Bill Larsen's Retirement Planning Form

October 6, 2002

©2002 Larsen

This program allows you to estimate what you can withdrawl from your retirement funds on a yearly basis based on today's assumptions. The calculated first years retirement value is based in today's dollars and will be increased over your working years by the replacement rate you choose. If you think your wages will increase 3.5% per year,use 3.5%. This will increase this value by 3.5% untill you retire. Adjusting benefits by inflation will only allow you to maintain a living standard based on the year you begin indexing from. Therefore, I suggst using your wage growth as the replacement rate. You do not want to start retirement with a buying power which is based on thirty years ago. This will at least allow you to start retirement with the same buying power for each dollar your wages provided for you in the last year you worked. To maintain your buying power equal to that of the economy, you need to use the GDP number or US average Wage Growth value. The idea is to save the same percentage of your wages each year. If you see your wages increasing at 3.5% a year, simply increase your rate of savings by 3.5% The program allows you to increase your first years retirement amount by the replacement rate you have chosen for retirement. When you reach your year you think you might pass on, you will leave exactly zero in the bank so to speak. This is a mathematically correct formula. There are two tables showing the yearly cash flows for both Saving and retirement.

Current Wages Your Current Age Retirement Age Six feet under age
Percent of wages to save ....% Time Frame
Variable Working Years Retirement Years
Rate of Return % %
Replacement Rates inflation, wage growth, SP- 500 % %
List Your Current Assets Available for Retirement $
List the amount you can save this year $
You can withdrawl this the first year in Today's Dollars $
Your first years needs are this percent of current wages %
Effective Rate of Return % %
Years Left
Your future needs $
Your future assets needed $
This is the current present value of your required balance $

Table of Cash Flow During Saving Years
Age Starting Balance Deposit Income Ending Balance
Table of Cash Flow During Retirement Years
Age Starting Balance Withdrawl Income Ending Balance

Current Wages - If you fill this in, a calculation shows what percentage you must save of this each year to meet your goal. It is not necessary to input a value.

Your Current Age - This is used to calculate how many years you have left to save.

Retirement Age - This is the age you plan to retire.

Age at six feet under - This is the age you plan to live to.

Rate of Return - This is the rate that your funds will grow each by before the addition of new money. The US Treasury long term bond pays about 6%, equities may grow by 7 to 8%, short term rates are as low as 1 to 2%. A safe thing to do is to assume a lower rate of return or average your last ten years gains. Two variables are allowed, working years and retirement years. Some people as they approach retirement shift out of riskier investments. This allows you to calculate the effect of doing this.

Replacement Rate - This is a term used to describe how fast a current value will change each year. Inflation is an index by which Social Security Benefits are increased each year. Social Security uses inflation as the replacement rate for indexing benefits.

The index you use is up to you. This program allows two different replacement rates to be used. The first is during your working career. During this time frame, the retirement needs you (today's dollars) will be increased each year by this amount. For example. You want $30,000 a year in today's dollars when you start your first year of retirement. You want this amount to be indexed by the change in your wages each year. If you are 25 and want to retire at age 62, you have 37 years left to work and save. This $30,000 will be the equivalent of $107,131 using a 3.5% replacement rate.

In your first year of retirement you would be able to spend $107,131 and the next year increase this by the replacement rate you chose for your retirement years each year.

If you use zero percent as the replacement rate, the benefit will not be increased during that particular time frame.

List your current Assets - Entering a number in this box will adjust how much you need to save each year to meet your goal.

Retirement needs Current Dollars - This is the amount you want to retire with starting in the first year. The program will index this amount by the replacement rate you chose earlier.

Effective rate of return - The effective rate of return is the mathematical difference between two different rates of growth. In this case it is the difference between your rate of return and your chosen replacement rate. Notice that it is not simply the difference between the two. Rates of growth are exponential growths and therefore simply subtracting differences is not correct.

Your Future Needs -This is your the current retirement needs indexed by your chosen replacement rate. This is the amount you plan to spend in your first year of retirement.

Future Assets Required - This the required value of your retirement fund needed when you enter retirement. It is not today's dollars, but the actual dollar amount in the year you retire.

Savings per year - This is the initial amount you need to save this year. Next year's amount will be indexed by the replacement rate you chose for your working years. The amount to save will continue to increase each year at the same rate (constant percent of your wages possibly). This initial amount to save and the replacement rate will achieve your goal.

Current present value of your required balance - This is the amount you would need today to fund your retirement. If you had this amount now, you would not have to save any additional money.

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