's costs forever. 

DH has done a variety of versions of the bucket assessment, showing the effects of different FIRE dates and different post-inflation returns, to tell us how much we need to save each year to fill all those buckets under each scenario.*  So that range of options gives me a pretty high degree of confidence that we can meet our 2025 target date, barring some horrible event -- and it is patently clear that even the worst-reasonable-case outcome means only another year or two of work.

*FWIW, DH's assessment of our future budget needs is patently ridiculous in and of itself, which provides another massive margin of error.  I would be much more uptight if I didn't believe we were already FI and all the rest of this is gravy.

TexasRunner

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Re: How accurate are your numbers for retirement planning?
« Reply #14 on: December 12, 2017, 10:07:52 AM »

I like your bucket/scenario strategy.  Once we get closer I will have to keep this in mind.  How far out did you start planning this way?

honeybbq

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Re: How accurate are your numbers for retirement planning?
« Reply #15 on: December 12, 2017, 10:11:25 AM »
The uncertainty to me is in the FIRE number itself, not in the time to get there.

wenchsenior

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Re: How accurate are your numbers for retirement planning?
« Reply #16 on: December 12, 2017, 10:20:31 AM »
Quote
Why should I need more income in retirement that I ever needed during all of my working years (this is for all the people worried about what ifs)? For those who say the perks from jobs cost money, you had more job perks than me.

Because you will be older, and more prone to health problems.

Every time I see young people on this forum talking about how they can get by on low, but not poverty level, incomes in retirement, I assume they are underestimating the possibility of a major medical expense from their mid-40s to the age of Medicare eligibility.  Even with good insurance, two different friends of ours just ran up unexpected medical bills in the $200K+  range in the past few years. Fortunately, they were still working.  Both were in their 50s. Young people feel bulletproof.  I did.  I know better now.

Caoineag

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Re: How accurate are your numbers for retirement planning?
« Reply #17 on: December 12, 2017, 11:41:22 AM »
Quote
Why should I need more income in retirement that I ever needed during all of my working years (this is for all the people worried about what ifs)? For those who say the perks from jobs cost money, you had more job perks than me.

Because you will be older, and more prone to health problems.

Every time I see young people on this forum talking about how they can get by on low, but not poverty level, incomes in retirement, I assume they are underestimating the possibility of a major medical expense from their mid-40s to the age of Medicare eligibility.  Even with good insurance, two different friends of ours just ran up unexpected medical bills in the $200K+  range in the past few years. Fortunately, they were still working.  Both were in their 50s. Young people feel bulletproof.  I did.  I know better now.

Ran up 200k+ medical bills but did they have to pay 200k+? If they did, then they either didn't have good insurance or they chose out of network treatment. I have always made sure that my health insurance had hard limits beyond which I don't pay and I have had to buy my own health insurance for many years. And its my 50+ father who likes to run around without health insurance not me (don't get me started on how penny wise and pound foolish this is, especially for someone in his health). I expect freak medical events to occur in life and the cost of dealing with such things are built into my numbers.  And your 50s are prime chronic condition time, you should expect major medical events to occur in that time range (especially if you haven't been taking good care of your health but not only). Remember dying before retirement is still a possibility even when younger. Bulletproof is not the word I would use to describe how I feel, mortal is.

boarder42

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Re: How accurate are your numbers for retirement planning?
« Reply #18 on: December 12, 2017, 11:44:40 AM »
Quote
Why should I need more income in retirement that I ever needed during all of my working years (this is for all the people worried about what ifs)? For those who say the perks from jobs cost money, you had more job perks than me.

Because you will be older, and more prone to health problems.

Every time I see young people on this forum talking about how they can get by on low, but not poverty level, incomes in retirement, I assume they are underestimating the possibility of a major medical expense from their mid-40s to the age of Medicare eligibility.  Even with good insurance, two different friends of ours just ran up unexpected medical bills in the $200K+  range in the past few years. Fortunately, they were still working.  Both were in their 50s. Young people feel bulletproof.  I did.  I know better now.

