Please check my FIRE math

[elaine amj]

I found goldielock's bucket calculation method from another thread and thought it made a lot of sense, especially in terms of thinking about how much I would need at each phase of our retirement. Like goldielocks did, I calculated from Phase 4 backwards.

I'm not very good at this math so I would really, really appreciate help from MMM'ers to check my calculations. Is $500k + CPP/OAS/pensions REALLY all I need to retire 3 years from now?

Phase 4 (75 - 95) *note: updated to increase desired income from $27k to $35k*
My CPP $3765 + OAS $6839 = $10,604/year
DH's CPP $2465 + OAS $6839 = $9304/year
DH's old US Defined Benefit Pension = $3360/year
DH's new Cdn Defined Benefit Pension = $4000/year
(both pensions have 100% survivorship rights)
Total $27,268
Extra desired income (for $35,000 total): $7732
Money needed to fund 20 years at $7,732, with the total invested at 4% moderate conservative asset mix, net of inflation.

= PV(rate, nper, pmt, FV, beg/end)
=PV(0.04,20,-7732,0,0)
= $105,080 at age 75.

Money in today's dollars : (has 30 years to compound until age 75, again at 4% interest net of inflation).
=$32,398.13

PHASE 4 -- Money needed in today's dollars: =$32,398

Should be plenty for this stage in our lives. We will also likely get some GIS supplements. And whatever is leftover from our other phases plus our paid-off house which we are not including in our savings calculations. Best of all, all this income is regularly adjusted to cost-of-living.

*note: our CPP estimates are low because I was a SAHM for many years - only 7/8 yrs of working life under my belt. DH worked in the US for most of his career. If we retire in 3 yrs, he will only have 4 yrs of working life in Canada under his belt.

Phase 3 -- Age 65 to 75  Slowing down, but still travelling
DH's CPP+OAS+ both pensions: $16,664
I am 9 years younger than DH so will not have access to CPP/OAS yet.
Extra desired income: 18,336(for $35k annual total)

Money needed to fund 10 years at $18,336, with the total invested at 4% moderate conservative asset mix, net of inflation.

= PV(rate, nper, pmt, FV, beg/end)
=PV(0.04,10,-18336,0,0)
= $148,721 at age 65.

Money in today's dollars : (has 20 years to compound until age 65, again at 4% interest net of inflation).
=$67,874

PHASE 3 -- Money needed in today's dollars: =$67,874

Phase 2 -- Age 55 to 65 Kids fully launched, fully retired, golden years
Desired income after tax is $35,000 per year

Money needed at age 55, to last 10 years at 4% interest net of inflation...
=PV(0.04, 10, -$35000,0)
= $283,381

Money in today's dollars : (has 10 years to compound until age 55, again at 4% interest net of inflation).
=$191,442

PHASE 2 -- Money needed in today's dollars: =$191,442

Phase 1 -- Age 48 to 55  Early retirement, teens almost grown, likely supplemented by part-time/contract employment to pay for any luxuries or add to savings.
7 years x $40000 = $280,000

PHASE 1 -- Money needed in today's dollars: =$248,918

Total needed for all phases in today's dollars:
Phase 4 $32,398
Phase 3 $67,874
Phase 2 $191,442
Phase 1 $248,918

Total $540,632

*Updated: I only get a 74% success rate on thefourpercentrule.com. This calculator lets me have 2 phases: Age 48 - 54: $40k and Age 55 - 95 at $35k. I originally showed a 94.5% success rate on Firecalc with a $40k annual spend (and reducing spend by 2-3% from age 56 - 76). Upon a closer look, this spend reduction dropped me down to an unacceptable $18k - $24k over a period of 6-7 years.
Looks like the main difference is interest rates. I had an optimistic 4% rate of return (7% avg interest - 3% avg inflation).

[MDM]

I found goldielock's bucket calculation method from another thread and thought it made a lot of sense, especially in terms of thinking about how much I would need at each phase of our retirement. Like goldielocks did, I calculated from Phase 4 backwards.

I'm not very good at this math....

Looks pretty good so I edited your last sentence above. :)

[BeanCounter]

I think this method is great! Good job!

[arebelspy]

Total $508,234
Firecalc gave me a 94.5% success rate with a $40k annual spend (and reducing spend by 2-3% from age 56 - 76)

That would be good enough for me, if you're confident you put in all the right numbers. :)

[FrugalFan]

Looks great! And I'm impressed that you can live on 40 k! Two thoughts. You said your DH worked a lot in the US, did he still live in Canada during that time (at least 40 years after the age of 18 for max OAS eligibility)? Also, I have no idea how the US SS system works, but is there a chance he is eligible for some of that?

[teen persuasion]

I'm unfamiliar with how CPP/OAS work.  What if in phase 4 one of you predecease the other, will the survivor continue collecting both sets?

[elaine amj]

Are you serious?

WAIT....are you serious???!!!! I *always* get this type of math wrong on my first try! (Thanks for the vote of confidence MDM!)

