Greg Gore is Vice President of Praxis International, Inc.
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Helpful Retirement Planning Tools Found on the Internet
Greg Gore


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Two back-to-back years of stock market declines along with the Enron collapse have led many people to reevaluate their retirement planning goals and strategies. Fortunately, some excellent tools are available on the Internet to help you plan for a successful financial retirement.

The award-winning site of The Vanguard Group, Chester County’s largest employer, is a good place to begin. Log-on to the Vanguard’s Education, Planning, and Advice web page at From this page, you can access online courses, Vanguard newsletter archives, calculators, worksheets, and mutual fund research tools.

The “Sources of Retirement Income” module in the Vanguard “Retirement Planning Basics” course quotes these 1998 figures from the Social Security Administration: 40% of retirement income is provided by Social Security, 20% by part time work, 18% by employer-sponsored retirement plans, 18% by personal savings, and 4% by other sources. Figures released for 2002 by the Social Security Administration and the U.S. Department of Health and Human Services show the average monthly Social Security benefit for retired workers is $874, for retired couples (both collecting benefits) is $1,454, and for the average widow(er) is $841. The maximum individual benefit (retiring at age 65) is $1,660. Only one in six workers, however, waits to age 65 to start collecting benefits.

Using these two sets of figures, the average retired couple has a monthly income of $3,635 ($1,454/40%) or $43,620 annually. Assume a couple wants to match the total income of the average retired couple. If the couple wants to meet the average 18% of retirement income provided by personal savings, the crux of the retirement planning question is this: How much in personal savings does the couple need to produce $654 ($3,635 x 18%) monthly, or $7,848 annually?

If the couple takes a balanced approach by investing their savings 50% in stocks and 50% in bonds and they want to be “100% certain” the money will last for 40 years on an inflation-adjusted basis, the answer is $261,600. This figure is based on the couple making a first-year withdrawal of 3% of their nest egg. In subsequent years, the dollar amount of the withdrawals would rise with inflation even in years when the portfolio fell in value.

The methodology and the logic behind this answer are contained in “Market Risk Isn’t The Real Risk,” an article in the Winter 2002 edition of the Vanguard newsletter. This article can be found by scrolling to the bottom of the Vanguard web page mentioned above and then clicking on “Vanguard Newsletters.” Jack Brod, principal of Vanguard Asset Management and Trust Services, gives this rationale for the article, “People think of risk as their ability to withstand short-term volatility, but the real risk is not being able to meet the financial goals you’re saving for.”

The article begins by noting that from September to November 2001, investors withdrew $14 billion from stock funds and put it into “low-risk” investments. Such a move may be a mistake for long-term investors investing for retirement. Vanguard ran computer simulations based on actual investment returns and inflation rates over a multi-year period to produce worst case scenarios, best case scenarios, and average case scenarios for three types of investment portfolios (100% bonds; 50% stocks, 50% bonds; and, 100% stocks).

Using the same 50% stock, 50% bond allocation, if the couple described above increased their initial withdrawal rate from 3% to 4%, the chances of their nest egg lasting forty years would drop from 100% to 56%. If the couple changed their asset allocation to 100% bonds and withdrew 4% initially, the chances of their retirement nest egg lasting forty years would drop to just 12%.

Of course, as the Vanguard article reinforces, there is no guarantee that future market performance will mirror these sophisticated computer simulations. What you can control is what you save for retirement and then what you spend in retirement. The initial withdrawal rate is crucial to a successful financial retirement.

To calculate customized safe withdrawal rates, log on to the Retire Early Home Page at and download the free “Retire Early Safe Withdrawal Calculator” Microsoft Excel spreadsheet. John P. Greaney, P.E., a retired civil engineer, developed the site as “the online magazine for people who used to work for a living.”

Greaney used his engineering and math skills to create a spreadsheet where you can enter your own set of variables: initial balance, payout period (in ten year increments from ten to sixty years), asset allocation, initial withdrawal rate, inflation adjustment, and investment expenses. After inputting your variables, the spreadsheet then calculates the percent survivability for the portfolio and the values of the portfolio at the end of 10, 20, 30, 40, 50 and 60-year payout periods.

Greaney’s spreadsheet uses a methodology similar to the one used by Vanguard in its computer simulation model. The difference is that Greaney uses market data from 1871-2000, while Vanguard uses data after 1960. Because the models use a different base, inputting the Vanguard example from the article into Greaney’s spreadsheet produces different value results. However, the message is the same: the initial safe withdrawal rate for a forty year payout with an asset allocation of 50% stocks and 50% bonds is about 3%.

Like Vanguard, Greaney also emphasizes the importance of a larger stock allocation as the payout period lengthens. He calculates the optimal stock allocations as 48% for a ten-year payout; 66% for a twenty-year payout; 74% for a thirty-year payout; 77% for a forty-year payout; 82% for a fifty-year payout; and, 85% for a sixty-year payout.

From the Retire Early Home Page site, you can also download the “Millennium Edition of the Generation-X Retirement Planner.” This Excel spreadsheet allows younger people to calculate how much money they will need to retire early. After all, it’s never too early to plan for retirement.


The Greg Gore Web Site on Computers and the Internet (

This column was published in the Daily Local News, West Chester, PA on March 6, 2002. Greg Gore can be reached at

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