Ran up 200k+ medical bills but did they have to pay 200k+? If they did, then they either didn't have good insurance or they chose out of network treatment. I have always made sure that my health insurance had hard limits beyond which I don't pay and I have had to buy my own health insurance for many years. And its my 50+ father who likes to run around without health insurance not me (don't get me started on how penny wise and pound foolish this is, especially for someone in his health). I expect freak medical events to occur in life and the cost of dealing with such things are built into my numbers.  And your 50s are prime chronic condition time, you should expect major medical events to occur in that time range (especially if you haven't been taking good care of your health but not only). Remember dying before retirement is still a possibility even when younger. Bulletproof is not the word I would use to describe how I feel, mortal is.

agreed this is an expense controllable with insurance.  Not many of us yunguns advocate for no health insurance. or poor use of the existing health insurance systems

honeyfill

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Re: How accurate are your numbers for retirement planning?
« Reply #19 on: December 12, 2017, 12:07:08 PM »
Quote
I think folks with clearly-identified dates fall into a couple of categories:

1.  People with triggering life events (this is us, a/k/a "DS goes off to college," because then we will be free to do the FIRE travel we want)
2.  People who are largely relying on definitive income streams (pension/SS) and so aren't as subject to the vagaries of the 4% rule
3.  People who really hate their jobs
4.  People who are "talking" with apparent certainty in the context of the forums but who are aware of a ton of unstated caveats (also us, btw)
5.  People who are very close to FIRE and so have a much clearer sense of their needs and the available assets.
6.  People who are blowing smoke and assuming a certainty that doesn't exist.

Pretty good list of reasons for having a "hard" date.  I would add one more
7.  Have hit FI but are afraid of "OMY" syndrome and procrastination. 

By setting a date, you force yourself psychologically to prepare.  I put a date of June 1 2018 because it there is a lot of stuff to do to prepare and since my job doesn't suck too bad , I could just let the date drift to some indefinite date in the future.

wenchsenior

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Re: How accurate are your numbers for retirement planning?
« Reply #20 on: December 12, 2017, 12:12:23 PM »
Quote
Why should I need more income in retirement that I ever needed during all of my working years (this is for all the people worried about what ifs)? For those who say the perks from jobs cost money, you had more job perks than me.

Because you will be older, and more prone to health problems.

Every time I see young people on this forum talking about how they can get by on low, but not poverty level, incomes in retirement, I assume they are underestimating the possibility of a major medical expense from their mid-40s to the age of Medicare eligibility.  Even with good insurance, two different friends of ours just ran up unexpected medical bills in the $200K+  range in the past few years. Fortunately, they were still working.  Both were in their 50s. Young people feel bulletproof.  I did.  I know better now.

Ran up 200k+ medical bills but did they have to pay 200k+? If they did, then they either didn't have good insurance or they chose out of network treatment. I have always made sure that my health insurance had hard limits beyond which I don't pay and I have had to buy my own health insurance for many years. And its my 50+ father who likes to run around without health insurance not me (don't get me started on how penny wise and pound foolish this is, especially for someone in his health). I expect freak medical events to occur in life and the cost of dealing with such things are built into my numbers.  And your 50s are prime chronic condition time, you should expect major medical events to occur in that time range (especially if you haven't been taking good care of your health but not only). Remember dying before retirement is still a possibility even when younger. Bulletproof is not the word I would use to describe how I feel, mortal is.

No, that's approximately what they paid, over about 3 years.  And both were definitely in-network, on standard health insurance plans offered through their employers (respectively, a big insurance company and a state plan offered to public employees).  Their ACTUAL medical bills over a couple of years ran more than a million dollars.   

Oh, I totally forgot another friend, who developed a chronic autoimmune condition around 50.  So far, they haven't paid that much out of pocket after 3 years of this (maybe 20-30K?).  But, they have discovered his condition is not manageable without life long biologic {ETA: actually I think they are specialty chemo drugs now that I think of it.  Whatever, the drugs cost ~60K/YEAR}.  So far,  his insurance company is refusing to pay, so he's taking them on credit, assuming eventually his insurance will acknowledge that they have to pay or he dies.  (I think it's Aetna, but I can't remember for sure.)

People think these kinds of bills can't happen.  It happens a lot more often than people realize.
« Last Edit: December 12, 2017, 12:21:58 PM by wenchsenior »

Laura33

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Re: How accurate are your numbers for retirement planning?
« Reply #21 on: December 12, 2017, 12:15:09 PM »

I like your bucket/scenario strategy.  Once we get closer I will have to keep this in mind.  How far out did you start planning this way?

