by Carolyn Rothwell on June 27, 2014

Adjusting Retirement Spending Needs in Silver and TOTAL Planning Suite


As a followup for last weeks post discussing the "spending smile", or "go-go", "slow-go", "no-go" phases of retirement spending, this post will walk through an example of adjusting spending needs overtime in TOTAL Planning Suite and Silver Financial Planner. 

Let's assume spending adjustments of a 15% decrease at age 75 to reflect the lowest period of spending as the client enters the "slow-go" phase, and a final 5% decrease at age 85 as the client enters the "no-go" phase where discretionary spending is virtually eliminated but the overall decrease is smaller than the "slow-go" phase due to higher medical spending.  The spending amounts listed below are in today's dollars and we will apply a 3% inflation rate. 

Spending Needs in Today's Dollars:
Age 65 - "Go-Go" - Full Spending Needs $80,000 
Age 75 - "Slow-Go" - 15% Reduction in Spending Needs  $68,000 
Age 85 - "No-Go" - 5% Reduction in Spending Needs  $64,600 

TOTAL Planning Suite

Use the future change table to adjust the spending needs at age 75 and 85.  For this example case, we used one spending category with an amount of $80,000 for the client's retirement age of 65.  Then added two additional entries in the future change table for age 75 to change the spending need 68,000 and 85 to change the spending need to $64,600.  

TOTAL Planning Spending Adjustments

As you can see based on the Monte Carlo results, the 15% spending adjustment at age 75 and the 5% adjustment at age 85 has a significant impact on the overall success rate for the projection (the first graph shows full spending, the second shows adjusted spending).  

Retirement Monte Carlo Projection - NO Spending Adjustments ($80k spending entire period)

The graph below displays the Monte Carlo results of the projection with no adjustments made to spending.  This is assuming the clients are spending $80,000/year throughout retirement, increased at 3% for inflation.  The clients are projected to have 1.3M remaining at life expectancy, and the overall Monte Carlo results above zero are 60%.  

TOTAL MonteCarlo NoSpendingAdju


Retirement Monte Carlo Projection - Spending Adjustments ($80k @ 65, -15% @ 75, -5% @ 85)

The second graph displays the Monte Carlo results of the projection with the adjustments made to spending.  This is assuming the clients are spending $80,000/year from age 65-74, $68,000/year from age 75-84 and $64,600 from 85+, increased at 3% for inflation.  The clients are projected to have 3M remaining at life expectancy, and the overall Monte Carlo results above zero are 81%.  

TOTAL MonteCarlo SpendingAdju
 

Silver Financial Planner

Silver does not have future change tables for expenses like TOTAL Planning Suite, but it does have a special expense planner that we can use to reflect the clients adjustments to their spending needs.  

The lowest spending amount is $64,600 for the clients age 85+.  This is the amount to enter as the clients “Annual Expenses During Retirement.”  The higher "go-go" and "slow-go" spending will be adjusted by entering additional expense items using the Special Expense Planner.

SilverSpendingAdjustments

Special Expense Item 1 - "Go-Go" spending needs of $80,000 less $64,600 entered at retirement expenses = $15,400 for the clients retirement age of 65 for 10 years. 

Special Expense Item 2 – "Slow-Go" spending needs of $72,000 less $64,600 entered at retirement expenses = $3,230 for the clients age of 75 for 10 years, ending at age 85.

SilverSpendingAdjustmentsSpecial

The 15% spending adjustment at age 75 and the 5% adjustment at age 85 has a significant impact on the overall success rate for the projection (the first graph shows full spending, the second shows adjusted spending) in Silver.  

Retirement Monte Carlo Projection - NO Spending Adjustments ($80k spending entire period)

The graph below displays the Monte Carlo results of the projection with no adjustments made to spending.  This is assuming the clients are spending $80,000/year throughout retirement, increased at 3% for inflation.  In this projection, 87% of the Monte Carlo simulations are successful at life expectancy

SilverNoSpendingAdjustments Results

 

Retirement Monte Carlo Projection - Spending Adjustments ($80k @ 65, -15% @ 75, -5% @ 85)

The second graph displays the Monte Carlo results of the projection with the adjustments made to spending.  This is assuming the clients are spending $80,000/year from age 65-74, $68,000/year from age 75-84 and $64,600 from 85+, increased at 3% for inflation.  In this projection, 87% of the Monte Carlo simulations are successful at life expectancy. 

SilverSpendingAdjustments Results

Questions?  Please let us know by calling 877-421-9815 or emailing support@moneytree.com.

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Carolyn Rothwell

Carolyn enjoys spending her time building Money Tree Software's brand and products. Her experience creating and delivering financial plans for a full-service financial planning firm and supporting advisors working to provide the best planning to their clients as a Money Tree support member has provided an excellent understanding of the importance of financial planning.