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for Mawhinney,

Yes, your message reached me at TMF and would also reach me over at crosswinds if you "emailed your reply to author".

Naw, unfortunately, none of the retirement calculators do a job that I see as really adequate, although the Optimal Retirement Planner is fast, free, fairly comprehensive, and a good place to start. The studies of safe withdrawal rates such as the Trinity study are also extremely valuable. I use both to validate my personal calculations.

One of the big failings of retirement calculators in general is in estimating your income taxes. Of course, congress will change the income tax law over the years of your plan, but estimates based on the present tax law are much better than ignoring or oversimplifying the issue. No one can plausibly claim to be doing financial planning without doing a good job on taxes. (I once heard a guy say that he did financial planning for people, but didn't want to get into income taxes. I ran.) If the calculator just asks you to specify a tax rate, it has dropped the ball. That ought to be one of its outputs, not one of its inputs. It won't be constant over the years anyway. A hint that the calculator can't be doing taxes well is this: if it doesn't even ask you what your basis is in your taxable accounts, it cannot compute your capital gains taxes on sales over the years. Similarly, it needs to know what ordinary and capital gains dividends are typical from mutual funds you might hold.

Some of the calculators force you to use the fixed-term method of computing required IRA withdrawals, without offering the perfectly legal option of basing withdrawals on an annually-recomputed life expectancy. There are advantages to doing it either way, but the user should have the choice.

Another big problem with all the public calculators that I've seen is that they calculate a budget (adjusted annually for inflation) that's supposed to cover both your living expenses and your income taxes. So, if you do it their way, and your income taxes soar when mandatory IRA withdrawals start, your standard of living will be squeezed. (Burning up the IRA prematurely is not a solution to this problem; it can sacrifice too much of the advantage of deferred taxation.) A retirement calculator would, among other things, have to budget separately for living expenses and income taxes to get my seal of approval. In my case, I need a withdrawal rate of about 3% in my 60's and 4% thereafter, with the excess going entirely for increased income taxes while the real standard of living is constant.

As I probably said before, the calculator also needs to be able to provide a mathematically-based answer to these questions: What budget for living expenses will preserve the purchasing power of my retirement assets as nearly level as possible over the next so-many years? (or set it right at some value I chose now.)Then, using that budget, what optional withdrawals from my IRA (after I'm old enough to take withdrawals without penalty but not old enough to have mandatory withdrawals) should I make to maximize the final estate value or minimize the income taxes paid over the decades?

My own spreadsheet approach has some big faults too: it's not sufficiently easy to adapt to anyone else's financial position and it completely neglects to use historical data on variation in returns in various asset classes. The retire early studies on safe withdrawal rates do that, but I just use conservative assumptions on investment results and inflation instead. Maybe I'll build a new improved spreadsheet from scratch one day -- after I've completed my move to Nevada in May. Or maybe I'll decide that's too much like work, from which I am happily retired, and just cheer you on instead.

Truth in posting: I haven't downloaded and evaluated TMF's free spreadsheets for computing safe withdrawal rates.

Chips, who wishes you well in number crunching for retirement planning

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