# The Number

Howard Rohleder

WHEN I WAS IN MY early 30s, I decided to determine “the number.” What would be enough money to allow me to retire, and what was the path to get there?

Personal computers were newly available, so I decided to work this out in Lotus 1-2-3. There was no internet to speak of. Investment companies didn’t have online calculators running Monte Carlo simulations that incorporated hundreds of possible retirement outcomes and spat out a most-likely scenario with a 95% confidence level.

Instead, I developed my own rudimentary retirement planner, starting with the premise that my wife and I could live comfortably on \$50,000 a year in 1991 dollars. I made several assumptions. Some would, today, make a financial planner cringe:

• Inflate my \$50,000 target income by 8% annually.
• Keep my savings goal separate from any Social Security or pension income, which I’d treat as cushions.
• Earn 10% a year on my investments.
• Withdraw 8% annually in retirement.
• Increase my retirement plan contributions by 5% a year.

I created the spreadsheet and used my investment balance as a base. I plugged in my assumptions and ran it out to age 85. It showed I could achieve my goal, which was to retire in my mid-50s.

Compared to the online calculators available today, it wasn’t very sophisticated. Regardless of how “the number” is calculated, however, putting a plan in black and white provided me with some savings discipline. It allowed me to know:

• My long-term goal. My original calculation said “the number” was just under \$1.7 million.
• A path to get there. I saw that the steps to reach the goal were readily achievable.
• A way to assess my progress annually. In the years when the market dropped, I didn’t hit my target. But I learned that the up years made up for the down years.

There was something about going through this thought process and creating the spreadsheet that solidified my thinking. Each year, I diligently compared my actual investment totals to my target.

As time went by, I updated the spreadsheet with new assumptions. I brought down my withdrawal rate and assumed investment return to more reasonable levels. I increased my savings contributions faster than anticipated. I also extended the planning horizon to age 100. And, yes, when they became available, I used online calculators to validate my plan.

I recently found a 1995 copy of my one-page plan printed by a dot-matrix printer. It said I would meet my goal by 2012—the year I did actually retire.

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2 years ago

Was your target income still \$50,000 adjusted by 8%? Seems like with SS and pension income you may have even overshot the mark – which of course is not bad.

2 years ago

The 8% was meant to be conservative but I eventually brought it down to 5% when inflation was “tamed.”

2 years ago

I’m impressed that in your early 30s you were already planning your retirement path. In my early 30s, still a carefree bachelor then, I was just thinking about where to go for Happy Hour on Friday.

2 years ago

Andrew, it is possible to do both at the same time….

2 years ago

Quite true, Jonathan, but the other half of my brain was trying to figure out how I could afford that Mazda RX-7 I had my eye on….

But by my mid-30s, I was married with kids and so all those frivolities were quickly forgotten.

2 years ago

I helped a friend and mentor develop a retirement spreadsheet in the mid-90smafter our company announced they were closing east operations and we would all have to move to CA. He was a single male in his early 50s and had no intention to move. It took about 6 months and eventually included taxes, RMDs, and multiple sources of income, expenses and assets, each with their own inflation (or return) variable. He named it Bridge, because it helped him develop a bridge plan from working to retirement. It also told you when you ran out of finds and would have to find a bridge to jump off (he had a sick sense of humor). I now use professional planning software and occasionally check the simplified online calculators, but I still run Bridge for fun every now and then. I thought about adding a Monte Carlo Lite capability using Excel’s random number function, but never got around to it.
Bridge still holds up after all these years.

2 years ago

There is a 2006 book entitled “The Number” on this concept by Lee Eisenberg which is a pleasant read. The challenge as you point out is that ideally ‘the number’ needs quite some fat (cushion) in case the market pulls back for an extended period particularly in the early years (sequence of returns risk), 1980’s inflation returns, or a major long-term medical issue is incurred. I retired in 2017 with roughly a 50% cushion in my number which has grown to perhaps 150% – sequence of returns risk has been especially kind for the last 10 years.