RFI User Guide - Other Sources of Income


RFI - Other Sources of Income


RFI focuses on the use of financial assets and home equity (as well as the purchase of a deferred annuity with a portion of financial assets) to optimize spendable funds and minimize risk during retirement. However, most retirees have other sources of income as well; RFI allows you to incorporate these other sources into an RFI retirement plan.

At the bottom of the RFI screen (lines 127-140) is  an input form that allows you to specify income for the retiree and their spouse. You can specify any combination of these income sources, and you can easily view how including or excluding an income source affects the performance of an RFI scenario by checking/unchecking the box in the "Check to include in Monthly Spendable Funds Scenarios" column.

In the table below we specify "Current Earned Income" that continues for 15 years (180 months) and social security income that is delayed until age 70 (in this case for 84 months). We start off by only checking the social security income "include" box, as follows;


We also define a basic RFI scenario using 8.0% rates of return and a 10 year deferment period; this scenario also has a 1% constant annual increase withdrawal pattern:


When we calculate the scenario we get a spendable funds chart as follows:

This chart looks like a "standard" RFI scenario, but there is an important difference. Since we specified social security income to start at age 70, RFI automatically calculated differing financial asset draw amounts during the deferment period to account for the increased "other income" at age 70.  You can see this in the following two charts which display the spendable funds breakdown (using the "Click here to use this interactive chart ..." button in the upper right of the chart) at ages 68 and 72:

In the first chart (the blue blurb shows age 68 information) the "Additional Base Income" in the blue blurb is zero; this is because social security income hasn't started yet.  In the second chart (age 72) the "Additional Base Income" in the blue blurb is $1,640 which is the COLA adjusted social security monthly payment at age 72.  In the second chart the "Draw from Financial Assets" from age 70 to 73 is automatically reduced (and hence the overall amount of financial assets available to purchase the annuity and fund income from ages 63-69 is automatically increased). Thus, RFI has calculated a spending plan that has a constant 1% increase in spendable funds by seamlessly integrating financial assets, a deferred annuity, and social security income.

A second example of "other sources of income" is when the retiree has earned income that they plan to stop at some point in the future.  In the example below we select the predefined "Current Earned Income" of $1,000 for 15 years (180 months) as shown:


When we calculate the scenario using the current earned income, we get the following spendable funds chart:

In this case earned income starts immediately and continues for 15 years.  Since this earned income is specified at $1,000 per month for 15 yeas and annuity payments are predetermined once the purchase price is set, there is a drop in spendable funds at age 78 when earned income ends. In order to  eliminate this drop, one solution is to change the deferment period to 15 years to coincide with the end of planned earned income.  As the chart below shows, doing so results in a slight reduction in spendable funds for the first 15 years in exchange for a substantial increase for the remainder of the retiree's life. 


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