Oh, about a year ago when I first read it here.  :-)

In all seriousness, it did help convince DH that we could FIRE when DS goes off to college vs. waiting until senior-year tuition is paid.  So that's a win.

GnomeErcy

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Re: How accurate are your numbers for retirement planning?
« Reply #22 on: December 12, 2017, 12:16:36 PM »
Out of curiosity, what ROI are most people assuming/using in their projections - not taking inflation into account?

Ex: Are most folks assuming 8% return and that their spending will increase with inflation at say +/-3%? So then obviously you'd want to plan for expenses in 10-20 years being higher?

honeybbq

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Re: How accurate are your numbers for retirement planning?
« Reply #23 on: December 12, 2017, 12:26:22 PM »
Quote
Why should I need more income in retirement that I ever needed during all of my working years (this is for all the people worried about what ifs)? For those who say the perks from jobs cost money, you had more job perks than me.

Because you will be older, and more prone to health problems.

Every time I see young people on this forum talking about how they can get by on low, but not poverty level, incomes in retirement, I assume they are underestimating the possibility of a major medical expense from their mid-40s to the age of Medicare eligibility.  Even with good insurance, two different friends of ours just ran up unexpected medical bills in the $200K+  range in the past few years. Fortunately, they were still working.  Both were in their 50s. Young people feel bulletproof.  I did.  I know better now.

I posted that my MIL's end of life care was 15k a month and people thought I was crazy. *IF* you have money and need around the clock care and are not hospitalized, this is what it costs.

wenchsenior

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Re: How accurate are your numbers for retirement planning?
« Reply #24 on: December 12, 2017, 12:28:23 PM »
Quote
Why should I need more income in retirement that I ever needed during all of my working years (this is for all the people worried about what ifs)? For those who say the perks from jobs cost money, you had more job perks than me.

Because you will be older, and more prone to health problems.

Every time I see young people on this forum talking about how they can get by on low, but not poverty level, incomes in retirement, I assume they are underestimating the possibility of a major medical expense from their mid-40s to the age of Medicare eligibility.  Even with good insurance, two different friends of ours just ran up unexpected medical bills in the $200K+  range in the past few years. Fortunately, they were still working.  Both were in their 50s. Young people feel bulletproof.  I did.  I know better now.

I posted that my MIL's end of life care was 15k a month and people thought I was crazy. *IF* you have money and need around the clock care and are not hospitalized, this is what it costs.

Yup.  And Medicare doesn't cover most elements of end of life care.

Dr.Jeckyl

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Re: How accurate are your numbers for retirement planning?
« Reply #25 on: December 12, 2017, 12:36:05 PM »
I just multiplied my spending by 25 so I can use the 4% SWR and didn't factor in any SS or my wife's pension. We are still near 20 years from retirement but it is a goal number that changes depending. I don't factor in raises or bonuses and when I get one I watch my number come closer to the present. I don't really know where my family will be in that time. But at least I know I have set a goal and at the very latest I'll get to retirement about 10 years before the general population.

However, I love numbers and its fun to watch them get bigger!!

MrMoneySaver

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Re: How accurate are your numbers for retirement planning?
« Reply #26 on: December 12, 2017, 12:36:11 PM »
Quote
I posted that my MIL's end of life care was 15k a month and people thought I was crazy. *IF* you have money and need around the clock care and are not hospitalized, this is what it costs.

But if I do pilates and eat leafy green vegetables, that won't happen, right?

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Re: How accurate are your numbers for retirement planning?
« Reply #27 on: December 12, 2017, 12:48:56 PM »
Out of curiosity, what ROI are most people assuming/using in their projections - not taking inflation into account?

Ex: Are most folks assuming 8% return and that their spending will increase with inflation at say +/-3%? So then obviously you'd want to plan for expenses in 10-20 years being higher?

If you're not going to take inflation into account then you wouldn't increase your spending.

So I project with 4% returns and constant (in inflationary terms) spending.

MrMoneySaver

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Re: How accurate are your numbers for retirement planning?
« Reply #28 on: December 12, 2017, 01:54:18 PM »
Quote
No, that's approximately what they paid, over about 3 years.  And both were definitely in-network, on standard health insurance plans offered through their employers (respectively, a big insurance company and a state plan offered to public employees).  Their ACTUAL medical bills over a couple of years ran more than a million dollars.

