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Work More, Required Savings Go up

Submitted by Dennis112 on 6 March 2010 - 9:35pm

I started with a basic scenario working until age 65, then I tried setting up a new profile. The only change I was I worked part time for 3 more years.

This caused both my recommended consumption, and my recommended savings to go up. Hardly what I was looking for.

I was hoping that by working longer I could avoid having to save as much, but instead the program is suggesting I consume more which not surprisingly causes savings to go up.

Hmm.

‹ Determining consumption in nominal dollars Preserving regular asset balance when calculating smooth consumption? ›
Submitted by Dick Munroe on 7 March 2010 - 10:02am.
1

Nope. That's consumption smoothing for you. Some part of the [anticipated] extra earnings goes into consumption now. Some part of the extra earnings goes into savings to allow smoothing of the lifespan after you start working.

If you want to want to sequester those earnings try contributing to a reserve fund during the part time labor or lower your standard of living (see Assumptions) to keep from spending your anticipated earnings.

Best,

Dick Munroe

Submitted by Dennis112 on 7 March 2010 - 4:13pm.
2

Thanks. I am unsure how I would set up a reserve fund in this context.

Let's assume I earn 50k as part time income for my last 3 years before retirement. I would need all of it to live on, it just means I would have to take that much less out of savings.
Therefore I couldn't put anything in a reserve fund during my last 3 years.

I guess I could start contributing to the reserve fund earlier, but
how would I decide how much to contribute?

Also if I am contributing to a reserve fund does that reduce consumption, and not impact savings?

Submitted by Dennis112 on 13 March 2010 - 8:00pm.
3

Does anyone have any further input. I seem to be banging my head against a wall. I set up a reserve fund during my last three years which in each of the three years is increased by the amount of my wages. All that does is save the funds for a few years, and then spend it at the end of the fourth.

It has virtually no impact on my consumption or savings during prior years.

Any help would be appreciated.

Submitted by Dick Munroe on 14 March 2010 - 8:30am.
4

Have you tried lowering your standard of living?

Best,

Dick Munroe

Submitted by scott@dsneal.com on 14 March 2010 - 12:19pm.
5

Something has to happen with those dollars that are coming in via the part time work. After taxes, you will either save them or spend them. Since the program views them as resources that can be spread over the remainder of life, you cannot spend them all and also have a smooth tranjectory, including those resources. There is nothing that says that you must spend your maximum sustainable living standard sugggested by the software, only that you can. If what you want to do is to spend the extra (saving none), I wonder what would happen if you put in a "special expenditure" for those three years that spent the excess after tax money. Give us feedback. I would like to see how you resolve this.

Submitted by Dennis112 on 14 March 2010 - 6:44pm.
6

Thank you for the suggestions. I will work on them, but I only get to do this on weekends so it will be a bit b4 I report back.

Dennis

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