Debugging Your Retirement Calculations

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“When a thing is done and past, even fools are wise at last!” —Homer

Hindsight is 20/20. The further you go in life, the easier it is to look back and understand the results of your earlier decisions.

Nowhere is this more true than in personal finance. Relatively small changes in your work, your purchases, your savings, will compound over the decades into formidable results. They can make you wealthy — financially independent years before others. Or, they can leave you debt-ridden, living paycheck-to-paycheck, devoid of options at the end of your life.

But what if you had a crystal ball of sorts that could foretell your financial future? Even if the resolution wasn’t HD, what if you could get some indication of the end results of your various financial actions now, in the present, before it’s too late to change your behavior?

Well, such a tool exists. It’s a retirement calculator — software that takes your current financial assets and trajectory as input, then projects them into the future.

There are many good retirement calculators available, free and paid. (Here at Can I Retire Yet? we recently came out with our own Free and Pro versions for Android devices.)

As I’ve written, retirement calculators are far from perfect. They require making educated guesses on a number of critical variables, some of which can never be known precisely. Any errors are likely to compound.

But retirement calculators remain our best tools for predicting the financial future well enough, and with enough advance warning, that we can do something about it.

However, getting a model of your entire financial life up and running accurately takes time and effort. There are a number of potential pitfalls along the way.

Let’s step through the data entry sequence from Can I Retire Yet? – Pro, while reviewing some of my own lessons learned about retirement planning, to ease the process of modeling your own retirement situation….

Incremental Development

I graduated as a civil engineer, but was immediately drawn into the world of small computers. Years of experience developing and using complex software systems have taught me to always proceed incrementally.

It’s like working on a puzzle: It’s not realistic to keep all the pieces in mind at one time. Better to start in one small corner, and begin adding…

There are many interacting factors in a high-fidelity retirement calculator, especially one that handles different account types and does detailed tax calculations. Your modeling input can sometimes lead to surprising output.

The best way to get a useful model going is to input a small number of initial assumptions, then calculate and check the results carefully, year by year. Once you are certain those initial numbers are behaving as expected, you can begin adding more data, more financial events, and refining your model.

For example, it often makes sense to enter just your gross income, savings, and living expenses. Calculate and check the results for any obvious problems. Then proceed from there….


When inputting work income or salary, be sure to account for likely future raises, if only to keep up with inflation. You probably won’t be earning the same amount until you retire, especially if you are at the start of a long career. Most retirement calculators let you account for this. In CIRY Pro there are general Inflation and event-specific Extra Inflation settings.

Then there is income after you retire. Some younger people discount Social Security altogether. But I think it would be politically impossible for that government program — which many will rely on for most of their retirement income — to disappear completely. A more sensible approach in my opinion is to count just a portion of your expected Social Security benefit. You can estimate that expected benefit at the Social Security Administration web site.

The decision about when to start SS is an analysis project in itself. Even high-fidelity retirement calculators offer varying levels of support. Some attempt to automate the solution. Others require that you manually iterate to find your best starting date. My favorite references for this decision are Mike Piper’s book and the two leading Social Security calculators I reviewed.

Don’t discount the possibility of working in your early retirement years either. It’s not that hard for most people to pick up another $1,000/month doing work they enjoy or at least tolerate — as long as the stay healthy. Doing so will help keep you mentally in the game, connected to other people, and financially solvent. Having some steady income, even a small amount, will reduce your required retirement savings substantially. Use the retirement calculator to find out how much.

Finally, your life expectancy is one of the trickiest variables. For starters, be sure your retirement simulation goes for enough years to account for the longest likely lifespan for either you or your spouse. Relying on average longevities is worrisome: Do you really want a 50% chance of running out of money in your old age?

Asset Classes

For my money, the single most difficult set of parameters to determine in a retirement simulation are the expected returns on various asset classes.

