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  • FIRST POST
    • 5 more years
    • By 5 more years 13th Apr 18, 12:54 AM
    • 1Posts
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    5 more years
    accuracy of online retirement calculators
    • #1
    • 13th Apr 18, 12:54 AM
    accuracy of online retirement calculators 13th Apr 18 at 12:54 AM
    This is my first post. I have had no luck to date so I thought I'd try an online forum to get people's thoughts. I'm only a few years from retirement and am always doing spreadsheets to work out how long my savings will last. The problem is that my spreadsheets differ from the online calculators. With this in mind, here is my question.

    Why do all the online financial calculators say that you require (as an example) more than $1million capital to fund say $100k per year (indexed) for 10 years? Surely if your investment return matches inflation, the initial capital sum should be adequate. A simple spreadsheet confirms this. What am I missing? Is it fees? I suspect that it is. Could someone please answer this for me as I have been racking my brain.
Page 1
    • MEM62
    • By MEM62 13th Apr 18, 10:29 AM
    • 1,572 Posts
    • 1,193 Thanks
    MEM62
    • #2
    • 13th Apr 18, 10:29 AM
    • #2
    • 13th Apr 18, 10:29 AM
    Without knowing the assumptions on which the forecast is made it cannot be fully understood.

    Just a few variations as examples;
    * Where is the capital invested? Is it assumed that investment return match inflation?
    * If invested to S&S, what tolerance is included for market fluctuations?
    * Is the sum in year 10 actually $100K or the equivalent of $100K when inflation is taken into account?

    In the UK a pension port of 1,000,000 would be expected to last around 12 years assuming 1) A drawdown rate of 10% (100K in year 1) 2) The capital invested in investments with a moderate risk profile, 3) No increases in income to account for inflation. As you may be in the US the profile is probably different.
    Last edited by MEM62; 13-04-2018 at 10:47 AM.
  • jamesd
    • #3
    • 13th Apr 18, 4:20 PM
    • #3
    • 13th Apr 18, 4:20 PM
    The variability off investment returns - sequence of return risk - is part of the problem. If you happen to have low returns at the start the plan can be devastated. Say a 40% or even 20% equity drop and still drawing 100k from reduced 600k or 800k pot.

    In the UK that same million Pounds could be expected to deliver an initial income of 5.8% minus one third of charges over a 40 year plan if the Guyton-Klinger rules are used with 90% success rate. So 53,000 a year to start.
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