## How to calculate exactly how much money you'll have by retirement?

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Topic Author
shanebagel
Posts: 10
Joined: Sun Feb 10, 2019 4:34 pm

### Re: How to calculate exactly how much money you'll have by retirement?

"Shanebagel, what do you think of this retirement savings plan, so far?" Lol I'm thinking this is way more complex than I originally thought. I currently save around 5-\$600 every month so I'm almost at that figure you quoted

longinvest
Posts: 3757
Joined: Sat Aug 11, 2012 8:44 am

### Re: How to calculate exactly how much money you'll have by retirement?

shanebagel wrote:
Sat May 18, 2019 4:35 pm
"Shanebagel, what do you think of this retirement savings plan, so far?" Lol I'm thinking this is way more complex than I originally thought. I currently save around 5-\$600 every month so I'm almost at that figure you quoted
1. If I was to build a spreadsheet that automatically calculated your target savings amount (e.g. \$370 every two weeks) and the required flexibility (e.g. be able to reduce expenses by \$50/month if necessary in the future) when you provide your current salary, your desired retirement age, your anticipated Social Security pension when delayed to age 70*, and the current balance of your portfolio (with its asset allocation), would you find this simpler?
2. Are you currently saving \$500 to \$600/month on a \$16,000/year salary? (You indicated earlier that your current salary was only \$16,000 and that it should change to \$50,000 within a year, if I understood correctly).
* Assuming you continue working at your current salary (adjusted for inflation) until retirement.
Bogleheads investment philosophy | single-ETF balanced portfolio | VBAL

mbasherp
Posts: 220
Joined: Mon Jun 26, 2017 8:48 am

### Re: How to calculate exactly how much money you'll have by retirement?

Longinvest,

I followed your variable savings rate concept closely in another thread and have enjoyed following along here. It is the most reasonable proposal I have seen yet for the question that most accumulators are asking. Thank you for being so detailed!
I hope your approach continues to be discussed.

LLeaff
Posts: 1
Joined: Wed May 15, 2019 10:37 am

### Re: How to calculate exactly how much money you'll have by retirement?

"If I was to build a spreadsheet that automatically calculated your target savings amount..."

I'd certainly like to see the spreadsheet if you go through with the exercise

fennewaldaj
Posts: 771
Joined: Sun Oct 22, 2017 11:30 pm

### Re: How to calculate exactly how much money you'll have by retirement?

I made a spreadsheet where the savings rate can be changed and then I have multiple real returns lines. I have -6% to 8 % real included (I focus on 0-5% real as the most likely). This is not perfect though as it does not account for sequence of returns.

Topic Author
shanebagel
Posts: 10
Joined: Sun Feb 10, 2019 4:34 pm

### Re: How to calculate exactly how much money you'll have by retirement?

"If I was to build a spreadsheet that automatically calculated your target savings amount, would you find this simpler?" Honestly yeah that would be fantastic if you could lol

longinvest
Posts: 3757
Joined: Sat Aug 11, 2012 8:44 am

### Re: How to calculate exactly how much money you'll have by retirement?

The spreadsheet takes into account Social Security taxes (OASI) in its calculations, but it doesn't take into account an asset allocation glide path; it assumes that the asset allocation is fixed.

I got estimates for the employee's Social Security tax (OASI) and the Social Security monthly payment at age 62 using forum member Neurosphere's Social Security Estimator spreadsheet.

When I enter Shanebagel's data into the VSR spreadsheet, using his Target Retirement fund's 90/10 stocks/bonds asset allocation, I get:

The spreadsheet suggests to save \$532/month and keep enough flexibility in the budget to increase savings by up to \$54/month (next year), if markets misbehave.
Bogleheads investment philosophy | single-ETF balanced portfolio | VBAL

longinvest
Posts: 3757
Joined: Sat Aug 11, 2012 8:44 am

### Re: How to calculate exactly how much money you'll have by retirement?

As promised in an earlier post, I'll now look at what happens one year later, assuming that the worker has followed the plan and added \$532/month into the portfolio.

Reminder: All amounts, in this post, are adjusted to inflation and expressed in 2019 dollars.

One year later, the worker has just turned 23. He looks at his portfolio and, unfortunately, stocks have misbehaved and the balance is down to \$21,448 , despite having added (12 X \$532) = \$6,384 to it during the year.

