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More Retirement Income Modeling Adjustments

Torrid Support 1

February 18, 2010 23:25

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I have just reviewed the tutorial and your product seems like a fit. However, I did not see where expenses can be adjusted at certain periods. For example an adjustment when one spouse dies or an adjustment for another reason in the middle of the plan. Does this software provide this feature?

There are a couple of ways to do this.... to model retirement expenses in periods.

The software combines the Retirement Income Goal projection at the Inflation Rate both on Other Assumptions, with anything you enter under Special Expenses. So you could have a $50k of income at 3% inflation, but for example have a mortgage that does not get paid off until 5 years into retirement. In which case enter a Special Expense starting at the retirement age, say 65, with Duration 5 years and that mortgage expense will end in 5 years.

Second method involves entering $0 in the Retirement Income Goal field on Other Assumptions and then not using that at all. You then go to Special Expenses and model each "period" using one line per period. So enter say line 1 "Retirement 1st 5 yrs" and enter $50k and starts at 65, Duration 5... this will repeat that $50k expense from 65 to 70. You can set the inflation rate on there too.

Then line 2 might be "Retirement 2nd 5 yrs" and enter $45k and starts at age 70 and Duration 5 years, etc. In this way you can break retirement up into as many "periods" of variation as you want, and of any duration.

Does this help?

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2 comments

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  KPCHERRY August 19, 2010 17:34

  I too have this situation.  I have my budget organized into categories:

  (1) Joint fixed expenses which are not sensitive to how many people are living.  These go into the Other assumptions - retirement income goal with inflation.

  (2) Medical Expenses - my husband is a type1 diabetic with heart disease so we have had very high healthcare cost all along.  I am also 6 years younger than my husband on a different Medicare timeline.  For health insurance costs, I wanted to be able to show (a) phase 1 pre medicare COBRA costs for both of us  (b) hubby on Medicare - me on COBRA or other premedicare policy cost  and (c) both of us on Medicare costs.  By far our largest expense is prescription costs, so I modeled these copays in the same periods as health insuranace costs.  Modeled non prescription copay costs the same way.

  This is helpful as our prescription copays have been inflating at a 10% rate over the past several years, even with a great health insurance policy with

  great Rx coverage through our employer.

   

  (3) Other Personal Expenses (food, clothing, etc.) -  Also used Special Expenses for these as they are sensitive to 1 or 2 people living.

  I know this is a lot of work but frankly after working with the Fidelity model and another model at my husband's employer, these expenses would be grossly overstated if we did not do this.  This way we can stop these expenses when one of us is deceased.

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  Torrid Support 1 August 19, 2010 18:23

  KPCHERRY,

  If you are putting 2) and 3) under Special Expenses then yes you are doing it correctly.  That gives you the flexibility to break out special items like you have done and more finely control their COLAs/inflation, start, stop, etc.

  -Tim