When I was trying to quit working full-time, I spent an inordinate amount of time modeling our post-retirement finances. If you retire at 40, your retirement will be 20 years longer than normal retirement. It’s really difficult to predict how your investment will do over 50 years. I don’t want to run out of money when I’m 70. The extended retirement timeline is why most financial advisors don’t like FIRE.
One important tool I used was the online retirement calculators. Whenever I found a new free retirement calculator, I’d run my numbers to see the result. Unfortunately, most retirement calculators don’t like early retirement either. Many retirement calculators are from financial institutions that are stuck on the traditional retirement at 65. There are some useful retirement calculators, but I always thought there was something missing. FIRECalc was the best retirement calculator I tried, but now there is a better retirement calculator from Personal Capital. Here are my issues with various online retirement calculators.
Problems with retirement calculators
- Project retirement spending based on current income. Most retirement calculators look at your current income and use that data to estimate how much you would need in retirement. This is probably fine for most people because they spend 90% of their income and save 10%. It might be perfectly valid for the Jones, but that won’t work for super savers like you and me. We save and invest 50% of our income and I’m sure you save much more than 10%. It doesn’t make any sense to base retirement spending on your current income if you save a large chunk of your income. For FIRE folks, it’s better to use the annual expense in the equation.
- Capped saving rate. Many retirement calculators used to cap the saving rate at 25%. This is good enough for most people, but we were saving far more than 25%.
- Financial events. We plan to help RB40 Junior with college and it will be a huge expense. This will have a negative impact on our finance for 4 years and most calculators don’t take that into account.
- Post-retirement income. We have income from blogging, real estate crowdfunding, rental properties, dividend stocks, and side hustles. We also will receive social security benefits once we’re old enough. A good calculator should take all these into account.
- Overly complicated. Some retirement calculators are quite good, but you need to input a lot of variables. On FIRECalc, you can enter your asset allocation, spending model, lump-sum changes, and more. That’s great for those of us who know our portfolio inside and out, but it is still a lot of data to enter every time you want to check your retirement number. It would be much easier if they can just pull that data directly from my accounts.
A better retirement planner
Did you see that big hint in the last paragraph? Now, there is a retirement calculator that will take your real-time data and calculate your chance of a successful retirement. I’m a big fan of Personal Capital. I used them since 2013 and their tools have been getting more sophisticated and useful. Personal Capital’s latest free tool is their Retirement Planner, a real-time retirement calculator. Personal Capital already has the data for your portfolio, income, and expense. The logical next step is to crunch all that and figure out if your retirement plan is on track.
If you are not familiar with them, you can read my review of Personal Capital here.
As you all know, Mrs. RB40 is still working. She likes working, but she plans to retire in 2021. Our passive income can cover our living expenses now so I’m not worried. Let’s see if the Retirement Planner agrees.
I ran this calculation in 2015 and posted the numbers. It was very helpful back then. Now our numbers are a lot more comfortable.
Let’s look at our income first.
- Saving – We save over $50,000 per year and will continue to do so until Mrs. RB40 quits her job in 2021.
- Social security benefits – For now, we plan to start benefits when we’re 67.
- Blogging – I plan to blog until RB40Jr goes to college. After that, we’ll see how it goes.
- Pensions – We both have a small pension. They’ll come in handy when we’re older.
- Real Estate Crowdfunding – This is my favorite passive income stream. See how I’m doing with RE crowdfunding here. Our income isn’t quite there yet, but I’m working on it.
- Dividend income – I love dividend stocks too. Our dividend is growing and it should reach $20,000 in a year or two.
Retirement Spending Goals
- Retirement Spending – Personal Capital indicated we spend about $50,000 per year in the past. I put $60,000 here so we’ll have a little padding. If things work out better than expected, I’d raise our retirement spending.
- Healthcare – Once Mrs. RB40 quits her job, then we’d need to buy private health insurance. A silver plan at healthcare.org cost around $500/month with a subsidy.
- International Travel – We’ll travel more once our son goes off to college. Actually, I think a travel budget of $20,000 per year is pretty extravagant.
- College – $50,000 per year for 4 years starting in 2029. Hopefully, Junior can get some scholarships.
Here is the result from the Retirement Planner.
You’re in great shape for retirement. We forecast that your portfolio will comfortably support your goals.
I knew we are in great shape. This is a lot better than when I first retired in 2012. The Retirement Planner is a very useful tool in all stages of retirement. You can use it to figure out when you can retire. It’s also useful to see if your finance will hold up after you’ve been retired for a few years.
The Best Free Retirement Calculator
The Retirement Planner addressed most of the issues I have with other online retirement calculators. It pulls data directly from my accounts so I don’t have to manually input them every time. It also saves all my variables such as the college expense and RE crowdfunding income. I can update them at my convenience. The calculation is made dynamically, so you can’t get any better than that.
All in all, I really like the new Retirement Planner. It’s easy to use, saves my data, and it’s dynamic. In real life, you need to crunch the retirement numbers at least once a year to see if you’re still on track to a financially secure retirement. Personal capital made it a lot easier to make sure you’re on target. It uses real time data so if your portfolio is depleting too quickly, you’ll get an early warning and figure out how to adjust. You can work a bit longer, save more, invest more aggressively, or work after retirement. There are many ways to improve the numbers. Of course, if you need more help, then you should talk to a good financial advisor.
Retirement calculators can’t predict the future, but they can be very useful when you’re trying to plan your retirement. Personal Capital uses real-time data and calculates your retirement numbers anytime you want. I don’t see how it can get better than that.
If you don’t have an account with them, you can sign up for free through this Personal Capital link.
Try it out and let me know if you like the Retirement Planner. I still love it. There isn’t anything better yet.
Disclosure: If you join Personal Capital, I may receive a referral fee depending on the size of your portfolio. You don’t have to use their wealth management service and all the financial tools are free.
Source: Retire By 40