Retirement #1 – Version 3.00

All Data Entry cells show up in red.

This calculator examines your retirement savings, or accumulation phase, and then looks at how long your money will last through the distribution, or retirement phase. This calculator can produce a 5-page report to include a retirement graphical view. Most of the information is provided on the first two pages of the report, where pages 3 & 4 are to provide additional detail. Page 5 is a graphical view that shows the life of the investment portfolio and the various retirement income sources.

This phase looks at the period from now, until you retire. During this phase you will be accumulating money to provide your income in retirement. This calculator is designed with the individual in mind who has a retirement savings plan where you defer some of your pay into the plan and you have an employer who may be matching some of your contributions. It is assumed that the contributions entered occur throughout the entire accumulation period.

Annual Pay: Enter your total annual pay as well as your spouses pay (on the right side of the top section).

% of pay Contributed: Enter the percentage of your annual pay that you direct to your savings plan. You will notice that you can also enter the percent of your pay that your employer is contributing to the plan by way of matching dollars.

Rate of Return: This is the earnings rate you want to assume on your savings plan investment. The User can assume a different rate for each spouse.

Contributions/ Year: Use the pull-down menus to indicate the frequency of the contributions to your plan. Do so for employee as well as employer contributions. It is assumed for the purposes of this model that these contributions will continue each year of the accumulation phase, up to the beginning of the distribution phase.

Current Age: Enter here your current age. This is simply to allow the model to identify your age at the beginning of your retirement period.

Current Year: List the current calendar year.

Years to Distribution Phase: Enter the number of years that you will be saving for retirement. This marks the end of the accumulation phase and the beginning of the distribution phase. However, the model allows you to specify a later age to begin various retirement cash flows.

Beginning Age at Distribution Phase: The model calculates your ages at the beginning of the distribution phase.

Year at beginning of the Distribution Phase: The model calculates the calendar year at the beginning of the distribution phase.

Cost of living raise: This entry is to accommodate an annual increase in the amount you are contributing to the plan (as well as increases in your annual investment withdrawals in the distribution phase). If, for example you contribute 5% of your annual pay to the plan, and you assume that your income will increase each year by a certain percentage, this entry causes your 5% annual contribution to grow proportionate to your pay increase

Beginning Investment Balance: Enter here any money you currently have accumulated in all of your retirement accounts combined. You will enter a value on the right side if your spouse also has money set aside in a retirement savings plan.

The remaining part of the top section of this calculator summarizes your contributions to the plan in the current year and the future value of your beginning balances to your plans, your contributions, and your employer’s contributions. The Total amount at retirement value is the total cumulative amount you will have at the specified retirement age from all investment sources. Next to the total amount at retirement you can enter an inflation rate and the calculator will tell you what your future retirement nest egg is worth in today’s dollars.

This section carries your retirement nest egg value calculated in the top section down to the retirement phase. This section evaluates how long all of your money will last as you begin to withdraw income from your investments. This section also considers the fact that your total retirement income may include several different sources.

Investment Return Net of Expenses: Enter the investment rate of return you want to assume your money will earn, during retirement, after any fees and expenses. Some people will want to assume a more conservative return rate in this phase of their financial life.

Beginning Investment Balance: The model carries to this section, the total amount of investment assets accumulated in the first section of the model. This is the amount from which you will withdraw your investment income.

Next, you will see several columns outlining the parameters of your investment, pension, and Social Security cash flows. The model has two tiers of investment withdrawals and other income sources. This allows you to indicate a lower initial cash flow withdrawal followed by an increase in cash flow at a later time. This design also allows you to specify the specific start ages for each persons pension and social security income. To help you see what the calculator is doing you may want to make all of the cost of living raise cells 0% and enter $10,000 in the his and hers investment withdrawal cells (with different start ages) and you will see how the two layers of income works.

Dollar Amount: Indicate the amount in today’s dollars of the annual withdrawal from investments.

Starting Age: Indicate the age at which investment withdrawals will start. This is your opportunity to apply the "two layers of withdrawals as outlined above.

Annual Cost of Living Raise: Indicate the inflation factor you want to assume. This will increase the annual investment withdrawal accordingly.

Just below the distribution data entry section above you will see that the calculator them tells you the ages and year through which the investment account lasts.

Following this data entry page you will see the following:

Retirement Distribution Cash Flow page: This is a composite view of all of the cash flows combined.

Pension & Social Security Withdrawal Detail: Outlines the detail of his and hers pension & social security cash flow.

Investment Withdrawal Detail: Outlines the detail of his and hers Investment withdrawal cash flow.

Retirement Distribution Graphical View: This page has two graphs on it. The first is a picture of your investment portfolio’s value through time. The second pictures the combined retirement income sources. Both of the graphs are aligned so that when the investment portfolio is eliminated so is the investment income source. In the middle of the page you will see the ages at which the portfolio is exhausted.

In planning it is wise to take into account a worst case situation. We have therefore built this calculator to withdraw money from your nest egg as a lump sum at the beginning of each year. If you withdraw money monthly, depending on the earnings rate, your nest egg may last several more years.