Savings and Withdrawal Rates
Understand how your current savings rate and retirement withdrawal rate would affect all of your lifetime personal financial planning goals
Along with your efforts to increase your earned income, your personal savings rate largely determines your lifelong financial planning success or failure by steadily and more substantially feeding your investment portfolio. The attempt to be clever in the selection of particular investment securities is a much less reliable, far less important, and most often has a negative impact on your long-term personal finance success.
Your ongoing total living expense rates should always be sufficiently constrained to assure a sustainable lifetime personal finance plan. Valuable future investment portfolio assets and future investment returns slip through many people’s fingers at the checkout stand every day, because they spend beyond their long-term means. Simply put, most people should budget and save more than they do. But, how much current savings are enough?
Since the future offers neither any guarantees nor any predictability, you must also restrict your current consumption budget even more so that you can build substantial investment portfolio assets. Investment assets provide safety buffers for times of future difficulty, fund your retirement needs, and provide for an estate, if desired.
To understand your lifetime savings and withdrawal rates, you need an integrated pre- and post- retirement savings calculator and retirement withdrawal calculator that automatically evaluates sustainable lifetime savings rates and consumption rates for you. The VeriPlan retirement planning software provides such a means by automatically developing highly personalized lifetime financial modeling projections for you, including safe retirement withdrawal rates throughout retirement.
The VeriPlan financial planning software includes robust retirement withdrawal calculator features that can help you to understand sustainable lifetime budget expenditure levels and safe withdrawal rates in retirement.
When you use VeriPlan’s fully integrated retirement income calculator and retirement investment calculator, it will become clear that relatively small percentage changes in your lifetime savings rate and your retirement withdrawal rate practices, when sustained over many years, can have a very significant cumulative impact on on your lifetime personal finances. With every financial planning scenario that you develop for your family, VeriPlan will automatically generate a lifetime cash flow model which integrates all of your lifetime personal finance goals and requirements.
Here is an example of VeriPlan’s combined pre- retirement and post- retirement withdrawal calculator graphic, which is automatically developed for every lifetime financial planning scenario that you develop in VeriPlan:
This retirement planning worksheet withdrawal graphic shows the lifetime financial plan of Sue and Sam Saver. For them, this VeriPlan retirement planning tool graphic raises a significant concern that their financial assets will be exhausted in their early 90s, when their withdrawal rates rapidly climb to 100%. An annual retirement withdrawal rate in the 3% to 5% range historically has been shown to be a potentially sustainable for an indefinite period, depending upon one’s investment strategy, asset allocation, and expected securities market returns.
This withdrawal graphic shows Sue and Sam’s retirement calculator projection, when their financial projection model uses industry average investment costs. VeriPlan’s retirement withdrawal rate calculator functionality automatically utilizes the investment cost information that you provide about your portfolio on VeriPlan’s investment asset worksheets.
Sue and Sam pay investment costs that are about average for full service retail brokerage customers. Even at average investment costs, which the industry would say are “just a couple percent,” the lifetime impact is very harmful to their financial welfare in retirement.
Were Sue and Sam to adopt a lower investment cost strategy, they would be much more likely to maintain sustainable withdrawal rates in retirement, not to run out of financial assets, and to leave a more substantial estate. VeriPlan’s automated and integrated lifetime investment cost calculator and retirement planning calculator functions can instantly show the negative, huge, and insidious impact of even “average” investment costs over a lifetime.
(Incidentally, note that the steep withdrawal rate in their early-30s to mid-30s represents the point when they are projected to withdraw a substantial portion of their then much more limited investment portfolio in order to make a down payment on a home purchase and to pay home furnishing expenses.)
Finally, while most people tend not to budget and save enough during their working years, VeriPlan is not a “you must always save more” financial retirement calculator. VeriPlan projects your wealth and therefore your potential estate in each year through age 100. You can adjust any of your projection assumptions and decide for yourself about where to set the wealth management balance between your current expenditure budget and your projected estate (or lack thereof) in the future. Those who budget and save significant amounts and/or who already have substantial investment portfolio assets can use the VeriPlan pre-retirement and post-retirement spending calculator to decide when they might be comfortable with increasing their current rate of consumption.
Personal Financial Planning Software for Individuals
- Deciding when to begin initial Social Security retirement payments (Deciding when to begin initial Social Security retirement payments
In general, whether to accept Social Security payments early, at full retirement age, or later is a decision you will need to make as you approach retirement. This decision can depend upon many factors, including but not limited to your expected cash flow requirements, your health and [...])
- Investment Risk Tolerance Questionnaire (Investors with different appetites for investment risk tolerance are more satisfied with investment portfolio risk exposures that are more in line with their ability to cope with investment financial risk and rewards.
Investors who are more risk-averse are more satisfied with a less risky investment asset allocation – regardless of lower expected investment returns or the [...])
- Roth Estate Planning Strategies (Roth IRA and Roth 401k Accounts and Roth Estate Planning Strategies
There are trade-offs when deciding whether to allocate contributions to Roth retirement savings accounts versus traditional retirement savings accounts that have deferred income taxation features. In the majority of personal finance situations, making 100% of allowable contributions to Roth retirement plans would probably not yield [...])
- Cash Asset Allocation (VeriPlan's investment growth calculator helps you to understand the projected value of your cash assets across your lifetime
To develop your lifetime projections, the VeriPlan compound investment calculator allows you to enter as many as 24 separate cash and cash equivalent asset holdings. For each of your current cash holding in your investment portfolio, you can [...])
- Instead of non-traded REITs, buy publicly-traded REIT index mutual funds and ETFs (Publicly-traded REIT index mutual funds and ETFs add can add far more cost-effective real estate exposure to your portfolio
If you really need to add real estate securities to your portfolio, the most sensible way to do so is to buy very low cost REIT index mutual funds or ETFs. This article will overview why and [...])
