I think this is an interesting tool, and it's very easy to use. I had a couple of thoughts:
1)What does the withdrawal rate measure? I took it to mean the % of your portfolio value needed to cover your annual expenses after retirement. Might be worth clarifying this somewhere.
2) Would be cool to see a similar chart for annual rate of return (if for nothing more than to drive home the importance of savings rate).
Either way, I think it does a great job of highlighting just how big an impact little changes can have.
Thanks! I like the idea of a chart for annual rates of return.
The withdrawal rate is a little tricky. The withdrawal rate is the percentage of your retirement nest egg you will be spending each year. If you decrease your withdrawal rate you will need to save a bigger lump sum to compensate for the smaller amount of income you are generating. Therefore it will take longer for you to retire.
It would be helpful to see at what age you will run out of money for a given withdrawal rate. Without that it's difficult to know what rate of withdrawal to enter.
The calculator assumes you never want to draw down your nest egg -- ie your savings will only grow larger. It also assumes you will spend the same amount in retirement that you spend now. Your rate of withdrawal is pretty much a wild guess as it depends on your rate of return, taxes in the future and inflation in the future. Historically 4% has been a good bet. See this article for a summary of this topic:
Comments
I think this is an interesting tool, and it's very easy to use. I had a couple of thoughts:
1)What does the withdrawal rate measure? I took it to mean the % of your portfolio value needed to cover your annual expenses after retirement. Might be worth clarifying this somewhere.
2) Would be cool to see a similar chart for annual rate of return (if for nothing more than to drive home the importance of savings rate).
Either way, I think it does a great job of highlighting just how big an impact little changes can have.
Thanks! I like the idea of a chart for annual rates of return.
The withdrawal rate is a little tricky. The withdrawal rate is the percentage of your retirement nest egg you will be spending each year. If you decrease your withdrawal rate you will need to save a bigger lump sum to compensate for the smaller amount of income you are generating. Therefore it will take longer for you to retire.
It would be helpful to see at what age you will run out of money for a given withdrawal rate. Without that it's difficult to know what rate of withdrawal to enter.
The calculator assumes you never want to draw down your nest egg -- ie your savings will only grow larger. It also assumes you will spend the same amount in retirement that you spend now. Your rate of withdrawal is pretty much a wild guess as it depends on your rate of return, taxes in the future and inflation in the future. Historically 4% has been a good bet. See this article for a summary of this topic:
http://www.mrmoneymustache.com/2012/05/29/how-much-do-i-need...
and this article for more in depth writing:
http://financialmentor.com/free-articles/retirement-planning...
Oh I see, because you've fixed retirement expenses to equal working expenses. Thanks for the clarification