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Guesstimating what we'll have in retirement
Old 04-26-2021, 08:45 PM   #1
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Guesstimating what we'll have in retirement

Title sums up my question.

How can we accurately "guesstimate" how much we'll have in retirement? I know there are compound interest calculators that might help but how accurate are these? How do you know what rate of return to use etc?

Thanks
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Old 04-26-2021, 09:03 PM   #2
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Nobody can accurately predict the future. Retirement calculators are mostly based on history, and the hope that the future won't be worse than the worst we've had in however many years the calculators go back.

I think you're looking at it backwards. Instead of figuring out how much you'll have, figure out how much you need. To do that, you need to figure out how much you'll spend, which is also hard to do, but at least it's under your control. When you approach 25x your yearly spend, you can start to dial it in. How much buffer do you think you'll need, do you want extra so you can travel, how much does social security cover, etc.? The less you spend now, and the more you save, the faster you'll get there.
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Old 04-26-2021, 09:16 PM   #3
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Originally Posted by RunningBum View Post
Nobody can accurately predict the future. Retirement calculators are mostly based on history, and the hope that the future won't be worse than the worst we've had in however many years the calculators go back.

I think you're looking at it backwards. Instead of figuring out how much you'll have, figure out how much you need. To do that, you need to figure out how much you'll spend, which is also hard to do, but at least it's under your control. When you approach 25x your yearly spend, you can start to dial it in. How much buffer do you think you'll need, do you want extra so you can travel, how much does social security cover, etc.? The less you spend now, and the more you save, the faster you'll get there.
I know how much we need, my concern is IF will ever get there, despite starting to max out on 401Ks & ROTH IRAs. I wish there was a way to at least get to an approximate value of our future retirement nest egg.
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Old 04-26-2021, 09:28 PM   #4
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I know how much we need, my concern is IF will ever get there, despite starting to max out on 401Ks & ROTH IRAs. I wish there was a way to at least get to an approximate value of our future retirement nest egg.
I think that's a common concern, especially early on. As your accounts start to build up, the power of compounding will start working for you.

In my case, in my 30s I jumped to a company that was growing fast and granting stock options, so my wealth jumped rapidly. I'll leave it to others here who made more steady progress without the same fortune I had but still were able to RE to share their experiences.
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Old 04-26-2021, 09:52 PM   #5
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There are a multitude of calculators that use varying assumptions based on historical returns. The premise being that if the range of historical returns is representative of future outcomes, then you get a sense of likelihood of failures- based on history. It isnít necessarily predictive but does bracket experienced performance. Most allow you to insert your own assumptions. Simulated outcomes are just that and donít give you a deterministic single answer. The range and the median are likely the most instructive anyway. We canít predict but maybe we can bracket and get an idea of a range and a timeframe. Sequencing is kind of important too and we are in a lengthy bull market. Probably not all that helpful but thatís my 2 cents.
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Old 04-26-2021, 10:31 PM   #6
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If all you want is a "guesstimate", use the calculators. Try it with rates of return between 4-8%. You'll like the 8% number better, but 4-6% may be closer to where you actually end up.
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Old 04-26-2021, 10:52 PM   #7
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We canít know what the future holds, but we can look at what happened in the past. Monte Carlo simulators are good for providing a range of possibilities based on previous returns. You will need to pick an asset allocation ( or several) for these simulations. Based on this, you can determine how much you need to save each year to reach your desired nest egg. Of course, future returns may look nothing like past returns, but one needs some basis for planning.
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Old 04-27-2021, 01:57 AM   #8
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You might try firecalc. It will give you a range of possible returns based on historical market performance. It's very easy to use and the reason I found this forum.

As many say, the future is unpredictable. But at least with firecalc you will see the results from many time periods.
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Old 04-27-2021, 04:35 AM   #9
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Most studies say historical returns of a 60/40 portfolio including dividends are around 8%. I used a estimate of 6% to have a fudge factor in case the 8% didn't happen to us. Important determiners are the composition of your portfolio and the time for compounding to work. More equities should mean more volatility and higher return to a point. I think what I've read is that over 60-65% equities doesn't increase the return or if it does it is a small increase and not worth the risk.



