Retirement #1 – Version 04.2003b

All Data Entry cell characters are shown in red.

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

Data Entry:

Accumulation Phase

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

Data Entry:

Annual Pay: Enter the total annual income for you and your spouse (on the right side of the top section).

% of pay Contributed: Enter the percentage of your annual income directed to the savings plan. Also enter the percent of your income that your employer is contributing to the plan by way of matching dollars.

Rate of Return: This is the earnings rate which can be assumed 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 the 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 savings will be contributed for retirement. This marks the end of the accumulation phase and the beginning of the distribution phase. However, the model allows specifying a later age to begin various retirement cash flows.

Beginning Age at Distribution Phase: The model calculates your age 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 being contributed to the plan (as well as increases in the annual investment withdrawals in the distribution phase). If, for example 5% of your annual pay is contributed 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 which is currently accumulated in all of your retirement accounts combined. 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 the 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 sources. Next to the total amount at retirement enter an inflation rate and the calculator will show what your future retirement nest egg is worth in today’s dollars.

Retirement Distribution Phase

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

Data Entry:

Investment Return Net of Expenses: Enter the investment rate of return it is to assumed 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 investment income will be withdrawn.

Next, are several columns outlining the parameters of the pension, and Social Security and any earned income cash flows. The model also allows specifying the actual start ages for each person’s pension, social security, as well as beginning and ending ages for any earned income. In the far right column you will specify the target income (in today’s dollars) from all income sources. Then the model considers all fixed income sources first and calculates the portfolio withdrawal as a residual amount needed to bring the income level up to the income target. (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 a round number in the target income cell).

Social Security Benefit Amount: for assistance in calculating an approximate amount of any appropriate Social Security retirement benefit to enter in the Retirement #1 model, consider using the quick Social Security calculator available at http://www.ssa.gov/.

Indicate the following for both people for Investment, Pension & Social Security and earned income cash flows:

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

Starting Age: Indicate the age at which each respective income source will start.

Ending Age: Enter ending age for earned income only.

Annual Cost of Living Raise: Indicate the inflation factor can be assumed. This will increase the cash flow for each respective column.

Target Income All Sources: Enter the overall target income from all sources in today’s dollars.

Below the distribution data entry section the calculator then shows 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.

Earned Income in Retirement & Income Target: Outlines the detail of his and hers earned income and income target for each year.

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

In planning it is wise to take into account a worst-case situation. Therefore this calculator is built to withdraw money from your nest egg as a lump sum at the beginning of each year.