This is a very useful tool for a quick check-up. I made two tweaks to my inputs that you may want to consider putting into the instructions.
I subtracted 401k/403b contributions from our gross salaries. With catch-up contributions after age 50, this can be a large deduction from salary that is not available for spending during our working life. Because of these deductions, our net current disposable income is substantially less than gross income minus taxes. Both the income and deduction will vanish at retirement, so it will be like they never existed in determining standard of living. I think our actual post-401k deduction disposable income is a more appropriate target for future income.
I made a rough estimate of the current accrued financial value of spouse's pension and added that to the financial assets (I just assumed asset value equivalent to an annuity with an annual payout of 6% of lump sum SPIA, so 16.6x annual pension estimate if leaving job today). This added value would rise over time while working as more years of employment accrue more future pension annual income. Since the calculator assumes 4%-5% withdrawals from a portfolio, the logic of the 6% SPIA payout needs to be thought through a bit to see if that is the right number, but I think it is close due to differences of portfolio future investment returns with inflation versus pension fixed income. I think this simple input tweak addresses one of the common comments.
I did not factor in Social Security because my understanding is that the estimate of required assets already factors in future Social Security income supplementing income from assets. Once I made these two simple tweaks, I felt that the calculator produced an accurate assessment of our financial position whereas initially it was too pessimistic in my opinion.
Comments
This is a very useful tool for a quick check-up. I made two tweaks to my inputs that you may want to consider putting into the instructions.
- I subtracted 401k/403b contributions from our gross salaries. With catch-up contributions after age 50, this can be a large deduction from salary that is not available for spending during our working life. Because of these deductions, our net current disposable income is substantially less than gross income minus taxes. Both the income and deduction will vanish at retirement, so it will be like they never existed in determining standard of living. I think our actual post-401k deduction disposable income is a more appropriate target for future income.
- I made a rough estimate of the current accrued financial value of spouse's pension and added that to the financial assets (I just assumed asset value equivalent to an annuity with an annual payout of 6% of lump sum SPIA, so 16.6x annual pension estimate if leaving job today). This added value would rise over time while working as more years of employment accrue more future pension annual income. Since the calculator assumes 4%-5% withdrawals from a portfolio, the logic of the 6% SPIA payout needs to be thought through a bit to see if that is the right number, but I think it is close due to differences of portfolio future investment returns with inflation versus pension fixed income. I think this simple input tweak addresses one of the common comments.
I did not factor in Social Security because my understanding is that the estimate of required assets already factors in future Social Security income supplementing income from assets. Once I made these two simple tweaks, I felt that the calculator produced an accurate assessment of our financial position whereas initially it was too pessimistic in my opinion.Post: About the Checkup
Link to comment from August 8, 2022