The False Assumptions in Traditional Retirement Planning

This new item recently showed up in my 401k Dashboard:

Retirement Progress

The default settings assumed a retirement age of 65 and that I would need $11,343 per month at 100% income replacement. My bonus was not included in salary assumptions nor were my other investment and savings accounts. I took a minute to refine the entries to better reflect my actual financial position.

This was when the traditional retirement bias came into clear view. The earliest retirement age I could enter was 62. My income replacement goal could not be lower than 50%. Currently, our household rarely exceeds monthly expenses of $4,000 and kill me now if I have to work until 62.

Is this some sort of scam to keep you working and consuming? Methinks yes.

When I changed my planned retirement age to 62 and my income replacement goal to 50%, plus entered the balances for my other accounts, my “results” changed drastically, but the calculation remained pretty useless. There is not enough flexibility in this “planner” to get a realistic view of a projected early retirement progress.

Contributions made outside our 401k are approximately $52,250 per year and includes Tradtional IRA, HSA, after-tax brokerage investments, but we will only be contributing this amount for the next four years not twenty years.

I also included assumed “additional” income from an annual bonus and profits from the art business.


If you have been a reader of this blog for any length of time, you know that we are not planning a “traditional” retirement. Instead we plan to retire by 45 by spending less than we earn and investing the rest in low-cost index funds. We save >65% of our net income every month. As a result, we live a low expense life. As of this writing, we spend an average of $45,000 per year. By retirement, we expect that amount to decrease to between $35,000 and $40,000. When our house is paid off, our expenses will drop an additional $12,000.

Personal Capital

Personal Capital  (not an affiliate link) offers a retirement planner that I find a little more useful.

Note: This is a service that I personally use to see all my accounts in one place. Although not perfect, I have found their service to be flexible enough to my retirement planning needs.

The Retirement Planner allows you to specify your desired retirement age, contributions until retirement, social security income and expected retirement spending. In my case, I entered $35,000 per year or a desired spend of $2,917 per month. I can enter spending goals like Little Miss TJL’s college expenses (see little orange dot around age 52). At my current savings rate, I have a good chance of meeting my retirement goals and will likely maintain above $1MM throughout retirement.

The 10th Percentile (darker sub graph), assumes that I would retire at age 45 with $678,000 instead of my goal of $932,000. Obviously, this plan would have a greater likelihood of failure but I would never retire with this little in the bank. What this graph really shows is if the markets perform extremely poorly over the next few years, I will not reach my retirement goals and therefore will not retire at 45.

Given my expected retirement spending, my plan has a good chance of success, especially considering we also have alternate income (rental property and art business) to cushion the retirement accounts.


Do It Yourself

Even though the retirement planner through Personal Capital gives an adequate overview of how your funds might perform. I suggest creating your own worksheet with a more conservative annual return based on your asset allocation and increased withdrawals due to inflation.

I use an assumed earnings growth of 7% up to age 59 since I am heavily invested in stocks. I have also assumed an annual inflation rate of 2%.

After age 59, I change my growth assumptions to 5% to project a more conservative growth in later retirement when I might change my asset allocation.

Here is a snapshot of my working spreadsheet (don’t hold me to it, it is constantly in flux!)

Notice in the “Balance Start of Year” column, only $282,022 is available for use in my taxable account at age 46. This amount will be used to fund the first phase of retirement. After age 59, the balance jumps to reflect the total available retirement funds (including 401k and IRA funds) in the second phase of retirement.

I can define specific amounts for asset draw or other income or timing for company pensions and social security benefits.

Creating you own financial projection worksheet is not perfect but it will give you the flexibility you need to refine your plan as you approach early retirement.


Even though your employer’s 401k plan might offer an in-house retirement planner, it might be better to explore alternative planners to fit to your specific retirement plan.


Do you depend on your own FIRE calculations or do you leave it to an automated planner?

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9 Responses to The False Assumptions in Traditional Retirement Planning

  1. Mr. SSC says:

    Omg I have this same type of post going out tomorrow, lol. Seriously it was sparked by a “retirement planner” that told me I’d need $10 mil to retire… bwahahaha wtf?! Even vanguard only lets you retire at 60 or 50 but you can also only save about 60% of your income towards retirement. Ugh… I found a couple that let you put in your retirement spending (huge deal) and reverse engineer what you need. Brilliant! But otherwise, most seem lacking.
    We have our own spreadsheet that we use to track amount saved per month, bonuses, 401k growth, pre-60 money growth, pre-60 money assumed payout, inflation, added expenses, etc…
    yep, no cookie cutter for us, lol.

