How often do you reevaluate your retirement?

[skives]

Basically what the title says. How often do you reevaluate your retirement?

i think once a year is fine and I use three different rates of return based of current retirement balances, current income and expected income increases. I use 3%, 7%, and 10% rates of return.

do you guys think this is a good way to evaluate our retirement?

[disneysteve]

I guess it depends on what you mean by reevaluate.

I have a spreadsheet for our portfolio that I update every month or two. So that shows me how much we have.
I have another sheet for tracking our average monthly spending that I update every time a new bill comes in. So that tells me how much we need.

With those two pieces of data, it's pretty simple to do a quick growth calculation. I generally use 6% return for that.

I don't often do a hard core calculation where I carve out the expenses that will go away in retirement and make other adjustments.

[skives]

I guess it depends on what you mean by reevaluate.

I mean looking at what you have for retirement and seeing if you need to contribute more so you have enough.

None of us know what future returns will be so I think doing a conservative, average and above average calculation each year gives you an idea if your able to live on below average returns.

[disneysteve]

I mean looking at what you have for retirement and seeing if you need to contribute more so you have enough.

Yeah, I don't really do that much at all at this point. We're saving plenty. If we continue saving at the rate we are now, even if we get a 0% return, we'd hit my ideal target retirement number in 10 years when I'm 66. With any sort of positive return, which is certainly what I expect, we'll be there sooner. I'm shooting for 62.

[Jluke]

You may want to also evaluate savings based on expenses.

if you spend 50k per year then you need 25 times 50k for retirement.

fidelity also has a chart for expected retirement savings based on age and income.

you can google for that but I think at age 40 it is 3x gross income.

on another topic you mentioned determine if you are saving enough. Just be aware that when you may realize you need to save more it might be too late.

I know the bogleheads told you to increase retirement savings as well.

[kork13]

I have probably run that sort of calculation every few months, but never in extreme detail, and mostly just for the sake of day-dreaming (exploring how early I could theoretically call it quits). I only use a single average-ish rate of return (7%).

However, because my timeframe is so far out (I'm only 34), such calculations are honestly of limited benefit. Changing the monthly amount by just $50/mo means a swing of over $50k over 30 years! Because there's so much ambiguity in the future, I'm of the opinion that if you're concerned you aren't saving enough, just save whatever you're reasonably able to, and let it ride.

Recently, the focus of this calculation has changed on me though -- instead of asking if I need to save more, it's led me to start saving less in retirement accounts, and instead diverting that money into taxable investments to ensure access to a healthy chunk of money while I'm younger. I could totally stop saving today (won't be doing that) & have it grow to a few million by age 65. So I'm actually making the somewhat uncomfortable choice to start saving LESS dedicated toward retirement.

[corn18]

Basically what the title says. How often do you reevaluate your retirement?

i think once a year is fine and I use three different rates of return based of current retirement balances, current income and expected income increases. I use 3%, 7%, and 10% rates of return.

do you guys think this is a good way to evaluate our retirement?

I think that is fine. Make sure you are not mixing real and nominal numbers. If you are not inflating your expenses into future year dollars, you should use a nominal return for your investments. I use 2% real return for my forecasting. I use all real data in my other calculations so I don't have to guess at inflation. 2% real is about 5% nominal. I think if you are using 3, 7 and 10% that is actually ok for real returns. The average of the S&P 500 since inception is about 5.8% real which is about 10% nominal.

And to answer your first question, I calculate different scenarios daily. But I am close to retiring. If I get the right offer from work, I may retire this year.

[disneysteve]

The average of the S&P 500 since inception is about 5.8% real which is about 10% nominal.

I ought to lower my 6% figure since I'm not adjusting expenses for inflation. Your 2% real figure is probably much more realistic.

[LivingAlmostLarge]

Do you really think the real returns are only 2% after inflation? I feel like that makes inflation artificially high and returns low. Now changing returns because you are closer to retirement and the actual rate of return you get from a more cash/bond portfolio is a different argument. But using say 6% is not a bad number like the S and P.

[kork13]

Do you really think the real returns are only 2% after inflation? I feel like that makes inflation artificially high and returns low. Now changing returns because you are closer to retirement and the actual rate of return you get from a more cash/bond portfolio is a different argument. But using say 6% is not a bad number like the S and P.