I'm going to be running about another zillion numbers LOL! We actually have $530k RIGHT NOW.

I think we'll have OMY or even TMY for a little bit while we make sure our numbers are really, really right. Plus, DH needs to solidify his position at work so that his resume is set for part time work in the future. He is a professor at our local community college and only has 1 year in. I think at least 3 years will be reasonable for future opportunities.

Travelling Biologist: Yes, DH has always lived in Canada while he worked in the US. There were some more confusing times - but he always maintained his Ontario driver's license and OHIP eligibility - should be OK for OAS I hope.

teen persuasion: I am glad you asked as I will only be about 66 - 85 in Phase 4, so this does bear thinking about. With OAS, the survivor doesn't get anything. But there are other safety guards like an Allowance for the Survivor (if the survivor is 60-64) and the Guaranteed Income Supplement. For CPP, survivors get 30-60%. The 2 pensions ($7600/yr), I would get the full 100% amount. let's say I don't have any access to his CPP/OAS - my worst case is $10k (my CPP/OAS) + $7600 (his 2 pensions) = $17600/year. Hmm...I will consider bumping up this number more.

Extra safety nets:
- $100k or so in extra savings since we would not retire right now. My guess is at least 2 more years and it will likely be in phases with me retiring first and DH hanging in there another 1-2 years
- Planned part-time work. DH plans to teach some online courses in the initial years of FIRE.
- paid off house worth about $160k. Am not including this in any of my retirement numbers.

[elaine amj]

I found another retirement calculator that was pretty easy and intuitive to use - www.fourpercentrule.com

Turns out some of my assumptions weren't the best when I used firecalc.  I originally showed a 94.5% success rate on Firecalc with a $40k annual spend (and reducing spend by 2-3% from age 56 - 76). Upon a closer look, this spend reduction dropped me down to an unacceptable $18k - $24k over a period of 6-7 years.

I only get a 74% success rate on thefourpercentrule.com My numbers are here. This calculator lets me have 2 phases: Age 48 - 54: $40k and Age 55 - 95 at $35k. Looks like the main difference is interest rates. I had an optimistic 4% rate of return (7% avg interest - 3% avg inflation). When I run the simulation with that rate of return, everything looks great (with a balance of $600k at 95). But when I compare to historical rate of return, I'm down to a 74% success rate.

I don't feel comfortable with this and we will need to increase our safety margins. Or learn more math LOL!
If we wait another 5 years and keep saving $50k/year, that gets me up to a 95% success rate. My DH is a worrywart and while we have a 50% success rate if we FIRE now, I doubt that will be enough safety for him. 5 more years will put us in a very good position.

[MDM]

I found another retirement calculator that was pretty easy and intuitive to use - www.fourpercentrule.com

That does appear to be a nice program. 
Unfortunately when it comes to spending choices, it appears to ignore the "4%" option and uses only a manual spending amount when retirement age is 2 or more years before current age - and gives no warning.  As there is no way to tell if that is the only problem, finding that right away makes me not trust anything else it calculates.

And yes, the math itself is the easy part.  It's all the assumptions that go into the math that can be difficult to predict.  Good luck!

[elaine amj]

I found another retirement calculator that was pretty easy and intuitive to use - www.fourpercentrule.com

That does appear to be a nice program. 
Unfortunately when it comes to spending choices, it appears to ignore the "4%" option and uses only a manual spending amount when retirement age is 2 or more years before current age - and gives no warning.  As there is no way to tell if that is the only problem, finding that right away makes me not trust anything else it calculates.

And yes, the math itself is the easy part.  It's all the assumptions that go into the math that can be difficult to predict.  Good luck!

I compared the math against firecalc (for my circumstances) and the results were pretty consistent when I used as close to the same scenarios as possible. It allowed me to use 2 phases for spending plans whereas firecalc's spend reduction scenario dropped my spending to unacceptable levels.

You're right - it has a lot to do with the assumptions that go into the calculators. I just reminded myself that my Plain Jane bucket calculation has a 74% chance of success (pretty good chances! Especially considering our other safety margins) and now we are just working for extra security. I immediately felt much better :)

[arebelspy]

It looks like that calculator has some bugs in their calculations, but with the table feature broken, I can't tell for sure.  It's neat, but can't recommend.  Hopefully they fix it.  :)

[elaine amj]

It looks like that calculator has some bugs in their calculations, but with the table feature broken, I can't tell for sure.  It's neat, but can't recommend.  Hopefully they fix it.  :)

I'm going to run my numbers through a few more calculators. I am happy I ran them manually using goldielock's bucket method though. That really helped me to see (and consider) the various phases of our retirement.

Thanks so much for the feedback on the fourpercentrule calculator - that really helps to know. I did read the (very lengthy) thread on here about "cFIREsim and firecalc lies" and it was really helpful to understand a bit more about what each calculator tells and doesn't tell. I think I'm going to have to read that thread about 10 more times to understand about a 1/4 of it :). It's all rather complex and naturally, I want to make sure I have at least some understanding of what I am doing.I guess this is where optimism comes in!