Let's assume that the worker got a 4% salary raise (above inflation). His new salary is \$52,000. Using the Social Security Estimator spreadsheet, I calculate new Social Security estimates, then I fill the VSR spreadsheet. I get:

OK, so now the spreadsheet tells us to invest \$618/month. This amount higher than the previous year for two reasons:
• Savings must be increased (by approximately \$55/month) due to portfolio losses.
• Savings must be increased (by approximately \$30/month) because the salary is \$2,000 higher.
Every year, the worker calculates a new savings amount, adapted to his evolving situation.

In my next post, I'll look at a different scenario. I'll assume that the age 22 worker switches his money into a balanced fund like Vanguard's LifeStrategy Moderate Growth Fund with a 60/40 stocks/bonds allocation, and targets retirement at age 65.
Bogleheads investment philosophy | single-ETF balanced portfolio | VBAL

longinvest
Posts: 3757
Joined: Sat Aug 11, 2012 8:44 am

### Re: How to calculate exactly how much money you'll have by retirement?

Here's the retirement scenario at age 65 that I promised many posts ago (and in the previous post).

As shown in the image, at age 22, the worker has a \$50,000 salary and a \$30,000 portfolio with a balanced 60/40 stocks/bonds allocation. He plans to retire at age 65 and claim Social Security at that age to get \$1,488/month. During work years, he has to pay a Social Security tax of \$2,650/year.

We can see two things. First, the potential losses of the initial \$30,000 portfolio are significantly dampened by the balanced portfolio. Second, we see that lengthening retirement horizon by 10 years significantly reduces savings needs down to \$299/month which represents a tiny ((12 X \$299) / \$50,000) = 7% savings rate at age 22.

I didn't look at this scenario to incite a young investor to plan for a 43-year career! I did it to show that it's sometimes possible to compensate for lower savings due to unforeseen financial setbacks by delaying retirement. I think that it's important, at 21, to plan to be financially able to retire at age 55 (or possibly earlier). It's much easier to continue working when ready to retire, than to be forced into retirement when not financially ready.

One last thing. I've only discusses retirement savings. When planning to buy a house, one needs to save additional money for a down payment. Such savings must always be done separately from retirement savings and in addition to them. My opinion is that money saved for a house downpayment (to buy within a short-term horizon) should be kept into a high-interest savings account; it shouldn't be exposed to market fluctuations.

Bogleheads investment philosophy | single-ETF balanced portfolio | VBAL

Topic Author
shanebagel
Posts: 10
Joined: Sun Feb 10, 2019 4:34 pm

### Re: How to calculate exactly how much money you'll have by retirement?

Longinvest, I really appreciate your help on this matter. Thank you so much for the information it will definitely come in handy

flyingaway
Posts: 2328
Joined: Fri Jan 17, 2014 10:19 am

### Re: How to calculate exactly how much money you'll have by retirement?

I have been using 5% average annual return and 3% inflation for a 70/30 , portfolio. So it is only 2% real annual return.
I would like to be on the conservative side.

bck63
Posts: 536
Joined: Fri Sep 28, 2018 4:59 pm

### Re: How to calculate exactly how much money you'll have by retirement?

I use 2% nominal return for planning purposes. Anything over and above will be gravy.

Simplicity.

Retired2013
Posts: 172
Joined: Sat Dec 12, 2015 2:53 pm

### Re: How to calculate exactly how much money you'll have by retirement?

I remember some 35 years-ago we were told to use 12%. The bank handed you a cardboard slide calculator that would show you how much you would have at the 12% if you invested \$xxx per month. You need to invest \$85 per month to your 401(k) or IRA for 40 years and you'll be a millionaire!

Then the rate suggested was 10% and then 8%.

longinvest
Posts: 3757
Joined: Sat Aug 11, 2012 8:44 am

### Re: How to calculate exactly how much money you'll have by retirement?

Nobody knows how much stocks and bonds will return over the next 80 years.

Instead of trying to build a perfect static plan which would require accurate future return predictions, I suggested to the OP to consider using a good enough Variable savings rate (VSR) method which (1) acknowledges that future returns are uncertain and makes no attempt at predicting them, (2) uses a "not too bad" but constant growth trend (higher than low returns, lower than high returns) to calibrate savings, and (3) adjusts savings yearly as the future unfolds.

