Quick and Easy

DON’T YOU LOVE those online calculators that, with just a touch of your screen, will tell you whether your retirement plan will be successful or not? I especially like it when I can pick the rate of return on my investments. Who knew that, if you assume an annual return of 40%, you could save less and retire sooner?

I just tried a FIRE (financial independence/retire early) calculator, designed for those who want to save aggressively and retire at a young age. Amazingly, no matter what assumptions I chose—retirement age, investment returns and so on—the retirement nest egg I needed was equal to 25 times my assumed annual retirement expenses. Customized estimate? Not exactly.

When I watch YouTube videos on retirement planning—and there are many—I’m fascinated by some of their assumptions. For instance, one video says your nest egg needs to generate retirement income equal to your expenses. But what about the portion of your retirement expenses covered by Social Security? Another suggests that a 4% draw on a $1 million nest egg will cover $40,000 in living expenses, but it doesn’t mention any taxes owed on the withdrawal.

Assumptions about living expense are another slippery slope. What matters isn’t those fixed expenses you must cover in retirement. Instead, it’s your total spending. The way I see it, it’s discretionary spending that can make retirement so much more enjoyable.

Then there are other generalizations that can lead to trouble. Like the suggestion to save 10% of your income for retirement. Chances are, 10% won’t leave you with the nest egg you’ll need.

It seems to me we’re mired between two extremes: There are many who do no planning and rely on a seat-of-the-pants strategy, and there are others who are overly optimistic based on quick-and-dirty calculations. Rather than relying on easy answers or someone else’s assumptions, I suggest a realistic review of every factor that could affect your retirement, so you have a better handle on the age at which you can retire.