Curious what kind of illnesses these were?

wenchsenior

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Re: How accurate are your numbers for retirement planning?
« Reply #29 on: December 12, 2017, 02:22:48 PM »
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No, that's approximately what they paid, over about 3 years.  And both were definitely in-network, on standard health insurance plans offered through their employers (respectively, a big insurance company and a state plan offered to public employees).  Their ACTUAL medical bills over a couple of years ran more than a million dollars.

Curious what kind of illnesses these were?

Both involved complicated neurological emergencies and subsequent chronic conditions.  One involved emergency spinal column surgery and paralysis. Both involved months and months of follow up with multiple specialists and rehab facilities. One will presumably involve life long therapy in order for our friend to remain functional to do his job (which has a lot of responsibility, supervision, travel, requirements). 

These aren't common situations, so (statistically speaking) any given Mustachian might be smart to discount their own likelihood of finding themselves in these particular situations.  But I suspect the general concept of finding yourself with 100K+ of medical debt in a short amount of time is not nearly as statistically unlikely.  It was shocking to us how 3 members of our close social circle encountered life altering and (potentially) bankrupting medical situations within a few years of each other.  It was an eye opener, for sure.  Hard to plan for though.  Personally, we plan to increase our projected stash 200-300K beyond what we originally planned, 10 years ago.

Btw, our friend who ended up partly paralyzed? His condition could happen to anyone at any time, with no warning.  No real way to prevent it either.  And now he'll have much higher ongoing medical costs for life.  Same with the friend with autoimmune condition that requires specialty drugs. No way to predict it, no way to prevent it.  Lifestyle wouldn't have helped prevent either of these conditions.

nawhite

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Re: How accurate are your numbers for retirement planning?
« Reply #30 on: December 12, 2017, 03:43:47 PM »
Quote
No, that's approximately what they paid, over about 3 years.  And both were definitely in-network, on standard health insurance plans offered through their employers (respectively, a big insurance company and a state plan offered to public employees).  Their ACTUAL medical bills over a couple of years ran more than a million dollars.

Curious what kind of illnesses these were?

Both involved complicated neurological emergencies and subsequent chronic conditions.  One involved emergency spinal column surgery and paralysis. Both involved months and months of follow up with multiple specialists and rehab facilities. One will presumably involve life long therapy in order for our friend to remain functional to do his job (which has a lot of responsibility, supervision, travel, requirements). 

These aren't common situations, so (statistically speaking) any given Mustachian might be smart to discount their own likelihood of finding themselves in these particular situations.  But I suspect the general concept of finding yourself with 100K+ of medical debt in a short amount of time is not nearly as statistically unlikely.  It was shocking to us how 3 members of our close social circle encountered life altering and (potentially) bankrupting medical situations within a few years of each other.  It was an eye opener, for sure.  Hard to plan for though.  Personally, we plan to increase our projected stash 200-300K beyond what we originally planned, 10 years ago.

Btw, our friend who ended up partly paralyzed? His condition could happen to anyone at any time, with no warning.  No real way to prevent it either.  And now he'll have much higher ongoing medical costs for life.  Same with the friend with autoimmune condition that requires specialty drugs. No way to predict it, no way to prevent it.  Lifestyle wouldn't have helped prevent either of these conditions.

I'm still confused on how this happened assuming it happened after ACA went into effect. Out of Pocket Max on all health insurance plans I could find for myself max out at $15,000 for a family. What goes wrong to get from $15,000 to $X00,000? Why didn't the out of pocket maximums protect this couple?

soccerluvof4

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Re: How accurate are your numbers for retirement planning?
« Reply #31 on: December 12, 2017, 04:30:26 PM »
To OP's questions its a GOAL.  A predetermined goal date set by using an array of calculations that may come earlier or later based on life events. Your goal might read 25x's expenses needed plus 10% for unexpected future events. Mine was 30x's and the willingness to go back to some type of employment since I am fired 3 years now if I dont make it to SS with a number that still works for me.

wenchsenior

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Re: How accurate are your numbers for retirement planning?
« Reply #32 on: December 12, 2017, 04:36:43 PM »
Quote
No, that's approximately what they paid, over about 3 years.  And both were definitely in-network, on standard health insurance plans offered through their employers (respectively, a big insurance company and a state plan offered to public employees).  Their ACTUAL medical bills over a couple of years ran more than a million dollars.

