I am borrowing constrained for several years until an expected inheritance materializes. Meaning I have lower consumption now and higher later. However I have significant assets in retirement accounts, so why doesn't ESP dip into those to smooth out a constant consumption and living standard? If I can't borrow, that's in fact what I will have to do.
Lynn
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Lynn: I believe that the program takes out an even amount from your retirement accounts--which is what you are seeing.
I can think of at least one option: change the date of last withdraw from the retirement account so as to compress them and raise the amount in the short term.
There may be other things to do that I'm not thinking of.
Dan
Thanks Dan,
I understand what it does, I am questioning why. ESP is about consumption smoothing, so I would think the first priority would be exactly that - find a way to smooth consumption to a constant value for life. By using the resources available to it, which includes retirement accounts. It seems like ESP is placing a higher priority on smoothing retirement withdrawals than on smoothing consumption.
In thinking about the ramifications, there would have to be a strategy defined for dipping into the retirement accounts, because there are tax consequences. That would get tricky because there are probably an infinite number of possible strategies. ESP picks the simplest one, don't do it.
I guess I could counterbalance the effect of the borrowing constraint by lowering the standard of living target after the constraint ends.
Lynn
I've heard this may be on the "to do" list but I'm not sure how far out it is. Others might say here.