annual rollover

Not having been a subscriber for a year yet, can someone describe what I'll expect to see or have to do at the annual rollover? Any advice as to how to handle, or caveats?

Thanks

Comments

Hi Chris,

This might help:

http://esplanner.com/question/how-do-you-update-esp-assets

Besides the items here, carefully go through each tab to see if each individual item needs to be updated. Some do, others don't.

Some items may not be inflation adjusted such as pension info, "special" expenditures/receipts, etc. so those are important to look at.

All the 2014 fields should go away and be updated with 2015 info (may be increased by your inflation assumption). I think the other major parts are in the other link.

Best,
Brian

Thanks, Brian. I'm actually simulating the results for next year by adjusting the effective year in Help > Customize> Override. I'm making relevant changes in a copy of my profile, of course.

In the process I'm editing the current asset balances, both retirement and regular. I'm also adjusting special expenses for 2015 to reflect more accurate estimates, now that 2015 is almost upon us.

The results are that projections for 2015 are based on more accurate information than extrapolating from values at the beginning of 2014. The difference is surprising but I guess they shouldn't be, considering the past year's stock market performance.

While I can't count on the same returns in the next few years (2006/2007 retirees come to mind), conservative investment to preserve what I have should permit retirement a year earlier than originally planned, with a comfortable life style. In fact, it may well be better than I currently enjoy with two college-age kids on the payroll, and we're currently comfortable living within our earned income.

If others use a different approach, I'd appreciate learning from that.

Chris

dan royer's picture

That's what I do too Chris. I have an asset allocation aimed to hit a target of 5.5% to 6% nominal with lowest standard deviation I can can. My annualized return thus far is 6.5% so I'm not far off my target, but I did miss out on some of the upside we had this year in equities. I have just 22% equities, but one of those funds earned over 16% YTD.

But, yes, this is how it works. The more variance you have in your allocation the more you'll find yourself adjusting (for better or for worse) around this time each year. I've found myself more conservative in recent years and thus I've seen my discretionary spending change very little from year to year. In hindsight, I wish I had been more exposed to equities this year. :)

Ahhh...I was replying more on the mechanics of the update. You may want to wait until the Jan/Feb update after the new SS COLA and some taxes are included before making too many lifestyle decisions as that update may cause a decent change to the results.

Consider modeling medical and/or long-term care costs in retirement if that is of interest and I use the safety factor approach I've mentioned before just in case reality isn't as good as my assumptions along with some "what if" analysis.

I also try to "re-optimize" the profile (hence my interest in the other thread) each year.

Best,
Brian

Shouldn't one "re-optimize" consistently every year, to adjust previous years' plans to this past year's reality? To not do so would be risking losses or, at least, not living as well as one could.

Hi Chris,

I definitely believe that re-optimization is important although it may not need to be every single year. Your situation could have changed somehow, you may have had better/worse returns than your profile, you may have added medical/LTC/college/other special expenditures, you may want to do more "what if" testing in case of adverse events or to protect against risks of various types, etc. Optimization is important for each of these.

However, I haven't seen very much in the way of interest on the forum about this. Perhaps people are just doing optimization without talking about it explicitly? I think there's a lot we could learn from each other's experiences and insights to get more out of ESPlanner for our own profiles through optimization.

Best,
Brian

dan royer's picture

I agree that we should keep looking at our model and seeing if there's a way to raise our living standard--but in my case, the levers are sort of down to a few that I am playing with (phased retirement a few years out, how many years, etc.) and where there is liquidity constraint, it's impossible to say what "optimized" really means since it's a value judgment as to whether we take less now and more later or more now and less later or the same all the way down the column. But the end of the year is always a great time to see if there's some alternative model that looks more appealing.

Hi Dan,

There are definitely a bunch of ways to look at optimization, but some are fairly clear and aren't value judgments. To try and give a specific example, in the challenge, when comparing both sets of final numbers, one was ~$1,000 / year higher than the other for the next 30 years and ~$100 higher until EOL. It seems right in ESPlanner's sweet spot to see how you can increase/smooth your lifetime consumption and then quantify how much versus alternatives.

I have no doubt that you've looked at everything you can think of to raise your living standard. I've done the same or at least I thought I had before the challenge led me to learn/refine some techniques that others could benefit from as well as myself. Even though you don't have many levers left, there could be combinations between amounts to save in various retirement account types and when, withdrawal order, key age for spousal withdrawals, and tons of tweaks in special withdrawals that could make a difference. These were some areas that made a difference for me, along with other standbys, in the challenge if anyone would like to see the before/after profiles.

Perhaps it's the lack of common definition of optimization or the complexity of the space or the wide range of user profiles, as I don't think I'm communicating this very well. Mostly, I'm talking about (to the largest extent possible) increasing consumption now and later, smoothing living standard (where needed), dealing with liquidity constraints as appropriate, trying to reduce lifetime taxes, etc. without increasing risk. At the end of the day, I'm talking about raw numbers and increasing them so I see the core of optimization here as quantitative. Of course, before I ever got to this point I had to make a number of decisions on setting up the core profile and some of those could certainly be considered value judgments.

Hope this doesn't come off sounding like a rant. I really believe there is fertile ground here that could benefit a lot of people and only be computed by ESPlanner software.

Best,
Brian

dan royer's picture

Right. No, I hear you. I look at a lot of plans I'm always surprised that people sometimes don't do obvious things to raise living standard. I agree with all you say. I guess I was just adding another perspective to say that even the simple strategy of postponing SS to age 70, which for people that have enough assets to bridge the gap strikes me as a no-brainer, even that is trading something. It's using one kind of asset now to use more of another kind of asset later. Sure: it's clearly an optimization that I feel strongly everyone should take if they can--but even that one is value laden to some degree with the value being related to some institutional risk of SS (which I don't worry about but others might--indeed, some people have themselves talked into the idea that SS could go away tomorrow), for those people there's a big value trade off which to me seems like simple, empirical optimization. Or take postponing the ROTH--ok this is stupid example but--that ROTH belonged was built up by my grandmother and I want to be able to tell her that I'm taking that money now! :) Silly example, but I'm just saying that all decisions are value laden at some level I think--even if they are irrational. Maybe that's not a very significant point, but when I talk to people I hear that kind of value prejudice emerge in all different ways.

Thanks Dan. I get what you are saying. We each have a certain lens that we view and evaluate against that influences our decisions. The SS trade off is a great example. Reading the comments on Larry's PBS SS column certainly illustrates that point.

Best,
Brian

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