A while back I had posted a spreadsheet that exhorted people to understand the importance of taxes, inflation and fees on their retirement finances. That spreadsheet was severely limited in what it could do. Well, I have now hacked a new FREE tool that you all can use and add to your toolkit of retirement tools that you use.
Here are the things we do:
- We push a "bottoms-up" detail oriented approach. Instead of asking you (as other calculators) do: "What is your estimate of retirement expenses?" we instead list a bunch of categories of expenses and ask you to estimate your spending in each of those categories. We borrowed an idea from Tony Robbins Money - Master the Game book where he recommends detailing expenses into buckets (musts, nice, dreams). We allow you to model two different expense scenarios - "basic" (must have) and "comfortable" (nice to haves). We also list cohort averages alongside in a worksheet so you can see exactly what others 65 years and older are spending in those categories. This cohort data today comes Bureau of Labor Stats (bls.gov). This will allow you to more easily estimate, for example, what your health care expenses during retirement should be because you have data from those who are in 65 and older class telling you how much they are actually spending! Ditto for incomes.
- Next, we ask you to list your retirement assets (tax-deferred, etc.), the fees you pay and your asset allocation. You can also model different kinds of asset allocations. To keep it simple we only allow you specify equities, bonds and cash/equivalents. We model taxes, RMD, etc. We also handle fees, etc.
- Finally you specify different parameters you'd like: how the markets will perform during retirement? what if you chose a different allocation? what if you had more/less assets? etc.
- The calculator itself gets smarter over time as more people use it as our data analytics improves, etc. Currently, we run through a few thousand simulations each time you run through a retirement scenario. As we have noted in our other blog post, we run through actual historical market performance (going back to 1927) - so we don't forecast market performance but try instead to see if historical patterns repeat how well your chosen scenarios hold up. (Equities are modeled as S&P 500 index, bonds as 10-year Treasury bonds, and cash/equivalents at 1-year Treasury bills. We don't yet model real estate, other indices - those may come later.)
Google restricts a lot of things that our add-on can do (number of seconds it can run, etc.). So you may sometimes see an error where Google throttles our request. In that case, try again later. We will come up with a web version later and, grrrrrr, an app for this later.
The tool is available as a Google sheets add-on. Its super simple to install it and try it. There's a long and detailed description of each worksheet, what you can do, etc. etc. at my blog.
The write-up tells you exactly what we do and exactly what you should do. I will be running a webinar on this in the future - so if you are interested watch this space and/or drop me a PM.
If you find bugs, drop me a note and tell me.
Lastly - someone took umbrage last time saying that tools like this caused them stress and asked me to do some unnatural acts with my body parts :-) To that same person, I'd say: The goal of such tools is not to add stress but to relieve it. I think of these tools as GPS devices in our cars - they merely point the way. Instead of staring at road signs or AAA maps (remember those?), our journey is now more peaceful and less stressful because we know where we are going.
Try it out, share it with others if you like it!
Good luck!
Submitted May 21, 2018 at 06:24PM by arnexa https://ift.tt/2ID9Enl
