Retirement Scenario Planning

[christiangal34]

Hi everyone,

I see on these subs a lot of questions about retirement planning and whether they will have enough retire by a given age. It seems most people are relying on high-level rules of thumb such as a using withdrawal rate of 4%. For such an important question, we should understand some of the key drivers and that impact your retirement decision.

Since I work in corporate planning, I thought I would try to flesh out this question and model more details to it in Excel.

See the link over here https://censepool.com/?p=68

My model includes the following factors:

• Age
• Current financial assets for retirement
• Inflation rates
• Expected rates of return and changing portfolio allocation
• Impact of recessions
• Income and savings expectations over time
• Retirement age and drawdown rates
• Impact of CPP and OAS
• Non-retirement related spend (e.g. house down payments)

The advantage of including more factors is that makes it a bit easier to visualize how much you need to make/save and return over time. Also, you can assess the sensitivity of a variable by changing it, e.g. what is the impact if income increases $10,000 more per year.

I have also expressed the output in both nominal/inflated and present value dollars. This allows us to set our targets using nominal dollars while understanding its current purchasing power. Most of the output you need is on the "Charts - Time Series" tab.

I know there are some drawbacks such as not including a cash flow stream for defined benefits plans. As there are so many different plans and formulas for receiving benefits, I'm not sure what would be the best methodology to model this.

I would appreciate feedback/comments. I would like to know if this level of modeling is useful to average people. Also, there is always room for improvement.

 

[brotherbeedo15]

@christiangal34 Great info, but missing a few things. I have cash flowing assets that I can’t really add to this. Rentals long and short term, multiple investments. Kind of difficult to manoeuvre in this website excel configuration but you don’t have some of the basics for sure. I’m in the financial industry and am always looking for a solid retirement plan however I’m looking for more In depth than the average person however still unable to track multiple investments and income streams via this unless it’s just due to the web version?

 

[christiangal34]

@brotherbeedo15 Thanks for your input. I did try to narrow the scope so it would apply to the average joe but I agree it would be useful to include other sources of income.

However, adding income from rentals and other less liquid investments also raises new questions and complexity such as:

• How are assets acquired? Are they preexisting or being purchased from future cash flows?
• When would you liquidate these assets and how would the rate of return be determined?
• What will the tax treatment of these cash flowing assets e.g corporate dividends vs. salary

FYI, you can also download the spreadsheet for an easier interface.