    • travel travel & Retire says:

      LOL I had a retirement planner tell me to give him advice on how to tell his clients how to spend less. He literally did not believe me what I spend vs income (and I mean we are at 75k spending which I think is already HUGE and that includes 12k for travel per year) and was pushing for us to assume more spending right now. I was like dude, no and if you want to save money just make a plan and stick to it. 🙂

      • says:

        The retirement planner should have his clients track their spending for 3 months and then suggest ways to optimize their budget. If the client has financial goals, then their budget should reflect that. Anything left over is marked for spending. If the financial goals change, so should the budget. Always save first, spend last, not the other way around.

    • says:

      Geez. Are we the same person Mr. SSC? Yep, these “retirement planners” are ridiculous. No wonder people feel as if they will never have enough to retire. I really think these cookie cutter calculators are a real disservice to the majority of the working population. That, and the lack of personal finance education makes me a little sick to my stomach. I honestly think that I might volunteer at the high school to teach basic personal finance once I retire: Spreadsheets 101. The lack of awareness and ownership is astounding. Sorry, that might have been a little tangenty.

      • Mr. SSC says:

        I think that was my whole post – tangenty, lol. Seriously though yeah I agree that they are discouraging and especially if you aren’t aware of what you need or spend per year. I mean one calculator estimated I needed to spend $42k… per month. Per month! Wtf?! Deep breaths… yes it would be discouraging if you don’t know what your ground truth number range should be. Excellent post!

  2. travel travel & Retire says:

    I was just complaining about the same thing with calculators, they do not even give me the choice of saving more or retiring earlier. Furthermore they are based on income replacement and not on expenses.

    Funny I ended up with an almost exact spreadsheet. The difference is that I added the following assumptions:
    – 3% inflation rate. Every year I put my estimated expenses based on this growth rate.
    – 5.5% market gain. I am 80% stock but I am nervous about market growth in the next decade so I left it as 5.5 inclusive of dividends.
    – SWR, I added a column for 2.5, 3, 3.5 and 4% safe withdrawal rate and compare to ending balance expected by each year against anticipated expenses of that year. We are aiming at 3% SWR so we shall see.
    – I am assuming no SS.
    – We are planning on selling our home at retirement (and no rental income or other business) and use that money for ‘extras’ that we have not thought about, like extra college for kids or help with a wedding, or a random super extravagant vacation, extra cushion, etc.

    Still I do love personal capital and but wish most calculators were a little more flexible.

    Randomly – I am also interested in trying trim to assist in finding some savings. Have you used this?

    • travel travel & Retire says:

      Oh also have on my sheet balance by year expected for 529s (since we frontloaded) and balance for mortgage and one car payment (yes I know..that wont happen again) and when that is expected to be paid off within plan.

      Finally I have added FIRE expected date and (if still the right choice given future tax code) plan for ROTH conversion ladder….

      This I convert into a graph that shows me where I should be in terms of balances by end of each year to reach FIRE at the age I want. I have goal and then I track actuals on top of it (two lines in graph) and the same for debt. Super helpful to visually see where we stand and make adjustments.

      Tracking spending with inflation each year will also help us get an idea of how that would work when we retire and if we are able to hit that spending mark or not. This year we are going to be dangerously close if not over but we still have some room to correct hopefully!

      The only thing I am not sure how to tackle yet exactly on my projection sheet are taxes….we shall deal with that soon.

      • says:

        I have so many charts and tracking sheets that it is getting unwieldy to manage. I will also use a ROTH conversion, but primarily for education costs and later retirement tax strategy. I have fiddled with retirement taxes a bit. Ideally, I would like to manage a $0 tax bill, but I am not sure how much income will will end up with in retirement. Every article on taxes in retirement I devour! I kind of feel like I won’t really have a good grasp on this until we get closer to FIRE. Meanwhile research!

    • says:

      Yeah, the income replacement thing cracks me up. It assumes I am spending every penny. I mean the investment spending alone disappears completely in retirement, let alone a mortgage (for some; some buy late or rent, of course), and business related expenses. I suppose health care expenses might increase, but that remains to be seen.
      -I think your retirement assumptions are good. I feel that I personally curb the influence of inflation due to my personal lifestyle so I chose 2%, we just are not big consumers and I am always looking to optimize costs of food, home and car maintenance, etc.
      -Our potential college expenses are fixed as I have chosen to contribute $25k per year for Little Miss TJL’s education, but she will have to cover the rest (I believe in having a little skin in the game).
      -I really don’t deal much with SWR for multi-phase retirement. Overall, we are planning for 3.5% but in the first phase our withdrawals are more dependent on how much money is in the early retirement accounts, not our tax-advantaged accounts…we will let those grow. After age 59, then the withdrawals will be based on SWR and/or RMD. By then we ought to have more money than we are used to spending. I guess I can spoil grandkids or travel or travel with grandkids!
      -We hope to keep our home, but it is nice to know that we can sell it is things get tight. It has appreciated nicely. I don’t expect it’s value to drop.
      I haven’t even heard of trim. I’ll be sure to look into it!

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