Why? Because, that means predicting the stock market. Evidence shows that short-term predictions are virtually impossible. The world’s leading finance experts can’t get this right from year to year. There are better grounds for making very longer-term predictions, but even these require a great deal of skill and knowledge, and still some luck.

For examples — not all of which agree with each other — see the resources I’ve linked under “Choosing Account or Asset Class Returns” on my calculator support page.

So, how are we laypeople supposed to decide on investment returns going forward?

To be honest, I haven’t studied future returns enough to feel comfortable standing behind any specific set of numbers. I tend to look at this issue in terms of ranges or probabilities, coupled with the fact that I’ve made 6.9% nominal annually with my conservative portfolio over the last 13 years including the Great Recession. For my own retirement planning, I’ll be assuming that number, maybe a little less, going forward, for a diversified portfolio of about 50% stocks. Some experts would call that reckless. Others think they can do even better….

The one overarching principle in my mind is to be conservative. For a variety of economic reasons, very few experts believe we’ll match historical returns going forward. At a minimum, you can shave a percentage point or two off of historical stock and bond returns for that reason. Then there is volatility or sequence of returns risk to consider. Though I won’t go into the math here, market volatility is like an extra penalty on your retirement portfolio, especially early in retirement. The possibility of volatility means you’d be wise to shave another point or two off of historical returns, unless your calculator already takes volatility into account by performing a historical or Monte Carlo analysis.

Confused? If all else fails, pick reasonable “best case” and “worst case” numbers, run your model both ways, and figure that’s the range you’ll have to live within going forward. You can then reassess annually.


The best high-fidelity retirement calculators give you three essential types of financial accounts to work with: taxable, tax-deferred — like Traditional IRAs or 401(k)s, and tax-free — like Roth IRAs or 401(k)s.

Why do you need three types of accounts? The taxation of money flowing into and out of each of these accounts, as well as the taxation of their growth, is different. The best retirement calculators will take care of all the details for you, but there are still a few things you might need to watch:

In taxable accounts the “tax basis” is the amount of your balance that has already been subject to income tax. The difference between the balance and this amount is considered unrealized gain and will be taxed at your capital gains rate when drawn from the account. The reality is that only you can know the original tax basis of your assets, and it may be non-trivial to compute, depending on the quality of your record-keeping and your custodian’s software. Depending on how long you’ve held your investments, getting this number right may or may not substantially affect the computed value of your assets.

Taxable accounts are not necessarily a drag on your retirement saving. My article comparing investment growth in the different types of accounts came to a surprising conclusion:

“Smart retirement saving is all about deferring and reducing taxes. You want to pay taxes later and you want to smooth your income, if possible, so you pay those taxes from lower tax brackets. A tax-smart approach to retirement saving and living can easily increase your ending net worth by 25-50% or more. But that doesn’t necessarily require a tax-sheltered account. The conventional wisdom leaves out one surprising contender for tax-efficient retirement saving: For those in the lower tax brackets, a taxable account holding the right kind of assets — those that primarily generate capital gains — can be very nearly as effective as the best retirement account!”

Another issue is the annual maximums for retirement account contributions. These vary according to government rules and often change from year to year. It’s asking a lot of any retirement calculator to stay up on all the latest tax laws, so you may need to check any contributions you’ve set up in your model, to make sure they stay in bounds.

Living Expenses

Living expenses might be the single most important retirement variable. And they are the one most under your control. But that doesn’t make determining them any easier.

Many people have no idea what it costs them to live. And there is just no substitute for knowing this number accurately. I discuss several ways to assess your living expenses in my first book, Retiring Sooner. Not all of them are time consuming. And without a fairly accurate picture of your spending, you’ll be hard pressed to do accurate retirement planning.

The few high-fidelity calculators that are able to perform detailed tax calculations will not require that you incorporate any tax payments into your living expenses number. That’s a huge burden taken off your shoulders and will lead to far more accurate retirement calculations overall. The alternative, of estimating your effective tax rate, has proven error prone in practice.

