Edit: And as others have pointed out below, the returns assumed are unrealistically optimistic. Be warned about basing your retirement planning on this.
It's baseline assumptions are way off.
Currently it's more like "what if you have a great market year every year until you retire" or "what if you can reliably beat the market" - neither of which is likely to happen.
Projecting historically low inflation is no less reckless than ignoring it. Imo, you're better off looking at absolute returns and tweaking your expectations based in inflation as itnhaopens.
There's an interesting bit of analysis that estimates an upper bound of 3.8% -- 3.95% real returns from US Equities. Worth a read.
> Valuations today are in the 97th percentile of all valuations in history and the 83rd percentile of valuations over the last twenty years (itself a period of very high valuations). Rather than assume that they will revert back to some past average, let’s start by granting the very bullish assumption that they will remain exactly where they are today forever.
Edit: the same blog that has a great post "The Single Greatest Predictor of Future Stock Market Returns" which goes beyond "mean reversion" of equity valuations, to show how you can make a better explanation (and better long term forecasts) by considering supply and demand dynamics as investors, on average, shift their allocations of investments between equities, bonds and cash.
As previously discussed on HN: https://news.ycombinator.com/item?id=14948078
SP500TR annualized return between 1998 - 2011 was just 2% (before inflation)
If you bought AMZN (Amazon) in 2000, you had to wait until 2010 before
the price recovered.
It's important to save over long time and reduce risk before retirement.
5 years - 15.79%
10 years - 8.49%
15 years - 9.92%
20 years - 7.19%
25 years - 9.69%
I used it for a while; it did work and their published financials are solid, but being happy with some risk I decided stocks where a better play.
Still, it's a useful baseline.
Just like the "guarantees" Bernie Mandoff made to his "investors."
The money has to come from somewhere and the underlying assets producing returns are speculative.
If the underlying assets don't produce enough return for the company to offset losses, then that guarantee is worth the paper it's written on.
I say this as someone who invests in P2P loans. They are speculate investments.
And why "Uber?" Cuz it's cool? Why not "Starbucks barista" or "shelf stocker?" Because what we're really talking about is "work more" I guess "part time job" doesn't sound as hip as it used to...
If 9% is good enough for most federal, state, and local pension estimates, it's good enough for us, too. /s
The Mets wanted to get rid of Bobby in the year 2000 but owed him $5.9M. Mets owner Fred Wilpon thought it a good idea if he asked Bobby to defer payments on that $5.9m for 11 years. Fred would invest that $5.9M today and make out in the black. Fred would just turn around and get a 10% return from his buddy Bernie Madoff and have over $16M in 11 years.
Lets just say that story doesn't have a happy ending. Bobby Banilla will get paid $29.8M dollars over 25 years for a season he never played. http://fivethirtyeight.com/features/the-bobby-bonilla-retire...
I actually built a calculator myself to better accommodate for inflation and have the ability to tweak the numbers just a bit more. If you're interested:
You have a UI bug on your tooltips on advanced fields. They show up way above where they should be =)
I know that's a bug I need to fix, something with bootstrap. Thanks for pointing it out and hopefully will have a fix tonight!
Just fill out the field income in retirement under advanced fields and I think that should (hopefully) be what you're looking for.
It would be much better to make estimates in inflation-adjusted (today's) dollars: at least then one can relate the results to costs you see today. And even in pre-inflation dollars, average 9% return is anything but conservative.
On smaller points: adding "0" as an invest monthly option would be a good idea.
but, other than that, it's a good calculator and I like the idea and the interface is nice too.
You can select different withdrawl rate strategies, different investment strategies, deferred compensation strategies, different investment mixes, and many, many other things.
The interface isn't as pretty, but it is unbelievably sophisticated.
Or you can just max our your 401k, IRA, HSA, save enough of what's left over to make sure you can have a comfortable retirement at 60ish. The math for everybody else actually isn't as tricky as it seems for mid-to-high income folks. It's generally more about reigning in spending than fancy spreadsheets.