Curious what kind of illnesses these were?

Both involved complicated neurological emergencies and subsequent chronic conditions.  One involved emergency spinal column surgery and paralysis. Both involved months and months of follow up with multiple specialists and rehab facilities. One will presumably involve life long therapy in order for our friend to remain functional to do his job (which has a lot of responsibility, supervision, travel, requirements). 

These aren't common situations, so (statistically speaking) any given Mustachian might be smart to discount their own likelihood of finding themselves in these particular situations.  But I suspect the general concept of finding yourself with 100K+ of medical debt in a short amount of time is not nearly as statistically unlikely.  It was shocking to us how 3 members of our close social circle encountered life altering and (potentially) bankrupting medical situations within a few years of each other.  It was an eye opener, for sure.  Hard to plan for though.  Personally, we plan to increase our projected stash 200-300K beyond what we originally planned, 10 years ago.

Btw, our friend who ended up partly paralyzed? His condition could happen to anyone at any time, with no warning.  No real way to prevent it either.  And now he'll have much higher ongoing medical costs for life.  Same with the friend with autoimmune condition that requires specialty drugs. No way to predict it, no way to prevent it.  Lifestyle wouldn't have helped prevent either of these conditions.

I'm still confused on how this happened assuming it happened after ACA went into effect. Out of Pocket Max on all health insurance plans I could find for myself max out at $15,000 for a family. What goes wrong to get from $15,000 to $X00,000? Why didn't the out of pocket maximums protect this couple?

You know, that is a very good question, and you've got me wondering too now.  This out of pocket max is probably why the recent autoimmune case hasn't run the huge $ numbers that the other two have.  And you're right, I know for sure the plan one couple was on should have maxed at around 14K/year OOP, so no more than ~45K over the period of most intense medical care.  I do remember insurance refused to pay for full time rehab facility for a much shorter time than was needed (paid for about 2 months when it was needed for several months more, which would add another 30-50K onto the bills).    And the couple is now maxing out of pocket every year, and will presumably do so most years forever going forward.  But that first 3 years couldn't have run >100K, now that I break it down.

However, I am now wondering that in this case, whether there was emergency care that was out of network? I know most of hte care was not.  Or...more likely...in discussing with them the "costs" associated with this illness, I could not differentiate in conversation with when they were referring to e.g., some extensive house renovation that they had to take on to make the house handicap safe after the incident.  That could easily have accounted for another 50-75K, given what they had done.  Since a $ is a $, and the money had to be spent, I guess it doesn't matter to them.  It's still a ton of cost.

But that second huge chunk would not have been medical bills in a technical sense.

Actually, you guys are making me feel a little better and got me questioning my assumptions when they were discussing the bills related to this.  (Not about end of life, nursing home, or in-home care needs, which still require huge $ amounts if one needs them), but about the likelihood of running humongous medical bills over just a few short years.  It does seem like you'd need a very bad confluence of circumstances for it to happen.  Not that it's great to be in the position a couple of them are, where they are likely to hit a max out of pocket or close to it for every year, or multiple years, in the future.  But you guys are likely correct, that this is a risk that could be actually planned for with a high statistical likelihood of success.

I'm still planning on saving an extra 250-300K, but this discussion is making me reconsider my reflexive 'bunkering' mentality after having so many friends around me stricken with such bad health. 

Thanks, all.  I feel better about this subject now than I have in several years.  Even if it feels ghoulish to hypothesize about the nitty gritty of various friends' medical bills.


Caoineag

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Re: How accurate are your numbers for retirement planning?
« Reply #33 on: December 12, 2017, 05:27:46 PM »
One other thing Wenchsenior, the longer you go without touching your medical pot of money, the larger it grows. So if you don't use it for the next say 10 years to the extent you thought you would, its there to help with other expensive things that can happen. I think that is why you may think some of younger retirees income numbers are low, a lot of the younger retirees are planning to grow those assets during our low risk years so that they are much larger when we enter our high risk years. We might be living on between 20-30k per year but in the background the portfolio is building so that when we need it, we can spend the 60k when necessary.