It's simple and robust.
Bogleheads investment philosophy | single-ETF balanced portfolio | VBAL

ruralavalon
Posts: 16167
Joined: Sat Feb 02, 2008 10:29 am
Location: Illinois

### Re: How to calculate exactly how much money you'll have by retirement?

flyingaway wrote:
Sat May 25, 2019 5:01 pm
I have been using 5% average annual return and 3% inflation for a 70/30 , portfolio. So it is only 2% real annual return.
I would like to be on the conservative side.
bck63 wrote:
Sun May 26, 2019 1:55 am
I use 2% nominal return for planning purposes. Anything over and above will be gravy.

Simplicity.
Predictions of future rates of return are not statements of fact, they are just opinions and are not likely to be any more accurate than past opinions on this subject.

The best approach is to be flexible in planning, not to pretend that this can be calculated exactly.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

dbr
Posts: 29798
Joined: Sun Mar 04, 2007 9:50 am

### Re: How to calculate exactly how much money you'll have by retirement?

ruralavalon wrote:
Sun May 26, 2019 8:11 am
flyingaway wrote:
Sat May 25, 2019 5:01 pm
I have been using 5% average annual return and 3% inflation for a 70/30 , portfolio. So it is only 2% real annual return.
I would like to be on the conservative side.
bck63 wrote:
Sun May 26, 2019 1:55 am
I use 2% nominal return for planning purposes. Anything over and above will be gravy.

Simplicity.
Predictions of future rates of return are not statements of fact, they are just opinions and are not likely to be any more accurate than past opinions on this subject.

The best approach is to be flexible in planning, not to pretend that this can be calculated exactly.
As a generalization it is nice to seek the safety of a conservative estimate but that may have a cost such as working longer, spending less, and saving more. It is not clear that is the optimally wise approach.

One of the interesting things learned when companies started to embrace various methods of quality control is the value of doing things exactly the way they are supposed to be done rather than have an operation that is uncertain because uncertainty is expensive. That is why one should try to estimate well and be flexible as information accumulates and changes.

bck63
Posts: 536
Joined: Fri Sep 28, 2018 4:59 pm

### Re: How to calculate exactly how much money you'll have by retirement?

ruralavalon wrote:
Sun May 26, 2019 8:11 am
flyingaway wrote:
Sat May 25, 2019 5:01 pm
I have been using 5% average annual return and 3% inflation for a 70/30 , portfolio. So it is only 2% real annual return.
I would like to be on the conservative side.
bck63 wrote:
Sun May 26, 2019 1:55 am
I use 2% nominal return for planning purposes. Anything over and above will be gravy.

Simplicity.
Predictions of future rates of return are not statements of fact, they are just opinions and are not likely to be any more accurate than past opinions on this subject.

The best approach is to be flexible in planning, not to pretend that this can be calculated exactly.
Thank you ruravalon. What does this look like in application? I guess what I really do is save as much as I can and hope for the best. When I use savings calculators I do use 2%.

dbr
Posts: 29798
Joined: Sun Mar 04, 2007 9:50 am

### Re: How to calculate exactly how much money you'll have by retirement?

bck63 wrote:
Sun May 26, 2019 8:54 am
ruralavalon wrote:
Sun May 26, 2019 8:11 am
flyingaway wrote:
Sat May 25, 2019 5:01 pm
I have been using 5% average annual return and 3% inflation for a 70/30 , portfolio. So it is only 2% real annual return.
I would like to be on the conservative side.
bck63 wrote:
Sun May 26, 2019 1:55 am
I use 2% nominal return for planning purposes. Anything over and above will be gravy.

Simplicity.
Predictions of future rates of return are not statements of fact, they are just opinions and are not likely to be any more accurate than past opinions on this subject.

