In any case, here's a link to the specific article. It suggests a strategy for managing your income stream during retirement. I found it enlightening and it inspired me to embark on a...
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Retirement Planning Adventure
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In other words, I made a spreadsheet.
Very exciting.
And truth be told, it was actually quite fascinating, although a bit scary. Here's what it looks like:
Or if you can't read that, here's a link.
This spreadsheet allows me to run different scenarios. For example, I might consider a scenario where I work longer, which gives me a higher pension income and also allows me more time to contribute to our Individual Retirement Accounts. It might also make me grumpier, but I did not include a "Grumpiness Quotient" on the spreadsheet. You may want to add that.
Of course, working longer and saving more could give us enough money for that chalet in the Swiss Alps, which could possibly compensate for the increase in grumpiness (although note that by "chalet" I mean a large tent and by "Swiss Alps" I mean a campsite at the state park).
Here's the breakdown of each column, and some assumptions I made:
A - The year, using the Gregorian Calendar. You can use a different one if you choose. The Chinese calendar might be fun. Year of the Snake. Year of the Dragon. Etc.
B & C - Our ages. Note that for each cell in column B ("Kate's Age"), I plan to enter "young and beautiful".
D & E - Our work income, whether full-time or part-time. Kate and I will likely both need and want to work part-time jobs after we retire from our careers. My top choice would be "lawn mower mechanic."
F - I list here the amount we expect to withdraw each year from our Individual Retirement Accounts. Since we are still contributing and won't be making any withdrawals for a number of years, I used a "Retirement Fund Growth Calculator" (Google it) to project our future account balance. For example, if our current balance is $50,000 and we expect to contribute $5,000 a year for the next ten years and earn three percent growth annually, the final balance will be just shy of $200,000. I then assumed we would withdraw about three or four percent of the balance each year from that point forward. That comes out to about $6,000 per year. Bring on the champagne and caviar!
G & H - Pension payments. Kate and I are quite fortunate in that we will both have pension income. If you share that good fortune, there should be a way to estimate the income depending on when you retire. In our case, our employers have a retirement planning book on-line that explains how to do so.
I & J - Social Security income - Do you remember that summary you receive every few years from the Social Security Administration? Can you find it? It lists your estimated Social Security income at three different points, ages 62, 67 and 70 (if you can't find it, I suspect there's a way to request one). The aforementioned report from the Stanford Center on Longevity suggests that there is a significant benefit in having the spouse with higher income delay their benefits until age 70.
K - Total income, i.e. the sum of columns D through J (I set up a formula). Note that for columns D through J, I used the "before tax" number, which brings me to column L.
Here's the breakdown of each column, and some assumptions I made:
A - The year, using the Gregorian Calendar. You can use a different one if you choose. The Chinese calendar might be fun. Year of the Snake. Year of the Dragon. Etc.
B & C - Our ages. Note that for each cell in column B ("Kate's Age"), I plan to enter "young and beautiful".
D & E - Our work income, whether full-time or part-time. Kate and I will likely both need and want to work part-time jobs after we retire from our careers. My top choice would be "lawn mower mechanic."
F - I list here the amount we expect to withdraw each year from our Individual Retirement Accounts. Since we are still contributing and won't be making any withdrawals for a number of years, I used a "Retirement Fund Growth Calculator" (Google it) to project our future account balance. For example, if our current balance is $50,000 and we expect to contribute $5,000 a year for the next ten years and earn three percent growth annually, the final balance will be just shy of $200,000. I then assumed we would withdraw about three or four percent of the balance each year from that point forward. That comes out to about $6,000 per year. Bring on the champagne and caviar!
G & H - Pension payments. Kate and I are quite fortunate in that we will both have pension income. If you share that good fortune, there should be a way to estimate the income depending on when you retire. In our case, our employers have a retirement planning book on-line that explains how to do so.
I & J - Social Security income - Do you remember that summary you receive every few years from the Social Security Administration? Can you find it? It lists your estimated Social Security income at three different points, ages 62, 67 and 70 (if you can't find it, I suspect there's a way to request one). The aforementioned report from the Stanford Center on Longevity suggests that there is a significant benefit in having the spouse with higher income delay their benefits until age 70.
K - Total income, i.e. the sum of columns D through J (I set up a formula). Note that for columns D through J, I used the "before tax" number, which brings me to column L.