You might also consider that long term nursing home stays don't usually coincide with super expensive early medical care (let's face it, some of these nasty surprise medical events significantly shorten your lifespan, i.e., early cancer and long nursing home stays are generally not the same risk profile) so your medical pot of money can insure against different, competing risk events where one issue appearing reduces the likelihood of another.

wenchsenior

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Re: How accurate are your numbers for retirement planning?
« Reply #34 on: December 12, 2017, 05:48:14 PM »
One other thing Wenchsenior, the longer you go without touching your medical pot of money, the larger it grows. So if you don't use it for the next say 10 years to the extent you thought you would, its there to help with other expensive things that can happen. I think that is why you may think some of younger retirees income numbers are low, a lot of the younger retirees are planning to grow those assets during our low risk years so that they are much larger when we enter our high risk years. We might be living on between 20-30k per year but in the background the portfolio is building so that when we need it, we can spend the 60k when necessary.

You might also consider that long term nursing home stays don't usually coincide with super expensive early medical care (let's face it, some of these nasty surprise medical events significantly shorten your lifespan, i.e., early cancer and long nursing home stays are generally not the same risk profile) so your medical pot of money can insure against different, competing risk events where one issue appearing reduces the likelihood of another.

Good points.  Personally,  I went from successfully dealing with a chronic but manageable condition in my teens-age 40, to suddenly developing a nonstop blizzard of new and heretofore mostly unexplained symptoms and impairments starting at age 40.  This decade so far has been frustrating, strange, and our annual health care spending has increased inexorably almost every year toward the max out of pocket.

I suspect this, combined with the severe medical crises experienced by a number of close friends during the same period, has warped my perception of risk  of expensive health issues in the 40s and 50s. 

Laura33

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Re: How accurate are your numbers for retirement planning?
« Reply #35 on: December 12, 2017, 05:55:46 PM »
Out of curiosity, what ROI are most people assuming/using in their projections - not taking inflation into account?

Ex: Are most folks assuming 8% return and that their spending will increase with inflation at say +/-3%? So then obviously you'd want to plan for expenses in 10-20 years being higher?

DH ran our numbers based on returns above inflation to keep everything on the same nominal dollars without a lot of adjustments back and forth.  I think his scenarios were based on 3%, 4%, and 5%.

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Re: How accurate are your numbers for retirement planning?
« Reply #36 on: December 12, 2017, 11:52:33 PM »
I think OP raises a very important point about unknown, potentially large expenses in the future that are 'one-offs' in the sense of not necessarily recurring during your FI stage. For me, living in a HCOL Asian city, the three biggest issues will be:

1. Expensive property (this has caused me so much woe I don't really want to go into it), which will essentially be a liability, unless I choose to sell it one day and retire elsewhere. Property is so expensive that my partner and I will have to use our combined savings from the past 6 years to cover it. We will then start from 0 again in building up a FIRE stash. Depressing.

2. Children's education - everything from private school fees to tutoring, to university. Local schools here are fine, but the quality of the education (even the level of English) varies greatly and it's a bit of a lottery, with children going in for interviews at 3 years old (wtf?). It is my choice, but I would like to be able to pay for their university education, wherever it may be (unless they're doing a PHD in basket weaving).

3. Medical expenses - I haven't really got my head round this since I've been spoilt by Employer full coverage - but I think it'll be close to but less than US levels of insurance premiums.

I don't think any of the above are un-mustachian choices, except perhaps my decision to stay in this HCOL city (where I have.. a stable job, family, friends - so maybe not so inexplicable?).
« Last Edit: December 12, 2017, 11:57:12 PM by Albatross »

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Re: How accurate are your numbers for retirement planning?
« Reply #37 on: December 12, 2017, 11:57:41 PM »
Out of curiosity, what ROI are most people assuming/using in their projections - not taking inflation into account?

Ex: Are most folks assuming 8% return and that their spending will increase with inflation at say +/-3%? So then obviously you'd want to plan for expenses in 10-20 years being higher?

DH ran our numbers based on returns above inflation to keep everything on the same nominal dollars without a lot of adjustments back and forth.  I think his scenarios were based on 3%, 4%, and 5%.

I don't expect any return. I just vary a SWR and hope the stash will return the SWR + inflation. I haven't put in any additional growth.

