Optimizing Retirement Account Withdrawals
Why doesn't ESPlanner optimize retirement account withdrawals? I am running plans that show a retired couple taking distributions from retirement accounts and paying college tuition. During the tuition paying years their consumption is lower then it increases when college is done. This defeats the consumption smoothing concept. Shouldn't they simply take more out of their retirement accounts to pay tuition instead of reducing their consumption only to have it increase later?
RSS
This would require to treat the retirement accounts as an independent variable in the software. This adds a boatload of complexity and a lot of additional computation, particularly in the Monte Carlo. However I think you can model this well with the special expenditures/receipts mechanism.
For the years you want an increased draw from the retirement accounts, add a special receipt (taxable) and for the years you want a decreased draw add a special expenditure (excludable from AGI). This will get you close. Clearly this isn't perfect and we may do something like this in a future version but right now its not in the cards.
I'm sure Larry will chime in here when he gets back from vacation.
Best,
Dick Munroe