The best approach is to be flexible in planning, not to pretend that this can be calculated exactly.
Thank you ruravalon. What does this look like in application? I guess what I really do is save as much as I can and hope for the best. When I use savings calculators I do use 2%.
What it looks like in practice is the progression to retirement is an exercise in successive approximations that become clearer as time goes on.

bck63
Posts: 536
Joined: Fri Sep 28, 2018 4:59 pm

### Re: How to calculate exactly how much money you'll have by retirement?

dbr wrote:
Sun May 26, 2019 8:59 am
bck63 wrote:
Sun May 26, 2019 8:54 am
ruralavalon wrote:
Sun May 26, 2019 8:11 am
flyingaway wrote:
Sat May 25, 2019 5:01 pm
I have been using 5% average annual return and 3% inflation for a 70/30 , portfolio. So it is only 2% real annual return.
I would like to be on the conservative side.
bck63 wrote:
Sun May 26, 2019 1:55 am
I use 2% nominal return for planning purposes. Anything over and above will be gravy.

Simplicity.
Predictions of future rates of return are not statements of fact, they are just opinions and are not likely to be any more accurate than past opinions on this subject.

The best approach is to be flexible in planning, not to pretend that this can be calculated exactly.
Thank you ruravalon. What does this look like in application? I guess what I really do is save as much as I can and hope for the best. When I use savings calculators I do use 2%.
What it looks like in practice is the progression to retirement is an exercise in successive approximations that become clearer as time goes on.
Okay, I guess. Now I'm totally confused. I suppose I'll just keep on saving as much as I can, keep using 2% when I look at a savings calculator (it tells me I will more than meet my retirement needs) and hope for the best. Oh, and progressively mitigate risk along the way.

ruralavalon
Posts: 16167
Joined: Sat Feb 02, 2008 10:29 am
Location: Illinois

### Re: How to calculate exactly how much money you'll have by retirement?

bck63 wrote:
Sun May 26, 2019 8:54 am
ruralavalon wrote:
Sun May 26, 2019 8:11 am
flyingaway wrote:
Sat May 25, 2019 5:01 pm
I have been using 5% average annual return and 3% inflation for a 70/30 , portfolio. So it is only 2% real annual return.
I would like to be on the conservative side.
bck63 wrote:
Sun May 26, 2019 1:55 am
I use 2% nominal return for planning purposes. Anything over and above will be gravy.

Simplicity.
Predictions of future rates of return are not statements of fact, they are just opinions and are not likely to be any more accurate than past opinions on this subject.

The best approach is to be flexible in planning, not to pretend that this can be calculated exactly.
Thank you ruravalon. What does this look like in application? I guess what I really do is save as much as I can and hope for the best. When I use savings calculators I do use 2%.
In application this means to me -- save and invest whatever extra money is available whenever available, keep the savings rate as high as can be comfortably sustained, be flexible on retirement date, and realize the even the best calculations or calculators can only give a range of possible outcomes.
dbr wrote:
Sun May 26, 2019 8:59 am
. . . the progression to retirement is an exercise in successive approximations that become clearer as time goes on.
That's correct.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

dbr
Posts: 29798
Joined: Sun Mar 04, 2007 9:50 am

### Re: How to calculate exactly how much money you'll have by retirement?

bck63 wrote:
Sun May 26, 2019 9:13 am
dbr wrote:
Sun May 26, 2019 8:59 am
bck63 wrote:
Sun May 26, 2019 8:54 am
ruralavalon wrote:
Sun May 26, 2019 8:11 am
flyingaway wrote:
Sat May 25, 2019 5:01 pm
I have been using 5% average annual return and 3% inflation for a 70/30 , portfolio. So it is only 2% real annual return.
I would like to be on the conservative side.
bck63 wrote:
Sun May 26, 2019 1:55 am
I use 2% nominal return for planning purposes. Anything over and above will be gravy.

Simplicity.
Predictions of future rates of return are not statements of fact, they are just opinions and are not likely to be any more accurate than past opinions on this subject.