You are correct that reduced earnings period and a longer withdrawal period does increase risk for early retirees, though.
Read "A Random Walk down Wall Street" and start investing.
Like how am I supposed to estimate costs I will need in retirement to know how much I need to start with.
As with any planning, you can stare at the numbers forever and not feel satisfied. There is no one true answer.
I did not say don't plan at all, just think about the lifestyle you may have in the future, not the one you have now.
Immediately below the banner at the top of the page are links to several other pages: "Other Income/Spending"; "Not Retired?", and so on.
Yeah, so $1.25m - $45K is NOT 880K.
Also, the effect of inflation compounds every year. So maybe you want to divide the nominal answers you are giving out by (1.03)^num-years-from-today to get the real value (in today's dollars) .
Please do better math.
It is difficult to trust the calculator when arithmetic errors exist in the prose.
You subtract your annual spending (3%) from your total invested? Why would you do that? To arrive at the total amount you'd have invested after you spend for a year?
This paragraph reads like a markov chain generator.
What is my retirements purchasing power today?
Inflation is inevitable. If that word is new to you, it simply determines how much purchasing power your dollar has. Historically, inflation has always increased with time.
In order to get a good understanding of the purchasing power of your future retirement savings for today, you can do a “simple” calculation: Take your total retirement savings and multiply it by 3%. For example, if you have $1.25m (retirement savings), multiplied by 0.03% (inflation), you get $45,000 in inflation. Then you subtract that number from your total savings: $1.25m - $45k = $880k. This will give you a baseline to understand your financial situation.
I don't even.... What !? There are so many things wrong with that calculation.
It actually says that the rate of inflation always increases with time, which is... not true! Even if it's trying to say, clumsily, that there has been inflation every year historically... that's also not true. There has been periods of deflation, historically
Finally, and I think this is where it really falls short - this calculator is WAY TOO OPTIMISTIC out of the gate. I just cross checked it w/ my own calculations - it doesn't add up. Its "conservative" estimate is way higher than my "optimistic" plan (10% return / 3% inflation based on a passive index investing strategy)
I don't fully understand... 1.25M - 45k is most definitely not 880k. Did you do something else that you forgot to list?
It is possible. It will take work and change on your part. The first step is to track your spending. The easiest way to do this is get an account with mint, ynab (you need a budget), or personal capital. You can link all of your accounts with the site and app. You can then categorized your spending. After you do this you can start seeing where you can reduce your spending. The major areas you can save on are housing, transportation, food, and miscellaneous. The reverse order is probably the easiest to reduce costs.
The Millionaire Next Door is a great book that talks about the difference in mindset between people who are able to build wealth well and those who are not able to. It is really eye opening if you are always broke.
> If successfully saving for retirement was so straightforward and deterministic, there wouldn’t be an entire industry, with consultants and books, built up around trying to help people hopelessly navigate it.
There is a full industry. Saving money (for people with incomes above the median), like losing weight is simple. Yet there are still fat people and broke people.
impossible for most people
>spend <30% of your gross income on housing
impossible for many (most?) places with jobs
>don't borrow to spend more than you make 90% of the time
this factor is indeed entirely up to individuals and a perpetual point of failure... but refusing to borrow and cutting minor expenses is not a road to any kind of wealth for most people. it's a road to retiring poor. most people are on that road.
>impossible for most people
Part of me is tempted to look up statistics to make the point but if you are making more than 150% of the poverty line in the US, you can save 10% of your income, it is a choice not to.
> >spend <30% of your gross income on housing
>impossible for many (most?) places with jobs
It all depends on where you are willing to live. Also, if you move to somewhere to get a job, before you accept the offer you should check to see if it is possible to move there and follow this guideline. If you, you shouldn't move there because you will become worse off.
> refusing to borrow and cutting minor expenses is not a road to any kind of wealth for most people. it's a road to retiring poor. most people are on that road.
