I just retired earlier this year at 46. I ran through as many retirement planning tools as I can find on the Web (Fidelity, Vanguard, smart money, money etc. etc.) before making the decision. It is as confusing as the NG market this year.
It is best to figure out what your needs after factor in the fixed source of income. Then you take your yearly need x20 (5% draw a year) to x40 (2.5% draw a year). So if I need $80K a year and $20 K come from S.S. and pension than the yearly need is 60K. One would need 1.2M to 2.4M. The difference multipliers take into account of the market fluctuation. All these tool predicate on a set inflation rate, a set return on your nest egg and a set tax rate. Fidelity is the most advance and use the Monte Carlos Simulation which use the actual data from the market (in term of yearly return) and give you a percentage of success ratio (40x is for 45 Year of life expectancy and 90% confidence. Shorter life expectancy will lower the multiplier).
After running all these different tools, my conclusion is that I am playing with future number that I can't predict (who is to say that we are going to have 3% inflation for the next 20 years? what about market return of average 9% for a blend of bond/big cap/international stock for the next 30 years?). The best thing to do is to take a reasonable monthly needs (probably base on your actual expense of the last couple year), throw in some emergency fund (100k to 200K or whatever), then take a multiplier of 20 to 30 depending on how conservative you want. And use it as your target for retirement fund. After retirement, if thing don't do as well as you plan then spend less, find a part time job, move to Mexico etc. If things do better than you think, save some for rainy day and enjoy some of the spoil.The point is that we are flexible once you pass a certain spending minimum. We can adjust base on what we have. Who is to say that I will live to 90? I certainly don't think so, but retirement plan calculation seems to think that I must plan it that way?? |