- Economic ETF trade size cost considerations (Economic ETF trading size considerations
This article discusses some considerations regarding efficient ETF trading and economic trade sizes. At the end of this section, you will also find two tables on ETF brokerage and trading cost amortization over 1, 3, 5, 10, and 20 year holding periods. There is one table on do-it-yourself ETF discount brokerage [...])
- Measure Your Investment Portfolio Diversification (Gauge the level of your portfolio’s overall diversification with this free on-line tool
Whenever you invest in multiple mutual funds and ETFs, you may wonder how broadly and appropriately diversified your aggregate portfolio might be. Have your investment holdings and mutual funds that you have chosen increased the global diversification of your personal financial asset portfolio? [...])
- 2013-12: December 2013 What Works in Personal Finance Newsletter (
December 2013 Newsletter
Concentrated holdings increase portfolio risk
For the full article, either click the title above or paste this address into your browser:
A significant portion of a portfolio may sometimes become concentrated in a single investment entity, which dramatically increases the overall risk of the portfolio. For 99.9+% of investors, there is absolutely no good reason [...])
- VeriPlan Overview 3: Your Income and Debt Projections (VeriPlan Overview: Part 3 of 7
Your income and debts in VeriPlan
The VeriPlan financial planning software with its wide variety of fully integrated financial calculators and investment calculators uses your inputs about your financial situation and investment portfolio to develop your current projection baseline. VeriPlan collects the following personal financial information:
Your Initial Ages:
VeriPlan is a lifetime projection [...])
- Investment Risk and Return (Lifetime trade-offs between investment portfolio risk and investment returns
When making personal finance and retirement planning decisions, individuals must confront the dilemma that, historically, more conservative portfolio investments have yielded substantially lower investment returns than the returns that riskier investments have delivered. With either lower or higher risk-adjusted market return strategies, you simply cannot have your [...])
- VeriPlan Overview 1: Personal Finance Decisions (VeriPlan Overview: Part 1 of 7
Improving personal finance decisions with VeriPlan
VeriPlan gives you significant personal insight into your most important personal finance and investment portfolio decisions. Through comprehensive and customized lifetime projections, VeriPlan's integrated financial calculators and investment calculators model your particular financial situation across your adult lifetime. VeriPlan projects fully integrated scenarios about your income, [...])
- Retirement Planning Software (Automate your retirement savings and retirement planning projections
VeriPlan's comprehensive and integrated retirement planning software helps you to plan your retirement much more easily. VeriPlan's retirement planning calculator tools automate the lifetime financial planning process for your retirement income, retirement pensions, retirement annuities, Social Security payments, retirement expense budget, retirement taxes, and tax-advantaged retirement plans.
VeriPlan's integrated [...])
- Too few low cost mutual funds and ETFs (Too few low cost mutual funds and ETFs – Far too many high cost funds
In screening and selecting low cost mutual funds and ETFs, you should understand this involves sorting and screening thousands of mutual funds and ETFs using databases from data vendors such as Morningstar and/or Lipper. It is shameful just how few low cost [...])
- Career Education Financial Planning (Using VeriPlan as a Mid-Career Education Financial Planning Tool
VeriPlan can easily be used to analyze whether it is worth returning to school to improve one's earnings capacity. The following example explains the steps to take to analyze the value of obtaining additional education to further one's career by using VeriPlan as and education financial planning [...])
- Lifetime Investment Fees (Use a long term investment calculator to understand the lifetime costs of excessive investment fees
High mutual fund fees and other excessive investment fees are huge problems for the average individual investor. These excessive investment fees are the major factor that undermines the financial welfare of millions of Americans. The potential value of your investment portfolio [...])
- About (
About the author
Lawrence J. Russell is the author of this website and the books offered through this website. He is also the architect and developer of the VeriPlan software discussed on this website. He holds a BS from M.I.T. (1975), MA from Brandeis University (1979), and MBA from Stanford University (1982). Larry is a former [...])
- Annual Tax Calculator (VeriPlan estimates your lifetime annual taxes in 8 different tax categories
The VeriPlan tax planning calculator projects your lifetime annual tax payments in 8 different tax categories. VeriPlan's fully integrated and automated lifetime annual tax calculator and retirement tax calculator capabilities automatically project your lifetime estimated taxes in these 8 tax categories:
Federal income taxes on earned [...])
- VeriPlan Overview 7: Satisfaction Guarantee, Documentation, and Household License (VeriPlan Overview: Part 7 of 7
VeriPlan financial software satisfaction guarantee, licensing, documentation, and system platform information
All of VeriPlan's worksheets provide extensive and readily available documentation. A separate manual about VeriPlan's personal financial management software and investment growth calculator features is not necessary, because all necessary instructions are in the software where you need them. Nevertheless, the [...])
- Choose the broadest available whole market diversification (Choose the broadest available whole market diversification
Another risk reduction objective should be to achieve the broadest possible securities market diversification within your overall portfolio holdings. Whenever several low cost investment funds are available, I suggest choosing the fund with the broadest market coverage. This reflects a preference for owning the entire market. Such funds are [...])
- 401k Fees and Expenses (401k Fees and Expenses
Finding information about the costs of employer-sponsored defined contribution plans is difficult, because for years weak regulations have allowed the financial industry to obscure these costs and gouge millions of retirement plan participants. This has made it difficult for both employers and plan participants to understand the true costs of these retirement [...])
« VeriPlan Overview 7: Satisfaction Guarantee, Documentation, and Household License | PERSONAL FINANCE SOFTWARE | Lifetime Income Projections »