Is a retirement planning spreadsheet of any use? If you know how to
do a spreadsheet analysis you will probably want to forecast your future
using your own homemade spreadsheet. I tried to do that too!
you are a trained and experienced financial planning expert, your
homemade spreadsheet could eventually be very comprehensive and
inclusive of all parameters. You could even download from the Internet a
spreadsheet offered by an acknowledged expert. But my research showed
that most, if not all, spreadsheets fall short of what's required of a
comprehensive retirement planner in several categories.
Here are the most common deficiencies:
- When planning
during your pre-retirement years, your regular deposits benefit from
cost averaging and you effectively get a higher return. During
retirement, regular withdrawals reverse the benefit from cost averaging
and effectively produce lower returns. Generally, retirees will get 1%
pa lower return than in the pre-retirement phase.
- The published
returns on mutual funds and variable annuities are gross returns. You
must subtract transaction or mutual fund costs. The average investor
loses at least 1% pa of the return due to these costs.
use a much more conservative spread for their investments than people
still in the work force. Your retirement planner should allow for this
- Most retirement plans are tax deferred. That means that you
don't get taxed on the amount of income received that is diverted to
your retirement plan. Your savings also grow at a before-tax rate.
Consequently you actually get a higher return on the amount invested.
After retirement you get taxed on your withdrawals and the net return on
that investment is thus much lower than in pre-retirement years.
Your retirement planning spreadsheet should also allow for the risks that retirees face:
- What happens if I, or my spouse, live substantially longer?
- What happens when inflation escalates during my retirement years?
- What happens if the markets crash and my investment capital is reduced drastically?
- What happens if I, or my spouse, need health care in excess to my health care provision?
this website we review some retirement income calculators and planners.
Before you spend a lot of time on your own spreadsheet, do some
research and visit these discussions.
The best spreadsheet I could find was developed by Henry 'Bud' Hebeler. I use it myself. You can download it by visiting
The page opens in a new window.
Keep in mind that your
spreadsheet, like all other calculators and planners, are merely tools
for your edification. To allow you to eliminate uncertainty and to take
control of your own retirement planning. To be informed and
knowledgeable when you work with a qualified and experienced financial
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