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while it would be nice to be able to plug our parameters into these financial calculators some are so complex that its like telling the guy who built the brooklyn bridge ,its nice but can you move it 2 inches to the left....
the other issue is that the laws of large numbers tend to hold true..
life insurance companies can tell you about how many people will die next year and be pretty close. they cant tell you who but the numbers stay the same.
pulling out long time frames of say 13-15 year periods show the market returns to be spooky in the consistancy of returns gotten no matter what the world events.
wars, recessesions , high inflation, disasters, it all just dosnt seem to matter.
you would be hard pressed to pull out 15 year time frames over decades of history and not come up within 1% of each other....
same is true of inflation figures, decades of inflation figures all over the place always seem to average out around 3%..
i prefer to plan around what was, what is and what stands a pretty good chance of continuing and thats what these calculators figure..
will it play out that way? beats me but any good retirement plan has slack in it for as we all know there always seems to be to much month at the end of the money....
Last edited by mathjak107; 04-22-2010 at 06:01 PM..
I have no reason to doubt Forest Beekeeper, especially as he is speaking from experience. If one's tastes are not too lavish, a halfway decent pension may be all that is necessary, provided it is indexed for inflation. Forest Beekeeper does not mention that and I hope for his sake that his pension is, in fact indexed. If it is not, he might not be making the same statement ten years from now.
I have a military pension.
Quote:
... All that brings up the point that most of the discussion so far has focused on the income side of retirement planning. I think just as much effort needs to go into the expenditure side. What assumptions are we making about how much we will need? If it seems that we might not be able to come up with the huge and scary amounts bandied about, then we need to look at the assumptions. Maybe a smaller house and cheaper car will serve us just fine in retirement, for example. Which elements of our lifestyle are based on ego and which ones are truly tied to our well-being and satisfaction?
Anyway, good thread and good responses in a complex area.
money is like water and will always fill the space you give it...
to me i need to get a handle first on what kind of income historically could i draw as a max . it will be a ballpark... then i can plan accordingly..its hard to step down to smaller things without knowing where your stepping down from..
for some retirement means living even better then they did working since the days of saving and denying yourself things are now gone and its time to reap the fruits of your labor.
we are stepping up from a 2 bedroom apartment in nyc to a 3 bedroom house in pa.. now we need space so the kids can stay over...
i always wanted a bmw but couldnt afford it when the kids were going to school and i was in my investing and saving mode , bought one finally last year
you cant over plan a budget but you can certainly under plan one.....
once you see what you have in dollars and cents you can mold a lifestyle to fit as best as you can.
Great thread and I have used many a calculator and the article is very accurate and a good read on the good and bad. There are many other calculators out there. I had a great one for planning the last couple of years before retirement. It enabled you to enter pensions(many don't) and did a good job with social security and asked a lot of questions and gave a good prep on accurately calculating what percentage of your income you would need in retirement. Guess what it went away and was replaced with another investment house calculator that had many of the problems indicated in the article. Sorta like car companies buying up new technology and throwing it away to avoid competition. You do need to be savvy and understand the basic principles of financial planning especially heading into retirement.
I have no reason to doubt Forest Beekeeper, especially as he is speaking from experience. If one's tastes are not too lavish, a halfway decent pension may be all that is necessary, provided it is indexed for inflation. Forest Beekeeper does not mention that and I hope for his sake that his pension is, in fact indexed. If it is not, he might not be making the same statement ten years from now.
All that brings up the point that most of the discussion so far has focused on the income side of retirement planning. I think just as much effort needs to go into the expenditure side. What assumptions are we making about how much we will need? If it seems that we might not be able to come up with the huge and scary amounts bandied about, then we need to look at the assumptions. Maybe a smaller house and cheaper car will serve us just fine in retirement, for example. Which elements of our lifestyle are based on ego and which ones are truly tied to our well-being and satisfaction?
Anyway, good thread and good responses in a complex area.
Excellent point. Perhaps the biggest part of the equation is debt and how much of your income going into retirement is devoted to debt service. If you are retiring debt free your planning assumptions are much easier to make and keep. We pretty much have things planned out in cycles of when to buy new cars and when to do certain other things. We budget for large purchases paying cash during the off months of the years. By off months I mean those where no cyclical anticipated large expenses are due like Property tax, car insurance, home insurance, long term health insurance and state taxes etc. We try to keep saving/investment steady each month with excess money dumped into the portfolio at the end of the month. We don't want the unexpected and feel under budget is critical for now. We are very fortunate and are well off in retirement but we know the future can be a long time of financial surprises.
I just tried the T. Rowe Price retirement income calcualtor (google it and you'll find it). It allows you to adjust the assumptions easily.
I use Financial Engines. Its free to Vanguard investors
The CNN retirement calculator seems pretty good as well. You can view a detailed cash flow projection.
I would be interested in any discussion on asset allocation as one approaches retirement. Currently I am 55 and have about 37% in stocks, but part of my money is earmarked for college fund expenses. I was spooked by the 2008 downturn and want to have a pretty conservative asset allocation as I enter retirement in about 5 to 10 yrs. By pretty conservative, I mean having say, 30 to 35 percent in stock at age 65
my planning has no money needed in less then 15 years time frame in equities. all my equities money is for eating at least 15 years out from the day i retire. anything sooner is in bonds ,cash and un-traded reits...
about 35% equities , 30% cash, 35% bonds and un-traded reits....
im 57...i would have no college money in equities without a 15 year window.
You might want to read the thread on retirement investing. We have discussed this issue quite a bit. If you pulled your investments out of equities during and/or after the 2008 downturn, then it seems that you bought at a high price and sold at a low price. Obviously that was a serious mistake. If you do not currently have a high mix of equities, then you also missed an opportunity to buy at a low price and sell later on at a good price. I would also suggest that you be cautious about bonds. If you currently bought bonds at low interest rates, then when/if rates increase you will be at risk for considerable losses.
One advantage to rental properties is that theoretically rents rise with inflation...
In practice, I haven't seen it. In many places, like where I live, you couldn't pay the property taxes on the amount you could get renting out the property.
Rents are based on what the market will bear, with an adjustment for over and under-supply. Unfortunately since the housing market crashed, many people will rent their vacation/second homes, and perhaps the house they inherited from parents, at a loss--in hopes that the market will recover a bit and they won't have to give away the property they're renting for next to nothing. That creates an oversupply, further reducing rental prices.
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