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.
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