Manuel Mogollon
Manuel Mogollon

The Retirement Tool

We are in the process of moving the retirement tool to checkretirement.com for a full web implementation by December 1, 2016.

 

If you are planning your retirement and you want a simple tool to make some basic calculations, this is your instrument. You don’t need to register or provide personal information. Just use the tool and, then, if you think that you would benefit from professional services, go ahead and hire a professional to help you with planning your retirement, which is not the same as getting help with your investments (financial advisor), or with your taxes (tax advisor or tax consultant).

 

When planning for retirement, people are concerned about saving enough money so that when they retire, they will be able to sustain the same standard of living that they currently have. There are several questions that they should ask, such as the following:

  1. Am I saving enough so that my savings will last for a specific number of years; also, how much money will I have at a specific time in my retirement?
  2. What are the statistics regarding my lifetime expectancy?
  3. Based on the probability of survival, the type of investments that I make, and my savings consumption during retirement, what are the probabilities of a secure retirement, i.e., will my savings last?

The factors that control your wealth after retirement include the following:

  1. How much money do you have in savings when you retire?
  2. How do you invest your savings, which really means is at what interest rate do you forecast that your savings will grow?
  3. How much money do you withdraw from your portfolio?
  4. Age and mortality

Money Required to retire – If you do some research you will find that, according to 101 Ways to Build Wealth, Money Magazine, May 2014, you will need  

  • 7.3 x    your salary by 55 to retire at 65 and replace 70% of your income.                          
  • 7.7 X    your salary by 55 to retire at 68 and replace 80% of your income.                          
  • 6.4 x    your salary by 55 to retire at 68 and replace 70% of your income.

Or, according to Fidelity, you will need the following level of savings, so you won't outlive your savings during 25 years of retirement.

By Age             You Should Have This Much of Your Salary Saved...

30                    1X

35                    2X

40                    3X

45                    4X

50                    6X

55                    7X

60                    8X

67                    10X

 

How to invest your savings at retirement time – Most people don’t need professional planners, what they need is for someone to invest their money in a simple, well diversified portfolio, with a low-cost, no-load index, that does not require market timing. Those types of investments are called “Lazy Portfolio.”  If you want to do it yourself go to Portfolio Visualizer Portfolio Visualizer, pick one of the lazy portfolios, and it will give you the ticker name, percentage allocation, as well as its performance over a certain period of time.

Portfolio Withdrawal – There are many portfolio withdrawal strategies and many papers have been written about them. Some of these are included in this tool.

At the end, the portfolio is calculated for every year as follows:

Balance at the End of the Year = Balance at the Beginning of the Year + Interest - Withdrawals

Age and Mortality – What is your remaining lifetime? If you know that you will die before 75, then you will spend more of your retirement, but what about if live to 95? Maybe be you need to spend less.

That is all that counts!

 

You may ask, what about the income that I have after retirement, such as Social Security, pensions, annuities; also, what about my expenses during retirement, don’t they count? Well, one of the withdrawal strategies, Pre-retirement spending, takes into account these factors by calculating the following:

Portfolio Withdrawals = Expenses – Social Security – Pensions - Annuities

 

You withdraw money from your portfolio as you need to complement your retirement income to be able to sustain the standard of living that you want.

 

 

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I am updating the Retirement Tool to include several withdrawal strategies.

 

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