L - So far everything has been fun and games, writing down numbers of dollars we'll receive after we stop working. Yay! Column L is a bit of a downer because unfortunately Uncle Sam and Aunt State get part of those dollars. I estimated that we'd pay about 20 percent of our income in taxes. I arrived at that percentage by...making a wild guess. There may be a better method.
M - Expenses - I entered here my best guess of how much money we will spend each year. This is a tough one. I've heard it suggested that during retirement you should expect to spend 80 percent of the amount you spend during your working career. My own method was to add up the amount of our current annual net pay, and subtract any expenses that I know will no longer apply (e.g. a mortgage payment). I then assumed our expenses would increase each year due to inflation, and set up a formula to show that annual change (I assumed a two percent inflation rate).
N - Balance - In this column I entered the balance of after tax income minus expenses (again, I used a formula to automatically calculate). In the scenario where I retire next week, this column has a lot of years where the number is negative. After careful analysis, I've determined that result is probably less than optimal. Probably.
There are a few underlying assumptions to this exercise. One assumption is that Social Security benefits will still be a thing ten or twenty years from now. I've also made assumptions about the inflation rate and returns on Individual Retirement Accounts and I've assumed that no one actually has the colossal stupidity to attack another country with nuclear weapons. Seriously, I'm convinced that last bit would throw everything off in a big way.
You would be thoroughly foolish to use this post as the basis for your retirement planning. Also, to state the obvious, this exercise becomes less useful the further away you are from retirement. Nor am I ignorant to the fact that being able to plan for a modestly comfortable retirement is actually a great luxury, and Kate and I are very fortunate to be in this position. For vast numbers of people, likely including readers of this post, retirement planning consists of "I plan to work as long as I'm physically able and then get by as best I can on Social Security." In my opinion that is not an acceptable place for us to be as a nation, and policy changes are in order.
However, perhaps it will encourage you to continue thinking about it and seeking out good information and advice from people that actually know something about these things. In the meantime, I'm bumping up my IRA contributions.
M - Expenses - I entered here my best guess of how much money we will spend each year. This is a tough one. I've heard it suggested that during retirement you should expect to spend 80 percent of the amount you spend during your working career. My own method was to add up the amount of our current annual net pay, and subtract any expenses that I know will no longer apply (e.g. a mortgage payment). I then assumed our expenses would increase each year due to inflation, and set up a formula to show that annual change (I assumed a two percent inflation rate).
N - Balance - In this column I entered the balance of after tax income minus expenses (again, I used a formula to automatically calculate). In the scenario where I retire next week, this column has a lot of years where the number is negative. After careful analysis, I've determined that result is probably less than optimal. Probably.
There are a few underlying assumptions to this exercise. One assumption is that Social Security benefits will still be a thing ten or twenty years from now. I've also made assumptions about the inflation rate and returns on Individual Retirement Accounts and I've assumed that no one actually has the colossal stupidity to attack another country with nuclear weapons. Seriously, I'm convinced that last bit would throw everything off in a big way.
You would be thoroughly foolish to use this post as the basis for your retirement planning. Also, to state the obvious, this exercise becomes less useful the further away you are from retirement. Nor am I ignorant to the fact that being able to plan for a modestly comfortable retirement is actually a great luxury, and Kate and I are very fortunate to be in this position. For vast numbers of people, likely including readers of this post, retirement planning consists of "I plan to work as long as I'm physically able and then get by as best I can on Social Security." In my opinion that is not an acceptable place for us to be as a nation, and policy changes are in order.
However, perhaps it will encourage you to continue thinking about it and seeking out good information and advice from people that actually know something about these things. In the meantime, I'm bumping up my IRA contributions.
I would create similar spread sheets during opening speeches at Annual Conference. In my case I would include my kids ages and my vehicles projected mileage. I also had more than a single IRA and would break that out along with some other investments. This was helpful just getting my head around some short term planning. There it was on paper; in x number of years my kids would be x and x age and my car will have to be replaced. BTW, I like the State employees union mutual fund options. Better performance and less cost than my previous mutual fund choice. As far as those policy changes in social security, don't worry, they will happen. The millennium generation is already old enough to vote. In a few years their brains will develop to the point they are going to ask themselves 'why am I investing in something projected to return a 30% loss?"
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