Depends on what you count as minor expenses. If I cut out $100 a month of expenses starting at age 25, and put that in an index fund that grows at 8% until I retire at 67 it will be worth $412,077.88. If I want to retire a millionaire I need to save just under $250/month, which is 10% of a 30k a year job. At $30k I am a little sympathetic if you cannot save $250/month. If you are making $50k, it is a matter of choice.
you're out of touch. this is not even the same type of job that the majority of people have access to. people's standard of living is far beneath what you suspect.
>If you are making $50k, it is a matter of choice.
try having a mortgage or high rent, a medical problem, kids, parents who need care, a car, student loans, clothing that aren't tatters, an emergency fund.... and all that comes before even baseline (necessary) entertainment / low-luxuries like internet access and padded chairs.
it isn't a matter of choice for most people. nevermind that 412k isn't enough to retire on if you have any of those burdens above. sure, they could spend $20 a week less on beer. but why would they?
Find a cheaper place to live.
>a medical problem
This is the one I have the most sympathy for, US healthcare is broken, people shouldn't have to go bankrupt to pay for life saving care.
1) Wait until you can support them until you have them.
2) Just because you spend a lot of money does not mean you will raise better children. Americans as a whole seem to think otherwise.
> parents who need care
Again, I am sympathetic but this doesn't apply to everyone, or even the majority of people.
> a car
You can find a reliable used car for ~10k often times much less than that. Getting a ~20k or worse a ~40k car every 3 years is a waste.
> student loans
On one hand, people were given really bad advice on college. On the other hand, people took really bad advice. High school need to be better informed about the long term cost of college.
> clothing that aren't tatters
Goodwill, Ross, discount stores all great places to get non-tattered clothing.
> an emergency fund
If you are disciplined enough to build an emergency fund, after it is funded, keep being disciplined and start saving for retirement.
At forty? Here I am tens of thousands in debt, all that hard work gone. I did all the things society told me to do if I wanted to live the good life, but life can come at you in unexpected ways. For some people it is poor health, others a crazy ex and a truly unfair divorce. Businesses succeed, but sometimes they also fail.
Much like the founding story myth discussion here on HN, we might do well to hear some stories of personal financial failure as vehicles for learning.
You can follow all the textbook advice, study hard, fill in your applications on time, get good grades in college, and once you graduate you could still not have a job for years due to bad luck, unfortunate economic conditions, lack of skill in picking your major, emergencies, etc.
What should I conclude about all the advice on studying?
Given a savings rate, the number of years required is income-invariant. (A given savings rate may not be invariant of course.)
Plus one of the authors died driving a Corvette, not a Corolla...
Like all self help books, it's about selling hope.
Furthermore, you were entirely unwarranted in making the assumption that the GP has a spending problem instead of an income problem.
Save more if you can though.
This whole blog series is great, and I'd recommend it, but this particular post is the one responsive to the mortgage and retirement part:
Plus, your link is more like ~14/50 states if you're only considering lower income folks.
If people like Social Security (and they generally do), then all they have to do is vote for politicians who will protect it, and harass politicians when it looks like they won't.
Of course it's fine to plan for a retirement without Social Security... having too much money in retirement is not generally considered a problem.
But if you're feeling despair over Social Security, know that there is something you can do about it: political organizing.
I know my rhetoric sounds like a joke, but I’m 100% serious. You have the fake notion that “employers pay half” (no, the worker pays 100% of it truly), you have its regressive nature (poor people start working earlier and also die earlier, so it’s a redistribution towards the wealthy), you have the fact that it’s sold as a sort of insurance/retirement account when in actuality it’s neither.
Honesty, you’d be hardpressed to find a more awful government “safety net” program. I miss the days when I supported myself only on illegal income and got to avoid the whole issue. Alas, those days are gone.
You have the fake notion that if we didn't have SS, employers would pay you more.
>you have the fact that it’s sold as a sort of insurance/retirement account when in actuality it’s neither.
It is in actuality neither. However, because of it, seniors were the age group who were least likely to be in poverty during the recent recession. During those years, it really acted well as a safety net.
> Avoid spending tax refunds to get to your retirement faster.
