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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