We just finished the development of a new savings forecast tool to help you in planning your retirement future. In today’s post, we will highlight this tool.
Forecast your savings
To determine your savings forecast, our online tool asks for a number of different inputs across the following categories.
- Information about yourself, such as your current age, retirement and taxable account values, and future planned contributions.
- Information about your spouse or domestic partner, such as their age, their retirement account values, and their future planned contributions.
- Your savings horizon, in years, your current and future asset allocation, and your marginal tax rates.
- Future rates for stock returns, bond returns, inflation and dividends.
- Simulation inputs, such as number of trials, asset volatility, correlation and type of simulation used.
Like in our retirement income calculator, simple menus walk you through each of these inputs, along with tips on what these inputs mean. When you are done, simply press the “Forecast Retirement Savings” button to see an automated report. The tool adjusts all values down for inflation so are in today’s “buying power”. Also, for those considering drawing down a taxable account assets prior to retirement, negative contributions may also be used to see what taxable account balance (if any) remains at the end of this planning horizon. Advocates of FIRE (Financial Independence, Retire Early) may find this feature especially useful.
Forecast results
Our savings forecast tool provides two perspectives on retirement savings. The first perspective is what to expect or a so-called “best guess” based on a deterministic forecast. An example of a 10 year forecasted account values appears in the picture below for a current 52-year old and their 50 year-old spouse. You can then enter these account values and cost basis information into our retirement income calculator.
The second perspective is a probability distribution of future outcomes due to market uncertainty. Using 1,000 trials in a bootstrapped simulation with data from 1989-2021 for stocks, bonds and inflation, you can determine median (or 50th percentile) account values at the end of the planning horizon, along with visualizing the account values each year. Our software also supports geometric Brownian motion simulation, which can allow you to manually modify market returns and volatility, rather than sampling from historical values.
The final images produced by this tool are a distribution of outcomes for account values at the end of the savings horizon. To provide savers with specific results, we also include a table with pessimistic, median and optimistic account values.
We hope you find this new tool helpful in planning for your retirement. Please drop us a message to let us know what you think!
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