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« Reader Profile: JB | Main | The Importance of a First Impression, Part 1 »

January 17, 2012


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Simple enough. I think people underestimate the handcuffs that are high housing costs. They think a big house would appreciate more using other people's money, so your "return" is higher. But they fail to consider that the same "big house" (and big mortgage) often results in them needing to work more hours and years, thus reducing the theoretical "higher return."

RE the Tresidder Financial Mentor calculator....the flaw it has (and it's a big one) is that it doesn't include any SS income, nor does it allow one the opportunity to add a spouse's earnings and savings to the mix. Most detailed calculators allow for both.
That's why I like the CNN/Money calculator, if you're looking for something that gathers similar data and allows you to play with scenarios, including inflation rates, ROIs, and taxes:

What about marry someone that is already rich. This is what I should have done.

That calculator is interesting and quite useful, but it doesn't allow for increasing your contributions as time goes on. Since I'm investing a specific percentage of my gross income, the amount I invest will go up each year, which is throwing off their calculations.

The retirement calculator does allow you to have up to three retirement incomes. I used one for my pension and another for my Social Security.

The one tip that I would add to the list, and I believe it is the most important, is this.

Make damn sure that you and your future wife are as compatible as you possibly can be before tying the knot.

I am 77 and I have seen far too many couples that ruined their finances, jeopardized their retirement, and adversely impacted both their own lives and those of their children by splitting up.

I met my wife when I was 15, we were married when I was 21, and retired when I was 58. I can't overemphasize just how happy retirement can be when you are debt free, are in a good financial position, and living with the person you have loved since your teens. I wouldn't have wanted to retire at 50, that would have been too young for me. Both my wife and I were very happy in our jobs and with 5 weeks vacation we had plenty of time for travel. If I had retired at 50, with 24 years of service rather than 32 I also wouldn't have been eligible to remain in my employer's group insurance plan, which has turned out to be very advantageous. My social security benefits would also be much lower today. I was planning to retire 6 months later but after the cold war ended and defense contracts started drying up, a $45,000 golden handshake program for salaried employees to retire in September 1992 convinced me to change my mind and was more than enough to pay off our debt.

I thought I was maybe 3-4 years from retirement at age 59 but using the retirement calculator, it shows me way behind in savings. I was using assumptions of 2% COLA for pension and SS, 4% inflation rate, 5% return rate, living until 100 (trying to be conservative). I have done some planning using my own data in Excel and get much different results. My own spreadsheet calculations shows me running out of TSP and Roth money when I am 103, so I thought I was OK. The Tresidder Financial Mentor calculator said I will need about $1.6 million saved and I will only have about half that. This was calculated with annual needs of about $68,500 with a starting annual pension of about $35,000 and SS benefit at age 62 of about $20,000.

I had estimated my annual needs including taxes. But the calculator adds on more taxes for the amount you are taking from your retirement savings. So should the annual needs number include taxes or not?

Also, it asks for your combined Federal and state tax rate, but does not indicate if this is your highest tax bracket and or your average tax rate (big difference). I just used my average rate but then my annual needs number is overestimated for the calculator. The calculator uses the tax rate you provide to take even more money out of your savings.

I will be paying Fed taxes on my pension, 85% of my SS, and any money taken out of my TSP (401k for govt employees). If I live in Virginia, I won’t have to pay state tax on SS, but I will on everything else. When I run out of TSP, I can start using my Roth IRA which will have no taxes. But the calculator does not take any of this into account, although I added my TSP and Roth together for the total amount saved.

It uses the inflation rate for all your annual needs to estimate a higher number every year. I assumed no reduction in my needs through the years. I will be paying a mortgage until I am 77. I pay $800 of P&I per month or $9600 per year. That will never change regardless of inflation rate. So my inflated annual needs on the calculator results are too inflated. I will probably go into some kind of continuing care retirement community in my early 80s as long as I am still walking around and that requires a monthly maintenance fee, so I don’t assume my housing costs will ever be paid off.