Agreed. Assuming 2% for real returns borders on Chicken Little style planning. Depending on what source you look at (it's astonishing that this is somehow debatable), S&P 500 has returned, on average, 8%-10% (nominal). Historical inflation rate has averaged around 3-4%. Real returns, therefore, should be around 4-7%. Sure, you'll have lower returns by investing in cash/bonds, but that strategy also tends to moderate losses. Also, dollar-cost averaging through high/low periods will boost overall returns. So I'd argue that a VERY reasonable expectation for real returns would be 4-5%, maybe 4-6%.

[corn18]

Do you really think the real returns are only 2% after inflation? I feel like that makes inflation artificially high and returns low. Now changing returns because you are closer to retirement and the actual rate of return you get from a more cash/bond portfolio is a different argument. But using say 6% is not a bad number like the S and P.

You can make any assumption you want. The historical real return on a 60/40 portfolio is 5.8%. I used that for a long time. Now that I am close to retirement, I do not want to get it wrong, so I am building in conservatism. I have to be careful because I could build in so much conservatism (and black swans) that I can never have enough money to retire.

2% real returns:



5.8% real returns:



That's a very large swing in outcomes. Plan for 5.8% and get 2% and you are broke pretty quick. Plan for 2% and get 5.8% and you can easily adjust to that and maybe spend more, open a 529 for the grandkids or donate to your favorite charity.

I would recommend using 5.8% real when you are young and as you approach retirement, seriously look at adjusting that to give you some room for annual blips.

[kork13]

I would recommend using 5.8% real when you are young and as you approach retirement, seriously look at adjusting that to give you some room for annual blips.

That's reasonable. At 34, I'm definitely more comfortable with unknowns, higher risk, and so on. As I said earlier, I currently use 7% real (10% nominal, 3% inflation), which assumes a 90%+ stock portfolio slanted toward more aggressive options. But as you start to stare down retirement, much of that tolerance diminishes, so being more conservative with your estimates is probably prudent.

[disneysteve]

Do you really think the real returns are only 2% after inflation? I feel like that makes inflation artificially high and returns low. Now changing returns because you are closer to retirement and the actual rate of return you get from a more cash/bond portfolio is a different argument. But using say 6% is not a bad number like the S and P.

I'm not that far from retirement (hopefully) so a lower number is more realistic. Our portfolio allocation has also shifted more conservative over the past couple of years. We're not at 60/40 but we're not too far off. Closer to 65/35. So just using the average for the S&P wouldn't be accurate for us. And as corn said, I'd rather underestimate what we'll have than overestimate. Maybe 2% is too low for us, but it really depends on what your portfolio looks like. We're probably safe using 4%. I've traditionally used 6% but didn't account for inflation with expenses so that's probably not a good number at this stage of the game.

[LivingAlmostLarge]

Got it. I've always used 6% conservatively without inflation. It just seemed reasonable. I've been a 85/15 mix and I'm 40 now. And i've been more aggressive and even now I would say I border on more aggressive with risky plays within the stocks. I am not close to retirement about 15 years and even then I think we are closer to 20 year until withdrawal. I see us retiring at 55 but using taxable accounts to fund those first 5 years. So I feel we will stay aggressive until we retire and then downshift at that time. Mostly because I think my DH is more likely to want to work than to retire when our investments are down.

Corn and DS, when do you feel you made the transition to a more conservative investment strategy?

[Like2Plan]

For DH and I, it's showtime! (I am already retired and DH is retiring in a couple of months). We have a 55% equities/45% bonds allocation. I use 4% for returns.
We will be pulling from our retirement accounts later on this year. It is a little intimidating to think about the draw down--all those years of the mindset of not touching retirement accounts. Now, it's okay.

Right now I mainly do maintenance on the accounts:
1. Making sure our asset allocations are within +/- 5% of our target
2. Making sure DH's 401k contributions post in a timely fashion
3. Doing a little preparatory work on where the money will come from starting later on this year (CD ladder)
4. Tracking income against the Roth conversion plan
5. Keeping up with tax changes and making sure enough taxes are withheld