Steve, your approach with special withdrawals is a common one, and is what I use. I gather that, in short, the math is too complex for ESP to determine variable withdrawal amounts to create a smooth standard of living. At least, it can't do that and complete computation of the problem in an acceptable period of time. Once you remove the restriction that withdrawals should be smooth, the number of possible combinations of variable withdrawals seems infinite.

Adjusting smooth withdrawals is a bit like whack-a-mole. Adding a larger withdrawal in one year may result in 0 regular assets in a different year. The goal is non-zero regular assets in all years.

If I have to make adjustments to test a scenario I start at the farthest year out where regular assets are 0. If that works to make that year's regular assets non-zero, but causes other years to go to zero, adjust the withdrawal in last of those other years and recalculate. Rinse and repeat.

I hope this helps.

Chris
(A user)

Hi Steve,

A while back there were two "optimization" threads that looked at ways to increase and smooth standard of living. You will also see some posts on raising or smoothing standard of living in the forum.

Everyone has different financial levers available and constraints so it's tough to recommend detailed answers without seeing your profile and knowing your options.

Special withdrawals are the most general purpose tool for smoothing your standard of living so you are on the right track. There is no simple formula which works in every case as it depends on your specific profile, assets, income, and constraints. One way to roughly estimate the size of the annual special withdrawals needed is to look at the negative saving amounts during constrained years such as from your retirement to starting Social Security.

For example, assume a user is spending down regular assets (shown as negative saving in the reports) by $40,000 per year for four years from ages 66 to 69. A simple starting point is to try $40,000 in annual special withdrawals from tax-sheltered retirement assets during these same years. With some sensitivity testing, you can quickly see if adjusting these amounts up or down gets you closer to your goal. To simplify testing, start with fairly large steps such as perhaps $10,000 per year in this example. If that is too large, you can narrow it down to $5,000, $2,000, or less.

You may also ideally want different amounts in different years. It may make a difference if your withdrawals are from a Roth or traditional IRA/401(k) and also if the withdrawals come from your retirement account or your spouse’s retirement accounts, if married. If you want to spend more time on this (which may be worthwhile), you can fine tune special withdrawals further. One generally good option is to take tax-sheltered withdrawals up to the next (higher) tax bracket and then use Roth assets for any additional withdrawals in the same year. This can make your profile more tax efficient.

Other common options include Social Security claiming strategies, housing, Roth conversions, amount to contribute to retirement accounts, etc. At some level, almost every variable can make a difference to raise and/or smooth your standard of living.

Best,
Brian

Brian and Chris are both expert users. I would just add that you can also look at the spending that might be causing these pinches. Perhaps they are not necessary or perhaps they can be deferred. I don't like using the max borrowing because, well, I guess I don't like the idea of borrowing for consumption. But it may be borrowing for special expenses.

Remember (obvious I guess) that at each of those constraint points, you are just running out of Regular Assets. You can see that in your Regular Assets report. So the general goal is to try to borrow from your future. I've seen this too where someone is "saving too much." In other words, the person is trying to solve borrowing constraint like you are, but, at the same time, is socking away a lot of money each year into the 401K! This of course exacerbates the near-term constraint! It's not generally a good idea to forgo company match, but if you are solving for borrowing constraint issues you don't want to push any more of your current money into the future than you have to.