I think for people getting close to retirement, they need their calculations to be more detailed than the Financial Mentor calculator provides. My spreadsheet I developed for myself goes year by year and I can make adjustments like for the first three years of retirement age 59-61 when I get an additional govt supplement until I can take SS at 62, but I did not even include this in the Financial mentor calculator.


If you truly want to plan for living to 100 and consider it likely that you will easily exceed 80 then taking SS at 62 is the single largest financial mistake you can make. I have said this here and to others many times before but most just don't seem to quite get it. The argument usually offered for taking SS at 62 is that it takes until about age 77 to break even and if you die before then you got short changed. Of course you won't care because you will be dead.

However if you live to 80 or 85 or 95 .... HOLY COW have you lost 10s of thousands of dollars and when you reach ages in the 90s it will cost you over 100,000 dollars by drawing at 62. That extra payout that you get by waiting util 65 or 66 means somewhere around a 40% higher payout for the rest of your life. And if break even is at age 77 then if you live to 95 that means 18 years of a 40% higher SS check. Plug that into your calculator and your numbers will improve considerably.

Do everything you possibly can to delay taking SS until 65 or 66.

Apex: My rationale was that if I don't collect SS at 62, then I would just have to draw more down from my TSP for more living expenses. Then my TSP money won't last as long. Better to get the money from the govt than use up my own money??

I also thought that it might be better to take it early because Congress might make cuts to payments anyway by the time I am 66.5 years old, which is my "full" SS retirement age.

But I will take another look at the options and run the numbers. I read somewhere that every year you delay, the benefit increases by about 8%. I don't know if I would get that good of a return on TSP for several consecutive years. I have a few years to decide so this is worth do more investigation. Thanks for your insights.


I understand your thinking there and that probably feels right. I cannot promise you that the govt wont make changes to SS for existing retirees but unless we go into absolute default on the order of what Greece is likely to face I cannot see anyway any political party could withstand the firestorm if they actually cut the benefit formula for existing retirees. I expect SS to face a restructure of the formula eventually but for it to either affect those under 55 or to affect the COLA formula on a going forward basis. Neither of those would have any impact on whether you draw at 62 or 66. A COLA change might decrease your future increases but the effect will be the same regardless of when you draw.

The big advantage to SS is it pays forever as long as you are alive and it is indexed to inflation. Your TSP only pays until it is out of money and there is no inflation adjustment. So the plan that pays you forever is the one you want to get the highest payout possible. In that sense if you could find a way to hold off on using SS until you are 70 the payment will probably be close to double.

I will give you another option to handle this if you want to cover your bases both ways.

Most people don't realize this but you can draw social security early at 62, draw it for as many years as you want and then pay it all back and reset your formula. Now of course most people who do this have no way to pay it back. However if you went in with this plan you could be careful to make sure you have enough funds available via your TSP to pay it back and then you could take a large draw from your TSP and pay back the SS and reset the formula. The downside is a single large draw from your TSP will likely put you in a much higher tax bracket so I am not sure how that will affect things. You might want to be making some draws from the TSP for a few years in advance in anticipation of such a move being careful to save this money safely to be used for repayment of the SS checks you had received.

The good thing is you have thought this through and have reasons for the decisions you are making. I am glad to see you are willing to revisit your reasons and see if there may be a better option for you.

Good luck!

That calculator is OK. I like the ones at better. The combo retirement and the percent retirement ones are fun to play around with. Maybe not as thorough as this one.

FMF - I respect and appreciate your take on my retirement calculator as illustrated by your explanation...

"I've used it to run what-if scenarios and like the way it helps me think about what I need to save, make, etc. in retirement."

You got it exactly right - "scenario" planning - that is how to use these tools wisely. Unfortunately, several reader comments were quite the opposite and focused on details that confuse and lead to inaccurate conclusions.

Explaining these issues is too involved for a blog comment so I took the time to write an educational post explaining in detail the common errors illustrated by some of the above comments...

I hope your readers find it helpful to understand why the calculator is designed the way it is. Believe me, none of the issues raised were oversights. It is all by design for specific reasons.

Hope this helps...

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