The advice should instead tell the user to plan the tax payments to avoid giving the government an interest free loan by overpaying taxes and getting it back as a refund much later. Of course, a particular sum should be invested regularly.
You can read it for free online, or download the PDF (also free).
If you like it, I just ask that you help spread the word. Starting investing when your young is so, so important. And unfortunately the core essentials are often diluted with unnecessary complexities in most of the mainstream books. That's why I wrote this one.
this is why student loans have made perpetual paupers out of the better part of an entire generation.
The only downside (for me at least) is that I live in UK.
And my pension plan is not in $$$.
"Lots of people are unknowingly paying 2%, and more, in annual fees. At a low-cost brokerage you can get away with 0.5%. See what a difference that does to your final balance."
y: How much do you need to retire forever?
y = 25x
(Research has shown that 4% drawdown of your wealth every year combined with an investment into stocks (assets with 3.5-4% post-inflation return) will generally preserve your capital stock - and even in the worst cases won't completely erode it.
100%/4% = 25
Withdraw 4% every year and you can live on your investments forever.
Some really important things that are built into it are:
- Everything is given in "today's dollars" and that's done by reference to a salary index, NOT a price index, to reflect increases in community living standards.
- It shows some indication of the income level you can expect during retirement given your lump-sum retirement benefit.
 I was one of the actuarial staff that contributed to it
- Adding future income events (social security, pension, etc)
- Inflation adjusted.
- Set future spending goals (buying a house, wedding, health care)
- You can also save different simulations and get a percentage chance of hitting that goal. I have one for if Social Security doesn't exist when I retire, another one for early retirement, etc.
It's free to sign up. https://personalcapital.com/
That's the lifestyle inflation I'm alluding to. If one can be happy spending X/year 5 years ago, why can't one be happy spending inflation-adjusted X/year today?
Agree about kids and healthcare but those aren't "lifestyle" costs.
In the US the FED Interest Rate was about ~.25-.55 a couple years ago where the Brazilian was ~14%
I use it for my own financial projections. I wanted something simple that didn't base post-retirement income on a percentage of pre-retirement income. I just wanted to input a dollar amount for post-retiremt income and have that adjusted for inflation.
in fact, it's detrimental, compared to the fund flexibility of a standard brokerage
i wish people would talk about this more; perhaps there's something i'm missing, but after a certain income threshold, iras and 401(k)s seem like foolish investment decisions
You can use a Backdoor Roth to get around income limits.
Anyways, this "caluculator" didn't mention anything about taxable accounts vs tax advantage accounts.
What does this mean? Cash? Illiquid assets? Retirement funds?
I believe I first saw this as a Show HN a few years ago. Enter in each of your debts (balance, minimum payment, interest rate) and select your method of repayment and the extra you can put into it (if any).
I've used this to pay off $112,000 in student loans in 30 months, which is 4x faster than the loan term!
Decent UI for a monthly + interest style calculator. I like it.
Says starting with 300k and saving 500/mo I'll have $2.4mil in 20 years...
It is a nice idea but not realistic with the recommendations imho.
- Age range input.
It took me a minute to understand what this is for. I assume the lower bound is my current age and the upper bound is the retirement age
- How much do you currently have saved? ex $1,000.
I actually tried to type a dollar symbol and nothing happened.
- Aggressive vs conservative.
Huh? What are you talking about? What is aggressive/conservative?
The list goes on...
Sorry for asking, but what exactly does the icon of the bag with money in the diagram indicate?
The retirement calculator takes the Total retirement savings and calculates how much monthly income a 4% annuity would generate without drawing from the principal. This indicates the type of lifestyle you can expect without running out of money.
Or, to put it another way: it assumes that you want to be worth roughly the same at death as you were at retirement.
That's fine, but it bears mentioning - since it assumes you want to pass on potentially millions of dollars at the time of your death.
If you aim to break even at death, that changes the calculations.
do many people do this? seems unwise given the uncertainty in our lifetimes.
But then I'm biased because I created it.