The best approach is to be flexible in planning, not to pretend that this can be calculated exactly.
Thank you ruravalon. What does this look like in application? I guess what I really do is save as much as I can and hope for the best. When I use savings calculators I do use 2%.
Im haven't looked to see if you say how old you are, but life in general is a journey where what happens in the future is a guess from where you stand at the moment. The uncertainties and variation in what happen in areas other than financial are even greater than the uncertainties and guessing that occurs in financial planning. It is best to relax and not try to hard for an illusive and unobtainable certainty.
What it looks like in practice is the progression to retirement is an exercise in successive approximations that become clearer as time goes on.
Okay, I guess. Now I'm totally confused. I suppose I'll just keep on saving as much as I can, keep using 2% when I look at a savings calculator (it tells me I will more than meet my retirement needs) and hope for the best. Oh, and progressively mitigate risk along the way.

dbr
Posts: 29798
Joined: Sun Mar 04, 2007 9:50 am

### Re: How to calculate exactly how much money you'll have by retirement?

bck63 wrote:
Sun May 26, 2019 9:13 am
dbr wrote:
Sun May 26, 2019 8:59 am
bck63 wrote:
Sun May 26, 2019 8:54 am
ruralavalon wrote:
Sun May 26, 2019 8:11 am
flyingaway wrote:
Sat May 25, 2019 5:01 pm
I have been using 5% average annual return and 3% inflation for a 70/30 , portfolio. So it is only 2% real annual return.
I would like to be on the conservative side.
bck63 wrote:
Sun May 26, 2019 1:55 am
I use 2% nominal return for planning purposes. Anything over and above will be gravy.

Simplicity.
Predictions of future rates of return are not statements of fact, they are just opinions and are not likely to be any more accurate than past opinions on this subject.

The best approach is to be flexible in planning, not to pretend that this can be calculated exactly.
Thank you ruravalon. What does this look like in application? I guess what I really do is save as much as I can and hope for the best. When I use savings calculators I do use 2%.
Okay, I guess. Now I'm totally confused. I suppose I'll just keep on saving as much as I can, keep using 2% when I look at a savings calculator (it tells me I will more than meet my retirement needs) and hope for the best. Oh, and progressively mitigate risk along the way.
Im haven't looked to see if you say how old you are, but life in general is a journey where what happens in the future is a guess from where you stand at the moment. The uncertainties and variation in what happen in areas other than financial are even greater than the uncertainties and guessing that occurs in financial planning. It is best to relax and not try to hard for an illusive and unobtainable certainty.

bck63
Posts: 536
Joined: Fri Sep 28, 2018 4:59 pm

### Re: How to calculate exactly how much money you'll have by retirement?

dbr wrote:
Sun May 26, 2019 9:23 am
bck63 wrote:
Sun May 26, 2019 9:13 am
dbr wrote:
Sun May 26, 2019 8:59 am
bck63 wrote:
Sun May 26, 2019 8:54 am
ruralavalon wrote:
Sun May 26, 2019 8:11 am

Predictions of future rates of return are not statements of fact, they are just opinions and are not likely to be any more accurate than past opinions on this subject.

The best approach is to be flexible in planning, not to pretend that this can be calculated exactly.
Thank you ruravalon. What does this look like in application? I guess what I really do is save as much as I can and hope for the best. When I use savings calculators I do use 2%.
Okay, I guess. Now I'm totally confused. I suppose I'll just keep on saving as much as I can, keep using 2% when I look at a savings calculator (it tells me I will more than meet my retirement needs) and hope for the best. Oh, and progressively mitigate risk along the way.
Im haven't looked to see if you say how old you are, but life in general is a journey where what happens in the future is a guess from where you stand at the moment. The uncertainties and variation in what happen in areas other than financial are even greater than the uncertainties and guessing that occurs in financial planning. It is best to relax and not try to hard for an illusive and unobtainable certainty.
This is so true. Life can change on a dime. Actually needed to hear that today. Thank you. Sometimes I get too involved in finances and fail to focus on the present. Oh and I am 55.

dknightd
Posts: 1696
Joined: Wed Mar 07, 2018 11:57 am

### Re: How to calculate exactly how much money you'll have by retirement?

shanebagel wrote:
Thu May 16, 2019 9:18 am
I don't know if this helps, but I also plan to contribute %50 of my income to investing. I want to put half into mutual funds, and half into real estate.
Likely you will be fine. It is hard to fail if you save 50%

jmk
Posts: 482
Joined: Tue Nov 01, 2011 7:48 pm

### Re: How to calculate exactly how much money you'll have by retirement?

Of course it's easy to think one has confidence one doesn't.

But as an exercise...

