My Personal Finance Odyssey

To begin this quest (although at 34 I am hardly beginning), I need to outline my long term financial goal. I have read a number of articles on this topic and although there are variations, the approach and questions to be answered are generally the same:

- When will you retire?

-When will you end retirement (I thought this was a nice way of saying dead)?

- How much income do you need during retirement?

Of course, there are tons of calculators out there – some very simple (only a table), while others much more detailed (pages of questions). I looked at number of them in hopes of finding some consistency in the answer.

Below are some of my basic assumptions / inputs:

Number of years until retirement: 28 (62) I think I’d really like to retire at 60 (or even earlier if it is my good fortune to do so)…but will go with this.

Number of years in retirement: 30 (92) This one is tough, but with the scientific advances of today, I don’t think entirely unrealistic? Even if a bit hopeful, it makes the target a bit more conservative as I would need the money to last longer, so age 92 it is.

Income replacement at retirement: My goal here is $100K annually in today’s dollars.

Inflation: 3% for calculators where I could input the amount. In some cases, I could not tell what the assumption was.

Rate of return on investments: 7% pre-retirement and 5% post-retirement. I struggled here, particularly as my current portfolio is fairly aggressive…but think this is probably a fair return. I am open to other opinions here.

Social Security – whatever the calculator estimates.

Do I Need An Emergency Fund? (Part 1)

Depending upon the calculator used, I got various results in terms of how much was needed to fund my retirement at $100K annually for 30 years. From a comparison standpoint, what made things even more difficult was the fact some calculators used current $, while others used inflation adjusted dollars. Some even gave both (a big help) which gave me some idea about how I might adjust the others. So, here is a summary of some of the results:

Free Financial Advice (http://www.free-financial-advice.net/retire-early.html) – $1.4M (today’s dollars)

CNN Money Planner (http://cgi.money.cnn.com/tools/retirementplanner/retirementplanner.jsp) – $1.5M (today’s dollars), $3.5M (inflation adjusted)

BankRate.com (http://www.bankrate.com/brm/cgi-bin/Retire.asp) – $1.8M (today’s dollars), $4.2M (inflation adjusted)

Vanguard (https://flagship.vanguard.com/VGApp/hnw/RetirementSavings?FW_Event=page2) – $2.0M (today’s dollars), $4.6M (inflation adjusted)

Well, there is quite a spread here…and I suspect I would continue to get similar differences by using more calculators. I have decided to go with Vanguard’s estimate of $2 million. My primary reason is that by picking the higher target, I lean more toward the conservative side of estimates in the event my assumptions are wrong (returns are less, I live longer, etc). Even then, this is no guarantee, but it gives me a bit more confidence.

If anyone has come across a tool they have found to be much better than those I’ve listed here, please let me know and I’ll try them out. If I believe more credible, I may even adjust my target.