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March 19, 2014

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Personally, I've always preferred firecalc.

I think even the best of these all suffer from the same flaws. It is impossible to predict future rates of return, and so any projections based on an average or steady rate will not actually give you much more than a guesstimate. If you plan on retiring in a particular year, and that year sees a huge drop in the markets, unless you are willing to adjust your plan until things recover, you're going to be in trouble.

Make sure you consider taxes. I realize that FMF won't have an issue but your example ignores the fact that your 1.7M may be all or partially in tax deferred accounts. You may need to withdraw 60K to net 50k.

This is a complicated topic. No calculator is perfect. And they all suffer from two issues: (I) "Garbage in-Garbage out" and (ii) the fact that we usually do not know the assumptions built into the calculator itself.

When I deal with the prospects of retiring I try to cover the following risks:

*sequence risk- the risk of the first few years in retirement being down years in the market--

*Interest rate risk-- if rates remain low or decline or if you must reinvest your bonds/CD's at a lower rate than existing

* longevity risk- the risk you outlive your money.

*Unexpected events- health concerns, flood, disaster, family emergencies etc...

*Investment risk- picking the wrong investments, market swings, bad advice

*Tax risk- owing more than expected or an adverse change in the rules

*Inflation risk- self explanatory

I'll also recommend firecalc.

I also like the MSN money calculator for a quick and dirty run at seeing future projections.

All those calculators requiring/seeking perfection (~99% success) seem to give me approximately the same simple answer my 10 year old could figure out (Nest egg required = years of retirement X expected annual income required from nest egg), which I guess basically means you can 'count on' your investing to grow your portfolio with inflation.

Firecalc is the most interesting for seeing results not requiring perfection. What are the odds you can make it at a 7% withdraw rate with a particular portfolio, etc. gets interesting.

Hey FMF, I'd be interested in your thoughts about giving in retirement?

I retired in 1992 after a 32 year career as an engineer for what is now the largest defense contractor in the USA.

My company announced a Golden Handshake incentive program to encourage long time employees to take early retirement since the Cold War had just ended and new contracts would becoming scarce. I took the incentive, used it to become debt free, and my wife and I them attended a series of lectures on "Retirement Issues" that the company provided over a series of weekends.

There were several unanticipated events that happened soon after I retired that were life changing and had beneficial effects upon our finances. They were:

1) The emergence of the Internet helped produce the DOT.COM Bubble which was just getting underway and I was able to take full advantage of it. I consolidated our IRAs and other accounts at Fidelity Investments at the end of 1992.

2) In 1993 I responded to an advertisment in the Wall St. Journal and became a subscriber to a Charting & Analysis package called Investor's FastTrack. The company also maintained an on-line site where subscribers could interact with one another.

3) With the cooperation of FastTrack I was soon writing small computer codes and providing tools that weren't currently available to the other subscribers. This eventually led to me writing and marketing a companion program to other subscribers that were giving me lots of good ideas. As the dot.com bubble took off we all rode it up to the peak and in my own case I sold out completely over the four market days that followed the top.

4) My next step was to combine all of my small computer codes into a a single large package and prepare a 300 page manual to go along with it. With the help of my wife we then started shipping the product to a great many fellow subscribers.

5) As FastTrack grew they started providing an annual conference at major cities. My wife and I always attended and I listened to a great many famous speakers and learned a lot about investing from them.

Finally, some years ago I decided I wanted to give up active involvement in my software so I gave all of it to the owner of FastTrack to use however he wanted and he incorporated some of it into his software which I still use occasionally.

I like the bankrate calculator because it also includes salary increases, which many do not. However, it's only useful for 401K calculations and doesn't factor in alternatives, like Roth IRA.

http://www.bankrate.com/calculators/retirement/401-k-retirement-calculator.aspx

ASR -

As you know, I like to give. But my giving is based on my income and what we can afford. I don't suspect that will change in retirement.

FMF,

Do you consider withdrawals from retirement accounts income for giving purposes? I'm not sure what I think about it. You're comment that you could easily live on $50k is what spurred my intrigue. Does that mean you give 10% and live on $45k?

ASR -

I will look at the total cost of living versus what I can/should earn (if you have followed my thoughts on retirement, you know I plan to earn an income from retirement savings, not withdraw from them.)

If there is surplus, I'll consider giving as an option for that surplus. If there isn't, then I won't be able to.

@Old Limey

Fascinating story.

After benefitting greatly from Fast-track, I think its interesting that you "gave" your companion software
to the Owner rather than sell it to him.

Does that software still exist?

@M#19
My software was written using the MS-DOS operating system which was the predecessor of Windows. When that system was designed by Microsoft they thought that the amount of memory it had available would be sufficient for a long time to come. Unfortunately it wasn't. What happened was that module by module my software started running out of memory. The only solution was that as the database grew in size day by day my software would need to be rewritten using the Windows operating system. After talking to developers that rewrote their software in Windows I realized that it would be an arduous task that would take about a year of hard work especially since I was retired and had no support group to turn to for advice and consultation, as I did when I was working.

After I gave my software to FastTrack they hired a programmer in India to do the conversion but soon realized that they would have to spend more money than they would ever recoup and gave up after converting one or two of the many modules. Bottom line - I still have the software on my computer but it doesn't run because it is now incompatible with the last major expansion of the database that took place a few years ago. It is also incompatible with operating systems newer than Win'XP.

I've used Flexible Retirement Planner for many years. I think it's a great tool.

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