DH and I talked last night and we are open to the possibility of my FIREing in a year or so and he following along in 3-5 years.

[BeanCounter]

It looks like that calculator has some bugs in their calculations, but with the table feature broken, I can't tell for sure.  It's neat, but can't recommend.  Hopefully they fix it.  :)

I'm going to run my numbers through a few more calculators. I am happy I ran them manually using goldielock's bucket method though. That really helped me to see (and consider) the various phases of our retirement.

Thanks so much for the feedback on the fourpercentrule calculator - that really helps to know. I did read the (very lengthy) thread on here about "cFIREsim and firecalc lies" and it was really helpful to understand a bit more about what each calculator tells and doesn't tell. I think I'm going to have to read that thread about 10 more times to understand about a 1/4 of it :). It's all rather complex and naturally, I want to make sure I have at least some understanding of what I am doing.I guess this is where optimism comes in!

DH and I talked last night and we are open to the possibility of my FIREing in a year or so and he following along in 3-5 years.

Would you mind posting a link to the cFIREsim and firecalc lies? I probably need to read up on that. Thanks!

[arebelspy]

Eh, I think it's overblown, but here you go:
http://forum.mrmoneymustache.com/ask-a-mustachian/firecalc-and-cfiresim-both-lie/

[FrugalFan]

Another thought. Since you think you can survive on just pension and benefits later on, would you consider using VPW? That is what people use when they want to spend all their money, and if you time the period right, you never run out (and thus never fail), though the amount you withdraw will fluctuate based on the size of your portfolio and the market conditions. You could use a variation of this where you look at the suggested percent withdrawal for a particular year as the maximum you could withdraw, but don't withdraw it all if you don't need it all. That way there might still be some leftover at the end if the markets were good.

[Goldielocks]

Just a caution here 

1.  all of the interest rates are what I was satisfied with,  but you need to figure out your own.  Others have pointed out that some of the rates are too aggressive and / or too conservative.   Think of the interest rates as examples only. ie.  That 5% in many calcs requires up to 8% annual return if you includea 3%  inflation.

1b.   I had a huge buffer of extravagant spending of $75k per year to back up any mis calc in rates.

2.  Based on your other post, you may be close to pulling the trigger.  I would ask CRA to calculate the CPP you are entitled to at age 65 based on credits earned to date.   I have been working and paying nearly full pay for 24 years, and will only get about half of CPP maximums.... when you FIRE young, it is less than you think you will get as you will have so many years of no service.




Congrats!

[elaine amj]

Goldielocks: some very very awesome advice. I will be getting a more accurate number for my CPP.

I still have a lot more boxes to check off so it will be a while yet...but it is pretty exciting!

[Captain and Mrs Slow]

I’m quite impressed with the approach you’ve taken I’ve done something similar but yours is cleaner and better thought out. I don’t think it’s worth a new thread so I’m just going to hijack yours :)

 My wife and I are both older so it’s not really practical any more for us to consider early retirement but it doesn't mean we can’t plan things out. I’ll add numbers in later but everything is based on my wife’s age as she’s the wage earner in the family.

Phase 1 -- The Working Years Age 52-63

Our focus here is travelling. Thankfully she has a very good paying job which not only pays well but gives her a lot of time off. This is what allows us to travel extensively. While her parents are still alive we plan to go home every 2 years. Alternative years her family comes over. This year we’re doing Munich (cheap) and Italy, Venice and  Sirmione. As well as a cruise in the fall.

Phase 2 --  The Travelling Years  Age 62-75

This one is a bit more complicated because we live in Munich, beautiful but beyond our retirement budget. We have two options here, traditional retirement or becoming perpetual travellers

Traditional Retirement: we have a very nice apartment in Frankfurt which we could move back into and we’d spend our winters somewhere warm (Spain or Florida) aka become Snow Birds.

Perpetual Travellers: we’ve seriously debated simply staying in Munich till retirement and than closing down our apartment and becoming perpetual travellers. We’d like to split our time between Canada USA/Mexico and Europe. Idea is we buy a 5th wheel which would allow us to visit family for extended visits and then take off across America when we get familied out. It's also quite easy to get short term housing in Munich so it would be nothing to come back for 4-6 months, by the time we retire we’ll have built up an extensive network of friends which we can tap and more importantly we can stay on the Germany healthcare system.

Phase 3 -- Time to Go Home 75 plus

The main reason for me returning to Canada is senior care. My wife has to pay a mandatory nursing care insurance tax. Problem is that it really only covers about 40% of the cost of an old age home, if you don’t have enough income to cover it they will force you to sell assets or go after your kids (this is a Europe wide thing) Now I may be a tax the rich liberal but when it comes to the taxes I have to pay I go totally John Galt! There is no way I’m giving up a life time of savings and investing, I’d rather go blow it all on the craps table than let the government take it. End Rant :) But to be honest with an aging population this may happen in Canada too, regardless at that point in my life I want to be home.

As mentioned I'll post the numbers a bit later