| How to use the Retirement Calculator 2.0
There are 5 inputs for Initial Savings, Expected
Inflation, Annual Withdrawal, Stocks and Bonds. The Cash field
will populate a number based on your mix between stocks and
bonds. Once you do this you can click on the Calculate button
underneath Stocks, Bonds and Cash to get your Results. The
Results are at the top of the Calculator.
Retirement Cacluator has developed this simple
planning tool to analyze the impact of withdrawing money from
your savings during adverse market conditions and allows you
to optimize your asset allocation between stocks, bonds and
cash, providing a safe and worry free source of income.The
last 50 years of stock market and bond yields have been analyzed.
The Retirement Calculator assumes that you are unfortunate
enough to begin withdrawing money at the beginning of the
worst downturn, which was the 1973 - 1974 time period. You
can click on the Definitions button at the very top of the
calculator to get definitions for the calculator.
The Retirement Calculator allows you to adjust
your asset allocation to optimize your withdrawal rate and
produce the highest final savings during a 25 year period.
When using the calculator, you can input values for initial
investment, bonds, stocks and annual withdrawal amount. The
Retirement Calculator then charts a 25 year projection of
your investments performance. It also calculates the actual
rate of return and compares it to the hypothetical return
you would achieve using a single long term historical average.
As can be seen in most cases actual return rates are significantly
lower. This is because you began withdrawing savings during
a falling market. Historical returns for stocks were based
on a stock portfolio of 70% U.S. large caps, 15% international
and 15% small caps. Bond yields were based on 30 year U.S.
Government bond yields. Standard indexes of the S & P
500, Russell 2000 and MSCI EAFE for international stocks were
utilized. Other measures of historical performance would be
impacted similarly.
The most important input by far required for
any retirement calculator is the interest rate you can expect
to receive on your investments. All other calculators either
use long-term historical rates of return for stocks, bonds
and cash; or use an overly conservative interest rate. Even
worse yet some leave it up to you to determine your own interest
rate. All these can lead to erroneous results. |