Vanguard Target year 2060 has the following components for the next 15 years (after which it starts to decrease stock %): 54.1% TSM, 35.8% TIntil, 7.3% TBM, 2.8% TIB. This is ~90% equity and 10% bonds.
With a 1.9% expected inflation rate for next 15 years:
Using CAPE10 of US = 29.1; Dev = 24.5; Emerging=16.1; and TBM yield of 2.85%:

Expected returns of the Vanguard Target Year 2060 fund for the next 15 years is 3.6% real and 5.5% nominal.

And we know CAPE is only 40% correlated with actual returns. But even ignoring that, let's not forget this mix has a standard deviation of about 16%

So (assuming fat tailed normal distribution) in 15 years you'd have a 25% chance of getting only 1.6% nominal return (-0.2% real) and at high end a 25% of getting a whopping 7% nominal return, and only a 10% chance of 10% nominal (8% real). So expect a 50% chance of 2-7% nominal (0%-5% real) depending on how conservative you want to be. I'd say your estimate of 7% if too high.

For every \$10,000 invested in VTTSX now, in 15 years there is a 50% chance it will range from \$13,000 through \$30,000 (50th percentile=\$19,000, about doubled).

And be ready psychologically for a 35% drawdown along the way (maybe even 52%).

And this is just the next 15 years, at the height of it's danger, but still 35 years from your retirement in 2060.

Of course it's easy to think one has confidence one doesn't

Source:
https://www.clevelandfed.org/en/our-res ... tions.aspx
https://www.multpl.com/shiller-pe
https://www.starcapital.de/en/research/ ... valuation/
https://www.portfoliovisualizer.com/mon ... unt=10000

DonCamillo
Posts: 1033
Joined: Tue Nov 26, 2013 10:27 pm
Location: Northern New Jersey

### Re: How to calculate exactly how much money you'll have by retirement?

One of my former managers often said; “Planning is everything. Plans are nothing.” You will likely have a very uncomfortable retirement if you do no retirement planning. But I can guarantee you that your final result will bear little or no resemblance to your current plan.

I can remember when I wanted to retire at 55. I actually received and accepted a buyout offer from AT&T two months before my 55th birthday. By waiting a few days to start the pension at 55, I got the pension as if I were 65, and also received medical insurance.

A couple of days after applying for the buyout, I walked past the auditorium around the corner from my office. They were having a presentation about on-site learning programs at AT&T. I saw a professor who had been my advisor when I got my MSCS, and had been one of my professors in the PhD program. I walked over to say hi and told him I had put in for retirement. He said; “Why don’t you come teach for us? We will create a position for you.” The next day, I called him and we agreed to the offer.

The initial offer, because it was non-tenured, was subject to annual renewal and was limited to a maximum term of seven years. (Probably to avoid upsetting the tenured faculty). I thought it would be nice if I enjoyed teaching, to stay seven years until I could collect SS at 62. Turns out I loved teaching. I had also gone from a 60 hour week as a District Manager to a 35 hour week for two 15 week semesters a year, with 22 weeks off, for about half my AT&T salary and with full benefits.

After five years, they reorganized the non-tenured positions, removing the 7 year limit, and adding a “presumption of rehire” (in effect, tenure) once you had been annually rehired for 10 years. Since I loved the job, I stayed on, planning to retire at 67, the SS full retirement age. When I neared 67, I was beginning to get a little bored with my current classes. I had been teaching exclusively graduate students, for masters and doctorate degrees. But the school had a big enrollment in undergraduates and decline in graduates with the 2008 recession, and they asked me to teach a couple of undergraduate classes. I found that I loved teaching undergraduates, and it put the fun back into teaching. I wound up teaching until I was 71 1/2.

I estimate that my current income is about 4 times what it would be if I had retired at 55, 3 times what I would have had at 62, and twice what it would have been if I had retired at 67. But because I was planning to retire at 55, I was already saving 40% of my income in my 40s. I increased that to 50% with my teaching job since I had the AT&T pension. Once I turned 70, I started my SS pension and saved nearly 100% of my after tax salary in my 401a, a 403b, a 457b, a Roth IRA, a spousal Roth, and Roth conversions from my IRA.

So YES, plan! Your plans are important. But expect your plans to change.
Les vieillards aiment à donner de bons préceptes, pour se consoler de n'être plus en état de donner de mauvais exemples. | (François, duc de La Rochefoucauld, maxim 93)