But even if your calculator handles taxes, your work is not done. For one, you need to assess how inflation will impact your living expenses over time. CIRY Pro lets you set an Extra Inflation variable to customize living expenses versus the general inflation rate. And that variable can be positive or negative. In my own case, I have documented over many years that at least portions of our expenses changed significantly less than the general inflation rate. But our health care expenses have fluctuated and often been more.

Lastly, you need to assess how your living expenses will vary over time due to changes in your own lifestyle. What happens when the kids leave home, when they are done with college, in your early retirement years when you are traveling more, in your later retirement years when you travel less, but health care expenses loom large?

In CIRY Pro and other high-fidelity calculators, you can enter multiple expense events that start and stop on different dates to capture all of these various life stages.

Real Property

Buying a home is the single biggest financial transaction most of us ever make. And, as I’ve written in my analysis of buying versus renting the financial implications are not a slam-dunk. Gone are the days when owning your home always made financial success thanks to nonstop appreciation in the real estate market.

And, even though for many people the discipline of making regular payments to equity can be a beneficial form of enforced saving, the temptation to dip into that equity via home equity loans for depreciating purchases can be a financial counterweight.

There are a host of variables that determine the long-term costs or benefits of a home purchase, including but not limited to your down payment, the interest rate on any mortgage and whether it fluctuates, the length of that mortgage and whether you pay if off early, how the home appreciates with respect to inflation in your area, the transaction costs of buying/selling, property taxes, maintenance costs, and tax deductions (which have just changed with the new law).

High-fidelity calculators like CIRY Pro allow for modeling all those factors. But it’s up to you to enter the data properly and check the results produced. They could surprise you.

We did OK owning a home during our working years, keeping up with inflation. But when I crunched the numbers in retirement, renting made more financial sense. However, you can’t always apply somebody else’s conclusions to your own situation: Though I’m financially conservative and would prefer to rent or own a modest house, the rule for many in the past was to “own as much house as you can afford.” And that could still work out in some areas due to appreciation and tax breaks. Run your own numbers through a retirement calculator, then evaluate the results given your own lifestyle aspirations and appetite for risk.

Retirement Withdrawals

One of the trickiest problems in all of retirement planning is how to turn your life savings into regular, reliable, inflation-proof retirement income for the rest of your life.

How do you sequence withdrawals from your accounts to maximize growth and minimize taxes? Which accounts do you withdraw from first, and last? How do you deal with Required Minimum Distributions (RMDs)? How do you integrate it all with your Social Security benefits, and when should you start those anyway? Finally, should you throw some or all of your assets into an annuity to simplify matters and guarantee income for life?

A good high-fidelity retirement calculator lets you analyze all those factors. It supports the three different account types, calculates RMDs, handles Social Security benefits, and models annuities and pensions. But orchestrating all those factors is not a trivial exercise. If you enjoy the challenge and can invest the time, you can do it yourself. Otherwise, this is one area of retirement planning where consulting a trustworthy professional may be beneficial.

One of the most important income-related indicators to watch in your later retirement years is your marginal tax rate. Only a few of the highest-fidelity calculators like CIRY Pro and Pralana provide this key statistic. In a few words, that number tells you if your taxes are spiking due to high-income years in retirement. And, if so, there may be an opportunity to save money.

If you’re extremely well off and experiencing high tax rates early in retirement, there may be nothing you can do about that. But if you’re like some in the middle class who have saved well and are at risk of being pushed into higher tax brackets due to RMDs, you may want to pursue options like Roth conversions to “smooth out” your income through retirement and reduce your overall taxes paid.

Unpredictable Events

As carefully as you might plan, there are a host of potentially unpredictable events that could affect your retirement years from now.

On the positive side there could be windfalls like inheritances or gifts, juicy capital gains, or unexpected income from a hobby.

On the negative side there could be expenses like health emergencies, long term care, major home repairs, or helping out a family member.

How do you model all of these possibilities?

