Financial experts tell us: “Withdraw no more than four percent of savings a year; allocate investments in a balanced mix of stocks and bonds, etc."

This advice, while good, is generic –- and does not take into account the many peculiarities of my financial situation. Rather, as a cautious, semi-retired 49 year old, I want to know:

- Will our nest egg support us for what could be another 40+ years?
- Could we spend more, without jeopardizing our financial future?
- What will happen as I continue to take on more market risk with our investments?
- Might inflation, especially in medical and health insurance, eventually undermine our safety net?

Seeking answers, I finally got around to modeling my financial plan using Fidelity’s Retirement Income Planner. While the exercise confirmed I'm on track, it also yielded a few surprises -- including:

- In Part II, Fidelity projects, within my lifetime, average medical / Medicare expenses for a couple will rise to $167,717 / year. And that's only the average!

- Part V compares my current financial plan to Fidelity's recommended asset mix. Fidelity's allocation -- with more equities -- results in a 10% chance my nest egg will be fully gone approximately four years sooner.

The table of contents for the series immediately follow. Below, you will also find background information & assumptions; helpful for those who wish to better understand my numbers.

I. Can my retirement plan stand the test of time?
II. 42 more years of rising expenses (it's not a pretty sight)
III. My current plan passes by a wide margin
IV. What’s the max I can safely spend each year?
V. What happens if I assume more market risk?

Background

- Now semi-retired, I work 24 hours / week, making about $13,000 year -- so I rely on investments to cover most living expenses.

- My investments now exceed $2 million. My current investment plan -- which has been phased in over the past 2-3 years -- is heavily in fixed income.

- I also dollar cost average into mutual funds, which provides a growing exposure to both domestic and international equities.

Note: With the exception of some illiquid company stock, as of Q1 2002, I was 100% cash. My next step was to construct a fixed income ladder. Then in January, 2003, I began monthly investments into mutual funds. Today funds represent about 8% of my investments. I plan to continue to dollar cost average into funds.

- While I’ve had individual health insurance for over 2 years, recently I also opted into my employer’s medical plan (read why I am double-insured).

- I am two years into a 10-year payment plan for long-term care insurance.

- I have no debt.

Assumptions

Expenses

- My baseline budget is $24,110 / year. To this I've added:
- - $10,000 / year to cover discretionary and / or unforeseen expenses
- - $8,000 / year reserve for car replacement
- - Medical & long-term care insurance coverage noted below
- - We drop to only one car in 2020
- - We do not have a mortgage

Medical

- Continue to buy employer-supplied medical insurance -- until I retire from my part-time job, in five years
- Continue with Assurant individual medical insurance -- until age 65
- Continue paying long-term care insurance -- until paid up, in 8 more years
- Join Medicare at age 65 (cost based on Fidelity’s recommended average)

Social Security

- Start at age 62, based on actual SSA projections

Inflation *

- 7% for medical and medical insurance
- Zero for long-term care insurance
- 5.5% for long term care costs
- 2.16% for all other

* Supplied by Fidelity’s retirement planning program, as of 09/23/2005

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