Description: In this article about retirement calculator, the author is going to provide an explanation on how to access, download and enter data into the Retirement Planning Calculator. The RPC is a proprietary MS Excel model that allows the user to enter various data inputs in order to generate the amount needed to be saved before retirement.
My name is Ron Hawks, author of Climbing The Financial Mountain, today I’d like to show you how to use a retirement planning calculator which is one of the tools that I discuss in my book that’s available for free at my website.
To access the retirement planning calculator, go to my website at climbingthefinancialmountain.com, once you’re at the home page, select financial resources, then select retirement planning calculator, once you’re at this page, you’ll see an overview of the tool as well as a link to download this file.
Please note that the section in red states that you may be asked to enable macros or content depending on what version of Excel you have when you open the file, if you see this message when you open the file, click on the enable message.
Click on the download retirement planning calculator, you’ll notice that a window pops up, it states to open the file, you select open, once you’ve done that, Excel will open up automatically, you should be able to start entering your information.
This is where you would see that message regarding macros, if you see that message, you click on enable content, the calculator is broken up into two separate columns, the column on the left is where you would enter data for an unmarried individual or the older married spouse if you are married.
If you are married, you would enter in the right-hand column the pertinent information for the younger spouse, so let’s get started entering data, once you go to the first box, you’ll notice that a drop-down pop up box shows up here telling you what data should be entered.
In this case we’re going to enter the current age, in our example the older spouse is 40 years old, age retirement is at the age of 55, for Social Security there’s a drop-down box, you will select from the drop-down box, the age is between 62 and 70, let’s assume 67.
There’s no pension in this example, life expectancy will go with the recommendation, assuming this person is male, we’ll go with 90, this next section is where you would enter in any additional income that you may receive through work or part-time job.
Let’s assume that we’re not going to have any part-time wages, we retired, we’re going to enjoy life, obviously we would skip entering the dollar amount, the age, the retirement would start, the age would stop, we skip any cost-of-living adjustment that you would get each year for your part-time wages.
We’ll get to this section on annual pension, you’ll notice that since we left the pension blank, we would leave this blank here as well, there would be no cost-of-living adjustment nor would there be any pension survivor benefit, we get to the annual Social Security section.
Let’s assume that the person here has made the effort to contact Social Security and receive an estimate of what their Social Security income will be in current dollars, when they retired the age of 67, that information in this example is $20,000.
We’ll go over to the younger spouse and enter information, I want to tell you that this application has a lot of fail-safes in there to make sure that you enter in accurate data, for example if you made a mistake of trying to put in a current age of 50 for the younger spouse, a message will pop up telling you the number must be less than or equal to the current age of the older spouse.
It’s a protection for you to make sure that you enter in accurate data, in this case the younger spouse is the same age as the older spouse, she retires also at the age of 55, she’ll take Social Security at 70 instead of 67, to give a little variety, life expectancy age is 92.
Like her husband she will not work in retirement nor does she have a pension, but her Social Security benefit will be entered in based on her working career, let’s assume that she’s gotten an estimate from Social Security, that number is fifteen thousand dollars a year.
We get to the session here, we start entering in data about your investments, expenses and inflation, the first section here is your estimated retirement expenses, this can either be done by completing the retirement income statement that’s on my website under financial resources or by taking 70 to 80 percent of your current expenses as an estimate.
If you’re within five years retiring, I strongly urge you to take the time to estimate your retire expenses by using the schedule that I mentioned, let’s assume that you’ve gone through and you’ve taken the time to coop the estimate and that number is $60,000 based on current dollars.
For retirement investments and savings, let’s assume that your IRAs, 401ks in this example are three hundred thousand dollars, your pre-retirement return is seven percent, you have the option of putting in a between five and nine percent, I’ve limited it, so you can’t put in real crazy numbers like thirty or forty percent, we want to get you a realistic estimate, that’s reason why it’s limited to only these numbers. We’ll go with seven percent.
For post retirement we’ll go with the recommendation of six percent, we get to inflation, we can put in estimates for inflation, I recommend four percent, I know it’s higher than what we’ve been experiencing, in the future as I stated in my book inflation is going to escalate and we need to be prepared for it, so we’ll put in four percent.
Now that you’ve entered all the information, all you have to do is to click on submit, once you click on submit, you’ll notice that it spits out a number here telling you that you need to save by the time you retire 1.4 million dollars or forty five hundred dollars a month.
If you look at that and say that’s impossible, I can’t do that, this is very easy, I need to retire a little later, if I put in the age of sixty for myself and sixty for my spouse, when we run the numbers here, you’ll notice that you have to raise almost one point two but only $2,200 a month which obviously is a lot less than the first example.
Once you’ve done this, it creates an annual cash flow schedule, this is a great schedule that shows your retirement age, both of you are 60, you will have 2.3 million dollars saved, then what it shows is the drawing down of your assets over your expected life.
In this case our expenses here one hundred thirty one thousand dollars in the first year of retirement, that’s higher than the sixty that you entered in, but this is adjusted for inflation, so you get a real view of what inflation does to your expenses.
It draws down your assets every year, the math is not as simple as taking the 2.336 minus the 131, the reason why the number is a little higher in that first year is that your assets are earning a return and what we put into the data input sheet was a 6% return post-retirement.
That’s reason why it’s not as simple as taking this number less than one point one hundred thirty one thousand dollars, over your life expectancy you’ll see that your expenses are increasing, but so is your social security, you’ll see that your assets slowly start dwindling.
In this case your wife passes away at age 92, the money is now down to zero, this gives you a real good sense of the income that you need to set aside for retirement and assure you that based on these estimates here you’ll have enough money to cover not only your lifetime but your spouse’s lifetime.
This is a great tool, you’ll definitely appreciate it and be able to benefit from this data, I strongly recommend that you do this once a year because things change and it’s good to see where you stand, that’s all I have for today, thank you for your time, if you have any questions, feel free to contact me directly at Ron Hawks at climbing the financial Mountain.com.