I did a simple spreadsheet that took the combined value of my retirement savings at the end of the year and then for each year took (previous year * 1.06) + current year savings. Then copied that like 30 times to get target years. You can then play with changing the contribution amounts to see what impact that has on the estimated value at RE time and compare that to your target number. My experience only, the 6% was mostly beat by the actual numbers each year.



Hope this helps
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Old 04-27-2021, 05:08 AM   #10
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Start with zero return. Why? Because there is inflation. So, the assumption is that your portfolio will equal inflation. If that gets you there, you’ve started with a very conservative estimate. In modeling, it will be better if you assume inflation and return are the same number - say both are 3%. That will better reflect the variation in your inputs (additions to your portfolio).

Then you will see that your estimate of return on your portfolio is really an estimate of how much your return will beat inflation. So if you estimate 3% inflation and a 5% return, the net it 2%. That’s the number you want to focus on.
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Old 04-27-2021, 05:28 AM   #11
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Originally Posted by RetireBy90 View Post
..........I did a simple spreadsheet that took the combined value of my retirement savings at the end of the year and then for each year took (previous year * 1.06) + current year savings. Then copied that like 30 times to get target years. You can then play with changing the contribution amounts to see what impact that has on the estimated value at RE time and compare that to your target number........
The above is exactly what we did. In addition, at some point we were comfortable with our lifestyle. At that point, all salary increases and bonuses went into savings. We had a target savings range, estimated retirement age and a projected spending level. We retired at the lower end of our savings range, sooner than the original plan and we spend much less than anticipated. Seven years after FIRE, we could have retired sooner and we could/can spend much more. But there is know way to know before hand. Estimates, ranges and flexibility are your friends in this exercise.
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Old 04-27-2021, 10:59 AM   #12
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Firecalc.com is as good as I've used. You will have to use it a few times to really understand it and get the most out of it. I like it much better than the tools provided by Fidelity, Engleman, other online tools, et al.

I also created a spreadsheet years ago inputting expected annual investments, target returns, SS benefit, pension, retirement budget, etc. I run that as the model and track real data side by side.
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Old 04-27-2021, 10:11 PM   #13
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Firecalc.com is as good as I've used. You will have to use it a few times to really understand it and get the most out of it. I like it much better than the tools provided by Fidelity, Engleman, other online tools, et al.

I also created a spreadsheet years ago inputting expected annual investments, target returns, SS benefit, pension, retirement budget, etc. I run that as the model and track real data side by side.
I tried firecalc but cannot understand how it works at all. I need to keep trying, I guess.
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Old 04-28-2021, 04:02 AM   #14
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I tried firecalc but cannot understand how it works at all. I need to keep trying, I guess.
Read these two pages.

https://firecalc.com

https://firecalc.com/intro.php

Then look at each of the different tabs in the calculator part.

If you still have questions after that, please ask away -- someone here has probably already had your specific question addressed here.
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Old 04-28-2021, 06:19 AM   #15
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Quote:
Originally Posted by Safire View Post
I know how much we need, my concern is IF will ever get there, despite starting to max out on 401Ks & ROTH IRAs. I wish there was a way to at least get to an approximate value of our future retirement nest egg.
Quote:
Originally Posted by FlaGator View Post
If all you want is a "guesstimate", use the calculators. Try it with rates of return between 4-8%. You'll like the 8% number better, but 4-6% may be closer to where you actually end up.
There is nothing that is foolproof but some simple math in Excel can give you an idea. Let's say that you are 20 years from retirement, have $250k saved and plan to save $20k each year for the next 20 years and expect to earn 6% return on your retirement savings.

FV of $250k in 20 years @ 6% = 250*(1+6%)^20 = $802k
FV of $20k/year for 20 years @ 6% = FV(6%,20,-20) = $736k
Total = $1,538k

Then you can see how sensitive the outcome is to different return assumptions. At 4% the total would be $1,143k and at 8% it would be $2,080k.

Alternatively, you could use ficalc (not FIRECalc) to get an answer. Below is the result of a 20 year time horizon, $250k saved and $20k/year of retirement savings. The range of outcomes with an 80/15/5 AA is $488k to $3.142 million with a median and average of $1.5 million. Make sure to change withdrawals to $0.

https://calculator.ficalc.app/

ETA: Actually, you can do the same thing in FIRECalc... spending = 0, portfolio = 250,000 years = 20, retirement starting in 2041 (in 20 years), annual additions = 20,000

Quote:
Because you indicated a future retirement date (2041), the withdrawals won't start until that year. Your contributions will continue until then. The tested period is 20 years of preretirement plus 0 years of retirement, or 20 years.

