Here’s the belief I subscribe to.
See if it resonates with you.
First…it’s more about execution than calculation in retirement
The most important thing about retirement planning calculation is to pick a goal as soon as possible that’s somewhere in the ballpark. Use any reasonable methodology available so you have a goal to start working toward today.
In other words, it’s more important to start now than to delay the process to so-called, ‘better’ the accuracy.
You’ll be surprised a lot of people are using this as an excuse to delay retirement planning.
It’s no rocket science –
…the earlier you start saving for retirement, the easier every financial goal will be to achieve. So just start now and resolve any inaccuracies later.
Here’s another kicker:
All retirement calculators are inherently inaccurate by itself because they are either based on (or require you to make) assumptions* about the future which may (will likely) prove inaccurate.
Which means if you feed it garbage, it will output garbage.
- Investment returns
- Life expectancy
- Future inflation
But without inputting some of these crucial numbers, you can’t even get ballpark figure of your retirement gap.
So you have no choice but to:
- Guess future investment returns using past averages
- Estimate how long you are going to live
- Pick some random series of future inflation numbers
All of these solutions are riddled with potential inaccuracy. It’s an unavoidable problem with conventional retirement planning and all retirement calculators.
This will already overwhelm any inaccuracy you might introduce by doing a separate retirement plan or doing a combined retirement plan.
With that said, if you agree with my beliefs about simplicity with the inherent inaccuracy of conventional retirement planning models, then the answer to your question is straightforward: do what works best for you because there is no perpetually ‘right’ answer.
In other words, I believe this will work for most people:
- Don’t complicate things unnecessarily.
- Don’t obsess with accuracy.
- What’s really important is that you start something, anything instead of getting bogged down by searching for the best solutions.
- Flexibility gives more value than pretending to have accuracy that is impossible to achieve in reality.
Second..it’s more about being dynamic than being static in retirement
Review and adjust your retirement plan or roadmap, whatever you call it, as you navigate through retirement.
Here’s the thing:
If your retirement scenario for any given year closely matches the retirement scenario generated from the output of your retirement calculator, then consider it like hitting a jackpot!
Otherwise, don’t fret.
My advice to you when working with retirement calculators is to not fuss over decimal points or worry about which model is most accurate. Instead, share a nice bottle of wine with your spouse and discuss all the possibilities and dreams you have for retirement. Then model these dreams using a Retirement Scenario Analysis Modelling.
What you’ll discover is that tweaking the assumptions usually makes a dramatic difference in results; whereas the specific retirement calculator chosen makes negligible difference.
For instance, consider how one or a combined of the following questions can have a dramatic impact on your retirement planning numbers…
- How would your retirement road map be affected by the addition of some part-time income?
- How does varying the inflation assumptions every year or keeping it constant forever, while keeping all other assumptions static, affect your financial plan?
- Suppose investments return far less than is commonly assumed? What happens if the return is higher?
- What happens if you work part-time for 10 years before retiring entirely?
- How would your retirement plan be affected if you received a big, fat inheritance? Or the inheritance you were expecting turns out to be zilch?
- What happens if you downsize your residence half way through retirement and move into a condo, thus killing 2 birds with one stone by reaping the a nice profit and lowering home expenses at the same time?
The tool available in my retirement course enable you to run all of these scenarios and much more – in less than an hour. Each of these changes will dramatically impact your financial results, and combining them in various ways can be a real eye opener that often changes how you plan your retirement.
When I go through this process with my clients, the result is usually eye-opening and clarifying. They begin to understand at an intuitive level how the retirement planning process works, the inherent limitations involved, and how to work around them.
They realize it’s a blend of art and science because it’s about life planning into an unknowable future: it’s not just numbers.
Doing widely varied scenario analysis will give you a much better feel for your retirement security and the critical factors to financial success than focusing on decimal points and other technical issues.
Don’t sweat the details!
Inaccuracies are just small details and don’t impact the big picture retirement roadmap.
Just take your combined income number and work with the Retirement Calculator to vary your retirement scenario. Try retiring at his age, then retire at yours. Try long lifespans and short ones and so on. You’ll be able to see how each combination of assumptions affects the financial results.
What you will learn is that retirement planning is all about the assumptions you use and not the calculator you plug the assumptions into.