Question Regarding Conventional Planning

I've been playing around with the conventional planning method. The guidance in ESPlanner says:

"In conventional planning mode, you specify your post-retirement discretionary spending (i.e., you set your own retirement spending target) and the program smoothes your living standard, but only before you retire.When you activate conventional planning, you'll see a entry that allows you to specify your post-retirement annual spending target and the year you wish this spending to occur.If you set your spending target too high, your targeted spending may not be affordable. In this case, the program will recommend negative discretionary spending (displayed in red) before retirement. Since negative spending isn't possible (short of selling a kidney), so you'll need to lower your target or plan to work longer to make your target affordable."

I've been changing the target to avoid negative discretionary amounts, but when I have positive amounts I have many years of negative savings, which results in negative real assets balances.

How should I be using this? I'm basically trying different discretionary spending targets to keep pre-retirement consumption positive. Note: I have only two years in pre-retirement. In those years, my income and savings are intentionally high. In other words, I'm making and saving a lot of money now, before I retire.

How should I set this up?

Comments

dan royer's picture

Conventional planning allows you to insist on a discretionary spending target for your retirement years. Frankly I find this feature more annoying than helpful. It seems to illustrate the foolishness of setting your own target, but not much more in my view. Using the living standard index you can raise or lower future living standards. So if you raise the standard from retirement year forward to say 120% it will put you on a severe budget up to that point (meaning make you save). You could also use the reserve fund to "hide" some money from ESPlanner for awhile and then return that money to circulation at some future date.

I agree. It's not as useful as the other methods. I was playing around with it as a double check on the results from the other methods.

Which methods do you find most useful? Do you start with one and then use others to back up your results?

dan royer's picture

I stay in economics mode. I would model maximum contributions to the retirement accounts or ROTH if available. I don't like using the standard of living index for this kind of purpose if I can help it. I'm not sure why. If I wanted to force savings into non-retirement assets I'd probably use the reserve fund to sock money away for a few years. This will sequester some of your cash away from the program so it won't use it for consumption smoothing--then you pick a future date where that money returns to your economy for normal discretionary spending/smoothing purposes. That user interface is a little confusing on the Reserve Fund (I believe it's in the Special folder) but once you see what's going on there, I think it's a bit more straightforward than adjusting the curve on your standard of living.

I've tried the reserve fund and adjusting the standard of living approaches. Both can work so it's probably a matter of personal preference and comfort. For this specific instance, I'd probably adjust the standard of living, but again that's just my preference.

In either case, I agree 100% with Dan on staying in economics mode.

Best,
Brian

Thanks for the tip. I'll try the reserve fund approach and see how it goes. And, yes, it seems economics mode is the way to go.

I have ~3 years until I retire. My spending budget format conforms to that the broad categories in ESP's Total Spending and Total Income reports, plus taxes and Savings in the Regular Assets report. (Within ESP's discretionary spending I have more detail in my personal budget.)

Due to a mortgage refinance I have an unusual amount of cash available. ESP wants to spend it, the result being recommended discretionary spending far higher than I need or want. To force ESP to defer use of those funds until my retirement, I created a contribution to reserve large enough to adjust the recommended discretionary spending down to the level that I've actually budgeted.

My wife will retire a couple of years later so we need to maintain some level of reserve. I set it back to my "real" reserve intent as of the year I retire. That makes the sequestered cash available to my economy. When she retires, we'll liquidate the reserve fund since our retirement and regular savings become one big reserve fund, in effect.

The result of the above approach is a level Living Standard Per Adult in my pre-retirement period, followed by a different (somewhat higher) level LSPA starting as of my retirement, through the end of the plan.