Background
- How thinking about savings rate and retirement income changed my view of personal finance
- A recreation of a spreadsheet that estimates net-worth at retirement
- Documentation of how to use the net-worth spreadsheet
- The Python version if you want to do more complex simulations [GitHub]
How I used it
Fifteen or so years ago, my wife and I built a spreadsheet model for ourselves that is a lot like this but tweaked for our specific situation. It was very simple.
We played with it until we found a savings scenario that was both doable and would help us reach our goals. We kept market return expectations low because that drove us to be serious about savings. The fact that we’ve been in a long bull market helped us, but we didn’t count on it.
Then, each year, we plugged in actual numbers. The model was a kind of benchmarkâwe could see what we needed to do in order to reach our goals.
When the market tanked in 2008, we could see what the eventual effect was. And, also we could see how the recovery brought it back in line.
So, use the model more as a benchmark or goal and track your actual numbers against it.
Once you have something you think is good, move the inputs around to see how sensitive the results are to each number. The main thing to notice is that there’s an inflection point where your savings grow or shrink after retirement.
My suggestion is to try very hard to get to the point where it grows. You can see that this is possible at a range of salaries, not just 6-figures, but requires that your expenses are in line.
I will also say, that being aggressive early and then adjusting later is a good strategy.
If the market tanks early, you are still in the mindset of low-expenses, so you get to take advantage of the dip and historically, it comes back. If the market out-performs, you had more money in it.
We looked at it once a year to see if we needed to adjust anything.
Disclaimer: I am not a financial professional and this is not financial advice. I don’t know your specific situation. Get professional advice from a fiduciary who will look at your specific situation.