Retirement Calculators

I have just read a book co-authored by Laurence J. Kotlikoff and Scott Burns entitled the book, “Spend ’til the End”. A more explanatory sub-title is, “The Revolutionary Guide to raising your living standard - today and when you retire”.

I know of Scott Burns from his financial commentary on the Web and he also created the couch potato portfolio for investing which has gained popularity.

I did know much about Mr Kotlikoff though. He is an economist who has used his economic knowledge and skill to co-developed a software program called E$planner. It is built around a system called “consumption smoothing” which I find very interesting.

It’s the “when you retire” that got me interested at first. I was a little put off by the title initially because I thought it was irresponsible, but after I read the first couple of chapters I realised that the theory of “consumption smoothing” was worth learning more about.

Mr Kotlikoff debunks the idea of limiting your spending in retirement to 4% of your retirement nest egg. This got my attention because it concerned me that I had to but static limits on what I planned to do in retirement. There are too many things that can occur in live that may mean spending more or less at different times. Read the rest of this entry »

Many Financial sites now have a retirement calculator you can supposedly use to estimate your retirement income or other retirement information. I believe that most are dangerous. Mick who is one of my valued subscribers emailed me some of his own research on retirement calculators. I thought the information very relevant to my objectives with my blog theme about protecting your nest egg in retirement.

So I ask Mick if I could put his complete email on my retirecalc blog. Luckily he said yes so here it is…. Read the rest of this entry »

Today I thought I would take a look at the Vanguard Retirement Income Calculator. This online calculator attempts to calculate the monthly retirement income you are likely to have at retirement.

Retirement Income Calculators take a different approach to the Otar Retirement Calculator. They look purely at estimated monthly income and assume you will need a percentage of your pre-retirement income to live on.

Things I like about it

• Results are shown graphically as you change the slide bars.
• The results are shown in today’s dollars adjusted for inflation.
• It give you a good feel for how your personal contributions, Social Security and any Pension Benefits all add up to a monthly income.
• It is very easy to try different “What If’s” to see different results.
• They explain the assumptions that they are making for the calculation.
• They work it in today’s dollars so you can relate to it.
• They give a disclaimer advising you that their calculator is not to be taken as investment advice.
• It uses the 4% Rule which is a good rule of thumb for withdrawal rates.
• It graphically shows how increasing your savings can have a dramatic affect on the Monthly Retirement Income.

Things I don’t like about it Read the rest of this entry »

Jim Otar’s Otar Retirement Calculator can be used to really plan your retirement. He does not subscribe to the 3-6-9 philosophy of most financial planners. What’s that you say, what is the 3-6-9 philosophy?

When you go to see most financial planners they will use what is almost an industry-wide de facto standard of of long-term averages. They are 3% inflation, 6% fixed income returns and 9% equity returns.

Using these figures your retirement will be rose and you can dance down the yellow brick road with Dorothy and the Tin Man if you like.

But Jim Otar whose background is engineering totally disagrees with this philosophy and has created his own calculator. I think it was Jim who said why do we design an oil rig to withstand a Hurricane and don’t build a retirement plan to withstand a Bear Market crash? So he went out to try to do just that.

What is so special about this calculator is it doesn’t use those voodoo mathematics like long term averages? Read the rest of this entry »

This is the first post on this blog. The purpose of the blog is to find and review the many different retirement calculators on the Internet.

Some of the calculators take a responsible approach and point out their limitations. But many others are merely used to attract site visitors and have no real value.

All calculators should be thoroughly researched before using the results to plan your retirement. Failure to do this may well leave too much life at the end of the money!

There is a saying my Margaret Mead that I think is very relevant here;

“I was brought up to believe that the only thing worth doing was to add to the sum of accurate information in the world.” Margaret Mead

It is my aim with this blog to try to live up to the meaning of that quote.

I thought I might start the ball rolling with a small purpose built retirement calculator I creating in Excel to find out how a retirement nest egg might have performed from 2000 to 2007. During this period we had the Dotcom crash with the S&P 500 losing 40% of its value by 2003 and then we had the bull market run up from 2003 to late 2007. I wondered what the result might be on a $1M nest egg for a Baby Boomer retiring on 1st January 2000. Read the rest of this entry »