Consumption smoothing

I'm 58 and plan to retire at age 62. Whenever I set age in ESPlanner for collecting Social security to 62, then resulting report shows a smooth discretionary spending amount for the rest of my lifespan . However when I set Social security at age 70, the discretionary spending is not smooth--it shoots up at age 70 quite a bit.
I thought the advantage of ESPlanner was it was able to project smooth spending throughout the rest anticipated lifespan. What gives???


dan royer's picture

I'm just a user like you, but I think what you're seeing is relatively common and not a bug, but a feature (famous last words of software developers everywhere). That is, ESPlanner does its best to smooth your consumption given the scenario you set up, but that doesn't mean you will always get a perfectly smooth consumption across your entire lifespan. There may be occasional, step changes followed by periods of smooth consumption depending on your scenario. This is not an error, but a result for you to digest and decide what to do with. I don't know your scenario, so I'll relate one of mine. I find that if I put all of my current retirement contributions into a Roth 401(k) instead of regular 401(k), my standard of living now drops quite a bit (due to taxes), and takes a sudden, sizable jump up sometime in my 70's. If I contribute solely to a regular 401(k), my consumption is smooth across my lifespan at a point roughly between the two extremes in the Roth case. I have to ask myself whether I'd rather have a continuously smooth consumption across my lifespan (regular) or I'm willing to take the sizable hit now for a sizable increase later. I can also iterate and modify the scenario to smooth things more by looking at other scenarios like withdrawal order, special withdrawals, Roth conversion later, etc.

Hope that helps.

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