Spending Report inconsistencies to Consumption Smoothing


Regardless of planning method used to run reports, the Spending table consistently shows discretionary spending in the years before electing for Social Security (post retirement age) to be lower by an amount roughly equal to the net Social Security amount. This seems inconsistent with the concept of smoothing consumption.

Also, both the Housing and Medicare part B spending amounts grow each year at 2.4% and 3.0% respectively. Is this because of a hard-coded assumption that those costs will grow beyond the average 2.0% inflation rate input elsewhere?


dan royer's picture

The Medicare B costs default to 3% *real* (i.e., over inflation). You can adjust that under Assumptions.

Housing for prop tax and insurance is pegged to the real appreciation rate you enter for you home. So if you have a real appreciation rate above 0%, you'll see prop tax and insurance rise faster than inflation.

If spending is not smooth, this is caused by liquidity constraint or cash constraint. This means you run out of Regular Assets prior to that bump you get from SS. You could do special withdraws to raise the withdraw amounts from your retirement accounts to inject some liquidity into that pre-SS time period.


Thanks Dan, makes sense now. Greg

Hi Dan. I've attempted to work with inputting special withdrawls in the pre SS period but that seems to really mess up the output. The results seem better if i pick a special withdrawl figure for each of the pre SS years that is about the same as the predicted post SS spending figure. If i pick a figure that seems enough to plug the pre SS shortfall, then the pre SS spending falls to about the level of the special withdrawl. It seems that the model methodology of smoothing withdrawls from the retirement accounts over the entire pre and post SS period creates this situation. I see that if i move the SS election date to immediate, it solves most of this but then creates the situation that my SS income is understated.

Given i want to run scenarios and trust the results i think i'm going to ignore the fact that the model will understate pre SS income and just focus on how changes in portfolio and other elections/decisions affect the post retirement consumption. Having to use special withdrawls on each of many scenario runs doesnt seem wise given the output seems very sensitive to the special withdrawl amounts.

Does that sound like a good approach - just not to worry about the pre SS consumption being lower than post SS?

Thanks again, Greg

dan royer's picture

I would not want to understate my SS earnings. It seems the whole point is to get the model to reflect the reality of your plan as best you can. Everything is thrown off if you don't get SS right.

If you put your database in a support ticket, I can take a look.

But the approach I would suggest involves first starting smooth withdraws now or when you retire (I don't know when labor earnings stop, how old you are, etc) but start the smooth withdraws when you need them now to introduce liquidity and then see how constrained you are. Then just add to those smooth amounts some guessed at amount to the series of years from current year? through age 70 to bring some of that wealth from the post-70 future into the near term.

Make sense?


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