Retirement Calculator Go Boom

The above spreadsheet is the bottom slice of results from a how much do I need to save for retirement calculator I found at Yahoo Finance. I plugged in my numbers, assumed retiring at 75, 5% returns, 3% inflation and that we would get social security and the result for living to 105 was that not only do I not have to save anymore money but that I will have $5.8 million left in the bank.

Ahem.

To answer your first question, we are not wealthy. Comfortable maybe, but not wealthy. Where this sort of thing is concerned, if you get a result that doesn’t make you at least a little uncomfortable you should probably be skeptical unless as a person making $50,000-$150,000 you inherited $6 million from an uncle you never knew you had or something similar.

Interestingly when I assumed 6% returns the result said I would have $10 million left over. While there is no convincing me either number could ever be reality there is probably something to there being a huge difference to the compounding effect of 100 basis points annualized.

One big flaw in these types of calculators is that they assume linear returns. The market might average 5% or 10% or any other number annualized for the time period you care about but there will be very few years where it actually hits that average. And of course the above type of calculator can’t account for plan-alteringly-expensive one off financial events.

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