The mathematically “correct” approach would to multiply the probability of each possible event times its benefit or cost, then add or subtract that amount from your simulation. So, if you figure there’s a 30% chance of needing long-term care costing $100K, you’d add an expense of $30K to your model.

That’s nice in theory, but I’ve never seen a retirement plan computed that way. There are a lot of probabilities to evaluate, and this approach probably implies an accuracy that just isn’t realistic in practice.

What to do? After all these years of retirement modeling, I still don’t get very fancy when doing my own calculations. I model the basic factors that I can predict with some accuracy. Then I live frugally, maintain a healthy cushion to guard against the unknown, and don’t spend much time or effort trying to predict how the future will unfold.

For what it’s worth, I do try to maintain a “balance” of positive and negative risk factors in my life, hoping they will cancel each other out. But that’s a personal philosophy. Your mileage may vary.

Some people decide to work longer, amass more assets, and buy insurance in an attempt to inoculate themselves from all possible future misfortune. Others bury their heads in the sand, ignoring basic financial planning and hoping the government, fate, or the next generation will take care of them.

For most of us, a middle way works best….

Lessons Learned

In the end, I have to admit that retirement modeling is not a trivial exercise. There are a lot of variables, and a lot of judgment or expertise can be required to estimate them all. It helps to have enough of an interest in personal finance to read and accumulate knowledge over the years before you are faced with having to plan a real-world retirement. Even then, you’ll need to invest at least several hours to learn a high-fidelity retirement calculator, then set up and debug a truly useful personal model for your retirement.

You can always pay a financial planner to do the task for you. And that may be the best approach for those without an interest or inclination in this domain. But just understand that, if you don’t check the results, you may be ceding to somebody else one of the most critical decisions in your life: what you can afford to do with the rest of it.

For those with a minimum of interest, there are powerful tools such as CIRY Pro for Android and Pralana/Gold for the desktop that take much of the drudgery out of planning. Even the most powerful retirement calculators cost less, some much less, than what you can shell out to get your taxes done in a typical year. And the implications could be even more important to your long-term financial health.

If you are interested in doing your own retirement plan, but don’t know where to start, you can always try a simple, free tool like our Free calculator for Android or other free offerings on our Best Calculators list to get some rough numbers. For many retirement plans, simple or sophisticated, that is good enough….

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Disclosure: Some links on this site, like the Amazon links, may be affiliate links. If you click on one of these links and buy from the affiliated company, then we receive some small compensation. The modest income helps to keep this blog going. Affiliate links do not increase your cost, and we only use them for products or services that we're familiar with and that we feel may deliver value to you.

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Note: Stuart Matthews of Pralana Consulting and Can I Retire Yet? are engaged in an informal technical collaboration aimed at raising general standards for accuracy in retirement modeling. We have no business relationship, no compensation arrangements, and no commercial intentions together.

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  1. Darrow, I have been following you for 4+ years. Two years ago, I retired at age 62 (I came in late to the early retirement planning). I determined that I could do so by using retirement calculators that you had recommended. I will admit to calculating and analyzing to the nth degree before leaving my job. My other admission is that I had just reached a point of no longer enjoying my job & wishing to be free – so I just took a “leap of faith” – while hoping my money would not run out. At worse case i could fall back on my accounting skills to pick up part-time work if necessary.
    Today I used your free android model. I was pleased to see the same “Age when I run out of money” that I calculated 4 years ago, even though I leaped a couple years earlier than my original calculations.
    Thank you and keep up the great articles, information, and recommendations. Pixie

  2. Geoff Mather says:

    Great article! Can you predict when will you release a iOS or web version of your new retirement calculator?

  3. After saving my money for 40+ years, I finally leaped into early retirement. Following your blog for several years confirms that it was a great decision! I feel pretty good about my knowledge for investing…but now I’m faced with withdrawing. Can you recommend sources or blogs that can help me learn about the tax consequences of withdrawing from each of my buckets (savings, IRA, and Roth)?

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