Conventional Consumption smoothing not realistic
I have provided input in ESPlanner and run the Economic’s based planning method. The results provide me with about $90,000 consumption and that is in line with my needs for meeting the expenditures that I anticipate for our life style. That is good as I am 12 to 18 months from retiring.
Then I run the Conventional planning method for comparison using $90,000 for the discretionary retirement-spending target starting in 2011 with the same input data as for the Economic’s method. The result calls for a consumption rate for the next year of over $500,000 wiping out all my regular assets and then goes to $90,000 per year for the remainder of time. I set the start date for 2012 and the program provides two years of $320,000 consumption per year. Each time the Regular Assets on the Net Worth page plunges negative. This is an absurd suggestion and must be based on an input data point that I can’t figure out. The maximum indebtedness is set at zero. I played around by adding a Reserve but it only makes things worse. Now I wonder if there is something wrong with my input, are the results from the Economic’s planning method in question.
My case is relatively simple:
• One primary home with mortgage
• No children
• Married with retired spouse
• Income for the next 12 to 18 months
• Regular after tax assets
• Retirement accounts
• Special receipts account for a deferred compensatio program for ten years
• Start Social Security benefits at 70
• Assumptions are default values and nominal rates of return of 8.5%
Can you advise what parameter may be incorrect to produce this result?