Stay within the lines…

I routinely read several financial blogs.  All are very well done and several have served as motivation and inspiration/role modeling for me to embark on this effort.

One of the observations is that financial blogs like to talk about financial topics but seldom do we get an up close and personal view about someone – what experiences in life have developed their money behaviors, their world views and their detailed and specific financial situation.

Truth is, like most Americans, financial discussions are some of the most difficult discussions to have with family.   Far more difficult, in fact, than the advanced birds and the bees talk, the alcohol and drug use talk, or the (pick your controversial topic) talk with teenage boys.   For some reason, it’s just difficult to talk about money.   I hope this blog breaks down that barrier.

I realize also that blogs are not anonymous and without anonymity, few are willing to share specific financial details.   I intend to try to “go farther” than other blogs in sharing both ours and others’ financial details since I’m a quantitative person by nature, and like to break down the numbers.   I intend to do that regularly.

So, what information would you find most interesting for us to share about our financial life?    Budgets and what we spend every month?   Sources of Income ?   Investment portfolio and return details?     Please let me know.  And welcome to our Blog !

Do I have enough ?

 

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How does one know if they have “enough” for retirement.  I guess that’s a fairly difficult question to answer.  For one, no one knows how long they will be alive in this wonderful world.  For another, it’s impossible to predict the future with any degree of certainty – investment returns and rate of inflation to name a couple important variables.

We are left with making some assumptions – most assumptions when it comes to retirement planning are based on historical performance.   The stock market, on average, has returned approx 7% (before inflation) for the past many decades.   The inflation rate, on average, has run approximately 3% across the same time span.

Certainly there are periods when averages don’t work…ask anyone who opened up their 401K in August 2007 and then again in March 2008 realized — they saw their 401K become a 201K in just a 6 month time span in the depths of the financial crisis.

One financial tool that I often use to analyze retirement assumptions is Monte Carlo analysis.   Like multiple spins in a casino roulette wheel, Monte Carlo attempts to simulate thousands and thousands of potential outcomes, helping one to understand the distribution of outcomes and likelihood of those outcomes.

In retirement planning, a very useful planning tool that has incorporated a Monte Carlo feature is Firecalc  3.0 (TM)  (http://www.firecalc.org).  In short, with a few online inputs including your current portfolio/401k value, your asset allocation between stocks and bonds/fixed income,  your annual spending, social security or pension payments, and your age/retirement duration, one can have a range of probabilities that your portfolio will be adequate to see you through your retirement years.

It’s a great first step in analyzing the financial question “Am I OK to retire?” – Firecalc 3.0 begins to answer the financial piece of the puzzle, which is most often the first question at top of a potential retiree’s mind.   We’ll discuss some of the non-financial questions to consider as future blog posts.

Do you use or have you tried Firecalc 3.0?  At what success percentage do you feel comfort that your portfolio will last through retirement?   Do you recommend any other financial planning retirement calculators ?

Joe@45retire