FIRECalc looked at the 130 possible 20 year periods in the available data, starting with a portfolio of $250,000 and spending your specified amounts each year thereafter.

Here is how your portfolio would have fared in each of the 130 cycles. The lowest and highest portfolio balance at the end of your retirement was $250,000 to $3,444,998, with an average at the end of $1,588,795. (Note: this is looking at all the possible periods; values are in terms of the dollars as of the beginning of the retirement period for each cycle.)
All pretty similar results.
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Old 04-28-2021, 07:06 AM   #16
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As everyone has said there's no foolproof method because we can't predict the future, but you can estimate reasonably well based on what you think might happen. I find it's best to err on the conservative side so here's what I've been doing.



I look at our AA. Let's say it's 60/30/10. I pick a predicted return for each class: 5% for stocks, 2% for bonds, 0.5% for cash. That gives us an overall predicted average return of 3.65% for our total portfolio so that's the figure I use for our estimates going forward.


If you find that your estimate won't get you to your goal, you can either trim spending and save more, work to boost your income with overtime or side jobs, delay retirement, or shift your AA to a more aggressive one, or some combination of all of those things.


The closer you get to retirement, the more solid your numbers become, both your portfolio numbers and your spending numbers, and your guesstimates get more and more accurate.
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Old 04-28-2021, 07:39 AM   #17
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I suggest focusing on the things you can control. Most people limit their income with understandable trade-offs - time with family instead of extra time at work, living near relatives instead of relocating to areas with better opportunities, acceptance of routine instead of tackling new challenges, etc.

Next is spending. There is a current thread with a family of 6 claiming to spend $36K/year. I have no idea how, but it's thought provoking on what spending is really necessary.

Finally is rate of return. Far too many people invest so conservatively they get little growth or even lose ground. Some chase returns by switching to the next hot thing and a few gamble it all away on the next "sure thing". Avoid leeches, er, I mean advisors, and buy something resembling the total market like the S&P500 or Total Stock market with the lowest fee possible. Keep reading here and other good sites like Bogleheads to learn about sensible ways to set up your portfolio, mistakes to avoid, etc.
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Old 05-09-2021, 10:25 AM   #18
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What you have every year is the result of new worth that year, which means you take the assets minus your liabilities each year to get the idea.

Everyone is different. I have a spreadsheet tracking my NW which includes my assets (investment portfolios and cash) and my expenses.

After a few years of tracking, I learned to only spend on the needs which is pretty consistent, comparing to annual increasing property taxes and large expenses such as the extra $3k I chose to spend on a better vehicle after my last car got totaled by a distracted driver last year.

Similar to your case I am not clear on how to take the future social security benefits into my method of NW projection calculation because there are many years away before I want to claim it (will likely not do it until 70). If I die before I need SS, that is also good for others who need it more.
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Old 05-09-2021, 11:06 AM   #19
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Within reason, you can have as much as you want. The main "levers" are how much you are willing to save, how much risk you are willing to take in investing and how long you are willing to "wait" to retire.

I think for most of us the "curve" that describes our growth is weighted toward the end. IOW when you start out, the difference between years doesn't seem like you're making much head way. The last 2 to 5 years, you may wonder why you are still w*rking. That's the way it worked for me. I knew I was in pretty good shape when I was making more within my portfolio than I was receiving a salary.

BUT that doesn't happen in the first few years. What you also need to consider is things like a pension (if you will receive one) and, especially Social Security. I realize there are lots of "issues" around SS, BUT I no longer think it's "going away" nor will it be dramatically changed (for potential retirees - maybe for those paying in, however.)

Where are you (if I may ask) in your years-of-service? What would you like to set as your retirement date? You believe you know how much you will need, so that's the biggest part of the battle. How much risk are you willing to take to get there a bit faster? These are all questions you need to at least ask yourself. If you tell us the answers, we might have a better way to assist you in your thinking and planning. Just remember, we're anonymous folks on the internet. Admittedly, many of us have been through what you're going through, so we may have some insight BUT YMMV.
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Old 05-09-2021, 02:35 PM   #20
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opensocialsecurity.com will calculate the expected present value of your social security benefits for you using assumptions that you can adjust.
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