Great article and I’ll definitely have to check out that calculator.

Thank You.

I’m guessing here, but there must be some way to time average the inflation rate over any period that would like, in the same way that the stock market gain can be averaged over any period.

It’s all well and good to use conservative numbers in these calculations, but in doing so (using Nickel’s numbers) I find that at the rate the I can currently afford to save, I cannot retire until age 70 (I’m 32 now.)

I consider myself to be an above average saver, and to think that all of the hard work that I’m doing is so that I can retire at 70 is incredible disheartening. So much so that I might ask, “Why bother?”

So I prefer to use numbers that are less conservative — but not unrealistic.

Again, you need to put your “young” money in growth positions (ie relatively risky) to get the big returns. But relatively conservative investments should still earn a lot for you. If the market can average close to 10% over time, then your conservative investments should earn 7%-8% — once you actually switch to them. This calculator easily shows why such a small difference in portfolio performance can have a huge impact on retirement age and income. So “risky” investments might only earn you a couple or even a few percentage points above “safe” investments, but those few points are crucial for the growth period of your (and MY) portfolio.

So yes, to project 7% or 8% over the whole lifetime of your portfolio is conservative, I really don’t think that it’s realistic and can even be detrimental if it shows people such bad news that they say, “Why bother?” and go out and spend that savings.

Regarding investment returns, it is dangerous to use too high a return in a strait-line (using the exact same return each and every year) calculation. Real life does not happen that way, and you’re ignoring investment volatility. In reality, pursuing a higher return usually results in greater short-term volatility, which increases timing risk, which leads to a greater number of possible outcomes from saving and investing over time.

Even if you are correct with your average return guess, your resulting wealth could be significantly less than what this calculation predicts. This is because *when* returns happen is much more important than *what* they average. Sure, it could also be much higher, but we’re talking coin flip odds here. I wouldn’t base such important plans on a coin flip either.

For the sake of reference, the CPI is currently running around 4.1%. Keep in mind that the “core inflation rate” excludes things like groceries and gas, so it actually appears to be lower than the CPI.

Nickel: I think that 8% is pretty conservative. I see your point about switching to more conservative investments over time, but I read that many of these conservative approaches should still earn you 8%, so the average should be a good deal higher than this. I also think historic inflation rates have been closer to 3%, though please correct me if I’m wrong.

Until then, I’m save save saving as well as working to get the mortgage paid off early. Of course I don’t neglect the need to be well-insured (including disability insurance) and when the time comes I’ll investigate LTC insurance.

Good thing she didn’t get a serious illness in early retirement, or that rosy scenario wouldn’t have been so warm & fuzzy. Few Americans understand the consequences of what happens when serious long-term illness befalls a self/spouse/dependent – I do.

You all can play with those “what if” calculators, and run the Monte Carlo fairyland scenarios. I’ll just keep paying my long-term care premium, and save save save in tax-managed accounts and ignore the noise.
Retire real early and live really well huh? OK I admit I’m trying not to LMAO.

Not only are they the biggest earning years, but every year you work is a year you don’t draw on your funds. So its like earning double. (Sort of)

Interesting about the earlier your retire the less you need. I guess because if you retire 7 years earlier, you would need ~60% of the money. Since over the next 7 years that money would in theory double, thus growing faster than you could take it out.

1. Run the Portfolio Down to Zero $5,558,947
Portfolio Size:$5,558,947
Savings Required:$3,148

2. Maintain Same Dollar Amount
Portfolio Size:$5,706,323
Savings Required:$3,355

3. Number 2. Inflation-Adjusted
Portfolio Size:$6,039,694
Savings Required:$3,823

4. Withdraw no more than 4%
Portfolio Size:$9,030,556
Savings Required:$3,823

Why is it only a little more to maintain the same dollar amount than to run the portfolio down to zero? And why does adjusting for inflation only affect the numbers a little. I assumed it would greatly affect the numbers. I’m sure there’s something basic I’m missing…

Some expenses would decrease or go away (e.g., we wouldn’t have to save for retirement) but others would kick in (e.g., health insurance). Also, we have four relatively young kids (youngest is three) so we’d have atypical expenses in retirement (like college costs) depending on how early we retire. Then again, once they’re on their own, our expenses would drop substantially.

I need to be saving at a rate of $773 a month.

Now, assuming I have no mortgage, $50K in income annually is a heck of alot of $$$. I’m a pretty content guy (usually) so I don’t really need nearly that much.

If I wanted $20K in income for regular spending, everything else the same, I simply need to save $223 per month.

If I wanted to wait till 60, I have to save a mere $33 a month. Pretty neat.

But the human in me knows that too many people, when faced with the numbers you referenced, will be overwhelmed to the point of doing nothing. They can’t get close to $4,329 per month, so they figure “What’s the point in saving ‘just a thousand?’” Learned helplessness is never a good thing.

Everyone’s retirement is different – in how we get there and what we envision for it. I had a relative retire with her own modest home (no mortgage) and $25K. That was it. She lived 20+ years and left a $10K inheritance. She was happy. Her biggest expenses were bowling and Chinese food.

Will that work for everyone? Probably not everyone, but it will work for some folks. We all have to remember: no one gets to retirement and wishes they had saved less.