SnackDog

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Re: How accurate are your numbers for retirement planning?
« Reply #38 on: December 13, 2017, 02:28:17 AM »
Health costs including long term care costs are a HUGE unknown that few can plan for. If you do plan for every conceivable health situation, you will never retire. At some stage, you just have to cross your fingers.

My own anecdotal experience -
- about a dozen friends with cancer including several who died.  Those who needed several years of treatment paid a fortune out of pocket even under full corporate health care.
- two friends living with HIV for 25 years and spending a fortune on drugs
- close family friend who spent his life in assisted living from age 3 or so
- another friend with a daughter with severe disability who required nurse care at home
- two grandparents who ended up in spend nursing homes in their 90s including one who was assisted at home for more than 20 years after a stroke in her 60s
- close friend who fell off his bike around age 50 and never quite recovered. Had to work (consulting) from his bed at home. Is retired now but still can't sit comfortably.
- college roommate with a step son who fell off a zipline, causing massive head trauma. He had to quit his job to deal with doctors and insurance full time for two years.
- college colleague who secretly lived in a building on campus to save money to treat his own autoimmune disorder
- friend with wife who lost her intestines in a car accident and required intravenous feeding for life (~$300/day)
- supervisor with wheelchair-bound son who required assistance at home
- husband of friend with PTSD requiring monthly vet hospital visits the last 20 years or so

That's about it off the top of my head.  I doubt that I am unusual.  Health care disasters are real, they happen and they cost a fortune.  You do not want to be treating these without good insurance backed up with strong savings (i.e. you should not plan to rely on medicare or public health).


MrMoneySaver

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Re: How accurate are your numbers for retirement planning?
« Reply #39 on: December 13, 2017, 05:37:12 AM »
Health costs including long term care costs are a HUGE unknown that few can plan for. If you do plan for every conceivable health situation, you will never retire. At some stage, you just have to cross your fingers.

My own anecdotal experience -
- about a dozen friends with cancer including several who died.  Those who needed several years of treatment paid a fortune out of pocket even under full corporate health care.
- two friends living with HIV for 25 years and spending a fortune on drugs
- close family friend who spent his life in assisted living from age 3 or so
- another friend with a daughter with severe disability who required nurse care at home
- two grandparents who ended up in spend nursing homes in their 90s including one who was assisted at home for more than 20 years after a stroke in her 60s
- close friend who fell off his bike around age 50 and never quite recovered. Had to work (consulting) from his bed at home. Is retired now but still can't sit comfortably.
- college roommate with a step son who fell off a zipline, causing massive head trauma. He had to quit his job to deal with doctors and insurance full time for two years.
- college colleague who secretly lived in a building on campus to save money to treat his own autoimmune disorder
- friend with wife who lost her intestines in a car accident and required intravenous feeding for life (~$300/day)
- supervisor with wheelchair-bound son who required assistance at home
- husband of friend with PTSD requiring monthly vet hospital visits the last 20 years or so

That's about it off the top of my head.  I doubt that I am unusual.  Health care disasters are real, they happen and they cost a fortune.  You do not want to be treating these without good insurance backed up with strong savings (i.e. you should not plan to rely on medicare or public health).

This is a great post. It's the dose of reality that many of us here need. It makes me think I need to set my stache target a bit higher to allow more room for health costs. In this area of planning, the Bogleheads are much strong than we Mustachians are. Probably because they tend to be older.

Let me just add that dental problems can also be a horror even under the best insurance plans. We were out more than $11,000 one year even with good corporate insurance.

Acastus

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Re: How accurate are your numbers for retirement planning?
« Reply #40 on: December 14, 2017, 11:40:53 AM »
For most people on the board, retirement is the undiscovered country. They are not there yet. Everything is theoretical. Their friends and relatives don't get FIRE, so they cannot seek advice from their close circle. There are a lot of unknowns.

I am right there with the pack. I think I am close to FIRE, but I simply cannot do long term planning for the cost of healthcare. It might be 2k, or 50k, or completely unavailable. It is unknowable. High cost, but predictable, would be better.

Given the uncertainty, it is best to play it a bit safe. Risks are not balanced. If I save too much, I end up richer than I need to be. No worries. If I don't save enough, I will go broke just when I am too old to go back to work. Disaster! So it is better to save too much.